<PAGE>
As filed with the Securities and Exchange Commission on May 6, 1994
Registration No. 33-10649
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 10 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 14 /X/
(Check appropriate box or boxes)
--------------
PRUDENTIAL MUNICIPAL BOND FUND
(Exact name of registrant as specified in charter)
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 214-1250
S. JANE ROSE, ESQ.
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
(NAME AND ADDRESS OF AGENT FOR SERVICE)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE
DATE OF THE REGISTRATION STATEMENT.
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE
(CHECK APPROPRIATE BOX):
/ / immediately upon filing pursuant to paragraph (b)
/X/ 60 days after filing pursuant to paragraph (a)
/ / on (date) pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (a), of Rule 485.
PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT COMPANY ACT OF 1940, REGISTRANT
HAS PREVIOUSLY REGISTERED AN INDEFINITE NUMBER OF SHARES OF BENEFICIAL INTEREST,
PAR VALUE $.01 PER SHARE.THE REGISTRANT WILL FILE A NOTICE UNDER SUCH RULE FOR
ITS FISCAL YEAR ENDED APRIL 30, 1994 ON OR BEFORE JUNE 30, 1994.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
- ---------------------------------------------------- ----------------------------------------
<S> <C> <C> <C>
PART A
Item 1. Cover Page.............................. Cover Page
Item 2. Synopsis................................ Fund Expenses
Item 3. Condensed Financial Information......... Fund Expenses; Financial Highlights
Item 4. General Description of Registrant....... Cover Page; How the Fund Invests;
General Information
Item 5. Management of Fund...................... Financial Highlights; How the Fund is
Managed; General Information
Item 6. Capital Stock and Other Securities...... Taxes, Dividends and Distributions;
General Information
Item 7. Purchase of Securities Being Offered.... Shareholder Guide; How the Fund Values
its Shares
Item 8. Redemption or Repurchase................ Shareholder Guide; General Information
Item 9. Pending Legal Proceedings............... Not Applicable
PART B
Item 10. Cover Page.............................. Cover Page
Item 11. Table of Contents....................... Table of Contents
Item 12. General Information and History......... General Information
Item 13. Investment Objectives and Policies...... Investment Objectives and Policies;
Investment Restrictions
Item 14. Management of the Fund.................. Trustees and Officers; Manager;
Distributor
Item 15. Control Persons and Principal Holders of
Securities.............................. Not Applicable
Item 16. Investment Advisory and Other
Services................................ Manager; Distributor; Custodian,
Transfer
and Dividend Disbursing Agent and
Independent Accountants
Item 17. Brokerage Allocation and Other
Practices............................... Portfolio Transactions and Brokerage
Item 18. Capital Stock and Other Securities...... Organization and Capitalization
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered................ Purchase and Redemption of Fund Shares;
Shareholder Investment Account
Item 20. Tax Status.............................. Taxes, Dividends and Distributions
Item 21. Underwriters............................ Distributor
Item 22. Calculation of Performance Data......... Performance Information
Item 23. Financial Statements.................... Financial Statements
PART C
Information required to be included in Part C is set forth under the appropriate Item,
so numbered, in Part C to this Post-Effective Amendment to the Registration Statement.
</TABLE>
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Prospectus dated ________, 1994
- --------------------------------------------------------------------------------
Prudential Municipal Bond Fund (the Fund) is an open-end, diversified management
investment company, or mutual fund, consisting of three separate portfolios--the
High Yield Series, the Insured Series and the Modified Term Series
(collectively, the Series). The investment objectives of the Series are as
follows: (i) the objective of the High Yield Series is to provide the maximum
amount of income that is eligible for exclusion from federal income taxes, (ii)
the objective of the Insured Series is to provide the maximum amount of income
that is eligible for exclusion from federal income taxes consistent with the
preservation of capital and (iii) the objective of the Modified Term Series is
to provide a high level of income that is eligible for exclusion from federal
income taxes consistent with the preservation of capital. Although each Series
will seek income that is eligible for exclusion from federal income taxes, a
portion of the dividends and distributions paid by each Series (and, in
particular, the High Yield Series) may be treated as a preference item for
purposes of the alternative minimum tax. Each Series seeks to achieve its
objective through the separate investment policies described in this Prospectus.
Subject to the limitations described herein, each Series may buy and sell
futures contracts for the purpose of hedging its portfolio securities. See "How
the Fund Invests--Investment Objectives and Policies."
THE HIGH YIELD SERIES INVESTS PREDOMINANTLY IN LOWER RATED BONDS, COMMONLY KNOWN
AS "JUNK BONDS." INVESTMENTS OF THIS TYPE ARE SUBJECT TO A GREATER RISK OF LOSS
OF PRINCIPAL AND INTEREST, INCLUDING DEFAULT RISK, THAN HIGHER RATED BONDS.
PURCHASERS SHOULD CAREFULLY ASSESS THE RISKS ASSOCIATED WITH AN INVESTMENT IN
THIS SERIES. See "How the Fund Invests--Investment Objectives and Policies."
The Insured Series invests at least 70% of its assets in insured obligations.
The insurance relates to the timely payment of principal and interest on
portfolio investments and not to the shares of the Series.
The Fund's address is One Seaport Plaza, New York, New York 10292, and its
telephone number is (800) 225-1852.
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Additional information
about the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated _____, 1994, which information is
incorporated herein by reference (is legally considered a part of this
Prospectus) and is available without charge upon request to the Fund, at the
address or telephone number noted above.
- --------------------------------------------------------------------------------
INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
FUND HIGHLIGHTS
The following summary is intended to highlight certain information contained
in this Prospectus and is qualified in its entirety by the more detailed
information appearing elsewhere herein.
WHAT IS PRUDENTIAL MUNICIPAL BOND FUND?
Prudential Municipal Bond Fund is a mutual fund. A mutual fund pools the
resources of investors by selling its shares to the public and investing the
proceeds of such sale in a portfolio of securities designed to achieve its
investment objective. Technically, the Fund is an open-end, diversified
management investment company. The Fund is comprised of three separate
portfolios--the High Yield Series, the Insured Series and the Modified Term
Series.
WHAT ARE THE SERIES' INVESTMENT OBJECTIVES?
The investment objective of the High Yield Series is to provide the maximum
amount of income that is eligible for exclusion from federal income taxes. The
investment objective of the Insured Series is to provide the maximum amount of
income that is eligible for exclusion from federal income taxes consistent with
the preservation of capital. The investment objective of the Modified Term
Series is to provide a high level of income that is eligible for exclusion from
federal income taxes consistent with the preservation of capital. Each Series
seeks to achieve its objective through the separate investment policies
described in this Prospectus. See "How the Fund Invests--Investment Objectives
and Policies" at page 9.
WHAT ARE THE FUND'S SPECIAL CHARACTERISTICS AND RISKS?
The High Yield Series invests in high yield securities, commonly known as
"junk bonds," which may be considered speculative and are subject to the risk of
an issuer's inability to meet principal and interest payments on the obligations
as well as price volatility. The Insured Series invests primarily in insured
municipal obligations. Although the insurance policies protect against the
timely payment of principal and interest on the insured municipal obligations,
the price of the municipal obligations and the stability of the Series' net
asset value are not insured. The Modified Term Series invests primarily in
municipal obligations with maturities between 5 and 15 years and in longer-term
municipal obligations which are hedged. Generally, the yield earned on
longer-term municipal obligations is greater than that earned on similar
obligations with shorter maturities. However, obligations with longer maturities
are subject to greater market risk due to larger fluctuations in value given
specific changes in the level of interest rates relative to the value of
shorter-term obligations. See "How the Fund Invests--Investment Objectives and
Policies" at page 9. Each Series may purchase and sell certain financial futures
contracts and options thereon for hedging purposes. These activities may be
considered speculative and may result in higher risks and costs to the Fund. See
"How the Fund Invests-- Hedging and Income Enhancement Strategies" at page 14.
WHO MANAGES THE FUND?
Prudential Mutual Fund Management, Inc. (PMF or the Manager) is the Manager of
the Fund and is compensated for its services at an annual rate of .50 of 1% of
the average daily net assets of each Series. As of March 31, 1994, PMF served as
manager or administrator to [66] investment companies, including [37] mutual
funds, with aggregate assets of approximately $[51] billion. The Prudential
Investment Corporation (PIC or the Subadviser) furnishes investment advisory
services in connection with the management of the Fund under a Subadvisory
Agreement with PMF. See "How the Fund is Managed--Manager" at page 18.
WHO DISTRIBUTES THE FUND'S SHARES?
Prudential Mutual Fund Distributors, Inc. (PMFD) acts as the Distributor of
the Fund's Class A shares and is currently paid for its services at an annual
rate of .25 of 1% of the average daily net assets of the Class A shares of each
Series.
Prudential Securities Incorporated (Prudential Securities or PSI), a major
securities underwriter and securities and commodities broker, acts as the
Distributor of the Fund's Class B and Class C shares and is paid for its
services at an annual rate of .50 of 1% of the average daily net assets of the
Class B shares of each Series and is currently paid for its services at an
annual rate of .75 of 1% of the average daily net assets of the Class C shares
of each Series. See "How the Fund is Managed--Distributor" at page 19.
2
<PAGE>
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment for Class A and Class B shares is $1,000 per
class and $5,000 for Class C shares. The minimum subsequent investment is $100
for all classes. There is no minimum investment requirement for certain
retirement and employee savings plans or custodial accounts for the benefit of
minors. For purchases made through the Automatic Savings Accumulation Plan, the
minimum initial and subsequent investment is $50. See "Shareholder Guide--How to
Buy Shares of the Fund" at page 25 and "Shareholder Guide--Shareholder Services"
at page 32.
HOW DO I PURCHASE SHARES?
You may purchase shares of the Fund through Prudential Securities, Pruco
Securities Corporation (Prusec) or directly from the Fund through its transfer
agent, Prudential Mutual Fund Services, Inc. (PMFS or the Transfer Agent), at
the net asset value per share (NAV) next determined after receipt of your
purchase order by the Transfer Agent or Prudential Securities plus a sales
charge which may be imposed either (i) at the time of purchase (Class A shares)
or (ii) on a deferred basis (Class B or Class C shares). See "How the Fund
Values its Shares" at page 21 and "Shareholder Guide--How to Buy Shares of the
Fund" at page 25.
WHAT ARE MY PURCHASE ALTERNATIVES?
The Fund offers three classes of shares:
<TABLE>
<S> <C>
- - Class A Shares: Sold with an initial sales charge of up to 3% of the
offering price.
- - Class B Shares: Sold without an initial sales charge but are subject to a
contingent deferred sales charge or CDSC (declining from 5%
to zero of the lower of the amount invested or the
redemption proceeds) which will be imposed on certain
redemptions made within six years of purchase. Although
Class B shares are subject to higher ongoing
distribution-related expenses than Class A shares, Class B
shares will automatically convert to Class A shares (which
are subject to lower ongoing expenses) approximately seven
years after purchase.
- - Class C Shares: Sold without an initial sales charge and for one year after
purchase, are subject to a 1% CDSC on redemptions. Like
Class B shares, Class C shares are subject to higher ongoing
distribution-related expenses than Class A shares but do not
convert to another class.
</TABLE>
See "Shareholder Guide--Alternative Purchase Plan" at page 26.
HOW DO I SELL MY SHARES?
You may redeem your shares at any time at the NAV next determined after
Prudential Securities or the Transfer Agent receives your sell order. However,
the proceeds of redemptions of Class B and Class C shares may be subject to a
CDSC. See "Shareholder Guide--How to Sell Your Shares" at page 28.
HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?
The Fund expects to pay dividends of net investment income, if any, monthly
and make distributions of any net capital gains at least annually. Dividends and
distributions will be automatically reinvested in additional shares of a Series
at NAV without a sales charge unless you request that they be paid to you in
cash. See "Taxes, Dividends and Distributions" at page 22.
3
<PAGE>
FUND EXPENSES
(for each Series)
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES++ CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- ------------------------ -----------------------
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).... 3% None None
Maximum Sales Load or Deferred Sales
Load Imposed on Reinvested
Dividends............................. None None None
Deferred Sales Load (as a percentage of
original purchase price or redemption
proceeds, whichever is lower)......... None 5% during the first 1% on redemptions
year, decreasing by 1% made within one year
annually to 1% in the of purchase
fifth and sixth years
and 0% the seventh
year.*
Redemption Fees........................ None None None
Exchange Fee........................... None None None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS CLASS A SHARES CLASS B SHARES CLASS C SHARES**
-------------- ------------------------ -----------------------
<S> <C> <C> <C>
Management Fees:
High Yield Series.................... .50% .50% .50%
Insured Series....................... .50 .50 .50
Modified Term Series................. .50 .50 .50
12b-1 Fees:++
High Yield Series.................... .10%+ .50% .75%+
Insured Series....................... .10+ .50 .75+
Modified Term Series................. .10+ .50 .75+
Other Expenses:
High Yield Series.................... .14% .14% .14%
Insured Series....................... .12 .12 .12
Modified Term Series................. .50 .50 .50
Total Fund Operating Expenses:
High Yield Series.................... .74% 1.14% 1.39%
Insured Series....................... .72 1.12 1.37
Modified Term Series................. 1.10 1.50 1.75
<FN>
- ----------------
* Class B shares will automatically convert to Class A shares approximately
seven years after purchase. See "Shareholder Guide--Conversion
Feature--Class B Shares."
** Estimated based on expenses expected to have been incurred if Class C
shares had been in existence during the fiscal year ended April 30, 1993.
+ Although the Class A and Class C Distribution and Service Plans provide
that the Fund may pay a distribution fee of up to .30 of 1% and 1% of the
average daily net assets of the Class A and Class C shares, respectively,
the Distributor has agreed to limit its distribution expenses with respect
to the Class A and Class C shares of each Series to not more than .10 of 1%
and .75 of 1% of the average daily net assets of the Class A and Class C
shares, respectively, for the fiscal year ending April 30, 1995. See "How
the Fund is Managed--Distributor."
++ Pursuant to rules of the National Association of Securities Dealers, Inc.,
the aggregate initial sales charges, deferred sales charges and asset-based
sales charges on shares of the Fund may not exceed 6.25% of total gross
sales, subject to certain exclusions. This 6.25% limitation is imposed on
the Fund rather than on a per shareholder basis. Therefore, long-term Class
B and Class C shareholders of the Fund may pay more in total sales charges
than the economic equivalent of 6.25% of such shareholders' investment in
such shares. See "How the Fund is Managed--Distributor."
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
EXAMPLE (EACH SERIES) 1 YEAR 3 YEARS 5 YEARS 10
-------- -------- -------- YEARS
-------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period:
High Yield Series
Class A................................................ $ 52 $ 68 $ 84 $ 133
Class B................................................ $ 62 $ 66 $ 73 $ --
Class C*............................................... $ -- $ -- $ -- $ --
Insured Series
Class A................................................ $ 52 $ 67 $ 83 $ 130
Class B................................................ $ 61 $ 66 $ 72 $ --
Class C*............................................... $ -- $ -- $ -- $ --
Modified Term Series
Class A................................................ $ 56 $ 78 $103 $ 173
Class B................................................ $ 65 $ 77 $ 92 $ --
Class C*............................................... $ -- $ -- $ -- $ --
You would pay the following expenses on the same investment,
assuming no redemption:
High Yield Series
Class A................................................ $ 52 $ 68 $ 84 $ 133
Class B................................................ $ 12 $ 36 $ 63 $ --
Class C*............................................... $ -- $ -- $ -- $ --
Insured Series
Class A................................................ $ 52 $ 67 $ 83 $ 130
Class B................................................ $ 11 $ 36 $ 62 $ --
Class C*............................................... $ -- $ -- $ -- $ --
Modified Term Series
Class A................................................ $ 56 $ 78 $103 $ 173
Class B................................................ $ 15 $ 47 $ 82 $ --
Class C*............................................... $ -- $ -- $ -- $ --
The above examples with respect to Class A and Class B shares are based on restated data for the Fund's
fiscal year ended April 30, 1993. The above examples with respect to Class C shares are based on expenses
expected to have been incurred if Class C shares had been in existence during the fiscal year ended April 30,
1993. THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN.
The purpose of this table is to assist investors in understanding the various costs and expenses that an
investor in the Fund will bear, whether directly or indirectly. For more complete descriptions of the various
costs and expenses, see "How the Fund is Managed." "Other Expenses" include expenses of the Series, such as
Trustees' and professional fees, registration fees, reports to shareholders and transfer agency and custodian
fees.
<FN>
- ----------------
* Estimated based on expenses expected to have been incurred if Class C
shares had been in existence during the fiscal year ended April 30, 1993.
</TABLE>
5
<PAGE>
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
The following financial highlights, with respect to the five-year period ended
April 30, 1993, have been audited by Deloitte & Touche, independent accountants,
whose report thereon was unqualified. This information should be read in
conjunction with the financial statements and notes thereto, which appear in the
Statement of Additional Information. The financial highlights contain selected
data for a Class A and Class B share of beneficial interest outstanding, total
return, ratios to average net assets and other supplemental data for the periods
indicated. The information is based on data contained in the financial
statements. No Class C shares were outstanding during the periods indicated.
<TABLE>
<CAPTION>
HIGH YIELD SERIES
-------------------------------------------------
CLASS A
-------------------------------------------------
JANUARY 22,
1990*
YEARS ENDED APRIL 30, THROUGH
---------------------------------- APRIL 30,
1993 1992 1991 1990
-------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period....................... $10.68 $10.45 $10.33 $10.58
-------- ----------- ----------- ------
Income from investment
operations:
Net investment income......... .77 .77+++ .79+++ .23+++
Net realized and unrealized
gain (loss) on investment
transactions................. .46 .23 .12 (.25)
-------- ----------- ----------- ------
Total from investment
operations................. 1.23 1.00 .91 (.02)
-------- ----------- ----------- ------
Less distributions:
Dividends from net investment
income....................... (.77) (.77) (.79) (.23)
Distributions from capital
gains........................ -- -- -- --
-------- ----------- ----------- ------
Total distributions......... (.77) (.77) (.79) (.23)
-------- ----------- ----------- ------
Net asset value, end of
period....................... $11.14 $10.68 $10.45 $10.33
-------- ----------- ----------- ------
-------- ----------- ----------- ------
TOTAL RETURN +................ 11.90% 9.82% 9.14% (1.49)%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)........................ $43,529 $24,725 $15,089 $3,905
Average net assets (000)...... $31,658 $19,702 $11,594 $1,914
Ratios to average net assets:
Expenses, including
distribution fees.......... 0.74% 0.65%+++ 0.60%+++ 0.60%++/+++
Expenses, excluding
distribution fees.......... 0.64% 0.55%+++ 0.50%+++ 0.50%++/+++
Net investment income....... 7.04% 7.25%+++ 7.62%+++ 8.17%++/+++
Portfolio turnover rate....... 27% 34% 29% 44%
<CAPTION>
HIGH YIELD SERIES
------------------------------------------------------------------------------------
CLASS B
------------------------------------------------------------------------------------
SEPTEMBER 17,
YEARS ENDED APRIL 30, 1987** TO
------------------------------------------------------------------- APRIL 30,
1993 1992 1991 1990 1989 1988***
----------- ------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period....................... $ 10.68 $ 10.45 $ 10.34 $ 10.56 $ 10.13 $10.00
----------- ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income......... .73 .73+++ .75+++ .79+++ .86+++ .53+++
Net realized and unrealized
gain (loss) on investment
transactions................. .46 .23 .11 (.17) .45 .13
----------- ------ ------ ------ ------ ------
Total from investment
operations................. 1.19 .96 .86 .62 1.31 .66
----------- ------ ------ ------ ------ ------
Less distributions:
Dividends from net investment
income....................... (.73) (.73) (.75) (.79) (.86) (.53)
Distributions from capital
gains........................ -- -- -- (.05) (.02) --
----------- ------ ------ ------ ------ ------
Total distributions......... (.73) (.73) (.75) (.84) (.88) (.53)
----------- ------ ------ ------ ------ ------
Net asset value, end of
period....................... $11.14 $10.68 $10.45 $10.34 $10.56 $10.13
----------- ------ ------ ------ ------ ------
----------- ------ ------ ------ ------ ------
TOTAL RETURN +................ 11.47% 9.40% 8.59% 6.04% 13.40% 10.68%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)........................ $1,028,480 $803,838 $701,483 $622,970 $549,426 $48,546
Average net assets (000)...... $893,203 $759,779 $667,751 $549,485 $185,367 $19,039
Ratios to average net assets:
Expenses, including
distribution fees.......... 1.14% 1.05%+++ 1.00%+++ 0.83%+++ 0.27%+++ 0%++/+++
Expenses, excluding
distribution fees.......... .64% 0.55%+++ 0.50%+++ 0.33%+++ 0.12%+++ 0%++/+++
Net investment income....... 6.66% 6.85%+++ 7.22%+++ 7.24%+++ 7.26%+++ 7.13%++/+++
Portfolio turnover rate....... 27% 34% 29% 44% 17% 21%
<FN>
- -----------------
* Commencement of offering of Class A shares.
** Commencement of offering of Class B shares.
*** On March 1, 1988, Prudential Mutual Fund Management, Inc. succeeded The
Prudential Insurance Company of America as Manager of the Fund. See
"Manager" in the Statement of Additional Information.
+ Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
++ Annualized.
+++ Net of expense subsidy, fee waivers and distribution fee deferrals. See
"Manager" in the Statement of Additional Information.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
INSURED SERIES
------------------------------------------------
CLASS A
------------------------------------------------
JANUARY 22,
1990*
YEARS ENDED APRIL 30, THROUGH
--------------------------------- APRIL 30,
1993 1992 1991 1990
-------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period..... $10.98 $10.76 $10.25 $10.51
-------- ----------- ---------- ------
Income from investment
operations:
Net investment income.... .61 .66+++ .67+++ .18+++
Net realized and
unrealized gain (loss)
on investment
transactions............ .73 .24 .54 (.26)
-------- ----------- ---------- ------
Total from investment
operations............ 1.34 .90 1.21 (.08)
-------- ----------- ---------- ------
Less distributions:
Dividends from net
investment income....... (.61) (.66) (.67) (.18)
Distributions from
capital gains........... (.27) (.02) (.03) --
-------- ----------- ---------- ------
Total distributions.... (.88) (.68) (.70) (.18)
-------- ----------- ---------- ------
Net asset value, end of
period.................. $11.44 $10.98 $10.76 $10.25
-------- ----------- ---------- ------
-------- ----------- ---------- ------
TOTAL RETURN +........... 12.68% 8.59% 11.86% (3.37)%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)................... $30,098 $19,177 $7,630 $2,700
Average net assets
(000)................... $24,589 $12,731 $5,164 $1,280
Ratios to average net
assets:
Expenses, including
distribution fees..... 0.72% 0.62%+++ 0.61%+++ 0.62%++/+++
Expenses, excluding
distribution fees..... 0.62% 0.52%+++ 0.51%+++ 0.52%++/+++
Net investment
income................ 5.46% 6.06%+++ 6.38%+++ 6.64%++/+++
Portfolio turnover
rate.................... 85% 56% 51% 82%
<CAPTION>
INSURED SERIES
---------------------------------------------------------------------------------
CLASS B
---------------------------------------------------------------------------------
SEPTEMBER 17,
YEARS ENDED APRIL 30, 1987** TO
----------------------------------------------------------------- APRIL 30,
1993 1992 1991 1990 1989 1988***
--------- ------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period..... $10.99 $10.76 $10.25 $10.54 $10.18 $10.00
--------- ------------ ------------ ------------ ------------ -------
Income from investment
operations:
Net investment income.... .56 .62+++ .63+++ .67+++ .76+++ .42+++
Net realized and
unrealized gain (loss)
on investment
transactions............ .72 .25 .54 (.22) .42 .18
--------- ------------ ------------ ------------ ------------ -------
Total from investment
operations............ 1.28 .87 1.17 .45 1.18 .60
--------- ------------ ------------ ------------ ------------ -------
Less distributions:
Dividends from net
investment income....... (.56) (.62) (.63) (.67) (.76) (.42)
Distributions from
capital gains........... (.27) (.02) (.03) (.07) (.06) --
--------- ------------ ------------ ------------ ------------ -------
Total distributions.... (.83) (.64) (.66) (.74) (.82) (.42)
--------- ------------ ------------ ------------ ------------ -------
Net asset value, end of
period.................. $11.44 $10.99 $10.76 $10.25 $10.54 $10.18
--------- ------------ ------------ ------------ ------------ -------
--------- ------------ ------------ ------------ ------------ -------
TOTAL RETURN +........... 12.14% 8.24% 11.43% 4.36% 11.97% 9.76%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)................... $770,060 $638,451 $578,412 $497,139 $447,101 $45,058
Average net assets
(000)................... $705,846 $609,516 $537,275 $446,904 $160,158 $19,378
Ratios to average net
assets:
Expenses, including
distribution fees..... 1.12% 1.02%+++ 1.01%+++ 0.85%+++ 0.22%+++ 0%++/+++
Expenses, excluding
distribution fees..... 0.62% 0.52%+++ 0.51%+++ 0.35%+++ 0.13%+++ 0%++/+++
Net investment
income................ 5.06% 5.66%+++ 5.98%+++ 6.07%+++ 6.52%+++ 6.34%++/+++
Portfolio turnover
rate.................... 85% 56% 51% 82% 87% 117%
<FN>
- -----------------
* Commencement of offering of Class A shares.
** Commencement of offering of Class B shares.
*** On March 1,1988, Prudential Mutual Fund Management, Inc. succeeded The
Prudential Insurance Company of America as Manager of the Fund. See
"Manager" in the Statement of Additional Information.
+ Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
++ Annualized.
+++ Net of expense subsidy, fee waivers and distribution fee deferrals. See
"Manager" in the Statement of Additional Information.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
MODIFIED TERM SERIES
-----------------------------------------
CLASS A
-----------------------------------------
JANUARY 22,
1990*
YEARS ENDED APRIL 30, THROUGH
--------------------------- APRIL 30,
1993 1992 1991 1990
------- ------- ------- -----------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value,
beginning of period..... $10.59 $10.48 $9.98 $10.21
------- ------- ------- -----------
Income from investment
operations:
Net investment
income+++............... .54 .57 .59 .18
Net realized and
unrealized gain (loss)
on investment
transactions............ .60 .26 .50 (.23)
------- ------- ------- -----------
Total from investment
operations............ 1.14 .83 1.09 (.05)
------- ------- ------- -----------
Less distributions:
Dividends from net
investment income....... (.54) (.57) (.59) (.18)
Distributions from
capital gains........... (.11) (.15) -- --
------- ------- ------- -----------
Total distributions.... (.65) (.72) (.59) (.18)
------- ------- ------- -----------
Net asset value, end of
period.................. $11.08 $10.59 $10.48 $9.98
------- ------- ------- -----------
------- ------- ------- -----------
TOTAL RETURN +........... 11.13% 8.14% 11.20% (2.49)%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)................... $3,594 $1,424 $ 397 $ 164
Average net assets
(000)................... $1,883 $ 599 $ 305 $ 80
Ratios to average net
assets:+++
Expenses, including
distribution fees..... 1.06% 1.06% 0.92% 0.63%++
Expenses, excluding
distribution fees..... 0.96% 0.96% 0.82% 0.53%++
Net investment
income................ 5.09% 5.41% 5.92% 6.26%++
Portfolio turnover
rate.................... 22% 78% 128% 91%
<CAPTION>
MODIFIED TERM SERIES
--------------------------------------------------------------------
CLASS B
--------------------------------------------------------------------
SEPTEMBER 17,
YEARS ENDED APRIL 30, 1987** TO
---------------------------------------------------- APRIL 30,
1993 1992 1991 1990 1989 1988***
-------- -------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFO
Net asset value,
beginning of period..... $10.60 $10.48 $9.98 $10.17 $10.14 $10.00
-------- -------- -------- -------- -------- -------------
Income from investment
operations:
Net investment
income+++............... .50 .53 .56 .62 .70 .43
Net realized and
unrealized gain (loss)
on investment
transactions............ .60 .27 .50 (.16) .09 .14
-------- -------- -------- -------- -------- -------------
Total from investment
operations............ 1.10 .80 1.06 .46 .79 .57
-------- -------- -------- -------- -------- -------------
Less distributions:
Dividends from net
investment income....... (.50) (.53) (.56) (.62) (.70) (.43)
Distributions from
capital gains........... (.11) (.15) -- (.03) (.06) --
-------- -------- -------- -------- -------- -------------
Total distributions.... (.61) (.68) (.56) (.65) (.76) (.43)
-------- -------- -------- -------- -------- -------------
Net asset value, end of
period.................. $11.09 $10.60 $10.48 $9.98 $10.17 $10.14
-------- -------- -------- -------- -------- -------------
-------- -------- -------- -------- -------- -------------
TOTAL RETURN +........... 10.62% 7.68% 10.82% 4.61% 8.21% 9.07%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)................... $57,049 $45,440 $45,401 $47,838 $45,362 $17,102
Average net assets
(000)................... $50,154 $44,439 $46,521 $46,246 $30,515 $ 6,298
Ratios to average net
assets:+++
Expenses, including
distribution fees..... 1.46% 1.46% 1.32% 0.83% 0.15% 0%++
Expenses, excluding
distribution fees..... 0.96% 0.96% 0.82% 0.33% 0.05% 0%++
Net investment
income................ 4.69% 5.01% 5.52% 6.03% 6.59% 6.16%++
Portfolio turnover
rate.................... 22% 78% 128% 91% 135% 54%
<FN>
- -----------------
* Commencement of offering of Class A shares.
** Commencement of offering of Class B shares.
*** On March 1, 1988, Prudential Mutual Fund Management, Inc. succeeded The
Prudential Insurance Company of America as Manager of the Fund. See
"Manager" in the Statement of Additional Information.
+ Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
++ Annualized.
+++ Net of expense subsidy, fee waivers and distribution fee deferrals. See
"Manager" in the Statement of Additional Information.
</TABLE>
8
<PAGE>
HOW THE FUND INVESTS
INVESTMENT OBJECTIVES AND POLICIES
THE FUND IS COMPRISED OF THREE SEPARATE DIVERSIFIED PORTFOLIOS--THE HIGH YIELD
SERIES, THE INSURED SERIES AND THE MODIFIED TERM SERIES--EACH OF WHICH IS, IN
EFFECT, A SEPARATE FUND ISSUING ITS OWN SHARES. THE INVESTMENT OBJECTIVES OF THE
SERIES ARE AS FOLLOWS: (I) THE OBJECTIVE OF THE HIGH YIELD SERIES IS TO PROVIDE
THE MAXIMUM AMOUNT OF INCOME THAT IS ELIGIBLE FOR EXCLUSION FROM FEDERAL INCOME
TAXES, (II) THE OBJECTIVE OF THE INSURED SERIES IS TO PROVIDE THE MAXIMUM AMOUNT
OF INCOME THAT IS ELIGIBLE FOR EXCLUSION FROM FEDERAL INCOME TAXES CONSISTENT
WITH THE PRESERVATION OF CAPITAL AND (III) THE OBJECTIVE OF THE MODIFIED TERM
SERIES IS TO PROVIDE A HIGH LEVEL OF INCOME THAT IS ELIGIBLE FOR EXCLUSION FROM
FEDERAL INCOME TAXES CONSISTENT WITH THE PRESERVATION OF CAPITAL. THERE CAN BE
NO ASSURANCE THAT THESE OBJECTIVES WILL BE ACHIEVED. See "Investment Objectives
and Policies" in the Statement of Additional Information. Although each Series
will seek income that is eligible for exclusion from federal income taxes, a
portion of the dividends and distributions paid by each Series (and, in
particular, the High Yield Series) may be treated as a preference item for
purposes of the alternative minimum tax. See "Taxes, Dividends and
Distributions."
EACH SERIES PURSUES ITS INVESTMENT OBJECTIVE THROUGH THE SEPARATE INVESTMENT
POLICIES DESCRIBED BELOW. These policies differ with respect to the maturity and
quality of portfolio securities in which a Series may invest and can affect the
yield for each Series and the degree of market risk and credit risk to which
each Series is subject.
EACH SERIES WILL SEEK TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING IN A
PORTFOLIO OF OBLIGATIONS ISSUED BY OR ON BEHALF OF STATES, TERRITORIES AND
POSSESSIONS OF THE UNITED STATES AND THE DISTRICT OF COLUMBIA AND THEIR
POLITICAL SUBDIVISIONS, AGENCIES AND INSTRUMENTALITIES, THE INTEREST ON WHICH IS
GENERALLY ELIGIBLE FOR EXCLUSION FROM FEDERAL INCOME TAXATION (MUNICIPAL
OBLIGATIONS OR MUNICIPAL SECURITIES). THE PORTFOLIO SECURITIES HELD BY EACH OF
THE SERIES WILL VARY WITH RESPECT TO YIELD, MARKET PRICE VOLATILITY AND QUALITY.
Generally, municipal obligations with longer maturities produce higher yields
and are subject to greater price fluctuations as a result of changes in interest
rates (market risk) than municipal obligations with shorter maturities. The
prices of municipal obligations vary inversely with interest rates. In addition,
lower rated municipal obligations typically provide a higher yield than higher
rated municipal obligations of similar maturity. However, lower rated municipal
obligations are also subject to a greater degree of risk with respect to the
ability of the issuer to meet the principal and interest payments on the
obligations (credit risk) and may also be subject to greater price volatility
due to the market perceptions of the creditworthiness of the issuer. Insurance
policies may be obtained to insure against credit risk, but not against market
risk.
EACH SERIES' INVESTMENT OBJECTIVE IS A FUNDAMENTAL POLICY AND, THEREFORE, MAY
NOT BE CHANGED WITHOUT THE APPROVAL OF THE HOLDERS OF A MAJORITY OF THE
OUTSTANDING VOTING SECURITIES OF THE SERIES AS DEFINED IN THE INVESTMENT COMPANY
ACT OF 1940, AS AMENDED (THE INVESTMENT COMPANY ACT). POLICIES OF THE SERIES
THAT ARE NOT FUNDAMENTAL MAY BE MODIFIED BY THE TRUSTEES.
THE HIGH YIELD SERIES
THE HIGH YIELD SERIES WILL INVEST IN MUNICIPAL OBLIGATIONS WHICH ARE RATED "B"
OR BETTER BY MOODY'S INVESTORS SERVICE, INC. (MOODY'S) OR STANDARD & POOR'S
CORPORATION (S&P) AND WHICH GENERALLY HAVE MATURITIES IN EXCESS OF TEN YEARS AT
THE TIME OF PURCHASE, ALTHOUGH THE SERIES ALSO WILL INVEST IN MUNICIPAL
OBLIGATIONS HAVING MATURITIES RANGING FROM ONE YEAR TO TEN YEARS, PROVIDED THAT
THE WEIGHTED AVERAGE MATURITY OF THE SERIES' INVESTMENT PORTFOLIO REMAINS
9
<PAGE>
WITHIN THE TWENTY TO THIRTY YEAR RANGE. Subsequent to its purchase by the
Series, a municipal obligation may be assigned a lower rating or cease to be
rated. Such an event would not require the elimination of the issue from the
portfolio, but the investment adviser will consider such an event in determining
whether the Series should continue to hold the security in its portfolio. The
High Yield Series will invest up to 35% of the Series' total assets in municipal
obligations rated higher than "Baa" or "BBB" by Moody's or S&P, respectively.
Securities rated "Baa" by Moody's, although considered to be investment grade,
lack outstanding investment characteristics and in fact have speculative
characteristics as well. Securities rated "BB" or "Ba" or lower by S&P or
Moody's, respectively, are generally considered to be predominantly speculative
with respect to the issuer's capacity to pay interest and repay principal and
are commonly referred to as junk bonds. While such securities may have some
quality and protective characteristics, those are outweighed by large
uncertainties or major risk exposures to adverse conditions. See "Description of
Security Ratings" in the Appendix.
THE SERIES MAY ALSO INVEST IN MUNICIPAL SECURITIES WHICH ARE NOT RATED IF,
BASED UPON A CREDIT ANALYSIS BY THE FUND'S INVESTMENT ADVISER, THE INVESTMENT
ADVISER BELIEVES THAT SUCH SECURITIES ARE OF COMPARABLE QUALITY TO MUNICIPAL
SECURITIES RATED "B" OR BETTER BY MOODY'S OR S&P. The High Yield Series normally
can be expected to offer the highest yields of the three Series, but it will
also be subject to the greatest market and credit risk.
THE SERIES ALSO MAY INVEST IN SHORT-TERM MUNICIPAL OBLIGATIONS (I.E., CASH
EQUIVALENTS) THAT ARE, AT THE TIME OF PURCHASE, RATED WITHIN THE FOUR HIGHEST
QUALITY GRADES AS DETERMINED BY EITHER MOODY'S (CURRENTLY "MIG 1," "MIG 2," "MIG
3" AND "MIG 4" FOR NOTES AND "P-1," "P-2" AND "P-3" FOR COMMERCIAL PAPER) OR S&P
(CURRENTLY "A-1," "A-2" AND "A-3" FOR COMMERCIAL PAPER AND "SP-1" AND "SP-2" FOR
NOTES). See "Other Investments and Policies--General" below.
RISK FACTORS RELATING TO INVESTING IN HIGH YIELD SECURITIES. FIXED INCOME
SECURITIES ARE SUBJECT TO THE RISK OF AN ISSUER'S INABILITY TO MEET PRINCIPAL
AND INTEREST PAYMENTS ON THE OBLIGATIONS (CREDIT RISK) AND MAY ALSO BE SUBJECT
TO PRICE VOLATILITY DUE TO SUCH FACTORS AS INTEREST RATE SENSITIVITY AND THE
MARKET PERCEPTION OF THE CREDITWORTHINESS OF THE ISSUER (MARKET RISK). Lower
rated or unrated (I.E., high yield) securities are more likely to react to
developments affecting market and credit risk than are more highly rated
securities, which react primarily to movements in the general level of interest
rates. The investment adviser considers both credit risk and market risk in
making investment decisions for the Series. Investors should carefully consider
the relative risks of investing in high yield securities and understand that
such securities are not generally meant for short-term trading.
The amount of high yield securities outstanding has proliferated recently in
conjunction with the decline in creditworthiness of many obligors on municipal
debt, particularly health care providers and certain governmental bodies. An
economic downturn could severely affect the ability of highly leveraged issuers
to service their debt obligations or to repay their obligations upon maturity.
In addition, the secondary market for high yield securities, which is
concentrated in relatively few market makers, may not be as liquid as the
secondary market for more highly rated securities. Under adverse market or
economic conditions, the secondary market for high yield securities could
contract further, independent of any specific adverse changes in the condition
of a particular issuer. As a result, the investment adviser could find it more
difficult to sell these securities or may be able to sell the securities only at
prices lower than if such securities were widely traded. Prices realized upon
the sale of such lower rated or unrated securities, under these circumstances,
may be less than the prices used in calculating the Series' net asset value.
From time to time proposals have been introduced to limit the use, or tax and
other advantages, of municipal securities which, if enacted, could adversely
affect the Series' net asset value and investment practices. Such proposals
could also adversely affect the secondary market for high yield municipal
securities, the financial condition of issuers of these securities and the value
of outstanding high yield municipal securities. Reevaluation of the Series'
investment objective and structure might be necessary in the future due to
market conditions which may result from future changes in state or federal law.
LOWER RATED OR UNRATED DEBT OBLIGATIONS ALSO PRESENT RISKS BASED ON PAYMENT
EXPECTATIONS. If an issuer calls the obligation for redemption, the Series may
have to replace the security with a lower yielding security, resulting in a
decreased
10
<PAGE>
return for investors. If the Series experiences unexpected net redemptions, it
may be forced to sell its higher rated securities, resulting in a decline in the
overall credit quality of the portfolio and increasing the exposure of the
Series to the risks of high yield securities.
During the year ended April 30, 1993, the monthly dollar weighted average
ratings of the debt obligations held by the Series, expressed as a percentage of
the Series' total investments, were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
RATINGS INVESTMENTS
------------ -------------------
<S> <C>
AAA/Aaa 5.83%
AA/Aa 5.48%
A/A 11.68%
BBB/Baa 31.80%
BB/Ba 2.63%
BB 0.62%
CCC/Caa 0.00%
Unrated
AAA/Aaa 1.37%
AA/Aa 0.00%
A/A 0.00%
BBB/Baa 7.60%
BB/Ba 11.62%
B/B 16.57%
CCC/Caa 2.28%
D 1.05%
</TABLE>
THE INSURED SERIES
THE INSURED SERIES WILL INVEST PRIMARILY IN MUNICIPAL OBLIGATIONS WHICH ARE
(I) INSURED BY AN ENTITY WHOSE CLAIMS-PAYING ABILITY AT THE TIME OF PURCHASE IS
RATED "AAA" BY MOODY'S OR "AAA" BY S&P, SO THAT THE OBLIGATION IS RATED "AAA" OR
"AAA" OR MEETS THE ELIGIBILITY CRITERIA IMPOSED BY SUCH INSURERS, (II) RATED
"AAA" OR "AAA" BY MOODY'S OR S&P, RESPECTIVELY (OR, IN THE CASE OF NOTES OR
VARIABLE RATE SECURITIES, "A-1," "P-1," "MIG 1" OR "SP-1"), BASED ON THE CREDIT
OF THE ISSUER OR (III) BACKED BY THE FULL FAITH AND CREDIT OF THE U.S.
GOVERNMENT. See "Description of Security Ratings" in the Appendix. The Series
may also invest in municipal securities which are not rated if, based upon a
credit analysis by the Fund's investment adviser, the investment adviser
believes that such securities are of comparable quality to other municipal
securities that the Series may purchase.
UNDER NORMAL CONDITIONS, AT LEAST 70% OF THE SERIES' TOTAL ASSETS WILL CONSIST
OF INSURED OBLIGATIONS. AS OF APRIL 30, 1993, APPROXIMATELY 93% OF THE SERIES'
TOTAL ASSETS WERE OBLIGATIONS INSURED BY A MUNICIPAL BOND INSURER. This
insurance may be provided either (i) under a "new issue" insurance policy
obtained by the issuer or underwriter of a bond or note, (ii) under a "secondary
market" insurance policy on a particular bond or note purchased either by the
Series or a previous bondholder or noteholder or (iii) under a portfolio
insurance policy maintained by the Series. See "Insurance" below. As noted
above, the Series will acquire insurance only from, and purchase municipal bonds
and notes insured by, insurers whose claims-paying ability is rated "AAA" or
"Aaa" at the time of purchase. Changes in the financial condition of an insurer
could result in a subsequent reduction or withdrawal of this rating. In each
case, the insurance policies protect only against the timely payment of
principal and interest on the insured municipal bonds and notes. The price of
the municipal obligations, which may fluctuate due to changes in interest rates
generally or factors affecting the credit of the insurer, and the stability of
the Series' net asset value are not insured.
11
<PAGE>
INSURANCE. THE INSURED SERIES HAS OBTAINED A PORTFOLIO INSURANCE POLICY WHICH
GUARANTEES PAYMENT OF PRINCIPAL AND INTEREST ON ELIGIBLE MUNICIPAL BONDS AND
NOTES HELD BY THE INSURED SERIES WHICH ARE NOT OTHERWISE INSURED BY "NEW ISSUE"
OR "SECONDARY MARKET" INSURANCE AND WHICH REQUIRE INSURANCE COVERAGE UNDER THE
SERIES' INVESTMENT POLICIES. Under a portfolio policy, the insurer may from time
to time establish criteria for determining municipal bonds and notes eligible
for insurance. The Insured Series will not purchase a municipal bond or note
which is not eligible for coverage under this policy unless the bond or note is
insured at the time of purchase or satisfies the other criteria for investment
by the Series.
Unlike "new issue" or "secondary market" insurance (which continues in force
for the life of the municipal obligation), a municipal bond or note will be
entitled to the benefit of insurance under the portfolio policy of the Series
only so long as the bond or note is owned by the Series. If the bond or note is
sold, the insurance protection is terminated. As a result, the Series will
generally not attribute any value to portfolio insurance in valuing its
investments. However, in the event any municipal bond or note is in default or
presents a material risk of default, the Series intends to continue to hold the
bond or note in its portfolio and to place a value on the insurance protection.
The investment adviser's ability to manage the portfolio of the Series or to
obtain portfolio insurance from other insurers may be limited to the extent that
it holds defaulted bonds or notes. Portfolio insurance cannot be cancelled by
the insurer with respect to any municipal bond or note already held by the
Series except for non-payment of premiums. There is no assurance that portfolio
insurance will continue to be available at reasonable premium rates.
The Series may at times purchase secondary market insurance on municipal bonds
and notes which it holds or acquires. Secondary market insurance would be
reflected in the market value of the municipal obligation and may enable the
Series to dispose of a defaulted obligation at a price similar to that of
comparable municipal obligations which are not in default.
Insurance is not a substitute for the basic credit of an issuer, but
supplements the existing credit and provides additional security therefor. While
insurance coverage for the municipal bonds and notes held by the Insured Series
reduces credit risk by providing that the insurance company will make timely
payment of principal and interest if the issuer defaults on its obligation to
make such payment, it does not afford protection against fluctuation in the
price, I.E., the market value, of the municipal obligations caused by changes in
interest rates and other factors, nor in turn against fluctuations in the net
asset value of the shares of the Insured Series.
The ratings of insured municipal obligations depend, in substantial part, on
the creditworthiness of the insurer; thus their value will fluctuate largely on
the basis of factors relating to the insurer's ability to satisfy its
obligations, as well as on market factors generally. It is anticipated that,
under current market conditions, a great majority of the municipal obligations
held by the Insured Series will be insured by the following entities, among
others: Municipal Bond Insurance Association (MBIA), Municipal Bond Investors
Assurance Corporation (MBIA Corp.), AMBAC Indemnity Corporation (AMBAC),
Financial Guaranty Insurance Company (FGIC), Capital Guaranty Insurance Company
(CGIC) and Financial Security Assurance Inc. (FSA). S&P rates securities insured
by all of these companies "AAA." Moody's rates securities insured by all of
these companies "Aaa." The Insured Series may, from time to time, purchase
municipal securities insured by other entities or acquire insurance coverage for
individual uninsured municipal securities directly from another insurer provided
any such entity has a claims-paying ability rated "AAA" or "Aaa" by S&P or
Moody's, respectively. See "Investment Objectives and Policies--The Insured
Series" in the Statement of Additional Information for additional information
concerning the insurers.
New issue insurance is obtained by the issuer or underwriter upon issuance of
a bond or note, and the insurance premiums are reflected in the price of such
bond or note. Insurance premiums with respect to portfolio insurance and
secondary insurance may, on the other hand, be paid by the Series. Insurance
premiums paid by the Series for portfolio insurance will be treated as an
expense of the Series, reducing the net investment income and thus the yield of
the Series. While the amount of premiums depends on the composition of the
portfolio of the Series, the Series estimates that its annual premium expense
for portfolio insurance (at current rates) will average from .20 of 1% to .35 of
1% of that portion of the assets of the Series which is covered by such
insurance. Premiums paid, however, for secondary market insurance will be
treated as capital costs, increasing the cost basis of the investment and
thereby reducing the effective yield of the investment.
12
<PAGE>
THE MODIFIED TERM SERIES
THE MODIFIED TERM SERIES WILL INVEST PRIMARILY IN MUNICIPAL OBLIGATIONS WITH
MATURITIES BETWEEN 5 AND 15 YEARS AND IN LONGER-TERM MUNICIPAL OBLIGATIONS WHICH
ARE HEDGED AS DESCRIBED MORE FULLY BELOW. ALL OF THE MUNICIPAL OBLIGATIONS HELD
BY THE MODIFIED TERM SERIES WILL BE RATED AT LEAST "BAA" BY MOODY'S OR "BBB" BY
S&P AT THE TIME OF PURCHASE OR BE NON-RATED OBLIGATIONS OF COMPARABLE QUALITY IN
THE OPINION OF THE FUND'S INVESTMENT ADVISER. Subsequent to its purchase by the
Series, a municipal obligation may be assigned a lower rating or cease to be
rated. Such an event would not require the elimination of the issue from the
portfolio, but the investment adviser will consider such an event in determining
whether the Series should continue to hold the security in its portfolio. Under
normal circumstances, at least 60% of the municipal obligations purchased by the
Series will be rated "A" or better by Moody's or S&P. See "Description of
Security Ratings" in the Appendix.
GENERALLY, THE YIELD EARNED ON LONGER-TERM MUNICIPAL OBLIGATIONS IS GREATER
THAN THAT EARNED ON SIMILAR OBLIGATIONS WITH SHORTER MATURITIES. HOWEVER,
OBLIGATIONS WITH LONGER MATURITIES ARE SUBJECT TO GREATER MARKET RISK. Given a
specific change in the level of interest rates, the value of longer-term
obligations will fluctuate relatively more than the value of shorter-term
obligations. For example, 30-year municipal obligations typically yield 75-125
basis points (.75%-1.25%) more than 10-year obligations and have 60-70% more
price volatility (market risk) than 10-year obligations.
THE MODIFIED TERM SERIES INTENDS TO INVEST IN LONGER-TERM, HIGHER YIELDING
OBLIGATIONS AND REDUCE THE GREATER MARKET RISK OF SUCH OBLIGATIONS THROUGH THE
USE OF FINANCIAL FUTURES CONTRACTS. SPECIFICALLY, THE SERIES WILL INVEST IN
MUNICIPAL OBLIGATIONS WITH MATURITIES IN EXCESS OF 15 YEARS AND SIMULTANEOUSLY
HEDGE THE PRICE VOLATILITY OF SUCH OBLIGATIONS THROUGH THE SALE OF FUTURES
CONTRACTS. RATHER THAN HEDGING THE MUNICIPAL OBLIGATION ENTIRELY, THE SERIES
WILL SELL FUTURES CONTRACTS IN SUFFICIENT AMOUNTS SO THAT THE THEORETICAL PRICE
VOLATILITY OF THE COMBINED MUNICIPAL OBLIGATION/FUTURES POSITION WILL BE
APPROXIMATELY THAT OF A 10-YEAR MUNICIPAL OBLIGATION. IN THIS MANNER, THE
INVESTMENT ADVISER WILL CREATE A "SYNTHETIC 10-YEAR OBLIGATION" THROUGH THE
CONSTRUCTION OF A PARTIALLY HEDGED LONGER-TERM OBLIGATION POSITION.
The Fund's investment adviser intends to create such synthetic 10-year
obligation positions when, in its opinion, the Series will realize one or more
of the following benefits compared to buying municipal obligations with actual
10-year maturities: (a) greater market liquidity; (b) lower transaction costs;
(c) greater expected capital appreciation or enhanced preservation of capital;
or (d) higher yields.
In the municipal securities market, most new issues are structured with many
serial maturities that are relatively small in principal amount and one or
several longer-term maturities that are relatively large in principal amount.
Therefore, long-term municipal obligations typically have greater liquidity and
the associated transaction costs are relatively less than obligations with
maturities of 5 to 15 years.
It is expected that synthetic 10-year obligation positions will often provide
greater returns than actual intermediate maturity municipal obligations. This
can occur when interest rate futures contracts are relatively overpriced in
relation to the current prices of municipal obligations, so that the sale of the
futures contracts, as part of a synthetic position, would be advantageous to the
Series. Synthetic positions can also be more attractive to the Series when the
investment adviser expects yields on longer-term municipal obligations to
decrease more (or increase less) than yields on medium-term municipal
obligations. If such expectations are correct, the net capital appreciation of
the synthetic 10-year obligation position should exceed (or the price decline be
less than) that of an actual 10-year municipal obligation.
THERE IS NO ASSURANCE THAT THE SYNTHETIC 10-YEAR OBLIGATION POSITION WILL
TRADE LIKE AN INTERMEDIATE TERM MUNICIPAL OBLIGATION. ANY USE OF FUTURES
CONTRACTS INVOLVES THE RISK OF IMPERFECT CORRELATION IN MOVEMENTS IN THE PRICE
OF THE
13
<PAGE>
FUTURES CONTRACTS AND MOVEMENTS IN THE PRICE OF THE SECURITY BEING HEDGED.
FURTHERMORE, THE SERIES' ABILITY TO CREATE SYNTHETIC OBLIGATIONS IS SUBJECT TO
VARIOUS OTHER LIMITATIONS. See "Hedging and Income Enhancement
Strategies--Futures Contracts and Options Thereon" below.
THE SERIES ALSO MAY USE FUTURES CONTRACTS TO HEDGE AGAINST OVERALL MARKET RISK
OF THE ENTIRE PORTFOLIO, as described under "Hedging and Income Enhancement
Strategies--Futures Contracts and Options Thereon" below.
THE MODIFIED TERM SERIES WILL HAVE A WEIGHTED AVERAGE MATURITY OF 7 TO 12
YEARS AND AN EFFECTIVE WEIGHTED AVERAGE MATURITY OF APPROXIMATELY 5 TO 10 YEARS.
See "Investment Objectives and Policies--The Modified Term Series" in the
Statement of Additional Information.
HEDGING AND INCOME ENHANCEMENT STRATEGIES
FUTURES CONTRACTS AND OPTIONS THEREON
EACH SERIES IS AUTHORIZED TO PURCHASE AND SELL CERTAIN FINANCIAL FUTURES
CONTRACTS (FUTURES CONTRACTS) AND OPTIONS THEREON SOLELY FOR THE PURPOSE OF
HEDGING ITS INVESTMENT IN MUNICIPAL OBLIGATIONS AGAINST FLUCTUATIONS IN VALUE
CAUSED BY CHANGES IN PREVAILING MARKET INTEREST RATES AND HEDGING AGAINST
INCREASES IN THE COST OF SECURITIES THE SERIES INTENDS TO PURCHASE. In that
regard, the Modified Term Series may sell futures contracts to create "synthetic
positions" by partially hedging longer-term obligation positions. See
"Investment Objectives and Policies--The Modified Term Series" above. The
successful use of futures contracts and options thereon by a Series involves
additional transaction costs, is subject to various risks and depends upon the
investment adviser's ability to predict the direction of the market and interest
rates.
A FUTURES CONTRACT OBLIGATES THE SELLER OF A CONTRACT TO DELIVER TO THE
PURCHASER OF A CONTRACT CASH EQUAL TO A SPECIFIC DOLLAR AMOUNT TIMES THE
DIFFERENCE BETWEEN THE VALUE OF A SPECIFIC FIXED-INCOME SECURITY OR INDEX AT THE
CLOSE OF THE LAST TRADING DAY OF THE CONTRACT AND THE PRICE AT WHICH THE
AGREEMENT IS MADE. No physical delivery of the underlying securities is made. A
Series will engage in transactions in only those futures contracts and options
thereon that are traded on a commodities exchange or a board of trade.
EACH SERIES INTENDS TO ENGAGE IN FUTURES CONTRACTS AND OPTIONS THEREON AS A
HEDGE AGAINST CHANGES, RESULTING FROM MARKET CONDITIONS, IN THE VALUE OF
SECURITIES WHICH ARE HELD IN THE SERIES' PORTFOLIO OR WHICH THE SERIES INTENDS
TO PURCHASE, IN ACCORDANCE WITH THE RULES AND REGULATIONS OF THE COMMODITY
FUTURES TRADING COMMISSION (THE CFTC). The Series also intend to engage in such
transactions when they are economically appropriate for the reduction of risks
inherent in the ongoing management of the Series. A Series may not purchase or
sell futures contracts or purchase options thereon (as defined in the CFTC
regulations) if, immediately thereafter, the sum of initial and net cumulative
variation margin on outstanding futures contracts, together with premiums paid
on options thereon, would exceed 20% of the total assets of the Series. There
are no limitations on the percentage of a portfolio which may be hedged and no
limitations on the use of a Series' assets to cover futures contracts and
options thereon, except that the aggregate value of the obligations underlying
put options will not exceed 50% of a Series' assets.
Currently, futures contracts are available on several types of fixed-income
securities, including U.S. Treasury Bonds and Notes, Government National
Mortgage Association modified pass-through mortgage-backed securities,
three-month U.S. Treasury Bills and bank certificates of deposit. Futures
contracts are also available on a municipal bond index, based on THE BOND BUYER
Municipal Bond Index, an index of 40 actively traded municipal bonds. Each
Series may also engage in transactions in other
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futures contracts that become available, from time to time, in other
fixed-income securities or municipal bond indices and in other options on such
contracts if the investment adviser believes such contracts and options would be
appropriate for hedging investments in municipal obligations.
THERE CAN BE NO ASSURANCE THAT VIABLE MARKETS WILL CONTINUE OR THAT A LIQUID
SECONDARY MARKET WILL EXIST TO TERMINATE ANY PARTICULAR FUTURES CONTRACT AT ANY
SPECIFIC TIME. If it is not possible to close a futures position entered into by
a Series, the Series will continue to be required to make daily cash payments of
variation margin in the event of adverse price movements. In such a situation,
if the Series had insufficient cash, it might have to sell portfolio securities
to meet daily variation margin requirements at a time when it might be
disadvantageous to do so. The inability to close futures positions also could
have an adverse impact on the ability of a Series to hedge effectively. There is
also a risk of loss by a Series of margin deposits in the event of bankruptcy of
a broker with whom the Series has an open position in a futures contract.
THE SUCCESSFUL USE OF FUTURES CONTRACTS AND OPTIONS THEREON BY A SERIES IS
SUBJECT TO VARIOUS ADDITIONAL RISKS. Any use of futures transactions involves
the risk of imperfect correlation in movements in the price of futures contracts
and movements in interest rates and, in turn, the prices of the securities that
are the subject of the hedge. If the price of the futures contract moves more or
less than the price of the security that is the subject of the hedge, the Series
will experience a gain or loss that will not be completely offset by movements
in the price of the security. The risk of imperfect correlation is greater where
the securities underlying futures contracts are taxable securities (rather than
municipal securities), are issued by companies in different market sectors or
have different maturities, ratings or geographic mixes than the security being
hedged. In addition, the correlation may be affected by additions to or
deletions from the index which serves as the basis for a futures contract.
Finally, if the price of the security that is subject to the hedge were to move
in a favorable direction, the advantage to the Series would be partially offset
by the loss incurred on the futures contract.
THE FUND'S ABILITY TO ENTER INTO FUTURES CONTRACTS AND OPTIONS THEREON IS
LIMITED BY THE REQUIREMENTS OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
(THE INTERNAL REVENUE CODE), FOR QUALIFICATION AS A REGULATED INVESTMENT
COMPANY. See "Taxes, Dividends and Distributions" in the Statement of Additional
Information.
SPECIAL RISKS OF HEDGING AND INCOME ENHANCEMENT STRATEGIES
PARTICIPATION IN THE OPTIONS OR FUTURES MARKETS INVOLVES INVESTMENT RISKS AND
TRANSACTION COSTS TO WHICH THE FUND WOULD NOT BE SUBJECT ABSENT THE USE OF THESE
STRATEGIES. If the investment adviser's prediction of movements in the direction
of the securities and interest rate markets is inaccurate, the adverse
consequences to the Fund may leave the Fund in a worse position than if such
strategies were not used. Risks inherent in the use of futures contracts and
options thereon include (1) dependence on the investment adviser's ability to
predict correctly movements in the direction of interest rates and securities
prices or the movement in indicies; (2) imperfect correlation between the price
of futures contracts and options thereon and movements in the prices of the
securities being hedged; (3) the fact that skills needed to use these strategies
are different from those needed to select portfolio securities; (4) the possible
absence of a liquid secondary market for any particular instrument at any time;
(5) the possible need to defer closing out certain hedged positions to avoid
adverse tax consequences; and (6) the possible inability of the Fund to purchase
or sell a portfolio security at a time that otherwise would be favorable for it
to do so, or the possible need for the Fund to sell a portfolio security at a
disadvantageous time, due to the need for the Fund to maintain "cover" or to
segregate securities in connection with hedging transactions. See "Investment
Objectives and Policies" and "Taxes, Dividends and Distributions" in the
Statement of Additional Information.
OTHER INVESTMENTS AND POLICIES
GENERAL
MUNICIPAL SECURITIES INCLUDE BONDS AND NOTES ISSUED BY OR ON BEHALF OF STATES,
TERRITORIES AND POSSESSIONS OF THE UNITED STATES AND THEIR POLITICAL
SUBDIVISIONS, AGENCIES AND INSTRUMENTALITIES, THE INTEREST ON WHICH IS GENERALLY
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ELIGIBLE FOR EXCLUSION FROM FEDERAL INCOME TAX. MUNICIPAL BONDS ARE TYPICALLY
ISSUED TO OBTAIN FUNDS FOR VARIOUS PUBLIC PURPOSES, INCLUDING THE CONSTRUCTION
OF A WIDE RANGE OF PUBLIC FACILITIES SUCH AS AIRPORTS, BRIDGES, HIGHWAYS,
HOUSING, HOSPITALS, MASS TRANSPORTATION, SCHOOLS, STREETS, WATER AND SEWER WORKS
AND GAS AND ELECTRIC UTILITIES. MUNICIPAL NOTES GENERALLY ARE USED TO FINANCE
SHORT-TERM CAPITAL NEEDS AND TYPICALLY HAVE MATURITIES OF ONE YEAR OR LESS.
EACH SERIES MAY INVEST MORE THAN 5% OF ITS NET ASSETS IN FLOATING RATE AND
VARIABLE RATE SECURITIES, INCLUDING PARTICIPATION INTERESTS THEREIN. Floating
and variable rate securities normally have a rate of interest which is set as a
specific percentage of a designated base rate, such as the rate on Treasury
Bonds or Bills or the prime rate at a major commercial bank. These securities
also allow the holder to demand payment of the obligation on short notice at par
plus accrued interest, which amount may be more or less than the amount the
Series paid for them. Variable rate securities provide for a specified periodic
adjustment in the interest rate. The interest rate on floating rate securities
changes whenever there is a change in the designated base interest rate.
Each Series may also invest in inverse floaters. An inverse floater is a debt
instrument with a floating or variable interest rate that moves in the opposite
direction of the interest rate on another security or the value of an index.
Changes in the interest rate on the other security or index inversely affect the
residual interest rate paid on the inverse floater, with the result that the
inverse floater's price will be considerably more volatile than that of a fixed
rate bond. The market for inverse floaters is relatively new.
DURING NORMAL MARKET CONDITIONS, THE ASSETS OF EACH SERIES WILL BE INVESTED SO
THAT IT WILL HAVE AT LEAST 80% OF ITS NET ASSETS INVESTED IN MUNICIPAL
OBLIGATIONS. However, when the Fund's investment adviser believes that market
conditions warrant a temporary defensive investment posture or when necessary to
meet large redemptions, a Series may hold more than 20% of its net assets in
cash, cash equivalents or investment grade taxable obligations, including
obligations that are generally exempt from state, but not federal, taxation.
Each Series may invest in municipal cash equivalents, such as floating rate
demand notes, municipal commercial paper and general obligation and revenue
notes, or in taxable cash equivalents, such as certificates of deposit, bankers'
acceptances and time deposits or other short-term taxable investments, such as
repurchase agreements.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
Each Series may purchase municipal obligations on a "when-issued" or "delayed
delivery" basis and may from time to time sell obligations on a delayed delivery
basis, in each case without limit. When municipal obligations are offered on a
when-issued or delayed delivery basis, the price and coupon rate are fixed at
the time the commitment to purchase is made, but delivery and payment for the
when-issued securities take place at a later date. Normally, the settlement date
occurs within one month of purchase. During the period between purchase and
settlement, no interest accrues to the purchaser. In the case of purchases by a
Series, the price that the Series is required to pay on the settlement date may
be in excess of the market value of the municipal obligations on that date.
While securities may be sold prior to the settlement date, each Series intends
to purchase these securities with the purpose of actually acquiring them unless
a sale would be desirable for investment reasons. At the time a Series makes the
commitment to purchase a municipal obligation on a when-issued basis, it will
record the transaction and reflect the value of the obligation, each day, in
determining its net asset value. This value may fluctuate from day to day in the
same manner as values of municipal obligations otherwise held by the Series. If
the seller defaults in the sale, the Series could fail to realize the
appreciation, if any, that had occurred. Each Series will establish a segregated
account with its Custodian in which it will maintain cash and liquid, high-grade
debt obligations equal in value to its commitments for when-issued or delayed
delivery securities.
As in the case of purchases, the price of the municipal obligations sold on a
delayed delivery basis is determined at the time of the commitment. The price
that a Series may be required to accept on the settlement date may be less than
the market value of the obligation on that date.
Each Series may also purchase municipal forward contracts. A municipal forward
contract is a municipal security which is purchased on a when-issued basis with
delivery taking place up to five years from the date of purchase. The investment
adviser will monitor the liquidity, value, credit quality and delivery of the
security under the supervision of the Trustees.
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MUNICIPAL LEASE OBLIGATIONS
Each Series may invest in municipal lease obligations. A municipal lease
obligation is a municipal security the interest on and principal of which is
payable out of lease payments made by the party leasing the facilities financed
by the issue. Typically, municipal lease obligations are issued by a state or
municipal financing authority to provide funds for the construction of
facilities (E.G., schools, dormitories, office buildings or prisons) or the
acquisition of equipment. The facilities are typically used by the state or
municipality pursuant to a lease with a financing authority. Certain municipal
lease obligations may trade infrequently. Accordingly, the investment adviser
will monitor the liquidity of municipal lease obligations under the supervision
of the Trustees. See "Illiquid Securities" below.
LIQUIDITY PUTS
Each Series may purchase and exercise puts on municipal bonds and notes
without limit. Puts give the Series the right to sell the securities at a
specified exercise price on a specified date. Puts may be acquired to reduce the
volatility of the market value of the securities subject to the puts, but the
acquisition of the puts may involve an additional cost to the Series. See
"Investment Objectives and Policies" in the Statement of Additional Information.
REPURCHASE AGREEMENTS
Each Series may on occasion enter into repurchase agreements, whereby the
seller of a security agrees to repurchase that security from the Series at a
mutually agreed-upon time and price. The period of maturity is usually quite
short, possibly overnight or a few days, although it may extend over a number of
months. The resale price is in excess of the purchase price, reflecting an
agreed-upon rate of return effective for the period of time the Series' money is
invested in the security. The Series' repurchase agreements will at all times be
fully collateralized in an amount at least equal to the purchase price,
including accrued interest earned on the underlying securities. The instruments
held as collateral are valued daily, and as the value of the instruments
declines, the Series will require additional collateral. If the seller defaults
and the value of the collateral securing the repurchase agreement declines, the
Series may incur a loss. Each Series participates in a joint repurchase account
with other investment companies managed by PMF pursuant to an order of the
Securities and Exchange Commission (SEC).
BORROWING
Each Series may borrow an amount equal to no more than 20% of the value of its
total assets (computed at the time the loan is made) for temporary,
extraordinary or emergency purposes and to take advantage of investment
opportunities or for the clearance of transactions. Each Series may pledge up to
20% of the value of its total assets to secure these borrowings. If a Series
borrows to invest in securities, any investment gains made on the securities in
excess of interest paid on the borrowing will cause the net asset value of the
shares to rise faster than would otherwise be the case. On the other hand, if
the investment performance of the additional securities purchased fails to cover
their cost (including any interest paid on the money borrowed) to the Series,
the net asset value of the Series' shares will decrease faster than would
otherwise be the case. This is the speculative factor known as "leverage."
ILLIQUID SECURITIES
A Series may not invest more than 15% of its net assets in illiquid
securities, including repurchase agreements which have a maturity of longer than
seven days, securities with legal or contractual restrictions on resale
(restricted securities) and securities that are not readily marketable. Mutual
funds do not typicallly hold a significant amount of illiquid securities because
of the potential for delays on resale and uncertainty in valuation. Limitations
on resale may have an adverse effect on the marketability of portfolio
securities and a mutual fund might be unable to dispose of illiquid securities
promptly or at reasonable prices and might thereby experience difficulty
satisfying redemptions within seven days.
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Municipal lease obligations will not be considered illiquid for purposes of
the Fund's 15% limitation on illiquid securities provided the investment adviser
determines that there is a readily available market for such securities. In
reaching liquidity decisions, the investment adviser will consider, INTER ALIA,
the following factors: (1) the frequency of trades and quotes for the security;
(2) the number of dealers wishing to purchase or sell the security and the
number of other potential purchasers; (3) dealer undertakings to make a market
in the security; and (4) the nature of the security and the nature of the
marketplace trades (E.G., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of the transfer). With respect to
municipal lease obligations, the investment adviser also considers: (1) the
willingness of the municipality to continue, annually or biannually, to
appropriate funds for payment of the lease; (2) the general credit quality of
the municipality and the essentiality to the municipality of the property
covered by the lease; (3) in the case of unrated municipal lease obligations, an
analysis of factors similar to that performed by nationally recognized
statistical rating organizations in evaluating the credit quality of a municipal
lease obligation, including (i) whether the lease can be cancelled; (ii) if
applicable, what assurance there is that the assets represented by the lease can
be sold; (iii) the strength of the lessee's general credit (E.G., its debt,
administrative, economic and financial characteristics); (iv) the likelihood
that the municipality will discontinue appropriating funding for the leased
property because the property is no longer deemed essential to the operations of
the municipality (E.G., the potential for an event of nonappropriation); (v) the
legal recourse in the event of failure to appropriate; and (4) any other factors
unique to municipal lease obligations as determined by the investment adviser.
PORTFOLIO TURNOVER
The Series do not expect to trade in securities for short-term gain. It is
anticipated that the annual portfolio turnover rate will not exceed 100%. The
portfolio turnover rate is calculated by dividing the lesser of sales or
purchases of portfolio securities by the average monthly value of a Series'
portfolio securities, excluding securities having a maturity at the date of
purchase of one year or less.
INVESTMENT RESTRICTIONS
Each Series is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of each
Series' outstanding voting securities, as defined in the Investment Company Act.
See "Investment Restrictions" in the Statement of Additional Information.
HOW THE FUND IS MANAGED
THE FUND HAS TRUSTEES WHO, IN ADDITION TO OVERSEEING THE ACTIONS OF THE FUND'S
MANAGER, SUBADVISER AND DISTRIBUTOR, AS SET FORTH BELOW, DECIDE UPON MATTERS OF
GENERAL POLICY. THE FUND'S MANAGER CONDUCTS AND SUPERVISES THE DAILY BUSINESS
OPERATIONS OF THE FUND. THE FUND'S SUBADVISER FURNISHES DAILY INVESTMENT
ADVISORY SERVICES.
For the fiscal year ended April 30, 1993, the total expenses as a percentage
of average net assets, net of management fee waiver for the Modified Term
Series, were .74% and 1.14% of the Class A and Class B shares, respectively, of
the High Yield Series, .72% and 1.12% of the Class A and Class B shares,
respectively, of the Insured Series, and 1.06% and 1.46% of the Class A and
Class B shares, respectively, of the Modified Term Series. See "Financial
Highlights." No Class C shares were outstanding during the fiscal year ended
April 30, 1993.
MANAGER
PRUDENTIAL MUTUAL FUND MANAGEMENT, INC. (PMF OR THE MANAGER), ONE SEAPORT
PLAZA, NEW YORK, NEW YORK 10292, IS THE MANAGER OF THE FUND AND IS COMPENSATED
FOR ITS SERVICES AT AN ANNUAL RATE OF .50 OF 1% OF THE AVERAGE DAILY NET
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ASSETS OF EACH SERIES. It was incorporated in May 1987 under the laws of the
State of Delaware. For the fiscal year ended April 30, 1993, PMF received a net
management fee of .50%, .50% and .46% of average net assets on behalf of the
High Yield Series, Insured Series and Modified Term Series, respectively. See
"Manager" in the Statement of Additional Information.
PMF may from time to time waive its management fee and subsidize operating
expenses of a Series. See "Fund Expenses." The Fund is not required to reimburse
PMF for such fee waiver or expense subsidy. Fee waivers and expense subsidies
will increase a Series' yield and total return. See "How the Fund Calculates
Performance."
As of March 31, 1994, PMF served as the manager to [37] open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to [29] closed-end investment companies. These companies have
aggregate assets of approximately $[51] billion.
UNDER THE MANAGEMENT AGREEMENT WITH THE FUND, PMF MANAGES THE INVESTMENT
OPERATIONS OF EACH SERIES OF THE FUND AND ALSO ADMINISTERS THE FUND'S BUSINESS
AFFAIRS. See "Manager" in the Statement of Additional Information.
UNDER A SUBADVISORY AGREEMENT BETWEEN PMF AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC OR THE SUBADVISER), PIC FURNISHES INVESTMENT ADVISORY SERVICES
IN CONNECTION WITH THE MANAGEMENT OF THE FUND AND IS REIMBURSED BY PMF FOR ITS
REASONABLE COSTS AND EXPENSES INCURRED IN PROVIDING SUCH SERVICES. PMF continues
to have responsibility for all investment advisory services pursuant to the
Management Agreement and supervises PIC's performance of such services.
The current portfolio manager of the High Yield Series is Elizabeth Forsyth, a
Vice President of Prudential Investment Advisors (PIA), a unit of PIC. Ms.
Forsyth has responsibility for the day-to-day management of the Series'
portfolio. Ms. Forsyth has managed the Series' portfolio since 1987 and has been
employed by PIC as a manager since 1985. The current portfolio manager of the
Insured Series is Patricia Dolan, a Managing Director of PIA. Ms. Dolan has
responsibility for the day-to-day management of the Series' portfolio. Ms. Dolan
has managed the Series' portfolio since 1992 and has been employed by PIC as a
portfolio manager since October 1991. She was formerly a Vice President and
Portfolio Manager in the Municipal Trust Department of Citibank Private Banking
Division where she was employed from 1981 to 1991. Ms. Dolan also serves as the
portfolio manager of Prudential National Municipals Fund. The current portfolio
manager of the Modified Term Series is Marie Conti, an Investment Associate of
PIA. Ms. Conti has responsibility for the day-to-day management of the Series'
portfolio. Ms. Conti has managed the Series' portfolio since 1990 and has been
employed by PIC as a portfolio manager since September 1989 and prior thereto
was employed in an administrative capacity at PIC since August 1988.
PMF and PIC are wholly-owned subsidiaries of The Prudential Insurance Company
of America (Prudential), a major diversified insurance and financial services
company.
DISTRIBUTOR
PRUDENTIAL MUTUAL FUND DISTRIBUTORS, INC. (PMFD), ONE SEAPORT PLAZA, NEW YORK,
NEW YORK 10292, IS A CORPORATION ORGANIZED UNDER THE LAWS OF THE STATE OF
DELAWARE AND SERVES AS THE DISTRIBUTOR OF THE CLASS A SHARES OF EACH SERIES OF
THE FUND. IT IS A WHOLLY-OWNED SUBSIDIARY OF PMF.
PRUDENTIAL SECURITIES INCORPORATED (PRUDENTIAL SECURITIES OR PSI), ONE SEAPORT
PLAZA, NEW YORK, NEW YORK 10292 (PRUDENTIAL SECURITIES), IS A CORPORATION
ORGANIZED UNDER THE LAWS OF THE STATE OF DELAWARE AND SERVES AS THE DISTRIBUTOR
OF THE CLASS B AND CLASS C SHARES OF EACH SERIES OF THE FUND. IT IS AN INDIRECT,
WHOLLY-OWNED SUBSIDIARY OF PRUDENTIAL.
UNDER SEPARATE DISTRIBUTION AND SERVICE PLANS (THE CLASS A PLAN, THE CLASS B
PLAN AND THE CLASS C PLAN, COLLECTIVELY, THE PLANS) ADOPTED BY THE FUND UNDER
RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT AND SEPARATE DISTRIBUTION AGREEMENTS
(THE DISTRIBUTION AGREEMENTS), PMFD AND PRUDENTIAL SECURITIES (COLLECTIVELY, THE
DISTRIBUTOR) INCUR THE EXPENSES OF DISTRIBUTING THE CLASS A, CLASS B AND CLASS C
SHARES. These expenses include commissions and
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<PAGE>
account servicing fees paid to, or on account of, financial advisers of
Prudential Securities and Pruco Securities Corporation (Prusec), an affiliated
broker-dealer, commissions and account servicing fees paid to, or on account of,
other broker-dealers or financial institutions (other than national banks) which
have entered into agreements with the Distributor, advertising expenses, the
cost of printing and mailing prospectuses to potential investors and indirect
and overhead costs of Prudential Securities and Prusec associated with the sale
of Fund shares, including lease, utility, communications and sales promotion
expenses. The State of Texas requires that shares of the Fund may be sold in
that state only by dealers or other financial institutions which are registered
there as broker-dealers.
Under the Plans, the Fund is obligated to pay distribution and/or service fees
to the Distributor as compensation for its distribution and service activities,
not as reimbursement for specific expenses incurred. If the Distributor's
expenses exceed its distribution and service fees, the Fund will not be
obligated to pay any additional expenses. If the Distributor's expenses are less
than such distribution and service fees, it will retain its full fees and
realize a profit.
UNDER THE CLASS A PLAN, EACH SERIES MAY PAY PMFD FOR ITS DISTRIBUTION-RELATED
EXPENSES WITH RESPECT TO CLASS A SHARES AT AN ANNUAL RATE OF UP TO .30 OF 1% OF
THE AVERAGE DAILY NET ASSETS OF THE CLASS A SHARES OF THE SERIES. The Class A
Plan provides that (i) up to .25 of 1% of the average daily net assets of the
Class A shares may be used to pay for personal service and/or the maintenance of
shareholder accounts (service fee) and (ii) total distribution fees (including
the service fee of .25 of 1%) may not exceed .30 of 1% of the average daily net
assets of the Class A shares. PMFD has agreed to limit its distribution-related
fees payable under the Class A Plan to .25 of 1% of the average daily net asset
value of the Class A shares for the fiscal year ending April 30, 1995.
For the fiscal year ended April 30, 1993, PMFD received payments of $31,658 on
behalf of the High Yield Series, $24,589 on behalf of the Insured Series and
$1,883 on behalf of the Modified Term Series under the Class A Plan. This amount
was primarily expended for payment of account servicing fees to financial
advisers and other persons who sell Class A shares. For the fiscal year ended
April 30, 1993, PMFD also received approximately $686,000, $401,000, and $61,000
in initial sales charges from Class A shareholders of the High Yield Series,
Insured Series and Modified Term Series, respectively.
UNDER THE CLASS B AND CLASS C PLANS, EACH SERIES MAY PAY PRUDENTIAL SECURITIES
FOR ITS DISTRIBUTION-RELATED EXPENSES WITH RESPECT TO CLASS B AND CLASS C SHARES
AT AN ANNUAL RATE OF UP TO .50 OF 1% AND UP TO 1% OF THE AVERAGE DAILY NET
ASSETS OF THE CLASS B AND CLASS C SHARES, RESPECTIVELY. The Class B Plan
provides for the payment to Prudential Securities of (i) an asset-based sales
charge of up to .50 of 1% of the average daily net assets of the Class B shares,
and (ii) a service fee of up to .25 of 1% of the average daily net assets of the
Class B shares; provided that the total distribution-related fee does not exceed
.50 of 1%. The Class C Plan provides for the payment to Prudential Securities of
(i) an asset-based sales charge of up to .75 of 1% of the average daily net
assets of the Class C shares, and (ii) a service fee of up to .25 of 1% of the
average daily net assets of the Class C shares. The service fee is used to pay
for personal service and/or the maintenance of shareholders accounts. Prudential
Securities has agreed to limit its distribution-related fees payable under the
Class C Plan to .75 of 1% of the average daily net assets of the Class C shares
for the fiscal year ending April 30, 1995. Prudential Securities also receives
contingent deferred sales charges from certain redeeming shareholders. See
"Shareholder Guide--How to Sell Your Shares-- Contingent Deferred Sales
Charges."
For the fiscal year ended April 30, 1993, Prudential Securities incurred
distribution expenses of approximately $11,451,000 on behalf of the High Yield
Series, $7,136,000 on behalf of the Insured Series and $577,000 on behalf of the
Modified Term Series under the Class B Plan and received $4,466,017 on behalf of
the High Yield Series, $3,529,230 on behalf of the Insured Series and $250,771
on behalf of the Modified Term Series under the Class B Plan. In addition,
Prudential Securities received approximately $1,747,000, $1,386,000 and $108,000
on behalf of the High Yield Series, Insured Series and Modified Term Series,
respectively, in contingent deferred sales charges from redemptions of Class B
shares during this period. No Class C shares were outstanding during the fiscal
year ended April 30, 1993.
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For the fiscal year ended April 30, 1993, the Fund paid distribution expenses
of .10% and .50% of the average net assets of the Class A and Class B shares of
the High Yield Series, .10% and .50% of the average net assets of the Class A
and Class B shares of the Insured Series and .10% and .50% of the average net
assets of the Class A and Class B shares of the Modified Term Series,
respectively. The Series record all payments made under the Plans as expenses in
the calculation of net investment income.
Distribution expenses attributable to the sale of shares of each Series will
be allocated to each class based upon the ratio of sales of each class to the
sales of all shares of the Series other than expenses allocable to a particular
class. The distribution fee and sales charge of one class will not be used to
subsidize the sale of another class.
Each Plan provides that it shall continue in effect from year to year provided
that a majority of the Trustees of the Fund, including a majority of the
Trustees who are not "interested persons" of the Fund (as defined in the
Investment Company Act) and who have no direct or indirect financial interest in
the operation of the Plan or any agreement related to the Plan (the Rule 12b-1
Trustees), vote annually to continue the Plan. Each Plan may be terminated with
respect to a Series at any time by vote of a majority of the Rule 12b-1 Trustees
or of a majority of the outstanding shares of the applicable class of the
Series. The Series will not be obligated to pay expenses incurred under any Plan
if it is terminated or not continued.
In addition to distribution and service fees paid by the Fund under the Class
A, Class B and Class C Plans, the Manager (or one of its affiliates) may make
payments to dealers and other persons who distribute shares of the Fund. Such
payments may be calculated by reference to the net asset value of shares sold by
such persons or otherwise.
The Distributor is subject to the rules of the National Association of
Securities Dealers, Inc. governing maximum sales charges. See "Distributor" in
the Statement of Additional Information.
PORTFOLIO TRANSACTIONS
Prudential Securities may act as a broker or futures commission merchant for
the Fund, provided that the commissions, fees or other remuneration it receives
are fair and reasonable. See "Portfolio Transactions and Brokerage" in the
Statement of Additional Information.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the portfolio securities and cash
of each Series and, in that capacity, maintains certain financial and accounting
books and records pursuant to an agreement with the Fund. Its mailing address is
P.O. Box 1713, Boston, Massachusetts 02105.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as Transfer Agent and Dividend Disbursing Agent and in
those capacities maintains certain books and records for the Fund. PMFS is a
wholly-owned subsidiary of PMF. Its mailing address is P.O. Box 15005, New
Brunswick, New Jersey 08906-5005.
HOW THE FUND VALUES ITS SHARES
EACH SERIES' NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING ITS
LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. NAV IS CALCULATED SEPARATELY FOR EACH CLASS. THE
TRUSTEES HAVE FIXED THE SPECIFIC TIME OF DAY FOR THE COMPUTATION OF THE SERIES'
NET ASSET VALUE TO BE AS OF 4:15 P.M., NEW YORK TIME.
Portfolio securities are valued based on market quotations or, if not readily
available, at fair value as determined in good faith under procedures
established by the Fund's Trustees. Securities may also be valued based on
values provided by a pricing service. See "Net Asset Value" in the Statement of
Additional Information.
Each Series will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase, sell
or redeem shares have been received by the Series or days on which changes in
the value of the
21
<PAGE>
Series' portfolio securities do not materially affect the NAV. The New York
Stock Exchange is closed on the following holidays: New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
Although the legal rights of each class of shares are substantially identical,
the different expenses borne by each class will result in different net asset
values and dividends. As long as the Fund declares dividends daily, the NAV of
Class A, Class B and Class C shares of each Series will generally be the same.
It is expected, however, that the Fund's dividends will differ by approximately
the amount of the distribution-related expense accrual differential among the
classes.
HOW THE FUND CALCULATES PERFORMANCE
FROM TIME TO TIME THE FUND MAY ADVERTISE THE "YIELD," "TAX EQUIVALENT YIELD"
AND "TOTAL RETURN" (INCLUDING "AVERAGE ANNUAL" TOTAL RETURN AND "AGGREGATE"
TOTAL RETURN) OF EACH SERIES IN ADVERTISEMENTS OR SALES LITERATURE. YIELD, TAX
EQUIVALENT YIELD AND TOTAL RETURN ARE CALCULATED SEPARATELY FOR CLASS A, CLASS B
AND CLASS C SHARES. THESE FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT
INTENDED TO INDICATE FUTURE PERFORMANCE. The "yield" refers to the income
generated by an investment in a Series over a one-month or 30-day period. This
income is then "annualized;" that is, the amount of income generated by the
investment during that 30-day period is assumed to be generated each 30-day
period for twelve periods and is shown as a percentage of the investment. The
income earned on the investment is also assumed to be reinvested at the end of
the sixth 30-day period. The "tax equivalent yield" is calculated similarly to
the "yield," except that the yield is increased using a stated income tax rate
to demonstrate the taxable yield necessary to produce an after-tax yield
equivalent to a Series. The "total return" shows how much an investment in a
Series would have increased (decreased) over a specified period of time (I.E.,
one, five or ten years or since inception of the Fund) assuming that all
distributions and dividends by the Series were reinvested on the reinvestment
dates during the period and less all recurring fees. The "aggregate" total
return reflects actual performance over a stated period of time. "Average
annual" total return is a hypothetical rate of return that, if achieved
annually, would have produced the same aggregate total return if performance had
been constant over the entire period. "Average annual" total return smooths out
variations in performance and takes into account any applicable initial or
contingent deferred sales charges. Neither "average annual" total return nor
"aggregate" total return takes into account any federal or state income taxes
which may be payable upon redemption. The Fund also may include comparative
performance information in advertising or marketing the shares of each Series.
Such performance information may include data from Lipper Analytical Services,
Inc., other industry publications, business periodicals and market indices. See
"Performance Information" in the Statement of Additional Information. The Fund
will include performance data for each class of shares of each Series in any
advertisement or information including performance data of the Fund. Further
performance information is contained in the Fund's annual and semi-annual
reports to shareholders, which may be obtained without charge. See "Shareholder
Guide--Shareholder Services--Reports to Shareholders."
TAXES, DIVIDENDS AND DISTRIBUTIONS
TAXATION OF THE FUND
EACH SERIES OF THE FUND HAS ELECTED TO QUALIFY AND INTENDS TO REMAIN QUALIFIED
AS A REGULATED INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE. ACCORDINGLY,
EACH SERIES WILL NOT BE SUBJECT TO FEDERAL INCOME TAXES ON ITS NET INVESTMENT
INCOME AND CAPITAL GAINS, IF ANY, THAT IT DISTRIBUTES TO ITS SHAREHOLDERS. See
"Taxes, Dividends and Distributions" in the Statement of Additional Information.
To the extent a Series invests in taxable obligations, it will earn taxable
investment income. Also, to the extent a Series sells securities or engages in
hedging transactions in futures contracts and options thereon, it may earn both
short-term and long-term capital gain or loss. Capital gain or loss may also
arise upon the sale of municipal securities. To the extent not distributed by a
Series, net taxable investment income and capital gains and losses are taxable
to the Series.
22
<PAGE>
Under the Internal Revenue Code, special rules apply to the treatment of
certain options and futures contracts (Section 1256 contracts). At the end of
each year, such investments held by the Series will be required to be "marked to
market" for federal income tax purposes; that is, treated as having been sold at
market value. Sixty percent of any gain or loss recognized on these "deemed
sales" and on actual dispositions will be treated as long-term capital gain or
loss, and the remainder will be treated as short-term capital gain or loss. See
"Taxes, Dividends and Distributions" in the Statement of Additional Information.
TAXATION OF SHAREHOLDERS
In general, the character of tax-exempt interest distributed by each Series
will flow through as tax-exempt interest to its shareholders provided that 50%
or more of the value of its assets at the end of each quarter of its taxable
year is invested in state, municipal and other obligations, the interest on
which is excluded from gross income for federal income tax purposes. During
normal market conditions, at least 80% of each Series' net assets will be
invested in such obligations. See "How the Fund Invests--Other Investments and
Policies."
Dividends out of net taxable investment income together with distributions of
net short-term capital gains, will be taxable as ordinary income to the
shareholder whether or not reinvested. Any net capital gains (I.E., the excess
of net long-term capital gains over net short-term capital losses) distributed
to shareholders will be taxable as such to the shareholders, whether or not
reinvested and regardless of the length of time a shareholder has owned his or
her shares. The maximum long-term capital gains rate for individuals is 28%. The
maximum long-term capital gains rate for corporate shareholders is currently the
same as the maximum tax rate for ordinary income.
Any gain or loss realized upon a sale or redemption of a Series' shares by a
shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held more than one year and
otherwise as short-term capital gain or loss. Any such loss, however, although
otherwise treated as a short-term capital loss, will be treated as long-term
capital loss to the extent of any capital gain distributions received by the
shareholder on shares that are held for six months or less.
CERTAIN INVESTORS MAY INCUR FEDERAL ALTERNATIVE MINIMUM TAX LIABILITY AS A
RESULT OF THEIR INVESTMENT IN THE FUND. Tax-exempt interest from certain
municipal obligations (I.E., certain private activity bonds issued after August
7, 1986) will be treated as an item of tax preference for purposes of the
alternative minimum tax. The Fund anticipates that, under regulations to be
promulgated, items of tax preference incurred by a Series which has invested in
such municipal obligations will be attributed to the Series' shareholders,
although some portion of such items could be allocated to the Series itself.
Depending upon each shareholder's individual circumstances, the attribution of
items of tax preference incurred by a Series could result in liability for the
shareholder for the alternative minimum tax. Similarly, a Series could be liable
for the alternative minimum tax for items of tax preference attributed to it.
With the exception of the High Yield Series, the Fund intends to minimize the
investment of each Series in municipal obligations of the type that will produce
items of tax preference. With respect to the High Yield Series, however, it is
anticipated that a substantial portion of the Series' assets will be invested in
such obligations.
Corporate shareholders in any of the Series may incur a preference item known
as the "adjustment for current earnings." Corporate shareholders should consult
with their tax advisers with respect to this potential preference item.
The Fund has obtained an opinion of counsel to the effect that the conversion
of Class B shares into Class A shares does not constitute a taxable event for
U.S. income tax purposes. However, such opinion is not binding on the Internal
Revenue Service.
WITHHOLDING TAXES
Under the Internal Revenue Code, the Fund is required to withhold and remit to
the U.S. Treasury 31% of redemption proceeds payable to individuals and certain
noncorporate shareholders who fail to furnish correct tax identification numbers
on IRS Form W-9 (or IRS Form W-8 in the case of certain foreign shareholders).
Withholding is also required on taxable dividends and capital gains
distributions made by a Series unless the Series reasonably expects that at
least 95% of the distributions of the Series are composed of tax-exempt
dividends.
Shareholders are advised to consult their own tax advisers regarding specific
questions as to federal, state or local taxes. See "Taxes, Dividends and
Distributions" in the Statement of Additional Information.
23
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
THE FUND EXPECTS TO PAY DIVIDENDS OF NET INVESTMENT INCOME, IF ANY, MONTHLY
AND MAKE DISTRIBUTIONS AT LEAST ANNUALLY OF ANY NET CAPITAL GAINS. Dividends
paid by each Series with respect to each class of shares, to the extent
dividends are paid, will be calculated in the same manner, at the same time, on
the same day and will be in the same amount except that each class will bear its
own distribution charges, generally resulting in lower dividends for Class B and
Class C shares. Distributions of net capital gains, if any, will be paid in the
same amount for each class of shares. See "How the Fund Values its Shares."
DIVIDENDS AND DISTRIBUTIONS WILL BE PAID IN ADDITIONAL SHARES OF A SERIES
BASED ON THE NAV OF EACH CLASS ON THE PAYMENT DATE, OR SUCH OTHER DATE AS THE
TRUSTEES MAY DETERMINE, UNLESS THE SHAREHOLDER ELECTS IN WRITING NOT LESS THAN
FIVE BUSINESS DAYS PRIOR TO THE RECORD DATE TO RECEIVE SUCH DIVIDENDS AND
DISTRIBUTIONS IN CASH. Such election should be submitted to Prudential Mutual
Fund Services, Inc., Attention: Account Maintenance, P.O. Box 15015, New
Brunswick, New Jersey 08906-5015. The Fund will notify each shareholder after
the close of the Fund's taxable year both of the dollar amount and the taxable
status of that year's dividends and distributions on a per share basis. If you
hold shares through Prudential Securities, you should contact your financial
adviser to elect to receive dividends and distributions in cash.
Any distributions of net capital gains paid shortly after a purchase by an
investor will have the effect of reducing the per share net asset value of the
investor's shares by the per share amount of the distributions. Such
distributions, although in effect a return of invested principal, are subject to
federal income taxes. Accordingly, prior to purchasing shares of a Series, an
investor should carefully consider the impact of capital gains distributions
which are expected to be or have been announced.
GENERAL INFORMATION
DESCRIPTION OF SHARES
THE FUND IS AN OPEN-END INVESTMENT COMPANY COMPRISED OF THREE SERIES WHICH WAS
ORGANIZED UNDER THE LAWS OF MASSACHUSETTS ON NOVEMBER 3, 1986 AS AN
UNINCORPORATED BUSINESS TRUST, A FORM OF ORGANIZATION THAT IS COMMONLY CALLED A
MASSACHUSETTS BUSINESS TRUST. THE FUND IS AUTHORIZED TO ISSUE AN UNLIMITED
NUMBER OF SHARES, DIVIDED INTO THREE CLASSES, DESIGNATED CLASS A, CLASS B AND
CLASS C. Each class of shares represents an interest in the same assets of the
Fund and is identical in all respects except that (i) each class bears different
distribution expenses, (ii) each class has exclusive voting rights with respect
to its distribution and service plan (except that the Fund has agreed with the
SEC in connection with the offering of a conversion feature on Class B shares to
submit any amendment of the Class A Plan to both Class A and Class B
shareholders), (iii) each class has a different exchange privilege and (iv) only
Class B shares have a conversion feature. See "How the Fund is
Managed--Distributor." The Fund has received an order from the SEC permitting
the issuance and sale of multiple classes of shares. Currently, the Fund is
offering three classes, designated Class A, Class B and Class C shares. In
accordance with the Fund's Declaration of Trust, the Trustees may authorize the
creation of additional series and classes of shares within such series, with
such preferences, privileges, limitations and voting and dividend rights as the
Trustees may determine.
Shares of the Fund, when issued, are fully paid, nonassessable, fully
transferable and redeemable at the option of the holder. Shares are also
redeemable at the option of the Fund under certain circumstances as described
under "Shareholder Guide--How to Sell Your Shares." Each share of each class of
each Series is equal as to earnings, assets and voting privileges, except as
noted above, and each class of shares bears the expenses related to the
distribution of its shares. Except for the conversion feature applicable to the
Class B shares, there are no conversion, preemptive or other subscription
rights. In the event of liquidation, each share of beneficial interest in each
Series is entitled to its portion of all of the Fund's assets after all debt and
expenses of the Fund have been paid. Since Class B and Class C shares generally
bear higher distribution expenses than Class A shares, the liquidation proceeds
to shareholders of those classes are likely to be lower than to Class A
shareholders. The Fund's shares do not have cumulative voting rights for the
election of Trustees.
THE FUND DOES NOT INTEND TO HOLD ANNUAL MEETINGS OF SHAREHOLDERS UNLESS
OTHERWISE REQUIRED BY LAW. SHAREHOLDERS HAVE CERTAIN RIGHTS, INCLUDING THE RIGHT
TO CALL A MEETING UPON A VOTE OF 10% OF THE FUND'S OUTSTANDING SHARES FOR THE
PURPOSE OF VOTING ON THE REMOVAL OF ONE OR MORE TRUSTEES OR TO TRANSACT ANY
OTHER BUSINESS.
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<PAGE>
The Declaration of Trust and the By-Laws of the Fund are designed to make the
Fund similar in certain respects to a Massachusetts business corporation. The
principal distinction between the two forms relates to shareholder liability.
Under Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
Fund, which is not the case with a corporation. The Declaration of Trust of the
Fund provides that shareholders shall not be subject to any personal liability
for the acts or obligations of the Fund and that every written obligation,
contract, instrument or undertaking made by the Fund shall contain a provision
to the effect that the shareholders are not individually bound thereunder.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which has
been incorporated by reference herein, does not contain all the information set
forth in the Registration Statement filed by the Fund with the SEC under the
Securities Act of 1933. Copies of the Registration Statement may be obtained at
a reasonable charge from the SEC or may be examined, without charge, at the
office of the SEC in Washington, D.C.
SHAREHOLDER GUIDE
HOW TO BUY SHARES OF THE FUND
YOU MAY PURCHASE SHARES OF EACH SERIES OF THE FUND THROUGH PRUDENTIAL
SECURITIES, PRUSEC OR DIRECTLY FROM THE FUND, THROUGH ITS TRANSFER AGENT,
PRUDENTIAL MUTUAL FUND SERVICES, INC. (PMFS OR THE TRANSFER AGENT) ATTENTION:
INVESTMENT SERVICES, P.O. BOX 15020, NEW BRUNSWICK, NEW JERSEY 08906-5020. The
minimum initial investment for Class A and Class B shares is $1,000 per class
and $5,000 for Class C shares. The minimum subsequent investment is $100 for all
classes. All minimum investment requirements are waived for certain retirement
and employee savings plans or custodial accounts for the benefit of minors. For
purchases made through the Automatic Savings Accumulation Plan, the minimum
initial and subsequent investment is $50. See "Shareholder Services" below.
An investment in the Series may not be appropriate for tax-exempt or
tax-deferred investors. Such investors should consult their own tax advisers.
THE PURCHASE PRICE IS THE NAV PER SHARE NEXT DETERMINED FOLLOWING RECEIPT OF
AN ORDER BY THE TRANSFER AGENT OR PRUDENTIAL SECURITIES PLUS A SALES CHARGE
WHICH, AT YOUR OPTION, MAY BE IMPOSED EITHER (I) AT THE TIME OF PURCHASE (CLASS
A SHARES) OR (II) ON A DEFERRED BASIS (CLASS B OR CLASS C SHARES). SEE
"ALTERNATIVE PURCHASE PLAN" BELOW. SEE ALSO "HOW THE FUND VALUES ITS SHARES."
Application forms can be obtained from PMFS, Prudential Securities or Prusec.
If a share certificate is desired, it must be requested in writing for each
transaction. Certificates are issued only for full shares. Shareholders who hold
their shares through Prudential Securities will not receive share certificates.
The Fund reserves the right to reject any purchase order (including an
exchange) or to suspend or modify the continuous offering of its shares. See
"How to Sell Your Shares" below.
Your dealer is responsible for forwarding payment promptly to the Fund. The
Distributor reserves the right to cancel any purchase order for which payment
has not been received by the fifth business day following the investment.
Transactions in Fund shares may be subject to postage and handling charges
imposed by your dealer.
PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire, you
must first telephone PMFS at (800) 225-1852 (toll-free) to receive an account
number. The following information will be requested: your name, address, tax
identification number, class election, dividend distribution election, amount
being wired and wiring bank. Instructions should then be given by you to your
bank to transfer funds by wire to State Street Bank and Trust Company (State
Street), Boston, Massachusetts, Custody and Shareholder Services Division,
Attention: Prudential Municipal Bond Fund, specifying on the wire the account
number assigned by PMFS and your name and identifying the sales charge
alternative (Class A, Class B or Class C shares) and the name of the Series.
25
<PAGE>
If you arrange for receipt by State Street of Federal Funds prior to 4:15
P.M., New York time, on a business day, you may purchase shares of a Series as
of that day.
In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential Municipal Bond
Fund, the name of the Series, Class A, Class B or Class C shares and your name
and individual account number. It is not necessary to call PMFS to make
subsequent purchase orders utilizing Federal Funds. The minimum amount which may
be invested by wire is $1,000.
ALTERNATIVE PURCHASE PLAN
THE FUND OFFERS THREE CLASSES OF SHARES (CLASS A, CLASS B AND CLASS C SHARES)
WHICH ALLOWS YOU TO CHOOSE THE MOST BENEFICIAL SALES CHARGE STRUCTURE FOR YOUR
INDIVIDUAL CIRCUMSTANCES, GIVEN THE AMOUNT OF THE PURCHASE AND THE LENGTH OF
TIME YOU EXPECT TO HOLD THE SHARES AND OTHER RELEVANT CIRCUMSTANCES (ALTERNATIVE
PURCHASE PLAN).
<TABLE>
<CAPTION>
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE
DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
-------------------------------------- ----------------------- --------------------------------------
<S> <C> <C> <C>
CLASS A Maximum initial sales charge of 3% of .30 of 1% (Currently Initial sales charge waived or reduced
the public offering price being charged at a rate for certain purchases
of .10 of 1%)
CLASS B Maximum contingent deferred sales .50 of 1% Shares convert to Class A shares
charge or CDSC of 5% of the lesser of approximately seven years after
the amount invested or the redemption purchase
proceeds; declines to zero after six
years
CLASS C Maximum CDSC of 1% of the lesser of 1% (Currently being Shares do not convert to another class
the amount invested or the redemption charged at a rate of
proceeds on redemptions made within .75 of 1%)
one year of purchase
</TABLE>
The three classes of shares represent an interest in the same portfolio of
investments of each Series and have the same rights, except that (i) each class
bears the separate expenses of its Rule 12b-1 distribution and service plan,
(ii) each class has exclusive voting rights with respect to its plan (except as
noted under the heading "General Information--Description of Shares") and (iii)
only Class B shares have a conversion feature. The three classes also have
separate exchange privileges. See "How to Exchange Your Shares" below. The
income attributable to each class and the dividends payable on the shares of
each class will be reduced by the amount of the distribution fee of each class.
Class B and Class C shares bear the expenses of a higher distribution fee which
will generally cause them to have higher expense ratios and to pay lower
dividends than the Class A shares.
Financial advisers and other sales agents who sell shares of the Series will
receive different compensation for selling Class A, Class B and Class C shares
and will generally receive more compensation initially for selling Class A and
Class B shares than for selling Class C shares.
IN SELECTING A PURCHASE ALTERNATIVE, YOU SHOULD CONSIDER, AMONG OTHER THINGS,
(1) the length of time you expect to hold your investment, (2) the amount of any
applicable sales charge (whether imposed at the time of purchase or redemption)
and distribution-related fees, as noted above, (3) whether you qualify for any
reduction or waiver of any applicable sales charge, (4) the various exchange
privileges among the different classes of shares (see "How to Exchange Your
Shares" below) and (5) the fact that Class B shares automatically convert to
Class A shares approximately seven years after purchase (see "Conversion
Feature--Class B Shares" below).
The following is provided to assist you in determining which method of
purchase best suits your individual circumstances and is based on current fees
and expenses being charged to the Series.
If you intend to hold your investment in a Series for less than 7 years and do
not qualify for a reduced sales charge on Class A shares, since Class A shares
are subject to an initial sales charge of 3% and Class B shares are subject to a
CDSC of 5% which declines to zero over a 6 year period, you should consider
purchasing Class C shares over either Class A or Class B shares.
26
<PAGE>
If you intend to hold your investment for [7] years or more and do not qualify
for a reduced sales charge on Class A shares, since Class B shares convert to
Class A shares approximately [7] years after purchase and because all of your
money would be invested initially in the case of Class B shares, you should
consider purchasing Class B shares over either Class A or Class C shares.
If you qualify for a reduced sales charge on Class A shares, it may be more
advantageous for you to purchase Class A shares over either Class B or Class C
shares regardless of how long you intend to hold your investment. However,
unlike Class B and Class C shares, you would not have all of your money invested
initially because the sales charge on Class A shares is deducted at the time of
purchase.
If you do not qualify for a reduced sales charge on Class A shares and you
purchase Class B or Class C shares, you would have to hold your investment for
more than 6 years in the case of Class B shares and Class C shares for the
higher cumulative annual distribution-related fee on those shares to exceed the
initial sales charge plus cumulative annual distribution-related fee on Class A
shares. This does not take into account the time value of money, which further
reduces the impact of the higher Class B or Class C distribution-related fee on
the investment, fluctuations in net asset value, the effect of the return on the
investment over this period of time or redemptions during the period in which
the CDSC is applicable.
ALL PURCHASES OF $1 MILLION OR MORE, EITHER AS PART OF A SINGLE INVESTMENT OR
UNDER RIGHTS OF ACCUMULATION OR LETTERS OF INTENT, MUST BE FOR CLASS A SHARES.
SEE "REDUCTION AND WAIVER OF INITIAL SALES CHARGES" BELOW.
CLASS A SHARES
The offering price of Class A shares for investors choosing the initial sales
charge alternative is the next determined NAV plus a sales charge (expressed as
a percentage of the offering price and of the amount invested) as shown in the
following table:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS DEALER CONCESSION
PERCENTAGE OF PERCENTAGE OF AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
- ------------------------- ---------------- ---------------- -------------------
<S> <C> <C> <C>
Less than $99,999 3.00 3.09 2.50
$100,000 to $249,999 2.50 2.56 2.40
250,000 to $499,999 1.50 1.52 1.40
$500,000 to $999,999 1.00 1.01 0.95
$1,000,000 and above None None None
</TABLE>
Selling dealers may be deemed to be underwriters, as that term is defined in
the Securities Act of 1933.
REDUCTION AND WAIVER OF INITIAL SALES CHARGES. Reduced sales charges are
available through Rights of Accumulation and Letters of Intent. Shares of the
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) may be aggregated
to determine the applicable reduction. See "Purchase and Redemption of Fund
Shares--Reduction and Waiver of Initial Sales Charges--Class A Shares" in the
Statement of Additional Information.
Class A shares may be purchased at NAV, without payment of an initial sales
charge, by pension, profit-sharing or other employee benefit plans qualified
under Section 401 of the Internal Revenue Code and deferred compensation and
annuity plans under Sections 457 and 403(b)(7) of the Internal Revenue Code
(Benefit Plans), provided that the plan has existing assets of at least $1
million invested in shares of Prudential Mutual Funds (excluding money market
funds other than those acquired pursuant to the exchange privilege) or 1,000
eligible employees or members. In the case of Benefit Plans whose accounts are
held directly with the Transfer Agent and for which the Transfer Agent does
individual account record keeping (Direct Account Benefit Plans) and Benefit
Plans sponsored by PSI or its subsidiaries (PSI or Subsidiary Prototype Benefit
Plans), Class A shares may be purchased at NAV by participants who are repaying
loans made from such plans to the participant. Additional information concerning
the reduction and waiver of initial sales charges is set forth in the Statement
of Additional Information.
In addition, Class A shares may be purchased at NAV, through Prudential
Securities or the Transfer Agent, by the following persons: (a) Trustees and
officers of the Fund and other Prudential Mutual Funds, (b) employees of
Prudential Securities and PMF and their subsidiaries and members of the families
of such persons who maintain an "employee related" account at Prudential
Securities or the Transfer Agent, (c) employees and special agents of Prudential
and its subsidiaries and all persons who have retired directly from active
service with Prudential or one of its subsidiaries, (d) registered
representatives and employees of dealers who have entered into a selected dealer
agreement with Prudential Securities provided that purchases at NAV are
27
<PAGE>
permitted by such person's employer and (e) investors who have a business
relationship with a financial adviser who joined Prudential Securities from
another investment firm, provided that (i) the purchase is made within 90 days
of the commencement of the financial adviser's employment at Prudential
Securities, (ii) the purchase is made with proceeds of a redemption of shares of
any open-end, non-money market fund sponsored by the financial adviser's
previous employer (other than a fund which imposes a distribution or service fee
of .25 of 1% or less) on which no deferred sales load, fee or other charge was
imposed on redemption and (iii) the financial adviser served as the client's
broker on the previous purchases.
You must notify the Fund's Transfer Agent either directly or through
Prudential Securities or Prusec that you are entitled to the reduction or waiver
of the sales charge. The reduction or waiver will be granted subject to
confirmation of your entitlement. No initial sales charges are imposed upon
Class A shares purchased upon the reinvestment of dividends and distributions.
See "Purchase and Redemption of Fund Shares--Reduction and Waiver of Initial
Sales Charges--Class A Shares" in the Statement of Additional Information.
CLASS B AND CLASS C SHARES
The offering price of Class B and Class C shares for investors choosing one of
the deferred sales charge alternatives is the NAV next determined following
receipt of an order by the Transfer Agent or Prudential Securities. Although
there is no sales charge imposed at the time of purchase, redemptions of Class B
and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares--Contingent Deferred Sales Charges."
HOW TO SELL YOUR SHARES
YOU CAN REDEEM YOUR SHARES OF EACH SERIES OF THE FUND AT ANY TIME FOR CASH AT
THE NAV PER SHARE NEXT DETERMINED AFTER THE REDEMPTION REQUEST IS RECEIVED IN
PROPER FORM BY THE TRANSFER AGENT OR PRUDENTIAL SECURITIES. SEE "HOW THE FUND
VALUES ITS SHARES." In certain cases, however, redemption proceeds will be
reduced by the amount of any applicable contingent deferred sales charge, as
described below. See "Contingent Deferred Sales Charges" below.
IF YOU HOLD SHARES OF THE FUND THROUGH PRUDENTIAL SECURITIES, YOU MUST REDEEM
YOUR SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER. IF YOU
HOLD SHARES IN NON-CERTIFICATE FORM, A WRITTEN REQUEST FOR REDEMPTION SIGNED BY
YOU EXACTLY AS THE ACCOUNT IS REGISTERED IS REQUIRED. IF YOU HOLD CERTIFICATES,
THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE FACE OF THE CERTIFICATES,
MUST BE RECEIVED BY THE TRANSFER AGENT IN ORDER TO BE REDEEMED, WHICH MAY DELAY
RECEIPT OF THE PROCEEDS OF THE REDEMPTION. IF REDEMPTION IS REQUESTED BY A
CORPORATION, PARTNERSHIP, TRUST OR FIDUCIARY, WRITTEN EVIDENCE OF AUTHORITY
ACCEPTABLE TO THE TRANSFER AGENT MUST BE SUBMITTED BEFORE SUCH REQUEST WILL BE
ACCEPTED. All correspondence and documents concerning redemptions should be sent
to the Fund in care of its Transfer Agent, Prudential Mutual Fund Services,
Inc., Attention: Redemption Services, P.O. Box 15010, New Brunswick, New Jersey
08906-5010.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to a
person other than the record owner, (c) are to be sent to an address other than
the address on the Transfer Agent's records, or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the redemption
request and on the certificates, if any, or stock power must be guaranteed by an
"eligible guarantor institution." An "eligible guarantor institution" includes
any bank, broker, dealer or credit union. The Transfer Agent reserves the right
to request additional information from, and make reasonable inquiries of, any
eligible guarantor institution. For clients of Prusec, a signature guarantee may
be obtained from the agency or office manager of most Prudential Insurance and
Financial Services or Preferred Services offices.
PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE MADE BY CHECK WITHIN SEVEN
DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE CERTIFICATE AND/OR WRITTEN
REQUEST, EXCEPT AS INDICATED BELOW. Such payment may be postponed or the right
of redemption suspended at times (a) when the New York Stock Exchange is closed
for other than customary weekends and holidays, (b) when trading on such
Exchange is restricted, (c) when an emergency exists as a result of which
disposal by the Fund of securities owned by it is not reasonably practicable or
it is not reasonably practicable for the Fund fairly to determine the value of
its net assets, or (d) during any other period when the SEC, by order, so
permits, provided that applicable rules and regulations of the SEC shall govern
as to whether the conditions prescribed in (b), (c) or (d) exist.
PAYMENT FOR REDEMPTION OF RECENTLY PURCHASED SHARES WILL BE DELAYED UNTIL THE
FUND OR ITS TRANSFER AGENT HAS BEEN ADVISED THAT THE PURCHASE CHECK HAS BEEN
HONORED, UP TO 10 CALENDAR DAYS FROM THE TIME OF RECEIPT OF THE PURCHASE CHECK
BY THE TRANSFER AGENT. SUCH DELAY MAY BE AVOIDED BY PURCHASING SHARES BY WIRE OR
BY CERTIFIED OR OFFICIAL BANK CHECK.
28
<PAGE>
REDEMPTION IN KIND. If the Trustees determine that it would be detrimental to
the best interests of the remaining shareholders of a Series to make payment
wholly or partly in cash, the Fund may pay the redemption price in whole or in
part by a distribution in kind of securities from the investment portfolio of
the Series, in lieu of cash, in conformity with applicable rules of the SEC.
Securities will be readily marketable and will be valued in the same manner as a
regular redemption. See "How the Fund Values its Shares." If your shares are
redeemed in kind, you would incur transaction costs in converting the assets
into cash. The Fund, however, has elected to be governed by Rule 18f-1 under the
Investment Company Act, under which the Fund is obligated to redeem shares
solely in cash up to the lesser of $250,000 or 1% of the net asset value of the
Fund during any 90-day period for any one shareholder.
INVOLUNTARY REDEMPTION. In order to reduce expenses of the Fund, the Trustees
may redeem all of the shares of any shareholder, other than a shareholder which
is an IRA or other tax-deferred retirement plan, whose account has a net asset
value of less than $500 due to a redemption. The Fund will give such
shareholders 60 days' prior written notice in which to purchase sufficient
additional shares to avoid such redemption. No contingent deferred sales charge
will be imposed on any involuntary redemption.
30-DAY REPURCHASE PRIVILEGE. If you redeem your shares and have not previously
exercised the repurchase privilege, you may reinvest any portion or all of the
proceeds of such redemption in shares of a Series of the Fund at the NAV next
determined after the order is received, which must be within 30 days after the
date of the redemption. No sales charge will apply to such repurchases. You will
receive PRO RATA credit for any contingent deferred sales charge paid in
connection with the redemption of your shares. You must notify the Fund's
Transfer Agent, either directly or through Prudential Securities or Prusec, at
the time the repurchase privilege is exercised that you are entitled to credit
for the contingent deferred sales charge previously paid. Exercise of the
repurchase privilege will generally not affect federal income tax treatment of
any gain realized upon redemption. If the redemption resulted in a loss, some or
all of the loss, depending on the amount reinvested, would generally not be
allowed for federal income tax purposes.
CONTINGENT DEFERRED SALES CHARGES
Redemptions of Class B shares will be subject to a contingent deferred sales
charge or CDSC declining from 5% to zero over a six-year period. Class C shares
redeemed within one year of purchase will be subject to a 1% CDSC. The CDSC will
be deducted from the redemption proceeds and reduce the amount paid to you. The
CDSC will be imposed on any redemption by you which reduces the current value of
your Class B or Class C shares of a Series of the Fund to an amount which is
lower than the amount of all payments by you for shares of the Series during the
preceding six years, in the case of Class B shares, and one year, in the case of
Class C shares. A CDSC will be applied on the lesser of the original purchase
price or the current value of the shares being redeemed. Increases in the value
of your shares or shares purchased through reinvestment of dividends or
distributions are not subject to a CDSC. The amount of any contingent deferred
sales charge will be paid to and retained by the Distributor. See "How the Fund
is Managed--Distributor" and "Waiver of the Contingent Deferred Sales
Charges--Class B Shares" below.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of shares until the time of redemption
of such shares. Solely for purposes of determining the number of years from the
time of any payment for the purchase of shares, all payments during a month will
be aggregated and deemed to have been made on the last day of the month.
The following table sets forth the rates of the CDSC applicable to redemptions
of Class B shares:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE
YEAR SINCE PURCHASE OF DOLLARS INVESTED OR
PAYMENT MADE REDEMPTION PROCEEDS
------------------------------- -------------------------
<S> <C>
First.......................... 5.0%
Second......................... 4.0%
Third.......................... 3.0%
Fourth......................... 2.0%
Fifth.......................... 1.0%
Sixth.......................... 1.0%
Seventh........................ None
</TABLE>
29
<PAGE>
In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results in the lowest possible rate. It will be
assumed that the redemption is made first of amounts representing shares
acquired pursuant to the reinvestment of dividends and distributions; then of
amounts representing the increase in net asset value above the total amount of
payments for the purchase of Fund shares made during the preceding six years
(five years for Class B shares purchased prior to January 22, 1990); then of
amounts representing the cost of shares held beyond the applicable CDSC period;
and finally, of amounts representing the cost of shares held for the longest
period of time within the applicable CDSC period.
For example, assume you purchased 100 Class B shares at $10 per share for a
cost of $1,000. Subsequently, you acquired 5 additional Class B shares through
dividend reinvestment. During the second year after the purchase you decided to
redeem $500 of your investment. Assuming at the time of the redemption the net
asset value had appreciated to $12 per share, the value of your Class B shares
would be $1,260 (105 shares at $12 per share). The CDSC would not be applied to
the value of the reinvested dividend shares and the amount which represents
appreciation ($260). Therefore, $240 of the $500 redemption proceeds ($500 minus
$260) would be charged at a rate of 4% (the applicable rate in the second year
after purchase) for a total CDSC of $9.60.
For federal income tax purposes, the amount of the CDSC will reduce the gain
or increase the loss, as the case may be, on the amount recognized on the
redemption of shares.
WAIVER OF THE CONTINGENT DEFERRED SALES CHARGES--CLASS B SHARES. The CDSC will
be waived in the case of a redemption following the death or disability of a
shareholder or, in the case of a trust account, following the death or
disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person, either individually or in joint tenancy
(with rights of survivorship), or a trust at the time of death or initial
determination of disability, provided that the shares were purchased prior to
death or disability.
The CDSC will also be waived in the case of a total or partial redemption in
connection with certain distributions made without penalty under the Internal
Revenue Code from a tax-deferred retirement plan, an IRA or a Section 403(b)
custodial account. These distributions include a lump-sum or other distribution
after retirement, or for an IRA or Section 403(b) custodial account, after
attaining age 59 1/2, a tax-free return of an excess contribution or plan
distributions following the death or disability of the shareholder (provided
that the shares were purchased prior to death or disability). The waiver does
not apply in the case of a tax-free rollover or transfer of assets, other than
one following a separation from service. In the case of Direct Account and PSI
or Subsidiary Prototype Benefit Plans, the CDSC will be waived on redemptions
which represent borrowings from such plans. Shares purchased with amounts used
to repay a loan from such plans on which a CDSC was not previously deducted will
thereafter be subject to a CDSC without regard to the time such amounts were
previously invested. In the case of a 401(k) plan, the CDSC will also be waived
upon the redemption of shares purchased with amounts used to repay loans made
from the account to the participant and from which a CDSC was previously
deducted.
In addition, the CDSC will be waived on redemptions of shares held by a
Trustee of the Fund.
You must notify the Transfer Agent either directly or through Prudential
Securities or Prusec, at the time of redemption, that you are entitled to waiver
of the CDSC. The waiver will be granted subject to confirmation of your
entitlement.
A quantity discount may apply to redemptions of Class B shares purchased prior
to _______, 1994. See "Purchase and Redemption of Fund Shares--Quantity
Discount--Class B Shares Purchased Prior to ____, 1994" in the Statement of
Additional Information.
CONVERSION FEATURE--CLASS B SHARES
Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. Conversions will occur during
the month following each calendar quarter and will be effected at relative net
asset value without the imposition of any additional sales charge. It is
currently anticipated that conversions will occur on the first Friday or next
business day of the month following each calendar quarter or, if not a business
day, on the next Friday of the month.
Since the Fund tracks amounts paid rather than the number of shares bought on
each purchase of Class B shares, the number of Class B shares eligible to
convert to Class A shares (excluding shares acquired through the automatic
reinvestment of dividends and other distributions) (the Eligible Shares) will be
determined on each conversion date in accordance with the following formula: (i)
the ratio of (a) the amounts paid for Class B shares purchased at least [seven]
years prior to the conversion date to (b) the total amount paid for all Class B
shares purchased and then held in your account (ii) multiplied by the total
number of Class B shares then in your account. Each time any Eligible Shares in
your account convert to Class A shares, all shares or amounts representing Class
B shares then in your account that were acquired through the automatic
reinvestment of dividends and other distributions will convert to Class A
shares.
30
<PAGE>
For purposes of determining the number of Eligible Shares, if the Class B
shares in your account on any conversion date are the result of multiple
purchases at different net asset values per share, the number of Eligible Shares
calculated as described above will generally be either more or less than the
number of shares actually purchased approximately [seven] years before such
conversion date. For example, if 100 shares were initially purchased at $10 per
share (for a total of $1,000) and a second purchase of 100 shares was
subsequently made at $11 per share (for a total of $1,100), 95.24 shares would
convert approximately [seven] years from the initial purchase (I.E., $1,000
divided by $2,100 (47.62%), multiplied by 200 shares equals 95.24 shares). The
Manager reserves the right to modify the formula for determining the number of
Eligible Shares in the future as it deems appropriate on notice to shareholders.
Since annual distribution-related fees are lower for Class A shares than Class
B shares, the per share net asset value of the Class A shares may be higher than
that of the Class B shares at the time of conversion. Thus, although the
aggregate dollar value will be the same, you may receive fewer Class A shares
than Class B shares converted. See "How the Fund Values its Shares."
For purposes of calculating the applicable holding period for conversions, all
payments for Class B shares during a month will be deemed to have been made on
the last day of the month, or for Class B shares acquired through exchange or a
series of exchanges, on the last day of the month in which the original payment
for purchases of such Class B shares was made. For Class B shares previously
exchanged for shares of a money market fund, the time period during which such
shares were held in the money market fund will be excluded. For example, Class B
shares held in a money market fund for one year will not convert to Class A
shares until approximately eight years from purchase. For purposes of measuring
the time period during which shares are held in a money market fund, exchanges
will be deemed to have been made on the last day of the month. Class B shares
acquired through exchange will convert to Class A shares after expiration of the
conversion period applicable to the original purchase of such shares. It is
currently anticipated that the first conversion of Class B shares will occur in
or about January 1995. At that time all amounts representing Class B shares then
outstanding beyond the applicable conversion period will automatically convert
to Class A shares together with all shares or amounts representing Class B
shares acquired through the automatic reinvestment of dividends and
distributions then held in your account.
The conversion feature may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service (i) that the
dividends and other distributions paid on Class A, Class B and Class C shares
will not constitute "preferential dividends" under the Internal Revenue Code and
(ii) that the conversion of shares does not constitute a taxable event. The
conversion of Class B shares into Class A shares may be suspended if such
opinions or rulings are no longer available. If conversions are suspended, Class
B shares of the Series will continue to be subject, possibly indefinitely, to
their higher annual distribution and service fee.
HOW TO EXCHANGE YOUR SHARES
AS A SHAREHOLDER OF THE FUND, YOU HAVE AN EXCHANGE PRIVILEGE WITH THE OTHER
SERIES OF THE FUND AND CERTAIN OTHER PRUDENTIAL MUTUAL FUNDS (THE EXCHANGE
PRIVILEGE), INCLUDING ONE OR MORE SPECIFIED MONEY MARKET FUNDS, SUBJECT TO THE
MINIMUM INVESTMENT REQUIREMENTS OF SUCH FUNDS. CLASS A, CLASS B AND CLASS C
SHARES MAY BE EXCHANGED FOR CLASS A, CLASS B AND CLASS C SHARES, RESPECTIVELY,
OF THE OTHER SERIES OF THE FUND AND OF ANOTHER FUND ON THE BASIS OF THE RELATIVE
NAV. Any applicable CDSC payable upon the redemption of shares exchanged will be
calculated from the first day of the month after the initial purchase excluding
the time shares were held in a money market fund. Class B and Class C shares may
not be exchanged into money market funds other than Prudential Special Money
Market Fund. For purposes of calculating the holding period applicable to the
Class B conversion feature, the time period during which Class B shares were
held in a money market fund will be excluded. See "Conversion Feature--Class B
Shares" above. If your investments in shares of Prudential Mutual Funds
(excluding money market funds other than those acquired pursuant to the exchange
privilege) reach $1 million and you then hold Class B and/or Class C shares of
the Fund which are free of CDSC, you will be so notified and offered the
opportunity to exchange those shares for Class A shares of the Fund without the
imposition of any sales charge. In the case of tax-exempt shareholders, if no
response is received within 60 days of the mailing of such notice, eligible
Class B and/or Class C shares will be automatically exchanged for Class A
shares. All other shareholders must affirmatively elect to have their eligible
Class B and/or Class C shares exchanged for Class A shares. An exchange will be
treated as a redemption and purchase for tax purposes. See "Shareholder
Investment Account--Exchange Privilege" in the Statement of Additional
Information.
IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MUST AUTHORIZE THE TELEPHONE
EXCHANGE PRIVILEGE ON YOUR INITIAL APPLICATION FORM OR BY WRITTEN NOTICE TO THE
TRANSFER AGENT AND HOLD SHARES IN NON-CERTIFICATE FORM. Thereafter, you may call
the Fund at (800) 225-1852 to execute a telephone exchange of shares, weekdays,
except holidays, between the hours of 8:00 A.M. and 6:00 P.M., New York time.
For your protection and to prevent fraudulent exchanges, your telephone call
will be recorded and you will be asked to provide your personal identification
number. A written confirmation of the exchange transaction
31
<PAGE>
will be sent to you. NEITHER THE FUND NOR ITS AGENTS WILL BE LIABLE FOR ANY
LOSS, LIABILITY OR COST WHICH RESULTS FROM ACTING UPON INSTRUCTIONS REASONABLY
BELIEVED TO BE GENUINE UNDER THE FOREGOING PROCEDURES. ALL EXCHANGES WILL BE
MADE ON THE BASIS OF THE RELATIVE NAV OF THE TWO FUNDS OR TWO SERIES NEXT
DETERMINED AFTER THE REQUEST IS RECEIVED IN GOOD ORDER. THE EXCHANGE PRIVILEGE
IS AVAILABLE ONLY IN STATES WHERE THE EXCHANGE MAY LEGALLY BE MADE.
IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.
IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE
FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services, Inc., Attention: Exchange Processing, P.O. Box 15010, New Brunswick,
New Jersey 08906-5010.
IN PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS THE TELEPHONE EXCHANGE OF
SHARES MAY BE DIFFICULT TO IMPLEMENT AND YOU SHOULD MAKE EXCHANGES BY MAIL BY
WRITING TO PRUDENTIAL MUTUAL FUND SERVICES, INC., AT THE ADDRESS NOTED ABOVE.
The Exchange Privilege may be modified or terminated at any time on 60 days'
notice to shareholders.
SHAREHOLDER SERVICES
In addition to the Exchange Privilege, as a shareholder of the Fund, you can
take advantage of the following services and privileges:
-AUTOMATIC REINVESTMENTS OF DIVIDENDS AND/OR DISTRIBUTIONS WITHOUT A SALES
CHARGE. For your convenience, all dividends and distributions are automatically
reinvested in full and fractional shares of the Fund at NAV without a sales
charge. You may direct the Transfer Agent in writing not less than 5 full
business days prior to the record date to have subsequent dividends and/or
distributions sent in cash rather than reinvested. If you hold shares through
Prudential Securities, you should contact your financial adviser.
-AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP). Under ASAP, you may make regular
purchases of the Fund's shares in amounts as little as $50 via an automatic
debit to a bank account or Prudential Securities account (including a Command
Account). For additional information about this service, you may contact your
Prudential Securities financial adviser, Prusec registered representative or the
Transfer Agent directly.
-SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available to
shareholders which provides for monthly or quarterly checks. Withdrawals of
Class B and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares-- Contingent Deferred Sales Charges" above.
REPORTS TO SHAREHOLDERS. The Fund will send you annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses, the Fund will provide one annual and semi-annual shareholder report
and annual prospectus per household. You may request additional copies of such
reports by calling (800) 225-1852 or by writing to the Fund at One Seaport
Plaza, New York, New York 10292. In addition, monthly unaudited financial data
is available upon request from the Fund.
SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Fund at One
Seaport Plaza, New York, New York 10292, or by telephone, at (800) 225-1852
(toll-free) or, from outside the U.S.A., at (908) 417-7555 (collect).
For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.
32
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
Prudential Mutual Fund Management offers a broad range of mutual funds
designed to meet your individual needs. We welcome you to review the investment
options available through our family of funds. For more information on the
Prudential Mutual Funds, including charges and expenses, contact your Prudential
Securities financial adviser or Prusec registered representative or telephone
the Funds at (800) 225-1852 for a free prospectus. Read the prospectus carefully
before you invest or send money.
TAXABLE BOND FUNDS
Prudential Adjustable Rate Securities Fund, Inc.
Prudential GNMA Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Prudential U.S. Government Fund
Income Portfolio
The BlackRock Government Income Trust
TAX-EXEMPT BOND FUNDS
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Modified Term Series
Prudential Municipal Series Fund
Arizona Series
Florida Series
Georgia Series
Maryland Series
Massachusetts Series
Michigan Series
Minnesota Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
GLOBAL FUNDS
Prudential Global Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Natural Resources Fund, Inc.
Prudential Intermediate Global Income Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential Short-Term Global Income Fund, Inc.
Global Assets Portfolio
Short-Term Global Income Portfolio
Global Utility Fund, Inc.
EQUITY FUNDS
Prudential Allocation Fund
Conservatively Managed Portfolio
Strategy Portfolio
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Growth Opportunity Fund, Inc.
Prudential IncomeVertible-R- Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Strategist Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
MONEY MARKET FUNDS
- -TAXABLE MONEY MARKET FUNDS
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund
Money Market Series
Prudential MoneyMart Assets
- -TAX-FREE MONEY MARKET FUNDS
Prudential Tax-Free Money Fund
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
33
<PAGE>
DESCRIPTION OF SECURITY RATINGS
MOODY'S INVESTORS SERVICE
BOND RATINGS
AAA: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
AA: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than Aaa 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 in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
BAA: Bonds which are rated Baa are considered as medium-grade obligation,
I.E., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Moody's applies numerical modifiers "1", "2" and "3" in each generic rating
classification from Aa through B in its corporate bond system. The modifer "1"
indicates that the security ranks in the higher end of its generic rating
category; the modifier "2" indicates a mid-ranking; and the modifier "3"
indicates that the issue ranks in the lower end of its generic rating category.
CAA: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
SHORT-TERM DEBT
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.
TAX-EXEMPT NOTES
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.
A-1
<PAGE>
MIG 1: Loans bearing the designation MIG 1 are of the best quality, enjoying
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG 2: Loans bearing the designation MIG 2 are of high quality, with margins
of protection ample although not so large as in the preceding group.
MIG 3: Loans bearing the designation MIG 3 are of favorable quality, with all
security elements accounted for but lacking the undeniable 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 CORPORATION
CORPORATE BOND RATINGS
AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
BB, B, CCC, CC AND C: Debt rated BB, B, CCC, CC and C is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligations. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
D: Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
COMMERCIAL PAPER RATINGS
Standard & Poor's commercial paper ratings are current assessments of the
likelihood of timely payment of debt considered short-term in the relevant
market.
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.
TAX-EXEMPT NOTES
Municipal notes issued after July 29, 1984 are rated SP-1, SP-2 and SP-3.
Municipal notes outstanding on July 29, 1984 carry the same symbols as municipal
bonds. The designation SP-1 indicates a very strong capacity to pay principal
and interest. A "+" is added to those issues determined to possess overwhelming
safety characteristics. An SP-2 designation indicates a satisfactory capacity to
pay principal and interest. An SP-3 designation indicates speculative capacity
to pay principal and interest.
A-2
<PAGE>
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations, other than those contained
in this Prospectus, in connection with the offer contained herein, and, if given
or made, such other information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. This Prospectus does not
constitute an offer by the Fund or by the Distributor to sell or a solicitation
of any offer to buy any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make such offer in such jurisdiction.
-------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FUND HIGHLIGHTS...................................................... 2
FUND EXPENSES........................................................ 4
FINANCIAL HIGHLIGHTS................................................. 6
HOW THE FUND INVESTS................................................. 9
Investment Objectives and Policies................................. 9
Hedging and Income Enhancement Strategies.......................... 14
Other Investments and Policies..................................... 15
Investment Restrictions............................................ 18
HOW THE FUND IS MANAGED.............................................. 18
Manager............................................................ 18
Distributor........................................................ 19
Portfolio Transactions............................................. 21
Custodian and Transfer and Dividend Disbursing Agent............... 21
HOW THE FUND VALUES ITS SHARES....................................... 21
HOW THE FUND CALCULATES PERFORMANCE.................................. 22
TAXES, DIVIDENDS AND DISTRIBUTIONS................................... 22
GENERAL INFORMATION.................................................. 24
Description of Shares.............................................. 24
Additional Information............................................. 25
SHAREHOLDER GUIDE.................................................... 25
How to Buy Shares of the Fund...................................... 25
Alternative Purchase Plan.......................................... 26
How to Sell Your Shares............................................ 28
Conversion Feature--Class B Shares................................. 30
How to Exchange Your Shares........................................ 31
Shareholder Services............................................... 32
THE PRUDENTIAL MUTUAL FUND FAMILY.................................... 33
DESCRIPTION OF SECURITY RATINGS...................................... A-1
</TABLE>
-------------------------------------------
133A 4441470
CUSIP Nos.:
High Yield Series Class A: 74435L103; Class B: 74435L202 Class C:
Insured Series Class A: 74435L301; Class B: 74435L400 Class C:
Modified Term Series Class A: 74435L509; Class B: 74435L608 Class C:
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Statement of Additional Information
dated , 1994
Prudential Municipal Bond Fund (the Fund) is an open-end, diversified
management investment company, or mutual fund, consisting of three separate
portfolios--the High Yield Series, the Insured Series and the Modified Term
Series. The investment objectives of the Series are as follows: (i) the
objective of the High Yield Series is to provide the maximum amount of income
that is eligible for exclusion from federal income taxes, (ii) the objective of
the Insured Series is to provide the maximum amount of income that is eligible
for exclusion from federal income taxes consistent with the preservation of
capital and (iii) the objective of the Modified Term Series is to provide a high
level of income that is eligible for exclusion from federal income taxes
consistent with the preservation of capital. Although each Series will seek
income that is eligible for exclusion from federal income taxes, a portion of
the dividends and distributions paid by each Series (and, in particular, the
High Yield Series) may be treated as a preference item for purposes of the
alternative minimum tax. Each Series seeks to achieve its objective through the
separate investment policies described under "Investment Objectives and
Policies."
The Fund's address is One Seaport Plaza, New York, New York 10292, and its
telephone number is (800) 225-1852.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's Prospectus dated , 1994, a copy of
which may be obtained from the Fund upon request.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CROSS-REFERENCE
TO PAGE IN
PAGE PROSPECTUS
---- ---------------
<S> <C> <C>
General Information.................................. B-2 --
Investment Objectives and Policies................... B-2 9
Investment Restrictions.............................. B-9 18
Trustees and Officers................................ B-11 18
Manager.............................................. B-13 18
Distributor.......................................... B-15 19
Portfolio Transactions and Brokerage................. B-16 21
Purchase and Redemption of Fund Shares............... B-17 25
Shareholder Investment Account....................... B-19 25
Net Asset Value...................................... B-22 21
Taxes, Dividends and Distributions................... B-22 22
Performance Information.............................. B-25 22
Organization and Capitalization...................... B-28 24
Custodian, Transfer and Dividend Disbursing Agent and
Independent Accountants............................ B-29 21
Financial Statements................................. B-30 --
Independent Auditors' Report......................... B-56 --
</TABLE>
<PAGE>
GENERAL INFORMATION
On February 28, 1991, the Trustees approved an amendment to the Declaration
of Trust to change the Fund's name from Prudential-Bache Municipal Bond Fund to
Prudential Municipal Bond Fund.
INVESTMENT OBJECTIVES AND POLICIES
Prudential Municipal Bond Fund is a diversified, open-end, management
investment company consisting of three separate portfolios: the High Yield
Series, the Insured Series and the Modified Term Series. The investment
objectives of the Series are as follows: (i) the objective of the High Yield
Series is to provide the maximum amount of income that is eligible for exclusion
from federal income taxes, (ii) the objective of the Insured Series is to
provide the maximum amount of income that is eligible for exclusion from federal
income taxes consistent with the preservation of capital and (iii) the objective
of the Modified Term Series is to provide a high level of income that is
eligible for exclusion from federal income taxes consistent with the
preservation of capital. There can be no assurance that any Series will achieve
its objective. Although each Series will seek income that is eligible for
exclusion from federal income taxes, a portion of the dividends and
distributions paid by each Series (and, in particular, the High Yield Series)
may be treated as a preference item for purposes of the alternative minimum tax.
The investment objective of each Series may not be changed without the
approval of the holders of a majority of the outstanding voting securities of
such Series. A "majority of the outstanding voting securities" of a Series, when
used in the Prospectus or this Statement of Additional Information, means the
lesser of (i) 67% of the voting shares of a Series represented at a meeting at
which more than 50% of the outstanding voting shares of a Series are present in
person or represented by proxy or (ii) more than 50% of the outstanding voting
shares of a Series.
Each Series will seek to achieve its investment objective by investing in a
diversified portfolio of obligations issued by or on behalf of states,
territories and possessions of the United States and the District of Columbia
and their political subdivisions, agencies and instrumentalities, the interest
on which is eligible for exclusion from federal income taxation (municipal
obligations or municipal securities). Each Series pursues its investment
objective through the separate investment policies described below and in the
Prospectus.
THE HIGH YIELD SERIES
The High Yield Series invests in municipal obligations rated "B" or better
by Moody's Investors Service, Inc. (Moody's) or Standard & Poor's Corporation
(S&P) having maturities generally in excess of ten years. The Series also will
invest in municipal obligations having maturities ranging from one year to ten
years. The Series will invest up to 35% of its total assets in municipal
obligations rated higher than "Baa" or "BBB" by Moody's and S&P, respectively.
The weighted average maturity of the portfolio is expected to range between 20
and 30 years.
THE INSURED SERIES
The Insured Series invests primarily in municipal obligations which are
insured, rated in the highest rating category of Moody's or S&P, or backed by
the U.S. Government. It is anticipated that the Series will offer generally
lower yields and be subject to less credit and market risk than the High Yield
Series.
It is anticipated that, under current market conditions, a great majority of
the municipal obligations held by the Insured Series will be insured by the
following entities: Municipal Bond Insurance Association (MBIA), Municipal Bond
Investors Assurance Corporation (MBIA Corp.), Bond Investors Guaranty Insurance
Company (BIG), AMBAC Indemnity Corporation (AMBAC), Financial Guaranty Insurance
Company (FGIC), Capital Guaranty Insurance Company (CGIC) and Financial Security
Assurance Inc. (FSA). Each of these entities is described more fully below. The
Series will not invest in obligations insured by The Prudential Insurance
Company of America (Prudential), except as may be permitted by applicable law,
nor will it settle any claim under portfolio insurance provided by an insurer
whose insurance obligations are reinsured by Prudential Reinsurance Company or
any other affiliate of Prudential for less than full payment except in
accordance with an exemptive order obtained from the Securities and Exchange
Commission (SEC).
Five major insurance companies, each liable for its proportionate share of
each policy written, formed the Municipal Bond Insurance Association (MBIA).
Each insurance company comprising MBIA is severally and not jointly obligated
under MBIA's insurance policies in the following respective percentages: The
AEtna Casualty and Surety Company (33%), Fireman's Fund Insurance Company (30%),
The Travelers Indemnity Company (15%), CIGNA Property and Casualty Company
(formerly AEtna
B-2
<PAGE>
Insurance Company) (12%) and The Continental Insurance Company (10%). The assets
of any one insurance company are not subject to claims which are an obligation
of another MBIA insurer. [The total policyholders' surplus of the five member
companies was approximately $ billion (audited) as of December 31, 1993.]
MBIA Corp. is the principal operating subsidiary of MBIA Inc., a New York
Stock Exchange listed company. [As of March 31, 1994, MBIA Corp. had, on a
statutory basis, total capital and surplus of approximately $918 million
(unaudited), approximately $2.6 billion (unaudited) of admitted assets and
approximately $1.8 billion (unaudited) of liabilities.] MBIA Inc. is not
obligated to pay the debts of or claims against MBIA Corp. MBIA Corp. is a
limited liability corporation rather than a several liability association. MBIA
Corp. is domiciled in the state of New York and licensed to do business in all
50 states, the District of Columbia and the Commonwealth of Puerto Rico.
FGIC Corporation, the owner of FGIC, is a wholly-owned subsidiary of General
Electric Capital Corporation. Neither FGIC Corporation nor General Electric
Capital Corporation is obligated to pay the debts of or claims against FGIC. [As
of March 31, 1994, FGIC's total capital and surplus was approximately $667
million (unaudited).]
AMBAC is a Wisconsin-domiciled stock insurance corporation regulated by the
Office of the Commissioner of Insurance of the State of Wisconsin and licensed
to do business in 50 states, the District of Columbia, and the Commonwealth of
Puerto Rico, with admitted assets of approximately [$1.725 billion (unaudited)
and statutory capital of approximately $963 million (unaudited) as of March 31,
1994.] Statutory capital consists of AMBAC policyholders' surplus and statutory
contingency reserve. AMBAC is a wholly-owned subsidiary of AMBAC, Inc., a 100%
publicly-held company. Moody's and S&P have both assigned a triple-A
claims-paying ability rating to AMBAC.
CGIC is a wholly-owned subsidiary of Capital Guaranty Corporation which is
owned by Constellation Investments Inc. (an affiliate of Baltimore Gas and
Electric Co.), Fleet/Norstar Financial Group, Inc., Safeco Corporation, Sibag
Finance Corporation (an affiliate of Siemens A.G.), United States Fidelity and
Guaranty Company, and management. The investors in Capital Guaranty Corporation
are not obligated to pay the debts of or claims against CGIC. [As of March 31,
1994, CGIC had total assets of approximately $228 million (unaudited) and total
policyholders' surplus of approximately $118 million (unaudited).]
FSA is approximately 91.6% owned by U S West, Inc. and 8.4% owned by The
Tokio Marine and Fire Insurance Co., Ltd. (Tokio Marine). Neither U S West, Inc.
nor Tokio Marine is obligated to pay the debts of or claims against FSA. [As of
March 31, 1994, FSA had total assets of approximately $1.08 billion (unaudited)
and total capital and surplus of approximately $628 million (unaudited).]
THE MODIFIED TERM SERIES
The Modified Term Series invests primarily in municipal obligations rated
"Baa" or "BBB" or better by Moody's or S&P, respectively, with maturities of
five to fifteen years or with maturities in excess of fifteen years which are
hedged to create an effective maturity of approximately ten years. Under normal
circumstances, at least 60% of the municipal obligations purchased by the Series
will be rated "A" or better by Moody's or S&P. It is anticipated that this
Series will offer generally lower yields and be subject to less market risk than
the High Yield Series or the Insured Series.
As indicated in the Prospectus, the effective weighted average maturity of
the Series will be approximately 5 to 10 years. For purposes of determining the
weighted average maturity of the obligations held by the Series, the maturity of
synthetic positions will be determined on the basis of the obligation's price
volatility. In other words, if a synthetic position is hedged so that it has a
theoretical price volatility equal to a 10-year obligation, the position will be
considered as having a 10-year maturity for purposes of determining the
effective weighted average maturity of the Series.
GENERAL
The Prudential Investment Corporation (PIC or the Subadviser) maintains a
municipal credit unit which provides credit analysis and research on tax-exempt
fixed-income securities. The portfolio manager consults routinely with the
credit unit in managing the Fund's portfolios. The municipal credit unit, which
currently maintains a staff of 16 persons including 12 credit analysts, reviews
on an ongoing basis issuers of tax-exempt fixed-income obligations, including
prospective purchases and portfolio holdings of the Series. Credit analysts have
broad access to research and financial reports, data retrieval services and
industry analysts. They review financial and operating statements supplied by
state and local governments and other issuers of municipal securities to
evaluate revenue projections and the financial soundness of municipal issuers.
They study the impact of economic and political developments on state and local
governments, evaluate industry sectors and meet periodically with public
B-3
<PAGE>
officials and other representatives of state and local governments and other
tax-exempt issuers to discuss such matters as budget projections, debt policy,
the strength of the regional economy and, in the case of revenue bonds, the
demand for facilities. They also make site inspections to review specific
projects and to evaluate the progress of construction or the operation of a
facility.
Each Series may invest in municipal securities which are not rated if, based
upon a credit analysis by the Subadviser, the Subadviser believes that the
securities are of comparable quality to other municipal securities that the
Series may purchase. A description of the ratings is set forth under the heading
"Description of Security Ratings" in the Prospectus. The ratings of Moody's and
S&P represent the respective opinions of those firms of the quality of the
securities each undertakes to rate. The ratings are general and are not absolute
standards of quality. In determining the suitability for investment in a
particular unrated security, the Subadviser will take into consideration asset
and debt service coverage, the purpose of the financing, the history of the
issuer, the existence of other rated securities of the issuer, any credit
enhancement by virtue of a letter of credit or other financial guaranty deemed
suitable by the investment adviser and other factors as may be relevant,
including comparability to other issuers.
After its purchase by a Series of the Fund, an issue of municipal bonds or
notes may cease to be rated or its rating(s) may be reduced. Neither event
requires the elimination of that obligation from the portfolio of the Series,
but each event will be a factor in determining whether the Series should
continue to hold that issue in its portfolio.
Each Series will attempt to invest substantially all of its net assets in
municipal securities. Under normal market conditions, each Series anticipates
that its assets will be invested so that at least 80% of its net assets will be
invested in municipal securities. Each Series will continuously monitor its
portfolio to ensure that the asset investment test is met at all times, except
for temporary defensive positions during abnormal market conditions.
A Series may invest its assets from time to time on a temporary basis in
debt securities, the interest on which is subject to federal, state or local
income tax: (i) pending the investment or reinvestment in municipal securities
of the proceeds from the sale of shares of the Series or sales of portfolio
securities, (ii) in order to avoid the necessity of liquidating portfolio
investments to meet redemptions of shares by investors, or (iii) where market
conditions due to rising interest rates or other adverse factors warrant
temporary investing. Investments in taxable securities may include: obligations
of the U.S. Government, its agencies or instrumentalities; commercial paper
rated in the two highest grades by either Moody's or S&P (A-1 and A-2, or P-1
and P-2, respectively), except that the Insured Series may invest only in
commercial paper rated A-1 or P-1; certificates of deposit and bankers'
acceptances; other debt securities rated within the three highest grades by
either Moody's or S&P or, if unrated, judged by the Subadviser to possess
comparable creditworthiness; and repurchase agreements with respect to any of
the foregoing investments. Each Series does not intend to invest more than 5% of
its assets in any one category of the foregoing taxable securities. A Series may
also hold its assets in other cash equivalents or in cash.
The Fund, as well as each Series of the Fund, is classified as "diversified"
under the Investment Company Act of 1940, as amended (the Investment Company
Act). This means that with respect to 75% of the assets of a Series, (i) the
Series may not invest more than 5% of its total assets in the securities of any
one issuer (except U.S. Government obligations) and (ii) the Series may not own
more than 10% of the outstanding voting securities of any one issuer. For
purposes of diversification and concentration under the Investment Company Act,
the identification of the issuer of the municipal obligation depends upon the
terms and conditions of the obligation. If the assets and revenues of an agency,
authority, instrumentality or other political subdivision are separate from
those of the government creating the subdivision and the obligation is backed
only by the assets and revenues of the subdivision, the subdivision is regarded
as the sole issuer. Similarly, in the case of an industrial development revenue
bond or pollution control revenue bond, if the bond is backed only by the assets
and revenues of the non-governmental user, the non-governmental user is regarded
as the sole issuer. If, in either case, the creating government or another
entity guarantees an obligation, the guaranty may be regarded as a separate
security and treated as an issue of the guarantor.
Since securities issued or guaranteed by states or municipalities are not
voting securities, there is no limitation on the percentage of a single issuer's
securities which a Series may own so long as, with respect to 75% of its assets,
it does not invest more than 5% of its total assets in the securities of that
issuer (except obligations issued or guaranteed by the U.S. Government). As for
the other 25% of the assets of a Series not subject to the limitation described
above, there is no limitation as to the number of issuers in whose securities
these assets may be invested.
The Fund expects that normally a Series will not invest more than 25% of its
total assets in any one sector of the municipal obligations market, including:
hospitals, nursing homes, retirement facilities and other health facilities;
turnpikes and toll roads; ports and airports; colleges and universities; state
and local housing finance authorities; obligations of municipal utilities
systems; or industrial development and pollution control bonds. However,
depending upon prevailing market conditions, a Series may have
B-4
<PAGE>
more than 25% of its total assets invested in any one sector of the municipal
obligations market. Each of the foregoing types of investments might be subject
to particular risks which, to the extent that a Series is concentrated in such
investments, could affect the value or liquidity of the Series' portfolio.
A portion of the dividends and distributions paid on the shares of each
Series of the Fund may be treated as a preference item for purposes of the
alternate minimum tax for individuals and corporations. Such treatment may cause
certain investors, depending upon other aspects of their individual tax
situation, to incur some federal income tax liability. The Fund's Subadviser
intends (except with respect to the High Yield Series) to invest in securities
so as to minimize the portion of such dividends or distributions that are
treated as a tax preference item. In addition, corporations are subject to an
alternative minimum tax which treats as a tax preference item 75% of a
corporation's adjusted current earnings. A corporation's adjusted current
earnings would include interest paid on municipal obligations and dividends paid
on shares of the Fund. See "Taxes, Dividends and Distributions."
As in the past, proposals may be submitted to Congress in the future with
the intended effect of eliminating or further restricting the issuance of
municipal obligations or the federal tax exemption for interest paid on
municipal obligations. In that event, the Fund may re-evaluate its investment
objectives.
Unlike many issues of common and preferred stock and corporate bonds which
are traded between brokers acting as agents for their customers on securities
exchanges, municipal obligations are customarily purchased from or sold to
dealers who are selling or buying for their own account. Most municipal
obligations are not required to be registered with or qualified for sale by
federal or state securities regulators. Since there are large numbers of
municipal obligation issues of many different issuers, most issues do not trade
on any single day. On the other hand, most issues are always marketable, since a
major dealer will normally, on request, bid for any issue, other than obscure
ones. Regional municipal securities dealers are frequently more willing to bid
on issues of municipalities in their geographic area.
Although almost all municipal obligations are marketable, the structure of
the market introduces its own element of risk; a seller may find, on occasion,
that dealers are unwilling to make bids for certain issues that the seller
considers reasonable. If the seller is forced to sell, he or she may realize a
capital loss that would not have been necessary in different circumstances.
Because the net asset value of a Series' shares reflects the degree of
willingness of dealers to bid for municipal obligations, the price of a Series'
shares may be subject to greater fluctuation than shares of other investment
companies with different investment policies. See "Net Asset Value."
MUNICIPAL SECURITIES
Municipal securities include notes and bonds issued by or on behalf of
states, territories and possessions of the United States and their political
subdivisions, agencies and instrumentalities and the District of Columbia, the
interest on which is generally eligible for exclusion from federal income tax
and, in certain instances, applicable state or local income and personal
property taxes. Such securities are traded primarily in the over-the-counter
market.
MUNICIPAL BONDS. Municipal bonds are issued to obtain funds for various
public purposes, including the construction of a wide range of public facilities
such as airports, bridges, highways, housing, hospitals, mass transportation,
schools, streets, water and sewer works and gas and electric utilities.
Municipal bonds also may be issued in connection with the refunding of
outstanding obligations and obtaining funds to lend to other public institutions
or for general operating expenses.
The two principal classifications of municipal bonds are "general
obligation" and "revenue." General obligation bonds are secured by the issuer's
pledge of its full faith, credit and taxing power for the payment of principal
and interest. Revenue bonds are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise tax or other specific revenue source.
Industrial development bonds (IDBs) are issued by or on behalf of public
authorities to obtain funds to provide various privately-operated facilities for
business and manufacturing, housing, sports, pollution control, and for airport,
mass transit, port and parking facilities. Although IDBs are issued by municipal
authorities, they are generally secured by the revenues derived from payments of
the industrial user. The payment of the principal and interest on IDBs is
dependent solely on the ability of the user of the facilities financed by the
bonds to meet its financial obligations and the pledge, if any, of real and
personal property so financed as security for the payment.
B-5
<PAGE>
MUNICIPAL NOTES. Municipal notes generally are used to provide for
short-term capital needs and generally have maturities of one year or less.
Municipal notes include:
1. TAX ANTICIPATION NOTES. Tax Anticipation Notes are issued to finance
working capital needs of municipalities. Generally, they are issued in
anticipation of various seasonal tax revenues, such as income, sales, use and
business taxes, and are payable from these specific future taxes.
2. REVENUE ANTICIPATION NOTES. Revenue Anticipation Notes are issued in the
expectation of reception of other kinds of revenue, such as federal revenues
available under the Federal Revenue Sharing Programs.
3. BOND ANTICIPATION NOTES. Bond Anticipation Notes are issued to provide
interim financing until long-term financing can be arranged. In most cases, the
long-term bonds then provide the money for the repayment of the Notes.
4. CONSTRUCTION LOAN NOTES. Construction Loan Notes are sold to provide
construction financing. Permanent financing, the proceeds of which are applied
to the payment of Construction Loan Notes, is sometimes provided by a commitment
by the Government National Mortgage Association (GNMA) to purchase the loan,
accompanied by a commitment by the Federal Housing Administration to insure
mortgage advances thereunder. In other instances, permanent financing is
provided by commitments of banks to purchase the loan.
TAX-EXEMPT COMMERCIAL PAPER. Issues of tax-exempt commercial paper, the
interest on which is generally exempt from federal income taxes, typically are
represented by short-term, unsecured, negotiable promissory notes. These
obligations are issued by agencies of state and local governments to finance
seasonal working capital needs of municipalities or to provide interim
construction financing and are paid from general revenues of municipalities or
are refinanced with long-term debt. In most cases, tax-exempt commercial paper
is backed by letters of credit, lending agreements, note repurchase agreements
or other credit facility agreements offered by banks or other institutions and
is actively traded.
FLOATING RATE AND VARIABLE RATE SECURITIES. Each Series may invest more than
5% of its assets in floating rate and variable rate securities, including
participation interests therein and inverse floaters. Floating or variable rate
securities often have a rate of interest that is set as a specific percentage of
a designated base rate, such as the rate on Treasury Bonds or Bills or the prime
rate at a major commercial bank. These securities also allow the holder to
demand payment of the obligation on short notice at par plus accrued interest,
which amount may be more or less than the amount the holder paid for them.
Variable rate securities provide for a specified periodic adjustment in the
interest rate. The interest rate on floating rate securities changes whenever
there is a change in the designated base interest rate. Floating rate and
variable rate securities typically have long maturities but afford the holder
the right to demand payment at earlier dates. Such floating rate and variable
rate securities will be treated as having maturities equal to the period of
adjustment of the interest rate.
An inverse floater is a debt instrument with a floating or variable interest
rate that moves in the opposite direction of the interest rate on another
security or the value of an index. Changes in the interest rate on the other
security or index inversely affect the residual interest rate paid on the
inverse floater, with the result that the inverse floater's price will be
considerably more volatile than that of a fixed rate bond. The market for
inverse floaters is relatively new.
LIQUIDITY PUTS. Each Series may purchase and exercise puts on municipal
bonds and notes. Puts give the Series the right to sell securities held in the
portfolio at a specified exercise price on a specified date. Puts may be
acquired to reduce the volatility of the market value of securities subject to
puts. The acquisition of a put may involve an additional cost to the Series
compared to the cost of securities with similar credit ratings, stated
maturities and interest coupons but without applicable puts. This increased cost
may be paid either by way of an initial or periodic premium for the put or by
way of a higher purchase price for securities to which the put is attached. In
addition, there is a credit risk associated with the purchase of puts in that
the issuer of the put may be unable to meet its obligation to purchase the
underlying security. Accordingly, each Series will acquire a put only under the
following circumstances: (i) the put is written by the issuer of the underlying
security and the security is rated within the quality grades in which the Series
is permitted to invest; (ii) the put is written by a person other than the
issuer of the underlying security and that person has securities outstanding
which are rated within the quality grades in which the Series is permitted to
invest; or (iii) the put is backed by a letter of credit or similar financial
guaranty issued by a person having securities outstanding which are rated within
the quality grades in which the Series is permitted to invest.
Puts will be valued at an amount equal to the difference between the value
of the underlying security taking the put into consideration and the value of
the same or a comparable security without taking the put into consideration.
LENDING OF SECURITIES. Consistent with applicable regulatory requirements,
each Series may lend its portfolio securities to brokers, dealers and financial
institutions, provided that outstanding loans do not exceed in the aggregate 33%
of the value of the Series' total assets and provided that such loans are
callable at any time by the Series and are at all times secured by cash or
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<PAGE>
equivalent collateral that is equal to at least the market value, determined
daily, of the loaned securities. The advantage of such loans is that the Series
continues to receive payments in lieu of the interest and dividends on the
loaned securities, while at the same time earning interest either directly from
the borrower or on the collateral which will be invested in short-term
obligations.
A loan may be terminated by the borrower on one business day's notice or by
the Series any time. If the borrower fails to maintain the requisite amount of
collateral, the loan automatically terminates, and the Series can use the
collateral to replace the securities while holding the borrower liable for any
excess of replacement cost over collateral. As with any extensions of credit,
there are risks of delay in recovery and in some cases loss of rights in the
collateral should the borrower of the securities fail financially. However,
these loans of portfolio securities will only be made to firms determined to be
creditworthy pursuant to procedures approved by the Fund's Trustees. On
termination of the loan, the borrower is required to return the securities to
the Series, and any gain or loss in the market price during the loan would inure
to the Series.
Since voting or consent rights which accompany loaned securities pass to the
borrower, the Series will follow the policy of calling the loan, in whole or in
part as may be appropriate, to permit the exercise of such rights if the matters
involved would have a material effect on the Series' investment in the
securities which are the subject of the loan. The Series will pay reasonable
finders', administrative and custodial fees in connection with a loan of its
securities or may share the interest earned on collateral with the borrower.
The Fund does not intend to lend its securities during the coming year.
FUTURES CONTRACTS. Each Series may engage in transactions in financial
futures contracts as a hedge against interest rate related fluctuations in the
value of securities which are held in the investment portfolio or which the
Series intends to purchase. A clearing corporation associated with the
commodities exchange on which a futures contract trades assumes responsibility
for the completion of transactions and guarantees that open futures contracts
will be closed. Although interest rate futures contracts call for actual
delivery or acceptance of debt securities, in most cases the contracts are
closed out before the settlement date without the making or taking of delivery.
When the futures contract is entered into, each party deposits with a broker
or in a segregated custodial account approximately 5% of the contract amount,
called the "initial margin." Subsequent payments to and from the broker, called
"variation margin," will be made on a daily basis as the price of the underlying
security or index fluctuates, making the long and short positions in the futures
contracts more or less valuable, a process known as "marking to market." In the
case of options on futures contracts, the holder of the option pays a premium
and receives the right, upon exercise of the option at a specified price during
the option period, to assume a position in the futures contract (a long position
if the option is a call and a short position if the option is a put). If the
option is exercised by the holder before the last trading day during the option
period, the option writer delivers the futures position, as well as any balance
in the writer's futures margin account. If it is exercised on the last trading
day, the option writer delivers to the option holder cash in an amount equal to
the difference between the option exercise price and the closing level of the
relevant index on the date the option expires.
When a Series purchases a futures contract, it will maintain an amount of
cash, cash equivalents (E.G., commercial paper and daily tender adjustable rate
notes) or liquid, high-grade, fixed-income securities in a segregated account
with the Fund's Custodian, so that the amount so segregated plus the amount of
initial and variation margin held in the account of its broker equals the market
value of the futures contract, thereby ensuring that the use of such futures
contract is unleveraged. A Series that has sold a futures contract may "cover"
that position by owning the instruments underlying the futures contract or by
holding a call option on such futures contract. A Series will not sell futures
contracts if the value of such futures contracts exceeds the total market value
of the securities of the Series. It is not anticipated that transactions in
futures contracts will have the effect of increasing portfolio turnover.
OPTIONS ON FINANCIAL FUTURES. Each Series may purchase call options and
write put and call options on futures contracts and enter into closing
transactions with respect to such options to terminate an existing position.
Each Series will use options on futures in connection with hedging strategies.
An option on a futures contract gives the purchaser the right, in return for
the premium paid, to assume a position in a futures contract (a long position if
the option is a call and a short position if the option is a put) at a specified
exercise price at any time during the period of the option. Upon exercise of the
option, the delivery of the futures position by the writer of the option to the
holder of the option will be accompanied by delivery of the accumulated balance
in the writer's futures margin account which represents the amount by which the
market price of the futures contract, at exercise, exceeds, in the case of a
call, or is less than, in the case of a put, the exercise price of the option on
the futures contract. If an option is exercised on the last trading day prior to
the expiration date of the option, the settlement will be made entirely in cash
equal to the difference between the exercise price of the option and the closing
price of the futures contract on the expiration date. Currently options can be
purchased or written with
B-7
<PAGE>
respect to futures contracts on U.S. Treasury Bonds, among other fixed-income
securities, and on municipal bond indices on the Chicago Board of Trade. As with
options on debt securities, the holder or writer of an option may terminate his
or her position by selling or purchasing an option of the same series. There is
no guaranty that such closing transactions can be effected.
When a Series hedges its portfolio by purchasing a put option, or writing a
call option, on a futures contract, it will own a long futures position or an
amount of debt securities corresponding to the open option position. When a
Series writes a put option on a futures contract, it may, rather than establish
a segregated account, sell the futures contract underlying the put option or
purchase a similar put option. In instances involving the purchase of a call
option on a futures contract, the Fund will deposit in a segregated account with
the Fund's Custodian an amount in cash, cash equivalents or liquid, high-grade,
fixed-income securities equal to the market value of the obligation underlying
the futures contract, less any amount held in the initial and variation margin
accounts.
LIMITATIONS ON PURCHASE AND SALE. Under regulations of the Commodity
Exchange Act, investment companies registered under the Investment Company Act
are exempted from the definition of "commodity pool operator," subject to
compliance with certain conditions. The exemption is conditioned upon a
requirement that all of the Fund's futures or options transactions constitute
BONA FIDE hedging transactions within the meaning of the regulations of the
Commodity Futures Trading Commission. The Fund may also enter into futures
contracts or options thereon for nonhedging purposes if the aggregate initial
margin for such contracts and premiums paid for such options do not exceed 5% of
the liquidation value of the Fund's total assets. Each Series will use financial
futures in a manner consistent with these requirements. Each Series will
continue to invest at least 80% of its net assets in municipal bonds and
municipal notes except in certain circumstances, as described in the Prospectus
under "How the Fund Invests--Investment Objectives and Policies." A Series may
not enter into futures contracts if, immediately thereafter, the sum of the
amount of initial and net cumulative variation margin on outstanding futures
contracts, together with premiums paid on options thereon, would exceed 20% of
the total assets of the Series.
RISKS OF FINANCIAL FUTURES TRANSACTIONS. In addition to the risk associated
with predicting movements in the direction of interest rates, discussed in "How
the Fund Invests--Hedging and Income Enhancement Strategies--Futures Contracts
and Options Thereon" in the Prospectus, there are a number of other risks
associated with the use of financial futures for hedging purposes.
Each Series intends to purchase and sell futures contracts only on exchanges
where there appears to be a market in the futures sufficiently active to
accommodate the volume of its trading activity. There can be no assurance that a
liquid market will always exist for any particular contract at any particular
time. Accordingly, there can be no assurance that it will always be possible to
close a futures position when such closing is desired; and, in the event of
adverse price movements, the Series would continue to be required to make daily
cash payments of variation margin. However, if futures contracts have been sold
to hedge portfolio securities, these securities will not be sold until the
offsetting futures contracts can be purchased. Similarly, if futures have been
bought to hedge anticipated securities purchases, the purchases will not be
executed until the offsetting futures contracts can be sold.
The hours of trading of interest rate futures contracts may not conform to
the hours during which the Series may trade municipal securities. To the extent
that the futures markets close before the municipal securities market,
significant price and rate movements can take place that cannot be reflected in
the futures markets on a day-to-day basis.
RISKS OF TRANSACTIONS IN OPTIONS ON FINANCIAL FUTURES. In addition to the
risks which apply to all options transactions, there are several special risks
relating to options on futures. The ability to establish and close out positions
on such options will be subject to the maintenance of a liquid secondary market.
Compared to the sale of financial futures, the purchase of put options on
financial futures involves less potential risk to a Series because the maximum
amount at risk is the premium paid for the options (plus transaction costs).
However, there may be circumstances when the purchase of a put option on a
financial future would result in a loss to a Series when the sale of a financial
future would not, such as when there is no movement in the price of debt
securities.
An option position may be closed out only on an exchange which provides a
secondary market for an option of the same series. Although a Series generally
will purchase only those options for which there appears to be an active
secondary market, there is no assurance that a liquid secondary market on an
exchange will exist for any particular option, or at any particular time, and
for some options, no secondary market on an exchange may exist. In such event,
it might not be possible to effect closing transactions in particular options
with the result that a Series would have to exercise its options in order to
realize any profit and would incur transaction costs upon the sale of underlying
securities pursuant to the exercise of put options.
Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening transactions
or closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options
B-8
<PAGE>
or underlying securities; (iv) unusual or unforeseen circumstances may interrupt
normal operations on an exchange; (v) the facilities of an exchange may not at
all times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that exchange (or in
that class or series of options) would cease to exist, although outstanding
options on that exchange could continue to be exercisable in accordance with
their terms.
There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain clearing facilities
inadequate, and thereby result in the institution by an exchange of special
procedures which may interfere with the timely execution of customers' orders.
REPURCHASE AGREEMENTS
The Fund's repurchase agreements will be collateralized by U.S. Government
obligations. The Fund will enter into repurchase transactions only with parties
meeting creditworthiness standards approved by the Fund's Trustees. The Fund's
investment adviser will monitor the creditworthiness of such parties, under the
general supervision of the Trustees. In the event of a default or bankruptcy by
a seller, the Fund will promptly seek to liquidate the collateral. To the extent
that the proceeds from any sale of such collateral upon a default in the
obligation to repurchase are less than the repurchase price, the Fund will
suffer a loss.
The Fund participates in a joint repurchase account with other investment
companies managed by Prudential Mutual Fund Management, Inc. (PMF) pursuant to
an order of the SEC. On a daily basis, any uninvested cash balances of the Fund
may be aggregated with those of such investment companies and invested in one or
more repurchase agreements. Each fund participates in the income earned or
accrued in the joint account based on the percentage of its investment.
PORTFOLIO TURNOVER
A Series may engage in short-term trading consistent with its investment
objective. Portfolio transactions will be undertaken in response to anticipated
movements in the general level of interest rates. Municipal securities or
futures contracts may be sold in anticipation of a market decline (resulting
from a rise in interest rates) or purchased in anticipation of a market rise
(resulting from a decline in interest rates) and later sold. In addition, a
security may be sold and another purchased at approximately the same time to
take advantage of what the investment adviser believes to be a temporary
disparity in the normal yield relationship between the two securities. Yield
disparities may occur for reasons not directly related to the investment quality
of particular issues or the general movement of interest rates, due to factors
such as changes in the overall demand for or supply of various types of
municipal securities or changes in the investment objectives of investors.
Except as described above and under "Investment Restrictions," the foregoing
investment policies are not fundamental and may be changed by the Trustees of
the Fund without the vote of a majority of its outstanding voting securities.
INVESTMENT RESTRICTIONS
The following restrictions are fundamental policies. A fundamental policy
cannot be changed without the approval of the holders of a majority of the
outstanding voting securities of a Series. As defined in the Investment Company
Act, a majority of the outstanding voting securities of a Series means the
lesser of (i) 67% of the voting shares represented at a meeting at which more
than 50% of the outstanding voting shares are present in person or represented
by proxy or (ii) more than 50% of the outstanding voting shares.
Each Series may not:
1. Purchase securities on margin (but the Series may obtain such short-term
credits as may be necessary for the clearance of transactions and for margin
payments in connection with transactions in financial futures contracts and
options thereon).
2. Make short sales of securities or maintain a short position.
3. Issue senior securities, borrow money or pledge its assets, except that
each Series may borrow up to 20% of the value of its total assets (calculated
when the loan is made) for temporary, extraordinary or emergency purposes and to
take advantage of investment opportunities or for the clearance of transactions.
The Series may pledge up to 20% of the value of its total assets to secure such
borrowings. For purposes of this restriction, the preference as to shares of a
Series in liquidation and as to dividends over all other Series of the Fund with
respect to assets specifically allocated to that Series, the purchase or sale of
securities on a
B-9
<PAGE>
when-issued or delayed delivery basis, the purchase and sale of financial
futures contracts and collateral arrangements with respect thereto and
obligations of the Series to Trustees, pursuant to deferred compensation
arrangements, are not deemed to be the issuance of a senior security or a pledge
of assets.
4. Purchase any security if as a result, with respect to 75% of the total
assets of the Series, more than 5% of the total assets of the Series would be
invested in the securities of any one issuer (provided that this restriction
shall not apply to obligations issued or guaranteed as to principal and interest
by the U.S. Government or its agencies or instrumentalities).
5. Purchase securities (other than municipal obligations and obligations
guaranteed as to principal and interest by the U.S. Government or its agencies
or instrumentalities) if, as a result of such purchase, 25% or more of the total
assets of the Series (taken at current market value) would be invested in any
one industry. (For purposes of this restriction, industrial development bonds,
where the payment of the principal and interest is the ultimate responsibility
of companies within the same industry, are grouped together as an "industry.")
6. Buy or sell commodities or commodity contracts, except financial futures
contracts and options thereon.
7. Buy or sell real estate or interests in real estate, although it may
purchase and sell securities which are secured by real estate and securities of
companies which invest or deal in real estate.
8. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter under
certain federal securities laws.
9. Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets.
10. Purchase any security if as a result the Series would then have more
than 5% of its total assets (taken at current value) invested in industrial
development revenue bonds where the private entity on whose credit the security
is based, directly or indirectly, is less than three years old (including
predecessors), unless the security purchased by the Series is rated by a
nationally recognized rating service.
11. Invest in interests in oil, gas or other mineral exploration or
development programs.
12. Make loans, except through (i) repurchase agreements and (ii) loans of
portfolio securities (limited to 33% of the Series' total assets).
13. Purchase or write puts, calls or combinations thereof except as
described in the Prospectus and this Statement of Additional Information with
respect to puts and options on futures contracts.
14. Invest for the purpose of exercising control or management of another
company.
In order to comply with certain state "Blue Sky" restrictions, the Fund will
not as a matter of operating policy;
(a) Purchase securities which are secured by real estate or securities of
companies which invest or deal in real estate unless such securities are readily
marketable; and invest in oil, gas and mineral leases;
(b) Purchase warrants if as a result a Series would then have more than 5%
of its total assets (determined at the time of investment) invested in warrants.
Warrants will be valued at the lower of cost or market and investment in
warrants which are not listed on the New York Stock Exchange or American Stock
Exchange will be limited to 2% of a Series' total assets (determined at the time
of investment). For the purpose of this limitation, warrants acquired in units
or attached to securities are deemed to be without value; and
(c) Purchase the securities of any one issuer if, to the knowledge of the
Fund, any officer or Trustee of the Fund or officer or director of the Manager
or Subadviser owns more than 1/2 of 1% of the outstanding securities of such
issuer, and such officers, Trustees and directors who own more than 1/2 of 1%
own in the aggregate more than 5% of the outstanding securities of such issuer.
Whenever any fundamental investment policy or investment restriction states
a maximum percentage of a Series' assets, it is intended that if the percentage
limitation is met at the time the investment is made, a later change in
percentage resulting from changing total or net asset values will not be
considered a violation of such policy. However, in the event that a Series'
asset coverage for borrowings falls below 300%, the Series will take prompt
action to reduce its borrowings, as required by applicable law.
B-10
<PAGE>
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATIONS
NAME AND ADDRESS WITH FUND DURING PAST FIVE YEARS
- ---------------------------- --------------- -------------------------------------------------------------------------
<S> <C> <C>
Edward D. Beach Trustee President and Director of BMC Fund, Inc., a closed-end investment
c/o Prudential Mutual Fund company; prior thereto, Vice Chairman of Broyhill Furniture Industries,
Management, Inc. Inc.; Certified Public Accountant; Secretary and Treasurer of Broyhill
One Seaport Plaza Family Foundation, Inc.; President, Treasurer and Director of First
New York, NY Financial Fund, Inc. and The High Yield Plus Fund, Inc.; Director of
The Global Government Plus Fund, Inc. and The Global Yield Fund, Inc.
Donald D. Lennox Trustee Chairman (since February 1990) and Director (since April 1989) of
c/o Prudential Mutual Fund International Imaging Materials, Inc.; Retired Chairman, Chief
Management, Inc. Executive Officer and Director of Schlegel Corporation (industrial
One Seaport Plaza manufacturing) (March 1987-February 1989); Director of Gleason
New York, NY Corporation, Navistar International Corporation, Personal Sound
Technologies, Inc., The Global Government Plus Fund, Inc. and The High
Yield Income Fund, Inc.
Douglas H. McCorkindale Trustee Vice Chairman, Gannett Co. Inc. (publishing and media) (since March
c/o Prudential Mutual Fund 1984); Director, Continental Airlines, Inc., Gannett Co., Inc.,
Management, Inc. Rochester Telephone Corporation and The Global Government Plus Fund,
One Seaport Plaza Inc.
New York, NY
*Lawrence C. McQuade President Vice Chairman of PMF (since 1988); Managing Director, Investment Banking,
One Seaport Plaza and Trustee Prudential Securities (1988-1991); Director of Quixote Corporation
New York, NY (since February 1992) and BUNZL, P.L.C. (since June 1991); formerly
Director of Kaiser Tech., Ltd. and Kaiser Aluminum and Chemical Corp.
(March 1987-November 1988) and Crazy Eddie Inc. (1987-1990); formerly
Executive Vice President and Director of W.R. Grace & Company
(1975-1987); President and Director of The Global Government Plus Fund,
Inc., The Global Yield Fund, Inc. and The High Yield Income Fund, Inc.
Thomas T. Mooney Trustee President of the Greater Rochester Metro Chamber of Commerce; formerly
c/o Prudential Mutual Fund Rochester City Manager; Trustee of Center for Governmental Research,
Management, Inc. Inc.; Director of Blue Cross of Rochester, Monroe County Water
One Seaport Plaza Authority, Rochester Jobs, Inc., Executive Service Corps of Rochester,
New York, NY Monroe County Industrial Development Corporation, Northeast Midwest
Institute, First Financial Fund, Inc., The Global Government Plus Fund,
Inc., The Global Yield Fund, Inc. and The High Yield Plus Fund, Inc.
*Richard A. Redeker Trustee President, Chief Executive Officer and Director (since October 1993),
One Seaport Plaza Prudential Mutual Fund Management, Inc. (PMF); Executive Vice
New York, NY President, Director and Member of the Operating Committee (since
October 1993), Prudential Securities Incorporated (Prudential
Securities); Director (since October 1993), Prudential Securities
Group, Inc.; formerly Senior Executive Vice President and Director of
Kemper Financial Services, Inc. (September 1978-September 1993);
Director of The Global Government Plus Fund, Inc. and The High Yield
Income Fund, Inc.
<FN>
- ------------
* "Interested" Trustee, as defined in the Investment Company Act.
</TABLE>
B-11
<PAGE>
<TABLE>
<CAPTION>
POSITION PRINCIPAL OCCUPATIONS
NAME AND ADDRESS WITH FUND DURING PAST FIVE YEARS
- ---------------------------- --------------- -------------------------------------------------------------------------
<S> <C> <C>
Louis A. Weil, III Trustee Publisher and Chief Executive Officer, Phoenix Newspapers, Inc. (since
c/o Prudential Mutual Fund August 1991); Director of Central Newspapers, Inc. (since September
Management, Inc. 1991); prior thereto, Publisher of Time Magazine (May 1989-March 1991);
One Seaport Plaza formerly President, Publisher and CEO of The Detroit News (February
New York, NY 1986-August 1989); formerly member of the Advisory Board, Chase
Manhattan Bank-Westchester; Director of The Global Government Plus
Fund, Inc.
Robert F. Gunia Vice President Chief Administrative Officer (since July 1990), Director (since January
One Seaport Plaza 1989), Executive Vice President, Treasurer and Chief Financial Officer
New York, NY (since June 1987) of PMF; Senior Vice President (since March 1987) of
Prudential Securities; Vice President and Director of The Asia Pacific
Fund, Inc. (since May 1989).
S. Jane Rose Secretary Senior Vice President (since January 1991), Senior Counsel (since June
One Seaport Plaza 1987) and First Vice President (June 1987-December 1990) of PMF; Senior
New York, NY Vice President and Senior Counsel of Prudential Securities (since July
1992); formerly Vice President and Associate General Counsel of
Prudential Securities.
Susan C. Cote Treasurer and Senior Vice President (since January 1989) and First Vice President (June
One Seaport Plaza Principal 1987-December 1988) of PMF; Senior Vice President (since January 1992)
New York, NY Financial and and Vice President (January 1986-December 1991) of Prudential
Accounting Securities.
Officer
Marguerite E.H. Morrison Assistant Vice President and Associate General Counsel (since June 1991) of PMF;
One Seaport Plaza Secretary Vice President and Associate General Counsel of Prudential Securities.
New York, NY
<FN>
- ------------
* "Interested" Trustee, as defined in the Investment Company Act.
</TABLE>
Trustees and officers of the Fund are also trustees, directors and officers
of some or all of the other investment companies distributed by Prudential
Securities or Prudential Mutual Fund Distributors Inc. (PMFD).
The officers conduct and supervise the daily business operations of the
Fund, while the Trustees, in addition to their functions set forth under
"Manager" and "Distributor," review such actions and decide on general policy.
Pursuant to the Management Agreement with the Fund, the Manager pays all
compensation of officers and employees of the Fund as well as the fees and
expenses of all Trustees of the Fund who are affiliated persons of the Manager.
The Fund pays each of its Trustees who is not an affiliated person of PMF or
PIC annual compensation of $9,000, in addition to certain out-of-pocket
expenses. [The Chairman of the Audit Committee receives an additional $200 per
year.]
Trustees may receive their Trustees' fees pursuant to a deferred fee
agreement with the Fund. Under the terms of the agreement, the Fund accrues
daily the amount of such Trustee's fees which accrue interest at a rate
equivalent to the prevailing rate applicable to 90-day U.S. Treasury Bills at
the beginning of each calendar quarter or, pursuant to an SEC exemptive order,
at the daily rate of return of the Fund. Payment of the interest so accrued is
also deferred and accruals become payable at the option of the Trustee. The
Fund's obligation to make payments of deferred Trustees' fees, together with
interest thereon, is a general obligation of the Fund. Mr. Beach receives his
Trustee's fee pursuant to such a deferred fee agreement.
As of March 31, 1994, the Trustees and officers of the Fund, as a group,
owned beneficially less than 1% of the outstanding shares of beneficial interest
of the Fund.
As of March 31, 1994, Prudential Securities was record holder of 4,314,486
Class A shares (or 82.7% of the outstanding Class A shares) of the High Yield
Series, 1,249,471 Class A shares (or 42.5% of the outstanding Class A shares) of
the Insured Series and 371,533 Class A shares (or 67% of the outstanding Class A
shares) of the Modified Term Series and 80,712,068 Class B shares (or 78% of the
outstanding Class B shares) of the High Yield Series, 33,234,749 Class B shares
(or 47.2% of the
B-12
<PAGE>
outstanding Class B shares) of the Insured Series and 3,408,329 Class B shares
(or 56.8% of the outstanding Class B shares) of the Modified Term Series. In the
event of any meetings of shareholders, Prudential Securities will forward, or
cause the forwarding of, proxy material to the beneficial owners for which it is
the record holder.
MANAGER
The manager of the Fund is Prudential Mutual Fund Management, Inc. (PMF or
the Manager), One Seaport Plaza, New York, New York 10292. PMF serves as manager
to all of the other investment companies that, together with the Fund, comprise
the "Prudential Mutual Funds." See "How the Fund is Managed--Manager" in the
Prospectus. As of March 31, 1993, PMF managed and/or administered open-end and
closed-end management investment companies with assets of approximately $[51]
billion and, according to the Investment Company Institute, as of December 31,
1993, the Prudential Mutual Funds were the 12th largest family of mutual funds
in the United States.
Pursuant to the Management Agreement with the Fund (the Management
Agreement), PMF, subject to the supervision of the Fund's Trustees and in
conformity with the stated policies of the Fund, manages both the investment
operations of each Series and the composition of each Series' portfolio,
including the purchase, retention, disposition and loan of securities. In
connection therewith, PMF is obligated to keep certain books and records of the
Fund. PMF also administers the Fund's business affairs and, in connection
therewith, furnishes the Fund with office facilities, together with those
ordinary clerical and bookkeeping services which are not being furnished by
State Street Bank and Trust Company, the Fund's custodian (the Custodian), and
Prudential Mutual Fund Services, Inc. (PMFS or the Transfer Agent), the Fund's
transfer and dividend disbursing agent. The management services of PMF for the
Fund are not exclusive under the terms of the Management Agreement and PMF is
free to, and does, render management services to others.
For its services, PMF receives, pursuant to the Management Agreement, a fee
at an annual rate of .50 of 1% of the average daily net assets of each Series.
The fee is computed daily and payable monthly. The Management Agreement also
provides that, in the event the expenses of the Fund (including the fees of PMF,
but excluding interest, taxes, brokerage commissions, distribution fees and
litigation and indemnification expenses and other extraordinary expenses not
incurred in the ordinary course of the Fund's business) for any fiscal year
exceed the lowest applicable annual expense limitation established and enforced
pursuant to the statutes or regulations of any jurisdiction in which the Fund's
shares are qualified for offer and sale, the compensation due PMF will be
reduced by the amount of such excess. Reductions in excess of the total
compensation payable to PMF will be paid by PMF to the Fund. No such reductions
were required during the fiscal year ended April 30, 1993. Currently, the Fund
believes that the most restrictive expense limitation of state securities
commissions is 2 1/2% of a Series' average daily net assets up to $30 million,
2% of the next $70 million of such assets and 1 1/2% of such assets in excess of
$100 million.
In connection with its management of the business affairs of the Fund, PMF
bears the following expenses:
(a) the salaries and expenses of all of its and the Fund's personnel except
the fees and expenses of Trustees who are not affiliated persons of PMF or the
Fund's investment adviser;
(b) all expenses incurred by PMF or by the Fund in connection with managing
the ordinary course of the Fund's business, other than those assumed by the Fund
as described below; and
(c) the costs and expenses payable to PIC pursuant to the subadvisory
agreement between PMF and PIC (the Subadvisory Agreement).
Under the terms of the Management Agreement, the Fund is responsible for the
payment of the following expenses: (a) the fees payable to the Manager, (b) the
fees and expenses of Trustees who are not affiliated persons of the Manager or
the Fund's investment adviser, (c) the fees and certain expenses of the
Custodian and Transfer and Dividend Disbursing Agent, including the cost of
providing records to the Manager in connection with its obligation of
maintaining required records of the Fund and of pricing the Fund's shares, (d)
the charges and expenses of legal counsel and independent accountants for the
Fund, (e) brokerage commissions and any issue or transfer taxes chargeable to
the Fund in connection with its securities transactions, (f) all taxes and
corporate fees payable by the Fund to governmental agencies, (g) the fees of any
trade associations of which the Fund may be a member, (h) the cost of share
certificates representing shares of the Fund, (i) the cost of fidelity and
liability insurance, (j) certain organization expenses of the Fund and the fees
and expenses involved in registering and maintaining registration of the Fund
and of its shares with the SEC, registering the Fund and qualifying its shares
under state securities laws, including the preparation and printing of the
Fund's registration statements and prospectuses for such purposes, (k) allocable
communications expenses with respect to investor services and all expenses of
shareholders' and Trustees' meetings and of preparing, printing and mailing
reports, proxy statements and prospectuses to shareholders in the amount
necessary for distribution to the shareholders, (l) litigation and
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of the Fund's business and (m) distribution fees.
B-13
<PAGE>
The Management Agreement provides that PMF will not be liable for any error
of judgment or for any loss suffered by the Fund in connection with the matters
to which the Management Agreement relates, except a loss resulting from willful
misfeasance, bad faith, gross negligence or reckless disregard of duty. The
Management Agreement provides that it will terminate automatically if assigned,
and that it may be terminated without penalty by either party upon not more than
60 days' nor less than 30 days' written notice. The Management Agreement will
continue in effect for a period of more than two years from the date of
execution only so long as such continuance is specifically approved at least
annually in conformity with the Investment Company Act. The Management Agreement
was last approved by the Trustees of the Fund, including all of the Trustees who
are not parties to such contract or interested persons of such parties as
defined in the Investment Company Act, on May 3, 1994 and by the shareholders of
each Series on February 19, 1988.
For the fiscal year ended April 30, 1993, PMF received a management fee of
$4,624,309, $3,652,176 and $239,872 on behalf of the High Yield Series, Insured
Series and Modified Term Series, respectively, and waived management fees of
$20,291 for the Modified Term Series. For the fiscal year ended April 30, 1992,
PMF received management fees of $338,161, $710,161 and $135,596 on behalf of the
High Yield Series, Insured Series and Modified Term Series, respectively, and
waived management fees of $559,245, $710,161, and $89,595 for the High Yield
Series, Insured Series and Modified Term Series, respectively. For the fiscal
year ended April 30, 1991, PMF received a management fee of $2,547,500,
$2,033,889 and $91,905 on behalf of the High Yield Series, Insured Series and
Modified Term Series, respectively, and waived management fees of $849,182,
$678,049 and $142,224 for the High Yield Series, Insured Series and Modified
Term Series, respectively.
PMF has entered into a Subadvisory Agreement with PIC (the Subadviser), a
wholly-owned subsidiary of Prudential. The Subadvisory Agreement provides that
PIC will furnish investment advisory services in connection with the management
of the Fund. In connection therewith, PIC is obligated to keep certain books and
records of the Fund. PMF continues to have responsibility for all investment
advisory services pursuant to the Management Agreement and supervises PIC's
performance of such services. PIC is reimbursed by PMF for the reasonable costs
and expenses incurred by PIC in furnishing those services.
The Subadvisory Agreement was approved by the shareholders of each Series on
February 19, 1988 and was last approved by the Trustees, including all of the
Trustees who are not interested persons of the Fund and who have no direct or
indirect financial interest in the Subadvisory Agreement, on May 3, 1994.
The Subadvisory Agreement provides that it will terminate in the event of
its assignment (as defined in the Investment Company Act) or upon the
termination of the Management Agreement. The Subadvisory Agreement may be
terminated by the Fund, PMF or PIC upon not more than 60 days', nor less than 30
days', written notice. The Subadvisory Agreement provides that it will continue
in effect for a period of more than two years from its execution only so long as
such continuance is specifically approved at least annually in accordance with
the requirements of the Investment Company Act.
The Manager and the Subadviser (The Prudential Investment Corporation) are
subsidiaries of The Prudential Insurance Company of America (Prudential) which,
as of December 31, 1993, is one of the largest financial institutions in the
world and the largest insurance company in North America. Prudential has been
engaged in the insurance business since 1875. [In July 1993, INSTITUTIONAL
INVESTOR ranked Prudential the third largest institutional money manager of the
300 largest money management organizations in the United States as of December
31, 1992.]
B-14
<PAGE>
DISTRIBUTOR
Prudential Mutual Fund Distributors, Inc. (PMFD), One Seaport Plaza, New
York, New York 10292, acts as the distributor of the Class A shares of each
Series of the Fund. Prudential Securities, One Seaport Plaza, New York, New York
10292, acts as the distributor of the Class B and Class C shares of the Fund.
Pursuant to separate Distribution and Service Plans (the Class A Plan, the
Class B Plan and the Class C Plan, collectively, the Plans) adopted by the Fund
under Rule 12b-1 under the Investment Company Act and separate distribution
agreements (the Distribution Agreements), PMFD and Prudential Securities
(collectively, the Distributor) incur the expenses of distributing the Fund's
Class A, Class B and Class C shares. See "How the Fund is Managed--Distributor"
in the Prospectus. PMFD may succeed to the duties and obligations of Prudential
Securities under the Distribution Agreements for Class B and Class C shares.
Prior to January 22, 1990, the Fund offered only one class of shares (the
existing Class B shares). On October 11, 1989, the Trustees, including a
majority of the Trustees who are not interested persons of the Fund and who have
no direct or indirect financial interest in the operation of the Class A or
Class B Plan or in any agreement related to either Plan (the Rule 12b-1
Trustees), at a meeting called for the purpose of voting on each Plan, adopted a
new plan of distribution for the Class A shares of the Fund (the Class A Plan)
and approved an amended and restated plan of distribution with respect to the
Class B shares of the Fund (the Class B Plan). On February 9, 1993, the
Trustees, including a majority of the Rule 12b-1 Trustees, at a meeting called
for the purpose of voting on each Plan, approved the continuance of the Plans
and Distribution Agreements and approved modifications of the Fund's Class A and
Class B Plans and Distribution Agreements to conform them with recent amendments
to the National Association of Securities Dealers, Inc. (NASD) maximum sales
charge rule described below. As so modified, the Class A Plan provides that (i)
up to .25 of 1% of the average daily net assets of the Class A shares may be
used to pay for personal service and the maintenance of shareholder accounts
(service fee) and (ii) total distribution fees (including the service fee of .25
of 1%) may not exceed .30 of 1%. As so modified, the Class B Plan provides that
(i) up to .25 of 1% of the average daily net assets of the Class B shares may be
paid as a service fee and (ii) up to .50 of 1% (including the service fee) may
be used as reimbursement for distribution-related expenses with respect to the
Class B shares (asset-based sales charge). On May 4, 1993, the Trustees,
including a majority of the Rule 12b-1Trustees, at a meeting called for the
purpose of voting on each Plan, adopted a plan of distribution for the Class C
shares of the Fund and approved further amendments to the plans of distribution
for the Fund's Class A and Class B shares changing them from reimbursement type
plans to compensation type plans. The Plans were last approved by the Trustees,
including a majority of the Rule 12b-1 Trustees, on May 3, 1994. The Class A
Plan, as amended, was approved by the Class A and Class B shareholders of each
Series of the Fund and the Class B Plan, as amended, was approved by the Class B
shareholders on , 1994. The Class C Plan was approved by the sole
shareholder of Class C shares on ___________, 1994.
CLASS A PLAN. For the fiscal year ended April 30, 1993, PMFD received
payments of $31,658, $24,589 and $1,883 on behalf of the High Yield Series,
Insured Series and Modified Term Series, respectively, under the Class A Plan as
reimbursement of expenses related to the distribution of Class A shares. These
amounts were expended on commission credits to Prudential Securities and Prusec
for payments of commissions and account servicing fees to financial advisers and
other persons who sell Class A shares. For the fiscal year ended April 30, 1993,
PMFD also received approximately $688,000, $401,000 and $61,000 on behalf of the
High Yield Series, Insured Series and Modified Term Series, respectively, in
initial sales charges.
CLASS B PLAN. For the fiscal year ended April 30, 1993, the Distributor
received $4,466,017, $3,529,230 and $250,771 on behalf of the High Yield Series,
Insured Series and Modified Term Series, respectively, under the Class B Plan.
For the fiscal year ended April 30, 1993, the Distributor spent approximately
the following amounts on behalf of each Series of the Fund:
<TABLE>
<CAPTION>
COMPENSATION TO APPROXIMATE
COMMISSION PRUSEC FOR TOTAL
PAYMENTS TO COMMISSION AMOUNT
INTEREST FINANCIAL PAYMENTS TO SPENT BY
AND ADVISERS OF OVERHEAD COSTS ACCOUNT DISTRIBUTOR
SALES MATERIAL CARRYING PRUDENTIAL OF PRUDENTIAL EXECUTIVES AND ON BEHALF OF
SERIES AND ADVERTISING CHARGES SECURITIES SECURITIES* OTHER EXPENSES* SERIES
- ---------------------- --------------- ----------- ------------ --------------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
High Yield Series $ 29,900 $ 1,065,900 $ 1,139,800 $ 4,968,000 $ 4,247,400 $ 11,451,000
Insured Series 21,900 796,900 3,485,200 1,327,700 1,504,300 7,136,000
Modified Term Series 12,300 58,900 187,600 159,300 158,900 577,000
<FN>
*Including lease, utility and sales promotion expenses.
</TABLE>
Prudential Securities also receives the proceeds of contingent deferred
sales charges paid by shareholders upon certain redemptions of Class B shares.
See "Shareholder Guide--How to Sell Your Shares--Contingent Deferred Sales
Charges" in the
B-15
<PAGE>
Prospectus. For the fiscal year ended April 30, 1993, Prudential Securities
received approximately $1,747,000, $1,386,000 and $108,000 on behalf of the High
Yield Series, Insured Series and Modified Term Series, respectively, in
contingent deferred sales charges.
CLASS C PLAN. Prudential Securities receives the proceeds of contingent
deferred sales charges paid by investors upon certain redemptions of Class C
shares. See "Shareholder Guide--How to Sell Your Shares--Contingent Deferred
Sales Charges" in the Prospectus. Prior to the date of this Statement of
Additional Information, no distribution expenses were incurred under the Class C
Plan.
The Class A, Class B and Class C Plans continue in effect from year to year,
provided that each such continuance is approved at least annually by a vote of
the Trustees, including a majority vote of the Rule 12b-1 Trustees, cast in
person at a meeting called for the purpose of voting on such continuance. The
Plans may each be terminated at any time, without penalty, by the vote of a
majority of the Rule 12b-1 Trustees or by the vote of the holders of a majority
of the outstanding shares of the applicable class on not more than 30 days'
written notice to any other party to the Plans. The Plans may not be amended to
increase materially the amounts to be spent for the services described therein
without approval by the shareholders of the applicable class (by both Class A
and Class B shareholders, voting separately, in the case of material amendments
to the Class A Plan) and all material amendments are required to be approved by
the Trustees in the manner described above. Each Plan will automatically
terminate in the event of its assignment. The Fund will not be contractually
obligated to pay expenses incurred under any Plan if it is terminated or not
continued.
Pursuant to each Plan, the Trustees will review at least quarterly a written
report of the distribution expenses incurred on behalf of each class of shares
of the Fund by the Distributor. The report includes an itemization of the
distribution expenses and the purposes of such expenditures. In addition, as
long as the Plans remain in effect, the selection and nomination of Rule 12b-1
Trustees shall be committed to the Rule 12b-1 Trustees.
Pursuant to each Distribution Agreement, the Fund has agreed to indemnify
PMFD and Prudential Securities to the extent permitted by applicable law against
certain liabilities under the Securities Act of 1933, as amended. Each
Distribution Agreement was last approved by the Trustees, including a majority
of the Rule 12b-1 Trustees, on May 3, 1994.
NASD MAXIMUM SALES CHARGE RULE. Pursuant to rules of the NASD effective July
7, 1993, the Distributor is required to limit aggregate initial sales charges,
deferred sales charges and asset-based sales charges to 6.25% of total gross
sales of each class of shares. [In the case of Class B shares, interest charges
on unreimbursed distribution expenses equal to the prime rate plus one percent
per annum may be added to the 6.25% limitation.] Sales from the reinvestment of
dividends and distributions are not required to be included in the calculation
of the 6.25% limitation. The annual asset-based sales charge on shares of the
Fund may not exceed .75 of 1% per class. The 6.25% limitation applies to each
class of the Fund rather than on a per shareholder basis. If aggregate sales
charges were to exceed 6.25% of total gross sales of any class, all sales
charges on shares of that class would be suspended.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Manager is responsible for decisions to buy and sell securities and
financial futures for each Series of the Fund, the selection of brokers, dealers
and futures commission merchants to effect the transactions and the negotiation
of brokerage commissions, if any. The term "Manager" as used in this section
includes the Subadviser. Purchases and sales of securities on a securities
exchange, which are not expected to be a significant portion of the portfolio
securities of any Series, are effected through brokers who charge a commission
for their services. Orders may be directed to any broker or futures commission
merchant including, to the extent and in the manner permitted by applicable law,
Prudential Securities and its affiliates. Brokerage commissions on United States
securities, options and futures exchanges or boards of trade are subject to
negotiation between the Manager and the broker or futures commission merchant.
In the over-the-counter market, securities are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission, although the price of the security usually includes a profit to the
dealer. In underwritten offerings, securities are purchased at a fixed price
which includes an amount of compensation to the underwriter, generally referred
to as the underwriter's concession or discount. On occasion, certain money
market instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid. The Fund will not deal with Prudential
Securities in any transaction in which Prudential Securities acts as principal.
Thus it will not deal in over-the-counter securities with Prudential Securities
acting as a market-maker, and it will not execute a negotiated trade with
Prudential Securities if the execution involves Prudential Securities' acting as
principal with respect to any part of the Fund's order.
B-16
<PAGE>
In placing orders for portfolio securities of the Fund, the Manager is
required to give primary consideration to obtaining the most favorable price and
efficient execution. Within the framework of this policy, the Manager will
consider the research and investment services provided by brokers, dealers or
futures commission merchants who effect or are parties to portfolio transactions
of the Fund, the Manager or the Manager's other clients. These research and
investment services are those which brokerage houses customarily provide to
institutional investors and include statistical and economic data and research
reports on particular companies and industries. These services are used by the
Manager in connection with all of its investment activities, and some of these
services obtained in connection with the execution of transactions for the Fund
may be used in managing other investment accounts. Conversely, brokers, dealers
or futures commission merchants furnishing these services may be selected for
the execution of transactions of these other accounts, whose aggregate assets
may be far larger than the Fund, and the services furnished by the brokers,
dealers or futures commission merchants may be used by the Manager in providing
investment management for the Fund. Commission rates are established pursuant to
negotiations with the broker, dealer or futures commission merchant based on the
quality and quantity of execution services provided by the broker in the light
of generally prevailing rates. The policy of the Manager is to pay higher
commissions to brokers, other than Prudential Securities, for particular
transactions than might be charged if a different broker had been selected, on
occasions when, in the Manager's opinion, this policy furthers the objective of
obtaining best price and execution. In addition, the Manager is authorized to
pay higher commissions on brokerage transactions for the Fund to brokers other
than Prudential Securities in order to secure research and investment services
described above, subject to review by the Fund's Trustees from time to time as
to the extent and continuation of this practice. The allocation of orders among
brokers and the commission rates paid are reviewed periodically by the Fund's
Trustees. Portfolio securities may not be purchased from any underwriting or
selling syndicate of which Prudential Securities (or any affiliate), during the
existence of the syndicate, is a principal underwriter (as defined in the
Investment Company Act), except in accordance with rules of the SEC. This
limitation, in the opinion of the Fund, will not significantly affect the Series
ability to pursue their present investment objectives. However, in the future in
other circumstances, the Series may be at a disadvantage because of this
limitation in comparison to other funds with similar objectives but not subject
to such limitations.
Subject to the above considerations, Prudential Securities may act as a
securities broker or futures commission merchant for the Fund. In order for
Prudential Securities (or any affiliate) to effect any portfolio transactions
for the Fund, the commissions, fees or other remuneration received by Prudential
Securities (or any affiliate) must not exceed certain rates set forth in the
Investment Company Act and must be reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers or futures
commission merchants in connection with comparable transactions involving
similar securities or futures being purchased or sold on an exchange during a
comparable period of time. This standard would allow Prudential Securities (or
any affiliate) to receive no more than the remuneration which would be expected
to be received by an unaffiliated broker or futures commission merchant in a
commensurate arm's-length transaction. Furthermore, the Trustees of the Fund,
including a majority of the Rule 12b-1 Trustees, have adopted procedures which
are reasonably designed to provide that any commissions, fees or other
remuneration paid to Prudential Securities (or any affiliate) are consistent
with the foregoing standard. In accordance with Section 11(a) of the Securities
Exchange Act of 1934, Prudential Securities may not retain compensation for
effecting transactions on a national securities exchange for the Fund unless the
Fund has expressly authorized the retention of such compensation. Prudential
Securities must furnish to the Fund at least annually a statement setting forth
the total amount of all compensation retained by Prudential Securities from
transactions effected for the Fund during the applicable period. Brokerage and
futures transactions with Prudential Securities (or any affiliate) are also
subject to such fiduciary standards as may be imposed upon Prudential Securities
(or such affiliate) by applicable law.
During the fiscal years ended April 30, 1993, 1992 and 1991, the Fund paid
$23,012, $20,021 and $152,300, respectively, in brokerage commissions on certain
futures transactions. No such brokerage commissions were paid to Prudential
Securities.
PURCHASE AND REDEMPTION OF FUND SHARES
Shares of each Series of the Fund may be purchased at a price equal to the
next determined net asset value per share, plus a sales charge which, at the
election of the investor, may be imposed either (i) at the time of purchase
(Class A shares) or (ii) on a deferred basis (Class B or Class C shares). See
"Shareholder Guide--How to Buy Shares of the Fund" in the Prospectus.
Each class of shares represents an interest in the same portfolio of
investments of a Series and has the same rights, except that (i) each class
bears the separate expenses of its Rule 12b-1 distribution and service plan,
(ii) each class has exclusive voting rights with respect to its plan (except
that the Fund has agreed with the SEC in connection with the offering of a
conversion feature on Class B shares to submit any amendment of the Class A
Distribution and Service Plan to both Class A and Class B shareholders) and
(iii) only Class B shares have a conversion feature. See "Distributor." Each
class also has separate exchange privileges. See "Shareholder Investment
Account--Exchange Privilege."
B-17
<PAGE>
SPECIMEN PRICE MAKE-UP
Under the current distribution arrangements between the Fund and the
Distributor, Class A shares are sold at a maximum sales charge of 3% and Class
B* and Class C* shares are sold at net asset value. Using the Fund's net asset
value at April 30, 1994, the maximum offering price of the Fund's shares is as
follows:
<TABLE>
<CAPTION>
HIGH YIELD INSURED MODIFIED
CLASS A SERIES SERIES TERM SERIES
---------- -------- -----------
<S> <C> <C> <C>
Net asset value and redemption price per Class A share......
Maximum sales charge (3% of offering price).................
---------- -------- -----------
Offering price to public.................................... $ $ $
---------- -------- -----------
---------- -------- -----------
CLASS B
Net asset value, redemption price and offering price to
public per Class B share*.................................
---------- -------- -----------
---------- -------- -----------
CLASS C
Net asset value, redemption price and offering price to
public per Class C share*.................................
---------- -------- -----------
---------- -------- -----------
<FN>
- ------------
* Class B and Class C shares are subject to a contingent deferred sales charge
on certain redemptions. See "Shareholder Guide--How to Sell Your
Shares--Contingent Deferred Sales Charges" in the Prospectus.
</TABLE>
REDUCTION AND WAIVER OF INITIAL SALES CHARGES--CLASS A SHARES
COMBINED PURCHASES AND CUMULATIVE PURCHASE PRIVILEGE. If an investor or
eligible group of related investors purchases Class A shares of the Fund
concurrently with Class A shares of other Prudential Mutual Funds, the purchases
may be combined to take advantage of the reduced sales charge applicable to
larger purchases. See the table of breakpoints under "Shareholder
Guide--Alternative Purchase Plan" in the Prospectus.
An eligible group of related Fund investors includes any combination of the
following:
(a) an individual;
(b) the individual's spouse, their children and their parents;
(c) the individual's and spouse's Individual Retirement Account (IRA);
(d) any company controlled by the individual (a person, entity or group that
holds 25% or more of the outstanding voting securities of a corporation will be
deemed to control the corporation, and a partnership will be deemed to be
controlled by each of its general partners);
(e) a trust created by the individual, the beneficiaries of which are the
individual, his or her spouse, parents or children;
(f) a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account
created by the individual or the individual's spouse; and
(g) one or more employee benefit plans of a company controlled by an
individual.
[In addition, an eligible group of related Fund investors may include an
employer (or group of related employers) and one or more qualified retirement
plans of such employer or employers (an employer controlling, controlled by or
under common control with another employer is deemed related to that employer).]
The Distributor must be notified at the time of purchase that the investor
is entitled to a reduced sales charge. The reduced sales charges will be granted
subject to confirmation of the investor's holdings.
RIGHTS OF ACCUMULATION. Reduced sales charges are also available through
Rights of Accumulation, under which an investor or an eligible group of related
investors, as described above under "Combined Purchase and Cumulative Purchase
Privilege," may aggregate the value of their existing holdings of shares of the
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those acquired pursuant to the exchange privilege) to determine the
reduced sales charge. However, the value of shares held directly with the
Transfer Agent and through Prudential Securities will not be aggregated to
determine the reduced sales charge. All shares must be held either directly with
the Transfer Agent or through Prudential Securities. The value of existing
holdings for purposes of determining the reduced sales charge is calculated
using the maximum offering price (net asset
B-18
<PAGE>
value plus maximum sales charge) as of the previous business day. See "How the
Fund Values its Shares" in the Prospectus. The Distributor must be notified at
the time of purchase that the shareholder is entitled to a reduced sales charge.
The reduced sales charges will be granted subject to confirmation of the
investors' holdings.
LETTER OF INTENT. Reduced sales charges are available to investors (or an
eligible group of related investors) who enter into a written Letter of Intent
providing for the purchase, within a thirteen-month period, of shares of a
Series of the Fund and shares of other Prudential Mutual Funds. All shares of
the Fund and shares of other Prudential Mutual Funds (excluding money market
funds other than those acquired pursuant to the exchange privilege) which were
previously purchased and are still owned are also included in determining the
applicable reduction. However, the value of shares held directly with the
Transfer Agent and through Prudential Securities will not be aggregated to
determine the reduced sales charge. All shares must be held either directly with
the Transfer Agent or through Prudential Securities. The Distributor must be
notified at the time of purchase that the investor is entitled to a reduced
sales charge. The reduced sales charge will be granted subject to confirmation
of the investor's holdings.
A Letter of Intent permits a purchaser to establish a total investment goal
to be achieved by any number of investments over a thirteen-month period. Each
investment made during the period will receive the reduced sales charge
applicable to the amount represented by the goal, as if it were a single
investment. Escrowed Class A shares totaling 5% of the dollar amount of the
Letter of Intent will be held by the Transfer Agent in the name of the
purchaser. The effective date of a Letter of Intent may be back-dated up to 90
days, in order that any investments made during this 90-day period, valued at
the purchaser's cost, can be applied to the fulfillment of the Letter of Intent
goal.
The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not achieved within the thirteen-month period, the purchaser is required to pay
the difference between the sales charge otherwise applicable to the purchases
made during this period and the sales charge actually paid. Such payment may be
made directly to the Distributor or, if not paid, the Distributor will liquidate
sufficient escrowed shares to obtain such difference. If the goal is exceeded in
an amount which qualifies for a lower sales charge, a price adjustment is made
by refunding to the purchaser the amount of excess sales charge, if any, paid
during the thirteen-month period. Investors electing to purchase Class A shares
of the Fund pursuant to a Letter of Intent should carefully read such Letter of
Intent.
QUANTITY DISCOUNT--CLASS B SHARES PURCHASED PRIOR TO ___________, 1994
The CDSC is reduced on redemptions of Class B shares of the Fund purchased
prior to __________, 1994 if immediately after a purchase of such shares, the
aggregate cost of all Class B shares of the Fund owned by you in a single
account exceeded $500,000. For example, if you purchased $100,000 of Class B
shares of the Fund and the following year purchase an additional $450,000 of
Class B shares with the result that the aggregate cost of your Class B shares of
the Fund following the second purchase was $550,000, the quantity discount would
be available for the second purchase of $450,000 but not for the first purchase
of $100,000. The quantity discount will be imposed at the following rates
depending on whether the aggregate value exceeded $500,000 or $1 million:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE AS A
PERCENTAGE OF DOLLARS INVESTED OR REDEMPTION
PROCEEDS
--------------------------------------------
YEAR SINCE PURCHASE PAYMENT MADE $500,001 TO $1 MILLION OVER $1 MILLION
- --------------------------------------------- ----------------------- -----------------
<S> <C> <C>
First........................................ 3.0% 2.0%
Second....................................... 2.0% 1.0%
Third........................................ 1.0% 0%
Fourth and thereafter........................ 0% 0%
</TABLE>
You must notify the Fund's Transfer Agent either directly or through
Prudential Securities or Prusec, at the time of redemption, that you are
entitled to the reduced CDSC. The reduced CDSC will be granted subject to
confirmation of your holdings.
SHAREHOLDER INVESTMENT ACCOUNT
Upon the initial purchase of Fund shares, a Shareholder Investment Account
is established for each investor under which a record of the shares held is
maintained by the Transfer Agent. If a share certificate is desired, it must be
requested in writing for each transaction. Certificates are issued only for full
shares and may be redeposited in the Account at any time. There is no charge to
the investor for issuance of a certificate. The Fund makes available to its
shareholders the following privileges and plans.
B-19
<PAGE>
AUTOMATIC REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
For the convenience of investors, all dividends and distributions are
automatically reinvested in full and fractional shares of the Fund. An investor
may direct the Transfer Agent in writing not less than five full business days
prior to the record date to have subsequent dividends and/or distributions sent
in cash rather than reinvested. In the case of recently purchased shares for
which registration instructions have not been received on the record date, cash
payment will be made directly to the dealer. Any shareholder who receives a cash
payment representing a dividend or distribution may reinvest such dividend or
distribution at net asset value by returning the check or the proceeds to the
Transfer Agent within 30 days after the payment date. The investment will be
made at the net asset value per share next determined after receipt of the check
or proceeds by the Transfer Agent. Such shareholder will receive credit for any
contingent deferred sales charge paid in connection with the amount of proceeds
being reinvested.
EXCHANGE PRIVILEGE
The Fund makes available to its shareholders the privilege of exchanging
their shares of the Fund for shares of certain other Prudential Mutual Funds,
including one or more specified money market funds, subject in each case to the
minimum investment requirements of such funds. Shares of such other Prudential
Mutual Funds may also be exchanged for shares of the Fund. All exchanges are
made on the basis of relative net asset value next determined after receipt of
an order in proper form. An exchange will be treated as a redemption and
purchase for tax purposes. Shares may be exchanged for shares of another fund
only if shares of such fund may legally be sold under applicable state laws.
It is contemplated that the exchange privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.
CLASS A. Shareholders of the Fund may exchange their Class A shares for
Class A shares of certain other Prudential Mutual Funds, shares of Prudential
Government Securities Trust (Intermediate Term Series) and shares of the money
market funds specified below. No fee or sales load will be imposed upon the
exchange. Shareholders of money market funds who acquired such shares upon
exchange of Class A shares may use the Exchange Privilege only to acquire Class
A shares of the Prudential Mutual Funds participating in the Exchange Privilege.
The following money market funds participate in the Class A Exchange
Privilege:
Prudential California Municipal Fund
(California Money Market Series)
Prudential Government Securities Trust
(Money Market Series)
(U.S. Treasury 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)
Prudential MoneyMart Assets
Prudential Tax-Free Money Fund
CLASS B AND CLASS C. Shareholders of the Fund may exchange their Class B and
Class C shares for Class B and Class C shares, respectively, of certain other
Prudential Mutual Funds and shares of Prudential Special Money Market Fund. No
CDSC will be payable upon such exchange, but a CDSC may be payable upon the
redemption of the Class B and Class C shares acquired as a result of the
exchange. The applicable sales charge will be that imposed by the fund in which
shares were initially purchased and the purchase date will be deemed to be the
first day of the month after the initial purchase, rather than the date of the
exchange.
Class B and Class C shares of the Fund may also be exchanged for shares of
Prudential Special Money Market Fund without imposition of any CDSC at the time
of exchange. Upon subsequent redemption from such money market fund or after
re-exchange into the Fund, such shares will be subject to the CDSC calculated
without regard to the time such shares were held in the money market fund. In
order to minimize the period of time in which shares are subject to a CDSC,
shares exchanged out of the money market fund will be exchanged on the basis of
their remaining holding periods, with the longest remaining holding periods
being transferred first. In measuring the time period shares are held in a money
market fund and "tolled" for purposes of calculating the CDSC holding period,
exchanges are deemed to have been made on the last day of the month. Thus, if
shares are exchanged into the Fund from a money market fund during the month
(and are held in the Fund at the end of the month), the entire month will be
B-20
<PAGE>
included in the CDSC holding period. Conversely, if shares are exchanged into a
money market fund prior to the last day of the month (and are held in the money
market fund on the last day of the month), the entire month will be excluded
from the CDSC holding period. For purposes of calculating the seven year holding
period applicable to the Class B conversion feature, the time period during
which Class B shares were held in a money market fund will be excluded.
At any time after acquiring shares of other funds participating in the Class
B or Class C Exchange Privilege, a shareholder may again exchange those shares
(and any reinvested dividends and distributions) for Class B or Class C shares
of the Fund, respectively, without subjecting such shares to any CDSC. Shares of
any fund participating in the Class B or Class C Exchange Privilege that were
acquired through reinvestment of dividends or distributions may be exchanged for
Class B or Class C shares of other funds, respectively, without being subject to
any CDSC.
Additional details about the Exchange Privilege and prospectuses for each of
the Prudential Mutual Funds are available from the Fund's Transfer Agent,
Prudential Securities or Prusec. The Exchange Privilege may be modified,
terminated or suspended on 60 days' notice, and any fund, including the Fund, or
the Distributor, has the right to reject any exchange application relating to
such fund's shares.
DOLLAR COST AVERAGING
Dollar cost averaging is a method of accumulating shares by investing a
fixed amount of dollars in shares at set intervals. An investor buys more shares
when the price is low and fewer shares when the price is high. The average cost
per share is lower than it would be if a constant number of shares were bought
at set intervals.
Dollar cost averaging may be used, for example, to plan for retirement, to
save for a major expenditure, such as the purchase of a home, or to finance a
college education. The cost of a year's education at a four-year college today
averages around $14,000 at a private college and around $4,800 at a public
university. Assuming these costs increase at a rate of 7% a year, as has been
projected, for the freshman class of 2007, the cost of four years at a private
college could reach $163,000 and over $97,000 at a public university.(1)
The following chart shows how much you would need in monthly investments to
achieve specified lump sums to finance your investment goals.(2)
<TABLE>
<CAPTION>
PERIOD OF
MONTHLY INVESTMENTS: $100,000 $150,000 $200,000 $250,000
- -------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
25 years.............................. $ 110 $ 165 $ 220 $ 275
20 years.............................. 176 264 352 440
15 years.............................. 296 444 592 740
10 years.............................. 555 833 1,110 1,388
5 years.............................. 1,371 2,057 2,742 3,428
See "Automatic Savings Accumulation Plan."
<FN>
- ------------
(1)Source information concerning the costs of education at public
universities is available from The College Board Annual Survey of Colleges,
1992. Information about the costs of private colleges is from the Digest of
Education Statistics, 1992; The National Center for Educational Statistics; and
the U.S. Department of Education. Average costs for private institutions include
tuition, fees, room and board.
(2)The chart assumes an effective rate of return of 8% (assuming monthly
compounding). This example is for illustrative purposes only and is not intended
to reflect the performance of an investment in shares of the Fund. The
investment return and principal value of an investment will fluctuate so that an
investor's shares when redeemed may be worth more or less than their original
cost.
</TABLE>
AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP)
Under ASAP, an investor may arrange to have a fixed amount automatically
invested in shares of a Series of the Fund monthly by authorizing his or her
bank account or Prudential Securities account (including a Command Account) to
be debited to invest specified dollar amounts in shares of the Fund. The
investor's bank must be a member of the Automatic Clearing House System. Share
certificates are not issued to ASAP participants.
B-21
<PAGE>
Further information about this program and an application form can be
obtained from the Transfer Agent, Prudential Securities or Prusec.
SYSTEMATIC WITHDRAWAL PLAN
A systematic withdrawal plan is available to shareholders through Prudential
Securities or the Transfer Agent. Such withdrawal plan provides for monthly or
quarterly checks in any amount, except as provided below, up to the value of the
shares in the shareholder's account. Withdrawals of Class B or Class C shares
may be subject to a CDSC. See "Shareholder Guide--How to Sell Your
Shares--Contingent Deferred Sales Charges" in the Prospectus.
In the case of shares held through the Transfer Agent (i) a $10,000 minimum
account value applies, (ii) withdrawals may not be for less than $100 and (iii)
the shareholder must elect to have all dividends and/or distributions
automatically reinvested in additional full and fractional shares at net asset
value on shares held under this plan. See "Shareholder Investment Account--
Automatic Reinvestment of Dividends and/or Distributions."
Prudential Securities and the Transfer Agent act as agents for the
shareholder in redeeming sufficient full and fractional shares to provide the
amount of the periodic withdrawal payment. The systematic withdrawal plan may be
terminated at any time, and the Distributor reserves the right to initiate a fee
of up to $5 per withdrawal, upon 30 days' written notice to the shareholder.
Withdrawal payments should not be considered as dividends, yield or income.
If periodic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.
Furthermore, each withdrawal constitutes a redemption of shares, and any
gain or loss realized must be recognized for federal income tax purposes. In
addition, withdrawals made concurrently with purchases of additional shares are
inadvisable because of the sales charge applicable to (i) the purchase of Class
A shares and (ii) the withdrawal of Class B and Class C shares. Each shareholder
should consult his or her own tax adviser with regard to the tax consequences of
the systematic withdrawal plan, particularly if used in connection with a
retirement plan.
NET ASSET VALUE
Under the Investment Company Act, the Trustees are responsible for
determining in good faith the fair value of securities of the Fund. The Trustees
have fixed the specific time of day for the computation of the Fund's net asset
value to be at 4:15 P.M., New York time. Net asset value is calculated
separately for each class.
Portfolio securities for which market quotations are readily available are
valued at their bid quotations. Futures contracts are valued daily at 4:15 P.M.,
New York time, at market quotations provided by the Chicago Board of Trade.
Under the Investment Company Act, the Trustees are responsible for determining
in good faith the fair value of securities and other assets of the Fund for
which market quotations are not readily available. Securities for which market
quotations are not readily available are valued at fair value in accordance with
procedures adopted by the Trustees. Under these procedures, the Manager values
municipal securities on the basis of valuations provided by a pricing service
which uses information with respect to transactions in securities, quotations
from bond dealers, market transactions in comparable securities and various
relationships between securities in determining value. This service is furnished
by Kenny-S&P, a division of J.J. Kenny Information Systems. Reliable market
quotations generally are not readily available for purposes of valuing municipal
securities. As a result, depending on the particular municipal securities owned
by the Fund, it is likely that most of the valuations for such securities will
be based upon fair value determined under the foregoing procedures. Short-term
investments are valued at amortized cost if their original term to maturity was
less than 60 days, or by amortizing their value on the 61st day prior to
maturity if their original term to maturity when acquired by the Fund was more
than 60 days, unless this valuation is determined not to represent fair value by
the Trustees.
The net asset value of Class B and Class C shares will generally be lower
than the net asset value of Class A shares as a result of the larger
distribution-related fee to which Class B and Class C shares are subject. It is
expected, however, that the net asset value per share of each class will tend to
converge immediately after the recording of dividends which will differ by
approximately the amount of the distribution expense accrual differential among
the classes.
TAXES, DIVIDENDS AND DISTRIBUTIONS
Each Series of the Fund has elected to qualify and intends to remain
qualified to be treated as a regulated investment company under Subchapter M of
the Internal Revenue Code. In general, such election relieves each Series (but
not its shareholders) from paying federal income tax on income which is
distributed to shareholders, provided that it distributes at least
B-22
<PAGE>
90% of its net investment income and short-term capital gains and permits net
capital gains of the Series (I.E., the excess of net long-term capital gains
over net shot-term capital losses) to be treated as long-term capital gains of
the shareholders, regardless of how long shares in the Series are held.
Subchapter M permits the character of tax-exempt interest distributed by a
regulated investment company to flow through as tax-exempt interest to its
shareholders provided that 50% or more of the value of its assets at the end of
each quarter of its taxable year is invested in state, municipal or other
obligations the interest on which is exempt for federal income tax purposes.
Distributions to shareholders of tax-exempt interest earned by any Series of the
Fund for the taxable year are generally not subject to federal income tax (see
the discussion of the alternative minimum tax below). Distributions of taxable
net investment income and of the excess of net short-term capital gain over net
long-term capital loss are taxable to shareholders as ordinary income.
The federal alternative minimum tax may affect corporations and other
shareholders in the Fund. Interest on certain categories of tax-exempt
obligations (I.E., most private activity bonds issued after August 7, 1986) will
constitute a preference item for purposes of the alternative minimum tax. The
Fund has invested in such obligations and, therefore, receives interest that
will be treated as a preference item. Preference items received by a Series will
be allocated between the Series and its shareholders. It is possible that a
Series will incur some liability under the alternative minimum tax to the extent
preference items are allocated to it. Corporate shareholders in any of the
Series will also have to take into account the adjustment for current earnings
for minimum tax purposes.
The alternative minimum tax is a flat tax equal to 24% (20% for
corporations) of the taxpayer's so-called alternative minimum taxable income.
Individual taxpayers may reduce their alternative minimum taxable income by a
standard exemption amount of $40,000 ($30,000 if filing singly), although the
exemption amount is reduced for taxpayers with adjusted gross incomes of more
than $150,000 ($112,500 if filing singly). Alternative minimum taxable income is
determined by adding to the taxpayer's regularly-computed taxable income items
of tax preference and certain other adjustments. All shareholders should consult
their tax advisers to determine whether their investment in the Fund will cause
them to incur liability for the alternative minimum tax.
Qualification as a regulated investment company requires, among other
things, that (a) at least 90% of the annual gross income of each Series, without
offset for losses from the sale or other disposition of securities, be derived
from payments with respect to securities loans, interest, dividends and gains
from the sale or other disposition of securities or foreign currencies, or other
income (including but not limited to gains from options, futures, or forward
contracts) derived with respect to its business of investing in such securities
or currencies; (b) each Series derive less than 30% of its annual gross income
from gains (without offset for losses) from the sale or other disposition of
securities, futures contracts, foreign currencies or options on any of them held
for less than three months (except for foreign currencies directly related to
the Fund's business of investing in foreign securities); and (c) each Series
diversify its holdings so that, at the end of each quarter of the taxable year,
(i) at least 50% of the market value of the assets of the Series is represented
by cash, U.S. Government securities and other securities limited in respect of
any one issuer to an amount not greater than 5% of the assets of the Series and
10% of the outstanding voting securities of the issuer, and (ii) not more than
25% of the value of the assets of the Series is invested in the securities of
any one issuer (other than U.S. Government securities).
Qualification as a regulated investment company will be determined at the
level of each Series and not at the level of the Fund. Accordingly, the
determination of whether any particular Series qualifies as a regulated
investment company will be based on the activities of that Series, including the
purchases and sales of securities and the income received and expenses incurred
in that Series. Net capital gains of a Series which are available for
distribution to shareholders will be computed by taking into account any capital
loss carryforward of the Series.
Special rules will apply to futures contracts and options thereon in which
the Series invest. See "Investment Objectives and Policies." These investments
will generally constitute "Section 1256 contracts" and will be required to be
"marked to market" for federal income tax purposes at the end of each Series'
taxable year; that is, treated as having been sold at market value. Sixty
percent of any gain or loss recognized on such "deemed sales" and on actual
dispositions will be treated as long-term capital gain or loss, and the
remainder will be treated as short-term capital gain or loss.
The Fund's hedging activities may be affected by the requirement under the
Internal Revenue Code that no more than 30% of the Fund's income be derived from
securities, futures contracts and other instruments held for less than three
months. From time to time, this requirement may cause the Fund to limit its
acquisitions of futures contracts to those that will not expire for at least
three months. At the present time, there is only a limited market for futures
contracts on the municipal bond index that will not expire within three months.
Therefore, to meet the 30%/three month requirement, the Fund may choose to use
futures contracts based on fixed-income securities that will not expire within
three months.
B-23
<PAGE>
Distributions of the excess of net long-term capital gains over net
short-term capital losses are taxable to shareholders as long-term capital
gains, regardless of the length of time the shares of the Series have been held
by the shareholders.
If any net long-term capital gains in excess of net short-term capital
losses are retained by a Series for investment, requiring federal income taxes
to be paid thereon by the Series, the Series will elect to treat these capital
gains as having been distributed to shareholders. As a result, these amounts
will be taxed to shareholders as long-term capital gains, and shareholders will
be able to claim their proportionate share of the federal income taxes paid by
the Series on the gains as a credit against their own federal income tax
liabilities and will be entitled to increase the adjusted tax basis of their
shares in that Series by the difference between their PRO RATA share of such
gains and their tax credit.
Distributions of taxable net investment income and net realized capital
gains will be taxable as described above, whether made in shares or in cash.
Shareholders electing to receive distributions in the form of additional shares
will have a cost basis for federal income tax purposes in each share so received
equal to the net asset value of a share of the applicable Series of the Fund on
the distribution date.
Any short-term capital loss realized upon the sale or redemption of shares
within six months (or such shorter period as may be established by Treasury
regulations) from the date of purchase of such shares and following receipt of
an exempt-interest dividend will be disallowed to the extent of such tax-exempt
dividend. Any loss realized upon the redemption of shares within 6 months from
the date of purchase of the shares and following receipt of a long-term capital
gain distribution will be treated as long-term capital loss to the extent of the
long-term capital gain distribution.
Interest on indebtedness and other expenses incurred by shareholders to
purchase or carry shares of the Fund will generally not be deductible for
federal income tax purposes under Section 265 of the Internal Revenue Code. In
addition, under rules used by the Internal Revenue Service for determining when
borrowed funds are considered to be used for the purpose of purchasing or
carrying particular assets, the purchase of shares may be considered to have
been made with borrowed funds even though the borrowed funds are not directly
traceable to the purchase of shares.
Persons holding certain municipal obligations who are also "substantial
users" (or persons related thereto) of facilities financed by such obligations
may not exclude interest on such obligations from their gross income. No
investigation as to the users of the facilities financed by municipal
obligations in the portfolios of the Series has been made by the Fund. Potential
investors should consult their tax advisers with respect to this matter before
purchasing shares of the Fund.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on certain state and municipal obligations. It can be expected that
similar proposals may be introduced in the future. If such a proposal were
enacted, the availability of state or municipal obligations for investment by
each Series of the Fund and the value of portfolio securities held by the Series
would be affected. In addition, each Series of the Fund would reevaluate its
investment objective and policies.
All distributions of taxable net investment income and net realized capital
gains, whether received in shares or cash, must be reported by each shareholder
on his or her federal income tax return. In addition, each shareholder must
disclose on his or her return the amount of tax-exempt dividends received from
the Fund. Under federal income tax law, each Series of the Fund will be required
to report to the Internal Revenue Service all distributions of taxable income
and capital gains as well as gross proceeds from the redemption or exchange of
shares of such Series, except in the case of certain exempt shareholders.
Further, all such distributions and proceeds from the redemption or exchange of
shares may be subject to withholding of federal income tax at the rate of 31% in
the case of nonexempt shareholders who fail to furnish the appropriate Series of
the Fund with their taxpayer identification numbers on IRS Form W-9 and with
required certifications regarding their status under the federal income tax law.
If the withholding provisions are applicable, any such distributions and
proceeds, whether taken in cash or reinvested in shares, will be reduced by the
amounts required to be withheld. Investors may wish to consult their tax
advisers about the applicability of the backup withholding provisions.
Each Series is required under the Internal Revenue Code to distribute 98% of
its ordinary income in the same calendar year in which it is earned. Each Series
is also required to distribute during the calendar year 98% of the capital gain
net income it earned during the twelve months ending on October 31 of such
calendar year. In addition, the Series must distribute during the calendar year
any undistributed ordinary income and undistributed capital gain net income from
the prior year or the 12 month period ending on October 31 of such calendar
year, respectively. To the extent it does not meet these distribution
requirements, a Series will be subject to non-deductible 4% excise tax on the
undistributed amount. For purposes of this excise tax, income on which the
Series pays income tax is treated as distributed.
B-24
<PAGE>
Any loss realized on a sale, redemption or exchange of shares of the Fund by
a shareholder will be disallowed to the extent the shares are replaced within a
61-day period (beginning 30 days before the disposition of shares). Shares
purchased pursuant to the reinvestment of a dividend or distribution will
constitute a replacement of shares.
A shareholder who acquires shares of the Fund and sells or otherwise
disposes of such shares within 90 days of acquisition may not be allowed to
include certain sales charges incurred in acquiring such shares for purposes of
calculating gain or loss realized upon a sale or exchange of shares of the Fund.
The per share dividends on Class B and Class C shares will be lower than the
per share dividends on Class A shares as a result of the higher
distribution-related fee applicable to the Class B and Class C shares. The per
share distributions of net capital gains, if any, will be paid in the same
amount for Class A, Class B and Class C shares.
PERFORMANCE INFORMATION
AVERAGE ANNUAL TOTAL RETURN. Each Series may from time to time advertise its
average annual total return. Average annual total return is determined
separately for Class A, Class B and Class C shares. See "How the Fund Calculates
Performance" in the Prospectus.
Average annual total return is computed according to the following formula:
P(1+T)to the power of n = ERV
Where: P = a hypothetical initial payment of $1000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value at the end of the 1, 5 or 10 year
periods (or fractional portion thereof) of a hypothetical $1000
payment made at the beginning of the 1, 5 or 10 year periods.
Average annual total return takes into account any applicable initial or
contingent deferred sales charges but does not take into account any federal or
state income taxes that may be payable upon redemption.
The average annual total return and subsidy/waiver adjusted average annual
total return from the inception of the Class A shares (January 22, 1990) and for
the one year period ended April 30, 1994 were as follows:
<TABLE>
<CAPTION>
SUBSIDY/WAIVER
ADJUSTED
YEAR ENDED ----------------------------
FROM APRIL 30, FROM YEAR ENDED
SERIES INCEPTION 1994 INCEPTION APRIL 30, 1993
- ---------------------- ------------ ---------- ------------ --------------
<S> <C> <C> <C> <C>
High Yield Series
Insured Series
Modified Term Series
</TABLE>
The average annual total return and subsidy/waiver adjusted average annual
total return from inception of the Class B shares (September 17, 1987), for the
five year period ended April 30, 1994 and for the one year ended April 30, 1994
were as follows:
<TABLE>
<CAPTION>
SUBSIDY/WAIVER
ADJUSTED
------------------------------------
FIVE YEARS FIVE YEARS
ENDED YEAR ENDED ENDED YEAR ENDED
FROM APRIL 30, APRIL 30, FROM APRIL 30, APRIL 30,
SERIES INCEPTION 1994 1994 INCEPTION 1994 1994
- ---------------------- ------------ ---------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
High Yield Series
Insured Series
Modified Term Series
</TABLE>
During these periods, no Class C shares were outstanding.
B-25
<PAGE>
AGGREGATE TOTAL RETURN. Each Series may also advertise its aggregate total
return. Aggregate annual total return is determined separately for Class A,
Class B and Class C shares. See "How the Fund Calculates Performance" in the
Prospectus.
Aggregate total return represents the cumulative change in the value of an
investment in a Series and is computed according to the following formula:
ERV - P
-------
P
Where: P = a hypothetical initial payment of $1000.
ERV = ending redeemable value at the end of the 1, 5 or 10 year periods
(or fractional portion thereof) of a hypothetical $1000 payment
made at the beginning of the 1, 5 or 10 year periods.
Aggregate total return does not take into account any federal or state
income taxes that may be payable upon redemption or any applicable initial or
contingent deferred sales charge.
The aggregate total return and subsidy/waiver adjusted aggregate total
return from the inception of the Class A shares (January 22, 1990) and for the
one year period ended April 30, 1994 were as follows:
<TABLE>
<CAPTION>
SUBSIDY/WAIVER
ADJUSTED
YEAR ENDED -----------------------------
FROM APRIL 30, FROM YEAR ENDED
SERIES INCEPTION 1994 INCEPTION APRIL 30, 1994
- ---------------------- ------------ ---------- ------------ ---------------
<S> <C> <C> <C> <C>
High Yield Series
Insured Series
Modified Term Series
</TABLE>
The aggregate total return and subsidy/waiver adjusted aggregate total
return from inception of the Class B shares (September 17, 1987) and for the
five and one year periods ended April 30, 1994 were as follows:
<TABLE>
<CAPTION>
SUBSIDY/WAIVER
ADJUSTED
------------------------------------
FIVE YEARS FIVE YEARS
ENDED YEAR ENDED ENDED YEAR ENDED
FROM APRIL 30, APRIL 30, FROM APRIL 30, APRIL 30,
SERIES INCEPTION 1994 1994 INCEPTION 1994 1994
- ---------------------- ------------ ---------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
High Yield Series
Insured Series
Modified Term Series
</TABLE>
During these periods, no Class C shares were outstanding.
YIELD._Each Series may from time to time advertise its yield as calculated
over a 30-day period. Yield is calculated separately for Class A, Class B and
Class C shares. This yield will be computed by dividing a Series' net investment
income per share earned during this 30-day period by the maximum offering price
per share on the last day of this period. Yield is calculated according to the
following formula:
a - b
YIELD = 2[( ------- +1)to the power of 6 - 1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
Yield fluctuates and an annualized yield quotation is not a representation
by the Fund as to what an investment in the Fund will actually yield for any
given period.
B-26
<PAGE>
The yield for the 30 days ended April 30, 1994 was [___%, ___% and ___%] for
Class B shares of the High Yield Series, the Insured Series and the Modified
Term Series, respectively. The yield for the 30 days ended April 30, 1994 was
[___%, ___% and ___%] for Class A shares of the High Yield Series, the Insured
Series and the Modified Term Series, respectively. During these periods, no
Class C shares were outstanding.
Each Series may also calculate the tax equivalent yield over a 30-day
period. The tax equivalent yield will be determined by first computing the yield
as discussed above. The Series will then determine what portion of that yield is
attributable to securities, the income of which is exempt for federal income tax
purposes. This portion of the yield will then be divided by one minus [31%] (the
assumed maximum tax rate for individual taxpayers not subject to alternative
minimum tax) and then added to the portion of the yield that is attributable to
other securities. For the 30 days ended April 30, 1993, the tax equivalent yield
for the Class B shares of the High Yield Series, Insured Series and Modified
Term Series was [8.41%, 6.14% and 5.12%], respectively. For the 30 days ended
April 30, 1993, the tax equivalent yield for the Class A shares of the High
Yield Series, the Insured Series and the Modified Term Series was [8.58%, 6.42%
and 5.45%], respectively. During these periods, no Class C shares were
outstanding.
The following chart shows the tax-equivalent yield of an investment at
varying rates:
<TABLE>
<CAPTION>
A TAX-EXEMPT YIELD OF:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
3.5% 4.0% 4.5% 5.0% 5.5% 6% 6.5%
<CAPTION>
FEDERAL
TAX RATE IS EQUIVALENT TO A TAXABLE RATE OF:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
28% 4.86% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03%
31% 5.07% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42%
</TABLE>
Income earned on this portfolio could be subject to the federal alternative
minimum tax. The above information is for illustrative purposes only and is not
intended to imply actual performance.
From time to time, the performance of the Series may be measured against
various indices. Set forth below is a chart which compares the performance of
different types of investments over the long-term and the rate of inflation.(1)
[GRAPHIC]
- ------------
(1)Source: Ibbotson Associates, "Stocks, Bonds, Bills and Inflation--1993
Yearbook" (annually updates the work of Roger G. Ibbotson and Rex A.
Sinquefield). Common stock returns are based on the Standard & Poor's 500 Stock
Index, a market-weighted, unmanaged index of 500 common stocks in a variety of
industry sectors. It is a commonly used indicator of broad stock price
movements. This chart is for illustrative purposes only, and is not intended to
represent the performance of any particular investment or fund.
B-27
<PAGE>
ORGANIZATION AND CAPITALIZATION
The Fund is a Massachusetts business trust established under a Declaration
of Trust dated November 3, 1986. The Declaration of Trust and the By-Laws of the
Fund are designed to make the Fund similar in certain respects to a
Massachusetts business corporation. The principal distinction between the two
forms relates to shareholder liability. Under Massachusetts law, shareholders of
a business trust may, in certain circumstances, be held personally liable as
partners for the obligations of the fund, which is not the case with a
corporation. The Declaration of Trust of the Fund provides that shareholders
shall not be subject to any personal liability for the acts or obligations of
the Fund and that every written obligation, contract, instrument or undertaking
made by the Fund shall contain a provision to the effect that the shareholders
are not individually bound thereunder.
Massachusetts counsel for the Fund has advised the Fund that no personal
liability with respect to contract obligations will attach to the shareholders
under any undertaking containing such a provision when adequate notice of the
provision is given, except possibly in a few jurisdictions. With respect to all
types of claims in the latter jurisdictions and with respect to tort claims,
contract claims where the provision referred to is omitted from the undertaking,
claims for taxes and certain statutory liabilities, shareholders may be held
personally liable to the extent that claims are not satisfied by the Fund.
However, upon payment of any such liability, shareholders will be entitled to
reimbursement from the general assets of the appropriate Series of the Fund. The
Trustees intend to conduct the operations of the Fund in such a way so as to
avoid, to the extent possible, ultimate liability of the shareholders for
liabilities of the Fund.
The Declaration of Trust further provides that no Trustee, officer, employee
or agent of the Fund is liable to the Fund or to a shareholder, nor is any
Trustee, officer, employee or agent liable to any third persons in connection
with the affairs of the Fund, except as this liability may arise from his or her
own bad faith, willful misfeasance, gross negligence, or reckless disregard of
his or her duties. It also provides that all third parties shall look solely to
the Fund property or the property of the appropriate Series of the Fund for
satisfaction of claims arising in connection with the affairs of the Fund or of
the particular Series of the Fund, respectively. With the exceptions stated, the
Declaration of Trust permits the Trustees to provide for the indemnification of
Trustees, officers, employees or agents of the Fund against all liability in
connection with the affairs of the Fund.
The Fund does not intend to issue share certificates or hold annual meetings
of shareholders.
The Fund and all Series thereof shall continue without limitation of time
subject to the provisions in the Declaration of Trust concerning termination by
action of the shareholders or by the Trustees by written notice to the
shareholders.
The authorized capital of the Fund consists of an unlimited number of shares
of beneficial interest, $.01 par value, issued in three classes in separate
Series. Each Series of the Fund, for federal income tax and Massachusetts state
law purposes, will constitute a separate trust which will be governed by the
provisions of the Declaration of Trust. All shares of any Series issued and
outstanding will be fully paid and non-assessable by the Fund. Each share of
each Series represents an equal proportionate interest in that Series with each
other share of that Series. The assets of the Fund received for the issue or
sale of the shares of each Series and all income, earnings, profits and proceeds
thereof, subject only to the rights of creditors of that Series, are specially
allocated to the Series and constitute the underlying assets of the Series. The
underlying assets of each Series are segregated on the books of account and are
to be charged with the liabilities in respect to the Series and with a share of
the general liabilities of the Fund. Under no circumstances would the assets of
a Series be used to meet liabilities that are not otherwise properly chargeable
to it. Expenses with respect to any two or more Series are to be allocated in
proportion to the asset value of the respective Series except where allocations
of direct expenses can otherwise be fairly made. The officers of the Fund,
subject to the general supervision of the Trustees, have the power to determine
which liabilities are allocable to a given Series or which are general or
allocable to two or more Series. Upon redemption of shares of a Series of the
Fund, the shareholder will receive proceeds solely of the assets of such Series.
In the event of the dissolution or liquidation of the Fund, the holders of the
shares of any Series are entitled to receive as a class the underlying assets of
that Series available for distribution to shareholders.
Shares of the Fund entitle their holders to one vote per share. Matters will
be acted upon by the vote of the shareholders of each class of each Series
separately, except to the extent otherwise provided in the Investment Company
Act. A change in the investment objective or investment restrictions for a
Series would be voted upon only by shareholders of the Series involved. In
addition, approval of any investment advisory agreement is a matter to be
determined separately by each Series. Approval by the shareholders of one Series
is effective as to that Series whether or not enough votes are received from the
shareholders of the other Series to approve the proposal as to those Series.
Pursuant to the Declaration of Trust, the Trustees may authorize the
creation of additional series of shares (the proceeds of which would be invested
in separate, independently managed portfolios with distinct investment
objectives and policies and share purchase, redemption and net asset valuation
procedures) with such preferences, privileges, limitations and voting and
dividend
B-28
<PAGE>
rights as the Trustees may determine. All consideration received by the Fund for
shares of any additional series, and all assets in which such consideration is
invested, would belong to that series (subject only to the rights of creditors
of such series) and would be subject to the liabilities related thereto.
Pursuant to the Investment Company Act, shareholders of any additional
series of shares would normally have to approve the adoption of any advisory
contract relating to such series and of any changes in the investment objective
or investment restrictions related thereto. The Trustees have the power to alter
the number and the terms of office of the Trustees, and they may at any time
lengthen their own terms or make their terms of unlimited duration and appoint
their own successors, provided that always at least a majority of the Trustees
have been elected by the shareholders of the Fund. The voting rights of
shareholders are not cumulative, so that holders of more than 50 percent of the
shares voting can, if they choose, elect all Trustees being selected, while the
holders of the remaining shares would be unable to elect any Trustees.
Prudential Securities provided the initial capital for the Fund by
purchasing 10,005 shares of the Fund (3,335 shares per Series) for a total of
$100,050. The shares of each Series were acquired for investment and can only be
disposed of by redemption; Prudential Securities has agreed not to redeem the
shares purchased except as organizational expenses have been amortized. The
organizational expenses of the Fund were paid by Prudential Securities. The Fund
has reimbursed Prudential Securities for such expenses. These costs have been
deferred and will be amortized by the Fund over the period of benefit not to
exceed 60 months from the date the Fund commenced operations.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
AND INDEPENDENT ACCOUNTANTS
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities and
cash and in that capacity maintains certain financial and accounting books and
records pursuant to an agreement with the Fund. See "How the Fund is
Managed--Custodian and Transfer and Dividend Disbursing Agent" in the
Prospectus.
Prudential Mutual Fund Services, Inc. (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as Transfer and Dividend Disbursing Agent and in those
capacities maintains certain books and records for the Fund. PMFS is a
wholly-owned subsidiary of PMF. PMFS provides customary transfer agency services
to the Fund, including the handling of shareholder communications, the
processing of shareholder transactions, the maintenance of shareholder account
records, payment of dividends and distributions and related functions. For these
services, PMFS receives an annual fee per shareholder account, a new account
set-up fee for each manually established account and a monthly inactive zero
balance account fee per shareholder account. PMFS is also reimbursed for its
out-of-pocket expenses, including but not limited to postage, stationery,
printing, allocable communications expenses and other costs. For the fiscal year
ended April 30, 1994, the Fund incurred fees of approximately [$655,000
($339,000-High Yield Series, $289,000-Insured Series and $27,000-Modified Term
Series)] for the services of PMFS.
Deloitte & Touche, 1633 Broadway, New York, New York 10019, serves as the
Fund's independent accountants and in that capacity audits the Fund's annual
financial statements.
B-29
<PAGE>
- --------------------------------------------------------------------------------
PRUDENTIAL MUNICIPAL BOND FUND PORTFOLIO OF INVESTMENTS
HIGH YIELD SERIES APRIL 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (A) (NOTE 1)
- ----------- --------- ------------------------------- ------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS--96.4%
ALABAMA--0.5%
NR $ 4,640 Ft. Payne, Ind. Dev. Brd. Rev., Gametime Expansion
Proj., 10.25%, 8/1/09................................ $ 4,973,338
------------
ALASKA--0.2%
A- 2,000 No. Slope Boro., Gen. Oblig., 8.35%, 6/30/98, Ser. C... 2,304,620
------------
ARIZONA--1.8%
NR 3,000 Ft. Mojave Indian Tribe, Wtr. & Swr. Rev.,10.25%,
9/1/19#.............................................. 2,100,000
NR 10,000 Pima Cnty. Ind. Dev. Auth., Multifamily Mtge. Rev.,
Cntry. Club La Cholla Proj., 10.50%, 7/1/20.......... 10,948,600
NR 5,000 Scottsdale Ind. Dev. Auth. Rev., 1st Mtge., Westminster
Vlg. Inc. Proj., 9.50%, 6/1/97....................... 5,330,750
NR 1,400 Tempe Ind. Dev. Auth. Rev., Friendship Vlg. of Tempe,
8.75%, 9/1/16........................................ 1,474,326
------------
19,853,676
------------
CALIFORNIA--7.2%
NR 8,175 Alameda Cmnty. Facs Dist.
Spec. Tax Rev., No. 1, 7.75%, 9/1/19................. 8,248,330
Aa 2,205 California Hsg. Fin. Agcy. Rev., 8.15%, 8/1/19, Ser.
G.................................................... 2,352,228
NR 6,955 Delano, Cert. of Part., Regional Medical Center, 9.25%,
1/1/22, Ser. 92A..................................... 7,267,975
NR 3,130 Folsom Spec. Tax Dist. No. 2, 7.70%, 12/1/19........... 3,198,484
NR 3,500 Fontana Cmnty. Spec. Tax Rev., Facs., Dist. No. 2,
8.50%, 9/1/17, Ser. B................................ 3,804,535
NR 7,500 Orange Cnty. Cmnty. Facs. Dist. Spec.Tax Rev., No.
87-4-Foothill Ranch, 7.375%, 8/15/18, Ser. A......... 7,558,725
NR 3,750 Sacramento Cnty. Spec. Tax Rev., Dist. No. 1, Elliot
Ranch, 8.20%, 8/1/21................................. 3,919,163
NR 4,500 Dist. No. 1, Laguna Creek Ranch, 8.25%, 12/1/20........ 4,784,265
Aaa 2,000 Sacramento-Yolo Cnty., Port Dist. Rev., 8.875%,
12/1/12, Ser. A88.................................... 2,433,040
NR 12,900 San Joaquin Hills Trans. Corridor, Agcy. Toll Road
Rev., Zero Coupon, 1/11/11........................... 2,911,530
NR 14,000 7.00%, 1/1/30.......................................... 13,888,000
NR 7,300 5.00%, 1/1/33.......................................... 5,548,000
NR 2,375 South San Francisco Redev. Agcy., Tax Alloc., Gateway
Redev. Proj., 7.60%, 10/1/15......................... 2,415,185
NR 8,450 Southern California Home
Fin. Auth., Sngl. Fam.
Mtge. Rev., G.N.M.A., 7.625%, 10/1/22, Ser. A89...... 8,991,138
------------
77,320,598
------------
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (A) (NOTE 1)
- ----------- --------- ------------------------------- ------------
<S> <C> <C> <C>
COLORADO--4.7%
NR $ 2,295 Colorado Hsg. Fin. Auth., Sngl. Fam. Mtge. Rev., 7.65%,
8/1/22, Ser. C3...................................... $ 2,412,504
Baa1 7,500 Denver City & Cnty. Arpt. Rev., 8.875%, 11/15/12, Ser.
A.................................................... 8,783,475
Baa1 10,625 7.25%, 11/15/23, Ser. B................................ 11,019,825
Baa1 5,000 8.75%, 11/15/23, Ser. A................................ 5,764,900
Baa1 2,000 6.125%, 11/15/25, Ser. C............................... 1,836,080
Baa1 6,000 7.25%, 11/15/25, Ser. A................................ 6,356,040
NR 2,000 Denver City & Cnty. Ind. Dev. Rev., Univ. of Denver
7.50%, 3/1/11........................................ 2,230,302
NR 1,000 Miguel Cnty., Mtn. Vlg. Met. Dist. Colo. San Miguel
Co., 12.00%, 12/1/03................................. 1,134,970
NR 1,750 11.00%, 12/1/04........................................ 2,064,090
NR 4,000 11.00%, 12/1/07........................................ 5,303,200
NR 3,200 8.10%, 12/1/11......................................... 3,408,032
------------
50,313,418
------------
DISTRICT OF COLUMBIA--1.8%
BBB* 9,500 District of Columbia Cert. of Part., 7.30%, 1/1/13..... 9,986,685
NR 8,800 National Public Radio, 7.625%, 1/1/18.................. 9,239,472
------------
19,226,157
------------
FLORIDA--7.4%
NR 1,000 Brevard Cnty. Tourist Dev. Tax Rev., 4th Central
Florida Marlins, 6.375%, 3/1/03...................... 1,017,080
NR 2,000 6.875%, 3/1/13......................................... 1,992,220
A 3,890 Broward Cnty. Res. Rec. Rev., 7.95%, 12/1/08........... 4,429,271
A 2,780 Broward Waste Energy, L.P. North, 7.95%, 12/1/08....... 3,165,391
NR 2,605 Escambia Cnty. Hlth. Facs. Auth. Rev., L.P. South,
Azalea Trace, Ref., 9.25%, 1/1/06.................... 2,844,973
NR 4,385 Baptist Hosp., Ref., 8.60%, 10/1/02, Ser. A............ 4,975,660
NR 9,922 Florida Hsg. Fin. Agcy., Palm Aire Proj., Multifamily
Hsg. Rev., 10.00%, 1/1/20++.......................... 5,952,954
NR 1,000 Florida St. Cmnty. Svcs. Corp., Kissimmee Suburb Utils.
Rev., 8.625%, 10/1/03................................ 1,213,150
NR 1,000 Walton Cnty. Utils. Rev., 9.00%, 3/1/18................ 1,221,640
A1 2,500 Greater Orlando Aviation Auth. Rev., Orlando Florida
Arpt. Facs., 8.00%, 10/1/18.......................... 2,878,850
NR 2,335 Hialeah Hosp. Rev., 12.00%, 2/1/14## prerefunded....... 2,563,036
</TABLE>
B-30 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
PRUDENTIAL MUNICIPAL BOND FUND
HIGH YIELD SERIES (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (A) (NOTE 1)
- ----------- --------- ------------------------------- ------------
<S> <C> <C> <C>
NR $ 5,460 Hillsborough Cnty. Ind. Dev. Auth. Rev., Ind. Lvg.
Ctr., 11.00%, 3/1/19, Ser. 89........................ $ 4,804,800
NR 9,000 Osceola Cnty. Ind. Dev. Auth. Rev., 7.75%, 7/1/17...... 8,643,510
NR 4,715 Palm Beach Cnty. Hsg. Auth. Hsg. Rev., 7.75%, 3/1/23,
Ser. A............................................... 4,725,609
NR 7,000 Sarasota Hlth. Facs., Kobernick House Meadow Park
Proj., 10.00%, 7/1/22................................ 7,280,000
NR 6,515 Seminole Cnty. Ind. Dev. Auth. Rev., Ind. Dev. Fern
Park, 9.25%, 4/1/12.................................. 6,898,799
NR 7,915 St. Petersburg Ind. Dev. Rev., Harbour View Hotel
Proj., 9.75%, 11/1/06................................ 2,334,925
Aaa 3,500 Tallahassee Cap. Prog. Rev., 8.25%, 10/1/21, B.I.G..... 3,561,250
NR 7,500 Tampa Rev., Florida Aquarium Proj., 7.75%, 5/1/27...... 7,983,975
------------
78,487,093
------------
GEORGIA--1.8%
NR 5,350 Atlanta Urban Res. Fin. Auth., Clark Atlanta Univ.
Dorm. Proj., 9.25%, 6/1/10........................... 6,851,371
NR 1,000 Douglas-Coffee Cnty. Ind. Dev. Auth., 10.50%,
5/1/19+.............................................. 300,000
NR 5,880 Aff. Inc. Proj., 10.50%, 5/1/19........................ 1,764,000
B1 10,000 Effingham Cnty. Dev. Auth., Ft. Howard Corp., 7.90%,
10/1/05.............................................. 10,662,200
------------
19,577,571
------------
HAWAII--1.0%
NR 7,500 Hawaii Cnty Impvt. Dist. No. 17, 9.50%, 8/1/11......... 7,350,000
Aa 3,000 Hawaii Hsg. Fin. & Dev. Corp., Sngl. Fam. Mtge. Purch.
Rev., 7.90%, 7/1/10, Ser. 90A........................ 3,213,540
------------
10,563,540
------------
ILLINOIS--7.1%
Baa2 4,000 Chicago O'Hare Int'l. Arpt., Spec. Fac. Rev., Amer.
Airlines, Ser. A, 7.875%, 11/1/25.................... 4,225,720
Baa1 6,000 United Airlines, Ser. B, 8.45%, 5/1/07................. 6,559,800
Baa1 6,500 8.50%, 5/1/18.......................................... 7,094,035
Baa1 2,890 8.85%, 5/1/18.......................................... 3,280,728
Baa1 2,470 8.95%, 5/1/18.......................................... 2,788,605
NR 1,950 East Moline Ind. Dev. Rev. Auth., Modform Inc. Proj.,
10.50%, 8/1/13....................................... 1,852,500
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (A) (NOTE 1)
- ----------- --------- ------------------------------- ------------
<S> <C> <C> <C>
NR $ 8,000 Hennepin Ind. Dev. Rev., Exolon Esk. Co. Proj., 8.875%,
1/1/18............................................... $ 8,151,280
NR 4,420 Methchem Corp. Proj., 10.25%, 1/1/05, Ser. 89++........ 2,873,000
NR 9,460 Illinois Dev. Fin. Auth. Rev., Multifamily Hsg. Town &
Garden Apts., 7.20%, 9/1/08.......................... 9,731,029
NR 1,669 Illinois Hlth. Facs. Auth. Rev., Adventist Living Ctr.,
11.00%, 12/1/15...................................... 300,475
NR 7,500 Beacon Hill Proj., 9.00%, 8/15/19, Ser. A.............. 8,062,875
NR 2,900 Friendship Vlg. Schaumburg Proj., 9.00%, 12/1/08....... 3,119,878
Baa1 7,000 Westlake Cmnty. Hosp., 7.875%, 1/1/13.................. 7,609,350
Ba3 2,500 Kankakee Ind. Dev. Rev., Kroger Co. Proj., 7.85%,
9/1/15............................................... 2,694,525
Aaa 10,000 Metropolitan Pier & Exposition Auth. Rev., McCormick
Place, Zero Coupon, 6/15/14, F.G.I.C................. 2,850,200
NR 4,682 Winnebago Cnty. Hsg. Fin. Corp., Park Tower Assoc. Sec.
8, 8.125%, 1/1/11.................................... 4,974,738
------------
76,168,738
------------
INDIANA--1.5%
Ba3 7,500 Bluffton Econ. Dev. Rev., Kroger Co. Proj., 7.85%,
8/1/15............................................... 8,083,575
NR 7,250 Wabash Econ. Dev. Rev. Bonds, Connell Ltd. Partnership
8.50%, 11/24/17...................................... 7,721,250
------------
15,804,825
------------
IOWA--1.6%
NR 4,000 Iowa Fin. Auth. Hosp. Facs. Rev., Trinity Regl. Hosp.
Proj., 7.00%, 7/1/22................................. 4,156,560
NR 13,300 Iowa Fin. Auth., Hlth. Care Facs. Rev., Mercy Hlth.
Initiatives, 9.95%, 7/1/19........................... 13,389,376
------------
17,545,936
------------
KENTUCKY--0.4%
Aa2 3,750 Trimble Cnty. Poll. Ctrl. Rev., Louisville Gas & Elec.
Co., 7.625%, 11/1/20................................. 4,237,425
------------
LOUISIANA--4.9%
NR 10,000 Hodge Util. Rev., IDB Stone Container Corp., 9.00%,
3/1/10............................................... 10,058,000
Aaa 1,670 New Orleans Home Mtge. Auth. Rev., Sngl. Fam. Mtge.,
G.N.M.A., 8.60%, 12/1/19, Ser. A..................... 1,775,527
Baa3 10,000 St. Charles Parish, Poll. Ctrl. Rev., Louisiana Pwr. &
Lt. Co., 8.25%, 6/1/14............................... 11,514,300
</TABLE>
B-31 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
PRUDENTIAL MUNICIPAL BOND FUND
HIGH YIELD SERIES (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (A) (NOTE 1)
- ----------- --------- ------------------------------- ------------
<S> <C> <C> <C>
Baa3 $10,000 8.00%, 12/1/14, Ser. 1989.............................. $ 11,443,000
BBB-* 3,000 West Feliciana Parish Poll. Ctrl. Rev., Gulf St. Util.
Co. Proj., 7.70%, 12/1/14............................ 3,349,170
NR 5,250 9.00%, 5/1/15.......................................... 6,217,523
BBB-* 7,000 Gulf St. Util. Co. Proj., Ser. A, 7.50%, 5/1/15........ 7,721,280
------------
52,078,800
------------
MAINE--0.6%
Aaa 4,600 Maine Hlth. & Higher Edl. Facs. Auth., Sebasticook
Valley Hosp., 10.10%, 7/1/21......................... 6,257,104
------------
MARYLAND--1.8%
NR 3,635 Anne Arundel Cnty. First Mtge. Rev., Pleasant Living
Conv., 8.50%, 7/1/13................................. 3,852,591
Baa 3,900 Maryland Hlth. & Higher Edl. Facs. Auth. Rev., Doctors
Cmnty. Hosp., 8.75%, 7/1/22.......................... 4,523,337
A 10,900 Northeast Maryland Waste Disp. Auth., Solid Waste Rev.,
6.30%, 7/1/16........................................ 11,037,449
------------
19,413,377
------------
MASSACHUSETTS--8.9%
A 5,000 Mass. Dedicated Inc. Tax, 7.625%, 6/1/08, Ser. A....... 5,768,050
A 8,500 Mass. Gen. Oblig.,
7.875%, 6/1/97, Ser. A............................... 9,448,175
Baa1 7,330 Mass. Mun. Wholesale Elec. Co., Pwr. Supply Sys. Rev.,
8.75%, 7/1/18, Ser. A................................ 8,730,763
A 12,240 Mass. St Wtr. Res. Auth., 5.25%, 3/1/13................ 11,260,800
NR 7,200 Mass. St. Hlth. & Edl. Facs. Auth. Rev., 7.125%,
11/15/18............................................. 6,993,864
NR 7,500 Cardinal Cushing Gen. Hosp.,
8.875%, 7/1/18....................................... 7,894,950
NR 5,900 St. Josephs Hosp., 9.50%, 10/1/20, Ser. C.............. 6,417,430
Baa 3,950 Valley Regl. Hlth. Sys., 8.00%, 7/1/18, Ser. B......... 4,363,407
NR 2,000 Mass. St. Hsg. Fin. Agcy. Rev., Residential Ser. B
8.10%, 8/1/23........................................ 2,112,760
NR 3,895 Mass. St. Ind. Fin. Agcy. & Hlth. Care Fac. Rev.,
Hampden Nursing Home Proj. A, 9.75%, 10/1/17......... 4,097,228
NR 2,000 Mass. St. Ind. Fin. Agcy. Rev., Berkshire Retirement
Facs., 9.875%, 7/1/18................................ 2,221,820
NR 3,850 Continental Res., 9.50%, 2/1/00, Ser. A................ 4,045,850
NR 3,275 Merrimack College, 7.125%, 7/1/12...................... 3,424,733
Aaa 10,000 Mass. St. Wtr. Res. Auth., 7.625%, 4/1/14, Ser. A...... 11,790,100
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (A) (NOTE 1)
- ----------- --------- ------------------------------- ------------
<S> <C> <C> <C>
NR $ 6,075 Randolph Hsg. Auth., Multifamily Hsg., Liberty Place
Proj., 9.00%, 12/1/21, Ser. A........................ $ 6,416,719
------------
94,986,649
------------
MICHIGAN--3.6%
BBB-* 5,490 Greater Detroit Res. Rec. Auth. Rev., 9.25%, 12/13/08,
Ser. C............................................... 6,026,373
BBB-* 8,500 9.25%, 12/13/08, Ser. H................................ 9,330,450
NR 2,915 Meridian Econ. Dev. Corp. Rev., Burcham Hills
Retirement Ctr., 9.625%, 7/1/19, Ser. A.............. 3,199,242
NR 7,500 Michigan St. Fin. Auth. Rev., Saratoga Community
Hospital, 8.75%, 6/1/10, Ser. A...................... 7,631,250
Baa1 8,000 Monroe Cnty. Poll. Ctrl. Rev., Detroit Edison Co.,
7.75%, 12/1/19, Ser. A............................... 8,776,400
Baa 3,500 Wayne Cnty. Bldg. Auth., 8.00%, 3/1/17, Ser. A......... 3,923,325
------------
38,887,040
------------
MINNESOTA--0.7%
Baa 3,000 Duluth Econ. Dev. Auth., Benedictine Hlth, St. Mary's
Proj., 8.375%, 2/15/20............................... 3,617,610
AAA 4,000 Minneapolis St. Paul Hsg. Fin. Brd., Multifamily Rev.,
Riverside Plz., 8.25%, 12/20/30, G.N.M.A............. 4,273,800
------------
7,891,410
------------
MISSISSIPPI--2.4%
NR 10,350 Claiborne Cnty., Poll. Ctrl. Rev., Middle So. Energy
Sys., 9.50%, 12/1/13, Ser. A......................... 12,491,208
NR 6,100 9.875%, 12/1/14, Ser. C................................ 7,470,426
NR 5,000 Mississippi Hosp. Equip. & Facs. Auth. Rev., Methodist
Hosp. & Rehab. Ctr.,
9.375%, 5/1/12, Ser. 1............................... 5,956,600
------------
25,918,234
------------
MISSOURI--0.7%
NR 4,250 St. Louis Cnty. Ind. Dev. Auth. Rev., Conv. & Sports
Complex, 7.90%, 8/15/21, Ser. C...................... 4,558,805
NR 2,580 Soemm Proj., 10.25%, 7/1/08............................ 2,835,136
------------
7,393,941
------------
NEBRASKA--0.4%
Aaa 4,230 Nebraska Invest. Fin. Auth., G.N.M.A., Sngl. Fam. Mtge.
Rev., Ser. I, 8.125%, 8/15/38, M.B.I.A............... 4,414,174
NEVADA--0.6%
Ba2 6,500 Clark Cnty., Southwest Gas Corp., 7.50%, 9/1/32, Ser.
B.................................................... 6,854,705
</TABLE>
B-32 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
PRUDENTIAL MUNICIPAL BOND FUND
HIGH YIELD SERIES (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (A) (NOTE 1)
- ----------- --------- ------------------------------- ------------
<S> <C> <C> <C>
NEW HAMPSHIRE--3.2%
NR $ 5,530 New Hampshire Higher Edl. & Hlth. Facs. Auth., 7.875%,
12/1/22.............................................. $ 5,612,950
NR 7,905 Havenwood/Heritage Heights, 9.75%, 12/1/19............. 8,581,589
Baa3 4,125 New Hampshire St. Ind. Dev. Auth., Poll. Ctrl. Rev.,
8.00%, 12/1/14, Ser. A............................... 4,599,293
Baa3 2,750 7.50%, 5/1/21, Proj. B................................. 2,982,980
Baa3 12,000 7.65%, 5/1/21.......................................... 13,128,480
------------
34,905,292
------------
NEW JERSEY--2.4%
Baa1 2,500 Camden Cnty. Poll. Ctrl. Fin. Auth., Solid Waste Res.
Rec. Rev., 7.50%, 12/1/09, Ser. B.................... 2,731,000
NR 1,750 Howell Twnshp. Mun. Utils. Auth. Rev., 8.60%, 1/1/14,
2nd Ser.............................................. 2,121,123
BBB-* 10,000 Hudson Cnty. Impvt., Auth. Solid Waste Sys., 7.10%,
1/1/20............................................... 10,542,900
Baa1 8,000 Mercer Cnty. Impvt. Auth., Solid Waste Rev., Zero
Coupon, 4/1/14, Ser. A............................... 1,934,320
Baa 8,000 New Jersey St. Hlth. Care Facs. Fin. Auth. Rev.,
Columbus Hosp., 7.50%, 7/1/21, Ser. A................ 8,043,840
------------
25,373,183
------------
NEW YORK--5.4%
NR 8,000 Nassau Cnty. Ind. Dev. Agcy. Rev., S&S Incinerator Jt.
Venture Proj., 9.00%, 1/1/07......................... 8,942,000
Baa1 3,320 New York City Ind. Dev. Agcy., Amer. Airlines Inc.,
8.00%, 7/1/20........................................ 3,557,944
NR 1,985 Mesorah Publications Ltd., 10.25%, 3/1/19.............. 2,185,227
Baa1 2,000 8.00%, 6/1/99, Ser. B.................................. 2,281,080
Baa1 2,000 New York City, Gen. Oblig., 7.50%, 2/1/03, Ser. B...... 2,272,420
Baa1 4,000 8.00%, 8/1/03, Ser. D.................................. 4,670,960
Baa1 6,000 7.50%, 2/1/04, Ser. B.................................. 6,786,120
Baa1 1,500 8.00%, 8/1/04, Ser. D.................................. 1,738,560
Baa1 5,000 8.20%, 11/15/04, Ser. F................................ 5,910,400
NR 5,500 New York Hosp. Rev., Newark Wayne Cmnty. Hosp., Inc.,
7.60%, 9/1/15, Ser. A................................ 5,512,210
Baa3 5,000 New York St. Energy Resh. & Dev. Auth. L.I.L.C.O.,
7.15%, 2/1/22........................................ 5,446,350
Aa 4,320 New York St. Mtge. Agcy. Rev., Homeowner Mtge., 8.125%,
4/1/20, Ser. GG...................................... 4,558,378
NR 4,000 Port Authority of New York & New Jersey Spec. Oblig.,
U.S. Air, LaGuardia Airport, 9.125%, 12/1/15......... 4,497,960
------------
58,359,609
------------
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (A) (NOTE 1)
- ----------- --------- ------------------------------- ------------
<S> <C> <C> <C>
OHIO--1.7%
NR $ 5,110 Hamilton Cnty. Hosp. Facs. Rev., Emerson A North Proj.,
9.75%, 7/1/18........................................ $ 4,496,800
NR 4,500 Montgomery Cnty. Hlth. Care Facs. Rev., Friendship Vlg.
Dayton Proj. B, 9.25%, 2/1/16........................ 5,003,055
AAA* 1,985 Ohio Hsg. Fin. Agcy., Sngl. Fam. Mtge. Rev., G.N.M.A.,
8.25%, 12/15/19, Ser. B.............................. 2,106,462
AAA* 2,290 8.125%, 3/1/20, Ser. C................................. 2,455,750
Baa3 3,500 Ohio St. Wtr. Dev. Auth., Poll. Ctrl. Facs. Rev., Ohio
Edison, 7.625%, 7/1/23............................... 3,824,660
------------
17,886,727
------------
OKLAHOMA--1.2%
Baa1 13,000 Tulsa Mun. Arpt. Trust Rev., Amer. Airlines, Inc.,
7.375%, 12/1/20...................................... 13,316,940
------------
PENNSYLVANIA--7.3%
NR 2,800 Allegheny Cnty. Hosp. Dev. Auth. Rev., West Penn. Hosp.
Hlth. Ctr. Proj., 8.50%, 1/1/20...................... 3,122,812
Baa3 8,000 Beaver Cnty. Ind. Dev. Auth. Poll. Ctrl. Rev., Ohio
Edison Proj., 7.75%, 9/1/24, Ser. A.................. 8,806,960
NR 3,500 Berks Cnty. Ind. Dev. Auth. Rev., Lutheran Home Proj.,
6.875%, 1/1/23, Ser. A............................... 3,492,930
NR 279 Berks Cnty. Mun. Auth. Rev., Adventist Living Ctrs.
Proj., 11.00%, 12/1/15............................... 50,275
NR 5,240 Alvernia College Proj., 7.75%, 11/15/16................ 5,547,431
NR 4,000 Bucks Cnty. Ind. Dev. Auth. Rev., Mill Run Care,
10.00%, 7/1/19....................................... 3,920,000
NR 3,750 Chartiers Valley Ind. & Coml. Dev. Auth. Rev.,
Friendship Village/South Hills,
9.50%, 8/15/18....................................... 4,157,175
NR 1,180 Doylestown Hosp. Auth. Rev., Pine Run, 7.20%, 7/1/23,
Ser. A............................................... 1,196,048
A* 5,965 Lancaster Cnty. Solid Waste Mgmt., Res. Rec. Auth. Sys.
Rev., 8.50%, 12/15/10, Ser. A........................ 6,640,715
Aa 3,460 Penn. Hsg. Fin. Agcy., Sngl. Fam. Mtge. Rev., 8.15%,
10/1/21, Ser. 27..................................... 3,783,268
Aa 1,050 9.48%, 4/1/25, Ser. 27................................. 1,057,875
Baa1 5,200 Penn. St. Higher Edl. Facs. Auth. Rev., Med. Coll. of
Pennsylvania, 8.375%, 3/1/11, Ser. A................. 5,813,496
</TABLE>
B-33 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
PRUDENTIAL MUNICIPAL BOND FUND
HIGH YIELD SERIES (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (A) (NOTE 1)
- ----------- --------- ------------------------------- ------------
<S> <C> <C> <C>
Baa1 $ 5,250 Philadelphia Hosp. & Higher Ed. Facs. Auth Rev., Temple
Univ. Hosp., 6.625%, 11/15/23, Ser. A................ $ 5,382,405
NR 4,800 Philadelphia Gas Wks. Rev., 7.70%, 6/15/21, Ser. 13.... 5,745,552
Baa1 3,950 6.375%, 7/1/26......................................... 4,001,271
Baa 2,000 9.00%, 10/1/01, 11th Ser. B............................ 2,233,760
Baa 3,000 Philadelphia Wtr. & Swr. Rev., 9.10%, 12/1/04, 11th
Ser. A............................................... 3,382,980
NR 4,900 Shenango Valley Hosp. Auth. Rev., Osteopathic Hosp.
Med. Ctr., 7.875%, 4/1/10............................ 5,276,173
NR 2,760 Wilkes Barre Gen. Mun. Auth. Coll. Rev., Misericordia
Coll., 7.75%, 12/1/12, Ser. B........................ 2,839,378
NR 1,245 7.75%, 12/1/12, Ser. A................................. 1,280,806
------------
77,731,310
------------
PUERTO RICO--1.6%
Baa 3,500 Puerto Rico Aqueduct & Swr. Auth. Rev., 7.875%, 7/1/17,
Ser. A............................................... 3,957,730
Aaa 6,500 Puerto Rico Tel. Auth. Rev., Ser. M, M.B.I.A.,@ 7.732%,
1/1/07............................................... 6,686,875
Aaa 6,150 8.132%, 1/1/15......................................... 6,365,250
------------
17,009,855
------------
RHODE ISLAND--1.3%
NR 7,000 Rhode Island Depositors Econ. Protn. Corp. Sub. Gen.
Oblig., 10.00%, 7/1/07............................... 7,595,000
Aa 6,000 Rhode Island Hsg. & Mtge. Fin. Corp., Homeownership
Opportunity, 8.20%, 10/1/17, Ser. 1A................. 6,322,140
------------
13,917,140
------------
SOUTH CAROLINA--0.8%
NR 3,100 Charleston Cnty. Hosp. Facs. Rev., Baker Hosp., 9.25%,
10/1/11.............................................. 3,711,878
Aa 5,000 So. Carolina St. Hsg. Fin. & Dev. Auth., Homeownership
Mtge., 7.75%, 7/1/22, Ser. C......................... 5,291,500
------------
9,003,378
------------
SOUTH DAKOTA--0.6%
NR 5,210 So. Dakota Econ. Dev. Fin. Auth., Cons. Beef Inds.,
10.25%, 1/1/19....................................... 5,355,567
NR 1,300 Lomar Dev. Co., 10.25%, 8/1/08......................... 1,375,855
------------
6,731,422
------------
TENNESSEE--0.8%
NR 8,000 Knox Cnty. Hlth., Edl. & Hsg. Facs. Rev., Baptist Hlth.
Hosp., 8.50%, 4/15/04................................ 8,593,120
------------
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (A) (NOTE 1)
- ----------- --------- ------------------------------- ------------
<S> <C> <C> <C>
TEXAS--2.4%
NR $ 1,125 Austin Ind. Dev. Corp. Rev., Silver Enterprises, Inc.,
10.50%, 2/1/08++..................................... $ 900,000
A 3,000 Beaumont Hsg. Fin. Corp., Sngl. Fam. Mtge. Rev., 9.20%,
3/1/12............................................... 3,271,830
NR 5,540 Bell Cnty. Hlth. Facs. Dev. Corp., Adventist Living
Tech., Inc., 10.50%, 6/15/18, Ser. A................. 5,567,700
Baa3 1,300 Port Corpus Christi Ind. Dev. Corp., Valero Refining
Co., 10.25%, 6/1/17, Ser. A.......................... 1,562,470
Aaa 6,500 San Antonio Elec. & Gas Rev., F.G.I.C., Zero Coupon,
2/1/09, Ser. B....................................... 2,577,055
NR 80,380 Southwest Travis Cnty., Road Dist. No. 1, Zero Coupon,
9/1/19............................................... 4,492,438
NR 5,000 Tarrant Cnty. Hlth. Facs. Dev. Corp., 3927 Fndtn.
Proj., 10.25%, 9/1/19................................ 5,333,950
Aaa 4,750 Texas St Pub. Fin. Auth. Bldg. Rev., Zero Coupon,
2/1/10, M.B.I.A...................................... 1,767,143
------------
25,472,586
------------
U. S. VIRGIN ISLANDS--0.8%
NR 2,405 Virgin Islands Terr., Hugo Ins. Claims Fund Proj.,
7.75%, 10/1/06, Ser. 91.............................. 2,665,221
NR 4,800 Virgin Islands Wtr. & Pwr. Auth., Elec. Sys. Rev.,
8.50%, 1/1/10, Ser. A................................ 5,408,592
------------
8,073,813
------------
UTAH--0.6%
Aa 10,000 Intermountain Pwr. Agcy., Pwr. Sup. Rev., Zero Coupon,
7/1/17, Ser. A....................................... 2,329,300
Aa 4,500 8.53%, 7/1/21, Ser. A.................................. 4,286,250
------------
6,615,550
------------
VIRGINIA--0.5%
NR 5,000 Hopewell Industrial Dev. Auth., Stone Container, 8.25%,
6/1/16............................................... 4,854,150
------------
WASHINGTON--1.8%
Aa 5,000 Washington St. Pub. Pwr. Sup. Sys. Rev., Nuclear Proj.
No. 1, 7.25%, 7/1/09, Ser. B......................... 5,793,800
Aa 7,500 Washington St. Pub. Pwr. Sup. Sys. Rev., Ser. B,
Nuclear Proj. No. 3, 7.25%, 7/1/15................... 8,204,925
Aa 5,000 7.125%, 7/1/16......................................... 5,795,600
------------
19,794,325
------------
</TABLE>
B-34 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
PRUDENTIAL MUNICIPAL BOND FUND
HIGH YIELD SERIES (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (A) (NOTE 1)
- ----------- --------- ------------------------------- ------------
<S> <C> <C> <C>
WEST VIRGINIA--2.4%
NR $ 4,915 Kanawha Cnty. Bldg. Comn. Rev., St. Francis Hosp.,
12.00%, 1/1/14....................................... $ 5,255,265
Baa2 2,450 So. Charleston Ind. Dev. Rev., Union Carbide Chem. &
Plastics Co., 8.00%, 8/1/20.......................... 2,737,140
B2 4,000 Weirton Poll. Ctrl. Rev., Weirton Steel Proj., 8.625%,
11/1/14.............................................. 4,017,680
Aa 9,440 West Virginia St. Hsg. Dev. Auth., Fund Hsg. Fin.,
7.95%, 5/1/17, Ser. A................................ 10,136,101
Aaa 3,250 West Virginia St. Pkwys Econ. Dev. & Tourism Auth.
F.G.I.C., 8.904%, 5/16/19@........................... 3,323,125
------------
25,469,311
------------
Total long-term investments (cost $981,850,115)........ 1,033,580,080
------------
SHORT-TERM INVESTMENTS--1.9%
CONNECTICUT--0.1%
VMIG $ 500 Connecticut Spec. Tax Oblig., Trans. Infrastructure
Rev., 2.70%, 5/3/93, Ser. 90 I, F.R.W.D.............. $ 500,000
NR 800 West Haven, 2.03%, 6/15/93............................. 799,385
------------
1,299,385
------------
FLORIDA--0.3%
VMIG1 3,000 Pinellas Cnty. Hlth. Facs. Auth. Rev., Pooled Hosp.
Loan Prog., 2.25%, 5/3/93, F.R.D.D................... 3,000,000
------------
ILLINOIS
P1 300 Chicago O' Hare Int'l. Arprt., Amer. Airlines, Inc.,
F.R.D.D., 2.55%, 5/3/93, Ser. B...................... 300,000
------------
KENTUCKY--0.8%
NR 8,300 Pendleton Cnty. Kentucky Multi-cnty Lease Rev. 2.45%,
5/3/93............................................... 8,300,000
------------
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (A) (NOTE 1)
- ----------- --------- ------------------------------- ------------
<S> <C> <C> <C>
NEW YORK--0.3%
P1 $ 3,200 New York City Ind. Dev. Agcy., Japan Airlines, Inc.,
2.55%, 5/3/93, Ser. 91, F.R.D.D...................... $ 3,200,000
------------
NORTH CAROLINA--0.4%
P1 4,415 Cleveland Cnty., Ind. Facs. Auth. Rev., Metals America
Proj., Ser. 90, 3.35%, 5/5/93, F.R.W.D............... 4,415,000
------------
Total short-term investments (cost $20,514,385)........ 20,514,385
------------
TOTAL INVESTMENTS--98.3% (cost $1,002,364,500; Note
4)................................................... 1,054,094,465
Other assets in excess of liabilities--1.7%............ 17,915,025
------------
NET ASSETS--100%....................................... $1,072,009,490
------------
------------
<FN>
- ---------------
(a) The following abbreviations are used in portfolio
descriptions:
B.I.G.--Bond Investors Guaranty Insurance Company
F.R.D.D.--Floating Rate (Daily) Demand Note**
F.R.W.D.--Floating Rate (Weekly) Demand Note**
G.N.M.A.--Government National Mortgage Association
M.B.I.A.--Municipal Bond Insurance Association
# Indicates restricted security. The aggregate fair value
($2,100,000) is approximately 0.2% of net assets.
## Prerefunded issues are secured by escrowed cash and
direct U.S. guaranteed obligations.
+ Non-income producing security.
++ Issuer in default, non-income producing security.
@ Inverse floating rate bond.
* Standard & Poor's Rating.
** For purposes of amortized cost valuation, the maturity
date of Floating Rate Demand Notes is considered to be
the later of the next date on which the security can be
redeemed at par, or the next date on which the rate of
interest is adjusted.
NR--Not Rated by Moody's or Standard & Poor's. The Fund's current
Prospectus contains a description of Moody's and Standard & Poor's
ratings.
</TABLE>
B-35 See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
PRUDENTIAL MUNICIPAL BOND FUND
HIGH YIELD SERIES
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS APRIL 30, 1993
- ------------------------------------------------------------------------------------------------------- ----------------
<S> <C>
Investments, at value (cost $1,002,364,500)............................................................ $ 1,054,094,465
Cash................................................................................................... 23,636
Accrued interest receivable............................................................................ 23,812,316
Receivable for Fund shares sold........................................................................ 9,479,950
Receivable for investments sold........................................................................ 7,374,063
Deferred expenses and other assets..................................................................... 31,726
----------------
Total assets....................................................................................... 1,094,816,156
----------------
----------------
LIABILITIES
Payable for investments purchased...................................................................... 17,395,692
Payable for Fund shares reacquired..................................................................... 2,305,944
Dividends payable...................................................................................... 1,956,774
Due to Manager......................................................................................... 431,724
Due to Distributors.................................................................................... 417,900
Accrued expenses....................................................................................... 298,632
----------------
Total liabilities.................................................................................. 22,806,666
----------------
----------------
NET ASSETS............................................................................................. $ 1,072,009,490
----------------
----------------
NET ASSETS WERE COMPRISED OF:
Shares of beneficial interest, at par................................................................ $ 962,455
Paid-in capital in excess of par..................................................................... 1,018,956,949
----------------
1,019,919,404
Accumulated net realized capital gains............................................................... 360,121
Net unrealized appreciation.......................................................................... 51,729,965
----------------
Net assets, April 30, 1993........................................................................... $ 1,072,009,490
----------------
----------------
</TABLE>
<TABLE>
<S> <C>
Class A:
Net asset value and redemption price per share
($43,529,246 DIVIDED BY 3,909,070 shares of beneficial interest issued and
outstanding)..................................................................... $ 11.14
Maximum sales charge (4.5% of offering price)...................................... .52
---------
Maximum offering price to public................................................... $ 11.66
---------
---------
Class B:
Net asset value, offering price and redemption price per share
($1,028,480,244 DIVIDED BY 92,336,449 shares of beneficial interest issued and
outstanding)..................................................................... $ 11.14
---------
---------
</TABLE>
B-36
<PAGE>
- ----------------------------------------------
PRUDENTIAL MUNICIPAL BOND FUND
HIGH YIELD SERIES
STATEMENT OF OPERATIONS
- ----------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 30,
Net Investment Income 1993
-----------
<S> <C>
Income
Interest and discount earned......... $72,156,957
-----------
Expenses
Management fee....................... 4,624,309
Distribution fee--Class A............ 31,658
Distribution fee--Class B............ 4,466,017
Transfer agent's fees and expenses... 460,000
Workout expenditures................. 324,000
Custodian's fees and expenses........ 283,000
Registration fees.................... 90,000
Reports to shareholders.............. 80,000
Insurance expense.................... 23,000
Legal fees........................... 20,000
Trustees' fees....................... 18,000
Audit fee............................ 16,500
Amortization of organization
expenses........................... 7,576
Miscellaneous........................ 12,252
-----------
Total expenses..................... 10,456,312
-----------
Net investment income.................. 61,700,645
-----------
-----------
Realized and Unrealized
Gain on Investments
Net realized gain (loss) on:
Investment transactions.............. 3,930,326
Financial futures contracts.......... (490,313)
-----------
3,440,013
-----------
Net change in unrealized appreciation
of:
Investments.......................... 34,042,556
Financial futures contracts.......... (42,187)
-----------
34,000,369
-----------
Net gain on investments................ 37,440,382
-----------
Net Increase in Net Assets
Resulting from Operations............. $99,141,027
-----------
-----------
</TABLE>
- ----------------------------------------------
PRUDENTIAL MUNICIPAL BOND FUND
HIGH YIELD SERIES
STATEMENT OF CHANGES IN NET ASSETS
- ----------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
Increase (Decrease) ----------------------------
in Net Assets 1993 1992
-------------- ------------
<S> <C> <C>
Operations
Net investment
income............ $ 61,700,645 $ 53,476,197
Net realized gain on
investment
transactions...... 3,440,013 1,552,118
Net change in
unrealized
appreciation of
investments....... 34,000,369 15,502,745
-------------- ------------
Net increase in net
assets resulting
from operations... 99,141,027 70,531,060
-------------- ------------
Dividends to
shareholders from net
investment income
(Note 1)
Class A............. (2,230,916) (1,426,261)
Class B............. (59,469,729) (52,049,936)
-------------- ------------
(61,700,645) (53,476,197)
-------------- ------------
Fund share
transactions (Note 5)
Net proceeds from
shares issued..... 307,450,090 193,790,214
Net asset value of
shares issued to
shareholders in
reinvestment of
dividends......... 26,753,882 22,955,645
Cost of shares
reacquired........ (128,197,926) (121,809,910)
-------------- ------------
Increase in net
assets from Fund
share
transactions...... 206,006,046 94,935,949
-------------- ------------
Total increase.... 243,446,428 111,990,812
Net Assets
Beginning of year..... 828,563,062 716,572,250
-------------- ------------
End of year........... $1,072,009,490 $828,563,062
-------------- ------------
-------------- ------------
</TABLE>
See Notes to Financial Statements
B-37
<PAGE>
- --------------------------------------------------------------------------------
PRUDENTIAL MUNICIPAL BOND FUND PORTFOLIO OF INVESTMENTS
INSURED SERIES APRIL 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (A) (NOTE 1)
- ---------- ----------- --------------------------- -----------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS--96.6%
ALABAMA--2.2%
Aaa $ 5,000 Alabama Wtr. Poll. Ctrl.
Auth., 5.50%, 2/15/16,
A.M.B.A.C................ $ 4,860,350
NR 10,000 Birmingham Baptist Med.
Ctr., 5.50%, 8/15/13..... 9,632,200
Aaa 2,400 Birmingham Jefferson Civic
Ctr. Auth., Spec. Tax
Rev., Zero Coupon,
9/1/17, M.B.I.A.......... 562,680
Aaa 2,000 Huntsville Solid Waste
Disp. Auth., 7.00%,
10/1/08, F.G.I.C......... 2,194,540
-----------
17,249,770
-----------
ALASKA--1.0%
Aaa 2,000 Alaska St. Energy Auth.
Pwr. Rev., Bradley Lake
Hydro, 1st Ser., 7.25%,
7/1/16, A.M.B.A.C........ 2,266,860
Aaa 5,000 Anchorage Hosp. Rev.,
Sisters of Province,
7.125%, 10/1/05,
A.M.B.A.C................ 5,688,500
-----------
7,955,360
-----------
ARIZONA--3.5%
AAA* 7,000 Maricopa Cnty. Ind. Dev.
Auth. Rev., Citizens
Util. Co. Proj., 6.65%,
4/1/26, A.M.B.A.C........ 7,510,860
Aaa 2,740 Hosp. Fac., John C. Lincoln
Hosp., 7.00%, 12/1/00,
F.S.A.................... 3,123,189
Aaa 2,250 7.50%, 12/1/13, F.S.A...... 2,601,420
Aaa 14,000 Pima Cnty. Ind. Dev. Auth.
Rev., Tucson Elec. Pwr.
Co., 7.25%, 7/15/10,
F.S.A.................... 15,549,520
-----------
28,784,989
-----------
CALIFORNIA--6.7%
Aaa 8,000 California St. Pub. Wks.
Brd. Lease Rev., Dept. of
Corrections California
St. Prison Coalinga,
5.375%, 12/1/19, Ser. B,
M.B.I.A.................. 7,635,200
Aaa 6,000 Corona, Cert. of Part.,
Vista Hosp., 10.00%,
11/1/20, Ser. B.......... 8,340,540
Aaa 4,700 Fresno Hlth. Fac. Rev.,
Fresno Cmnty. Hosp. &
Med. Ctr., 8.75%, 2/1/15,
Ser. B, A.M.B.A.C........ 5,189,176
Aaa 6,750 Los Angeles Cnty. Trans.
Comm., Sales Tax Rev.,
6.25%, 7/1/13, M.B.I.A... 7,081,425
Aaa 5,000 Sacramento Mun. Util.
Dist., 5.25%, 11/15/12,
M.B.I.A.................. 4,770,600
Aaa 9,690 Elec. Rev., M.B.I.A.,
5.25%, 11/15/05, Ser.
1993 D................... 9,336,896
Aaa 5,000 6.375%, 8/15/22, Ser. B.... 5,273,400
Aaa 5,800 San Diego Cnty. Wtr. Auth.
Wtr. Rev., Cert. of
Part., 8.30446%, 4/26/06,
F.G.I.C.@................ 5,988,500
-----------
53,615,737
-----------
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (A) (NOTE 1)
- ---------- ----------- --------------------------- -----------
<S> <C> <C> <C>
COLORADO--1.9%
Aaa $ 2,900 Denver City & Cnty., Cert.
of
Part., Cap. Leasing
Corp., 8.00%, 5/15/07,
B.I.G.................... $ 3,317,571
Aaa 8,000 Jefferson Cnty. Sch. Dist.,
Gen. Oblig., 6.00%,
12/15/07, A.M.B.A.C...... 8,379,360
Aaa 1,920 Jefferson Cnty. Sngl. Fam.
Mtge. Rev., M.B.I.A.
8.875%, 10/1/13, Ser.
A........................ 2,038,138
Aaa 1,250 Thornton Gen. Oblig.,
6.00%, 12/1/15,
F.G.I.C.................. 1,291,038
-----------
15,026,107
-----------
DELAWARE--1.4%
Aaa 5,000 Delaware Econ. Dev. Auth.
Rev., Delmarva Pwr. &
Lt., 7.60%, 3/1/20, Ser.
A, M.B.I.A............... 5,660,250
Aaa 5,000 Delaware Trans. Auth. Sys.
Rev., 7.75%, 7/1/06...... 5,808,650
-----------
11,468,900
-----------
DISTRICT OF COLUMBIA--1.8%
Aaa 2,500 Dist. of Columbia, Gen.
Oblig., Ser. A, M.B.I.A.,
6.75%, 6/1/08............ 2,707,600
Aaa 5,550 Ser. B, F.S.A., 7.40%,
6/1/05................... 6,346,536
Aaa 5,000 Ser. C, A.M.B.A.C., 8.00%,
6/1/08................... 5,910,150
-----------
14,964,286
-----------
FLORIDA--6.4%
Aaa 3,500 Dade Cnty. Hlth. Facs.
Auth., No. Shore Med.
Ctr., 9.125%, 10/1/13,
A.M.B.A.C................ 4,019,750
Aaa 4,750 Dunedin Hosp. Rev., 5.375%,
11/15/21, M.B.I.A........ 4,526,988
Aaa 9,000 Florida St. Dept. Gen.
Svcs. Div. Facs. Mgmt.
Rev., 5.40%, 9/1/17,
A.M.B.A.C................ 8,657,550
Aaa 1,500 Gulf Breeze Local Gov't.
Loan Proj., 8.00%,
12/1/15, Ser. 85B,
F.G.I.C.................. 1,753,335
Aaa 10,000 Lee County Florida Airport
Rev., A.M.B.A.C., 5.50%,
10/1/10.................. 9,911,000
Aaa 3,000 Orange Cnty. Solid Waste
Fac. Rev., F.G.I.C.,
6.25%, 10/1/12........... 3,149,820
Aaa 5,000 Orlando & Orange Cnty.
Expwy. Auth. Rev.,
F.G.I.C. 6.50%, 7/1/10... 5,562,300
Aaa 2,550 6.50%, 7/1/11.............. 2,837,283
Aaa 4,750 Orlando Cap. Prog. Rev.,
8.25%, 10/1/21, B.I.G.... 4,868,750
Aaa 5,000 Univ. Cmnty. Hosp. Inc.,
Hosp. Rev., 7.375%,
9/1/07, F.S.A............ 5,724,500
-----------
51,011,276
-----------
GEORGIA--0.4%
AAA* 3,075 De Kalb Cnty. Hsg. Auth.,
Sngl. Fam. Mtge. Rev.,
7.70%, 2/1/24,
G.N.M.A.................. 3,234,716
-----------
GUAM--0.4%
AAA* 3,000 Guam Gov't. Ltd. Oblig.
Hwy. Rev., 6.30%, 5/1/12,
C.G.I.C.................. 3,140,640
-----------
</TABLE>
B-38 See Notes to Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
PRUDENTIAL MUNICIPAL BOND FUND
INSURED SERIES (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (A) (NOTE 1)
- ---------- ----------- --------------------------- -----------
<S> <C> <C> <C>
HAWAII--1.1%
Aaa $ 7,750 Hawaii Arpts. Sys. Rev.,
2nd Ser. 90, 7.50%,
7/1/20, F.G.I.C.......... $ 8,611,103
-----------
ILLINOIS--6.5%
Aaa 6,700 Chicago Motor Fuel Tax
Rev., 7.05%, 1/1/07,
A.M.B.A.C................ 7,538,371
Aaa 7,250 Chicago Pub. Bldg. Comm.,
Chicago Brd. of Ed.,
7.75%, 1/1/06,
F.G.I.C.................. 8,379,695
Aaa 9,000 Chicago Residential Mtge.
Rev., Zero Coupon,
10/1/09, M.B.I.A......... 2,793,420
Aaa 14,850 Chicago Wastewater Transm.
Rev., 5.125%, 1/1/20,
F.G.I.C.................. 13,403,462
Aaa 5,000 Illinois St. Sales Tax
Rev., 7.25%, 6/15/14,
Ser. I................... 5,772,650
Aaa 9,000 Met. Pier & Exposition
Auth.,
Ded. St. Tax Rev.,
Ser. A, F.G.I.C., Zero
Coupon, 6/15/10.......... 3,295,800
Aaa 5,835 Zero Coupon, 6/15/13....... 1,764,912
Aaa 6,200 Zero Coupon, 6/15/19....... 1,305,906
Aaa 1,575 Onterie Ctr. Hsg. Fin.
Corp. Mtge. Rev.,
M.B.I.A., 7.00%, 7/1/12.. 1,665,169
Aaa 6,400 7.05%, 7/1/27.............. 6,802,240
-----------
52,721,625
-----------
INDIANA--3.5%
Aaa 2,450 Indianapolis Arpt. Auth.
Rev., 9.00%, 7/1/15,
M.B.I.A.................. 2,850,526
Aaa 3,000 Lake Cent. Multi Dist. Sch.
Bldg., First Mtge.,
6.50%, 1/15/14,
M.B.I.A.................. 3,152,010
Aaa 4,750 Marion Cnty. Conv. & Rec.
Fac. Auth., Excise Tax
Rev., 5.375%, 6/1/13,
Ser. A, A.M.B.A.C........ 4,512,025
Aaa 8,500 Marion Cnty. Hosp. Auth.
Facs. Rev., 8.625%,
10/1/12, A.M.B.A.C....... 10,376,970
Aaa 6,000 Rockport Poll. Ctrl. Rev.,
Ser. A,
Ind. & Mich. Elec. Co.,
9.25%, 8/1/14, B.I.G..... 6,833,940
-----------
27,725,471
-----------
KANSAS--0.4%
Aaa 3,110 Sedgwick Cnty. Mtge. Loan
Rev.,
Ser. B, G.N.M.A., 7.80%,
6/1/22, A.M.B.A.C........ 3,260,835
-----------
KENTUCKY--1.3%
NA 4,630 Henrico Cnty., 5.25%,
1/15/09.................. 4,547,030
Aa1 2,955 Kentucky Hsg. Corp. Rev.,
Ser. D, 7.45%, 1/1/23,
F.H.A.................... 3,102,780
Aaa 2,000 Louisville & Jefferson
Cnty. Regl. Arpt. Auth.,
Ser A., 8.375%, 7/1/07,
M.B.I.A.................. 2,319,840
-----------
9,969,650
-----------
LOUISIANA--1.5%
Aaa 5,000 Jefferson Parish Sales Tax
Dist., 6.75%, 12/1/06,
Ser. A, F.G.I.C.......... 5,464,450
Aaa 5,600 Louisiana Energy & Pwr.
Auth.,
Rodemacher Unit No. 2,
8.625%, 1/1/13,
F.G.I.C.................. 6,180,216
-----------
11,644,666
-----------
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (A) (NOTE 1)
- ---------- ----------- --------------------------- -----------
<S> <C> <C> <C>
MARYLAND--0.3%
Aaa $ 2,000 Baltimore Cert. of Part.,
Ser. A,
Pension Funding, 7.25%,
4/1/16, M.B.I.A.......... $ 2,253,720
-----------
MASSACHUSETTS--3.4%
Aaa 3,500 Boston Wtr. & Swr. Auth.,
Ser. A, 7.10%, 11/1/19,
F.G.I.C.................. 4,039,035
Aaa 3,550 Mass. Hsg. Fin. Agcy.,
Hsg. Rev., Ser. A, 7.75%,
12/1/19, B.I.G........... 3,739,144
Aaa 8,250 Mass. St. Hlth. & Edl.
Facs. Auth. Rev., 5.375%,
7/1/23, Ser. 1993 B,
M.B.I.A.................. 7,785,938
Aaa 3,000 Fallon Hlthcare, Ser. A,
6.875%, 6/1/11,
C.G.I.C.................. 3,255,600
Aaa 6,685 Lahey Clinic Med. Ctr.,
Ser. A, 7.60%, 7/1/08,
M.B.I.A.................. 7,743,703
-----------
26,563,420
-----------
MICHIGAN--4.0%
Aaa 1,800 Howell Pub. Sch. Dist.,
Ser. Q, A.M.B.A.C., Zero
Coupon, 5/1/11........... 631,890
Aaa 2,755 Zero Coupon, 5/1/12........ 909,150
Aaa 1,370 Zero Coupon, 5/1/14........ 400,670
Aaa 8,735 Michigan St. Bldg. Auth.
Rev., Ser. II, 6.00%,
10/1/09, A.M.B.A.C....... 8,966,565
Aaa 2,350 Michigan St. Hosp. Fin.
Auth.
Rev., Oakwood Hosp.,
7.50%, 6/1/15,
M.B.I.A.................. 2,699,563
Aaa 1,500 Michigan St. Hsg. Dev.
Auth., Ser. A, 7.70%,
7/1/18, F.G.I.C.......... 1,591,080
Aaa 3,250 Monroe Cnty. Poll. Ctrl.
Rev.,
Detroit Edison Co. Proj.,
Ser. I, 7.30%, 9/1/19,
A.M.B.A.C................ 3,619,005
Aaa 8,000 Detroit Edison Co., 7.65%,
9/1/20, F.G.I.C.......... 9,159,840
Aaa 4,000 Saginaw Hosp. Fin. Auth.
Hosp. Rev., St. Luke's
Hosp., Ser. C, 6.50%,
7/1/11, M.B.I.A.......... 4,250,360
-----------
32,228,123
-----------
MISSISSIPPI--1.0%
Aaa 2,400 Harrison Cnty. Wastewater
Mgmt. Dist. Rev., 6.50%,
2/1/06, F.G.I.C.......... 2,604,936
Aaa 2,000 Mississippi Hosp. Equip. &
Facs. Auth. Rev.,
Baptist Med. Ctr., 7.40%,
5/1/07, M.B.I.A.......... 2,250,780
Aaa 3,255 Mississippi Hsg. Fin.
Corp.,
Sngl. Fam. Mtge. Rev.,
Ser. A, 7.80%, 10/15/16,
F.G.I.C.................. 3,378,267
-----------
8,233,983
-----------
MISSOURI--1.2%
Aaa 5,000 Missouri St. Hlth. & Edl.
Facs
Auth., Midwest Hilth
Ctr., Ser. B, 6.25%,
2/15/22, M.B.I.A......... 5,227,100
Aaa 4,250 Missouri St. Hlth. & Edl.
Facs. Auth. Rev.,
SSM Healthcare, Ser. AA,
6.25%, 6/1/16,
M.B.I.A.................. 4,432,750
-----------
9,659,850
-----------
</TABLE>
B-39 See Notes to Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
PRUDENTIAL MUNICIPAL BOND FUND
INSURED SERIES (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (A) (NOTE 1)
- ---------- ----------- --------------------------- -----------
<S> <C> <C> <C>
MONTANA--1.4%
Aaa $ 2,000 Forsyth Poll. Ctrl. Rev.,
Ser. A,
Puget Sound Pwr. & Lt.
Co., 7.05%, 8/1/21,
A.M.B.A.C................ $ 2,234,460
Aaa 8,000 Washington Wtr. Pwr. Proj.,
7.125%, 12/1/13,
M.B.I.A.................. 9,011,120
-----------
11,245,580
-----------
NEBRASKA--1.1%
Aaa 1,980 Nebraska Invest. Fin.
Auth., G.N.M.A., Sngl.
Fam. Mtge. Rev., Ser. B,
8.00%, 7/15/17,
F.G.I.C.................. 2,096,087
Aaa 6,115 Sngl. Fam. Mtge. Rev., Ser.
I, 8.125%, 8/15/38,
M.B.I.A.................. 6,381,247
-----------
8,477,334
-----------
NEVADA--1.5%
Aaa 4,230 Clark Cnty. Arpt., Visitors
Auth. Bldg., 6.90%,
6/1/07, F.G.I.C.......... 4,635,319
Aaa 3,605 Reno Ltd. Tax Cap. Imp.
Ref., 5.60%, 4/1/09...... 3,567,400
Aaa 3,810 5.60%, 4/1/10.............. 3,748,469
-----------
11,951,188
-----------
NEW JERSEY--5.8%
Aaa 3,000 Essex Cnty. Impvt. Auth.,
5.50%, 12/1/20,
A.M.B.A.C................ 2,947,590
Aaa 3,150 Garfield Brd. of Ed., Cert.
of Part., Wtr. Impvt.
Dist. No. 31, 7.65%,
6/1/08, B.I.G............ 3,586,527
Aaa 1,000 Hamilton Twnshp. Atlantic
Cnty. Sch. Dist., 7.00%,
12/15/96, F.G.I.C........ 1,104,500
Aaa 1,415 Hudson Cnty. Utils. Auth.
Sys. Rev., 10.00%,
7/1/11#.................. 1,914,198
Aaa 2,325 Lacey Mun. Utils. Auth.,
Wtr. Rev., 6.00%,
12/1/19, B.I.G........... 2,376,429
Aaa 2,500 New Jersey Hlth. Care Facs.
Auth., 5.70%, 7/1/23,
Ser. B, A.M.B.A.C........ 2,506,275
Aaa 1,200 New Jersey Hlth. Care Facs.
Fin. Auth. Rev., Burdett
Tonin New Hosp., Ser. D,
6.50%, 7/1/12,
F.G.I.C.................. 1,281,804
Aaa 2,000 Hackensack Med. Ctr.,
F.G.I.C., 6.625%,
7/1/11................... 2,157,120
Aaa 5,000 6.625%, 7/1/17............. 5,372,750
Aaa 2,500 Irvington Gen. Hosp.,
9.625%, 8/1/25,
M.B.I.A.................. 2,871,125
Aaa 3,840 New Jersey St. Hsg. & Mtge.
Fin. Agcy. Rev., Ser. B,
7.90%, 10/1/22,
M.B.I.A.................. 4,073,971
Aaa 5,000 New Jersey St. Transit
Corp., Cert. of Part.,
6.50%, 10/1/16, F.S.A.... 5,418,450
Aaa 1,250 No. Jersey Dist. Wtr.
Supply, Comm., Wanaque
So. Proj., M.B.I.A.,
3.95%, 7/1/95............ 1,265,250
Aaa 2,340 4.25%, 7/1/96.............. 2,377,346
Aaa 7,250 6.00%, 7/1/21.............. 7,451,115
-----------
46,704,450
-----------
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (A) (NOTE 1)
- ---------- ----------- --------------------------- -----------
<S> <C> <C> <C>
NEW MEXICO--0.8%
Aaa $ 5,315 Socorro Hosp. Sys. Rev.,
Cmnty. Hlth. Svcs., Ser.
A, 9.25%, 8/1/12,
M.B.I.A.................. $ 6,057,506
-----------
NEW YORK--3.0%
Aaa 2,785 Erie Cnty. Wtr. Auth. Rev.,
A.M.B.A.C., Zero Coupon,
12/1/07.................. 1,235,593
Aaa 7,000 Zero Coupon, 12/1/17....... 1,239,000
Aaa 1,500 Met. Trans. Auth. Facs.
Rev., Ser. J, 6.375%,
7/1/10, F.G.I.C.......... 1,596,705
Aaa 3,500 New York City Mun. Wtr.
Fin. Auth., Wtr. & Swr.
Sys. Rev., Ser. B,
7.625%, 6/15/17,
F.G.I.C.................. 4,064,095
Aaa 4,000 New York St. Energy Res. &
Dev. Auth., Poll. Ctrl.
Rev., 7.375%, 10/1/14,
F.G.I.C.................. 4,617,880
Aaa 2,980 New York St. Hsg. Fin.
Agcy. Rev., Multifamily
Hsg., Ser. A, 7.45%,
11/1/28, A.M.B.A.C....... 3,250,465
Aaa 7,155 New York St. Pwr. Auth.,
Ser. V, 7.875%,1/1/13,
M.B.I.A.................. 8,284,417
-----------
24,288,155
-----------
NORTH CAROLINA--1.4%
Aaa 7,500 No. Carolina Mun. Pwr.
Agcy. Elec. Rev., No. 1
Catawba, Ser. A,
M.B.I.A., 6.00%, 1/1/11.. 7,893,600
Aaa 3,500 5.00%, 1/1/18.............. 3,172,960
-----------
11,066,560
-----------
OHIO--3.9%
Aaa 1,500 Cleveland Arpt. Sys. Rev.,
Ser. 90A, 7.40%, 1/1/20,
M.B.I.A.................. 1,678,980
Aaa 775 Cleveland City Sch. Dist.,
F.G.I.C., Sch. Impvt.,
Ser. B, Zero Coupon,
12/1/05.................. 390,058
Aaa 1,590 Zero Coupon, 12/1/06....... 747,809
Aaa 1,000 Zero Coupon, 12/1/07....... 438,650
Aaa 2,000 Franklin Cnty. Hosp. Rev.,
Holy Cross Hlth., Ser. B,
7.65%, 6/1/10,
A.M.B.A.C................ 2,334,580
Aaa 3,500 Franklin Cnty. Pub. Impvt.
Auth., 5.375%, 12/1/20,
Ser. 1993................ 3,361,365
Aaa 3,000 Hamilton Cnty. Swr. Sys.
Rev., 5.25%, 12/1/16,
F.G.I.C.................. 2,844,510
Aaa 7,500 Hamilton Cnty. Wtr. Sys.
Rev., 5.00%, 12/1/14,
F.G.I.C.................. 6,887,100
Aaa 2,750 Hamilton Elec. Rev., F.G.I
C., 6.00%, 10/15/23, Ser.
A........................ 2,813,965
Aaa 5,085 6.00%, 10/15/12, Ser. A.... 5,233,431
Aaa 1,500 Montgomery Cnty. Hlth.
Facs. Rev., Sisters of
Charity Hlth. Care,
6.25%, 5/15/14,
A.M.B.A.C................ 1,564,470
Aaa 2,295 Ohio St. Wtr. Dev. Auth.
Rev., Clean Wtr. Ser.,
M.B.I.A., Zero Coupon,
6/1/04................... 1,257,614
Aaa 2,445 Zero Coupon, 12/1/04....... 1,303,967
-----------
30,856,499
-----------
</TABLE>
B-40 See Notes to Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
PRUDENTIAL MUNICIPAL BOND FUND
INSURED SERIES (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (A) (NOTE 1)
- ---------- ----------- --------------------------- -----------
<S> <C> <C> <C>
OKLAHOMA--1.9%
Aaa $ 14,250 Oklahoma St. Tpke. Auth.
Rev., Ser. C, 6.25%,
1/1/22, M.B.I.A.......... $14,877,570
-----------
OREGON--0.4%
Aaa 175 Clackamas Cnty. Hosp. Fac.
Auth. Rev., Sisters of
Providence Proj., 9.625%,
10/1/05.................. 202,778
A1 650 8.125%, 10/1/07............ 728,494
Aaa 500 Eugene, Cert. of Part.,
Columbus Mills Inc.
Proj., 6.70%, 6/1/05,
M.B.I.A.................. 532,020
Aaa 100 Marion Cnty. Solid Waste &
Elec. Rev., Ogden Martin
Sys., Inc. Proj., 9.10%,
10/1/99, A.M.B.A.C....... 115,039
Aaa 400 Oregon St. Dept. Gen.
Svcs., Cert. of Part.,
A.M.B.A.C., 7.50%,
9/1/15, Ser. F........... 472,004
Aaa 300 Cert. of Part., M.B.I.A.,
7.20%, 1/15/15, Ser. A... 345,396
Aaa 300 7.20%, 3/1/15, Ser. D...... 343,869
Aa 185 Oregon St. Hsg. Agcy. Rev.,
Sngl. Fam. Mtge. Prog.,
7.70%, 7/1/20............ 196,196
A1 500 Portland Pkg. Rev., 8.50%,
10/1/07.................. 593,520
A 100 Portland Urban Renewal &
Redev., So. Park Blocks,
9.00%, 12/1/05........... 113,580
Aaa 250 8.25%, 12/1/07............. 291,483
-----------
3,934,379
-----------
PENNSYLVANIA--5.0%
Aaa 4,800 Allegheny Cnty. Arpt. Rev.,
Pittsburgh Int'l. Arpt.,
Ser. C, 8.25%, 1/1/16,
M.B.I.A.................. 5,520,672
Aaa 7,500 Northumberland Cnty. Lease
Auth. Rev., Correctional
Facs., M.B.I.A. Zero
Coupon, 10/15/10......... 2,694,675
Aaa 5,210 Pennsylvania Tpke. Comn.
Rev., Ser. H, 7.40%,
12/1/17, F.G.I.C......... 6,135,921
Aaa 6,750 Philadelphia Arpt. Sys.
Rev., 9.00%, 6/15/15,
A.M.B.A.C................ 7,678,868
Aaa 2,200 Philadelphia Gen. Oblig.,
8.25%, 2/15/09,
F.G.I.C.................. 2,462,878
Aaa 3,000 Philadelphia Mun. Auth.
Rev., Criminal Justice
Ctr., Ser. A, 6.90%,
11/15/03, M.B.I.A........ 3,386,760
Aaa 2,000 Philadelphia Sch. Dist.,
Ser. B, 7.00%, 7/1/05,
M.B.I.A.................. 2,303,540
Aaa 5,000 Pittsburgh Gen. Oblig.,
7.00%, 3/1/06, Ser. B,
F.G.I.C.................. 5,495,850
Aaa 3,500 Schuylkill Cnty. Redev.
Auth. Rev., 7.00%,
6/1/07, Ser. A,
F.G.I.C.................. 3,925,530
-----------
39,604,694
-----------
PUERTO RICO--1.0%
Aaa 4,100 Puerto Rico Tel. Auth.
Rev., Ser. M, M.B.I.A,@
7.732%, 1/1/07........... 4,217,875
Aaa 3,800 8.132%, 1/1/15............. 3,933,000
-----------
8,150,875
-----------
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (A) (NOTE 1)
- ---------- ----------- --------------------------- -----------
<S> <C> <C> <C>
RHODE ISLAND--0.9%
Aaa $ 6,500 Rhode Island Hsg. & Mtge.
Fin. Corp., 7.875%,
10/1/22, M.B.I.A......... $ 6,924,775
-----------
SOUTH CAROLINA--2.6%
Aaa 2,500 Berkeley Cnty. Wtr. & Swr.
Rev., 6.50%, 6/1/06,
M.B.I.A.................. 2,710,625
Aaa 18,000 Piedmont Mun. Pwr. Agcy.
Elec. Rev., 6.30%,
1/1/22, M.B.I.A.......... 18,768,960
-----------
21,479,585
-----------
TENNESSEE--1.6%
Aaa 2,250 Anderson Cnty. Hlth. & Ed.
Facs., Methodist Med.
Ctr., 8.125%, 7/1/08,
B.I.G.................... 2,633,085
Aaa 1,750 Clarksville Wtr. Swr. & Gas
Rev., 6.25%, 2/1/18,
M.B.I.A.................. 1,827,823
Aaa 7,950 Tennessee Hsg. Dev. Agcy.,
7.65%, 7/1/20, B.I.G..... 8,460,152
-----------
12,921,060
-----------
TEXAS--9.2%
Aaa 3,250 Austin Util. Sys. Rev.,
7.25%, 11/15/03,
F.G.I.C.................. 3,668,178
Aaa 5,750 Zero Coupon, 11/15/09, Ser.
B........................ 2,176,490
Aaa 5,000 6.50%, 5/15/11, Ser. A..... 5,275,050
Aaa 5,000 8.00%, 11/15/16, B.I.G..... 6,027,200
Aaa 6,600 5.25%, 5/15/18, Ser. B,
M.B.I.A.................. 6,172,914
Aaa 5,000 Brazos River Auth. Rev.,
Houston Lt. & Pwr.,
6.70%, 3/1/17, Ser. A,
A.M.B.A.C................ 5,366,100
Aaa 1,000 7.20%, 12/1/18, Ser. B,
F.G.I.C.................. 1,115,050
Aaa 3,500 Circle C Mun. Util. Dist.
No. 3, Contract Rev.,
8.70%, 11/15/08,
F.G.I.C.................. 4,101,475
Aaa 2,990 Corpus Christi Hsg. Fin.
Corp., Sngl. Fam. Mtge.,
Ser. A, 7.70%, 7/1/11,
M.B.I.A.................. 3,197,775
Aaa 5,000 Harris Cnty. Toll Rd., Ser.
A, 8.00%, 8/15/07,
F.G.I.C.................. 5,908,000
Aaa 3,900 Houston Arpt. Sys. Rev.,
7.20%, 7/1/13............ 4,580,004
Aaa 1,000 Houston Wtr. & Swr. Sys.
Rev., 6.375%, 12/1/17,
A.M.B.A.C................ 1,044,140
Aaa 2,300 Matagorda Cnty. Navigation
Poll, Ctrl. Rev. Dist.
No. 1, 15, 18, 22, 7.50%,
12/15/14, A.M.B.A.C...... 2,679,063
Aaa 2,525 No. Central Hlth. Fac. Dev.
Corp. Rev., Presbyterian
Hlthcare Sys., Proj. A,
8.875%, 12/1/15,
B.I.G.................... 3,041,388
Aaa 3,960 Texas Mun. Pwr. Agcy. Rev.,
6.75%, 9/1/12,
A.M.B.A.C................ 4,252,169
Aaa 6,300 Texas St. Gen. Oblig., Zero
Coupon, 4/1/10, Ser. C,
F.G.I.C.................. 2,343,852
Aaa 2,000 Texas Wtr. Res. Fin. Auth.
Rev., 7.50%, 8/15/13,
A.M.B.A.C................ 2,181,300
Aaa 6,000 Travis Cnty., Ser. A,
5.80%, 3/1/09,
M.B.I.A.................. 6,084,720
Aaa 3,650 Willis Indpt. Sch. Dist.,
6.50%, 2/15/16........... 3,823,631
-----------
73,038,499
-----------
</TABLE>
B-41 See Notes to Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
PRUDENTIAL MUNICIPAL BOND FUND
INSURED SERIES (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (A) (NOTE 1)
- ---------- ----------- --------------------------- -----------
<S> <C> <C> <C>
VIRGINIA--0.4%
Aaa $ 3,000 Southeastern Pub. Svc.
Auth. Rev., Regl. Waste
Sys., 7.00%, 7/1/13,
B.I.G.................... $ 3,317,010
-----------
WASHINGTON--4.0%
Aaa 2,000 Tacoma Elec. Sys. Rev.,
8.00%, 1/1/11,
A.M.B.A.C................ 2,339,840
Aaa 2,500 Washington Hlth. Care Facs.
Auth., Fred Hutchinson
Cancer Ctr., 7.30%,
1/1/12, F.G.I.C.......... 2,756,525
Aaa 5,000 Tacoma Multicare Med. Ctr.,
7.875%, 8/15/11,
F.G.I.C.................. 5,773,300
Aaa 6,500 Washington St. Pub. Pwr.
Supply Sys., Nuclear
Proj. No. 1., 6.25%,
7/1/17, M.B.I.A.......... 6,710,340
Aaa 10,500 Nuclear Proj. No. 2, Zero
Coupon, 7/1/11, Ser. A,
M.B.I.A.................. 3,574,095
Aaa 5,000 Proj. No. 1, Ser. A, 7.00%,
7/1/04................... 5,573,200
Aaa 3,000 Proj. No. 2, Ser. B, 7.25%,
7/1/03, F.G.I.C.......... 3,438,570
Aaa 2,000 Proj. No. 3, Ser. B, 7.00%,
7/1/05, F.G.I.C.......... 2,213,420
-----------
32,379,290
-----------
WISCONSIN--0.8%
Aaa 5,000 Wisconsin Pub. Pwr. Inc.
Sys. Rev., Ser. A, 7.50%,
7/1/10, A.M.B.A.C........ 5,884,750
-----------
Total long-term investments
(cost $720,881,120)...... 772,483,986
-----------
SHORT-TERM INVESTMENTS--7.5%
CONNECTICUT--0.3%
VMIG 2,600 Connecticut Spec. Tax
Oblig., Trans.
Infrastructure Rev.,
2.60%, 5/5/93, Ser. 90 I,
F.R.W.D.................. 2,600,000
-----------
DISTRICT OF COLUMBIA--0.6%
VMIG 5,000 Dist. of Columbia, Gen.
Oblig., 2.35%, 5/3/93,
Ser. A-1................. 5,000,000
-----------
FLORIDA--0.1%
VMIG1 1,000 Pinellas Cnty. Hlth. Facs.
Auth. Rev., Pooled Hosp.
Loan Prog., 5.25%,
5/3/93, F.R.D.D.......... 1,000,000
-----------
GEORGIA
NR 200 Georgia Hosp. Equip. Fin.
Auth., Pooled Hosp. Loan,
Ser. 85, 2.20%, 5/3/93,
F.R.D.D.................. 200,000
-----------
ILLINOIS--0.4%
VMIG 3,200 Southwestern Dev. Auth.
Solid Waste Disp. Rev.,
Shell Oil Co. Wood River
Proj., 2.30%, 5/3/93,
F.R.D.D.................. 3,200,000
-----------
LOUISIANA--0.2%
VMIG 1,700 St. Charles Parish Poll.
Ctrl. Rev., Shell Oil Co.
Norco Proj., 2.30%,
5/3/93, F.R.D.D.......... 1,700,000
-----------
MARYLAND--1.2%
VMIG 9,300 Maryland Energy Fin.
Admin., Auth., Baltimore
First Proj., 2.45%,
5/3/93, F.R.D.D.......... 9,300,000
-----------
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (A) (NOTE 1)
- ---------- ----------- --------------------------- -----------
<S> <C> <C> <C>
NEW JERSEY--3.2%
VMIG $ 25,500 New Jersey, St., 2.30%,
6/15/93, Ser. B,
T.R.A.N.................. $25,500,000
-----------
NORTH CAROLINA--0.1%
Aa1 800 Halifax Cnty. Ind. Facs. &
Poll. Ctrl., Fin. Auth.
Rev., Westmorland-Husdson
Proj., 2.30%, 5/3/93,
Ser. 91, F.R.D.D......... 800,000
-----------
SOUTH CAROLINA--1.2%
Aa2 3,200 So. Carolina Jobs Econ.
Dev. Auth. Rev.,
F.R.D.D., Wellman Inc.
Proj., 2.30%, 5/3/93,
Ser. 90.................. 3,200,000
Aa2 5,000 2.30%, 5/3/93, Ser. 91..... 5,000,000
Aa2 1,000 2.30%, 5/3/93, Ser. 92..... 1,000,000
-----------
9,200,000
-----------
TEXAS--0.2%
VMIG1 700 Harris Cnty. Hlth. Facs.,
Texas Med. Ctr., F.R.D.D.
2.20%, 5/3/93, Ser. 92... 700,000
P1 800 Nueces River Auth. Poll.
Ctrl. Rev., Reynolds
Metals Co. Proj., 2.40%,
5/3/93................... 800,000
-----------
1,500,000
-----------
VIRGINIA
Aa2 300 Richmond Ind. Dev. Auth.
Rev., Cogentrix Inc.
Proj., F.R.D.D., 2.30%,
5/3/93, Ser. 91A......... 300,000
-----------
Total short-term
investments
(cost $60,300,000)....... 60,300,000
-----------
TOTAL INVESTMENTS--104.1%
(cost $781,181,120; Note
4)....................... 832,783,986
Liabilities in excess of
other assets--(4.1%)..... (32,626,060)
-----------
NET ASSETS--100%........... $800,157,926
-----------
-----------
<FN>
(a) The following abbreviations are used in portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance Corporation
B.I.G.--Bond Investors Guaranty Insurance Company
C.G.I.C.--Capital Guaranty Insurance Corporation
F.G.I.C.--Financial Guaranty Insurance Company
F.R.D.D.--Floating Rate (Daily) Demand Note**
F.R.W.D.--Floating Rate (Weekly) Demand Note**
F.H.A.--Federal Housing Administration
F.S.A.--Financial Security Assurance
G.N.M.A.--Government National Mortgage Association
M.B.I.A.--Municipal Bond Insurance Association
T.R.A.N.--Tax Revenue Anticipation Note
# Prerefunded issues are secured by escrowed cash and direct U.S. guaranteed
obligations.
* Standard & Poor's rating.
** For purposes of amortized cost valuation, the maturity date of Floating Rate
Demand Notes is considered to be the later of the next date on which the
security can be redeemed at par or the next date on which the rate of
interest is adjusted.
@ Inverse floating rate bond.
NR--Not rated by Moody's or Standard & Poor's.
The Fund's current Prospectus contains a description of Moody's and Standard
& Poor's ratings.
</TABLE>
B-42 See Notes to Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
PRUDENTIAL MUNICIPAL BOND FUND
INSURED SERIES
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
APRIL 30,
ASSETS 1993
-----------
<S> <C>
Investments, at value (cost $781,181,120)....................................... $832,783,986
Cash............................................................................ 122,279
Accrued interest receivable..................................................... 13,172,696
Receivable for Fund shares sold................................................. 2,063,775
Receivable for investments sold................................................. 40,222
Deferred expenses and other assets.............................................. 25,767
-----------
Total assets................................................................ 848,208,725
-----------
LIABILITIES
Payable for investments purchased............................................... 44,240,019
Payable for Fund shares reacquired.............................................. 1,991,214
Dividends payable............................................................... 1,093,381
Due to Manager.................................................................. 326,186
Due to Distributors............................................................. 316,440
Accrued expenses................................................................ 83,559
-----------
Total liabilities........................................................... 48,050,799
-----------
NET ASSETS...................................................................... $800,157,926
-----------
-----------
Net assets were comprised of:
Shares of beneficial interest, at par......................................... $ 699,254
Paid-in capital in excess of par.............................................. 739,963,147
-----------
740,662,401
Accumulated net realized capital gains........................................ 7,892,659
Net unrealized appreciation................................................... 51,602,866
-----------
Net assets, April 30, 1993.................................................... $800,157,926
-----------
-----------
</TABLE>
<TABLE>
<S> <C>
Class A:
Net asset value and redemption price per share
($30,097,565 DIVIDED BY 2,631,725 shares of beneficial interest issued and
outstanding)..................................................................... $ 11.44
Maximum sales charge (4.5% of offering price)...................................... .54
---------
Maximum offering price to public................................................... $ 11.98
---------
---------
Class B:
Net asset value, offering price and redemption price per share
($770,060,361 DIVIDED BY 67,293,652 shares of beneficial interest issued and
outstanding)..................................................................... $11.44
---------
---------
</TABLE>
B-43 See Notes to Financial Statements
<PAGE>
- ----------------------------------------------
PRUDENTIAL MUNICIPAL BOND FUND
INSURED SERIES
STATEMENT OF OPERATIONS
- ----------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 30,
Net Investment Income 1993
-----------
<S> <C>
Income
Interest and discount earned........... $45,123,027
-----------
Expenses
Management fee......................... 3,652,176
Distribution fee--Class A.............. 24,589
Distribution fee--Class B.............. 3,529,230
Transfer agent's fees and expenses..... 447,000
Custodian's fees and expenses.......... 145,000
Insurance expense...................... 92,000
Registration fees...................... 55,000
Reports to shareholders................ 55,000
Legal fees............................. 25,000
Trustees' fees......................... 18,000
Audit fee.............................. 15,500
Amortization of organization
expenses............................. 7,576
Miscellaneous.......................... 8,004
-----------
Total expenses......................... 8,074,075
-----------
Net investment income.................... 37,048,952
-----------
Realized and Unrealized Gain (Loss) on
Investments
Net realized gain (loss) on:
Investment transactions................ 20,561,643
Financial futures contracts............ (1,554,669)
-----------
19,006,974
-----------
Net change in unrealized appreciation of:
Investments............................ 27,814,287
Financial futures contracts............ (82,563)
-----------
27,731,724
-----------
Net gain on investments.................. 46,738,698
-----------
Net Increase in Net Assets
Resulting from Operations............... $83,787,650
-----------
-----------
</TABLE>
- ----------------------------------------------
PRUDENTIAL MUNICIPAL BOND FUND
INSURED SERIES
STATEMENT OF CHANGES IN NET ASSETS
- ----------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) YEARS ENDED APRIL 30,
in Net Assets 1993 1992
------------ ------------
<S> <C> <C>
Operations
Net investment income.... $ 37,048,952 $ 35,227,445
Net realized gain on
investment
transactions........... 19,006,974 8,650,298
Net change in unrealized
appreciation of
investments............ 27,731,724 6,118,968
------------ ------------
Net increase in net
assets resulting from
operations............. 83,787,650 49,996,711
------------ ------------
Dividends and distributions
(Note 1)
Dividends to shareholders
from net investment
income
Class A................ (1,342,046) (758,934)
Class B................ (35,706,906) (34,468,511)
------------ ------------
(37,048,952) (35,227,445)
------------ ------------
Distributions to
shareholders from net
realized gains
Class A................ (571,552) (25,697)
Class B................ (16,807,084) (1,129,033)
------------ ------------
(17,378,636) (1,154,730)
------------ ------------
Fund share transactions
(Note 5)
Net proceeds from shares
issued................. 228,787,332 280,245,784
Net asset value of shares
issued to shareholders
in reinvestment of
dividends and
distributions.......... 30,164,592 18,122,114
Cost of shares
reacquired............. (145,782,073) (240,396,981)
------------ ------------
Increase in net assets
from Fund share
transactions........... 113,169,851 57,970,917
------------ ------------
Total increase............. 142,529,913 71,585,453
Net Assets
Beginning of year.......... 657,628,013 586,042,560
------------ ------------
End of year................ $800,157,926 $657,628,013
------------ ------------
------------ ------------
</TABLE>
See Notes to Financial Statements
B-44
<PAGE>
- --------------------------------------------------------------------------------
PRUDENTIAL MUNICIPAL BOND FUND PORTFOLIO OF INVESTMENTS
MODIFIED TERM SERIES APRIL 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (A) (NOTE 1)
- ---------- ----------- --------------------------- ----------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS--94.9%
ALABAMA--3.2%
Aaa $ 500 Alabama St. Mun. Elec.
Auth., Pwr. Supply Rev.,
Ser. A, 5.75%, 9/1/01,
M.B.I.A.................. $ 521,115
Aaa 1,250 Univ. So. Alabama Hosp. &
Auxiliary Rev., 7.00%,
5/15/04, A.M.B.A.C....... 1,389,013
----------
1,910,128
----------
ALASKA--4.2%
Baa1 1,000 No. Slope Boro., Gen.
Oblig., 8.35%, 6/30/98,
Ser. C................... 1,152,310
Aaa 1,500 Zero coupon, 6/30/03,
M.B.I.A.................. 858,900
A1 500 Valdez Marine Terminal
Rev., SOHIO & BP
PipeLines, Inc. & Projs.,
6.00%, 7/1/07, Ser. A.... 502,105
----------
2,513,315
----------
ARIZONA--5.0%
Aaa 500 Arizona Trans. Brd. Excise
Tax Rev., Maricopa Cnty.
Regl., 5.75%, 7/1/05,
A.M.B.A.C................ 518,580
AAA* 1,000 Glendale, Gen. Oblig.,
4.80%, 7/1/00,
F.G.I.C.................. 1,003,540
Aaa 1,500 Mesa Util. Sys. Rev.,
5.50%, 7/1/04,
F.G.I.C.................. 1,524,720
----------
3,046,840
----------
CALIFORNIA--2.7%
Aa 1,500 Univ. of California, Cert.
of Part., 6.75%,
11/1/06.................. 1,613,025
----------
COLORADO--2.6%
A 1,480 Colorado Student Oblig.
Bond Auth., Student Loan
Rev., 7.25%, 9/1/05, Ser.
A3....................... 1,560,542
----------
CONNECTICUT--4.5%
Aa 1,500 Connecticut Hsg. Fin.
Auth., 7.30%, 11/15/03,
Ser. B4.................. 1,619,249
A1 1,000 Connecticut Spec. Tax
Oblig. Rev., 7.00%,
6/1/03, Ser. A........... 1,122,020
----------
2,741,269
----------
FLORIDA--2.4%
Aaa 1,500 Florida Div. Bond Fin.
Dept., General Services,
5.20%, 7/1/05, F.S.A..... 1,478,624
----------
GEORGIA--1.6%
A1 500 Georgia Mun. Elec. Auth.
Pwr. Rev., 5.30%, 1/1/07,
Ser. Z................... 484,370
A1 500 5.40%, 1/1/08, Ser. A...... 488,090
----------
972,460
----------
HAWAII--1.8%
Aaa 1,000 Hawaii Cnty., Gen. Oblig.,
F.G.I.C., 7.20%, 6/1/05,
Ser. A................... 1,114,730
----------
INDIANA--2.8%
A1 1,000 Indiana Trans. Fin. Auth.,
Hwy. Rev., 7.30%, 6/1/99,
Ser. A................... 1,140,440
A1 500 Indiana Univ. Student Fee,
6.90%, 8/1/03, Ser. G.... 552,525
----------
1,692,965
----------
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (A) (NOTE 1)
- ---------- ----------- --------------------------- ----------
<S> <C> <C> <C>
LOUISIANA--1.8%
Aaa $ 1,000 Jefferson Parish Sales Tax
Dist., F.G.I.C., 6.75%,
12/1/06, Ser. A.......... $1,092,890
----------
MARYLAND--2.0%
A 1,250 Northeast Waste Disp.
Auth., 5.90%, 7/1/05..... 1,237,063
----------
MASSACHUSETTS--6.3%
A 2,000 Mass. Gen. Oblig., 7.875%,
6/1/97, Ser. A........... 2,223,100
A 1,000 6.75%, 8/1/06, Ser. C...... 1,086,020
A 490 New England Ed. Loan Mkt.
Corp., Mass. Student Loan
Rev., 6.75%, 9/1/02, Ser.
C........................ 537,966
----------
3,847,086
----------
MICHIGAN--1.0%
Aaa 500 Michigan Mun. Bond Auth.
Rev., Wayne Cnty. Proj.,
7.40%, 12/1/02,
M.B.I.A.................. 585,120
----------
MINNESOTA--1.9%
Aaa 1,000 Minneapolis-St. Paul Hsg.
Redev. Auth., Hlth. Care
Sys. Rev., M.B.I.A.,
7.20%, 8/15/00, Ser. A... 1,136,210
----------
NEBRASKA--1.6%
AA* 1,000 Omaha Pub. Pwr. Dist. Elec.
Rev., 5.30%, 2/1/07...... 985,520
----------
NEW JERSEY--8.4%
Aaa 1,000 Bergen Cnty. Utils. Wtr.
Auth., 5.625%, 12/15/04,
F.G.I.C.................. 1,036,660
Aa 2,050 New Jersey Bldg. Rev.,
Garden St. Svg., Zero
Coupon, 6/15/05, Ser.
A........................ 1,055,545
Aa1 1,000 New Jersey Gen. Oblig.,
5.625%, 2/15/05.......... 1,037,920
A 675 New Jersey Higher Ed. Asst.
Auth., Student Loan Rev.,
6.55%, 1/1/98, Ser. A.... 713,718
A 1,160 6.55%, 7/1/98.............. 1,232,778
----------
5,076,621
----------
NEW YORK--3.6%
Baa1 1,000 New York City, Gen. Oblig.,
7.50%, 2/1/01, Ser. B.... 1,118,770
Baa1 1,000 7.00%, 2/1/07.............. 1,083,250
----------
2,202,020
----------
NORTH CAROLINA--1.7%
A 1,000 No. Carolina Mun. Pwr.
Agcy. Elec., No. 1
Catawba, 5.90%, 1/1/03... 1,043,310
----------
OHIO--4.6%
Aaa 1,500 Ohio State Water Dev. Auth.
Rev., Pure Water, 5.75%,
6/1/03, M.B.I.A.......... 1,570,035
A 1,150 Student Loan Funding Corp.,
Cincinnati Rev., Ser. A,
7.20%, 8/1/03............ 1,217,942
----------
2,787,977
----------
</TABLE>
B-45 See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (A) (NOTE 1)
- ---------- ----------- --------------------------- ----------
<S> <C> <C> <C>
PENNSYLVANIA--5.3%
Aaa $ 1,000 Pennsylvania Gen. Oblig.,
F.S.A., 6.25%, 11/1/06,
Ser. A................... $1,065,800
AAA* 1,000 Pennsylvania Hsg. Fin.
Agcy., Sngl. Fam. Mtge.
Rev., 6.20%, 7/1/25...... 1,056,000
BBB* 1,000 Philadelphia Hosp. Auth. &
Higher Ed. Auth.,
Childrens Seashore House,
7.00%, 8/15/03, Ser. A... 1,078,220
----------
3,200,020
----------
PUERTO RICO--6.9%
Baa1 330 Puerto Rico Comnwlth. Hwy.
Auth., 7.50%, 7/1/01,
Ser. Q................... 389,516
Baa1 975 7.60%, 7/1/02, Ser. Q...... 1,156,721
Baa 2,600 Puerto Rico Sugar Corp.,
6.60%, 7/1/93............ 2,617,342
----------
4,163,579
----------
TEXAS--11.0%
Aa 1,300 Carrollton Farmers Indpt.
Sch. Dist., 8.375%,
2/15/99.................. 1,533,142
NR 1,000 Dallas Ft. Worth Regl.
Arpt., 5.875%, 11/1/06,
Ser. A................... 1,041,580
Aa 500 Harris Cnty., Toll Rd.,
7.20%, 8/1/98............ 558,025
Aaa 1,000 Houston Wtr. & Swr. Sys.
Rev., 5.80%, 12/1/04,
M.B.I.A.................. 1,039,300
Aaa 1,000 Plano Ind. Sch. Dist.,
F.G.I.C. 8.625%, 2/15/03,
Ser. B................... 1,230,050
Aaa 1,000 San Antonio Elec. & Gas
Rev., F.G.I.C., Zero
coupon, 2/1/05, Ser. A... 521,910
Aa 750 Texas Gen. Oblig, Veterans
Hsg. Asst., 6.05%,
12/1/12, F.H.A........... 746,543
----------
6,670,550
----------
U.S. VIRGIN ISLANDS--0.7%
NR 400 Virgin Islands Wtr. & Pwr.
Auth., Wtr. Sys. Rev.,
7.20%, 1/1/02, Ser. B.... 428,544
----------
UTAH--1.8%
Aaa 1,000 Utah St. Brd. Of Regents,
Student Loan Rev., 7.00%,
11/1/01, Ser. F,
A.M.B.A.C................ 1,091,580
----------
WASHINGTON--5.5%
Aa 2,000 Washington St. Pub. Pwr.
Supp. Sys., Nuclear Proj.
No. 2, 7.50%, 7/1/04,
Ser. A................... 2,247,340
Aa 1,000 Nuclear Proj. No. 3, 7.00%,
7/1/99, Ser. B........... 1,102,720
----------
3,350,060
----------
TOTAL LONG-TERM INVESTMENTS
(COST $53,362,766)....... 57,542,048
----------
<CAPTION>
MOODY'S PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (A) (NOTE 1)
- ---------- ----------- --------------------------- ----------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS--4.9%
CALIFORNIA--0.8%
NR $ 500 Los Angeles Intl. Arpt.,
LAX Ind. Proj., 2.45%,
5/3/93, F.R.D.D.......... $ 500,000
----------
CONNECTICUT--1.0%
VMIG 600 Connecticut Spec. Tax
Oblig., Trans.
Infrastructure Rev.,
2.60%, 5/5/93, Ser. 90 I,
F.R.W.D.................. 600,000
----------
MARYLAND--0.2%
VMIG 100 Maryland Energy Fin.
Admin., Hsg. Mtge. Rev.,
2.45%, 5/3/93,
F.R.D.D.................. 100,000
----------
NEW JERSEY--0.2%
VMIG 100 New Jersey St., Ser. B,
T.R.A.N. 2.30%,
6/15/93.................. 100,000
----------
NEW YORK--1.0%
P1 600 New York City Ind. Dev.
Agcy., Japan Airlines,
Inc., 2.55%, 5/3/93, Ser.
91, F.R.D.D.............. 600,000
----------
SOUTH CAROLINA--0.2%
Aa2 200 South Carolina Jobs Econ.
Dev. Auth. Rev., Wellman
Inc. Proj. Ser. 90,
2.30%, 5/3/93,
F.R.D.D.................. 200,000
----------
TEXAS--1.5%
P1 900 Brazos River Harbor
Navigation Dist. Rev.,
Dow Chemical Co. Proj.,
2.40%, 5/3/93, Ser. A.... 900,000
----------
Total short-term
investments (cost
$3,000,000).............. 3,000,000
----------
TOTAL INVESTMENTS--99.8%
(cost $56,362,766; Note
4)....................... 60,542,048
Other assets in excess of
liabilities--0.2%........ 100,753
----------
NET ASSETS--100%........... $60,642,801
----------
----------
<FN>
- ---------------
(a) The following abbreviations are used in portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance Corporation
F.G.I.C.--Financial Guaranty Insurance Company
F.H.A.--Federal Housing Administration
F.R.D.D.--Floating Rate (Daily) Demand Note**
F.R.W.D.--Floating Rate (Weekly) Demand Note**
F.S.A.--Financial Security Assurance
M.B.I.A.--Municipal Bond Insurance Association
T.R.A.N.--Tax Revenue Anticipation Note
* Standard & Poor's Rating.
** For purposes of amortized cost valuation, the maturity date of Floating Rate
Demand Notes is considered to be the later of the next date on which the
security can be redeemed at par or the next date on which the rate of
interest is adjusted.
NR--Not rated by Moody's or Standard & Poor's.
The Fund's current Prospectus contains a description of Moody's and Standard &
Poor's ratings.
</TABLE>
B-46 See Notes to Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
PRUDENTIAL MUNICIPAL BOND FUND
MODIFIED TERM SERIES
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
APRIL 30,
1993
-------------
<S> <C>
ASSETS
Investments, at value (cost $56,362,766)................................................................... $ 60,542,048
Accrued interest receivable................................................................................ 1,127,626
Receivable for Fund shares sold............................................................................ 331,352
Deferred expenses and other assets......................................................................... 1,875
-------------
Total assets........................................................................................... 62,002,901
-------------
LIABILITIES
Payable for investments purchased.......................................................................... 990,888
Accrued expenses and other liabilities..................................................................... 130,160
Payable for Fund shares reacquired......................................................................... 116,909
Dividends payable.......................................................................................... 74,611
Due to Manager............................................................................................. 24,242
Due to Distributors........................................................................................ 23,290
-------------
Total liabilities...................................................................................... 1,360,100
-------------
NET ASSETS................................................................................................. $ 60,642,801
-------------
-------------
Net assets were comprised of:
Shares of beneficial interest, at par.................................................................... $ 54,705
Paid-in capital in excess of par......................................................................... 56,158,405
-------------
56,213,110
Accumulated net realized capital gains................................................................... 250,409
Net unrealized appreciation.............................................................................. 4,179,282
-------------
Net assets, April 30, 1993............................................................................... $ 60,642,801
-------------
</TABLE>
<TABLE>
<S> <C>
Class A:
Net asset value and redemption price per share
($3,593,850 DIVIDED BY 324,296 shares of beneficial interest issued and
outstanding)..................................................................... $ 11.08
Maximum sales charge (4.5% of offering price)...................................... .52
---------
Maximum offering price to public................................................... $ 11.60
---------
---------
Class B:
Net asset value, offering price and redemption price per share
($57,048,951 DIVIDED BY 5,146,221 shares of beneficial interest issued and
outstanding)..................................................................... $ 11.09
---------
---------
</TABLE>
B-47 See Notes to Financial Statements
<PAGE>
- ----------------------------------------------
PRUDENTIAL MUNICIPAL BOND FUND
MODIFIED TERM SERIES
STATEMENT OF OPERATIONS
- ----------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 30,
Net Investment Income 1993
-----------
<S> <C>
Income
Interest and discount earned.......... $3,192,550
-----------
Expenses
Distribution fee--Class A............. 1,883
Distribution fee--Class B............. 250,771
Management fee, net of fee waiver of
$20,291............................. 239,872
Custodian's fees and expenses......... 80,000
Transfer agent's fees and expenses.... 50,000
Reports to shareholders............... 40,000
Registration fees..................... 30,000
Trustees' fees........................ 18,000
Legal fees............................ 15,000
Audit fees............................ 10,500
Amortization of organization
expenses............................ 7,576
Insurance expense..................... 1,000
Miscellaneous......................... 6,110
-----------
Net expenses.......................... 750,712
-----------
Net investment income................... 2,441,838
-----------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions............... 405,250
Financial futures contracts........... (89,669)
-----------
315,581
-----------
Net change in unrealized appreciation:
Investments........................... 2,488,854
Financial futures contracts........... 7,344
-----------
2,496,198
-----------
Net gain on investments................. 2,811,779
-----------
Net Increase in Net Assets
Resulting from Operations............. $5,253,617
-----------
-----------
</TABLE>
- ----------------------------------------------------
PRUDENTIAL MUNICIPAL BOND FUND
MODIFIED TERM SERIES
Statement of Changes in Net Assets
- ----------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
Increase (Decrease) ------------------------
in Net Assets 1993 1992
----------- -----------
<S> <C> <C>
Operations
Net investment income...... $ 2,441,838 $ 2,258,653
Net realized gain on
investment
transactions............. 315,581 896,790
Net change in unrealized
appreciation of
investments.............. 2,496,198 197,146
----------- -----------
Net increase in net assets
resulting from
operations............... 5,253,617 3,352,589
----------- -----------
Dividends and distributions
(Note 1)
Dividends to shareholders
from net investment
income
Class A.................. (95,893) (32,239)
Class B.................. (2,345,945) (2,226,414)
----------- -----------
(2,441,838) (2,258,653)
----------- -----------
Distributions to
shareholders from net
realized gains
Class A.................. (15,563) (6,123)
Class B.................. (464,459) (606,098)
----------- -----------
(480,022) (612,221)
----------- -----------
Fund share transactions (Note
5)
Net proceeds from shares
issued................... 19,077,157 7,570,109
Net asset value of shares
issued to shareholders in
reinvestment of dividends
and distributions........ 1,649,384 1,583,501
Cost of shares
reacquired............... (9,279,351) (8,569,918)
----------- -----------
Increase in net assets from
Fund share
transactions............. 11,447,190 583,692
----------- -----------
Total increase............... 13,778,947 1,065,407
Net Assets
Beginning of year............ 46,863,854 45,798,447
----------- -----------
End of year.................. $60,642,801 $46,863,854
----------- -----------
----------- -----------
</TABLE>
See Notes to Financial Statements
B-48
<PAGE>
- --------------------------------------------------------------------------------
PRUDENTIAL MUNICIPAL BOND FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Prudential Municipal Bond Fund (the "Fund") is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The Fund was organized as an unincorporated business trust in
Massachusetts on November 3, 1986 and consists of three series: the High Yield
Series, the Insured Series and the Modified Term Series. The Fund had no
operations until July 27, 1987 when 10,005 shares of beneficial interest (3,335
shares of each of the series) were sold at $10.00 per share to Prudential
Securities Incorporated ("PSI"). The monies of each series are invested in
separate, independently managed portfolios. Investment operations for Class A
and Class B shares commenced on January 22, 1990 and September 17, 1987,
respectively.
The investment objectives of the series are as follows: (i)the objective of
the High Yield Series is to provide the maximum amount of income that is
eligible for exclusion from federal income taxes, (ii) the objective of the
Insured Series is to provide the maximum amount of income that is eligible for
exclusion from federal income taxes consistent with the preservation of capital
and (iii) the objective of the Modified Term Series is to provide a high level
of income that is eligible for exclusion from federal income taxes consistent
with the preservation of capital. The ability of issuers of debt securities held
by the Fund to meet their obligations may be affected by economic and political
developments in a specific state, region or industry.
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements.
NOTE 1. ACCOUNTING
POLICIES
SECURITIES VALUATION: Municipal securities (including
commitments to purchase such securities on a
"when-issued" basis) are valued on the basis of prices provided by a pricing
service which uses information with respect to transactions in bonds, quotations
from bond dealers, market transactions in comparable securities and various
relationships between securities in determining values. If market quotations are
not readily available from such pricing service, a security is valued at its
fair value as determined under procedures established by the Trustees.
Short-term securities which mature in more than 60 days are valued at
current market quotations. Short-term securities which mature in 60 days or less
are valued at amortized cost.
FINANCIAL FUTURES CONTRACTS: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of debt securities at a set
price for delivery on a future date. Upon entering into a financial futures
contract, the Fund is required to pledge to the broker an amount of cash and/or
other assets equal to a certain percentage of the contract amount. This amount
is known as the "initial margin". Subsequent payments, known as "variation
margin", are made or received by the Fund each day, depending on the daily
fluctuations in the value of the underlying security. Such variation margin is
recorded for financial statement purposes on a daily basis as unrealized gain or
loss.
The Fund invests in financial futures contracts solely for the purpose of
hedging its existing portfolio securities or securities the Fund intends to
purchase against fluctuations in value caused by changes in prevailing market
interest rates. Should interest rates move unexpectedly the Fund may not achieve
the anticipated benefits of the financial futures contracts and may realize a
loss. The use of futures transactions involves the risk of imperfect correlation
in movements in the price of futures contracts, interest rates and the
underlying hedged assets. As of April 30, 1993, there were no open financial
futures contracts.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis. Premiums paid on purchases of portfolio securities are amortized
as adjustments to interest income. Net investment income, other than
distribution fees, and realized and unrealized gains or losses are allocated
daily to each class of shares based upon the relative proportion of net assets
of each class at the beginning of the day.
FEDERAL INCOME TAXES: For federal income tax purposes, each series in the Fund
is treated as a separate tax-paying entity. It is the intent of each series to
continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all net income to shareholders.
For this reason and because substantially all of the Fund's gross income
consists of tax-exempt interest, no federal income tax provision is required.
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
daily and paid monthly. The Fund will distribute at least annually any net
capital gains. Dividends and distributions are recorded on the ex-dividend date.
DEFERRED ORGANIZATION EXPENSES: Approximately $300,000 ($100,000 per series) of
organization and initial registration expenses were incurred. These costs have
been deferred and were amortized over the period of benefit of 60 months from
the date each series commenced investment operations.
NOTE 2. AGREEMENTS
The Fund has a management agreement with Prudential
Mutual Fund Management, Inc. ("PMF"). Pursuant to this agreement, PMF has
responsibility for all investment advisory services and supervises the
subadviser's performance of such services. PMF has entered into a subadvisory
agreement with The Prudential Investment Corporation ("PIC"); PIC furnishes
investment advisory services in connection with the management of the Fund. PMF
pays for the cost of the
B-49
<PAGE>
subadviser's services, the compensation of officers of the Fund, occupancy and
certain clerical and bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.
The management fee paid PMF is computed daily and payable monthly at an
annual rate of .50 of 1% of the average daily net assets of each series. Prior
to September 1, 1992, PMF voluntarily waived 25% of its management fees for the
Modified Term Series. On September 1, 1992, PMF eliminated the waiver on the
Modified Term Series. The amount of management fees waived by PMF for the
Modified Term Series for the year ended April 30, 1993 was $20,291 ($.004 per
share or .04% of average net assets).
PMF has agreed that, in any fiscal year, it will reimburse the Fund for
expenses (including the fees of PMF but excluding interest, taxes, brokerage
commissions, distribution fees, litigation and indemnification expenses and
other extraordinary expenses) in excess of the most restrictive expense
limitation imposed by state securities commissions. The most restrictive expense
limitation is presently believed to be 2.5% of a series' average daily net
assets during the year up to $30 million, 2.0% of the next $70 million of
average daily net assets and 1.5% of the average daily net assets in excess of
$100 million. Such expense reimbursement, if any, will be estimated and accrued
daily and payable monthly. No reimbursement pursuant to these requirements was
required for the year ended April 30, 1993.
The Fund has distribution agreements with Prudential Mutual Fund
Distributors, Inc. ("PMFD"), which acts as the distributor of the Class A shares
of the Fund, and with PSI, which acts as distributor of the Class B shares of
the Fund (collectively the "Distributors"). To reimburse the Distributors for
their expenses incurred in distributing the Fund's Class A and B shares, the
Fund, pursuant to plans of distribution, pays the Distributors a reimbursement,
accrued daily and payable monthly.
Pursuant to the Class A Plan, the Fund reimburses PMFD for its expenses with
respect to Class A shares at an annual rate of up to .30 of 1% of the average
daily net assets of the Class A shares. Such expenses under the Class A Plan
were .10 of 1% of the average daily net assets of the Class A shares for the
year ended April 30, 1993. PMFD pays various broker-dealers, including PSI and
Pruco Securities Corporation ("Prusec"), affiliated broker-dealers, for account
servicing fees and other expenses incurred by such broker-dealers.
Pursuant to the Class B Plan, the Fund reimburses PSI for its
distribution-related expenses with respect to Class B shares at an annual rate
of up to .50 of 1% of the average daily net assets of the Class B shares. Unlike
the Class A Plan, there are carryforward amounts under the Class B Plan and
interest expenses are incurred under the Class B Plan.
The distribution expenses include commission credits to PSI branch offices
for payments of commissions to financial advisers and an allocation on account
of overhead and other branch office distribution-related expenses, interest
and/or carrying charges (Class B only), the cost of printing and mailing
prospectuses to potential investors and of advertising incurred in connection
with the distribution of shares. In addition, the Distributors pay other
broker-dealers, including Pruco Securities Corporation ("Prusec"), an affiliated
broker-dealer, for commissions and other expenses incurred by such broker-
dealers in distributing Fund shares. The Distributors recover the distribution
expenses incurred through the receipt of reimbursement payments from the Fund
under the Plans and the receipt of initial sales charges (Class A only) and
contingent deferred sales charges (Class B only) from shareholders.
PMFD has advised the Fund that it received approximately $1,148,000
($686,000-High Yield Series; $401,000-Insured Series; $61,000-Modified Term
Series) in front-end sales charges resulting from sales of Class A shares during
the year ended April 30, 1993. From these fees, PMFD paid such sales charges to
dealers (PSI and Prusec) which in turn paid commissions to salespersons and
incurred other distribution costs.
With respect to the Class B Plan, at any given time the amount of expenses
incurred by PSI in distributing the Fund's shares and not recovered through the
imposition of contingent deferred sales charges in connection with certain
redemptions of shares may exceed the total reimbursement made by the Fund
pursuant to the Class B Plan. For the year ended April 30, 1993, PSI advised the
Fund that it received approximately $3,241,000 ($1,747,000-High Yield Series;
$1,386,000-Insured Series; $108,000-Modified Term Series) in contingent deferred
sales charges imposed upon certain redemptions by shareholders. PSI, as
distributor, has also advised the Fund that at April 30, 1993, the amount of
distribution expenses incurred by PSI and not yet reimbursed by the Fund or
recovered through contingent deferred sales charges was approximately
$56,722,000 ($32,172,000-High Yield Series; $22,813,000-Insured Series;
$1,737,000-Modified Term Series). This amount may be recovered through future
payments under the Class B Plan or contingent deferred sales charges.
In the event of termination or noncontinuation of the Class B Plan, the Fund
would not be contractually obligated to pay PSI, as distributor, for any
expenses not previously reimbursed or recovered through contingent deferred
sales charges.
PMFD is a wholly-owned subsidiary of PMF; PSI, PIC and PMF are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
NOTE 3. OTHER
TRANSACTIONS WITH
AFFILIATES
Prudential Mutual Fund Services, Inc. ("PMFS"), a
wholly-owned subsidiary of PMF, serves as the Fund's
transfer agent. During the year ended April 30, 1993, the Fund incurred fees of
approximately $655,000 ($339,000--High Yield Series; $289,000--Insured Series;
$27,000--Modified
B-50
<PAGE>
Term Series) for the services of PMFS. As of April 30, 1993, approximately
$60,500 ($32,000--High Yield Series; $26,000--Insured Series; $2,500--Modified
Term Series) of such fees were due to PMFS. Transfer agent fees and expenses in
the Statement of Operations also include certain out of pocket expenses paid to
non-affiliates.
NOTE 4. PORTFOLIO
SECURITIES
Purchases and sales of portfolio securities, excluding
short-term investments, for the year ended April 30,
1993, were as follows:
<TABLE>
<CAPTION>
SERIES PURCHASES SALES
- ---------------------------- ------------- -------------
<S> <C> <C>
High Yield.................. $ 425,784,641 $ 241,954,912
Insured..................... 727,527,976 602,273,341
Modified Term............... 21,547,616 10,040,243
</TABLE>
The federal income tax basis of the Fund's investments, at April 30, 1993
was $1,002,409,500-High Yield Series; $781,182,420-Insured Series; and
$56,362,766-Modified Term Series and, accordingly, net unrealized appreciation
of investments for federal income tax purposes was as follows:
<TABLE>
<CAPTION>
NET GROSS GROSS
UNREALIZED UNREALIZED UNREALIZED
SERIES APPRECIATION APPRECIATION DEPRECIATION
- ----------- ------------ -------------- --------------
<S> <C> <C> <C>
High
Yield..... $51,684,965 $ 74,630,614 $ 22,945,649
Insured.... 51,601,566 52,550,635 949,069
Modified... 4,179,282 4,237,039 57,757
</TABLE>
The High Yield Series utilized its capital loss carryforward of
approximately $3,005,700 to partially offset the Series' net taxable gains
realized and recognized in the fiscal year ended April 30, 1993.
NOTE 5. CAPITAL
Each series offers both Class A and Class B shares.
Class A shares are sold with a front-end sales charge of
up to 4.5%. Class B shares are sold with a contingent deferred sales charge
which declines from 5% to zero depending on the period of time the shares are
held. Both classes of shares have equal rights as to earnings, assets and voting
privileges except that each class bears different distribution expenses and has
exclusive voting rights with respect to its distribution plan.
B-51
<PAGE>
The Fund has authorized an unlimited number of shares of beneficial interest
at $.01 par value, divided into two
classes, designated Class A and Class B. Transactions in shares of beneficial
interest were as follows:
<TABLE>
<CAPTION>
HIGH YIELD SERIES INSURED SERIES MODIFIED TERM SERIES
CLASS A CLASS A CLASS A
--------------------------- --------------------------- -----------------------
YEAR ENDED APRIL 30, 1993 SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------- ----------- -------------- ----------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Shares issued.................................. 2,277,906 $ 25,087,037 1,154,309 $ 12,992,614 243,975 $ 2,675,290
Shares issued in reinvestment of dividends..... 93,369 1,024,196 104,309 1,171,113 5,224 56,810
Shares reacquired.............................. (776,888) (8,534,791) (372,948) (4,195,286) (59,435) (647,183)
----------- -------------- ----------- -------------- --------- ------------
Increase in shares outstanding................. 1,594,387 $ 17,576,442 885,670 $ 9,968,441 189,764 $ 2,084,917
----------- -------------- ----------- -------------- --------- ------------
----------- -------------- ----------- -------------- --------- ------------
<CAPTION>
YEAR ENDED APRIL 30, 1992
- -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares issued.................................. 1,173,095 $ 12,434,495 1,116,015 $ 12,175,416 102,964 $ 1,092,180
Shares issued in reinvestment of dividends and
distributions................................ 61,447 651,958 38,712 423,665 2,244 23,699
Shares reacquired.............................. (364,199) (3,856,751) (117,955) (1,286,043) (8,570) (90,447)
----------- -------------- ----------- -------------- --------- ------------
Increase in shares outstanding................. 870,343 $ 9,229,702 1,036,772 $ 11,313,038 96,638 $ 1,025,432
----------- -------------- ----------- -------------- --------- ------------
----------- -------------- ----------- -------------- --------- ------------
<CAPTION>
CLASS B CLASS B CLASS B
--------------------------- --------------------------- -----------------------
YEAR ENDED APRIL 30, 1993 SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------- ----------- -------------- ----------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Shares issued.................................. 25,663,857 $ 282,363,053 19,174,144 $ 215,794,718 1,505,904 $ 16,401,867
Shares issued in reinvestment of dividends and
distributions................................ 2,347,811 25,729,686 2,581,306 28,993,479 146,751 1,592,574
Shares reacquired.............................. (10,908,368) (119,663,135) (12,551,568) (141,586,787) (795,069) (8,632,168)
----------- -------------- ----------- -------------- --------- ------------
Increase in shares outstanding................. 17,103,300 $ 188,429,604 9,203,882 $ 103,201,410 857,586 $ 9,362,273
----------- -------------- ----------- -------------- --------- ------------
----------- -------------- ----------- -------------- --------- ------------
<CAPTION>
YEAR ENDED APRIL 30, 1992
- -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares issued.................................. 17,111,394 $ 181,355,719 24,577,419 $ 268,070,368 611,855 $ 6,477,929
Shares issued in reinvestment of dividends and
distributions................................ 2,103,301 22,303,687 1,620,101 17,698,449 147,721 1,559,802
Shares reacquired.............................. (11,115,160) (117,953,159) (21,861,841) (239,110,938) (803,041) (8,479,471)
----------- -------------- ----------- -------------- --------- ------------
Increase (decrease) in shares outstanding...... 8,099,535 $ 85,706,247 4,335,679 $ 46,657,879 (43,465) $ (441,740)
----------- -------------- ----------- -------------- --------- ------------
----------- -------------- ----------- -------------- --------- ------------
<FN>
- -------------
+ Includes the following amounts issued in connection with the acquisition of
Prudential Municipal Series Fund--Oregon Series by Insured Series:
</TABLE>
<TABLE>
<CAPTION>
SHARES AMOUNT
---------- -------------
<S> <C> <C>
Class A 1,561 $ 17,129
Class B 442,904 4,863,087
---------- -------------
Total 444,465 $ 4,880,216
---------- -------------
---------- -------------
</TABLE>
B-52
<PAGE>
- --------------------------------------------------------------------------------
PRUDENTIAL MUNICIPAL BOND FUND
HIGH YIELD SERIES
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
------------------------------------------ CLASS B
JANUARY 22, ------------------------------------------------------
1990@
YEARS ENDED APRIL 30, THROUGH YEARS ENDED APRIL 30,
PER SHARE OPERATING --------------------------- APRIL 30, ------------------------------------------------------
PERFORMANCE: 1993 1992 1991 1990 1993 1992 1991 1990 1989
------- ------- ------- ------------ ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period................. $ 10.68 $ 10.45 $ 10.33 $ 10.58 $ 10.68 $ 10.45 $ 10.34 $ 10.56 $ 10.13
------- ------- ------- ------ ---------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income...... .77 .77+ .79+ .23+ .73 .73+ .75+ .79+ .86+
Net realized and unrealized
gain (loss) on investment
transactions.............. .46 .23 .12 (.25) .46 .23 .11 (.17) .45
------- ------- ------- ------ ---------- -------- -------- -------- --------
Total from investment
operations............. 1.23 1.00 .91 (.02) 1.19 .96 .86 .62 1.31
------- ------- ------- ------ ---------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends from net
investment income......... (.77) (.77) (.79) (.23) (.73) (.73) (.75) (.79) (.86)
Distributions from capital
gains..................... -- -- -- -- -- -- -- (.05) (.02)
------- ------- ------- ------ ---------- -------- -------- -------- --------
Total distributions...... (.77) (.77) (.79) (.23) (.73) (.73) (.75) (.84) (.88)
------- ------- ------- ------ ---------- -------- -------- -------- --------
Net asset value, end of
period.................... $ 11.14 $ 10.68 $ 10.45 $ 10.33 $ 11.14 $ 10.68 $ 10.45 $ 10.34 $ 10.56
------- ------- ------- ------ ---------- -------- -------- -------- --------
------- ------- ------- ------ ---------- -------- -------- -------- --------
TOTAL RETURN#:............. 11.90% 9.82% 9.14% (1.49)%* 11.47% 9.40% 8.59% 6.04% 13.40%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)..................... $43,529 $24,725 $15,089 $ 3,905 $1,028,480 $803,838 $701,483 $622,970 $549,426
Average net assets (000)... $31,658 $19,702 $11,594 $ 1,914 $ 893,203 $759,779 $667,751 $549,485 $185,367
Ratios to average net
assets:
Expenses, including
distribution fees...... 0.74% 0.65%+ 0.60%+ 0.60%*+ 1.14% 1.05%+ 1.00%+ 0.83%+ 0.27%+
Expenses, excluding
distribution fees...... 0.64% 0.55%+ 0.50%+ 0.50%*+ .64% 0.55%+ 0.50%+ 0.33%+ 0.12%+
Net investment income...... 7.04% 7.25%+ 7.62%+ 8.17%*+ 6.66% 6.85%+ 7.22%+ 7.24%+ 7.26%+
Portfolio turnover rate.... 27% 34% 29% 44% 27% 34% 29% 44% 17%
<FN>
- ---------------
@ Commencement of offering of Class A shares.
* Annualized.
# Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and reinvestment of dividends and
distributions.
+ Net of expense subsidy, fee waivers and distribution fee deferrals.
</TABLE>
B-53 See Notes to Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
PRUDENTIAL MUNICIPAL BOND FUND
INSURED SERIES
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
------------------------------------------ CLASS B
JANUARY 22, ------------------------------------------------------
1990@
YEARS ENDED APRIL 30, THROUGH YEARS ENDED APRIL 30,
PER SHARE OPERATING --------------------------- APRIL 30, ------------------------------------------------------
PERFORMANCE: 1993 1992 1991 1990 1993 1992 1991 1990 1989
------- ------- ------- ------------ ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period................. $ 10.98 $ 10.76 $ 10.25 $ 10.51 $ 10.99 $ 10.76 $ 10.25 $ 10.54 $ 10.18
------- ------- ------- ------ ---------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income...... .61 .66+ .67+ .18+ .56 .62+ .63+ .67+ .76+
Net realized and unrealized
gain (loss) on investment
transactions.............. .73 .24 .54 (.26) .72 .25 .54 (.22) .42
------- ------- ------- ------ ---------- -------- -------- -------- --------
Total from investment
operations............. 1.34 .90 1.21 (.08) 1.28 .87 1.17 .45 1.18
------- ------- ------- ------ ---------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends from net
investment income......... (.61) (.66) (.67) (.18) (.56) (.62) (.63) (.67) (.76)
Distributions from capital
gains..................... (.27) (.02) (.03) -- (.27) (.02) (.03) (.07) (.06)
------- ------- ------- ------ ---------- -------- -------- -------- --------
Total distributions...... (.88) (.68) (.70) (.18) (.83) (.64) (.66) (.74) (.82)
------- ------- ------- ------ ---------- -------- -------- -------- --------
Net asset value, end of
period.................... $ 11.44 $ 10.98 $ 10.76 $ 10.25 $ 11.44 $ 10.99 $ 10.76 $ 10.25 $ 10.54
------- ------- ------- ------ ---------- -------- -------- -------- --------
------- ------- ------- ------ ---------- -------- -------- -------- --------
TOTAL RETURN#: 12.68% 8.59% 11.86% (3.37)*% 12.14% 8.24% 11.43% 4.36% 11.97%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)..................... $30,098 $19,177 $ 7,630 $ 2,700 $ 770,060 $638,451 $578,412 $497,139 $447,101
Average net assets (000)... $24,589 $12,731 $ 5,164 $ 1,280 $ 705,846 $609,516 $537,275 $446,904 $160,158
Ratios to average net
assets:
Expenses, including
distribution fees...... 0.72%+ 0.62%+ 0.61%+ 0.62%*+ 1.12% 1.02%+ 1.01%+ 0.85%+ 0.22%+
Expenses, excluding
distribution fees...... 0.62% 0.52%+ 0.51%+ 0.52%*+ 0.62% 0.52%+ 0.51%+ 0.35%+ 0.13%+
Net investment income...... 5.46% 6.06%+ 6.38%+ 6.64%*+ 5.06% 5.66%+ 5.98%+ 6.07%+ 6.52%+
Portfolio turnover rate.... 85% 56% 51% 82% 85% 56% 51% 82% 87%
<FN>
- ---------------
@ Commencement of offering of Class A shares.
* Annualized.
# Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and reinvestment of dividends and
distributions.
+ Net of expense subsidy, fee waivers and distribution fee deferrals.
</TABLE>
B-54 See Notes to Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
PRUDENTIAL MUNICIPAL BOND FUND
MODIFIED TERM SERIES
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
------------------------------------------ CLASS B
JANUARY 22, ----------------------------------------------------
1990@
YEARS ENDED APRIL 30, THROUGH YEARS ENDED APRIL 30,
--------------------------- APRIL 30, ----------------------------------------------------
1993 1992 1991 1990 1993 1992 1991 1990 1989
------- ------- ------- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period................. $ 10.59 $ 10.48 $ 9.98 $ 10.21 $ 10.60 $ 10.48 $ 9.98 $ 10.17 $ 10.14
------- ------- ------- ------ -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income+..... .54 .57 .59 .18 .50 .53 .56 .62 .70
Net realized and unrealized
gain (loss) on investment
transactions.............. .60 .26 .50 (.23) .60 .27 .50 (.16) .09
------- ------- ------- ------ -------- -------- -------- -------- --------
Total from investment
operations............. 1.14 .83 1.09 (.05) 1.10 .80 1.06 .46 .79
------- ------- ------- ------ -------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends from net
investment income......... (.54) (.57) (.59) (.18) (.50) (.53) (.56) (.62) (.70)
Distributions from capital
gains..................... (.11) (.15) -- -- (.11) (.15) -- (.03) (.06)
------- ------- ------- ------ -------- -------- -------- -------- --------
Total distributions...... (.65) (.72) (.59) (.18) (.61) (.68) (.56) (.65) (.76)
------- ------- ------- ------ -------- -------- -------- -------- --------
Net asset value, end of
period.................... $ 11.08 $ 10.59 $ 10.48 $ 9.98 $ 11.09 $ 10.60 $ 10.48 $ 9.98 $ 10.17
------- ------- ------- ------ -------- -------- -------- -------- --------
------- ------- ------- ------ -------- -------- -------- -------- --------
TOTAL RETURN#:............. 11.13% 8.14% 11.20% (2.49)*% 10.62% 7.68% 10.82% 4.61% 8.21%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)..................... $ 3,594 $ 1,424 $ 397 $ 164 $ 57,049 $ 45,440 $ 45,401 $ 47,838 $ 45,362
Average net assets (000)... $ 1,883 $ 599 $ 305 $ 80 $ 50,154 $ 44,439 $ 46,521 $ 46,246 $ 30,515
Ratios to average net
assets:+
Expenses, including
distribution fees...... 1.06% 1.06% 0.92% 0.63%* 1.46% 1.46% 1.32% 0.83% 0.15%
Expenses, excluding
distribution fees...... 0.96% 0.96% 0.82% 0.53%* 0.96% 0.96% 0.82% 0.33% 0.05%
Net investment income...... 5.09% 5.41% 5.92% 6.26%* 4.69% 5.01% 5.52% 6.03% 6.59%
Portfolio turnover rate.... 22% 78% 128% 91% 22% 78% 128% 91% 135%
<FN>
- ---------------
@ Commencement of offering of Class A shares.
* Annualized.
# Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and reinvestment of dividends and
distributions.
+ Net of expense subsidy, fee waivers and distribution fee deferrals.
</TABLE>
B-55 See Notes to Financial Statements
<PAGE>
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Shareholders and Trustees
Prudential Municipal Bond Fund
(consisting of the High Yield Series,
Insured Series and Modified Term Series)
We have audited the accompanying statements of assets and liabilities of
Prudential Municipal Bond Fund, including the portfolios of investments, as of
April 30, 1993, the related statements of operations for the year then ended and
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
April 30, 1993, by correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other auditing procedures. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Prudential Municipal
Bond Fund as of April 30, 1993, the results of its operations, the changes in
its net assets, and the financial highlights for the respective stated periods
in conformity with generally accepted accounting principles.
Deloitte & Touche
New York, New York
June 15, 1993
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION
- --------------------------------------------------------------------------------
As required by the Internal Revenue Code, we wish to advise you as to the
federal tax status of dividends and distributions paid by the Fund during its
fiscal year ended April 30, 1993.
During its fiscal year ended April 30, 1993, the Fund paid aggregate
dividends from net investment income, all of which were federally tax-exempt
interest dividends, as follows:
<TABLE>
<CAPTION>
DIVIDENDS PER SHARE
------------------------
SERIES CLASS A CLASS B
- -------------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
High Yield Series............................................................... $ .77 $ .73
Insured Series.................................................................. $ .61 $ .56
Modified Term Series............................................................ $ .54 $ .50
</TABLE>
The Insured Series paid a short-term capital gain distribution of $.11 per
share (taxable as ordinary income) and a long-term capital gain of $.16 per
share (taxable as capital gains income) to Class A and Class B shareholders. The
Modified Term Series paid a short-term capital gain distribution of $.07 per
share (taxable as ordinary income) and a long-term capital gain distribution of
$.04 per share (taxable as capital gains income) to Class A and Class B
shareholders.
Shortly after the close of the calendar year ending December 31, 1993, you
will be advised again as to the federal tax status of the dividends and
distributions received in calendar 1993. In addition, you will be advised at
that time as to the portion of your dividends which may be subject to the
Alternative Minimum Tax (AMT) as well as information with respect to state
taxability.
B-56
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS:
(1) Financial statements included in the Prospectus constituting Part A
of this Post-Effective Amendment to the Registration Statement:
Financial Highlights
(2) The following financial statements are included in the Statement of
Additional Information constituting Part B of this Post-Effective Amendment
to the Registration Statement:
Portfolios of Investments at April 30, 1993
Statements of Assets and Liabilities at April 30, 1993
Statements of Operations for the year ended April 30, 1993
Statements of Changes in Net Assets for the years ended April 30,
1993 and April 30, 1992
Notes to Financial Statements
Financial Highlights
Independent Auditors Report
(B) EXHIBITS:
1. (a) Declaration of Trust dated November 3, 1986, incorporated by
reference to Exhibit No. 1 to the Registration Statement on Form
N-1A (File No. 33-10649) filed on December 8, 1986.
(b) Amendments to Declaration of Trust, incorporated by reference to
Exhibit No. 1(b) to Post-Effective Amendment No. 5 to the
Registration Statement on Form N-1A (File No. 33-10649) filed on
December 28, 1989.
(c) Certificate of Amendment of Declaration of Trust, incorporated
by reference to Exhibit No. 1(c) to Post-Effective Amendment No. 7
to the Registration Statement on Form N-1A (File No. 33-10649) filed
on June 20, 1991.
(d) Form of Amended and Restated Declaration of Trust.*
2. (a) By-Laws, as amended, incorporated by reference to Exhibit No. 2
to Pre-Effective Amendment No. 2 to the Registration Statement on
Form N-1A (File No. 33-10649) filed on July 24, 1987.
(b)_Form of Amended and Restated By-Laws.*
4. (a) Specimen receipt for shares of beneficial interest for Class B
shares of each Series, incorporated by reference to Exhibit No. 4 to
Post-Effective Amendment No. 3 to the Registration Statement on Form
N-1A (File No. 33-10649) filed on August 28, 1989.
(b) Specimen receipt for shares of beneficial interest for Class A
shares of each Series, incorporated by reference to Exhibit No. 4(b)
to Post-Effective Amendment No. 6 to the Registration Statement on
Form N-1A (File No. 33-10649) filed on August 28, 1990.
5. (a) Management Agreement between the Registrant and Prudential
Mutual Fund Management, Inc., incorporated by reference to Exhibit
No. 5(a) to Post-Effective Amendment No. 5 to the Registration
Statement on Form N-1A (File No. 33-10649) filed on December 28,
1989.
(b) Subadvisory Agreement between Prudential Mutual Fund Management,
Inc. and The Prudential Investment Corporation, incorporated by
reference to Exhibit No. 5(b) to Post-Effective Amendment No. 5 to
the Registration Statement on Form N-1A (File No. 33-10649) filed on
December 28, 1989.
C-1
<PAGE>
6. (a) Amended and Restated Distribution and Service Agreement with
respect to Class A shares between the Registrant and Prudential
Mutual Fund Distributors, Inc.*
(b) Amended and Restated Distribution and Service Agreement with
respect to Class B shares between the Registrant and Prudential
Securities Incorporated.*
(c) Form of Distribution and Service Agreement for Class A shares.*
(d) Form of Distribution and Service Agreement for Class B shares.*
(e)_Form of Distribution and Service Agreement for Class C shares.*
8. (a) Custodian Contract between the Registrant and State Street Bank
and Trust Company, incorporated by reference to Exhibit No. 8(a) to
Post-Effective Amendment No. 6 to the Registration Statement on Form
N-1A (File No. 33-10649) filed on August 28, 1990.
(b) Subcustodian Agreement between State Street Bank and Trust
Company and Morgan Guaranty Trust Co., incorporated by reference to
Exhibit No. 8(b) to Post-Effective Amendment No. 6 to the
Registration Statement on Form N-1A (File No. 33-10649) filed on
August 28, 1990.
(c) Subcustodian Agreement between State Street Bank and Trust
Company and Bankers Trust Company, incorporated by reference to
Exhibit No. 8(c) to Post-Effective Amendment No. 6 to the
Registration Statement on Form N-1A (File No. 33-10649) filed on
August 28, 1990.
(d) Subcustodian Agreement between State Street Bank and Trust
Company and Bankers Trust Company, incorporated by reference to
Exhibit No. 8(d) to Post-Effective Amendment No. 6 to the
Registration Statement on Form N-1A (File No. 33-10649) filed on
August 28, 1990.
(e) Subcustodian Agreement between State Street Bank and Trust
Company and Chemical Bank, incorporated by reference to Exhibit No.
8(e) to Post-Effective Amendment No. 6 to the Registration Statement
on Form N-1A (File No. 33-10649) filed on August 28, 1990.
(f) Subcustodian Agreement between State Street Bank and Trust
Company and Irving Bank, incorporated by reference to Exhibit No.
8(f) to Post-Effective Amendment No. 6 to the Registration Statement
on Form N-1A (File No. 33-10649) filed on August 28, 1990.
9. Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services, Inc., incorporated by reference to
Exhibit No. 9 to Post-Effective Amendment No. 6 to the Registration
Statement on Form N-1A (File No. 33-10649) filed on August 28, 1990.
10. Opinion of Counsel, incorporated by reference to Exhibit No. 10 to
Pre-Effective Amendment No. 2 to the Registration Statement on Form
N-1A (File No. 33-10649) filed on July 24, 1987.
11. Consent of Independent Auditors.*
13. Purchase Agreement, incorporated by reference to Exhibit No. 13 to
Pre-Effective Amendment No. 2 to the Registration Statement on Form
N-1A (File No. 33-10649) filed on July 24, 1987.
15. (a) Distribution and Service Plan with respect to Class A shares
between the Registrant and Prudential Mutual Fund Distributors,
Inc.*
(b) Distribution and Service Plan with respect to Class B shares
between the Registrant and Prudential Securities Incorporated.*
(c) Form of Distribution and Service Plan for Class A shares.*
(d) Form of Distribution and Service Plan for Class B shares.*
(e)_Form of Distribution and Service Plan for Class C shares.*
16. (a) Schedule of Computation of Performance Quotations for Class B
shares, incorporated by reference to Exhibit No. 16 to
Post-Effective Amendment No. 3 to the Registration Statement on Form
N-1A (File No. 33-10649) filed on August 28, 1989.
C-2
<PAGE>
(b) Schedule of Computation of Performance Quotations for Class A
shares, incorporated by reference to Exhibit No. 16(b) to
Post-Effective Amendment No. 6 to the Registration Statement on Form
N-1A (File No. 33-10649) filed on August 28, 1990.
Other Exhibits
Powers of Attorney for: Edward D. Beach, Donald D. Lennox, Douglas H.
McCorkindale, Lawrence C. McQuade, Thomas T. Mooney, Louis A. Weil, III.
Executed copies filed under Other Exhibits to Post-Effective Amendment No. 3 to
the Registration Statement on Form N-1A (File No. 33-10649) filed on August 28,
1989.
Power of Attorney for Richard A. Redeker.*
- --------------
*Filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of March 31, 1994 there were 839, 1,283 and 154 record holders of Class A
shares of beneficial interest of the High Yield Series, Insured Series and
Modified Term Series, respectively and 11,424, 19,432 and 1,563 record holders
of Class B shares of beneficial interest of the High Yield Series, Insured
Series and Modified Term Series, respectively.
ITEM 27. INDEMNIFICATION.
As permitted by Sections 17(h) and (i) of the Investment Company Act of 1940
(the 1940 Act) and pursuant to Article VII of the Fund's By-Laws (Exhibit 2 to
the Registration Statement), officers, Trustees, employees and agents of the
Registrant will not be liable to the Registrant, any shareholder, officer,
trustee, employee, agent or other person for any action or failure to act,
except for bad faith, willful misfeasance, gross negligence or reckless
disregard of duties, and those individuals may be indemnified against
liabilities in connection with the Registrant, subject to the same exceptions.
As permitted by Section 17(i) of the 1940 Act, pursuant to Section 9 or 10 of
each Distribution Agreement (Exhibits 6(d), 6(e) and 6(f) to the Registration
Statement), each Distributor of the Registrant may be indemnified against
liabilities which it may incur, except liabilities arising from bad faith, gross
negligence, willful misfeasance or reckless disregard of duties.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (Securities Act) may be permitted to Trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
1940 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Trustee, officer, or controlling
person of the Registrant in connection with the successful defense of any
action, suit or proceeding) is asserted against the Registrant by such Trustee,
officer or controlling person in connection with the shares being registered,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the 1940 Act and will be governed by the final adjudication of such
issue.
The Registrant maintains an insurance policy insuring its officers and
Trustees against liabilities, and certain costs of defending claims against such
officers and Trustees, to the extent such officers and Trustees are not found to
have committed conduct constituting willful misfeasance, bad faith, gross
negligence or reckless disregard in the performance of their duties. The
insurance policy also insures the Registrant against the cost of indemnification
payments to officers and Trustees under certain circumstances.
Section 9 of the Management Agreement (Exhibit 5(a) to the Registration
Statement) and Section 4 of the Subadvisory Agreement (Exhibit 5(b) to the
Registration Statement) limit the liability of Prudential Mutual Fund
Management, Inc. (PMF) and The Prudential Investment Corporation (PIC),
respectively, to liabilities arising from willful misfeasance, bad faith or
gross negligence in the performance of their respective duties or from reckless
disregard by them of their respective obligations and duties under the
agreements.
C-3
<PAGE>
The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws and each Distribution Agreement in a manner consistent
with Release No. 11330 of the Securities and Exchange Commission under the 1940
Act so long as the interpretation of Section 17(h) and 17(i) of such Act remain
in effect and are consistently applied.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
(i) Prudential Mutual Fund Management, Inc. (PMF)
See "How the Fund is Managed--Manager" in the Prospectus constituting Part A
of this Registration Statement and "Manager" in the Statement of Additional
Information constituting Part B of this Registration Statement.
The business and other connections of the officers of PMF are listed in
Schedules A and D of Form ADV of PMF as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-31104, filed in October 1993).
The business and other connections of PMF's directors and principal executive
officers are set forth below. Except as otherwise indicated, the address of each
person is One Seaport Plaza, New York, NY 10292.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PMF PRINCIPAL OCCUPATIONS
- ----------------------- -------------------- --------------------------------------------------------------------
<S> <C> <C>
Brendan D. Boyle Executive Vice Executive Vice President and Director of Marketing, PMF
President and
Director of
Marketing
John D. Brookmeyer, Jr. Director Senior Vice President, The Prudential Insurance Company of America
Two Gateway Center (Prudential); Senior Vice President, PIC
Newark, NJ 07102
Susan C. Cote Senior Vice Senior Vice President, PMF; Senior Vice President, Prudential
President Securities
Fred A. Fiandaca Executive Vice Executive Vice President, Chief Operating Officer and Director, PMF;
Raritan Plaza One President, Chief Chairman, Chief Operating Officer and Director, Prudential Mutual
Edison, NJ 08847 Operating Officer Fund Services, Inc.
and Director
Stephen P. Fisher Senior Vice Senior Vice President, PMF; Senior Vice President, Prudential
President Securities
Frank W. Giordano Executive Vice Executive Vice President, General Counsel and Secretary, PMF; Senior
President, General Vice President, Prudential Securities
Counsel and
Secretary
Robert F. Gunia Executive Vice Executive Vice President, Chief Financial and Administrative
President, Chief Officer, Treasurer and Director, PMF; Senior Vice President,
Financial and Prudential Securities
Administrative
Officer, Treasurer
and Director
Eugene B. Heimberg Director Senior Vice President, Prudential; President, Director and Chief
Prudential Plaza Investment Officer, PIC
Newark, NJ 07101
Lawrence C. McQuade Vice Chairman Vice Chairman, PMF
Leland B. Paton Director Executive Vice President and Director, Prudential Securities;
Director, Prudential Securities Group, Inc. (PSG)
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PMF PRINCIPAL OCCUPATIONS
- ----------------------- -------------------- --------------------------------------------------------------------
<S> <C> <C>
Richard A. Redeker President, Chief President, Chief Executive Officer and Director, PMF; Executive Vice
Executive Officer President, Director and Member of Operating Committee, Prudential
and Director Securities; Director, PSG
S. Jane Rose Senior Vice Senior Vice President, Senior Counsel and Assistant Secretary, PMF;
President, Senior Senior Vice President and Senior Counsel, Prudential Securities
Counsel and
Assistant Secretary
Donald G. Southwell Director Senior Vice President, Prudential; Director, PSG
213 Washington Street
Newark, N.J. 07102
</TABLE>
(ii) Prudential Investment Corporation (PIC)
See "How the Fund is Managed--Subadviser" in the Prospectus constituting Part
A of this Registration Statement and "Subadviser" in the Statement of Additional
Information constituting Part B of this Registration Statement.
The business and other connections of PIC's directors and executive officers
are as set forth below. Except as otherwise indicated, the address of each
person is Prudential Plaza, Newark, NJ 07101.
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATIONS
- ----------------------- -------------------- --------------------------------------------------------------------
<S> <C> <C>
Martin A. Berkowitz Senior Vice Vice President, Prudential; Senior Vice President, Chief Financial
President, Chief and Compliance Officer, PIC
Financial and
Compliance Officer
William M. Bethke Senior Vice Senior Vice President, Prudential; Senior Vice President, PIC
Two Gateway Center President
Newark NJ 07102
John D. Brookmeyer, Jr. Senior Vice Senior Vice President, Prudential; Senior Vice President, PIC
Two Gateway Center President
Newark, NJ 07102
Eugene B. Heimberg President, Director Senior Vice President, Prudential; President, Director and Chief
and Chief Investment Investment Officer, PIC
Officer
Garnett L. Keith, Jr. Director Vice Chairman and Director, Prudential; Director, PIC
Harry E. Knapp, Jr. Vice President Vice President, Prudential; Vice President, PIC
Four Gateway Center
Newark, NJ 07102
William P. Link Senior Vice Executive Vice President, Prudential; Senior Vice President, PIC
Four Gateway Center President
Newark, NJ 07102
Robert E. Riley Executive Vice Executive Vice President, Prudential; Executive Vice President, PIC;
800 Boylston Ave. President Director, PSG
Boston, MA 02199
James W. Stevens Executive Vice Executive Vice President, Prudential; Executive Vice President, PIC;
Four Gateway Center President Director, PSG
Newark, NJ 07102
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATIONS
- ----------------------- -------------------- --------------------------------------------------------------------
<S> <C> <C>
Robert C. Winters Director Chairman of the Board and Chief Executive Officer, Prudential;
Director, PIC; Chairman of the Board, PSG
Claude J. Zinngrabe, Executive Vice Executive Vice President, Prudential; Executive Vice President, PIC
Jr. President
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a)(i) Prudential Securities Incorporated
Prudential Securities Incorporated is distributor for Prudential Government
Securities Trust (Intermediate Term Series), The Target Portfolio Trust and for
Class B shares of Prudential Adjustable Rate Securities Fund, Inc., Prudential
California Municipal Fund (California Income Series and California Series),
Prudential Equity Fund, Inc., Prudential Equity Income Fund, Prudential
Allocation Fund, Prudential Global Fund, Inc., Prudential Global Genesis Fund,
Inc., Prudential Global Natural Resources Fund, Inc., Prudential GNMA Fund,
Inc., Prudential Government Income Fund, Inc., Prudential Growth Fund, Inc.,
Prudential-Bache Growth Opportunity Fund, Inc., (d/ b/a Prudential Growth
Opportunity Fund), Prudential High Yield Fund, Inc., Prudential IncomeVertible
Fund, Inc., Prudential Intermediate Global Income Fund, Inc., Prudential
Multi-Sector Fund, Inc., Prudential Municipal Bond Fund, Prudential Municipal
Series Fund (except Connecticut Money Market Series, Massachusetts Money Market
Series, New York Money Market Series and New Jersey Money Market Series),
Prudential National Municipals Fund, Inc., Prudential Pacific Growth Fund, Inc.,
Prudential Short-Term Global Income Fund, Inc., Prudential U.S. Government Fund,
Prudential Utility Fund, Inc., Global Utility Fund, Inc., Nicholas-Applegate
Fund, Inc. (Nicholas-Applegate Growth Equity Fund) and The BlackRock Government
Income Trust. Prudential Securities is also a depositor for the following unit
investment trusts:
The Corporate Income Fund
Corporate Investment Trust Fund
Equity Income Fund
Government Securities Income Fund
International Bond Fund
Municipal Investment Trust
Prudential Equity Trust Shares
National Equity Trust
Prudential Unit Trusts
Government Securities Equity Trust
National Municipal Trust
(ii) Prudential Mutual Fund Distributors, Inc.
Prudential Mutual Fund Distributors, Inc. is distributor for Command
Government Fund, Command Money Fund, Command Tax-Free Fund, Prudential
California Municipal Fund (California Money Market Series, Class A shares of the
California Income Series and California Series), Prudential Government
Securities Trust (Money Market Series and U.S. Treasury Money Market Series),
Prudential-Bache MoneyMart Assets (d/b/a Prudential MoneyMart Assets),
Prudential Municipal Series Fund (Connecticut Money Market Series, Massachusetts
Money Market Series, New York Money Market Series and New Jersey Money Market
Series), Prudential Institutional Liquidity Portfolio, Inc., Prudential-Bache
Special Money Market Fund, Inc. (d/b/a Prudential Special Money Market Fund),
Prudential-Bache Tax-Free Money Fund, Inc. (d/b/a Prudential Tax-Free Money
Fund), and for Class A shares of Prudential Adjustable Rate Securities Fund,
Inc., The BlackRock Government Income Trust, Prudential Equity Fund, Inc.,
Prudential Equity Income Fund, Prudential Allocation Fund, Prudential Global
Fund, Inc., Prudential Global Genesis Fund, Inc., Prudential Global Natural
Resources Fund, Inc., Prudential GNMA Fund, Inc., Prudential Government Income
Fund, Inc., Prudential Growth Fund, Inc., Prudential Growth Opportunity Fund,
Inc., Prudential High Yield Fund, Inc., Prudential IncomeVertible-R- Fund, Inc.,
Prudential Intermediate Global Income Fund, Inc., Prudential Multi-Sector Fund,
Inc., Prudential Municipal Bond Fund, Prudential Municipal Series Fund (Arizona
Series, Florida Series, Georgia Series, Maryland Series, Massachusetts Series,
Michigan Series, Minnesota Series, New Jersey Series, North Carolina Series,
Ohio Series and Pennsylvania Series), Prudential National Municipals Fund, Inc.,
Prudential Pacific Growth Fund, Inc., Prudential Short-Term Global Income Fund,
Inc., Prudential Structured Maturity Fund, Inc., Prudential U.S. Government Fund
and Prudential Utility Fund, Inc., Global Utility Fund, Inc., and
Nicholas-Applegate Fund, Inc. (Nicholas-Applegate Growth Equity Fund) and The
Target Portfolio Trust.
C-6
<PAGE>
(b)(i) Information concerning the directors and officers of Prudential
Securities Incorporated is set forth below.
<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME(1) UNDERWRITER REGISTRANT
- ---------------------- ---------------------------------------- -------------
<S> <C> <C>
Alan D. Hogan......... Executive Vice President, Chief None
Administrative Officer and Director
Howard A. Knight...... Executive Vice President, Director, None
Corporate Strategy and New Business
Development
George A. Murray...... Executive Vice President and Director None
John P. Murray........ Executive Vice President and Director of None
Risk Management
Leland B. Paton....... Executive Vice President and Director None
Richard A. Redeker.... Director Trustee
Hardwick Simmons...... Chief Executive Officer, President and None
Director
Lee Spencer........... Interim General Counsel None
</TABLE>
(ii) Information concerning the officers and directors of Prudential Mutual
Fund Distributors, Inc. is set forth below.
<TABLE>
<S> <C> <C>
Joanne Accurso-Soto... Vice President None
Dennis Annarumma...... Vice President, Assistant Treasurer and None
Assistant Comptroller
Phyllis J. Berman..... Vice President None
Fred A. Fiandaca...... President, Chief Executive Officer and None
Director
Raritan Plaza One
Edison, NJ 08847
Stephen P. Fisher..... Vice President None
Frank W. Giordano..... Executive Vice President, General None
Counsel, Secretary and Director
Robert F. Gunia....... Executive Vice President, Treasurer, Vice
Comptroller and Director President
Andrew J. Varley...... Vice President None
Anita L. Whelan....... Vice President and Assistant Secretary None
<FN>
- --------------
(1)The address of each person named is One Seaport Plaza, New York, NY 10292
unless otherwise indicated.
</TABLE>
(c) Registrant has no principal underwriter who is not an affiliated person of
the Registrant.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the Rules thereunder are maintained at the offices of
State Street Bank and Trust Company, 1776 Heritage Drive, North Quincy,
Massachusetts; The Prudential Investment Corporation, Prudential Plaza, 745
Broad Street, Newark, New Jersey, the Registrant, One Seaport Plaza, New York,
New York; and Prudential Mutual Fund Services, Inc., Raritan Plaza One, Edison,
New Jersey. Documents required by Rules 31a-1(b)(5), (6), (7), (9), (10) and
(11) and 31a-1(f) will be kept at Three Gateway Center, documents required by
Rules 31a-1(b)(4) and (11) and 31a-1(d) at One Seaport Plaza and the remaining
accounts, books and other documents required by such other pertinent provisions
of Section 31(a) and the Rules promulgated thereunder will be kept by State
Street Bank and Trust Company and Prudential Mutual Fund Services, Inc.
C-7
<PAGE>
ITEM 31. MANAGEMENT SERVICES
Other than as set forth under the captions "How the Fund is Managed--Manager"
and "How the Fund is Managed--Distributor" in the Prospectus and the captions
"Manager" and "Distributor" in the Statement of Additional Information,
constituting Parts A and B, respectively, of this Registration Statement,
Registrant is not a party to any management-related service contract.
ITEM 32. UNDERTAKINGS
The Registrant hereby undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's latest annual report to
shareholders upon request and without charge.
C-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment to the Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of New York, and State of New
York, on the 6th day of May, 1994.
PRUDENTIAL MUNICIPAL BOND FUND
By: /s/ Lawrence C. McQuade
------------------------------------------------------
(LAWRENCE C. MCQUADE, PRESIDENT)
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ ---------------------------------------- ------------------
<S> <C> <C>
/s/ Susan C. Cote Treasurer and Principal Financial and May 6, 1994
- ------------------------------ Accounting Officer
SUSAN C. COTE
/s/ Edward D. Beach Trustee May 6, 1994
- ------------------------------
EDWARD D. BEACH
/s/ Donald D. Lennox Trustee May 6, 1994
- ------------------------------
DONALD D. LENNOX
/s/ Douglas H. McCorkindale Trustee May 6, 1994
- ------------------------------
DOUGLAS H. MCCORKINDALE
/s/ Lawrence C. McQuade President and Trustee May 6, 1994
- ------------------------------
LAWRENCE C. MCQUADE
/s/ Thomas T. Mooney Trustee May 6, 1994
- ------------------------------
THOMAS T. MOONEY
/s/ Richard A. Redeker Trustee May 6, 1994
- ------------------------------
RICHARD A. REDEKER
/s/ Louis A. Weil, III Trustee May 6, 1994
- ------------------------------
LOUIS A. WEIL, III
</TABLE>
<PAGE>
Exhibit 99.1(d)
CERTIFICATE OF RESTATEMENT OF DECLARATION OF TRUST
OF
PRUDENTIAL MUNICIPAL BOND FUND
Dated , 1994
----------------------
The undersigned, being the Secretary of Prudential Municipal Bond Fund
(hereinafter referred to as the "Trust"), a trust with transferable shares of
the type commonly called a Massachusetts business trust, DOES HEREBY CERTIFY
that, pursuant to the authority conferred upon the Trustees of the Trust by
Section 9.3 of the Declaration of Trust, dated November 3, 1986 and amended
December 18, 1989 (referred to as the "Declaration of Trust"), and by the
affirmative vote of a majority of the Trustees at a meeting duly called and held
on , 1994, the Declaration of Trust is restated as follows:
ARTICLE I.
NAME AND DEFINITIONS
--------------------
Section 1.1. NAME. The name of the trust created hereby is the
Prudential-Bache Municipal Bond Fund.
Section 1.2. DEFINITIONS. Wherever they are used herein, the following
terms have the following respective meanings:
(a) "Administrator" means the party, other than the Trust, to the contract
described in Section 4.2 hereof.
(b) "By-Laws" means the By-Laws referred to in Section 3.9 hereof, as from
time to time amended.
(c) The terms "Commission," "Affiliated Person" and "Interested Person"
have the meanings given them in the 1940 Act, as defined herein, except as
otherwise defined by the Trustees in conjunction with the establishment of any
series of Shares.
(d) "Code" means the Internal Revenue Code of 1954, as amended.
<PAGE>
(e) "Custodian" means any Person other than the Trust who has custody of
any Trust Property as required by SECTION 17(f) of the 1940 Act, but does not
include a system for the central handling of securities described in said
SECTION 17(f).
(f) "Declaration" means this Declaration of Trust as amended from time to
time. Reference in this Declaration of Trust to "Declaration," hereof,"
"herein" and "hereunder" shall be deemed to refer to this Declaration rather
than to the article or section in which such words appear.
(g) "Distributor" means the party, other than the Trust, to the contract
described in Section 4.3 hereof.
(h) "Fundamental Policies" means the investment objective and investment
restrictions set forth in the Prospectus and designated as fundamental policies
therein.
(i) "Investment Adviser" means the party, other than the Trust, to the
contract described in Section 4.1 hereof.
(j) "Majority Shareholder Vote" means the vote of the holders of a
majority of Shares which shall consist of: (i) a majority of Shares represented
in person or by proxy and entitled to vote at a meeting of Shareholders at which
a quorum, as determined in accordance with the By-Laws, is present; (ii) a
majority of Shares issued and outstanding and entitled to vote when action is
taken by written consent of Shareholders; or (iii) a "majority of the
outstanding voting securities," as that phrase is defined in the 1940 Act, when
action is taken by Shareholders with respect to approval of an investment
advisory or management contract or an underwriting or distribution agreement or
continuance thereof.
(k) "1940 Act" means the Investment Company Act of 1940 and the rules and
regulations thereunder, as amended from time to time.
(l) "Person" means and includes individuals, corporations, partnerships,
trusts, associations, joint ventures and other entities, whether or not legal
entities, and governments and agencies and political subdivisions thereof.
(m) "Prospectus" means the prospectus (including the statement of
additional information to the extent incorporated by reference therein)
constituting part of the Registration Statement of the Trust under the
Securities Act of 1933, as amended, as such prospectus may be amended or
supplemented and filed with the Commission from time to time.
(n) "Shareholder" means a record owner of outstanding Shares.
(o) "Shares" shall mean the equal proportionate transferable units of
interest into which the beneficial interest in any series of the Trust shall be
divided from time to time and includes fractions of Shares as well as whole
Shares. As provided in Article VI hereof, a series
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<PAGE>
of the Trust may be divided into separate classes of Shares; all references to
Shares shall be deemed to be Shares of any or all series or of a single class of
a series or all classes of a series as the context may require.
(p) "Transfer Agent" means the party, other than the Trust, to the
contract described in Section 4.5 hereof.
(q) "Trust" means the Prudential-Bache Municipal Bond Fund.
(r) "Trust Property" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of the
Trust or the Trustees.
(s) "Trustees" mean the person or persons who have signed the Declaration,
so long as he or they shall continue in office in accordance with the terms
hereof, and all other persons who may from time to time be duly elected,
qualified and serving as Trustees in accordance with the provisions hereof, and
reference herein to a Trustee or the Trustees shall refer to such person or
persons in their capacity as trustees hereunder.
ARTICLE II.
TRUSTEES
--------
Section 2.1. NUMBER OF TRUSTEES. The number of Trustees shall initially
be one and thereafter shall be such number as shall be fixed from time to time
by a written instrument signed by a majority of the Trustees; provided, however,
that at all times after the Prospectus of the Trust first becomes effective, the
number of Trustees shall in no event be less than three (3) nor more than
fifteen (15).
Section 2.2. ELECTION AND TERM. The Trustees shall be elected by a
Majority Shareholder Vote at the first meeting of Shareholders following the
public offering of Shares of the Trust. The Trustees shall have the power to
set and alter the terms of office of the Trustees, and they may at any time
lengthen or lessen their own terms or make their own terms of unlimited
duration, subject to the resignation and removal provisions of Section 2.3
hereof. Except in the event of resignation or removals pursuant to Section 2.3
hereof, each Trustee shall hold office until such time as less than a majority
of the Trustees holding office have been elected by Shareholders. In such event
the Trustees then in office will call a Shareholders' meeting for the election
of Trustees. Subject to Section 16(c) of the 1940 Act, no Trustee shall
continue to hold office after the holders of record of not less than two-thirds
of the outstanding Shares of the Trust have declared that such Trustee be
removed from office either by declaration in writing filed with the Custodian or
by votes cast in person or by proxy at a meeting called for the purpose. The
Trustees shall promptly call a meeting of the Shareholders for the purpose of
voting upon the question of removal of any Trustee or Trustees when requested in
writing to do so by the record holders of not less than 10 percent of the
outstanding Shares. Except for the
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<PAGE>
foregoing circumstances, the Trustees shall continue to hold office and may
appoint successor Trustees.
Section 2.3. RESIGNATION AND REMOVAL. Any Trustee may resign his trust
(without need for prior or subsequent accounting) by an instrument in writing
signed by him and delivered to the other Trustees and such resignation shall be
effective upon such delivery, or at a later date according to the terms of the
instrument. Any of the Trustees may be removed (provided that the aggregate
number of Trustees after such removal shall not be less than the number required
by Section 2.1 hereof) with cause, by the action of two-thirds of the remaining
Trustees. Upon the resignation or removal of a Trustee, or his otherwise
ceasing to be a Trustee, he shall execute and deliver such documents as the
remaining Trustees shall require for the purpose of conveying to the Trust or
the remaining Trustees any Trust Property or property of any series of the Trust
held in the name of the resigning or removed Trustee. Upon the incapacity or
death of any Trustee, his legal representative shall execute and deliver on his
behalf such documents as the remaining Trustees shall require as provided in the
preceding sentence.
Section 2.4. VACANCIES. The term of office of a Trustee shall terminate
and a vacancy shall occur in the event of the death, resignation, removal,
bankruptcy, adjudicated incompetence or other incapacity to perform the duties
of the office of a Trustee. No such vacancy shall operate to annul the
Declaration or to revoke any existing agency created pursuant to the terms of
the Declaration. In the case of an existing vacancy, including a vacancy
existing by reason of an increase in the number of Trustees, subject to the
provisions of Section 16(a) of the 1940 Act, the remaining Trustees or, prior to
the public offering of Shares of the Trust, if only one Trustee shall then
remain in office, the remaining Trustee, shall fill such vacancy by the
appointment if such other person as they or he, in their or his discretion,
shall see fit, made by a written instrument signed by a majority of the
remaining Trustees or by the remaining Trustee, as the case may be. Any such
appointment shall not become effective, however, until the person named in the
written instrument of appointment shall have accepted in writing such
appointment and agreed in writing to be bound by the terms of the Declaration.
An appointment of a Trustee may be made in anticipation of a vacancy to occur at
a later date by reason of retirement, resignation or increase in the number of
Trustees, provided that such appointment shall not become effective prior to
such retirement, resignation or increase in the number of Trustees. Whenever a
vacancy in the number of Trustees shall occur, until such vacancy is filled as
provided in this Section 2.4, the Trustees in office, regardless of their
number, shall have all the powers granted to the Trustees and shall discharge
all the duties imposed upon the Trustees by the Declaration. A written
instrument certifying the existence of such vacancy signed by a majority of the
Trustees shall be conclusive evidence of the existence of such vacancy.
Section 2.5. DELEGATION OF POWER TO OTHER TRUSTEES. Any Trustee may, by
power of attorney, delegate his power for a period not exceeding six (6) months
at any one time to any other Trustee or Trustees; provided that in no case shall
less than two (2) Trustees personally exercise the powers granted to the
Trustees under the Declaration except as herein otherwise expressly provided.
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<PAGE>
ARTICLE III.
POWERS OF TRUSTEES
------------------
Section 3.1. GENERAL. The Trustees shall have exclusive and absolute
control over the property and business of the Trust and of any series of the
Trust to the same extent as if the Trustees were the sole owners of such
property and business in their own right, but with such powers of delegation as
may be permitted by the Declaration. The Trustees shall have power to conduct
the business of the Trust and carry on its operations in any and all of its
branches and maintain offices both within and without The Commonwealth of
Massachusetts, in any and all states of the United States of America, in the
District of Columbia, and in any and all commonwealths, territories,
dependencies, colonies, possessions, agencies or instrumentalities of the United
States of America and of foreign governments, and to do all such other things
and execute all such instruments as they deem necessary, proper or desirable in
order to promote the interests of the Trust although such things are not herein
specifically mentioned. Any determination as to what is in the interests of the
Trust made by the Trustees in good faith shall be conclusive. In construing the
provisions of the Declaration, the presumption shall be in favor of a grant of
power to the Trustees.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid powers. Such powers of the Trustees may be exercised
without order of or resort to any court.
Section 3.2. INVESTMENTS. The Trustees shall have the power to:
(a) conduct, operate and carry on the business of an investment
company;
(b) subscribe for, invest in, reinvest in, purchase or otherwise
acquire, hold, pledge, sell, assign, transfer, exchange, distribute, lend
or otherwise deal in or dispose of negotiable or non-negotiable
instruments, obligations, evidences of indebtedness, certificates of
deposit or indebtedness, commercial paper, repurchase agreements, reverse
repurchase agreements, options, futures and other securities of any kind,
including, without limitation, those issues, guaranteed or sponsored by any
and all Persons including, without limitation, states, territories and
possessions of the United States, the District of Columbia and any of the
political subdivisions, agencies or instrumentalities thereof, and by the
United States Government or its agencies or instrumentalities, or
international instrumentalities, or by any bank or savings institution, or
by any corporation or organization organized under the laws of the United
States or of any state, territory or possession thereof, and of
corporations or organizations organized under foreign laws, or in "when
issued" contracts for any such securities, or retain assets of the Trust or
any series thereof in cash and from time to time change the investments of
the assets of the Trust or any series thereof; and to exercise any and all
rights, powers and privileges of ownership or interest in respect of
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<PAGE>
any and all such investments of every kind and description, including,
without limitation, the right to consent and otherwise act with respect
thereto, with power to designate one or more persons, firms, associations
or corporations to exercise any of said rights, powers and privileges in
respect of any of said instruments; and the Trustees shall be deemed to
have the foregoing powers with respect to any additional securities in
which the Trust or any series of the Trust may invest should the
Fundamental Policies be amended.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
Section 3.3. LEGAL TITLE. Legal title to all of the Trust Property shall
be vested in the Trustees as joint tenants except that the Trustees shall have
power to cause legal title to any Trust Property to be held by or in the name of
one or more of the Trustees, or in the name of the Trust or any series of the
Trust, or in the name of any other Person as nominee, on such terms as the
Trustees may determine, provided that the interest of the Trust therein is
appropriately protected. The right, title and interest of the Trustees in the
Trust Property shall vest automatically in each Person who may hereafter become
a Trustee. Upon the resignation, removal or death of a Trustee he shall
automatically cease to have any right, title or interest in any of the Trust
Property, and the right, title and interest of such Trustee in all such property
shall vest automatically in the remaining Trustees. Such vesting and cessation
of title shall be effective without the requirement that conveyancing documents
be executed and delivered.
Section 3.4. ISSUANCE AND REPURCHASE OF SECURITIES. The Trustees shall
have the power to issue, sell, repurchase, redeem, retire, cancel, acquire,
hold, resell, reissue, dispose of, transfer and otherwise deal in Shares and,
subject to the provisions set forth in Articles VII, VIII and IX and Section 6.9
hereof, to apply to any such repurchase, redemption, retirement, cancellation or
acquisition of Shares any funds or property of the particular series of the
Trust with respect to which such Shares are issued, whether capital or surplus
or otherwise, to the full extent now or hereafter permitted by laws of The
Commonwealth of Massachusetts governing business corporations.
Section 3.5. BORROWING MONEY; LENDING TRUST ASSETS. The Trustees shall
have power to borrow money or otherwise obtain credit and to secure the same by
mortgaging, pledging or otherwise subjecting as security the assets of the
Trust, to endorse, guarantee or undertake the performance of any obligation,
contract or engagement of any other Person and to lend Trust assets.
Section 3.6. DELEGATION; COMMITTEES. The Trustees shall have power,
consistent with their continuing exclusive authority over the management of the
Trust and the Trust Property, to delegate from time to time to such of their
number or to officers, employees or agents of the Trust the doing of such things
and the execution of such instruments either in the name of the Trust or any
series of the Trust or the names of the Trustees or otherwise as the Trustees
may deem expedient.
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<PAGE>
Section 3.7. COLLECTION AND PAYMENT. The Trustees shall have power to
collect all property due to the Trust; to pay all claims, including taxes,
against the Trust Property; to prosecute, defend, compromise or abandon any
claims relating to the Trust Property; to foreclose any security interest
securing any obligations, by virtue of which any property is owed to the Trust;
and to enter into releases, agreements and other instruments.
Section 3.8. EXPENSES. The Trustees shall have the power to incur and
pay any expenses which in the opinion of the Trustees are necessary or
incidental to carry out any of the purposes of the Declaration and to pay
reasonable compensation from the funds of the Trust to themselves as Trustees.
The Trustees shall fix the compensation of all officers, employees and Trustees.
Section 3.9. MANNER OF ACTING; BY-LAWS. Except as otherwise provided
herein or in the By-Laws or by any provision of law, any action to be taken by
the Trustees may be taken by a majority of the Trustees present at a meeting of
Trustees (a quorum being present), including any meeting held by means of a
conference telephone circuit or similar communications equipment by means of
which all persons participating in the meeting can hear each other, or by
written consent of all the Trustees. The Trustees may adopt By-Laws not
inconsistent with this Declaration to provide for the conduct of the business of
the Trust and may amend or repeal such By-Laws to the extent such power is not
reserved to the Shareholders.
Section 3.10. MISCELLANEOUS POWERS. Subject to Section 6.9 hereof, the
Trustees shall have the power to: (a) employ or contract with such Persons as
the Trustees may deem desirable for the transaction of the business of the Trust
or any series thereof; (b) enter into joint ventures, partnerships and any other
combinations or associations; (c) remove Trustees or fill vacancies in or add to
their number, elect and remove such officers and appoint and terminate such
agents or employees as they consider appropriate, and appoint from their own
number or otherwise, and terminate, any one or more committees which may
exercise some or all of the power and authority of the Trustees as the Trustees
may determine; (d) purchase, and pay for out of Trust Property or the property
of the appropriate series of the Trust, insurance policies insuring the
Shareholders, Trustees, officers, employees, agents, investment advisers,
distributors, selected dealers or independent contractors of the Trust against
all claims arising by reason of holding any such position or by reason of any
action taken or omitted to be taken by any such Person in such capacity, whether
or not constituting negligence, or whether or not the Trust would have the power
to indemnify such Person against such liability; (e) establish pension, profit-
sharing, Share purchase and other requirement, incentive and benefit plans for
any Trustees, officers, employees and agents of the Trust; (f) to the extent
permitted by law, indemnify any person with whom the Trust or any series thereof
has dealings, including the Investment Adviser, Administrator, Distributor,
Custodian, Transfer Agent and selected dealers, to such extent as the Trustees
shall determine; (g) guarantee indebtedness or contractual obligations of
others; (h) determine and change the fiscal year of the Trust or any series
thereof and the method by which its accounts shall be kept; (i) adopt a seal for
the Trust, but the absence of such seal shall not impair the validity of any
instrument executed on behalf of the Trust; (j) aid by further investment any
corporation, company, trust, association or firm, any obligation of or interest
in which is included
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<PAGE>
in the Trust Property or in the affairs of which the Trustees have any direct or
indirect interest; to do all acts and things designed to protect, preserve,
improve or enhance the value of such obligation or interest; to guarantee or
become surety on any or all of the contracts, stocks, bonds, notes, debentures
and other obligations of any such corporation, company, trust, association or
firm; (k) enter into a plan of distribution and any related agreements whereby
the trust may finance directly or indirectly any activity which is primarily
intended to result in sale of Shares; and (l) in general, carry on any other
business in connection with or incidental to any of the foregoing powers, to do
everything necessary, suitable or proper for the accomplishment of any purpose
or the attainment of any object or the furtherance of any power hereinbefore set
forth, either alone or in association with others, and to do every other act or
thing incidental or appurtenant to or growing out of or connected with the
aforesaid business or purposes, objects or powers.
The foregoing clauses shall be construed both as objects and powers, and
the foregoing enumeration of specific powers shall not be held to limit or
restrict in any manner the general powers of the Trustees.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
Section 3.11. PRINCIPAL TRANSACTIONS. Except in transactions permitted by
the 1940 Act or any order of exemption issued by the Commission, or effected to
implement the provisions of any agreement to which the Trust is a party, the
Trustees shall not, on behalf of the Trust, buy any securities (other than
Shares) from or sell any securities (other than Shares) to, or lend any assets
of the Trust or any series thereof to, any Trustee or officer of the Trust or
any firm of which any such Trustee or officer is a member acting as principal,
or have any such dealings with the Investment Adviser, Administrator, Custodian,
Distributor or Transfer Agent or with any Affiliated Person of such Person; but
the Trust or a series thereof may employ any such Person, or firm or company in
which such Person is an Interested Person, as broker, legal counsel, registrar,
transfer agent, dividend disbursing agent or custodian upon customary terms.
ARTICLE IV.
INVESTMENT ADVISER, ADMINISTRATOR, DISTRIBUTOR,
CUSTODIAN AND TRANSFER AGENT
Section 4.1. INVESTMENT ADVISER. Subject to approval by a Majority
Shareholder Vote, the Trustees may in their discretion from time to time enter
into an investment advisory or management contract or contracts whereby the
other party to such contract shall undertake to furnish the Trust or any series
thereof such management, investment advisory, administration, accounting, legal,
statistical and research facilities and services, promotional activities and
such other facilities and services, if any, as the Trustees shall from time to
time consider desirable, all upon such terms and conditions as the Trustees may
in their discretion determine.
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<PAGE>
Notwithstanding any provisions of the Declaration, the Trustees may authorize
the Investment Adviser (subject to such general or specific instructions as the
Trustees may from time to time adopt) to effect purchases, sales, loans or
exchanges of portfolio securities of the Trust or any series thereof on behalf
of the Trustees or may authorize any officer, employee or Trustee to effect such
purchases, sales, loans or exchanges pursuant to recommendations of the
Investment Adviser, all without further action by the Trustees. Any such
purchases, sales, loans and exchanges shall be deemed to have been authorized by
all of the Trustees. The Trustees may, in their sole discretion, call a meeting
of Shareholders in order to submit to a vote of Shareholders at such meeting the
approval of continuance of any such investment advisory or management contract.
Section 4.2. ADMINISTRATOR. The Trustees may in their discretion from
time to time enter into an administrative services contract or contracts whereby
the other party or parties to such contract or contracts shall undertake to
furnish administrative services. The contract or contracts shall have such
terms and conditions as the Trustees may in their discretion determine are not
inconsistent with the Declaration. Such services may be provided by one or more
Persons.
Section 4.3. DISTRIBUTOR. The Trustees may in their discretion from time
to time enter into a contract providing for the sale of Shares of the Trust or
applicable series thereof at not less than the net asset value per Share (as
described in Article VIII hereof) and pursuant to which the Trust or series
thereof may either agree to sell the Shares to the other party to the contract
or appoint such other party its sales agent for such Shares. In either case,
the contract shall be on such terms and conditions as the Trustees may in their
discretion determine is not inconsistent with the provisions of this Article IV,
including, without limitation, the provision for the repurchase or sale of
Shares of the Trust by such other party as principal or as agent of the Trust.
Section 4.4. CUSTODIAN. The Trustees shall employ at all times a
custodian or custodians, meeting the qualifications for custodians of portfolio
securities under the 1940 Act, as custodian with respect to the Trust and may
from time to time enter into a custodian contract or contracts whereby the other
party or parties to such contract or contracts shall undertake to furnish
custodial services. The contract or contracts shall have such terms and
conditions as the Trustees may in their discretion determine are not
inconsistent with the Declaration. Such services may be provided by one or more
Persons.
Section 4.5. TRANSFER AGENT. The Trustees may in their discretion from
time to time enter into a transfer agency and shareholder service contract
whereby the other party to such contract shall undertake to furnish transfer
agency and shareholder services to the Trust. The contract shall have such
terms and conditions as the Trustees may in their discretion determine that are
not inconsistent with the Declaration. Such services may be provided by one or
more Persons.
Section 4.6. PARTIES TO CONTRACT. Any contract of the character
described in Section 4.1, 4.2, 4.3, 4.4 or 4.5 of this Article IV and any other
contract may be entered into with any Person, although one or more of the
Trustees or officers of the Trust may be an officer, director, trustee,
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<PAGE>
shareholder or member of such other party to the contract, and no such contract
shall be invalidated or rendered voidable by reason of the existence of any such
relationship; nor shall any Person holding such relationship be liable merely by
reason of such relationship for any loss or expense to the Trust under or by
reason of said contract or accountable for any profit realized directly or
indirectly therefrom, provided that the contract when entered into was not
inconsistent with the provisions of this Article IV. The same Person may be the
other party to any contracts entered into pursuant to Sections 4.1, 4.2, 4.3,
4.4 and 4.5 above or otherwise, and any individual may be financially interested
or otherwise affiliated with Persons who are parties to any or all of the
contracts referred to in this Section 4.6.
ARTICLE V.
LIMITATION OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS
Section 5.1. NO PERSONAL LIABILITY OF SHAREHOLDERS, TRUSTEES, ETC. No
Shareholder shall be subject to any personal liability whatsoever to any Person
in connection with Trust Property, or the acts, obligations or affairs of the
Trust. No Trustee, officer, employee or agent of the Trust shall be subject to
any personal liability whatsoever to any Person, other than the Trust or its
Shareholders, in connection with Trust Property or the affairs of the Trust,
save only that arising from bad faith, willful misfeasance, gross negligence or
reckless disregard of his duty to such Person; and all such Persons shall look
solely to the Trust Property or the property of one or more specific series of
the Trust, for satisfaction of claims of any nature arising in connection with
the affairs of the Trust. If any Shareholder, Trustee, officer, employee or
agent, as such, of the Trust is made a party to any suit or proceeding to
enforce any such liability, he shall not, on account thereof, be held to any
personal liability. The Trust shall indemnify and hold each Shareholder
harmless from and against all claims by reason of his being or having been a
Shareholder, and shall reimburse the Shareholder for all legal and other
expenses reasonably incurred by him in connection with any such claim or
liability, provided that any such expenses shall be paid solely out of the Trust
Property or the property of one or more series thereof. Indemnification and
reimbursement required by the preceding sentence shall be made only out of
assets of the one or more series whose shares were held by said Shareholder at
the time the act or event occurred which gave rise to the claim against or
liability of said Shareholder. The rights accruing to a Shareholder under this
Section 5.1 shall not exclude any other right to which the Shareholder may be
lawfully entitled, nor shall anything herein contained restrict the right of the
Trust to indemnify or reimburse a Shareholder in any appropriate situation even
though not specifically provided herein.
Section 5.2. NON-LIABILITY OF TRUSTEES, ETC. No Trustee, officer,
employee or agent of the Trust shall be liable to the Trust, its Shareholders or
to any Shareholder, Trustee, officer, employee or agent thereof for any action
or failure to act (including without limitation the failure to compel in any way
any former or acting Trustee to redress any breach of trust) except for his own
bad faith, willful misfeasance, gross negligence or reckless disregard of his
duties.
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Section 5.3. INDEMNIFICATION.
(a) The Trustees shall provide for indemnification by the Trust or by one
or more series thereof if the claim arises from conduct with respect to only
such series of every person who is, or has been, a Trustee or officer of the
Trust against all liability and against all expenses reasonably incurred or paid
by him in connection with any claim, action, suit or proceeding in which he
becomes involved as a party or otherwise by virtue of his being or having been a
Trustee or officer and against amounts paid or incurred by him in the settlement
thereof, in such manner as the Trustees may provide from time to time in the By-
Laws.
(b) The words "claim," "action," "suit" or "proceeding" shall apply to all
claims, actions, suits or proceedings (civil, criminal or other, including
appeals), actual or threatened; and the words "liability" and "expenses" shall
include, without limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
Section 5.4. NO BOND REQUIRED OF TRUSTEES. No Trustee shall be obligated
to give any bond or other security for performance of any of his duties
hereunder.
Section 5.5. NO DUTY OF INVESTIGATION; NOTICE IN TRUST INSTRUMENTS;
INSURANCE. No purchaser, lender, transfer agent or other Person dealing with
the Trustees or any officer, employee or agent of the Trust or any series
thereof shall be bound to make any inquiry concerning the validity of any
transaction purporting to be made by the Trustees or by said officer, employee
or agent or be liable for the application of money or property paid, loaned or
delivered to or on the order of the Trustees or of said officer, employee or
agent. Every obligation, contract, instrument, certificate, Share, other
security of the Trust or any series thereof or undertaking, and every other act
or thing whatsoever executed in connection with the Trust or any series thereof,
shall be conclusively presumed to have been executed or done by the executors
thereof only in their capacity as Trustees under the Declaration or in their
capacity as officers, employees or agents of the Trust or any series thereof.
Every written obligation, contract, instrument, certificate, Share, other
security of the Trust or a series thereof or undertaking made or issued by the
Trustees shall recite that the same is executed or made by them not
individually, but as Trustees under the Declaration, and that the obligations of
any such instrument are not binding upon any of the Trustees or Shareholders,
individually, but bind only the Trust Property or a series thereof, and may
contain any further recital which they or he may deem appropriate, but the
omission of such recital shall not operate to bind the Trustees or Shareholders
individually. The Trustees shall at all times maintain insurance for the
protection of the Trust Property and any property of a series thereof, its
Shareholders, Trustees, officers, employees and agents in such amount as the
Trustees shall deem adequate to cover possible tort liability, and such other
insurance as the Trustees in their sole judgment shall deem advisable.
Section 5.6. RELIANCE ON EXPERTS, ETC. Each Trustee and officer or
employee of the Trust or any series thereof shall, in the performance of his
duties, be fully and completely justified and protected with regard to any act
or any failure to act resulting from reliance in good faith upon the books of
account or other records of the Trust or any series thereof, upon an
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opinion of counsel or upon reports made to the Trust or any series thereof by
any of its officers or employees or by the Investment Adviser, Administrator,
Distributor, Custodian, Transfer Agent, selected dealers, accountants,
appraisers or other experts or consultants selected with reasonable care by the
Trustees, officers or employees of the Trust or any series thereof, regardless
of whether such counsel or expert may also be a Trustee.
ARTICLE VI.
SHARES OF BENEFICIAL INTEREST
-----------------------------
Section 6.1. BENEFICIAL INTEREST. The interest of the beneficiaries
hereunder shall be divided into transferable shares of beneficial interest with
$.01 par value. The number of such shares of beneficial interest authorized
hereunder is unlimited. All Shares issued hereunder including, without
limitation, Shares issued in connection with a dividend in Shares or a split in
Shares, shall be fully paid and non-assessable.
Section 6.2. RIGHTS OF SHAREHOLDERS. The ownership of the Trust Property
and the right to conduct any business hereinbefore described are vested
exclusively in the Trustees, and the Shareholders shall have no interest therein
other than the beneficial interest conferred by their Shares, and they shall
have no right to call for any partition or division of any property, profits,
rights or interests of the Trust nor can they be called upon to assume any
losses of the Trust or suffer an assessment of any kind by virtue of their
ownership of Shares. The Shares shall be personal property giving only the
rights specifically set forth in the Declaration. The Shares shall not entitle
the holder to preference, preemptive, appraisal, conversion or exchange rights
except as the Trustees may determine.
Section 6.3. TRUST ONLY. It is the intention of the Trustees to create
only the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to
create a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in the Declaration shall be construed to make the Shareholders, either
by themselves or with the Trustees, partners or members of a joint stock
association.
Section 6.4. ISSUANCE OF SHARES. The Trustees, in their discretion may,
from time to time without vote of the Shareholders, issue Shares, in addition to
the then issued and outstanding Shares and Shares held in the treasury, to such
party or parties and for such amount and type of consideration, including cash
or property, at such time or times (including, without limitation, each business
day) and on such terms as the Trustees may deem best, and may in such manner
acquire other assets (including the acquisition of assets subject to, and in
connection with, the assumption of liabilities) and businesses. In connection
with any issuance of Shares, the Trustees may issue fractional Shares.
Reductions in the number of outstanding Shares may be made pursuant to the
provisions of Section 8.3. Contributions to the Trust may be accepted
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for, and Shares shall be redeemed as, whole Shares and/or fractions of a Share
as described in the Prospectus.
Section 6.5. REGISTER OF SHARES. A register shall be kept at the
principal office of the Trust or at an office of the Transfer Agent which shall
contain the names and addresses of the Shareholders and the number of Shares
held by each of them and a record of all transfers thereof. Such register may
be in written form or any other form capable of being converted into written
form within a reasonable time for visual inspection. Such register shall be
conclusive as to who are the holders of the Shares and who shall be entitled to
receive dividends or distributions or otherwise to exercise or enjoy the rights
of Shareholders. No Shareholder shall be entitled to receive payment of any
dividend or distribution, nor to have notice given to him as herein or in the
By-Laws provided, until he has given his address to the Transfer Agent or such
other officer or agent of the Trustees as shall keep the said register for entry
thereon. It is not contemplated that certificates will be issued for the
Shares; however, the Trustees, in their discretion, may authorize the issuance
of Share certificates and promulgate appropriate rules and regulations as to
their use.
Section 6.6. TRANSFER OF SHARES. Shares shall be transferable on the
records of the Trust only by the record holder thereof or by his agent thereunto
duly authorized in writing, upon delivery to the Trustees or the Transfer Agent
of a duly executed instrument of transfer, together with such evidence of the
genuineness of each such execution and authorization and of other matters as may
reasonably be required. Upon this delivery the transfer shall be recorded on
the register of the Trust. Until this record is made, the Shareholder of record
shall be deemed to be the holder of the Shares for all purposes hereunder and
neither the Trustees nor any Transfer Agent or registrar nor any officer,
employee or agent of the Trust shall be affected by any notice of the proposed
transfer.
Any person becoming entitled to any Shares in consequence of the death,
bankruptcy or incompetence of any Shareholder, or otherwise by operation of law,
shall be recorded on the register of Shares as the holder of such Shares upon
production of the proper evidence thereof to the Trustees or the Transfer Agent,
but until such record is made, the Shareholder of record shall be deemed to be
the holder of such Shares for all purposes hereunder and neither the Trustees
nor any Transfer Agent or registrar nor any officer or agent of the Trust shall
be affected by any notice of such death, bankruptcy or incompetence, or other
operation of law, except as may otherwise be provided by the laws of The
Commonwealth of Massachusetts.
Section 6.7. NOTICES. Any and all notices to which any Shareholder may
be entitled and any and all communications shall be deemed duly served or given
if mailed, postage prepaid, addressed to any Shareholder of record at his last
known address as recorded on the register of the Trust.
Section 6.8. VOTING POWERS. The Shareholders shall have power to vote
(i) for the election of Trustees as provided in Section 2.2; (ii) with respect
to any advisory or management contract of a series as provided in Section 4.1;
(iii) with respect to the amendment of this Declaration as provided in
Section 9.3; (iv) with respect to such additional matters relating to the
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Trust as may be required or authorized by the 1940 Act, the laws of The
Commonwealth of Massachusetts or other applicable law or by this Declaration or
the By-Laws of the Trust; and (v) with respect to such additional matters
relating to the Trust as may be properly submitted for Shareholder approval. If
the Shares of a series shall be divided into classes as provided in Section 6.9
hereof, the Shares of each class shall have identical voting rights except that
the Trustees, in their discretion, may provide a class of a series with
exclusive voting rights with respect to matters related to expenses being borne
solely by such class.
Section 6.9. SERIES DESIGNATION. The Trustees, in their discretion from
time to time, may authorize the division of Shares into two or more series, each
series, each series relating to a separate portfolio of investments. The
different series shall be established and designated, and the variations in the
relative rights and preferences as between the different series shall be fixed
and determined, by the Trustees; provided that all Shares shall be identical
except that there may be variations between different series as to purchase
price, determination of net asset value, the price, terms and manner of
redemption, special and relative rights as to dividends and on liquidation,
conversion rights, and conditions under which the several series shall have
separate voting rights.
The Trustees, in their discretion without a vote of the Shareholders, may
divide the Shares of any series into classes. In such event, each class of a
series shall represent interests in the Trust Property of a series and have
identical voting, dividend, liquidation and other rights and the same terms and
conditions except that expenses related directly or indirectly to the
distribution of the Shares of a class of a series may be borne solely by such
class (as shall be determined by the Trustees) and, as provided in Section 6.8,
a class of a series may have exclusive voting rights with respect to matters
relating to the expenses being borne solely by such class. The bearing of such
expenses solely by a class of Shares shall be appropriately reflected (in the
manner determined by the Trustees) in the net asset value, dividend and
liquidation rights of the Shares of such class. The division of the Shares of a
series into classes and the terms and conditions pursuant to which the Shares of
the classes of a series will be issued must be made in compliance with the 1940
Act. No division of Shares of a series into classes shall result in the
creation of a class of Shares having a preference as to dividends or
distributions or a preference in the event of any liquidation, termination or
winding up of the Trust.
If the Trustees shall divide the Shares into two or more series, the
following provisions shall be applicable:
(a) The number of Shares of each series and of each class of a series that
may be issued shall be unlimited. The Trustees may classify or reclassify any
unissued Shares or any Shares previously issued and reacquired of any series
into one or more series that may be established and designated from time to
time. The Trustees may hold as treasury Shares (of the same or some other
series), reissue Shares for such consideration and on such terms as they may
determine, or cancel any Shares of any series reacquired by the Trust at their
discretion from time to time.
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(b) The power of the Trustees to invest and reinvest the Trust Property of
each series that may be established shall be governed by Section 3.2 of this
Declaration.
(c) All consideration received by the Trust for the issue or sale of
Shares of a particular series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that series for all purposes, subject only to the rights
of creditors, and shall be so recorded upon the books of account of the Trust.
In the event that there are any assets, income, earnings, profits, and proceeds
thereof, funds, or payments which are not readily identifiable as belonging to
any particular series, the Trustees shall allocate them among any one or more of
the series established and designated from time to time in such manner and on
such basis as they, in their sole discretion, deem fair and equitable. Each
such allocation by the Trustees shall be conclusive and binding upon the
Shareholders of all series for all purposes.
(d) The assets belonging to each particular series shall be charged with
the liabilities of the Trust in respect of that series only and all expenses,
costs, charges and reserves attributable to that series and shall not be charged
with the liabilities, expenses, costs, charges and reserves attributable to
other series and any general liabilities, expenses, costs, charges or reserves
of the Trust which are not readily identifiable as belonging to any particular
series shall be allocated and charged by the Trustees to and among any one or
more of the series established and designated from time to time in such manner
and on such basis as the Trustees in their sole discretion deem fair and
equitable. Each allocation of liabilities, expenses, costs, charges and
reserves by the Trustees shall be conclusive and binding upon the shareholders
of all series for all purposes. The Trustees shall have full discretion, to the
extent not inconsistent with the 1940 Act, to determine which items shall be
treated as income and which items as capital; and each such determination and
allocation shall be conclusive and binding upon the Shareholders.
(e) The power of the Trustees to pay dividends and make distributions with
respect to any one or more series shall be governed by Section 8.2 of this
Declaration. Dividends and distributions on Shares of a particular series may
be paid with such frequency as the Trustees may determine, to the holders of
Shares of that series, from such of the income and capital gains, accrued or
realized, from the assets belonging to that series, as the Trustees may
determine, after providing for actual and accrued liabilities belonging to that
series. All dividends and distributions on Shares of a particular series shall
be distributed pro rata to the shareholders of that series in proportion to the
number of Shares of that series held by such holders at the date and time of
record established for the payment of such dividends or distributions, except
that such dividends and distributions shall appropriately reflect expenses
related directly or indirectly to the distribution of Shares of a class of such
series.
The establishment and designation of any series or class within such series
of Shares shall be effective upon the execution by a majority of the then
Trustees (or by an officer of the Trust pursuant to a vote of a majority of the
Trustees) of an instrument setting forth the establishment and designation of
such series or class within such series. Such instrument
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shall also set forth any rights and preferences of such series or class within
such series which are in addition to the rights and preferences of Shares set
forth in this Declaration. At any time that there are no Shares outstanding of
any particular series or class within such series previously established and
designated, the Trustees may by an instrument executed by a majority of their
number (or by an officer of the Trust pursuant to a vote of a majority of the
Trustees) abolish that series or class within such series and the establishment
and designation thereof. Each instrument referred to in this paragraph shall
have the status of an amendment to this Declaration.
ARTICLE VII.
REDEMPTIONS
-----------
Section 7.1. REDEMPTIONS. All outstanding Shares may be redeemed at the
option of the holders thereof, upon and subject to the terms and conditions
provided in this Article VII. The Trust shall, upon application of any
Shareholder or pursuant to authorization from any Shareholder, redeem or
repurchase from the Shareholder outstanding Shares for an amount per share
determined by the Trustees in accordance with any applicable laws and
regulations; provided that (a) the amount per share shall not exceed the cash
equivalent of the proportionate interest of each share in the assets of the
Trust or any series thereof at the time of the redemption or repurchase and
(b) if so authorized by the Trustees, the Trust may, at any time and from time
to time, charge fees for effecting such redemption or repurchase, at rates the
Trustees may establish, as and to the extent permitted under the 1940 Act, and
may, at any time and from time to time, pursuant to the Act, suspend the right
of redemption. The procedures for effecting and suspending redemption shall be
as set forth in the Prospectus from time to time. Payment will be made in the
manner described in the Prospectus.
Section 7.2. REDEMPTION OF SHARES; DISCLOSURE OF HOLDING. If the
Trustees shall, at any time and in good faith, be of the opinion that direct or
indirect ownership of Shares or other securities of the Trust or any series
thereof has or may become concentrated in any Person to an extent which would
disqualify the Trust as a regulated investment company under the Internal
Revenue Code, then the Trustees shall have the power by lot or other means
deemed equitable by them (i) to call for redemption by any such Person a number,
or principal amount, of Shares or other securities of the Trust or series
thereof sufficient, in the opinion of the Trustees, to maintain or bring the
direct or indirect ownership of Shares or other securities of the Trust or
series thereof into conformity with the requirements for such qualification and
(ii) to refuse to transfer or issue Shares or other securities of the Trust or
any series thereof to any Person whose acquisition of the Shares or other
securities of the Trust in question would in the opinion of the Trustees result
in such disqualification. The redemption shall be effected at a redemption
price determined in accordance with Section 7.1 hereof.
The holders of Shares or other securities of the Trust or any series
thereof shall upon demand disclose to the Trustees in writing such information
with respect to direct and indirect
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ownership of Shares or other securities of the Trust or series thereof as the
Trustees deem necessary to comply with the provisions of the Internal Revenue
Code, or to comply with the requirements of any other authority.
Section 7.3. REDEMPTIONS OF ACCOUNTS OF LESS THAN $500. The Trustees
shall have the power at any time to redeem Shares of any Shareholder at a
redemption price determined in accordance with Section 7.1 if at such time the
aggregate net asset value of the Shares in the Shareholder's account is less
than $500. A Shareholder will be notified that the value of his account is less
than $500 and allowed at least sixty (60) days to make an additional investment
before redemption is processed.
Section 7.4. PAYMENT FOR REDEEMED SHARES IN KIND. Subject to any
applicable provisions of the 1940 Act, payment for any Shares redeemed pursuant
to Section 7.1 or 7.2 hereof may, at the option of the Trustees or such officer
or officers of the Trust as they may authorize for the purpose, be made in cash
or in kind, or partially in cash and partially in kind, and, in case of full or
partial payment in kind, the Trustees or such authorized officer or officers
shall have absolute discretion to determine the securities or other assets of
the Trust and the amount thereof to be distributed in kind. For such purpose,
the value of any securities or other non-cash assets delivered in payment for
Shares redeemed shall be determined in the same manner as the value of such
securities or other non-cash assets are determined in accordance with
Section 8.1 hereof for purposes of determining the net asset value per Share
applicable to such Shares, as of the same time that the net asset value per
Share applicable to such Shares is determined.
Section 7.5. OTHER REDEMPTIONS. The Trust or any series thereof may also
reduce the number of outstanding Shares pursuant to the provisions of
Section 8.3 hereof.
ARTICLE VIII.
DETERMINATION OF NET ASSET VALUE,
---------------------------------
NET INCOME AND DISTRIBUTIONS
----------------------------
Section 8.1. NET ASSET VALUE. The net asset value of each outstanding
Share of each series of the Trust shall be determined at such time or times on
such days as the Trustees may determine, in accordance with the 1940 Act, with
respect to each series. The method of determination of net asset value of
Shares of each class of a series shall be determined by the Trustees and shall
be as set forth in the Prospectus with respect to the applicable series with any
expenses being borne solely by a class of Shares being reflected in the net
asset value of Shares of each class. The power and duty to make the daily
calculations for any series may be delegated by the Trustees to the adviser,
administrator, manager, custodian, transfer agent or such other
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person as the Trustees may determine. The Trustees may suspend the daily
determination of net asset value to the extent permitted by the 1940 Act.
Section 8.2. DISTRIBUTION TO SHAREHOLDERS. The Trustees shall from time
to time distribute ratably among the Shareholders of any series such proportion
of the net profits, surplus (including paid-in-surplus), capital, or assets with
respect to such series held by the Trustees as they deem proper with any
expenses being borne solely by a class of Shares of any series being reflected
in the net profits or other assets being distributed to such class. Such
distribution may be made in cash or property (including without limitation any
type of obligations of the Trust or any assets thereof), and the Trustees may
distribute ratably among the Shareholders of any series additional Shares of
such series issuable hereunder in such manner, at such times, and on such terms
as the Trustees may deem proper. Such distributions may be among the
Shareholders of record at the time of declaring a distribution or among the
Shareholders of record at such later date as the Trustees shall determine. The
Trustees may always retain from the net profits such amount as they may deem
necessary to pay the debts or expenses of the Trust or to meet obligations of
the Trust, or as they deem desirable to use in the conduct of its affairs or to
retain for future requirements or extensions of the business. The Trustees may
adopt and offer to Shareholders of any series such dividend reinvestment plans,
cash dividend payout plans, or related plans as the Trustees shall deem
appropriate for such series.
Inasmuch as the computation of net income and gains for Federal income tax
purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust to avoid or reduce liability for taxes.
Section 8.3. DETERMINATION OF NET INCOME. The Trustees shall have the
power to determine the net income of the Trust or any series thereof one or more
times on each business day and at determination to declare the net income as
dividends in additional Shares. The determination of net income and the
resultant declaration of dividends shall be as set forth in the Prospectus. It
is expected that the Trust or any series thereof will have a positive net income
at the time of each determination. If for any reason the net income is a
negative amount, the Trustees shall have authority to reduce the number of
outstanding Shares. The reduction will be effected by having each Shareholder
proportionately contribute to the capital the necessary Shares that represent
the amount of the excess upon such determination. Each Shareholder will be
deemed to have agreed to such contribution in these circumstances by his
investment in the Trust or any series thereof. The Trustees shall have full
discretion to determine whether any cash or property received shall be treated
as income or as principal and whether any item of expenses shall be charged to
the income or the principal account, and their determination made in good faith
shall be conclusive upon the Shareholders. In the case of stock dividends
received, the Trustees shall have full discretion to determine, in the light of
the particular circumstances, how much, if any, of the value thereof shall be
treated as income, with the balance, if any, to be treated as principal.
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Section 8.4. POWER TO MODIFY FOREGOING PROCEDURES. Notwithstanding any
of the foregoing provisions of this Article VIII, the Trustees may prescribe, in
their absolute discretion, such other bases and times for determining the per
share net asset value of the Trust's Shares or net income, or the declaration
and payment of dividends and distributions as they deem necessary or desirable
or to enable the Trust to comply with any provision of the 1940 Act, including
any rule or regulation adopted pursuant to Section 22 of the 1940 Act by the
Securities and Exchange Commission or any securities association registered
under the Securities Exchange Act of 1934, all as in effect now or hereafter
amended or modified.
ARTICLE IX.
DURATION; TERMINATION OF
------------------------
TRUST; AMENDMENT; MERGERS, ETC.
-------------------------------
Section 9.1. DURATION. The Trust or any series thereof shall continue
without limitation of time but subject to the provisions of this Article IX.
Section 9.2. TERMINATION. (a) The Trust may be terminated by (1) the
affirmative vote of the holders of not less than two-thirds of the Shares of
each series of the Trust at any meeting of Shareholders, (2) by an instrument in
writing, without a meeting, signed by a majority of the Trustees and consented
to by the holders of not less than two-thirds of such Shares, or (3) by the
Trustees by written notice to the Shareholders. In addition, any series may be
so terminated by vote or written consent of not less than two-thirds of the
Shares of such series. Upon the termination of the Trust of any series:
(i) The Trust or such series shall carry on no business except for
the purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the Trust or
such series and all of the powers of the Trustees under this Declaration
shall continue until the affairs of the Trust or such series shall have
been wound up, including the power to fulfill or discharge the contracts of
the Trust or such series, collect its assets, sell, convey, assign,
exchange, transfer or otherwise dispose of all or any part of the remaining
Trust Property to one or more persons at public or private sale for
consideration which may consist in whole or in part of cash, securities or
other property of any kind, discharge or pay its liabilities, and do all
other acts appropriate to liquidate its business; provided that any sale,
conveyance, assignment, exchange, transfer or other disposition of all or
substantially all the Trust Property shall require approval of the
principal terms of the transaction and the nature and amount of the
consideration by vote or consent of the holders of a majority of the Shares
entitled to vote.
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(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements, as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Property of any series, in cash or in kind
or partly each, among the Shareholders of such series and each class of
such series, according to their respective rights taking into account their
respective net asset values and the proper allocation of expenses being
borne solely by any series or any class of Shares of a series.
(b) After termination of the Trust or a series and distribution to the
Shareholders as herein provided, a majority of the Trustees (or an officer of
the Trust pursuant to a vote of a majority of the Trustees) shall execute and
lodge among the records of the Trust an instrument in writing setting forth the
fact of such termination, and such instrument shall be filed with the Secretary
of The Commonwealth of Massachusetts, as well as with any other governmental
office where such filing may from time to time be required by the laws of
Massachusetts. Upon termination of the Trust, the Trustees shall thereupon be
discharged from all further liabilities and duties hereunder, and the rights and
interests of all Shareholders shall thereupon cease. Upon termination of any
series, the Trustees shall thereupon be discharged from all further liabilities
and duties with respect to such series, and the rights and interests of all
Shareholders of such series shall thereupon cease.
Section 9.3. AMENDMENT PROCEDURE. (a) This Declaration may be amended by
a Majority Shareholder Vote, at a meeting of Shareholders, or by written consent
without a meeting. The Trustees may also amend this Declaration without the
vote or consent of Shareholders to change the name of the Trust or a series, to
supply any omission, to cure, correct or supplement any ambiguous, defective or
inconsistent provision hereof, or if they deem it necessary to conform this
Declaration to the requirements of applicable federal laws or regulations or the
requirements of the regulated investment company provisions of the Internal
Revenue Code, but the Trustees shall not be liable for failing so to do.
(b) No amendment may be made under this Section 9.3 which would change any
rights with respect to any Shares of the Trust or a series by reducing the
amount payable thereon upon liquidation of the Trust or a series or by
diminishing or eliminating any voting rights pertaining thereto, except with the
vote or consent of the holders of two-thirds of the Shares outstanding and
entitled to vote. Nothing contained in this Declaration shall permit the
amendment of this Declaration to impair the exemption from personal liability of
the Shareholders, Trustees, officers, employees and agents of the Trust or a
series or to permit assessments upon Shareholders.
(c) A certificate signed by a majority of the Trustees or by the Secretary
or any Assistant Secretary of the Trust, setting forth an amendment and reciting
that it was duly adopted by the Shareholders or by the Trustees as aforesaid or
a copy of the Declaration, as amended, and executed by a majority of the
Trustees or certified by the Secretary or any Assistant Secretary of the Trust,
shall be conclusive evidence of such amendment when lodged among the records of
the Trust. Such amendment shall be effective when lodged among the records of
the Trust unless some later effective date is specified.
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Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of securities of the Trust or a series thereof shall
have become effective, this Declaration may be terminated or amended in any
respect by the affirmative vote of a majority of the Trustees or by an
instrument signed by a majority of the Trustees.
Section 9.4. MERGER, CONSOLIDATION AND SALE OF ASSETS. The Trust or any
series thereof may merge or consolidate with any other corporation, association,
trust or other organization or may sell, lease or exchange all or substantially
all of the Trust Property or property of a series, including its good will, upon
such terms and conditions and for such consideration when and as authorized, at
any meeting of Shareholders called for the purpose, by the affirmative vote of
the holders of not less than two-thirds of the Shares; provided, however, that,
if the merger, consolidation, sale, lease or exchange is recommended by the
Trustees, a Majority Shareholder Vote shall be sufficient authorization.
Section 9.5. INCORPORATION. With approval of a Majority Shareholder
Vote, the Trustees may cause to be organized or assist in organizing a
corporation or corporations under the laws of any jurisdiction or any other
trust, partnership, association or other organization to take all of the Trust
Property or property of a series or to carry on any business in which the Trust
or any series shall directly or indirectly have any interest, and to sell,
convey and transfer the Trust Property or the property of a series to any
corporation, trust, association or organization in exchange for the shares or
securities thereof or otherwise, and to lend money to, subscribe for the Shares
or securities of, and enter into any contracts with any corporation, trust,
partnership, association or organization in which the Trust or any series holds
or is about to acquire shares or any other interest. The Trustees may also
cause a merger or consolidation between the Trust or any series or any successor
thereto and any corporation, trust, partnership, association or other
organization if and to the extent permitted by law, as provided under the law
then in effect. Nothing contained herein shall be construed as requiring
approval of Shareholders for the Trustees to organize or assist in organizing
one or more corporations, trusts, partnerships, associations or other
organizations and selling, conveying or transferring a portion of the Trust
Property to such organizations or entities.
ARTICLE X.
REPORTS TO SHAREHOLDERS
-----------------------
The Trustees shall at least semi-annually submit to the Shareholders a
written financial report of the transactions of the Trust or a series thereof,
including financial statements which shall at least annually be certified by
independent public accountants.
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<PAGE>
ARTICLE XI.
MISCELLANEOUS
-------------
Section 11.1. FILING. This Declaration and any amendment hereto shall be
filed in the office of the Secretary of The Commonwealth of Massachusetts and in
such other places as may be required under the laws of Massachusetts and may
also be filed or recorded in such other places as the Trustees deem appropriate.
Each amendment so filed shall be accompanied by a certificate signed and
acknowledged by a Trustee or by the Secretary or any Assistant Secretary of the
Trust stating that such action was duly taken in a manner provided herein. A
restated Declaration, integrating into a single instrument all of the provisions
of the Declaration which are then in effect and operative, may be executed from
time to time by a majority of the Trustees and shall, upon filing with the
Secretary of The Commonwealth of Massachusetts, be conclusive evidence of all
amendments contained therein and may thereafter be referred to in lieu of the
original Declaration and the various amendments thereto.
Section 11.2. RESIDENT AGENT. The Trust may appoint and maintain a
resident agent in The Commonwealth of Massachusetts.
Section 11.3. GOVERNING LAW. This Declaration is executed by the Trustees
with reference to the laws of The Commonwealth of Massachusetts, and the rights
of all parties and the validity and construction of every provision hereof shall
be subject to and construed according to the laws of the Commonwealth,
notwithstanding any Massachusetts law governing choice of law which may require
the construction of this Declaration in accordance with the laws of another
state or jurisdiction.
Section 11.4. COUNTERPARTS. The Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart.
Section 11.5. RELIANCE BY THIRD PARTIES. Any certificate executed by an
individual who, according to the records of the Trust, appears to be a Trustee
hereunder, or Secretary or Assistant Secretary of the Trust, certifying to: (a)
the number or identity of Trustees or Shareholders, (b) the due authorization of
the execution of any instrument or writing, (c) the form of any vote passed at a
meeting of Trustees or Shareholders, (d) the fact that the number of Trustees or
Shareholders present at any meeting or executing any written instrument
satisfies the requirements of this Declaration, (e) the form of any By-Laws
adopted by or the identity of any officers elected by the Trustees or (f) the
existence of any fact or facts which in any manner relate to the affairs of the
Trust, shall be conclusive evidence as to the matters so certified in favor of
any Person dealing with the Trustees and their successors.
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Section 11.6. PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS. (a) The
provisions of the Declaration are severable, and if the Trustees shall
determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the regulated investment company provisions of the
Internal Revenue Code or with other applicable laws and regulations, the
conflicting provisions shall be deemed never to have constituted a part of the
Declaration; provided, however, that such determination shall not affect any of
the remaining provisions of the Declaration or render invalid or improper any
action taken or omitted prior to such determination.
(b) If any provision of the Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
affect only the provision in the jurisdiction and shall not in any manner affect
the provision in any other jurisdiction or any other provision of the
Declaration in any jurisdiction.
IN WITNESS WHEREOF, the undersigned has set her seal this th day of
, 1994.
_____________________________
S. Jane Rose, Secretary
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<PAGE>
A C K N O W L E D G M E N T
- - - - - - - - - - - - - -
STATE OF NEW YORK )
) ss
COUNTY OF NEW YORK ) , 1994
------------
Then personally appeared before me the above named S. Jane Rose and
acknowledged the foregoing instrument to be her free act and deed.
_________________________
Notary Public
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<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Restatement of Establishment and Designation
of Series of Shares of
Beneficial Interest, $.01 Par Value
The undersigned, being a majority of the Trustee of Prudential Municipal
Bond Fund, a Massachusetts business trust (the "Fund"), acting pursuant to
Section 6.9 of the Declaration of Trust dated November 3, 1986 (the "Declaration
of Trust") of the Fund, hereby divide the shares of beneficial interest of the
Fund into three separate series, each series to have the following special and
relative rights:
1. The series shall be designated as follows:
High Yield Series
Insured Series
Modified Intermediate Term Series
2. Each series shall be authorized to invest in cash, securities,
instruments and other property as from time to time described in the Fund's then
currently effective registration statement under the Securities Act of 1933.
Each share of beneficial interest of each series ("share") shall be redeemable,
shall be entitled to one vote or fraction thereof in respect of a fractional
share on matters on which shares of that series shall be entitled to vote and
shall represent a pro rata beneficial interest in the assets allocated to that
series, and shall be entitled to receive its pro rata share of net assets of
that series upon liquidation of that series, all as provided in the Declaration
of Trust.
3. The shares of beneficial interest of each series of the Trust are
classified into three classes, designated "Class A Shares," "Class B Shares,"
and "Class C Shares." An unlimited number of each such class of each such
series may be issued. All Class A Shares and Class B Shares of each such series
outstanding on the date on which the amendments provided for herein become
effective shall be and continue to be Class A Shares and Class B Shares,
respectively, of such series.
4. The holders of Class A Shares, Class B Shares and Class C Shares of
each series having the same shall be considered Shareholders of such series, and
shall have the relative rights and preferences set forth herein and in the
Declaration of Trust with respect to Shares of such series, and shall also be
considered Shareholders of the Trust for all other purposes (including, without
limitation, for purposes of receiving reports and notices and the right to vote)
and, for matters reserved to the Shareholders of one or more other classes or
series by the Declaration of Trust or by any instrument establishing and
designating a particular class or series, or as required by the Investment
Company Act of 1940 and/or the rules and regulations of the Securities and
Exchange Commission thereunder (collectively, as from time to time in effect,
the "1940 Act") or other applicable laws.
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<PAGE>
5. The Class A Shares, Class B Shares and Class C Shares of each series
shall represent an equal proportionate interest in the share of such class in
the Trust Property belonging to that series, adjusted for any liabilities
specifically allocable to the Shares of that class, and each Share of any such
class shall have identical voting, dividend, liquidation and other rights and
the same terms and conditions, except that the expenses related directly or
indirectly to the distribution of the Shares of a class, and any service fees to
which such class is subject (as determined by the Trustees), shall be borne
solely by such class, and such expenses shall be appropriately reflected in the
determination of net asset value and the dividend, distribution and liquidation
rights of such class.
6. (a) Class A Shares of each series shall be subject to (i) a front-end
sales charge and (ii)(A) an asset-based sales charge pursuant to a plan under
Rule 12b-1 of the 1940 Act (a "Plan"), and/or (B) a service fee for the
maintenance of shareholder accounts and personal services, in such amounts as
shall be determined from time to time.
(b) Class B Shares of each series shall be subject to (i) a
contingent deferred sales charge and (ii)(A) an asset-based sales charge
pursuant to a Plan, and/or (B) a service fee for the maintenance of shareholder
accounts and personal services, in such amounts as shall be determined from time
to time.
(c) Class C Shares of each series shall be subject to (i) a
contingent deferred sales charge and (ii)(A) an asset-based sales charge
pursuant to a Plan, and/or (B) a service fee for the maintenance of shareholder
accounts and personal services, in such amounts as shall be determined from time
to time.
7. Subject to compliance with the requirements of the 1940 Act, the
Trustees shall have the authority to provide that holders of Shares of any
series shall have the right to convert said Shares into Shares of one or more
other series of registered investment companies specified for the purpose in
this Trust's Prospectus for the series accorded such right, that holders of any
class of Shares of a series shall have the right to convert such Shares into
Shares of one or more other classes of such series, and that Shares of any class
of a series shall be automatically converted into Shares of another class of
such series, in each case in accordance with such requirements and procedures as
the Trustees may from time to time establish. The requirements and procedures
applicable to such mandatory or optional conversion of Shares of any such class
or series shall be set forth in the Prospectus in effect with respect to such
Shares.
8. Shareholders of each series and class shall vote as a separate series
or class, as the case may be, on any matter to the extent required by, and any
matter shall be deemed to have been effectively acted upon with respect to any
series or class as provided in, Rule 18f-2, as from time to time in effect,
under the 1940 Act, or any successor rule and by the Declaration of Trust.
Except as otherwise required by the 1940 Act, the Shareholders of each class of
any series having more than one class of Shares, voting as a separate class,
shall have sole and exclusive voting rights with respect to the provisions of
any Plan applicable to Shares
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<PAGE>
of such class, and shall have no voting rights with respect to provisions of any
Plan applicable solely to any other class of Shares of such series.
9. Shareholders of each series shall vote separately as a class on any
matter to the extent required by, and any matter shall be deemed to have been
effectively acted upon with respect to any series as provided in, Rule 18f-2, as
from time to time in effect, under the Investment Company Act of 1940, as
amended, or any successor rule and by the Declaration of Trust.
10. The assets and liabilities of the Fund shall be allocated among the
above-referenced series as set forth in Section 6.9 of the Declaration of Trust,
except as provided below:
(a) Costs incurred and payable by the Fund in connection with its
organization and initial registration and public offering of shares shall be
divided equally among the three series and shall be authorized for each such
series over the period beginning on the date that such costs become payable and
ending sixty months after the commencement of operations of the Fund.
(b) The liabilities, expenses, costs, charges or reserves of the Fund
(other than the organizational expenses paid by the Fund) which are not readily
identifiable as belonging to any particular series shall be allocated among the
series on the basis of their relative average daily net assets, except when
allocations of direct expenses can otherwise be fairly made.
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<PAGE>
11. The Trustee (including any successor Trustees) shall have the right at
any time and from time to time to reallocate assets and expenses or to change
the designation of any series now or hereafter created, or to otherwise change
the special and relative rights of any such series provided that such change
shall not adversely affect the rights of holders of shares of a series.
Dated: ________________, 1994 ---------------------------
Edward D. Beach
---------------------------
Donald D. Lennox
---------------------------
Douglas H. McCorkindale
---------------------------
Lawrence C. McQuade
----------------------------
Thomas T. Mooney
----------------------------
Richard A. Redeker
----------------------------
Louis A. Weil, III
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<PAGE>
Exhibit 99.2(b)
RESTATED BY-LAWS
OF
PRUDENTIAL MUNICIPAL BOND FUND
_______________, 1994
<PAGE>
RESTATED BY-LAWS
OF
PRUDENTIAL MUNICIPAL BOND FUND
ARTICLE I.
DEFINITIONS
The terms "ADMINISTRATOR," "COMMISSION," "CUSTODIAN,"
"DECLARATION," "DISTRIBUTOR," "INVESTMENT ADVISER," "1940 ACT,"
"SHAREHOLDER," "SHARES," "TRANSFER," "TRANSFER AGENT," "TRUST,"
"TRUST PROPERTY," "TRUSTEES," and "MAJORITY SHAREHOLDER VOTE,"
have the respective meanings given them in the Declaration of Trust of
Prudential Municipal Bond Fund dated November 3, 1986, as amended from time to
time.
ARTICLE II.
OFFICES
Section 1. PRINCIPAL OFFICE. Until changed by the Trustees, the
principal office of the Trust in The Commonwealth of Massachusetts shall be in
the City of Boston, County of Suffolk.
Section 2. OTHER OFFICES. The Trust may have offices in such other
places without as well as within the Commonwealth as the Trustee may from time
to time determine.
ARTICLE III.
SHAREHOLDERS
Section 1. MEETINGS. Meetings of the Shareholders shall be held to
the extent provided in the Declaration at such place within or without The
Commonwealth of Massachusetts as the Trustees shall designate. The holders of
a majority of outstanding Shares of the Trust or series of the Trust present
in person or by proxy and entitled to vote shall constitute a quorum with
respect to Shares of the Trust or such series at any meeting of the
Shareholders.
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<PAGE>
Section 2. NOTICE OF MEETINGS. Notice of all meetings of the
Shareholders, stating the time, place and purposes of the meeting, shall be
given by the Trustees by mail to each Shareholder at his or her address as
recorded on the register of the Trust mailed at least (10) days and not more
than ninety (90) days before the meeting. Only the business stated in the notice
of the meeting shall be considered at such meeting. Any adjourned meeting may
be held as adjourned without further notice. No notice need be given to any
Shareholder who shall have failed to inform the Trust of his or her current
address or if a written waiver of notice, executed before or after the meeting
by the Shareholder or his or her attorney thereunto authorized, is filed with
the records of the meeting.
Section 3. RECORD DATE FOR MEETINGS AND OTHER PURPOSES. For the
purpose of determining the Shareholders who are entitled to notice of and to
vote at any meeting, or to participate in any distribution, or for the purpose
of any other action, the Trustees may from time to time close the transfer
books for such period, not exceeding ninety (90) days. as the Trustees may
determine; or without closing the transfer books the Trustees may fix a date
not more than sixty (60) days prior to the date of any meeting of Shareholders
or distribution or other action as a record date for the determinations of the
persons to be treated as Shareholders of record for such purposes, except for
dividend payments which shall be governed by the Declaration.
Section 4. PROXIES. Am any meeting of Shareholders, any holder of
Shares entitled to vote thereat may vote by proxy, provided that no proxy
shall be voted at any meeting unless it shall have been placed on file with
the Secretary, or with such other officer or agent of the Trust as the
Secretary may direct, for verification prior to the time at which such vote
shall be taken. Proxies may be solicited in the name of one or more Trustees
or one or more of the officers of the Trust. Only Shareholders of record
shall be entitled to vote. Each whole Share shall be entitled to one vote as
to any matter on which it is entitled by the Declaration to vote, and each
fractional Share shall be entitled to a proportionate fractional vote. When
any Share is held jointly by several persons, any one of them may vote at any
meeting in person or by proxy in respect of such Share, but if more than one
of them shall be present at such meeting in person or
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<PAGE>
by proxy, and such joint owners or their proxies so present disagree as to any
vote to be cast, such vote shall not be received in respect of such Share. A
proxy purporting to be executed by or on behalf of a Shareholder shall be deemed
valid unless challenged at or prior to its exercise, and the burden of proving
invalidity shall rest on the challenger. If the holder of any such Share is a
minor or a person of unsound mind, and subject to guardianship or the legal
control of any other person as regards the charge or management of such Share,
he or she may vote by his or her guardian or such other person appointed or
having such control, and such vote may be given in person or by proxy.
Section 5. INSPECTION OF RECORDS. The records of the Trust shall be
open to inspection by Shareholders to the same extent as is permitted
shareholders of a Massachusetts business corporation.
Section 6. ACTION WITHOUT MEETING. Any action which may be taken by
Shareholders may be taken without a meeting if majority of Shareholders of the
Trust or the applicable series of the Trust entitled to vote on the matter (or
such larger proportion thereof as shall be required by law, the Declaration or
these By-Laws for approval of such matter) consent to the action in writing
and the written consents are filed with the records of the meetings of
Shareholders. Such consents shall be treated for all purposes as a vote taken
at a meeting of Shareholders.
ARTICLE IV.
TRUSTEES
Section 1. MEETINGS OF THE TRUSTEES. The Trustees may in their
discretion provide for regular or stated meetings of the Trustees. Notice of
regular or stated meetings need not be given. Meetings of the Trustees other
than regular or stated meetings shall be held whenever called by the President,
or by any one of the Trustees, at the time being in office. Notice of the time
and place of each meeting other than regular or stated meetings shall be given
by the Secretary or an Assistant Secretary or by the officer or Trustee calling
the meeting and shall be mailed to each Trustee at least two days before the
meeting, or shall be telegraphed, cabled, or wired to each Trustee at his or her
business address, or personally delivered to him or her at least
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<PAGE>
one day before the meeting. Such notice may, however, be waived by any Trustee.
Notice of a meeting need not be given to any Trustee if a written waiver of
notice, executed by him or her before or after the meeting, is filed with the
records of the meeting, or to any Trustee who attends the meeting without
protesting prior thereto or at its commencement the lack of notice to him or
her. A notice or waiver of notice need not specify the purpose of any meeting.
The Trustees may meet by means of a telephone conference circuit or similar
communications equipment by means of which all persons participating in the
meeting are connected, which meeting shall be deemed to have been held at a
place designated by the Trustees at the meeting. Participation in a telephone
conference meeting shall constitute presence in person at such meeting. Any
action required or permitted to be taken at any meeting of the Trustees may be
taken by the Trustees without a meeting of all the Trustees consent to the
action in writing and the written consents are filed with the records of the
Trustees' meetings. Such consents shall be treated for all purposes as a vote
taken at a meeting of the Trustees. Notwithstanding the foregoing, all actions
of the Trustees shall be taken in compliance with the provisions of the
Investment Company Act of 1940, as amended.
Section 2. QUORUM AND MANNER OF ACTING. A majority of the Trustees
shall be present in person at any regular or special meeting of the Trustees
in order to constitute a quorum for the transaction of business at such
meetings and (except as otherwise required by law, the Declaration or these
By-Laws) the act of a majority of the Trustees present at any such meeting, at
which a quorum is present, shall be the act of the Trustees. In the absence
of a quorum, a majority of the Trustees present may adjourn the meeting from
time to time until a quorum shall be present. Notice of an adjourned meeting
need not be given.
ARTICLE V.
COMMITTEES
Section 1. EXECUTIVE AND OTHER COMMITTEES. The Trustees by vote of a
majority of all the Trustees may elect from their own number an Executive
Committee to consist of not less than three (3) Trustees to hold office at the
pleasure of the Trustees, which shall have the power
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<PAGE>
to conduct the current and ordinary business of the Trust while the Trustees are
not in session, including the purchase and sale of securities and the
designation of securities to be delivered upon redemption of Shares of the
Trust, and such other powers of the Trustees as the Trustees may, from time to
time, delegate to them except those powers which by law, the Declaration or
these By-Laws they are prohibited from delegating. The Trustees may also elect
from their own number or otherwise other Committees from time to time, the
number composing such Committees, the powers conferred upon the same (subject to
the same limitations as with respect to the Executive Committee) and the term of
membership on such Committees to be determined by the Trustees. The Trustees
may designate a chairman of any such Committee. In the absence of such
designation the Committee may elect its own Chairman.
Section 2. MEETINGS, QUORUM AND MANNER OF ACTING. The Trustees may
(1) provide for stated meetings of any Committee, (2) specify the manner of
calling and notice required for special meetings of any Committee, (3) specify
the number of members of a Committee required to constitute a quorum and the
number of members of a Committee required to exercise specified powers
delegated to such Committee, (4) authorize the making of decisions to exercise
specified powers by written assent of the requisite number of members of a
Committee without a meeting, and (5) authorize the members of a Committee to
meet by means of a telephone conference circuit.
The Executive Committee shall keep regular minutes of its meetings and
records of decisions taken without a meeting and cause them to be recorded in
a book designated for that purpose and kept in the Office of the Trust.
ARTICLE VI.
OFFICERS
Section 1. GENERAL PROVISIONS. The officers of the Trust shall be a
President, a Treasurer and a Secretary, who shall be elected by the Trustees.
The Trustees may elect or appoint such other officers or agents as the business
of the Trust may require, including one or more Vice Presidents, one or more
Assistant Secretaries, and one or more Assistant Treasurers.
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<PAGE>
The Trustees may delegate to any officer or committee the power to appoint any
subordinate officers or agents.
Section 2. TERM OF OFFICE AND QUALIFICATIONS. Except as otherwise
provided by law, the Declaration or these By-Laws, the President, the
Treasurer and the Secretary shall each hold office until his or her successor
shall have been duly elected and qualified, and all other officers shall hold
office at the pleasure of the Trustees. The Secretary and Treasury may be the
same person. A Vice President and the Treasurer or a Vice President and the
Secretary may be the same person, but the offices of Vice President, Secretary
and Treasurer shall not be held by the same person. The President shall hold
no other office. Except as above provided, any two offices may be held by the
same person. Any officer may be but none need be a Trustee or Shareholder.
Section 3. REMOVAL. The Trustees, at any regular or special meeting
of the Trustees, may remove any officer without cause, by a vote of a majority
of the Trustees then in office. Any officer or agent appointed by an officer
or committee may be removed with or without cause by such appointing officer
or committee.
Section 4. POWERS AND DUTIES OF THE PRESIDENT. The President shall
be the principal executive officer of the Trust. He or she may call meetings
of the Trustees and of any Committee thereof when he or she deems it necessary
and shall preside at all meetings of the Shareholders. Subject to the control
of the Trustees and to the control of any Committees of the Trustees, within
their respective spheres, as provided by the Trustees, the President shall at
all times exercise a general supervision and direction over the affairs of the
Trust. The President shall have the power to employ attorneys and counsel for
the Trust and to employ such subordinate officers, agents, clerks and
employees as he or she may find necessary to transact the business of the
Trust. He or she shall also have the power to grant, issue, execute or sign
such powers of attorney, proxies or other documents as may be deemed advisable
or necessary in furtherance of the interests of the Trust. The President
shall have such other powers and duties as from time to time may be conferred
upon or assigned to him or her by the Trustees.
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<PAGE>
Section 5. POWERS AND DUTIES OF VICE PRESIDENT. In the absence or
disability of the President, the Vice President or, if there be more than one
Vice President, any Vice President designated by the Trustees shall perform
all the duties and may exercise any of the powers of the President, subject to
the control of the Trustees. Each Vice President shall perform such other
duties as may be assigned to him or her from time to time by the Trustees and
the President.
Section 6. POWERS AND DUTIES OF THE TREASURER. The Treasurer shall
be the principal financial and accounting officer of the Trust. The Treasurer
shall deliver all funds of the Trust which may come into his or her hands to
such Custodian as the Trustees may employ pursuant to Article X of these
By-Laws. He or she shall render a statement of condition of the finances of
the Trust to the Trustees as often as they shall require the same and he or
she shall in general perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him or
her by the Trustees. The Treasurer shall give a bond for the faithful
discharge of his or her duties, if required so to do by the Trustees, in such
sum and with such surety or sureties as the Trustees shall require.
Section 7. POWERS AND DUTIES OF THE SECRETARY. The Secretary shall
keep the minutes of all meetings of the Trustees and of the Shareholders in
proper books provided for that purpose; he or she shall have custody of the seal
of the Trust; he or she shall have charge of the Share transfer books, lists and
records unless the same are in the charge of the Transfer Agent. The Secretary
shall attend to the giving and serving of all notices by the Trust in accordance
with the provisions of these By-Laws and as required by law; and subject to
these By-Laws, he or she shall in general perform all duties incident to the
office of Secretary and such other duties as from time to time may be assigned
to him or her by the Trustees.
Section 8. POWERS AND DUTIES OF ASSISTANT TREASURERS. In the absence
or disability of the Treasurer, any Assistant Treasurer designated by the
Trustees shall perform all the duties, and may exercise any of the powers, of
the Treasurer. Each Assistant Treasurer shall give a bond for the faithful
discharge of his or her duties, if required so to do by the Trustees, in such
sum and with such surety or sureties as the Trustees shall require.
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<PAGE>
Section 9. POWERS AND DUTIES OF ASSISTANT SECRETARIES. In the
absence or disability of the Secretary, any Assistant Secretary designated by
the Trustees shall perform all the duties, and may exercise any of the powers,
of the Secretary. Each Assistant Secretary shall perform such other duties as
from time to time may be assigned to him by the Trustees.
Section 10. COMPENSATION OF OFFICERS AND TRUSTEES AND MEMBERS OF THE
ADVISORY BOARD. Subject to any applicable provisions of the Declaration, the
compensation of the officers and Trustees and members of the Advisory Board
shall be fixed from time to time by the Trustees or, in the case of officers,
by any Committee or officer upon whom such power may be conferred by the
Trustees. No officer shall be prevented from receiving such compensation as
such officer by reason of the fact that he or she is also a Trustee.
ARTICLE VII.
FISCAL YEAR
The fiscal year of the Trust shall begin on the first day of May in each
year and shall end on the last day of April in each year, provided, however,
that the Trustees may from time to time change the fiscal year.
ARTICLE VIII.
SEAL
The Trustees may adopt a seal which shall be in such form and shall have
such inscription thereon as the Trustees may from time to time prescribe.
ARTICLE IX.
WAIVERS OF NOTICE
Whenever any notice whatever is required to be given by law, the
Declaration or these By-Laws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. A notice shall be deemed
to have been telegraphed, cabled or wired for the purposes of these By-Laws
when it has been delivered to a representative of any telegraph, cable or wire
company with instructions that it be telegraphed, cabled or wired.
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<PAGE>
ARTICLE X.
CUSTODY OF SECURITIES
Section 1. EMPLOYMENT OF A CUSTODIAN. The Trust shall place and at
all times maintain in the custody of a custodian (including any sub-custodian
for the Custodian) all funds, securities and similar investments included in
the Trust Property. The Custodian (and any sub-custodian) shall be a bank
having not less than $20,000,000 aggregate capital, surplus and undivided
profits and shall be appointed from time to time by the Trustees, who shall
fix its remuneration.
Section 2. ACTION UPON TERMINATION OF CUSTODIAN AGREEMENT. Upon
termination of a Custodian Agreement or inability of the Custodian to continue
to serve, the Trustees shall promptly appoint a successor custodian, but in the
event that no successor custodian can be found who has the required
qualifications and is willing to serve, the Trustees shall call as promptly as
possible a special meeting of the Shareholders to determine whether the Trust
shall function without a custodian or shall be liquidated. If so directed by a
Majority Shareholder Vote, the Custodian shall deliver and pay over all Trust
Property held by it as specified in such vote.
Section 3. PROVISIONS OF CUSTODIAN CONTRACT. The following
provisions shall apply to the employment of a Custodian and to any contract
entered into with the Custodian so employed: The Trustees shall cause to be
delivered to the Custodian all securities included in the Trust Property or to
which the Trust may become entitled, and shall order the same to be delivered
by the Custodian only in completion of a sale, exchange, transfer, pledge,
loan of portfolio securities to another person, or other disposition thereof,
all as the Trustees may generally or from time to time require or approve or
to a successor Custodian; and the Trustees shall cause all funds included in
the Trust Property or to which it may become entitled to be paid to the
Custodian, and shall order the same disbursed only for investment against
delivery of the securities acquired (including securities acquired under a
repurchase agreement), or the return of cash held as collateral for loans of
portfolio securities, or in payment of expenses, including management
compensation, and liabilities of the Trust, including distributions to
Shareholders,
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or to a successor Custodian. Notwithstanding anything to the contrary in
these By-Laws, upon receipt of proper instructions, which may be standing
instructions, the Custodian may deliver funds in the following cases. In
connection with repurchase agreements, the Custodian shall transmit, prior to
receipt on behalf of the Fund of any securities or other property, funds from
the Fund's custodian account to a special custodian approved by the Trustees of
the Fund, which funds shall be used to pay for securities to be purchased by the
Fund subject to the Fund's obligation to sell and the seller's obligation to
repurchase such securities. In such case, the securities shall be held in the
custody of the special custodian. In connection with the Trust's purchase and
sale of financial futures contracts, the Custodian shall transmit prior to
receipt on behalf of the Fund of any securities or other property, funds from
the Trust's custodian account in order to furnish to and maintain funds with
brokers as margin to guarantee the performance of the Trust's futures
obligations in accordance with the applicable requirements of commodities
exchanges and brokers.
Section 4. CENTRAL CERTIFICATE SYSTEM. Subject to applicable rules,
regulations and orders adopted by the Commission, the Trustees may direct the
Custodian to deposit all or any part of the securities owned by the Trust in a
system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, or such other person as
may be permitted by the Commission, or otherwise in accordance with the 1940
Act, pursuant to which system all securities of any particular class or series
of any issuer deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without physical delivery of such
securities, provided that all such deposits shall be subject to withdrawal
only upon the order of the Trust.
ARTICLE XI.
INDEMNIFICATION
A representative of the Trust shall be indemnified by the Trust with
respect to each proceeding against such representative, except a proceeding
brought by or on behalf of the Trust,
-11-
<PAGE>
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such representative in
connection with such proceeding, provided that such representative acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to
the best interests of the Trust and, with respect to any criminal proceeding,
had no reasonable cause to believe his or her conduct was unlawful. The
termination of any proceeding by judgment, order, settlement, conviction or upon
a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith in a manner which he or
she reasonably believed to be in or not opposed to the best interests of the
Trust and, with respect to any criminal proceeding, had reasonable cause to
believe that his or her conduct was unlawful.
A representative of the Trust shall be indemnified by the Trust, with
respect to each proceeding brought by or on behalf of the Trust to obtain
judgment or decree in its favor, against expenses (including attorneys' fees)
actually and reasonably incurred by him or her in connection with the defense
or settlement of such proceeding, if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the Trust; except that no indemnification shall be made in
respect of any claim, issue, or matter as to which such representative has
been adjudged to be liable for negligence or misconduct in the performance of
his or her duty to the Trust, unless and only to the extent that the court in
which the proceeding was brought, or a court of equity in the county in which
the Trust has its principal office, determines upon application that, despite
the adjudication of liability but in view of all circumstances of the case,
such representative is fairly and reasonably entitled to indemnity for the
expenses which the court considers proper.
To the extent that the representative of the Trust has been successful
on the merits or otherwise in defense of any proceeding referred to in the
preceding two paragraphs, or in defense of any claim, issue or matter therein,
the Trust shall indemnify him or her against all expenses (including
attorneys' fees) actually and reasonably incurred by him or her in connection
therewith.
-12-
<PAGE>
Except as provided in the preceding paragraph any indemnification under
the first two paragraphs of this Article XI (unless ordered by a court) shall
be made by the Trust only as authorized in the specific case upon a
determination that indemnification of the representative of the Trust is
proper in the circumstances because he or she has met the applicable standard
of conduct set forth in such paragraphs. The determination shall be made (1)
by the Trustees by a majority vote of a quorum consisting of Trustees who were
not parties to the proceeding, or (2) if a quorum is not obtainable or if a
quorum of disinterested Trustees so directs, by independent legal counsel in a
written opinion, or (3) by a Majority Shareholder Vote.
Expenses (including attorneys' fees) incurred in defending a proceeding
may be paid by the Trust in advance of the final disposition thereof if (1)
authorized by the Trustees in the specific case, and (2) the Trust receives an
undertaking by or on behalf of the representative of the Trust to repay the
advance if it is not ultimately determined that he or she is entitled to be
indemnified by the Trust as authorized in this Article XI.
The indemnification provided by this Article XI shall not be deemed
exclusive of any other rights to which a representative of the Trust or other
person may be entitled under any agreement, vote of Shareholders or
disinterested Trustees or otherwise, both as to action in his or her official
capacity and as to action in another capacity while holding the office, and
shall continue as to a person who has ceased to be a Trustee, officer,
employee or agent and inure to the benefit of his or her heirs and personal
representatives.
The Trust may purchase and maintain insurance on behalf of any person
who is or was a Trustee, officer, employee or agent of the Trust, or is or was
serving at the request of the Trust as a trustee, director, officer, employee
or agent of another trust, corporation, partnership, joint venture or other
enterprise, against any liability asserted against him or her and incurred by
him or her in any such capacity or arising out of his or her status as such,
regardless of whether the Trust would have the power to indemnify him or her
against the liability under the provisions of this Article XI.
-13-
<PAGE>
Nothing contained in this Article XI shall be construed to indemnify any
representative of the Trust against any liability to the Trust or to its
Shareholders to which he or she would otherwise be subject by reason of
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office.
As used in this Article XI, "representative of the Trust" means any
individual (1) who is a present or former Trustee, officer, agent or employee
of the Trust or who serves or has served another trust, corporation,
partnership, joint venture or other enterprise in one of such capacities at
the request of the Trust, and (2) who by reason of his or her position is, has
been or is threatened to be made a party to a proceeding; and "proceeding"
includes any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administration or investigative.
ARTICLE XII.
AMENDMENTS
These By-Laws, or any of them, may be altered, amended or repealed, or
new By-Laws may be adopted by (a) a Majority Shareholder Vote or (b) by the
Trustees, provided, however, that no By-Law may be amended, adopted or
repealed by the Trustees if such amendment, adoption or repeal requires,
pursuant to law, the Declaration or these By-Laws, a vote of the Shareholders.
End of By-Laws
-14-
<PAGE>
Exhibit 99.6(a)
PRUDENTIAL MUNICIPAL BOND FUND
Amended and Restated
Distribution Agreement
(CLASS A SHARES)
Agreement, dated as of January 22, 1990 and amended and restated as of
July 1, 1993, between Prudential Municipal Bond Fund a Massachusetts business
trust (the Fund) and Prudential Mutual Fund Distributors, Inc., a Delaware
Corporation (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company Act of 1940,
as amended (the Investment Company Act), as a [diversified,] open-end,
management investment company and it is in the interest of the Fund to offer its
Class A shares for sale continuously;
WHEREAS, the Distributor is a broker-dealer registered under the Securities
Exchange Act of 1934, as amended, and is engaged in the business of selling
shares of registered investment companies either directly or through other
broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into an agreement with
each other, with respect to the continuous offering of the Fund's Class A shares
from and after the date hereof in order to promote the growth of the Fund and
facilitate the distribution of its Class A shares; and
WHEREAS, the Fund has adopted a distribution and service plan pursuant to
Rule 12b-1 under the Investment Company Act (the Plan) authorizing payments by
the Fund to the Distributor with respect to the distribution of Class A shares
of the Fund and the maintenance of Class A shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. APPOINTMENT OF THE DISTRIBUTOR
The Fund hereby appoints the Distributor as the principal underwriter and
distributor of the Class A shares of the Fund to sell Class A shares to the
public and the Distributor hereby accepts such appointment and agrees to act
hereunder. The Fund hereby agrees during the term of this Agreement to sell
Class A shares of the Fund to the Distributor on the terms and conditions set
forth below.
Section 2. EXCLUSIVE NATURE OF DUTIES
The Distributor shall be the exclusive representative of the Fund to act as
principal underwriter and distributor of the Fund's Class A shares, except that:
<PAGE>
2.1 The exclusive rights granted to the Distributor to purchase Class A
shares from the Fund shall not apply to Class A shares of the Fund issued in
connection with the merger or consolidation of any other investment company or
personal holding company with the Fund or the acquisition by purchase or
otherwise of all (or substantially all) the assets or the outstanding shares of
any such company by the Fund.
2.2 Such exclusive rights shall not apply to Class A shares issued by the
Fund pursuant to reinvestment of dividends or capital gains distributions.
2.3 Such exclusive rights shall not apply to Class A shares issued by the
Fund pursuant to the reinstatement privilege afforded redeeming shareholders.
2.4 Such exclusive rights shall not apply to purchases made through the
Fund's transfer and dividend disbursing agent in the manner set forth in the
currently effective Prospectus of the Fund. The term "Prospectus" shall mean
the Prospectus and Statement of Additional Information included as part of the
Fund's Registration Statement, as such Prospectus and Statement of Additional
Information may be amended or supplemented from time to time, and the term
"Registration Statement" shall mean the Registration Statement filed by the Fund
with the Securities and Exchange Commission and effective under the Securities
Act of 1933, as amended (Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.
Section 3. PURCHASE OF CLASS A SHARES FROM THE FUND
3.1 The Distributor shall have the right to buy from the Fund the Class A
shares needed, but not more than the Class A shares needed (except for clerical
errors in transmission) to fill unconditional orders for Class A shares placed
with the Distributor by investors or registered and qualified securities dealers
and other financial institutions (selected dealers). The price which the
Distributor shall pay for the Class A shares so purchased from the Fund shall be
the net asset value, determined as set forth in the Prospectus.
3.2 The Class A shares are to be resold by the Distributor or selected
dealers, as described in Section 6.4 hereof, to investors at the offering price
as set forth in the Prospectus.
3.3 The Fund shall have the right to suspend the sale of its Class A
shares at times when redemption is suspended pursuant to the conditions in
Section 4.3 hereof or at such other times as may be determined by the Board of
Directors. The Fund shall also have the right to suspend the sale of its Class
A shares if a banking moratorium shall have been declared by federal or New York
authorities.
2
<PAGE>
3.4 The Fund, or any agent of the Fund designated in writing by the Fund,
shall be promptly advised of all purchase orders for Class A shares received by
the Distributor. Any order may be rejected by the Fund; provided, however, that
the Fund will not arbitrarily or without reasonable cause refuse to accept or
confirm orders for the purchase of Class A shares. The Fund (or its agent) will
confirm orders upon their receipt, will make appropriate book entries and upon
receipt by the Fund (or its agent) of payment therefor, will deliver deposit
receipts for such Class A shares pursuant to the instructions of the
Distributor. Payment shall be made to the Fund in New York Clearing House funds
or federal funds. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).
Section 4. REPURCHASE OR REDEMPTION OF CLASS A SHARES BY THE FUND
4.1 Any of the outstanding Class A shares may be tendered for redemption
at any time, and the Fund agrees to repurchase or redeem the Class A shares so
tendered in accordance with its Articles of Incorporation as amended from time
to time, and in accordance with the applicable provisions of the Prospectus.
The price to be paid to redeem or repurchase the Class A shares shall be equal
to the net asset value determined as set forth in the Prospectus. All payments
by the Fund hereunder shall be made in the manner set forth in Section 4.2
below.
4.2 The Fund shall pay the total amount of the redemption price as defined
in the above paragraph pursuant to the instructions of the Distributor on or
before the seventh calendar day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of Class A shares
shall be paid by the Fund to or for the account of the redeeming shareholder, in
each case in accordance with applicable provisions of the Prospectus.
4.3 Redemption of Class A shares or payment may be suspended at times when
the New York Stock Exchange is closed for other than customary weekends and
holidays, when trading on said Exchange is restricted, when an emergency exists
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
to determine the value of its net assets, or during any other period when the
Securities and Exchange Commission, by order, so permits.
Section 5. DUTIES OF THE FUND
5.1 Subject to the possible suspension of the sale of Class A shares as
provided herein, the Fund agrees to sell its Class A shares so long as it has
Class A shares available.
3
<PAGE>
5.2 The Fund shall furnish the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Class A shares, and this
shall include one certified copy, upon request by the Distributor, of all
financial statements prepared for the Fund by independent public accountants.
The Fund shall make available to the Distributor such number of copies of its
Prospectus and annual and interim reports as the Distributor shall reasonably
request.
5.3 The Fund shall take, from time to time, but subject to the necessary
approval of the Board of Directors and the shareholders, all necessary action to
fix the number of authorized Class A shares and such steps as may be necessary
to register the same under the Securities Act, to the end that there will be
available for sale such number of Class A shares as the Distributor reasonably
may expect to sell. The Fund agrees to file from time to time such amendments,
reports and other documents as may be necessary in order that there will be no
untrue statement of a material fact in the Registration Statement, or necessary
in order that there will be no omission to state a material fact in the
Registration Statement which omission would make the statements therein
misleading.
5.4 The Fund shall use its best efforts to qualify and maintain the
qualification of any appropriate number of its Class A shares for sales under
the securities laws of such states as the Distributor and the Fund may approve;
provided that the Fund shall not be required to amend its Articles of
Incorporation or By-Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of its Class A shares
in any state from the terms set forth in its Registration Statement, to qualify
as a foreign corporation in any state or to consent to service of process in any
state other than with respect to claims arising out of the offering of its Class
A shares. Any such qualification may be withheld, terminated or withdrawn by
the Fund at any time in its discretion. As provided in Section 9.1 hereof, the
expense of qualification and maintenance of qualification shall be borne by the
Fund. The Distributor shall furnish such information and other material
relating to its affairs and activities as may be required by the Fund in
connection with such qualifications.
Section 6. DUTIES OF THE DISTRIBUTOR
6.1 The Distributor shall devote reasonable time and effort to effect
sales of Class A shares of the Fund, but shall not be obligated to sell any
specific number of Class A shares. Sales of the Class A shares shall be on the
terms described in the Prospectus. The Distributor may enter into like
arrangements with other investment companies. The Distributor shall compensate
the selected dealers as set forth in the Prospectus.
4
<PAGE>
6.2 In selling the Class A shares, the Distributor shall use its best
efforts in all respects duly to conform with the requirements of all federal and
state laws relating to the sale of such securities. Neither the Distributor nor
any selected dealer nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or Prospectus and any sales literature approved by
appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the confirmation
of sales to investors and selected dealers, the collection of amounts payable by
investors and selected dealers on such sales and the cancellation of unsettled
transactions, as may be necessary to comply with the requirements of the
National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into selected dealer
agreements with registered and qualified securities dealers and other financial
institutions of its choice for the sale of Class A shares, provided that the
Fund shall approve the forms of such agreements. Within the United States, the
Distributor shall offer and sell Class A shares only to such selected dealers as
are members in good standing of the NASD. Class A shares sold to selected
dealers shall be for resale by such dealers only at the offering price
determined as set forth in the Prospectus.
Section 7. PAYMENTS TO THE DISTRIBUTOR
The Distributor shall receive and may retain any portion of any front-end
sales charge which is imposed on sales of Class A shares and not reallocated to
selected dealers as set forth in the Prospectus, subject to the limitations of
Article III, Section 26 of the NASD Rules of Fair Practice. Payment of these
amounts to the Distributor is not contingent upon the adoption or continuation
of the Plan.
Section 8. REIMBURSEMENT OF THE DISTRIBUTOR UNDER THE PLAN
8.1 The Fund shall reimburse the Distributor for costs incurred by it in
performing its duties under the Distribution and Service Plan and this Agreement
including amounts paid on a reimbursement basis to Prudential Securities
Incorporated (Prudential Securities) and Pruco Securities Corporation (Prusec),
affiliates of the Distributor, under the selected dealer agreements between the
Distributor and Prudential Securities and Prusec, respectively, amounts paid to
other securities dealers or financial institutions under selected dealer
agreements between the Distributor and such dealers and institutions and amounts
paid for personal service and/or the maintenance of shareholder accounts.
Amounts reimbursable under the Plan shall be accrued daily and paid monthly or
at such other intervals as the Board of Directors may determine but shall not be
paid at a rate that exceeds .30 of 1%,
5
<PAGE>
which amount includes a service fee of up to .25 of 1%, per annum of the average
daily net assets of the Class A shares of the Fund. Payment of the distribution
and service fee shall be subject to the limitations of Article III, Section 26
of the NASD Rules of Fair Practice.
8.2 So long as the Plan or any amendment thereto is in effect, the
Distributor shall inform the Board of Directors of the commissions and account
servicing fees to be paid by the Distributor to account executives of the
Distributor and to broker-dealers and financial institutions which have dealer
agreements with the Distributor. So long as the Plan (or any amendment thereto)
is in effect, at the request of the Board of Directors or any agent or
representative of the Fund, the Distributor shall provide such additional
information as may reasonably be requested concerning the activities of the
Distributor hereunder and the costs incurred in performing such activities.
8.3 Costs of the Distributor subject to reimbursement hereunder are costs
of performing distribution activities with respect to the Class A shares of the
Fund and may include, among others:
(a) amounts paid to Prudential Securities in reimbursement of
costs incurred by Prudential Securities in performing
services under a selected dealer agreement between
Prudential Securities and the Distributor for sale of Class
A shares of the Fund, including sales commissions and
trailer commissions paid to, or on account of, account
executives and indirect and overhead costs associated with
distribution activities, including central office and branch
expenses;
(b) amounts paid to Prusec in reimbursement of costs incurred by
Prusec in performing services under a selected dealer
agreement between Prusec and the Distributor for sale of
Class A shares of the Fund, including sales commissions and
trailer commissions paid to, or on account of, agents and
indirect and overhead costs associated with distribution
activities;
(c) sales commissions and trailer commissions paid to, or on
account of, broker-dealers and financial institutions (other
than Prudential Securities and Prusec) which have entered
into selected dealer agreements with the Distributor with
respect to Class A shares of the Fund;
6
<PAGE>
(d) amounts paid to, or an account of, account executives of
Prudential Securities, Prusec, or of other broker-dealers or
financial institutions for personal service and/or the
maintenance of shareholder accounts; and
(e) advertising for the Fund in various forms through any
available medium, including the cost of printing and mailing
Fund Prospectuses, and periodic financial reports and sales
literature to persons other than current shareholders of the
Fund.
Indirect and overhead costs referred to in clauses (a) and (b) of the
foregoing sentence include (i) lease expenses, (ii) salaries and benefits of
personnel including operations and sales support personnel, (iii) utility
expenses, (iv) communications expenses, (v) sales promotion expenses, (vi)
expenses of postage, stationery and supplies and (vii) general overhead.
Section 9. ALLOCATION OF EXPENSES
9.1 The Fund shall bear all costs and expenses of the continuous offering
of its Class A shares, including fees and disbursements of its counsel and
auditors, in connection with the preparation and filing of any required
Registration Statements and/or Prospectuses under the Investment Company Act or
the Securities Act, and preparing and mailing annual and periodic reports and
proxy materials to shareholders (including but not limited to the expense of
setting in type any such Registration Statements, Prospectuses, annual or
periodic reports or proxy materials). The Fund shall also bear the cost of
expenses of qualification of the Class A shares for sale, and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer,
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5.4 hereof and the cost and
expense payable to each such state for continuing qualification therein until
the Fund decides to discontinue such qualification pursuant to Section 5.4
hereof. As set forth in Section 8 above, the Fund shall also bear the expenses
it assumes pursuant to the Plan with respect to Class A shares, so long as the
Plan is in effect.
9.2 If the Plan is terminated or discontinued, the costs previously
incurred by the Distributor in performing the duties set forth in Section 6
hereof shall be borne by the Distributor and will not be subject to
reimbursement by the Fund.
Section 10. INDEMNIFICATION
10.1 The Fund agrees to indemnify, defend and hold the Distributor, its
officers and directors and any person who controls the Distributor within the
meaning of Section 15 of the Securities
7
<PAGE>
Act, free and harmless from and against any and all claims, demands, liabilities
and expenses (including the cost of investigating or defending such claims,
demands or liabilities and any counsel fees incurred in connection therewith)
which the Distributor, its officers, directors or any such controlling person
may incur under the Securities Act, or under common law or otherwise, arising
out of or based upon any untrue statement of a material fact contained in the
Registration Statement or Prospectus or arising out of or based upon any alleged
omission to state a material fact required to be stated in either thereof or
necessary to make the statements in either thereof not misleading, except
insofar as such claims, demands, liabilities or expenses arise out of or are
based upon any such untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with information furnished in
writing by the Distributor to the Fund for use in the Registration Statement or
Prospectus; provided, however, that this indemnity agreement shall not inure to
the benefit of any such officer, director, trustee or controlling person unless
a court of competent jurisdiction shall determine in a final decision on the
merits, that the person to be indemnified was not liable by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties, or
by reason of its reckless disregard of its obligations under this Agreement
(disabling conduct), or, in the absence of such a decision, a reasonable
determination, based upon a review of the facts, that the indemnified person was
not liable by reason of disabling conduct, by (a) a vote of a majority of a
quorum of directors or trustees who are neither "interested persons" of the Fund
as defined in Section 2(a)(19) of the Investment Company Act nor parties to the
proceeding, or (b) an independent legal counsel in a written opinion. The
Fund's agreement to indemnify the Distributor, its officers and directors and
any such controlling person as aforesaid is expressly conditioned upon the
Fund's being promptly notified of any action brought against the Distributor,
its officers or directors, or any such controlling person, such notification to
be given by letter or telegram addressed to the Fund at its principal business
office. The Fund agrees promptly to notify the Distributor of the commencement
of any litigation or proceedings against it or any of its officers or directors
in connection with the issue and sale of any Class A shares.
10.2 The Distributor agrees to indemnify, defend and hold the Fund, its
officers and Directors and any person who controls the Fund, if any, within the
meaning of Section 15 of the Securities Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Fund, its officers and
Directors or any such controlling person may incur under the Securities Act or
under common law or otherwise, but only to the extent that such liability or
expense incurred by the Fund, its Directors or officers or such controlling
person resulting from such claims or demands shall arise out of or
8
<PAGE>
be based upon any alleged untrue statement of a material fact contained in
information furnished in writing by the Distributor to the Fund for use in the
Registration Statement or Prospectus or shall arise out of or be based upon any
alleged omission to state a material fact in connection with such information
required to be stated in the Registration Statement or Prospectus or necessary
to make such information not misleading. The Distributor's agreement to
indemnify the Fund, its officers and Directors and any such controlling person
as aforesaid, is expressly conditioned upon the Distributor's being promptly
notified of any action brought against the Fund, its officers and Directors or
any such controlling person, such notification being given to the Distributor at
its principal business office.
Section 11. DURATION AND TERMINATION OF THIS AGREEMENT
11.1 This Agreement shall become effective as of the date first above
written and shall remain in force for two years from the date hereof and
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of Directors of the Fund, or by the vote of a
majority of the outstanding voting securities of the Class A shares of the Fund,
and (b) by the vote of a majority of those Directors who are not parties to this
Agreement or interested persons of any such parties and who have no direct or
indirect financial interest in this Agreement or in the operation of the Fund's
Plan or in any agreement related thereto (Rule 12b-1 Directors), cast in person
at a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time, without the payment of
any penalty, by a majority of the Rule 12b-1 Directors or by vote of a majority
of the outstanding voting securities of the Class A shares of the Fund, or by
the Distributor, on sixty (60) days' written notice to the other party. This
Agreement shall automatically terminate in the event of its assignment.
11.3 The terms "affiliated person," "assignment," "interested person" and
"vote of a majority of the outstanding voting securities", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. AMENDMENTS TO THIS AGREEMENT
This Agreement may be amended by the parties only if such amendment is
specifically approved by (a) the Board of Directors of the Fund, or by the vote
of a majority of the outstanding voting securities of the Class A shares of the
Fund, and (b) by the vote of a majority of the Rule 12b-1 Directors cast in
person at a meeting called for the purpose of voting on such amendment.
9
<PAGE>
Section 13. GOVERNING LAW
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New York as at the time in effect and
the applicable provisions of the Investment Company Act. To the extent that the
applicable law of the State of New York, or any of the provisions herein,
conflict with the applicable provisions of the Investment Company Act, the
latter shall control.
Section 14. LIABILITIES OF THE FUND
The name "Prudential Municipal Bond Fund" is the designation of the
Trustees under a Declaration of Trust, dated November 3, 1986, as amended August
26, 1987 and January 18, 1990, and all persons dealing with the Fund must look
solely to the property of the Fund for the enforcement of any claims against the
Fund as neither the Trustees, officers, agents or shareholders assume any
personal liability for obligations entered into on behalf of the Fund.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year above written.
Prudential Mutual Fund
Distributors, Inc.
By: /s/ Robert F. Gunia
________________________
_______________________
Robert F. Gunia
Executive Vice President
Prudential Municipal Bond Fund
By: /s/ Lawrence C. McQuade
_______________________
Lawrence C. McQuade
President
10
<PAGE>
Exhibit 99.6(b)
PRUDENTIAL MUNICIPAL BOND FUND
Amended and Restated
Distribution Agreement
(CLASS B SHARES)
Agreement, dated as of August 25, 1987 as amended and restated as of
January 22, 1990 and amended and restated as of July 1, 1993, between Prudential
Municipal Bond Fund, a Massachusetts busisness trust (the Fund) and Prudential
Securities Incorporated, a Delaware Corporation (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company Act of 1940,
as amended (the Investment Company Act), as a diversified, open-end, management
investment company and it is in the interest of the Fund to offer its Class B
shares for sale continuously;
WHEREAS, the Distributor is a broker-dealer registered under the Securities
Exchange Act of 1934, as amended, and is engaged in the business of selling
shares of registered investment companies either directly or through other
broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into an agreement with
each other, with respect to the continuous offering of the Fund's Class B shares
from and after the date hereof in order to promote the growth of the Fund and
facilitate the distribution of its Class B shares; and
WHEREAS, the Fund has adopted a distribution and service plan pursuant to
Rule 12b-1 under the Investment Company Act (the Plan) authorizing payments by
the Fund to the Distributor with respect to the distribution of Class B shares
of the Fund and the maintenance of Class B shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. APPOINTMENT OF THE DISTRIBUTOR
The Fund hereby appoints the Distributor as the principal underwriter and
distributor of the Class B shares of the Fund to sell Class B shares to the
public and the Distributor hereby accepts such appointment and agrees to act
hereunder. The Fund hereby agrees during the term of this Agreement to sell
Class B shares of the Fund to the Distributor on the terms and conditions set
forth below.
<PAGE>
Section 2. EXCLUSIVE NATURE OF DUTIES
The Distributor shall be the exclusive representative of the Fund to act as
principal underwriter and distributor of the Fund's Class B shares, except that:
2.1 The exclusive rights granted to the Distributor to purchase Class B
shares from the Fund shall not apply to Class B shares of the Fund issued in
connection with the merger or consolidation of any other investment company or
personal holding company with the Fund or the acquisition by purchase or
otherwise of all (or substantially all) the assets or the outstanding shares of
any such company by the Fund.
2.2 Such exclusive rights shall not apply to Class B shares issued by the
Fund pursuant to reinvestment of dividends or capital gains distributions.
2.3 Such exclusive rights shall not apply to Class B shares issued by the
Fund pursuant to the reinstatement privilege afforded redeeming shareholders.
2.4 Such exclusive rights shall not apply to purchases made through the
Fund's transfer and dividend disbursing agent in the manner set forth in the
currently effective Prospectus of the Fund. The term "Prospectus" shall mean
the Prospectus and Statement of Additional Information included as part of the
Fund's Registration Statement, as such Prospectus and Statement of Additional
Information may be amended or supplemented from time to time, and the term
"Registration Statement" shall mean the Registration Statement filed by the Fund
with the Securities and Exchange Commission and effective under the Securities
Act of 1933, as amended (the Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.
Section 3. PURCHASE OF CLASS B SHARES FROM THE FUND
3.1 The Distributor shall have the right to buy from the Fund the Class B
shares needed, but not more than the Class B shares needed (except for clerical
errors in transmission) to fill unconditional orders for Class B shares placed
with the Distributor by investors or registered and qualified securities dealers
and other financial institutions (selected dealers). The price which the
Distributor shall pay for the Class B shares so purchased from the Fund shall be
the net asset value, determined as set forth in the Prospectus.
3.2 The Class B shares are to be resold by the Distributor or selected
dealers, as described in Section 6.4 hereof, to investors at the offering price
as set forth in the Prospectus.
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3.3 The Fund shall have the right to suspend the sale of its Class B
shares at times when redemption is suspended pursuant to the conditions in
Section 4.3 hereof or at such other times as may be determined by the Board of
Directors. The Fund shall also have the right to suspend the sale of its Class
B shares if a banking moratorium shall have been declared by federal or New York
authorities.
3.4 The Fund, or any agent of the Fund designated in writing by the Fund,
shall be promptly advised of all purchase orders for Class B shares received by
the Distributor. Any order may be rejected by the Fund; provided, however, that
the Fund will not arbitrarily or without reasonable cause refuse to accept or
confirm orders for the purchase of Class B shares. The Fund (or its agent) will
confirm orders upon their receipt, will make appropriate book entries and upon
receipt by the Fund (or its agent) of payment therefor, will deliver deposit
receipts for such Class B shares pursuant to the instructions of the
Distributor. Payment shall be made to the Fund in New York Clearing House funds
or federal funds. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).
Section 4. REPURCHASE OR REDEMPTION OF CLASS B SHARES BY THE FUND
4.1 Any of the outstanding Class B shares may be tendered for redemption
at any time, and the Fund agrees to repurchase or redeem the Class B shares so
tendered in accordance with its Articles of Incorporation as amended from time
to time, and in accordance with the applicable provisions of the Prospectus.
The price to be paid to redeem or repurchase the Class B shares shall be equal
to the net asset value determined as set forth in the Prospectus. All payments
by the Fund hereunder shall be made in the manner set forth in Section 4.2
below.
4.2 The Fund shall pay the total amount of the redemption price as defined
in the above paragraph pursuant to the instructions of the Distributor on or
before the seventh day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of Class B shares
shall be paid by the Fund as follows: (a) any applicable contingent deferred
sales charge shall be paid to the Distributor and (b) the balance shall be paid
to or for the account of the redeeming shareholder, in each case in accordance
with applicable provisions of the Prospectus.
4.3 Redemption of Class B shares or payment may be suspended at times when
the New York Stock Exchange is closed for other than customary weekends and
holidays, when trading on said Exchange is restricted, when an emergency exists
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable
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or it is not reasonably practicable for the Fund fairly to determine the value
of its net assets, or during any other period when the Securities and Exchange
Commission, by order, so permits.
Section 5. DUTIES OF THE FUND
5.1 Subject to the possible suspension of the sale of Class B shares as
provided herein, the Fund agrees to sell its Class B shares so long as it has
Class B shares available.
5.2 The Fund shall furnish the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Class B shares, and this
shall include one certified copy, upon request by the Distributor, of all
financial statements prepared for the Fund by independent public accountants.
The Fund shall make available to the Distributor such number of copies of its
Prospectus and annual and interim reports as the Distributor shall reasonably
request.
5.3 The Fund shall take, from time to time, but subject to the necessary
approval of the Board of Directors and the shareholders, all necessary action to
fix the number of authorized Class B shares and such steps as may be necessary
to register the same under the Securities Act, to the end that there will be
available for sale such number of Class B shares as the Distributor reasonably
may expect to sell. The Fund agrees to file from time to time such amendments,
reports and other documents as may be necessary in order that there will be no
untrue statement of a material fact in the Registration Statement, or necessary
in order that there will be no omission to state a material fact in the
Registration Statement which omission would make the statements therein
misleading.
5.4 The Fund shall use its best efforts to qualify and maintain the
qualification of any appropriate number of its Class B shares for sales under
the securities laws of such states as the Distributor and the Fund may approve;
provided that the Fund shall not be required to amend its Articles of
Incorporation or By-Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of its Class B shares
in any state from the terms set forth in its Registration Statement, to qualify
as a foreign corporation in any state or to consent to service of process in any
state other than with respect to claims arising out of the offering of its Class
B shares. Any such qualification may be withheld, terminated or withdrawn by
the Fund at any time in its discretion. As provided in Section 9.1 hereof, the
expense of qualification and maintenance of qualification shall be borne by the
Fund. The Distributor shall furnish such information and other material
relating to its affairs and activities as may be required by the Fund in
connection with such
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qualifications.
Section 6. DUTIES OF THE DISTRIBUTOR
6.1 The Distributor shall devote reasonable time and effort to effect
sales of Class B shares of the Fund, but shall not be obligated to sell any
specific number of Class B shares. Sales of the Class B shares shall be on the
terms described in the Prospectus. The Distributor may enter into like
arrangements with other investment companies. The Distributor shall compensate
the selected dealers as set forth in the Prospectus.
6.2 In selling the Class B shares, the Distributor shall use its best
efforts in all respects duly to conform with the requirements of all federal and
state laws relating to the sale of such securities. Neither the Distributor nor
any selected dealer nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or Prospectus and any sales literature approved by
appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the confirmation
of sales to investors and selected dealers, the collection of amounts payable by
investors and selected dealers on such sales and the cancellation of unsettled
transactions, as may be necessary to comply with the requirements of the
National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into selected dealer
agreements with registered and qualified securities dealers and other financial
institutions of its choice for the sale of Class B shares, provided that the
Fund shall approve the forms of such agreements. Within the United States, the
Distributor shall offer and sell Class B shares only to such selected dealers as
are members in good standing of the NASD. Class B shares sold to selected
dealers shall be for resale by such dealers only at the offering price
determined as set forth in the Prospectus.
Section 7. PAYMENTS TO THE DISTRIBUTOR
The Distributor shall receive and may retain any contingent deferred sales
charge which is imposed with respect to repurchases and redemptions of Class B
shares as set forth in the Prospectus, subject to the limitations of Article
III, Section 26 of the NASD Rules of Fair Practice. Payment of these amounts to
the Distributor is not contingent upon the adoption or continuation of the Plan.
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<PAGE>
Section 8. REIMBURSEMENT OF THE DISTRIBUTOR UNDER THE PLAN
8.1 The Fund shall reimburse the Distributor for all costs incurred by it
in performing its duties under the Distribution and Service Plan and this
Agreement including amounts paid on a reimbursement basis to Pruco Securities
Corporation (Prusec), an affiliate of the Distributor, under the selected dealer
agreement between the Distributor and Prusec, amounts paid to other securities
dealers or financial institutions under selected dealer agreements between the
Distributor and such dealers and institutions and amounts paid for personal
service and/or the maintenance of shareholder accounts. Reimbursement shall
only be made to the extent that payments by investors pursuant to Section 7
hereof are not sufficient to cover such costs. Amounts reimbursable under the
Plan shall be accrued daily and paid monthly or at such other intervals as the
Board of Directors may determine but shall not be paid at a rate that exceeds
the annual distribution and service fee of .50 of 1% (including an asset-based
sales charge of up to .50 of 1% and a service fee of up to .25 of 1%) per annum
of the average daily net assets of the Class B shares of the Fund. Amounts
reimbursable under the Plan that are not paid because they exceed .50 of 1% per
annum of the average daily net assets of the Class B shares (Carry Forward
Amounts) shall be carried forward and paid by the Fund as permitted within such
payment limitation so long as the Plan, including any amendments thereto, is in
effect, subject to the limitations of Article III, Section 26 of the NASD Rules
of Fair Practice.
8.2 So long as the Plan or any amendment thereto is in effect, the
Distributor shall inform the Board of Directors of the commissions (including
trailer commissions) and account servicing fees to be paid by the Distributor to
account executives of the Distributor and to broker-dealers and financial
institutions which have selected dealer agreements with the Distributor. So
long as the Plan (or any amendment thereto) is in effect, at the request of the
Board of Directors or any agent or representative of the Fund, the Distributor
shall provide such additional information as may reasonably be requested
concerning the activities of the Distributor hereunder and the costs incurred in
performing such activities.
8.3 Costs of the Distributor subject to reimbursement hereunder are all
costs of performing distribution activities with respect to the Class B shares
of the Fund and include, among others:
(a) sales commissions (including trailer commissions) paid to,
or on account of, account executives of the Distributor;
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<PAGE>
(b) indirect and overhead costs of the Distributor associated
with performance of distribution activities, including
central office and branch expenses;
(c) amounts paid to Prusec in reimbursement of all costs
incurred by Prusec in performing services under a selected
dealer agreement between Prusec and the Distributor for sale
of Class B shares of the Fund, including sales commissions
and trailer commissions paid to, or on account of, agents
and indirect and overhead costs associated with distribution
activities;
(d) sales commissions (including trailer commissions) paid to,
or on account of, broker-dealers and financial institutions
(other than Prusec) which have entered into selected dealer
agreements with the Distributor with respect to Class B
shares of the Fund;
(e) amounts paid to, or an account of, account executives of the
Distributor or of other broker-dealers or financial
institutions for personal service and/or the maintenance of
shareholder accounts;
(f) advertising for the Fund in various forms through any
available medium, including the cost of printing and mailing
Fund Prospectuses, and periodic financial reports and sales
literature to persons other than current shareholders of the
Fund;
(g) to the extent permitted by applicable law, interest on
unreimbursed Carry Forward Amounts as defined in Section 8.1
at a rate equal to that paid by Prudential Securities for
bank borrowings as such rate may vary from day to day, not
to exceed that permitted under Article III, Section 26, of
the NASD Rules of Fair Practice; and
(h) to the extent permitted by applicable law, unreimbursed
distribution expenses incurred with respect to the sale of
Class B shares that have been exchanged into the Fund.
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<PAGE>
Indirect and overhead costs referred to in clauses (b) and (c) of the
foregoing sentence include (i) lease expenses, (ii) salaries and benefits of
personnel including operations and sales support personnel, (iii) utility
expenses, (iv) communications expenses, (v) sales promotion expenses, (vi)
expenses of postage, stationery and supplies and (vii) general overhead.
Section 9. ALLOCATION OF EXPENSES
9.1 The Fund shall bear all costs and expenses of the continuous offering
of its Class B shares, including fees and disbursements of its counsel and
auditors, in connection with the preparation and filing of any required
Registration Statements and/or Prospectuses under the Investment Company Act or
the Securities Act, and preparing and mailing annual and periodic reports and
proxy materials to shareholders (including but not limited to the expense of
setting in type any such Registration Statements, Prospectuses, annual or
periodic reports or proxy materials). The Fund shall also bear the cost of
expenses of qualification of the Class B shares for sale, and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer,
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5.4 hereof and the cost and
expense payable to each such state for continuing qualification therein until
the Fund decides to discontinue such qualification pursuant to Section 5.4
hereof. As set forth in Section 8 above, the Fund shall also bear the expenses
it assumes pursuant to the Plan with respect to Class B shares, so long as the
Plan is in effect.
9.2 Although the Fund is not liable for unreimbursed distribution
expenses, in the event of termination of the Plan, the Board of Directors of the
Fund may consider the appropriateness of having the Class B shares of the Fund
reimburse the Distributor for the then outstanding balance of all unreimbursed
distribution expenses plus interest thereon to the extent permitted by
applicable law from the date of this Agreement.
Section 10. INDEMNIFICATION
10.1 The Fund agrees to indemnify, defend and hold the Distributor, its
officers and Directors and any person who controls the Distributor within the
meaning of Section 15 of the Securities Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which the Distributor, its officers,
Directors or any such controlling person may incur under the Securities Act, or
under common law or otherwise, arising out of or based upon any untrue statement
of a material fact contained in the Registration Statement or Prospectus
8
<PAGE>
or arising out of or based upon any alleged omission to state a material fact
required to be stated in either thereof or necessary to make the statements in
either thereof not misleading, except insofar as such claims, demands,
liabilities or expenses arise out of or are based upon any such untrue statement
or omission or alleged untrue statement or omission made in reliance upon and in
conformity with information furnished in writing by the Distributor to the Fund
for use in the Registration Statement or Prospectus; provided, however, that
this indemnity agreement shall not inure to the benefit of any such officer,
Director or controlling person unless a court of competent jurisdiction shall
determine in a final decision on the merits, that the person to be indemnified
was not liable by reason of willful misfeasance, bad faith or gross negligence
in the performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement (disabling conduct), or, in the absence of such
a decision, a reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling conduct, by (a) a
vote of a majority of a quorum of Directors who are neither "interested persons"
of the Fund as defined in Section 2(a)(19) of the Investment Company Act nor
parties to the proceeding, or (b) an independent legal counsel in a written
opinion. The Fund's agreement to indemnify the Distributor, its officers and
Directors and any such controlling person as aforesaid is expressly conditioned
upon the Fund's being promptly notified of any action brought against the
Distributor, its officers or Directors, or any such controlling person, such
notification to be given in writing addressed to the Fund at its principal
business office. The Fund agrees promptly to notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or Directors in connection with the issue and sale of any Class B shares.
10.2 The Distributor agrees to indemnify, defend and hold the Fund, its
officers and Directors and any person who controls the Fund, if any, within the
meaning of Section 15 of the Securities Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Fund, its officers and
Directors or any such controlling person may incur under the Securities Act or
under common law or otherwise, but only to the extent that such liability or
expense incurred by the Fund, its Directors or officers or such controlling
person resulting from such claims or demands shall arise out of or be based upon
any alleged untrue statement of a material fact contained in information
furnished in writing by the Distributor to the Fund for use in the Registration
Statement or Prospectus or shall arise out of or be based upon any alleged
omission to state a material fact in connection with such information required
to be stated in the Registration Statement or Prospectus or necessary to
9
<PAGE>
make such information not misleading. The Distributor's agreement to indemnify
the Fund, its officers and Directors and any such controlling person as
aforesaid, is expressly conditioned upon the Distributor's being promptly
notified of any action brought against the Fund, its officers and Directors or
any such controlling person, such notification to be given to the Distributor in
writing at its principal business office.
Section 11. DURATION AND TERMINATION OF THIS AGREEMENT
11.1 This Agreement shall become effective as of the date first above
written and shall remain in force for two years from the date hereof and
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of Directors of the Fund, or by the vote of a
majority of the outstanding voting securities of the Class B shares of the Fund,
and (b) by the vote of a majority of those Directors who are not parties to this
Agreement or interested persons of any such parties and who have no direct or
indirect financial interest in this Agreement or in the operation of the Fund's
Plan or in any agreement related thereto (Rule 12b-1 Directors), cast in person
at a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time, without the payment of
any penalty, by a majority of the Rule 12b-1 Directors or by vote of a majority
of the outstanding voting securities of the Class B shares of the Fund, or by
the Distributor, on sixty (60) days' written notice to the other party. This
Agreement shall automatically terminate in the event of its assignment.
11.3 The terms "affiliated person," "assignment," "interested person" and
"vote of a majority of the outstanding voting securities," when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. AMENDMENTS TO THIS AGREEMENT
This Agreement may be amended by the parties only if such amendment is
specifically approved by (a) the Board of Directors of the Fund, or by the vote
of a majority of the outstanding voting securities of the Class B shares of the
Fund, and (b) by the vote of a majority of the Rule 12b-1 Board of Directors
cast in person at a meeting called for the purpose of voting on such amendment.
Section 13. GOVERNING LAW
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New York as at the time in effect and
the applicable provisions of the Investment Company Act. To the extent that the
applicable law of
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<PAGE>
the State of New York, or any of the provisions herein, conflict with the
applicable provisions of the Investment Company Act, the latter shall control.
Section 14. LIABILITIES OF THE FUND
The name "Prudential Municipal Bond Fund" is the designation of the
Trustees under a Declaration of Trust, dated November 3, 1986, as amended August
26, 1987 and January 18, 1990, and all persons dealing with the Fund must look
solely to the property of the Fund for the enforcement of any claims against the
Fund as neither the Trustees, officers, agents or shareholders assume any
personal liability for obligations entered into on behalf of the Fund.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year above written.
Prudential Securities
Incorporated
By: /s/ Robert F. Gunia
________________________
Robert F. Gunia
Senior Vice President
Prudential Municipal Bond
By: /s/ Lawrence C. McQuade
_______________________
Lawrence C. McQuade
President
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<PAGE>
Exhibit 99.6(c)
PRUDENTIAL _________ FUND
Form of
Distribution Agreement
(CLASS A SHARES)
Agreement made as of _____________199_, between Prudential ________
Fund [a Maryland Corporation/Massachusetts Business Trust] (the Fund) and
Prudential Mutual Fund Distributors, Inc., a Delaware Corporation (the
Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the Investment Company Act), as a diversified, open-end,
management investment company and it is in the interest of the Fund to offer its
Class A shares for sale continuously;
WHEREAS, the Distributor is a broker-dealer registered under the
Securities Exchange Act of 1934, as amended, and is engaged in the business of
selling shares of registered investment companies either directly or through
other broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other, with respect to the continuous offering of the Fund's Class A
shares from and after the date hereof in order to promote the growth of the Fund
and facilitate the distribution of its Class A shares; and
WHEREAS, upon approval by the Class A shareholders of the Fund it is
contemplated that the Fund will adopt a plan of distribution pursuant to Rule
12b-1 under the Investment Company Act (the Plan) authorizing payments by the
Fund to the Distributor with respect to the distribution of Class A shares of
the Fund and the maintenance of Class A shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. APPOINTMENT OF THE DISTRIBUTOR
The Fund hereby appoints the Distributor as the principal underwriter
and distributor of the Class A shares of the Fund to sell Class A shares to the
public and the Distributor hereby accepts such appointment and agrees to act
hereunder. The Fund hereby agrees during the term of this Agreement to sell
Class A shares of the Fund to the Distributor on the terms and conditions set
forth below.
<PAGE>
Section 2. EXCLUSIVE NATURE OF DUTIES
The Distributor shall be the exclusive representative of the Fund to
act as principal underwriter and distributor of the Fund's Class A shares,
except that:
2.1 The exclusive rights granted to the Distributor to purchase Class
A shares from the Fund shall not apply to Class A shares of the Fund issued in
connection with the merger or consolidation of any other investment company or
personal holding company with the Fund or the acquisition by purchase or
otherwise of all (or substantially all) the assets or the outstanding shares of
any such company by the Fund.
2.2 Such exclusive rights shall not apply to Class A shares issued by
the Fund pursuant to reinvestment of dividends or capital gains distributions.
2.3 Such exclusive rights shall not apply to Class A shares issued by
the Fund pursuant to the reinstatement privilege afforded redeeming
shareholders.
2.4 Such exclusive rights shall not apply to purchases made through
the Fund's transfer and dividend disbursing agent in the manner set forth in the
currently effective Prospectus of the Fund. The term "Prospectus" shall mean
the Prospectus and Statement of Additional Information included as part of the
Fund's Registration Statement, as such Prospectus and Statement of Additional
Information may be amended or supplemented from time to time, and the term
"Registration Statement" shall mean the Registration Statement filed by the Fund
with the Securities and Exchange Commission and effective under the Securities
Act of 1933, as amended (Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.
Section 3. PURCHASE OF CLASS A SHARES FROM THE FUND
3.1 The Distributor shall have the right to buy from the Fund the
Class A shares needed, but not more than the Class A shares needed (except for
clerical errors in transmission) to fill unconditional orders for Class A shares
placed with the Distributor by investors or registered and qualified securities
dealers and other financial institutions (selected dealers). The price which
the Distributor shall pay for the Class A shares so purchased from the Fund
shall be the net asset value, determined as set forth in the Prospectus.
3.2 The Class A shares are to be resold by the Distributor or
selected dealers, as described in Section 6.4 hereof, to investors at the
offering price as set forth in the Prospectus.
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<PAGE>
3.3 The Fund shall have the right to suspend the sale of its Class A
shares at times when redemption is suspended pursuant to the conditions in
Section 4.3 hereof or at such other times as may be determined by the Board of
Directors. The Fund shall also have the right to suspend the sale of its Class
A shares if a banking moratorium shall have been declared by federal or New York
authorities.
3.4 The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Class A shares
received by the Distributor. Any order may be rejected by the Fund; provided,
however, that the Fund will not arbitrarily or without reasonable cause refuse
to accept or confirm orders for the purchase of Class A shares. The Fund (or
its agent) will confirm orders upon their receipt, will make appropriate book
entries and upon receipt by the Fund (or its agent) of payment therefor, will
deliver deposit receipts for such Class A shares pursuant to the instructions of
the Distributor. Payment shall be made to the Fund in New York Clearing House
funds or federal funds. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).
Section 4. REPURCHASE OR REDEMPTION OF CLASS A SHARES BY THE FUND
4.1 Any of the outstanding Class A shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the Class A
shares so tendered in accordance with its Articles of Incorporation as amended
from time to time, and in accordance with the applicable provisions of the
Prospectus. The price to be paid to redeem or repurchase the Class A shares
shall be equal to the net asset value determined as set forth in the Prospectus.
All payments by the Fund hereunder shall be made in the manner set forth in
Section 4.2 below.
4.2 The Fund shall pay the total amount of the redemption price as
defined in the above paragraph pursuant to the instructions of the Distributor
on or before the seventh calendar day subsequent to its having received the
notice of redemption in proper form. The proceeds of any redemption of Class A
shares shall be paid by the Fund to or for the account of the redeeming
shareholder, in each case in accordance with applicable provisions of the
Prospectus.
4.3 Redemption of Class A shares or payment may be suspended at times
when the New York Stock Exchange is closed for other than customary weekends and
holidays, when trading on said Exchange is restricted, when an emergency exists
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
to determine the value of its net assets, or during any other period when the
Securities and Exchange Commission, by order,
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<PAGE>
so permits.
Section 5. DUTIES OF THE FUND
5.1 Subject to the possible suspension of the sale of Class A shares
as provided herein, the Fund agrees to sell its Class A shares so long as it has
Class A shares available.
5.2 The Fund shall furnish the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Class A shares, and this
shall include one certified copy, upon request by the Distributor, of all
financial statements prepared for the Fund by independent public accountants.
The Fund shall make available to the Distributor such number of copies of its
Prospectus and annual and interim reports as the Distributor shall reasonably
request.
5.3 The Fund shall take, from time to time, but subject to the
necessary approval of the Board of Directors and the shareholders, all necessary
action to fix the number of authorized Class A shares and such steps as may be
necessary to register the same under the Securities Act, to the end that there
will be available for sale such number of Class A shares as the Distributor
reasonably may expect to sell. The Fund agrees to file from time to time such
amendments, reports and other documents as may be necessary in order that there
will be no untrue statement of a material fact in the Registration Statement, or
necessary in order that there will be no omission to state a material fact in
the Registration Statement which omission would make the statements therein
misleading.
5.4 The Fund shall use its best efforts to qualify and maintain the
qualification of any appropriate number of its Class A shares for sales under
the securities laws of such states as the Distributor and the Fund may approve;
provided that the Fund shall not be required to amend its Articles of
Incorporation or By-Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of its Class A shares
in any state from the terms set forth in its Registration Statement, to qualify
as a foreign corporation in any state or to consent to service of process in any
state other than with respect to claims arising out of the offering of its Class
A shares. Any such qualification may be withheld, terminated or withdrawn by
the Fund at any time in its discretion. As provided in Section 9.1 hereof, the
expense of qualification and maintenance of qualification shall be borne by the
Fund. The Distributor shall furnish such information and other material
relating to its affairs and activities as may be required by the Fund in
connection with such qualifications.
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<PAGE>
Section 6. DUTIES OF THE DISTRIBUTOR
6.1 The Distributor shall devote reasonable time and effort to effect
sales of Class A shares of the Fund, but shall not be obligated to sell any
specific number of Class A shares. Sales of the Class A shares shall be on the
terms described in the Prospectus. The Distributor may enter into like
arrangements with other investment companies. The Distributor shall compensate
the selected dealers as set forth in the Prospectus.
6.2 In selling the Class A shares, the Distributor shall use its best
efforts in all respects duly to conform with the requirements of all federal and
state laws relating to the sale of such securities. Neither the Distributor nor
any selected dealer nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or Prospectus and any sales literature approved by
appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the
confirmation of sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales and the
cancellation of unsettled transactions, as may be necessary to comply with the
requirements of the National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into selected
dealer agreements with registered and qualified securities dealers and other
financial institutions of its choice for the sale of Class A shares, provided
that the Fund shall approve the forms of such agreements. Within the United
States, the Distributor shall offer and sell Class A shares only to such
selected dealers as are members in good standing of the NASD. Class A shares
sold to selected dealers shall be for resale by such dealers only at the
offering price determined as set forth in the Prospectus.
Section 7. PAYMENTS TO THE DISTRIBUTOR
The Distributor shall receive and may retain any portion of any
front-end sales charge which is imposed on sales of Class A shares and not
reallocated to selected dealers as set forth in the Prospectus, subject to the
limitations of Article III, Section 26 of the NASD Rules of Fair Practice.
Payment of these amounts to the Distributor is not contingent upon the adoption
or continuation of the Plan.
Section 8. PAYMENT OF THE DISTRIBUTOR UNDER THE PLAN
8.1 The Fund shall pay to the Distributor as compensation for
services under the Distribution and Service Plan and this Agreement a fee of .30
of 1% (including an asset-based sales charge of .05 of 1% and a service fee of
.25 of 1%) per annum
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<PAGE>
of the average daily net assets of the Class A shares of the Fund. Amounts
payable under the Plan shall be accrued daily and paid monthly or at such other
intervals as Directors/Trustees may determine. Amounts payable under the Plan
shall be subject to the limitations of Article III, Section 26 of the NASD Rules
of Fair Practice.
8.2 So long as the Plan or any amendment thereto is in effect, the
Distributor shall inform the Board of Directors of the commissions and account
servicing fees to be paid by the Distributor to account executives of the
Distributor and to broker-dealers and financial institutions which have dealer
agreements with the Distributor. So long as the Plan (or any amendment thereto)
is in effect, at the request of the Board of Directors or any agent or
representative of the Fund, the Distributor shall provide such additional
information as may reasonably be requested concerning the activities of the
Distributor hereunder and the costs incurred in performing such activities.
8.3 Expenses of distribution with respect to the Class A shares of
the Fund include, among others:
(a) amounts paid to Prudential Securities for performing
services under a selected dealer agreement between
Prudential Securities and the Distributor for sale of Class
A shares of the Fund, including sales commissions and
trailer commissions paid to, or on account of, account
executives and indirect and overhead costs associated with
distribution activities, including central office and branch
expenses;
(b) amounts paid to Prusec for performing services under a
selected dealer agreement between Prusec and the Distributor
for sale of Class A shares of the Fund, including sales
commissions and trailer commissions paid to, or on account
of, agents and indirect and overhead costs associated with
distribution activities;
(c) sales commissions and trailer commissions paid to, or on
account of, broker-dealers and financial institutions (other
than Prudential Securities and Prusec) which have entered
into selected dealer agreements with the Distributor with
respect to Class A shares of the Fund.
(d) amounts paid to, or an account of, account executives of
Prudential Securities, Prusec,
6
<PAGE>
or of other broker-dealers or financial institutions for personal
service and/or the maintenance of shareholder accounts; and
(e) advertising for the Fund in various forms through any
available medium, including the cost of printing and mailing
Fund Prospectuses, and periodic financial reports and sales
literature to persons other than current shareholders of the
Fund.
Indirect and overhead costs referred to in clauses (a) and (b) of the
foregoing sentence include (i) lease expenses, (ii) salaries and benefits of
personnel including operations and sales support personnel, (iii) utility
expenses, (iv) communications expenses, (v) sales promotion expenses, (vi)
expenses of postage, stationery and supplies and (vii) general overhead.
Section 9. ALLOCATION OF EXPENSES
9.1 The Fund shall bear all costs and expenses of the continuous
offering of its Class A shares, including fees and disbursements of its counsel
and auditors, in connection with the preparation and filing of any required
Registration Statements and/or Prospectuses under the Investment Company Act or
the Securities Act, and preparing and mailing annual and periodic reports and
proxy materials to shareholders (including but not limited to the expense of
setting in type any such Registration Statements, Prospectuses, annual or
periodic reports or proxy materials). The Fund shall also bear the cost of
expenses of qualification of the Class A shares for sale, and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer,
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5.4 hereof and the cost and
expense payable to each such state for continuing qualification therein until
the Fund decides to discontinue such qualification pursuant to Section 5.4
hereof. As set forth in Section 8 above, the Fund shall also bear the expenses
it assumes pursuant to the Plan with respect to Class A shares, so long as the
Plan is in effect.
Section 10. INDEMNIFICATION
10.1 The Fund agrees to indemnify, defend and hold the Distributor,
its officers and directors and any person who controls the Distributor within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Distributor, its
officers, directors or any such controlling person may incur under the
Securities Act, or under common law or
7
<PAGE>
otherwise, arising out of or based upon any untrue statement of a material fact
contained in the Registration Statement or Prospectus or arising out of or based
upon any alleged omission to state a material fact required to be stated in
either thereof or necessary to make the statements in either thereof not
misleading, except insofar as such claims, demands, liabilities or expenses
arise out of or are based upon any such untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity with
information furnished in writing by the Distributor to the Fund for use in the
Registration Statement or Prospectus; provided, however, that this indemnity
agreement shall not inure to the benefit of any such officer, director, trustee
or controlling person unless a court of competent jurisdiction shall determine
in a final decision on the merits, that the person to be indemnified was not
liable by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement (disabling conduct), or, in the absence of such
a decision, a reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling conduct, by (a) a
vote of a majority of a quorum of directors or trustees who are neither
"interested persons" of the Fund as defined in Section 2(a)(19) of the
Investment Company Act nor parties to the proceeding, or (b) an independent
legal counsel in a written opinion. The Fund's agreement to indemnify the
Distributor, its officers and directors or trustees and any such controlling
person as aforesaid is expressly conditioned upon the Fund's being promptly
notified of any action brought against the Distributor, its officers or
directors or trustees, or any such controlling person, such notification to be
given by letter or telegram addressed to the Fund at its principal business
office. The Fund agrees promptly to notify the Distributor of the commencement
of any litigation or proceedings against it or any of its officers or directors
in connection with the issue and sale of any Class A shares.
10.2 The Distributor agrees to indemnify, defend and hold the Fund,
its officers and Directors and any person who controls the Fund, if any, within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending against such claims, demands or liabilities
and any counsel fees incurred in connection therewith) which the Fund, its
officers and Directors or any such controlling person may incur under the
Securities Act or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Fund, its Directors or officers or
such controlling person resulting from such claims or demands shall arise out of
or be based upon any alleged untrue statement of a material fact contained in
information furnished in writing by the Distributor to the Fund for use in the
Registration Statement or Prospectus or shall arise out of or be based upon any
alleged omission to state
8
<PAGE>
a material fact in connection with such information required to be stated in the
Registration Statement or Prospectus or necessary to make such information not
misleading. The Distributor's agreement to indemnify the Fund, its officers and
Directors and any such controlling person as aforesaid, is expressly conditioned
upon the Distributor's being promptly notified of any action brought against the
Fund, its officers and Directors or any such controlling person, such
notification being given to the Distributor at its principal business office.
Section 11. DURATION AND TERMINATION OF THIS AGREEMENT
11.1 This Agreement shall become effective as of the date first above
written and shall remain in force for two years from the date hereof and
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of Directors of the Fund, or by the vote of a
majority of the outstanding voting securities of the Class A shares of the Fund,
and (b) by the vote of a majority of those Directors who are not parties to this
Agreement or interested persons of any such parties and who have no direct or
indirect financial interest in this Agreement or in the operation of the Fund's
Plan or in any agreement related thereto (Rule 12b-1 Directors), cast in person
at a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time, without the
payment of any penalty, by a majority of the Rule 12b-1 Directors or by vote of
a majority of the outstanding voting securities of the Class A shares of the
Fund, or by the Distributor, on sixty (60) days' written notice to the other
party. This Agreement shall automatically terminate in the event of its
assignment.
11.3 The terms "affiliated person," "assignment," "interested person"
and "vote of a majority of the outstanding voting securities", when used in
this Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. AMENDMENTS TO THIS AGREEMENT
This Agreement may be amended by the parties only if such amendment is
specifically approved by (a) the Board of Directors of the Fund, or by the vote
of a majority of the outstanding voting securities of the Class A shares of the
Fund, and (b) by the vote of a majority of the Rule 12b-1 Directors cast in
person at a meeting called for the purpose of voting on such amendment.
Section 13. GOVERNING LAW
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New York as at the time in effect and
the applicable provisions of the
9
<PAGE>
Investment Company Act. To the extent that the applicable law of the State of
New York, or any of the provisions herein, conflict with the applicable
provisions of the Investment Company Act, the latter shall control.
*[Section 14. LIABILITIES OF THE FUND
The name "Prudential ___________ Trust" is the designation of the
Trustees under a Declaration of Trust dated ______, 19__ and all persons dealing
with the Fund must look solely to the property of the Fund for the enforcement
of any claims against the Fund, and neither the Trustees, officers, agents of
shareholders assume any personal liability for obligations entered into on
behalf of the Fund.]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year above written.
Prudential Mutual Fund
Distributors, Inc.
By: ________________________
_______________________
(Title)
Prudential______________Fund
By: _______________________
(Name)
(Title)
*For Massachusetts Business Trusts only.
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<PAGE>
Exhibit 99.6(d)
PRUDENTIAL ___________ FUND
Form of
Distribution Agreement
(CLASS B SHARES)
Agreement made as of ______ __, 199_, between Prudential ________
Fund, [a Maryland Corporation/Massachusetts Business Trust] (the Fund) and
Prudential Securities Incorporated, a Delaware Corporation (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the Investment Company Act), as a diversified, open-end,
management investment company and it is in the interest of the Fund to offer its
Class B shares for sale continuously;
WHEREAS, the Distributor is a broker-dealer registered under the
Securities Exchange Act of 1934, as amended, and is engaged in the business of
selling shares of registered investment companies either directly or through
other broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other, with respect to the continuous offering of the Fund's Class B
shares from and after the date hereof in order to promote the growth of the Fund
and facilitate the distribution of its Class B shares; and
WHEREAS, the Fund has adopted a distribution and service plan pursuant
to Rule 12b-1 under the Investment Company Act (the Plan) authorizing payments
by the Fund to the Distributor with respect to the distribution of Class B
shares of the Fund and the maintenance of Class B shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. APPOINTMENT OF THE DISTRIBUTOR
The Fund hereby appoints the Distributor as the principal underwriter
and distributor of the Class B shares of the Fund to sell Class B shares to the
public and the Distributor hereby accepts such appointment and agrees to act
hereunder. The Fund hereby agrees during the term of this Agreement to sell
Class B shares of the Fund to the Distributor on the terms and conditions set
forth below.
1
<PAGE>
Section 2. EXCLUSIVE NATURE OF DUTIES
The Distributor shall be the exclusive representative of the Fund to
act as principal underwriter and distributor of the Fund's Class B shares,
except that:
2.1 The exclusive rights granted to the Distributor to purchase Class
B shares from the Fund shall not apply to Class B shares of the Fund issued in
connection with the merger or consolidation of any other investment company or
personal holding company with the Fund or the acquisition by purchase or
otherwise of all (or substantially all) the assets or the outstanding shares of
any such company by the Fund.
2.2 Such exclusive rights shall not apply to Class B shares issued by
the Fund pursuant to reinvestment of dividends or capital gains distributions.
2.3 Such exclusive rights shall not apply to Class B shares issued by
the Fund pursuant to the reinstatement privilege afforded redeeming
shareholders.
2.4 Such exclusive rights shall not apply to purchases made through
the Fund's transfer and dividend disbursing agent in the manner set forth in the
currently effective Prospectus of the Fund. The term "Prospectus" shall mean
the Prospectus and Statement of Additional Information included as part of the
Fund's Registration Statement, as such Prospectus and Statement of Additional
Information may be amended or supplemented from time to time, and the term
"Registration Statement" shall mean the Registration Statement filed by the Fund
with the Securities and Exchange Commission and effective under the Securities
Act of 1933, as amended (the Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.
Section 3. PURCHASE OF CLASS B SHARES FROM THE FUND
3.1 The Distributor shall have the right to buy from the Fund the
Class B shares needed, but not more than the Class B shares needed (except for
clerical errors in transmission) to fill unconditional orders for Class B shares
placed with the Distributor by investors or registered and qualified securities
dealers and other financial institutions (selected dealers). The price which
the Distributor shall pay for the Class B shares so purchased from the Fund
shall be the net asset value, determined as set forth in the Prospectus.
3.2 The Class B shares are to be resold by the Distributor or
selected dealers, as described in Section 6.4 hereof, to investors at the
offering price as set forth in the Prospectus.
3.3 The Fund shall have the right to suspend the sale of its Class B
shares at times when redemption is suspended pursuant
2
<PAGE>
to the conditions in Section 4.3 hereof or at such other times as may be
determined by the Board of Directors. The Fund shall also have the right to
suspend the sale of its Class B shares if a banking moratorium shall have been
declared by federal or New York authorities.
3.4 The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Class B shares
received by the Distributor. Any order may be rejected by the Fund; provided,
however, that the Fund will not arbitrarily or without reasonable cause refuse
to accept or confirm orders for the purchase of Class B shares. The Fund (or
its agent) will confirm orders upon their receipt, will make appropriate book
entries and upon receipt by the Fund (or its agent) of payment therefor, will
deliver deposit receipts for such Class B shares pursuant to the instructions of
the Distributor. Payment shall be made to the Fund in New York Clearing House
funds or federal funds. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).
Section 4. REPURCHASE OR REDEMPTION OF CLASS B SHARES BY THE FUND
4.1 Any of the outstanding Class B shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the Class B
shares so tendered in accordance with its Articles of Incorporation as amended
from time to time, and in accordance with the applicable provisions of the
Prospectus. The price to be paid to redeem or repurchase the Class B shares
shall be equal to the net asset value determined as set forth in the Prospectus.
All payments by the Fund hereunder shall be made in the manner set forth in
Section 4.2 below.
4.2 The Fund shall pay the total amount of the redemption price as
defined in the above paragraph pursuant to the instructions of the Distributor
on or before the seventh day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of Class B shares
shall be paid by the Fund as follows: (a) any applicable contingent deferred
sales charge shall be paid to the Distributor and (b) the balance shall be paid
to or for the account of the redeeming shareholder, in each case in accordance
with applicable provisions of the Prospectus.
4.3 Redemption of Class B shares or payment may be suspended at times
when the New York Stock Exchange is closed for other than customary weekends and
holidays, when trading on said Exchange is restricted, when an emergency exists
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
to determine the value of its net assets, or during any other period when the
Securities and Exchange Commission, by order,
3
<PAGE>
so permits.
Section 5. DUTIES OF THE FUND
5.1 Subject to the possible suspension of the sale of Class B shares
as provided herein, the Fund agrees to sell its Class B shares so long as it has
Class B shares available.
5.2 The Fund shall furnish the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Class B shares, and this
shall include one certified copy, upon request by the Distributor, of all
financial statements prepared for the Fund by independent public accountants.
The Fund shall make available to the Distributor such number of copies of its
Prospectus and annual and interim reports as the Distributor shall reasonably
request.
5.3 The Fund shall take, from time to time, but subject to the
necessary approval of the Board of Directors and the shareholders, all necessary
action to fix the number of authorized Class B shares and such steps as may be
necessary to register the same under the Securities Act, to the end that there
will be available for sale such number of Class B shares as the Distributor
reasonably may expect to sell. The Fund agrees to file from time to time such
amendments, reports and other documents as may be necessary in order that there
will be no untrue statement of a material fact in the Registration Statement, or
necessary in order that there will be no omission to state a material fact in
the Registration Statement which omission would make the statements therein
misleading.
5.4 The Fund shall use its best efforts to qualify and maintain the
qualification of any appropriate number of its Class B shares for sales under
the securities laws of such states as the Distributor and the Fund may approve;
provided that the Fund shall not be required to amend its Articles of
Incorporation or By-Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of its Class B shares
in any state from the terms set forth in its Registration Statement, to qualify
as a foreign corporation in any state or to consent to service of process in any
state other than with respect to claims arising out of the offering of its Class
B shares. Any such qualification may be withheld, terminated or withdrawn by
the Fund at any time in its discretion. As provided in Section 9.1 hereof, the
expense of qualification and maintenance of qualification shall be borne by the
Fund. The Distributor shall furnish such information and other material
relating to its affairs and activities as may be required by the Fund in
connection with such qualifications.
4
<PAGE>
Section 6. DUTIES OF THE DISTRIBUTOR
6.1 The Distributor shall devote reasonable time and effort to effect
sales of Class B shares of the Fund, but shall not be obligated to sell any
specific number of Class B shares. Sales of the Class B shares shall be on the
terms described in the Prospectus. The Distributor may enter into like
arrangements with other investment companies. The Distributor shall compensate
the selected dealers as set forth in the Prospectus.
6.2 In selling the Class B shares, the Distributor shall use its best
efforts in all respects duly to conform with the requirements of all federal and
state laws relating to the sale of such securities. Neither the Distributor nor
any selected dealer nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or Prospectus and any sales literature approved by
appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the
confirmation of sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales and the
cancellation of unsettled transactions, as may be necessary to comply with the
requirements of the National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into selected
dealer agreements with registered and qualified securities dealers and other
financial institutions of its choice for the sale of Class B shares, provided
that the Fund shall approve the forms of such agreements. Within the United
States, the Distributor shall offer and sell Class B shares only to such
selected dealers as are members in good standing of the NASD. Class B shares
sold to selected dealers shall be for resale by such dealers only at the
offering price determined as set forth in the Prospectus.
Section 7. PAYMENTS TO THE DISTRIBUTOR
The Distributor shall receive and may retain any contingent deferred
sales charge which is imposed with respect to repurchases and redemptions of
Class B shares as set forth in the Prospectus, subject to the limitations of
Article III, Section 26 of the NASD Rules of Fair Practice. Payment of these
amounts to the Distributor is not contingent upon the adoption or continuation
of the Plan.
Section 8. PAYMENT OF THE DISTRIBUTOR UNDER THE PLAN
8.1 The Fund shall pay to the Distributor as compensation for
services under the Distribution and Service Plan and this Agreement a fee of 1%
(including an asset-based sales charge of .75 of 1% and a service fee of .25 of
1%) per annum of
5
<PAGE>
the average daily net assets of the Class B shares of the Fund. Amounts payable
under the Plan shall be accrued daily and paid monthly or at such other
intervals as Directors/Trustees may determine. Amounts payable under the Plan
shall be subject to the limitations of Article III, Section 26 of the NASD Rules
of Fair Practice.
8.2 So long as the Plan or any amendment thereto is in effect, the
Distributor shall inform the Board of Directors of the commissions (including
trailer commissions) and account servicing fees to be paid by the Distributor to
account executives of the Distributor and to broker-dealers and financial
institutions which have selected dealer agreements with the Distributor. So
long as the Plan (or any amendment thereto) is in effect, at the request of the
Board of Directors or any agent or representative of the Fund, the Distributor
shall provide such additional information as may reasonably be requested
concerning the activities of the Distributor hereunder and the costs incurred in
performing such activities.
8.3 Expenses of distribution with respect to the Class B shares of
the Fund include, among others:
(a) sales commissions (including trailer commissions) paid to,
or on account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated
with performance of distribution activities, including
central office and branch expenses;
(c) amounts paid to Prusec for performing services under a
selected dealer agreement between Prusec and the Distributor
for sale of Class B shares of the Fund, including sales
commissions and trailer commissions paid to, or on account
of, agents and indirect and overhead costs associated with
distribution activities;
(d) sales commissions (including trailer commissions) paid to,
or on account of, broker-dealers and financial institutions
(other than Prusec) which have entered into selected dealer
agreements with the Distributor with respect to Class B
shares of the Fund;
(e) amounts paid to, or an account of, account executives of the
Distributor or of other broker-dealers or financial
institutions for
6
<PAGE>
personal service and/or the maintenance of shareholder
accounts; and
(f) advertising for the Fund in various forms through any
available medium, including the cost of printing and mailing
Fund Prospectuses, and periodic financial reports and sales
literature to persons other than current shareholders of the
Fund.
Indirect and overhead costs referred to in clauses (b) and (c) of the
foregoing sentence include (i) lease expenses, (ii) salaries and benefits of
personnel including operations and sales support personnel, (iii) utility
expenses, (iv) communications expenses, (v) sales promotion expenses, (vi)
expenses of postage, stationery and supplies and (vii) general overhead.
Section 9. ALLOCATION OF EXPENSES
9.1 The Fund shall bear all costs and expenses of the continuous
offering of its Class B shares, including fees and disbursements of its counsel
and auditors, in connection with the preparation and filing of any required
Registration Statements and/or Prospectuses under the Investment Company Act or
the Securities Act, and preparing and mailing annual and periodic reports and
proxy materials to shareholders (including but not limited to the expense of
setting in type any such Registration Statements, Prospectuses, annual or
periodic reports or proxy materials). The Fund shall also bear the cost of
expenses of qualification of the Class B shares for sale, and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer,
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5.4 hereof and the cost and
expense payable to each such state for continuing qualification therein until
the Fund decides to discontinue such qualification pursuant to Section 5.4
hereof. As set forth in Section 8 above, the Fund shall also bear the expenses
it assumes pursuant to the Plan with respect to Class B shares, so long as the
Plan is in effect.
Section 10. INDEMNIFICATION
10.1 The Fund agrees to indemnify, defend and hold the Distributor,
its officers and Directors and any person who controls the Distributor within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Distributor, its
officers, Directors or any such controlling person may incur under the
Securities Act, or under common law or otherwise, arising out of or based upon
any untrue statement of a
7
<PAGE>
material fact contained in the Registration Statement or Prospectus or arising
out of or based upon any alleged omission to state a material fact required to
be stated in either thereof or necessary to make the statements in either
thereof not misleading, except insofar as such claims, demands, liabilities or
expenses arise out of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information furnished in writing by the Distributor to the Fund for use in
the Registration Statement or Prospectus; provided, however, that this indemnity
agreement shall not inure to the benefit of any such officer, Director or
controlling person unless a court of competent jurisdiction shall determine in a
final decision on the merits, that the person to be indemnified was not liable
by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement (disabling conduct), or, in the absence of such
a decision, a reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling conduct, by (a) a
vote of a majority of a quorum of Directors who are neither "interested persons"
of the Fund as defined in Section 2(a)(19) of the Investment Company Act nor
parties to the proceeding, or (b) an independent legal counsel in a written
opinion. The Fund's agreement to indemnify the Distributor, its officers and
Directors and any such controlling person as aforesaid is expressly conditioned
upon the Fund's being promptly notified of any action brought against the
Distributor, its officers or Directors, or any such controlling person, such
notification to be given in writing addressed to the Fund at its principal
business office. The Fund agrees promptly to notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or Directors in connection with the issue and sale of any Class B shares.
10.2 The Distributor agrees to indemnify, defend and hold the Fund,
its officers and Directors and any person who controls the Fund, if any, within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending against such claims, demands or liabilities
and any counsel fees incurred in connection therewith) which the Fund, its
officers and Directors or any such controlling person may incur under the
Securities Act or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Fund, its Directors or officers or
such controlling person resulting from such claims or demands shall arise out of
or be based upon any alleged untrue statement of a material fact contained in
information furnished in writing by the Distributor to the Fund for use in the
Registration Statement or Prospectus or shall arise out of or be based upon any
alleged omission to state a material fact in connection with such information
required to be stated in the Registration Statement or Prospectus or necessary
to
8
<PAGE>
make such information not misleading. The Distributor's agreement to indemnify
the Fund, its officers and Directors and any such controlling person as
aforesaid, is expressly conditioned upon the Distributor's being promptly
notified of any action brought against the Fund, its officers and Directors or
any such controlling person, such notification to be given to the Distributor in
writing at its principal business office.
Section 11. DURATION AND TERMINATION OF THIS AGREEMENT
11.1 This Agreement shall become effective as of the date first above
written and shall remain in force for two years from the date hereof and
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of Directors of the Fund, or by the vote of a
majority of the outstanding voting securities of the Class B shares of the Fund,
and (b) by the vote of a majority of those Directors who are not parties to this
Agreement or interested persons of any such parties and who have no direct or
indirect financial interest in this Agreement or in the operation of the Fund's
Plan or in any agreement related thereto (Rule 12b-1 Directors), cast in person
at a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time, without the
payment of any penalty, by a majority of the Rule 12b-1 Directors or by vote of
a majority of the outstanding voting securities of the Class B shares of the
Fund, or by the Distributor, on sixty (60) days' written notice to the other
party. This Agreement shall automatically terminate in the event of its
assignment.
11.3 The terms "affiliated person," "assignment," "interested person"
and "vote of a majority of the outstanding voting securities," when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. AMENDMENTS TO THIS AGREEMENT
This Agreement may be amended by the parties only if such amendment is
specifically approved by (a) the Board of Directors of the Fund, or by the vote
of a majority of the outstanding voting securities of the Class B shares of the
Fund, and (b) by the vote of a majority of the Rule 12b-1 Board of Directors
cast in person at a meeting called for the purpose of voting on such amendment.
Section 13. GOVERNING LAW
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New York as at the time in effect and
the applicable provisions of the Investment Company Act. To the extent that the
applicable law of the State of New York, or any of the provisions herein,
conflict
9
<PAGE>
with the applicable provisions of the Investment Company Act, the latter shall
control.
*[Section 14. LIABILITIES OF THE FUND
The name "Prudential ___________ Trust" is the designation of the
Trustees under a Declaration of Trust dated ______, 19__ and all persons dealing
with the Fund must look solely to the property of the Fund for the enforcement
of any claims against the Fund, and neither the Trustees, officers, agents of
shareholders assume any personal liability for obligations entered into on
behalf of the Fund.]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year above written.
Prudential Securities
Incorporated
By: ________________________
________________________
(Title)
Prudential ________Fund
By: _______________________
(Name)
(Title)
*For Massachusetts Business Trusts only.
[mc]clb-comp.agr
10
<PAGE>
Exhibit 99.6(e)
PRUDENTIAL ___________ FUND
Form of
Distribution Agreement
(CLASS C SHARES)
Agreement made as of ______ __, 199_, between Prudential ________
Fund, [a Maryland Corporation/Massachusetts Business Trust] (the Fund) and
Prudential Securities Incorporated, a Delaware Corporation (the Distributor).
WITNESSETH
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the Investment Company Act), as a diversified, open-end,
management investment company and it is in the interest of the Fund to offer its
Class C shares for sale continuously;
WHEREAS, the Distributor is a broker-dealer registered under the
Securities Exchange Act of 1934, as amended, and is engaged in the business of
selling shares of registered investment companies either directly or through
other broker-dealers;
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other, with respect to the continuous offering of the Fund's Class C
shares from and after the date hereof in order to promote the growth of the Fund
and facilitate the distribution of its Class C shares; and
WHEREAS, the Fund has adopted a distribution and service plan pursuant
to Rule 12b-1 under the Investment Company Act (the Plan) authorizing payments
by the Fund to the Distributor with respect to the distribution of Class C
shares of the Fund and the maintenance of Class C shareholder accounts.
NOW, THEREFORE, the parties agree as follows:
Section 1. APPOINTMENT OF THE DISTRIBUTOR
The Fund hereby appoints the Distributor as the principal underwriter
and distributor of the Class C shares of the Fund to sell Class C shares to the
public and the Distributor hereby accepts such appointment and agrees to act
hereunder. The Fund hereby agrees during the term of this Agreement to sell
Class C shares of the Fund to the Distributor on the terms and conditions set
forth below.
1
<PAGE>
Section 2. EXCLUSIVE NATURE OF DUTIES
The Distributor shall be the exclusive representative of the Fund to
act as principal underwriter and distributor of the Fund's Class C shares,
except that:
2.1 The exclusive rights granted to the Distributor to purchase Class
C shares from the Fund shall not apply to Class C shares of the Fund issued in
connection with the merger or consolidation of any other investment company or
personal holding company with the Fund or the acquisition by purchase or
otherwise of all (or substantially all) the assets or the outstanding shares of
any such company by the Fund.
2.2 Such exclusive rights shall not apply to Class C shares issued by
the Fund pursuant to reinvestment of dividends or capital gains distributions.
2.3 Such exclusive rights shall not apply to Class C shares issued by
the Fund pursuant to the reinstatement privilege afforded redeeming
shareholders.
2.4 Such exclusive rights shall not apply to purchases made through
the Fund's transfer and dividend disbursing agent in the manner set forth in the
currently effective Prospectus of the Fund. The term "Prospectus" shall mean
the Prospectus and Statement of Additional Information included as part of the
Fund's Registration Statement, as such Prospectus and Statement of Additional
Information may be amended or supplemented from time to time, and the term
"Registration Statement" shall mean the Registration Statement filed by the Fund
with the Securities and Exchange Commission and effective under the Securities
Act of 1933, as amended (the Securities Act), and the Investment Company Act, as
such Registration Statement is amended from time to time.
Section 3. PURCHASE OF CLASS C SHARES FROM THE FUND
3.1 The Distributor shall have the right to buy from the Fund the
Class C shares needed, but not more than the Class C shares needed (except for
clerical errors in transmission) to fill unconditional orders for Class C shares
placed with the Distributor by investors or registered and qualified securities
dealers and other financial institutions (selected dealers). The price which
the Distributor shall pay for the Class C shares so purchased from the Fund
shall be the net asset value, determined as set forth in the Prospectus.
3.2 The Class C shares are to be resold by the Distributor or
selected dealers, as described in Section 6.4 hereof, to investors at the
offering price as set forth in the Prospectus.
3.3 The Fund shall have the right to suspend the sale of its Class C
shares at times when redemption is suspended pursuant
2
<PAGE>
to the conditions in Section 4.3 hereof or at such other times as may be
determined by the Board of Directors. The Fund shall also have the right to
suspend the sale of its Class C shares if a banking moratorium shall have been
declared by federal or New York authorities.
3.4 The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Class C shares
received by the Distributor. Any order may be rejected by the Fund; provided,
however, that the Fund will not arbitrarily or without reasonable cause refuse
to accept or confirm orders for the purchase of Class C shares. The Fund (or
its agent) will confirm orders upon their receipt, will make appropriate book
entries and upon receipt by the Fund (or its agent) of payment therefor, will
deliver deposit receipts for such Class C shares pursuant to the instructions of
the Distributor. Payment shall be made to the Fund in New York Clearing House
funds or federal funds. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).
Section 4. REPURCHASE OR REDEMPTION OF CLASS C SHARES BY THE FUND
4.1 Any of the outstanding Class C shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the Class C
shares so tendered in accordance with its Articles of Incorporation as amended
from time to time, and in accordance with the applicable provisions of the
Prospectus. The price to be paid to redeem or repurchase the Class C shares
shall be equal to the net asset value determined as set forth in the Prospectus.
All payments by the Fund hereunder shall be made in the manner set forth in
Section 4.2 below.
4.2 The Fund shall pay the total amount of the redemption price as
defined in the above paragraph pursuant to the instructions of the Distributor
on or before the seventh day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of Class C shares
shall be paid by the Fund as follows: (a) any applicable contingent deferred
sales charge shall be paid to the Distributor and (b) the balance shall be paid
to or for the account of the redeeming shareholder, in each case in accordance
with applicable provisions of the Prospectus.
4.3 Redemption of Class C shares or payment may be suspended at times
when the New York Stock Exchange is closed for other than customary weekends and
holidays, when trading on said Exchange is restricted, when an emergency exists
as a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
to determine the value of its net assets, or during any other period when the
Securities and Exchange Commission, by order,
3
<PAGE>
so permits.
Section 5. DUTIES OF THE FUND
5.1 Subject to the possible suspension of the sale of Class C shares
as provided herein, the Fund agrees to sell its Class C shares so long as it has
Class C shares available.
5.2 The Fund shall furnish the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Class C shares, and this
shall include one certified copy, upon request by the Distributor, of all
financial statements prepared for the Fund by independent public accountants.
The Fund shall make available to the Distributor such number of copies of its
Prospectus and annual and interim reports as the Distributor shall reasonably
request.
5.3 The Fund shall take, from time to time, but subject to the
necessary approval of the Board of Directors and the shareholders, all necessary
action to fix the number of authorized Class C shares and such steps as may be
necessary to register the same under the Securities Act, to the end that there
will be available for sale such number of Class C shares as the Distributor
reasonably may expect to sell. The Fund agrees to file from time to time such
amendments, reports and other documents as may be necessary in order that there
will be no untrue statement of a material fact in the Registration Statement, or
necessary in order that there will be no omission to state a material fact in
the Registration Statement which omission would make the statements therein
misleading.
5.4 The Fund shall use its best efforts to qualify and maintain the
qualification of any appropriate number of its Class C shares for sales under
the securities laws of such states as the Distributor and the Fund may approve;
provided that the Fund shall not be required to amend its Articles of
Incorporation or By-Laws to comply with the laws of any state, to maintain an
office in any state, to change the terms of the offering of its Class C shares
in any state from the terms set forth in its Registration Statement, to qualify
as a foreign corporation in any state or to consent to service of process in any
state other than with respect to claims arising out of the offering of its Class
C shares. Any such qualification may be withheld, terminated or withdrawn by
the Fund at any time in its discretion. As provided in Section 9.1 hereof, the
expense of qualification and maintenance of qualification shall be borne by the
Fund. The Distributor shall furnish such information and other material
relating to its affairs and activities as may be required by the Fund in
connection with such qualifications.
4
<PAGE>
Section 6. DUTIES OF THE DISTRIBUTOR
6.1 The Distributor shall devote reasonable time and effort to effect
sales of Class C shares of the Fund, but shall not be obligated to sell any
specific number of Class C shares. Sales of the Class C shares shall be on the
terms described in the Prospectus. The Distributor may enter into like
arrangements with other investment companies. The Distributor shall compensate
the selected dealers as set forth in the Prospectus.
6.2 In selling the Class C shares, the Distributor shall use its best
efforts in all respects duly to conform with the requirements of all federal and
state laws relating to the sale of such securities. Neither the Distributor nor
any selected dealer nor any other person is authorized by the Fund to give any
information or to make any representations, other than those contained in the
Registration Statement or Prospectus and any sales literature approved by
appropriate officers of the Fund.
6.3 The Distributor shall adopt and follow procedures for the
confirmation of sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales and the
cancellation of unsettled transactions, as may be necessary to comply with the
requirements of the National Association of Securities Dealers, Inc. (NASD).
6.4 The Distributor shall have the right to enter into selected
dealer agreements with registered and qualified securities dealers and other
financial institutions of its choice for the sale of Class C shares, provided
that the Fund shall approve the forms of such agreements. Within the United
States, the Distributor shall offer and sell Class C shares only to such
selected dealers as are members in good standing of the NASD. Class C shares
sold to selected dealers shall be for resale by such dealers only at the
offering price determined as set forth in the Prospectus.
Section 7. PAYMENTS TO THE DISTRIBUTOR
The Distributor shall receive and may retain any contingent deferred
sales charge which is imposed with respect to repurchases and redemptions of
Class C shares as set forth in the Prospectus, subject to the limitations of
Article III, Section 26 of the NASD Rules of Fair Practice. Payment of these
amounts to the Distributor is not contingent upon the adoption or continuation
of the Plan.
Section 8. PAYMENT OF THE DISTRIBUTOR UNDER THE PLAN
8.1 The Fund shall pay to the Distributor as compensation for
services under the Distribution and Service Plan and this Agreement a fee of 1%
(including an asset-based sales charge of .75 of 1% and a service fee of .25 of
1%) per annum of
5
<PAGE>
the average daily net assets of the Class C shares of the Fund. Amounts payable
under the Plan shall be accrued daily and paid monthly or at such other
intervals as Directors/Trustees may determine. Amounts payable under the Plan
shall be subject to the limitations of Article III, Section 26 of the NASD Rules
of Fair Practice.
8.2 So long as the Plan or any amendment thereto is in effect, the
Distributor shall inform the Board of Directors of the commissions (including
trailer commissions) and account servicing fees to be paid by the Distributor to
account executives of the Distributor and to broker-dealers and financial
institutions which have selected dealer agreements with the Distributor. So
long as the Plan (or any amendment thereto) is in effect, at the request of the
Board of Directors or any agent or representative of the Fund, the Distributor
shall provide such additional information as may reasonably be requested
concerning the activities of the Distributor hereunder and the costs incurred in
performing such activities.
8.3 Expenses of distribution with respect to the Class C shares of
the Fund include, among others:
(a) sales commissions (including trailer commissions) paid to,
or on account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated
with performance of distribution activities, including
central office and branch expenses;
(c) amounts paid to Prusec for performing services under a
selected dealer agreement between Prusec and the Distributor
for sale of Class C shares of the Fund, including sales
commissions and trailer commissions paid to, or on account
of, agents and indirect and overhead costs associated with
distribution activities;
(d) sales commissions (including trailer commissions) paid to,
or on account of, broker-dealers and financial institutions
(other than Prusec) which have entered into selected dealer
agreements with the Distributor with respect to Class C
shares of the Fund;
(e) amounts paid to, or an account of, account executives of the
Distributor or of other broker-dealers or financial
institutions for
6
<PAGE>
personal service and/or the maintenance of shareholder
accounts; and
(f) advertising for the Fund in various forms through any
available medium, including the cost of printing and mailing
Fund Prospectuses, and periodic financial reports and sales
literature to persons other than current shareholders of the
Fund.
Indirect and overhead costs referred to in clauses (b) and (c) of the
foregoing sentence include (i) lease expenses, (ii) salaries and benefits of
personnel including operations and sales support personnel, (iii) utility
expenses, (iv) communications expenses, (v) sales promotion expenses, (vi)
expenses of postage, stationery and supplies and (vii) general overhead.
Section 9. ALLOCATION OF EXPENSES
9.1 The Fund shall bear all costs and expenses of the continuous
offering of its Class C shares, including fees and disbursements of its counsel
and auditors, in connection with the preparation and filing of any required
Registration Statements and/or Prospectuses under the Investment Company Act or
the Securities Act, and preparing and mailing annual and periodic reports and
proxy materials to shareholders (including but not limited to the expense of
setting in type any such Registration Statements, Prospectuses, annual or
periodic reports or proxy materials). The Fund shall also bear the cost of
expenses of qualification of the Class C shares for sale, and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer,
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5.4 hereof and the cost and
expense payable to each such state for continuing qualification therein until
the Fund decides to discontinue such qualification pursuant to Section 5.4
hereof. As set forth in Section 8 above, the Fund shall also bear the expenses
it assumes pursuant to the Plan with respect to Class C shares, so long as the
Plan is in effect.
Section 10. INDEMNIFICATION
10.1 The Fund agrees to indemnify, defend and hold the Distributor,
its officers and Directors and any person who controls the Distributor within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Distributor, its
officers, Directors or any such controlling person may incur under the
Securities Act, or under common law or otherwise, arising out of or based upon
any untrue statement of a
7
<PAGE>
material fact contained in the Registration Statement or Prospectus or arising
out of or based upon any alleged omission to state a material fact required to
be stated in either thereof or necessary to make the statements in either
thereof not misleading, except insofar as such claims, demands, liabilities or
expenses arise out of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information furnished in writing by the Distributor to the Fund for use in
the Registration Statement or Prospectus; provided, however, that this indemnity
agreement shall not inure to the benefit of any such officer, Director or
controlling person unless a court of competent jurisdiction shall determine in a
final decision on the merits, that the person to be indemnified was not liable
by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement (disabling conduct), or, in the absence of such
a decision, a reasonable determination, based upon a review of the facts, that
the indemnified person was not liable by reason of disabling conduct, by (a) a
vote of a majority of a quorum of Directors who are neither "interested persons"
of the Fund as defined in Section 2(a)(19) of the Investment Company Act nor
parties to the proceeding, or (b) an independent legal counsel in a written
opinion. The Fund's agreement to indemnify the Distributor, its officers and
Directors and any such controlling person as aforesaid is expressly conditioned
upon the Fund's being promptly notified of any action brought against the
Distributor, its officers or Directors, or any such controlling person, such
notification to be given in writing addressed to the Fund at its principal
business office. The Fund agrees promptly to notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or Directors in connection with the issue and sale of any Class C shares.
10.2 The Distributor agrees to indemnify, defend and hold the Fund,
its officers and Directors and any person who controls the Fund, if any, within
the meaning of Section 15 of the Securities Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending against such claims, demands or liabilities
and any counsel fees incurred in connection therewith) which the Fund, its
officers and Directors or any such controlling person may incur under the
Securities Act or under common law or otherwise, but only to the extent that
such liability or expense incurred by the Fund, its Directors or officers or
such controlling person resulting from such claims or demands shall arise out of
or be based upon any alleged untrue statement of a material fact contained in
information furnished in writing by the Distributor to the Fund for use in the
Registration Statement or Prospectus or shall arise out of or be based upon any
alleged omission to state a material fact in connection with such information
required to be stated in the Registration Statement or Prospectus or necessary
to
8
<PAGE>
make such information not misleading. The Distributor's agreement to indemnify
the Fund, its officers and Directors and any such controlling person as
aforesaid, is expressly conditioned upon the Distributor's being promptly
notified of any action brought against the Fund, its officers and Directors or
any such controlling person, such notification to be given to the Distributor in
writing at its principal business office.
Section 11. DURATION AND TERMINATION OF THIS AGREEMENT
11.1 This Agreement shall become effective as of the date first above
written and shall remain in force for two years from the date hereof and
thereafter, but only so long as such continuance is specifically approved at
least annually by (a) the Board of Directors of the Fund, or by the vote of a
majority of the outstanding voting securities of the Class C shares of the Fund,
and (b) by the vote of a majority of those Directors who are not parties to this
Agreement or interested persons of any such parties and who have no direct or
indirect financial interest in this Agreement or in the operation of the Fund's
Plan or in any agreement related thereto (Rule 12b-1 Directors), cast in person
at a meeting called for the purpose of voting upon such approval.
11.2 This Agreement may be terminated at any time, without the
payment of any penalty, by a majority of the Rule 12b-1 Directors or by vote of
a majority of the outstanding voting securities of the Class C shares of the
Fund, or by the Distributor, on sixty (60) days' written notice to the other
party. This Agreement shall automatically terminate in the event of its
assignment.
11.3 The terms "affiliated person," "assignment," "interested person"
and "vote of a majority of the outstanding voting securities," when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. AMENDMENTS TO THIS AGREEMENT
This Agreement may be amended by the parties only if such amendment is
specifically approved by (a) the Board of Directors of the Fund, or by the vote
of a majority of the outstanding voting securities of the Class C shares of the
Fund, and (b) by the vote of a majority of the Rule 12b-1 Board of Directors
cast in person at a meeting called for the purpose of voting on such amendment.
Section 13. GOVERNING LAW
The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of New York as at the time in effect and
the applicable provisions of the Investment Company Act. To the extent that the
applicable law of the State of New York, or any of the provisions herein,
conflict
9
<PAGE>
with the applicable provisions of the Investment Company Act, the latter shall
control.
*[Section 14. LIABILITIES OF THE FUND
The name "Prudential ___________ Trust" is the designation of the
Trustees under a Declaration of Trust dated ______, 19__ and all persons dealing
with the Fund must look solely to the property of the Fund for the enforcement
of any claims against the Fund, and neither the Trustees, officers, agents of
shareholders assume any personal liability for obligations entered into on
behalf of the Fund.]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year above written.
Prudential Securities
Incorporated
By: ________________________
________________________
(Title)
Prudential ________Fund
By: _______________________
(Name)
(Title)
*For Massachusetts Business Trusts only.
[mc]clb-comp.agr
10
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in Post-Effective Amendment No. 10 to Registration
Statement No. 33-10649 of Prudential Municipal Bond Fund of our report dated
June 15, 1993, appearing in the Statement of Additional Information, which is a
part of such Registration Statement, and to the references to us under the
headings "Financial Highlights" in the Prospectus, which is a part of such
Registration Statement, and "Custodian, Transfer and Dividend Disbursing Agent
and Independent Accountants" in the Statement of Additional Information.
/s/ Deloitte & Touche
Deloitte & Touche
New York, New York
April 29, 1994
<PAGE>
Exhibit 99.15(a)
PRUDENTIAL MUNICIPAL BOND
Distribution and Service Plan
(CLASS A SHARES)
INTRODUCTION
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Article III, Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (NASD) has been adopted by Prudential Municipal Bond Fund (the Fund) and
by Prudential Mutual Fund Distributors, Inc., the Fund's distributor (the
Distributor).
The Fund has entered into a distribution agreement (the Distribution
Agreement) pursuant to which the Fund will employ the Distributor to distribute
Class A shares issued by the Fund (Class A shares). Under the Distribution
Agreement, the Distributor will be entitled to receive payments from investors
of front-end sales charges with respect to the sale of Class A shares. Under
the Plan, the Fund intends to reimburse the Distributor for costs incurred by
the Distributor in distributing Class A shares of the Fund and to pay the
Distributor a service fee for the maintenance of Class A shareholder accounts.
A majority of the Board of Directors or Trustees of the Fund, including a
majority of those Directors or Trustees who are not "interested persons" of the
Fund (as defined in the Investment Company Act) and who have no direct or
indirect financial interest
<PAGE>
in the operation of this Plan or any agreements related to it (the Rule 12b-1
Directors or Trustees), have determined by votes cast in person at a meeting
called for the purpose of voting on this Plan that there is a reasonable
likelihood that adoption of this Plan will benefit the Fund and its
shareholders. Expenditures under this Plan by the Fund for Distribution
Activities (defined below) are primarily intended to result in the sale of Class
A shares of the Fund within the meaning of paragraph (a)(2) of Rule 12b-1
promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor and/or
other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
THE PLAN
The material aspects of the Plan are as follows:
1. DISTRIBUTION ACTIVITIES
The Fund shall engage the Distributor to distribute Class A shares of the
Fund and to service shareholder accounts using all of the facilities of the
distribution networks of Prudential Securities Incorporated (Prudential
Securities) and Pruco Securities Corporation (Prusec), including sales personnel
and branch office and central support systems, and also using such
2
<PAGE>
other qualified broker-dealers and financial institutions as the Distributor may
select. Services provided and activities undertaken to distribute Class A
shares of the Fund are referred to herein as "Distribution Activities."
2. PAYMENT OF SERVICE FEE
The Fund shall reimburse the Distributor for costs incurred by it in
providing personal service and/or maintaining shareholder accounts at a rate not
to exceed .25 of 1% per annum of the average daily net assets of the Class A
shares (service fee). The Fund shall calculate and accrue daily amounts
reimbursable by the Class A shares of the Fund hereunder and shall pay such
amounts monthly or at such other intervals as the Board of Directors or Trustees
may determine. Costs of the Distributor subject to reimbursement hereunder
include account servicing fees and indirect and overhead costs associated with
providing personal service and/or maintaining shareholder accounts.
3. PAYMENT FOR DISTRIBUTION ACTIVITIES
The Fund shall reimburse the Distributor for costs incurred by it in
performing Distribution Activities at a rate which, together with the service
fee (described in Section 2 hereof), shall not exceed .30 of 1% per annum of the
average daily net assets of the Class A shares of the Fund. The Fund shall
calculate and accrue daily amounts reimbursable by the Class A shares of the
Fund hereunder and shall pay such amounts monthly or at such other intervals as
the Board of Directors or Trustees may determine.
3
<PAGE>
Amounts paid to the Distributor by the Class A shares of the Fund will not
be used to pay the distribution expenses incurred with respect to the Class B
shares of the Fund except that distribution expenses attributable to the Fund as
a whole will be allocated to the Class A shares according to the ratio of the
sales of Class A shares to the total sales of the Fund's shares over the Fund's
fiscal year or such other allocation method approved by the Board of Directors
or Trustees. The allocation of distribution expenses among Classes will be
subject to the review of the Board of Directors or Trustees. Payments hereunder
will be applied to distribution expenses in the order in which they are
incurred, unless otherwise determined by the Board of Directors or Trustees.
Costs of the Distributor subject to reimbursement hereunder are costs of
performing Distribution Activities and may include, among others:
(a) amounts paid to Prudential Securities in reimbursement of
costs incurred by Prudential Securities in performing
services under a selected dealer agreement between
Prudential Securities and the Distributor for sale of Class
A shares of the Fund, including sales commissions and
trailer commissions paid to, or on account of, account
executives and indirect and overhead costs associated with
Distribution Activities, including central office and branch
expenses;
(b) amounts paid to Prusec in reimbursement of costs incurred by
Prusec in performing services under a selected dealer
agreement between Prusec and the Distributor for sale of
Class A shares of the Fund, including sales commissions and
trailer commissions paid to, or on account of, agents and
indirect and overhead costs associated with Distribution
Activities;
4
<PAGE>
(c) advertising for the Fund in various forms through any
available medium, including the cost of printing and mailing
Fund prospectuses, statements of additional information and
periodic financial reports and sales literature to persons
other than current shareholders of the Fund; and
(d) sales commissions (including trailer commissions) paid to,
or on account of, broker-dealers and financial institutions
(other than Prudential Securities and Prusec) which have
entered into selected dealer agreements with the Distributor
with respect to shares of the Fund.
4. QUARTERLY REPORTS; ADDITIONAL INFORMATION
An appropriate officer of the Fund will provide to the Board of Directors
or Trustees of the Fund for review, at least quarterly, a written report
specifying in reasonable detail the amounts expended for Distribution Activities
(including payment of the service fee) and the purposes for which such
expenditures were made in compliance with the requirements of Rule 12b-1. The
Distributor will provide to the Board of Directors or Trustees of the Fund such
additional information as the Board or Trustees shall from time to time
reasonably request, including information about Distribution Activities
undertaken or to be undertaken by the Distributor.
The Distributor will inform the Board of Directors or Trustees of the Fund
of the commissions and account servicing fees to be paid by the Distributor to
account executives of the Distributor and to broker-dealers and financial
institutions which have selected dealer agreements with the Distributor.
5
<PAGE>
5. EFFECTIVENESS; CONTINUATION
The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class A shares of the Fund.
If approved by a vote of a majority of the outstanding voting securities of
the Class A shares of the Fund, the Plan shall, unless earlier terminated in
accordance with its terms, continue in full force and effect thereafter for so
long as such continuance is specifically approved at least annually by a
majority of the Board of Directors or Trustees of the Fund and a majority of the
Rule 12b-1 Directors or Trustees by votes cast in person at a meeting called for
the purpose of voting on the continuation of the Plan.
6. TERMINATION
This Plan may be terminated at any time by vote of a majority of the Rule
12b-1 Directors or Trustees, or by vote of a majority of the outstanding voting
securities (as defined in the Investment Company Act) of the Class A shares of
the Fund.
7. AMENDMENTS
The Plan may not be amended to change the distribution expenses to be paid
as provided for in Section 3 hereof so as to increase materially the amounts
payable under this Plan unless such amendment shall be approved by the vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class A shares of the Fund. All material amendments of
6
<PAGE>
the Plan, including the addition or deletion of categories of expenditures which
are reimbursable hereunder, shall be approved by a majority of the Board of
Directors or the Trustees of the Fund and a majority of the Rule 12b-1 Directors
or Trustees by votes cast in person at a meeting called for the purpose of
voting on the Plan.
8. NON-INTERESTED DIRECTORS OR TRUSTEES
While the Plan is in effect, the selection and nomination of the Directors
or Trustees who are not "interested persons" of the Fund (non-interested
Directors or Trustees) shall be committed to the discretion of the
non-interested Directors or Trustees.
9. RECORDS
The Fund shall preserve copies of the Plan and any related agreements and
all reports made pursuant to Section 4 hereof, for a period of not less than six
years from the date of effectiveness of the Plan, such agreements or reports,
and for at least the first two years in an easily accessible place.
Dated as of January 22, 1990 and
amended and restated as of July 1, 1993.
DISPLNA.MBF
7
<PAGE>
Exhibit 99.15(b)
PRUDENTIAL MUNICIPAL BOND FUND
Distribution and Service Plan
(CLASS B SHARES)
INTRODUCTION
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Article III, Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (NASD) has been adopted by Prudential Municipal Bond Fund (the Fund) and
by Prudential Securities Incorporated (Prudential Securities), the Fund's
distributor (the Distributor).
The Fund has entered into a distribution agreement (the Distribution
Agreement) pursuant to which the Fund will continue to employ the Distributor to
distribute Class B shares issued by the Fund (Class B shares). Under the
Distribution Agreement, the Distributor will be entitled to receive payments
from investors of contingent deferred sales charges imposed with respect to
certain repurchases and redemptions of Class B shares. Under the Plan, the Fund
wishes to reimburse the Distributor for costs incurred by the Distributor in
distributing Class B shares of the Fund and to pay the Distributor a service fee
for the maintenance of Class B shareholder accounts. A majority of the Board of
Directors or Trustees of the Fund including a majority who are not "interested
persons" of the Fund (as defined in the Investment Company Act) and who have no
direct or indirect financial interest in the operation
<PAGE>
of this Plan or any agreements related to it (the Rule 12b-1 Directors or
Trustees), have determined by votes cast in person at a meeting called for the
purpose of voting on this Plan that there is a reasonable likelihood that
adoption of this Plan will benefit the Fund and its shareholders. Expenditures
under this Plan by the Fund for Distribution Activities (defined below) are
primarily intended to result in the sale of Class B shares of the Fund within
the meaning of paragraph (a)(2) of Rule 12b-1 promulgated under the Investment
Company Act.
The purpose of the Plan is to create incentives to the Distributor and/or
other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
THE PLAN
The material aspects of the Plan are as follows:
1. DISTRIBUTION ACTIVITIES
The Fund shall engage the Distributor to distribute Class B shares of the
Fund and to service shareholder accounts using all of the facilities of the
Prudential Securities distribution network including sales personnel and branch
office and central support systems, and also using such other qualified broker-
dealers and financial institutions as the Distributor may select, including
2
<PAGE>
Pruco Securities Corporation (Prusec). Services provided and activities
undertaken to distribute Class B shares of the Fund are referred to herein as
"Distribution Activities."
2. PAYMENT OF SERVICE FEE
The Fund shall reimburse the Distributor for costs incurred by it in
providing personal service and/or maintaining shareholder accounts at a rate not
to exceed .25 of 1% per annum of the average daily net assets of the Class B
shares (service fee). The Fund shall calculate and accrue daily amounts
reimbursable by the Class B shares of the Fund hereunder and shall pay such
amounts monthly or at such other intervals as the Board of Directors or Trustees
may determine. Costs of the Distributor subject to reimbursement hereunder
include account servicing fees and indirect and overhead costs associated with
providing personal service and/or maintaining shareholder accounts.
3. PAYMENT FOR DISTRIBUTION ACTIVITIES
The Fund shall reimburse the Distributor at a rate which, together with the
service fee (described in Section 2 hereof), shall not exceed .50 of 1% per
annum of the average daily net assets of the Class B shares of the Fund for
costs incurred by it in performing Distribution Activities. The Fund shall
calculate and accrue daily amounts reimbursable by the Class B shares of the
Fund hereunder and shall pay such amounts monthly or at such other intervals as
the Board of Directors or Trustees may determine. Proceeds from contingent
deferred sales charges will be applied to reduce the costs incurred in
performing Distribution Activities.
3
<PAGE>
The Fund shall carry forward amounts reimbursable that are not paid because they
exceed .50 of 1% per annum of the average daily net assets of the Class B shares
of the Fund (Carry Forward Amounts) and shall pay such amounts within the .50 of
1% per annum payment rate limitation so long as this Plan, including any
amendments hereto, is in effect, subject to the limitations of Article III,
Section 26 of the NASD Rules of Fair Practice. Although the Fund is not liable
for unreimbursed distribution expenses, in the event of termination or
discontinuation of the Plan, the Board of Directors or Trustees may consider the
appropriateness of having the Class B shares of the Fund reimburse the
Distributor for the then outstanding Carry Forward Amounts plus interest thereon
to the extent permitted by applicable law or regulation from the effective date
of the Plan.
Amounts paid to the Distributor by the Class B shares of the Fund will not
be used to pay the distribution expenses incurred with respect to the Class A
shares of the Fund except that distribution expenses attributable to the Fund as
a whole will be allocated to the Class B shares according to the ratio of the
sale of Class B shares to the total sales of the Fund's shares over the Fund's
fiscal year or such other allocation method approved by the Board of Directors
or Trustees. The allocation of distribution expenses among Classes will be
subject to the review of the Board of Directors or Trustees. Payments hereunder
will be applied to distribution expenses in the order in which they are
incurred, unless otherwise determined by the Board of Directors or Trustees.
4
<PAGE>
Costs of the Distributor subject to reimbursement hereunder are all costs
of performing Distribution Activities and include, among others:
(a) sales commissions (including trailer commissions) paid to,
or on account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated
with performance of distribution activities including
central office and branch expenses;
(c) amounts paid to Prusec in reimbursement of all costs
incurred by Prusec in performing services under a selected
dealer agreement between Prusec and the Distributor for sale
of Class B shares of the Fund, including sales commissions
and trailer commissions paid to, or on account of, agents
and indirect and overhead costs associated with distribution
activities;
(d) advertising for the Fund in various forms through any
available medium, including the cost of printing and mailing
Fund prospectuses, statements of additional information and
periodic financial reports and sales literature to persons
other than current shareholders of the Fund;
(e) sales commissions (including trailer commissions) paid to,
or on account of, broker-dealers and other financial
institutions (other than Prusec) which have entered into
selected dealer agreements with the Distributor with respect
to shares of the Fund;
(f) to the extent permitted by law, interest on unreimbursed
Carry Forward Amounts as defined in Section 3 at a rate
equal to that paid by Prudential Securities for bank
borrowings as such rate may vary from day to day, not to
exceed that permitted under Article III, Section 26, of the
NASD Rules of Fair Practice; and
5
<PAGE>
(g) unreimbursed distribution expenses incurred with respect to
the sale of Class B shares which have been exchanged into
the Fund.
4. QUARTERLY REPORTS; ADDITIONAL INFORMATION
An appropriate officer of the Fund will provide to the Board of Directors
or Trustees of the Fund for review, at least quarterly, a written report
specifying in reasonable detail the amounts expended for Distribution Activities
(including payment of the service fee) and the purposes for which such
expenditures were made in compliance with the requirements of Rule 12b-1. The
Distributor will provide to the Board of Directors or Trustees of the Fund such
additional information as they shall from time to time reasonably request,
including information about Distribution Activities undertaken or to be
undertaken by the Distributor.
The Distributor will inform the Board of Directors or Trustees of the Fund
of the commissions and account servicing fees to be paid by the Distributor to
account executives of the Distributor and to broker-dealers and other financial
institutions which have selected dealer agreements with the Distributor.
5. EFFECTIVENESS; CONTINUATION
The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class B shares of the Fund.
If approved by a vote of a majority of the outstanding voting securities of
the Class B shares of the Fund, the Plan shall, unless earlier terminated in
accordance with its terms, continue in
6
<PAGE>
full force and effect thereafter for so long as such continuance is specifically
approved at least annually by a majority of the Board of Directors or Trustees
of the Fund and a majority of the Rule 12b-1 Directors or Trustees by votes cast
in person at a meeting called for the purpose of voting on the continuation of
the Plan.
6. TERMINATION
This Plan may be terminated at any time by vote of a majority of the Rule
12b-1 Directors or Trustees, or by vote of a majority of the outstanding voting
securities (as defined in the Investment Company Act) of the Class B shares of
the Fund.
7. AMENDMENTS
The Plan may not be amended to change the distribution expenses to be paid
as provided for in Section 3 hereof so as to increase materially the amounts
payable under this Plan unless such amendment shall be approved by the vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class B shares of the Fund. All material amendments of the
Plan, including the addition or deletion of categories of expenditures which are
reimbursable hereunder, shall be approved by a majority of the Board of
Directors or Trustees of the Fund and a majority of the Rule 12b-1 Directors or
Trustees by votes cast in person at a meeting called for the purpose of voting
on the Plan.
8. NON-INTERESTED DIRECTORS OR TRUSTEES
While the Plan is in effect, the selection and nomination of the Directors
or Trustees who are not "interested persons" of the
7
<PAGE>
Fund (non-interested Directors or Trustees) shall be committed to the discretion
of the non-interested Directors or Trustees.
9. RECORDS
The Fund shall preserve copies of the Plan and any related agreements and
all reports made pursuant to Section 4 hereof, for a period of not less than six
years from the date of effectiveness of the Plan, such agreements or reports,
and for at least the first two years in an easily accessible place.
Dated January 22, 1990 and
amended and restated as of July 1, 1993
DISPLNB.MBF
8
<PAGE>
Exhibit 99.15(c)
PRUDENTIAL ________ FUND
Form of
Distribution and Service Plan
(CLASS A SHARES)
INTRODUCTION
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Article III, Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (NASD) has been adopted by Prudential __________ Fund (the Fund) and by
Prudential Mutual Fund Distributors, Inc., the Fund's distributor (the
Distributor).
The Fund has entered into a distribution agreement pursuant to which the
Fund will employ the Distributor to distribute Class A shares issued by the Fund
(Class A shares). Under the Plan, the Fund intends to pay to the Distributor, as
compensation for its services, a distribution and service fee with respect to
Class A shares.
A majority of the Board of Directors or Trustees of the Fund, including a
majority of those Directors or Trustees who are not "interested persons" of the
Fund (as defined in the Investment Company Act) and who have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the Rule 12b-1 Directors or Trustees), have determined by votes
cast in person at a meeting called for the purpose of voting on this Plan that
there is a reasonable
<PAGE>
likelihood that adoption of this Plan will benefit the Fund and its
shareholders. Expenditures under this Plan by the Fund for Distribution
Activities (defined below) are primarily intended to result in the sale of Class
A shares of the Fund within the meaning of paragraph (a)(2) of Rule 12b-1
promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor and/or
other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
THE PLAN
The material aspects of the Plan are as follows:
1. DISTRIBUTION ACTIVITIES
The Fund shall engage the Distributor to distribute Class A shares of the
Fund and to service shareholder accounts using all of the facilities of the
distribution networks of Prudential Securities Incorporated (Prudential
Securities) and Pruco Securities Corporation (Prusec), including sales personnel
and branch office and central support systems, and also using such other
qualified broker-dealers and financial institutions as the Distributor may
select. Services provided and activities undertaken to distribute Class A
shares of the Fund are referred to herein as "Distribution Activities."
3
<PAGE>
2. PAYMENT OF SERVICE FEE
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class A shares (service
fee). The Fund shall calculate and accrue daily amounts payable by the Class A
shares of the Fund hereunder and shall pay such amounts monthly or at such other
intervals as the Board of Directors/Trustees may determine.
3. PAYMENT FOR DISTRIBUTION ACTIVITIES
The Fund shall pay to the Distributor as compensation for its services a
distribution fee, together with the service fee (described in Section 2 hereof),
of .30 of 1% per annum of the average daily net assets of the Class A shares of
the Fund for the performance of Distribution Activities. The Fund shall
calculate and accrue daily amounts payable by the Class A shares of the Fund
hereunder and shall pay such amounts monthly or at such other intervals as the
Board of Directors/Trustees may determine. Amounts payable under the Plan shall
be subject to the limitations of Article III, Section 26 of the NASD Rules of
Fair Practice.
Amounts paid to the Distributor by the Class A shares of the Fund will not
be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class A shares according to the
ratio of the sales of Class A shares to the total sales of the Fund's shares
4
<PAGE>
over the Fund's fiscal year or such other allocation method approved by the
Board of Directors or Trustees. The allocation of distribution expenses among
classes will be subject to the review of the Board of Directors or Trustees.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
(a) amounts paid to Prudential Securities for performing
services under a selected dealer agreement between
Prudential Securities and the Distributor for sale of Class
A shares of the Fund, including sales commissions and
trailer commissions paid to, or on account of, account
executives and indirect and overhead costs associated with
Distribution Activities, including central office and branch
expenses;
(b) amounts paid to Prusec for performing services under a
selected dealer agreement between Prusec and the Distributor
for sale of Class A shares of the Fund, including sales
commissions and trailer commissions paid to, or on account
of, agents and indirect and overhead costs associated with
Distribution Activities;
(c) advertising for the Fund in various forms through any
available medium, including the cost of printing and mailing
Fund prospectuses, statements of additional information and
periodic financial reports and sales literature to persons
other than current shareholders of the Fund; and
(d) sales commissions (including trailer commissions) paid to,
or on account of, broker-dealers and financial institutions
(other than Prudential Securities and Prusec) which have
entered into selected dealer agreements with the Distributor
with respect to shares of the Fund.
5
<PAGE>
4. QUARTERLY REPORTS; ADDITIONAL INFORMATION
An appropriate officer of the Fund will provide to the Board of Directors
or Trustees of the Fund for review, at least quarterly, a written report
specifying in reasonable detail the amounts expended for Distribution Activities
(including payment of the service fee) and the purposes for which such
expenditures were made in compliance with the requirements of Rule 12b-1. The
Distributor will provide to the Board of Directors or Trustees of the Fund such
additional information as the Board or Trustees shall from time to time
reasonably request, including information about Distribution Activities
undertaken or to be undertaken by the Distributor.
The Distributor will inform the Board of Directors or Trustees of the Fund
of the commissions and account servicing fees to be paid by the Distributor to
account executives of the Distributor and to broker-dealers and financial
institutions which have selected dealer agreements with the Distributor.
5. EFFECTIVENESS; CONTINUATION
The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class A shares of the Fund.
If approved by a vote of a majority of the outstanding voting securities of
the Class A shares of the Fund, the Plan shall, unless earlier terminated in
accordance with its terms, continue in full force and effect thereafter for so
long as such continuance is specifically approved at least annually by a
6
<PAGE>
majority of the Board of Directors or Trustees of the Fund and a majority of the
Rule 12b-1 Directors or Trustees by votes cast in person at a meeting called for
the purpose of voting on the continuation of the Plan.
6. TERMINATION
This Plan may be terminated at any time by vote of a majority of the Rule
12b-1 Directors or Trustees, or by vote of a majority of the outstanding voting
securities (as defined in the Investment Company Act) of the Class A shares of
the Fund.
7. AMENDMENTS
The Plan may not be amended to change the combined service and distribution
fees to be paid as provided for in Sections 2 and 3 hereof so as to increase
materially the amounts payable under this Plan unless such amendment shall be
approved by the vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class A shares of the Fund. All
material amendments of the Plan shall be approved by a majority of the Board of
Directors or the Trustees of the Fund and a majority of the Rule 12b-1 Directors
or Trustees by votes cast in person at a meeting called for the purpose of
voting on the Plan.
8. RULE 12b-1 DIRECTORS OR TRUSTEES
While the Plan is in effect, the selection and nomination of the Rule 12b-1
Directors or Trustees shall be committed to the discretion of the Rule 12b-1
Directors or Trustees.
7
<PAGE>
9. RECORDS
The Fund shall preserve copies of the Plan and any related agreements and
all reports made pursuant to Section 4 hereof, for a period of not less than six
years from the date of effectiveness of the Plan, such agreements or reports,
and for at least the first two years in an easily accessible place.
*[10. ENFORCEMENT OF CLAIMS.
The name "Prudential ___________ Trust" is the designation of the Trustees
under a Declaration of Trust dated ______, 19__ and all persons dealing with the
Fund must look solely to the property of the Fund for the enforcement of any
claims against the Fund, and neither the Trustees, officers, agents of
shareholders assume any personal liability for obligations entered into on
behalf of the Fund.]
Dated:
[mc]cla-comp.pln
8
<PAGE>
Exhibit 99.15(d)
PRUDENTIAL ________ FUND
Form of
Distribution and Service Plan
(CLASS B SHARES)
INTRODUCTION
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Article III, Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (NASD) has been adopted by Prudential __________ Fund, (the Fund) and by
Prudential Securities Incorporated (Prudential Securities), the Fund's
distributor (the Distributor).
The Fund has entered into a distribution agreement pursuant to which
the Fund will continue to employ the Distributor to distribute Class B shares
issued by the Fund (Class B shares). Under the Plan, the Fund wishes to pay to
the Distributor, as compensation for its services, a distribution and service
fee with respect to Class B shares.
A majority of the Board of Directors or Trustees of the Fund including a
majority who are not "interested persons" of the Fund (as defined in the
Investment Company Act) and who have no direct or indirect financial interest in
the operation of this Plan or any agreements related to it (the Rule 12b-1
Directors or Trustees), have determined by votes cast in person at a meeting
called for the purpose of voting on this Plan that there is a reasonable
likelihood that adoption of this Plan will benefit the Fund and its
<PAGE>
shareholders. Expenditures under this Plan by the Fund for Distribution
Activities (defined below) are primarily intended to result in the sale of Class
B shares of the Fund within the meaning of paragraph (a)(2) of Rule 12b-1
promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor
and/or other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
THE PLAN
The material aspects of the Plan are as follows:
1. DISTRIBUTION ACTIVITIES
The Fund shall engage the Distributor to distribute Class B shares of the
Fund and to service shareholder accounts using all of the facilities of the
Prudential Securities distribution network including sales personnel and branch
office and central support systems, and also using such other qualified broker-
dealers and financial institutions as the Distributor may select, including
Pruco Securities Corporation (Prusec). Services provided and activities
undertaken to distribute Class B shares of the Fund are referred to herein as
"Distribution Activities."
2
<PAGE>
2. PAYMENT OF SERVICE FEE
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class B shares (service
fee). The Fund shall calculate and accrue daily amounts payable by the Class B
shares of the Fund hereunder and shall pay such amounts monthly or at such other
intervals as the Board of Directors/Trustees may determine.
3. PAYMENT FOR DISTRIBUTION ACTIVITIES
The Fund shall pay to the Distributor as compensation for its services a
distribution fee of .75 of 1% per annum of the average daily net assets of the
Class B shares of the Fund for the performance of Distribution Activities. The
Fund shall calculate and accrue daily amounts payable by the Class B shares of
the Fund hereunder and shall pay such amounts monthly or at such other intervals
as the Board of Directors/Trustees may determine. Amounts payable under the
Plan shall be subject to the limitations of Article III, Section 26 of the NASD
Rules of Fair Practice.
Amounts paid to the Distributor by the Class B shares of the Fund will not
be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class B shares according to the
ratio of the sale of Class B shares to the total sales of the Fund's shares over
the Fund's fiscal year or such other allocation method approved by the Board of
Directors or Trustees. The allocation of distribution
3
<PAGE>
expenses among classes will be subject to the review of the Board of Directors
or Trustees.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
(a) sales commissions (including trailer commissions) paid to, or on
account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated with
performance of Distribution Activities including central office and
branch expenses;
(c) amounts paid to Prusec for performing services under a selected
dealer agreement between Prusec and the Distributor for sale of Class
B shares of the Fund, including sales commissions and trailer
commissions paid to, or on account of, agents and indirect and
overhead costs associated with Distribution Activities;
(d) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund prospectuses,
statements of additional information and periodic financial reports
and sales literature to persons other than current shareholders of the
Fund; and
(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and other financial institutions (other
than Prusec) which have entered into selected dealer agreements with
the Distributor with respect to shares of the Fund.
4. QUARTERLY REPORTS; ADDITIONAL INFORMATION
An appropriate officer of the Fund will provide to the Board of Directors
or Trustees of the Fund for review, at least quarterly, a written report
specifying in reasonable detail the amounts expended for Distribution Activities
(including payment of the service fee) and the purposes for which such
expenditures were made in compliance with the requirements of Rule 12b-1. The
Distributor will provide to the Board of Directors or Trustees of
4
<PAGE>
the Fund such additional information as they shall from time to time reasonably
request, including information about Distribution Activities undertaken or to be
undertaken by the Distributor.
The Distributor will inform the Board of Directors or Trustees of the Fund
of the commissions and account servicing fees to be paid by the Distributor to
account executives of the Distributor and to broker-dealers and other financial
institutions which have selected dealer agreements with the Distributor.
5. EFFECTIVENESS; CONTINUATION
The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class B shares of the Fund.
If approved by a vote of a majority of the outstanding voting securities of
the Class B shares of the Fund, the Plan shall, unless earlier terminated in
accordance with its terms, continue in full force and effect thereafter for so
long as such continuance is specifically approved at least annually by a
majority of the Board of Directors or Trustees of the Fund and a majority of the
Rule 12b-1 Directors or Trustees by votes cast in person at a meeting called for
the purpose of voting on the continuation of the Plan.
6. TERMINATION
This Plan may be terminated at any time by vote of a majority of the Rule
12b-1 Directors or Trustees, or by vote of a majority of the outstanding voting
securities (as defined in the Investment
5
<PAGE>
Company Act) of the Class B shares of the Fund.
7. AMENDMENTS
The Plan may not be amended to change the combined service and distribution
fees to be paid as provided for in Sections 2 and 3 hereof so as to increase
materially the amounts payable under this Plan unless such amendment shall be
approved by the vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class B shares of the Fund. All
material amendments of the Plan shall be approved by a majority of the Board of
Directors or Trustees of the Fund and a majority of the Rule 12b-1 Directors or
Trustees by votes cast in person at a meeting called for the purpose of voting
on the Plan.
8. RULE 12b-1 DIRECTORS OR TRUSTEES
While the Plan is in effect, the selection and nomination of the Rule 12b-1
Directors or Trustees shall be committed to the discretion of the Rule 12b-1
Directors or Trustees.
9. RECORDS
The Fund shall preserve copies of the Plan and any related agreements and
all reports made pursuant to Section 4 hereof, for a period of not less than six
years from the date of effectiveness of the Plan, such agreements or reports,
and for at least the first two years in an easily accessible place.
*[10. ENFORCEMENT OF CLAIMS.
The name "Prudential ___________ Trust" is the designation of the Trustees
under a Declaration of Trust dated ______, 19__ and all persons dealing with the
Fund must look solely to the property
6
<PAGE>
of the Fund for the enforcement of any claims against the Fund, and neither the
Trustees, officers, agents of shareholders assume any personal liability for
obligations entered into on behalf of the Fund.]
Dated:
[mc]clb-comp.pln
7
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Exhibit 99.15(e)
PRUDENTIAL ________ FUND
Form of
Distribution and Service Plan
(CLASS C SHARES)
INTRODUCTION
The Distribution and Service Plan (the Plan) set forth below which is
designed to conform to the requirements of Rule 12b-1 under the Investment
Company Act of 1940 (the Investment Company Act) and Article III, Section 26 of
the Rules of Fair Practice of the National Association of Securities Dealers,
Inc. (NASD) has been adopted by Prudential __________ Fund, (the Fund) and by
Prudential Securities Incorporated (Prudential Securities), the Fund's
distributor (the Distributor).
The Fund has entered into a distribution agreement pursuant to which
the Fund will continue to employ the Distributor to distribute Class C shares
issued by the Fund (Class C shares). Under the Plan, the Fund wishes to pay to
the Distributor, as compensation for its services, a distribution and service
fee with respect to Class C shares.
A majority of the Board of Directors or Trustees of the Fund including a
majority who are not "interested persons" of the Fund (as defined in the
Investment Company Act) and who have no direct or indirect financial interest in
the operation of this Plan or any agreements related to it (the Rule 12b-1
Directors or Trustees), have determined by votes cast in person at a meeting
called for the purpose of voting on this Plan that there is a reasonable
likelihood that adoption of this Plan will benefit the Fund and its
<PAGE>
shareholders. Expenditures under this Plan by the Fund for Distribution
Activities (defined below) are primarily intended to result in the sale of Class
C shares of the Fund within the meaning of paragraph (a)(2) of Rule 12b-1
promulgated under the Investment Company Act.
The purpose of the Plan is to create incentives to the Distributor
and/or other qualified broker-dealers and their account executives to provide
distribution assistance to their customers who are investors in the Fund, to
defray the costs and expenses associated with the preparation, printing and
distribution of prospectuses and sales literature and other promotional and
distribution activities and to provide for the servicing and maintenance of
shareholder accounts.
THE PLAN
The material aspects of the Plan are as follows:
1. DISTRIBUTION ACTIVITIES
The Fund shall engage the Distributor to distribute Class C shares of the
Fund and to service shareholder accounts using all of the facilities of the
Prudential Securities distribution network including sales personnel and branch
office and central support systems, and also using such other qualified broker-
dealers and financial institutions as the Distributor may select, including
Pruco Securities Corporation (Prusec). Services provided and activities
undertaken to distribute Class C shares of the Fund are referred to herein as
"Distribution Activities."
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2. PAYMENT OF SERVICE FEE
The Fund shall pay to the Distributor as compensation for providing
personal service and/or maintaining shareholder accounts a service fee of .25 of
1% per annum of the average daily net assets of the Class C shares (service
fee). The Fund shall calculate and accrue daily amounts payable by the Class C
shares of the Fund hereunder and shall pay such amounts monthly or at such other
intervals as the Board of Directors/Trustees may determine.
3. PAYMENT FOR DISTRIBUTION ACTIVITIES
The Fund shall pay to the Distributor as compensation for its services a
distribution fee of .75 of 1% per annum of the average daily net assets of the
Class C shares of the Fund for the performance of Distribution Activities. The
Fund shall calculate and accrue daily amounts payable by the Class C shares of
the Fund hereunder and shall pay such amounts monthly or at such other intervals
as the Board of Directors/Trustees may determine. Amounts payable under the
Plan shall be subject to the limitations of Article III, Section 26 of the NASD
Rules of Fair Practice.
Amounts paid to the Distributor by the Class C shares of the Fund will not
be used to pay the distribution expenses incurred with respect to any other
class of shares of the Fund except that distribution expenses attributable to
the Fund as a whole will be allocated to the Class C shares according to the
ratio of the sale of Class C shares to the total sales of the Fund's shares over
the Fund's fiscal year or such other allocation method approved by the Board of
Directors or Trustees. The allocation of distribution
3
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expenses among classes will be subject to the review of the Board of Directors
or Trustees.
The Distributor shall spend such amounts as it deems appropriate on
Distribution Activities which include, among others:
(a) sales commissions (including trailer commissions) paid to, or on
account of, account executives of the Distributor;
(b) indirect and overhead costs of the Distributor associated with
performance of Distribution Activities including central office and
branch expenses;
(c) amounts paid to Prusec for performing services under a selected
dealer agreement between Prusec and the Distributor for sale of Class
C shares of the Fund, including sales commissions and trailer
commissions paid to, or on account of, agents and indirect and
overhead costs associated with Distribution Activities;
(d) advertising for the Fund in various forms through any available
medium, including the cost of printing and mailing Fund prospectuses,
statements of additional information and periodic financial reports
and sales literature to persons other than current shareholders of the
Fund; and
(e) sales commissions (including trailer commissions) paid to, or on
account of, broker-dealers and other financial institutions (other
than Prusec) which have entered into selected dealer agreements with
the Distributor with respect to shares of the Fund.
4. QUARTERLY REPORTS; ADDITIONAL INFORMATION
An appropriate officer of the Fund will provide to the Board of Directors
or Trustees of the Fund for review, at least quarterly, a written report
specifying in reasonable detail the amounts expended for Distribution Activities
(including payment of the service fee) and the purposes for which such
expenditures were made in compliance with the requirements of Rule 12b-1. The
Distributor will provide to the Board of Directors or Trustees of
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the Fund such additional information as they shall from time to time reasonably
request, including information about Distribution Activities undertaken or to be
undertaken by the Distributor.
The Distributor will inform the Board of Directors or Trustees of the Fund
of the commissions and account servicing fees to be paid by the Distributor to
account executives of the Distributor and to broker-dealers and other financial
institutions which have selected dealer agreements with the Distributor.
5. EFFECTIVENESS; CONTINUATION
The Plan shall not take effect until it has been approved by a vote of a
majority of the outstanding voting securities (as defined in the Investment
Company Act) of the Class C shares of the Fund.
If approved by a vote of a majority of the outstanding voting securities of
the Class C shares of the Fund, the Plan shall, unless earlier terminated in
accordance with its terms, continue in full force and effect thereafter for so
long as such continuance is specifically approved at least annually by a
majority of the Board of Directors or Trustees of the Fund and a majority of
the Rule 12b-1 Directors or Trustees by votes cast in person at a meeting
called for the purpose of voting on the continuation of the Plan.
6. TERMINATION
This Plan may be terminated at any time by vote of a majority of the Rule
12b-1 Directors or Trustees, or by vote of a majority of the outstanding voting
securities (as defined in the Investment
5
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Company Act) of the Class C shares of the Fund.
7. AMENDMENTS
The Plan may not be amended to change the combined service and distribution
fees to be paid as provided for in Sections 2 and 3 hereof so as to increase
materially the amounts payable under this Plan unless such amendment shall be
approved by the vote of a majority of the outstanding voting securities (as
defined in the Investment Company Act) of the Class C shares of the Fund. All
material amendments of the Plan shall be approved by a majority of the Board of
Directors or Trustees of the Fund and a majority of the Rule 12b-1 Directors or
Trustees by votes cast in person at a meeting called for the purpose of voting
on the Plan.
8. RULE 12b-1 DIRECTORS OR TRUSTEES
While the Plan is in effect, the selection and nomination of the Rule 12b-1
Directors or Trustees shall be committed to the discretion of the Rule 12b-1
Directors or Trustees.
9. RECORDS
The Fund shall preserve copies of the Plan and any related agreements and
all reports made pursuant to Section 4 hereof, for a period of not less than six
years from the date of effectiveness of the Plan, such agreements or reports,
and for at least the first two years in an easily accessible place.
*[10. ENFORCEMENT OF CLAIMS.
The name "Prudential ___________ Trust" is the designation of the Trustees
under a Declaration of Trust dated ______, 19__ and all persons dealing with the
Fund must look solely to the property
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of the Fund for the enforcement of any claims against the Fund, and neither the
Trustees, officers, agents of shareholders assume any personal liability for
obligations entered into on behalf of the Fund.]
Dated:
[mc]clb-comp.pln
7
