<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
(CLASS Z SHARES)
- ----------------------------------------------------------------
PROSPECTUS DATED SEPTEMBER 12, 1996
- ----------------------------------------------------------------
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 Intermediate
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 Intermediate 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.
There can be no assurance that the Series' investment objectives will be
achieved. See "How the Fund Invests--Investment Objectives and Policies."
Subject to the limitations described herein, each Series may utilize
derivatives, including buying and selling futures contracts for the purpose of
hedging its portfolio securities. See "How the Fund Invests--Investment
Objectives and Policies."
ALTHOUGH THE HIGH YIELD SERIES MAY INVEST UP TO 100% OF ITS ASSETS IN LOWER
RATED BONDS, COMMONLY KNOWN AS "JUNK BONDS," SUCH SECURITIES TYPICALLY COMPRISE
LESS THAN HALF OF THE SERIES' INVESTMENT PORTFOLIO. 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--Risk Factors Relating to Investing
in High Yield Securities."
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.
- --------------------------------------------------------------------------------
Class Z shares are offered exclusively for sale to a limited group of investors.
Only Class Z shares are offered through this Prospectus. The Fund also offers
Class A, Class B and Class C shares through the attached Prospectus dated June
28, 1996 (the Retail Class Prospectus), which is a part hereof.
- --------------------------------------------------------------------------------
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing. Additional information about
the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information, dated June 28, 1996, 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 EXPENSES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS Z SHARES
---------------
<S> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)........................ None
Maximum Sales Load or Deferred Sales Load Imposed on Reinvested Dividends......................... None
Deferred Sales Load (as a percentage of original purchase price or redemption proceeds, whichever
is lower)....................................................................................... None
Redemption Fees................................................................................... None
Exchange Fee...................................................................................... None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES* CLASS Z SHARES
---------------
<S> <C>
(as a percentage of average net assets)
Management Fees (Before Waiver):
High Yield Series............................................................................. .50%
Insured Series................................................................................ .50
Intermediate Series........................................................................... .50
12b-1 Fees:
High Yield Series............................................................................. None
Insured Series................................................................................ None
Intermediate Series........................................................................... None
Other Expenses:
High Yield Series............................................................................. .09%
Insured Series................................................................................ .13
Intermediate Series........................................................................... .61
Total Fund Operating Expenses (Before Waiver):
High Yield Series............................................................................. .59%
Insured Series................................................................................ .63
Intermediate Series........................................................................... 1.11
</TABLE>
<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........................................ $ 6 $ 19 $ 33 $ 74
Insured Series........................................... $ 6 $ 20 $ 35 $ 79
Intermediate Series...................................... $ 11 $ 35 $ 61 $ 135
The above example is based on expenses expected to have been incurred if Class Z shares had been in existence
throughout the fiscal year ended April 30, 1996. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The purpose of this table is to assist investors in understanding the various costs and expenses that an investor
in Class Z shares of 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" includes operating expenses of the
Fund, 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 Z shares
had been in existence throughout the fiscal year ended April 30,1996, without
taking into account the management fee waiver. At the current level of
management fee waiver (10%), Management Fees would be .45% for each Series and
Total Fund Operating Expenses would be .54%, .58% and 1.06% for the High Yield
Series, Insured Series and Intermediate Series, respectively.
</TABLE>
2
<PAGE>
THE FOLLOWING INFORMATION SUPPLEMENTS "HOW THE FUND IS MANAGED--DISTRIBUTOR"
IN THE RETAIL CLASS PROSPECTUS:
Prudential Securities Incorporated (Prudential Securities) serves as the
Distributor of Class Z shares and incurs the expenses of distributing the Fund's
Class Z shares under a Distribution Agreement with the Fund, none of which is
reimbursed by or paid for by the Fund.
THE FOLLOWING INFORMATION SUPPLEMENTS "TAXES, DIVIDENDS AND
DISTRIBUTIONS--TAXATION OF SHAREHOLDERS" IN THE RETAIL CLASS PROSPECTUS:
The Fund has obtained opinions of counsel to the effect that neither (i) the
conversion of Class B shares into Class A shares nor (ii) the exchange of any
class of the Fund's shares for any other class of its shares constitutes a
taxable event for federal income tax purposes. However, such opinions are not
binding on the Internal Revenue Service.
THE FOLLOWING INFORMATION SUPPLEMENTS "SHAREHOLDER GUIDE--HOW TO BUY SHARES
OF THE FUND" AND "SHAREHOLDER GUIDE--HOW TO SELL YOUR SHARES" IN THE RETAIL
CLASS PROSPECTUS:
Class Z shares of the Fund are available for purchase by participants in any
fee-based program sponsored by Prudential Securities or its affiliates which
includes mutual funds as investment options and for which the Fund is an
available option.
In connection with the sale of Class Z shares, the Manager, the Distributor
or one of their affiliates may pay dealers, financial advisers and other persons
which distribute shares a finders' fee based on a percentage of the net asset
value of shares sold by such persons.
THE FOLLOWING INFORMATION SUPPLEMENTS "SHAREHOLDER GUIDE--HOW TO EXCHANGE
YOUR SHARES" IN THE RETAIL CLASS PROSPECTUS:
Class Z shareholders of the Fund may exchange their Class Z shares for Class
Z shares of another Series or other Prudential Mutual Funds on the basis of
relative net asset value. Shareholders who qualify to purchase Class Z shares
(other than participants in any fee-based program) will have their Class B and
Class C shares which are not subject to contingent deferred sales charges and
their Class A shares exchanged for Class Z shares on a quarterly basis.
Participants in any fee-based program for which the Fund is an available option
will have their Class A shares, if any, exchanged for Class Z shares when they
elect to have those assets become a part of the fee-based program. Upon leaving
the program (whether voluntarily or not), such Class Z shares (and, to the
extent provided for in the program, Class Z shares acquired through
participation in the program) will be exchanged for Class A shares at net asset
value. See "Shareholder Guide--How to Exchange Your Shares--Special Exchange
Privilege."
THE INFORMATION ABOVE ALSO SUPPLEMENTS THE INFORMATION UNDER "FUND
HIGHLIGHTS" IN THE RETAIL CLASS PROSPECTUS AS APPROPRIATE.
3
<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
Risk Factors and Special Characteristics........................... 2
FUND EXPENSES........................................................ 4
FINANCIAL HIGHLIGHTS................................................. 6
HOW THE FUND INVESTS................................................. 15
Investment Objectives and Policies................................. 15
Hedging Strategies................................................. 20
Other Investments and Policies..................................... 22
Investment Restrictions............................................ 25
HOW THE FUND IS MANAGED.............................................. 25
Manager............................................................ 25
Distributor........................................................ 26
Portfolio Transactions............................................. 28
Custodian and Transfer and Dividend Disbursing Agent............... 28
HOW THE FUND VALUES ITS SHARES....................................... 28
HOW THE FUND CALCULATES PERFORMANCE.................................. 29
TAXES, DIVIDENDS AND DISTRIBUTIONS................................... 29
GENERAL INFORMATION.................................................. 32
Description of Shares.............................................. 32
Additional Information............................................. 33
SHAREHOLDER GUIDE.................................................... 33
How to Buy Shares of the Fund...................................... 33
Alternative Purchase Plan.......................................... 34
How to Sell Your Shares............................................ 36
Conversion Feature--Class B Shares................................. 39
How to Exchange Your Shares........................................ 39
Shareholder Services............................................... 40
DESCRIPTION OF SECURITY RATINGS...................................... A-1
THE PRUDENTIAL MUTUAL FUND FAMILY.................................... B-1
</TABLE>
-------------------------------------------
MF133Z 4441470
CUSIP Nos.:
High Yield Series Class Z: 74435L 871
Insured Series Class Z: 74435L 863
Intermediate Series Class Z: 74435L 855
PRUDENTIAL
MUNICIPAL
BOND FUND
(CLASS Z SHARES)
- ----------------------
HIGH YIELD SERIES
INSURED SERIES
INTERMEDIATE SERIES
[LOGO]
PROSPECTUS
SEPTEMBER 12, 1996
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Supplement dated September 12, 1996 to
Prospectus dated June 28, 1996
THE FOLLOWING INFORMATION SUPPLEMENTS "GENERAL INFORMATION--DESCRIPTION OF
SHARES" IN THE PROSPECTUS:
The Fund is authorized to offer an unlimited number of shares of beneficial
interest, divided into four classes of shares, designated Class A, Class B,
Class C and Class Z shares. Each class represents an interest in the same assets
of a Series and is identical in all respects except that (i) each class is
subject to different sales charges and distribution and/or service fees (except
for Class Z shares which are not subject to any sales charges and distribution
and/or service fees), which may affect performance, (ii) each class has
exclusive voting rights on any matter submitted to shareholders that relates
solely to its arrangement and has separate voting rights on any matter submitted
to shareholders in which the interests of one class differ from the interests of
any other class, (iii) each class has a different exchange privilege, (iv) only
Class B shares have a conversion feature and (v) Class Z shares are offered
exclusively for sale to a limited group of investors. For more information about
Class Z shares, contact your Prudential Securities financial adviser or Prusec
representative or telephone the Fund at (800) 225-1852. Participants in programs
sponsored by Prudential Retirement Services should contact their client
representative for more information about Class Z shares. Since Class B and
Class C shares generally bear higher distribution expenses than Class A shares,
the liquidation proceeds to shareholders of those classes are likely to be lower
than to Class A shareholders and to Class Z shareholders, whose shares are not
subject to any distribution and/or service fee. In accordance with the Fund's
Declaration of Trust, the Board of Trustees may authorize the creation of
additional series and classes within such series, with such preferences,
privileges, limitations and voting and dividend rights as the Board of Trustees
may determine. Currently, the Fund is offering four classes designated Class A,
Class B, Class C and Class Z shares.
MF133C-1 (9/12/96)
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Supplement dated September 12, 1996 to
Statement of Additional Information dated
June 28, 1996
THE FOLLOWING INFORMATION SUPPLEMENTS "TRUSTEES AND OFFICERS" IN THE
STATEMENT OF ADDITIONAL INFORMATION:
As of July 26, 1996, the Trustees and officers of the Fund, as a group,
owned beneficially less than 1% of the outstanding shares of beneficial interest
of each Series of the Fund.
As of July 26, 1996, Prudential Securities Incorporated (Prudential
Securities) was record holder for other beneficial owners of 17,631,352 Class A
shares (or 70.6% of the outstanding Class A shares) of the High Yield Series,
8,137,693 Class A shares (or 52.5% of the outstanding Class A shares) of the
Insured Series and 813,678 Class A shares (or 68.5% of the outstanding Class A
shares) of the Intermediate Series; 53,028,652 Class B shares (or 75.5% of the
outstanding Class B shares) of the High Yield Series, 13,940,824 Class B shares
(or 38.5% of the outstanding Class B shares) of the Insured Series and 1,788,609
Class B shares (or 50.1% of the outstanding Class B shares) of the Intermediate
Series; and 670,290 Class C shares (or 95.7% of the outstanding Class C shares)
of the High Yield Series, 59,534 Class C shares (or 57.6% of the outstanding
Class C shares) of the Insured Series and 2,355 Class C shares (or 28.0% of the
outstanding Class C shares) of the Intermediate 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.
As of July 26, 1996, the beneficial owners, directly or indirectly, of more
than 5% of the outstanding shares of any class of beneficial interest of a
Series were: Gary Oliver, Patricia Oliver CONS, Property of Laura Lee Oliver,
43553 SE Marmot Road, Sandy, OR 97055-9701, who held 67,390 Class A shares of
the Intermediate Series (5.6%); Frank R. Grabenhofer, Loretta M. Grabenhofer
JTTEN, 15606 Plum Tree Drive, Orlando Park, IL 60462-5987, who held 3,585 Class
C shares of the Intermediate Series (42.7%); Marie A. Lambert, Louise M. Dean JT
Ten TOD Elizabeth Marie Dean, subject to state TOD rules NJ, 400 W 76 Ave.,
Anchorage, AK 99518-2550, who held 2,434 Class C shares of the Intermediate
Series (28.9%); Timothy G. Beno, 8800 Linn Station Rd., Louisville, KY
40222-5657 who held 940 Class C shares of the Intermediate Series (11.1%);
Edward T. Roder TTEE Edward A. Roder Trust, UA DAD 10/19/88, 1108 Grant Place,
Vernon Hills, IL 60061-1014, who held 938 Class C shares of the Intermediate
Series (11.1%); Richard A. Reed MD and Mary E. Reed JTTEN, 14 Latigo Lane,
Rolling Hills, CA 90274-1520 who held 477 Class C shares of the Intermediate
Series (5.6%); Charles A. Gash & Margaret Gash JTTEN, 1137 Damico Drive, Chicago
Heights, IL 60411-2451, who held 9,757 Class C shares of the Insured Series
(9.4%); Margaret Gash & Robert Roseland, Philip Roseland & Steven Roseland
JTTEN, 1137 Damico Drive, Chicago Heights, IL 60411-2451, who held 7,493 Class C
shares of the Insured Series (7.2%); Jessie L. Jerkatis & Robert L. Jerkatis &
Julia A. Mankus JTTEN, 18215 Springfield Ave., Homewood, IL 60430, who held
6,648 Class C shares of the Insured Series (6.4%); Belvia R. Gordon TTee Belvia
R. Gordon Living Tr UA DTD 6/11/86, 4 Meadow Pass, Huntington, IN 46750-1314 who
held 6,578 Class C shares of the Insured Series (6.3%); James Rohde and Rose
Marie Rhode JTTEN, 333 Heights Blvd., Houston, TX 77007-2517, who held 85,863
Class C shares of the High Yield Series (12.2%); and Darrell L. Uher, 14024 Wind
Mountain Road NE, Albuquerque, NM 87112-6561, who held 46,296 Class C shares of
the High Yield Series (6.6%).
As of September 12, 1996, Prudential Mutual Fund Management, Inc., located
at One Seaport Plaza, New York, NY 10292, owned all of the Series' outstanding
Class Z shares and therefore controlled Class Z of the Series.
THE FOLLOWING INFORMATION SUPPLEMENTS "DISTRIBUTOR" IN THE STATEMENT OF
ADDITIONAL INFORMATION:
Prudential Securities serves as the Distributor of Class Z shares and incurs
the expenses of distributing each Series' Class Z shares under a Distribution
Agreement with the Fund, none of which are reimbursed by or paid for by the
Fund.
<PAGE>
THE FOLLOWING INFORMATION SUPPLEMENTS "PURCHASE AND REDEMPTION OF FUND
SHARES" IN THE STATEMENT OF ADDITIONAL INFORMATION:
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). Class
Z shares of each Series of the Fund are offered to a limited group of investors
at net asset value without any sales charges. See "Shareholder Guide--How to Buy
Shares of the Fund" in the Prospectus.
Each class of shares represents an interest in the same assets of a Series
and is identical in all respects except that (i) each class is subject to
different sales charges and distribution and/or service fees (except for Class Z
shares, which are not subject to any sales charges and distribution and/or
service fees), which may affect performance, (ii) each class has exclusive
voting rights on any matter submitted to shareholders that relates solely to its
arrangement and has separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the interests of
any other class, (iii) each class has a different exchange privilege, (iv) only
Class B shares have a conversion feature and (v) Class Z shares are offered for
sale to a limited group of investors. See "Distributor" and "Shareholder
Investment Account--Exchange Privilege."
SPECIMEN PRICE MAKE-UP
Under the current distribution arrangements between the Fund and the
Distributor, Class A shares are sold with a maximum sales charge of 3% and Class
B*, Class C* and Class Z** shares are sold at net asset value. Using the Fund's
net asset value at April 30, 1996, the maximum offering price of the Fund's
shares is as follows:
<TABLE>
<CAPTION>
HIGH YIELD INSURED INTERMEDIATE
SERIES SERIES SERIES
----------- --------- -----------
<S> <C> <C> <C>
CLASS A
Net asset value and redemption price per Class A share................................ $ 10.70 $ 10.94 $ 10.65
Maximum sales charge (3% of offering price)........................................... .33 .34 .33
----------- --------- -----------
Offering price to public.............................................................. $ 11.03 $ 11.28 $ 10.98
----------- --------- -----------
----------- --------- -----------
CLASS B
Net asset value, offering price and redemption price per Class B share*............... $ 10.69 $ 10.95 $ 10.65
----------- --------- -----------
----------- --------- -----------
CLASS C
Net asset value, offering price and redemption price per Class C share*............... $ 10.69 $ 10.95 $ 10.65
----------- --------- -----------
----------- --------- -----------
CLASS Z
Net asset value, offering price and redemption price per Class Z share**.............. $ 10.70 $ 10.94 $ 10.65
----------- --------- -----------
----------- --------- -----------
</TABLE>
- ------------------------
* Class B and Class C shares are subject to a contingent deferred sales charge
on certain redemptions. See "Shareholder Guide--How to Sell Your
Shares--Contingent Deferred Sales Charges" in the Prospectus.
**Class Z shares did not exist at April 30, 1996.
THE FOLLOWING INFORMATION SUPPLEMENTS "SHAREHOLDER INVESTMENT
ACCOUNT--EXCHANGE PRIVILEGE" IN THE STATEMENT OF ADDITIONAL INFORMATION:
CLASS Z. Class Z shares may be exchanged for Class Z shares of other
Prudential Mutual Funds.
MF133C-2 (9/12/96)
