(ICON)
Prudential
Municipal
Bond Fund
High Yield Series
Insured Series
Intermediate Series
(Formerly Modified Term Series)
ANNUAL
REPORT
April 30, 1996
(LOGO)
<PAGE>
Portfolio
Managers' Report
Renewed signs of economic growth and inflation fears pushed interest rates
higher this spring, gnawing away at investors' gains in the Prudential
Municipal Bond Fund over the last year. Still, shareholders received positive
returns, because interest rates had generally fallen over the last 12 months.
Performance varied only slightly among the three Series. In general, the High
Yield Series holds bonds with the highest coupons, lowest credit quality and
longest maturities. The Series' performance was hindered by a few of its bonds,
however.
The bonds in the Insured Series hold the highest quality credit rating -- triple
A -- so they carry lower interest rates. Still, the Series appreciated for much
of the year as interest rates fell. Although it trailed the average insured
municipal fund because it held a slightly longer than average duration this
spring when interest rates rose.
The Intermediate Series holds bonds with shorter maturities and lower yields,
so it will usually trail the other two Series when interest rates fall. (It
also tends to provide more price protection when rates rise.) Its total return
trailed its peer group because its duration was slightly too long when interest
rates rose.
A Tale Of Two Markets.
Our story is really about two completely different municipal bond markets:
1995 and 1996. Last year -- 1995 --was very kind to bond investors. Economic
growth was slowing, inflation was under control, and interest rates were
falling. (Of course, older bonds become more valuable when interest rates fall,
since newly-issued ones carry lower coupons.) In fact, 1995 was the best year
for municipal bonds since 1986, according to Lehman Brothers.
Things changed in 1996. Signs of stronger economic growth surfaced as housing
starts rebounded, more jobs were created and prices of grain and oil surged.
In February, employment grew at the fastest rate in 13 years. In March,
mortgage rates rose by a full percentage point. And in April, gasoline prices
hit a 12-year seasonal high, fueling fear that inflation would burn away the
value of future interest payments.
What happened to bond investors? Interest rates rose rapidly. Year to year,
the Bond Buyer's Revenue Bond Index increased slightly to 6.32% on May 2, 1996
from 6.29% on April 27, 1995 (the index is calculated on Thursdays). But that
masked a very rapid runup in rates of 69 basis points from January 4, when the
index stood at 5.63%. We feared that interest rates could rise, so we started
in January to gradually reduce our duration (a measure of each Series'
sensitivity to interest rate changes).This strategy helped to minimize damages
from rising rates.
We'll discuss each portfolio in detail on the following pages.
How Investments Compared.
(As of 4/30/96)
(GRAPH)
U.S. General General U.S.
Growth Bond Muni Debt Taxable
Funds Funds Funds Money Funds
Source: Lipper Analytical Services. Financial markets change, so a mutual
fund's past performance should never be used to predict future results. The
risks to each of the investments listed above are different -- we provide
12-month total returns for several Lipper mutual fund categories to show you
that reaching for higher yields means tolerating more risk. The greater the
risk, the larger the potential reward or loss. In addition, we've included
historical 20-year average annual returns. These returns assume the
reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors have received higher
historical total returns from stocks than from most other investments. Smaller
capitalization stocks offer greater potential for long-term growth but may be
more volatile than larger capitalization stocks.
General Bond Funds provide more income than stock funds, which can help smooth
out their total returns year by year. But their prices still fluctuate
(sometimes significantly) and their returns have been historically lower than
those of stock funds.
General Municipal Debt Funds invest in bonds issued by state governments,
state agencies and/or municipalities. This investment provides income that is
usually exempt from federal and state income taxes.
Money Market Funds attempt to preserve a constant share value; they don't
fluctuate much in price but, historically, their returns have been generally
among the lowest of the major investment categories.
<PAGE>
Peter J. Allegrini, Fund Manager
Prudential Municipal Bond Fund:
High Yield Series
(PHOTO)
Performance At A Glance.
<TABLE>
<CAPTION>
Cumulative Total Returns1 As of 4/30/96
One Five Since
Year Years Inception2
<S> <C> <C> <C>
Class A 6.6% 44.0% 56.5%
Class B 6.1 41.0 96.3
Class C 5.9 N/A 10.0
Lipper High Yield Muni Avg3 36.9 42.2 98.4
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns1 As of 3/31/96
One Five Since
Year Years Inception2
<S> <C> <C> <C>
Class A 4.4 (4.3)%4 7.5 (7.4)%4 7.1%
Class B 2.2 (2.1)4 7.5 8.3
Class C 5.9 (5.8)4 N/A 6.5
</TABLE>
<TABLE>
<CAPTION>
Dividends and
Yields
As of 4/30/96
Taxable Equivalent
Yield5
Total Dividends 30-Day At Tax Rates Of
Paid for 12 Mos. SEC Yield 36% 39.6%
<S> <C> <C> <C>
<C>
Class A $0.72 6.16% (6.11)4 9.63% (9.55)4
10.20% (10.12)4
Class B $0.68 5.95 (5.92)4 9.30 (9.22)4
9.85 (9.85)4
Class C $0.65 5.70 (5.65)4 8.91 (8.83)4
9.44 (9.44)4
</TABLE>
Past performance is not indicative of future results. Principal and investment
return will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
1Source: Prudential Mutual Fund Management and Lipper Analytical Services. The
cumulative total returns do not take into account sales charges. The average
annual returns do take into account applicable sales charges. The Fund charges
a maximum front-end sales load of 3% for Class A shares and a declining
contingent deferred sales charge (CDSC) of 5%, 4%, 3%, 2%, 1% and 1% for six
years, for Class B shares. Class C shares have a 1% CDSC for one year. Class B
shares automatically convert to Class A shares on a quarterly basis, after
approximately seven years.
2Inception dates: 1/22/90 for Class A; 9/17/87 for Class B; and 8/1/94 for
Class C.
3The Lipper fund average includes 40 funds for one year, 20 funds for five
years and 18 funds since inception of the Class B shares on 9/17/87.
4The numbers in parentheses () show the Series' average annual returns, 30-day
SEC yield and taxable equivalent yields without waiver of management fees and/or
expense subsidization.
5Some investors may be subject to the federal alternative minimum tax and/or
state and local taxes. Taxable equivalent yields reflect federal taxes only.
The High Yield Series seeks to maximize income that is eligible for exclusion
from federal income taxes by investing in non-investment grade municipal bonds
that are rated B or better by recognized rating agencies such as Standard &
Poor's Ratings Group (S&P) or Moody's Investors Service, or unrated bonds that
our analysts believe to be of comparable quality. On April 30, 1996,
approximately 57% of the portfolio was comprised of non-investment grade
municipal bonds rated BB or below (or unrated bonds of comparable quality), a
slight decrease from 59% on April 30, 1995. There can be no assurance that the
Series will achieve its investment objective.
Revenue Bonds Dominate.
Expressed as a percentage of
total net assets as of 4/30/96.
(GRAPH)
<PAGE>
What Went Well.
As Rates Fell, We Lengthened.
We expected interest rates would decline throughout 1995, so we continued to
fine-tune a strategy we had in place for much of that year:
- - We extended duration, a measure of the Series' sensitivity to interest rate
changes, to a maximum of 9.5 years on December 31, up from 7.3 years on April
30, 1995. In doing so, the value of our holdings rose as rates fell. When we
suspected that prices had risen too far in January, we started to lower
duration, ending at 7.6 years on April 30, 1996.
- - We also more than doubled the percentage of non-callable bonds in the Series
to 29% of total net assets as of April 30, 1996. Callable bonds are redeemable
by their issuer before they mature. In times of uncertain interest rates, we
prefer non-callable bonds. With them, we do not have the risk of having our
bonds called when rates are not as favorable to us.
We Liked Insured Bonds.
We nearly doubled our holdings in insured bonds to 23% on April 30, 1996, up
from 12% on April 30, 1995. We did so because these bonds were attractively
priced and offered increased protection.
And Not So Well.
Several Bonds Caused Us Credit Concern.
A high yield bond fund can pay a higher interest rate to its shareholders
because it is willing to take higher credit risks, such as the risk that a
bond's price can suddenly sink when something goes awry. Unfortunately, we
were stung by several poorly performing bonds this year, including:
- - Village of Robbins, IL: In March, the State of Illinois repealed a law which
subsidized the state's waste-to-energy plants. We own bonds issued to finance
construction of a waste-to-energy facility at Robbins, which is 75% complete.
The state's decision hurt the value of the bonds. We believe the issue will be
resolved in the courts.
- - Retama Development Corp., TX: We own bonds that financed construction of the
Retama Park Racetrack. Revenues were sluggish, hurting the value of these
bonds. In March, the racetrack filed for protection while it reorganizes under
Chapter 9 of the federal bankruptcy law.
High Yield Series
Five Largest Issuers.
2.0% Chicago, IL
O'Hare Airport
1.8% Michigan Strategic Fund
Great Lakes Pulp & Fibre
1.8% Clairborne County (MS)
Pollution Control Revenue
1.7% New Jersey
State Turnpike Authority
1.7% New Jersey
Transportation Trust Fund
Expressed as a percentage of total net assets as of 4/30/96.
Insured Bonds Doubled.
Expressed as a percentage of
total net assets as of 4/30/96.
(GRAPH)
- -------------------------------------------------------------------------------
1
<PAGE>
Peter J. Allegrini & Marie Conti, Fund Managers (PHOTO) (PHOTO)
Prudential Municipal Bond Fund:
Insured Series
Performance At A Glance.
<TABLE>
<CAPTION>
Cumulative Total Returns1 As of 4/30/96
One Five Since
Year Years Inception2
<S> <C> <C> <C>
Class A 6.5% 40.5% 56.0%
Class B 6.0 37.8 90.6
Class C 5.8 N/A 10.0
Lipper High Yield Muni Avg3 6.4 40.7 98.5
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns1 As of 3/31/96
One Five Since
Year Years Inception2
<S> <C> <C> <C>
Class A 3.8 (3.7)%4 6.8% 7.0%
Class B 1.6 (1.5)4 6.9 7.9
(7.8)4
Class C 5.4 (5.3)4 N/A 6.3
(6.2)4
</TABLE>
<TABLE>
<CAPTION>
Dividends and
Yields
As of 4/30/96
Taxable Equivalent
Yield5
Total Dividends 30-Day At Tax Rates Of
Paid for 12 Mos. SEC Yield 36% 39.6%
<S> <C> <C> <C>
<C>
Class A $0.58 4.75% (4.70)4 7.42% (7.34)4
7.86% (7.78)4
Class B $0.54 4.50 (4.45)4 7.03 (6.95)4
7.45 (7.37)4
Class C $0.51 4.25 (4.20)4 6.64 (6.56)4
7.04 (6.95)4
</TABLE>
Past performance is not indicative of future results. Principal and investment
return will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
1Source: Prudential Mutual Fund Management and Lipper Analytical Services. The
cumulative total returns do not take into account sales charges. The average
annual returns do take into account applicable sales charges. The Fund charges
a maximum front-end sales load of 3% for Class A shares and a declining
contingent deferred sales charge (CDSC) of 5%, 4%, 3%, 2%, 1% and 1% for six
years, for Class B shares. Class C shares have a 1% CDSC for one year. Class B
shares automatically convert to Class A shares on a quarterly basis, after
approximately seven years.
2Inception dates: 1/22/90 for Class A; 9/17/87 for Class B; and 8/1/94 for
Class C.
3The Lipper fund average includes 46 funds for one year, 20 funds for five
years and 17 funds since inception of the Class B shares on 9/17/87.
4The numbers in parentheses () show the Series' average annual returns, 30-day
SEC yield and taxable equivalent yields without waiver of management fees and/
or expense subsidization.
5Some investors may be subject to the federal alternative minimum tax and/or
state and local taxes. Taxable equivalent yields reflect federal taxes only.
New Managers.
In April, Peter J. Allegrini and Marie Conti took over management of the
Prudential Municipal Bond Fund: Insured Series. Peter oversees the municipal
bond trading desk and also manages the Prudential Municipal Bond Fund: High
Yield Series. Marie also manages the Prudential Municipal Bond Fund:
Intermediate Series.
The Insured Series invests primarily in AAA-rated municipal obligations, or in
municipal obligations whose timely coupon and principal payments, but not
market value, are insured by a municipal bond insurance company rated AAA by
S&P, Aaa by Moody's, or other nationally recognized statistical rating
organization. There can be no assurance that the Series will achieve its
investment objective.
- -------------------------------------------------------------------------------
2
<PAGE>
What Went Well.
As Rates Fell, We Lengthened.
We expected interest rates would decline throughout 1995, so we continued to
fine-tune a strategy we had in place for much of the year:
- - We extended duration, a measure of the Series' sensitivity to interest rate
changes, to a maximum of 8.6 years on December 31, up from 7.5 years on April
30. By doing so, the value of our holdings rose as rates fell. When we
suspected the market had run ahead of itself in January, we started to lower
duration, ending at 8.4 years on April 30, 1996.
- - We also increased the percentage of non-callable bonds in the Series to 44%
of total net assets. Callable bonds are redeemable by their issuer before they
come due -- they can be refinanced if interest rates fall. In these times of
highly volatile interest rates, we prefer non-callable bonds. With them, we do
not have the risk of having our bonds called when rates are not as favorable
to us.
- - To purchase these non-callable bonds, and to extend our duration, we sold
bonds with less than 10 years of call protection, and those carrying a current,
or market-rate, coupon.
And Not So Well.
Something we did well was also something that we could have done better:
manage the Fund's duration. While we extended duration throughout the 1995 to
take advantage of falling interest rates, we wished we had extended more. The
bond market rally peaked in the third quarter, when our duration was about 7.5
years. We wish we had held it at 7.9 years, where it was at the end of the
second quarter of 1995.
Then, in early 1996, we reduced our duration because we believed that interest
rates had fallen considerably already. We could have shortened duration even
further, which would have helped our performance when interest rates rose
rapidly this spring.
Insured Series
Five Largest Issuers.
3.3% Harris County (TX)
Toll Road
2.9% Brazos River Authority
TX Utilities Electric Corp.
2.7% California
General Obligation
2.6% Pima County (AZ)
Industrial Development
Authority
2.6% New Jersey
State Turnpike Authority
Expressed as a percentage of total net assets as of 4/30/96.
Nearly Two-Thirds Revenue Bonds.
Expressed as a percentage of
total net assets as of 4/30/96.
(GRAPH)
- -------------------------------------------------------------------------------
3
<PAGE>
Marie Conti, Fund Manager (PHOTO)
Prudential Municipal Bond Fund:
Intermediate Series
Performance At A Glance.
<TABLE>
<CAPTION>
Cumulative Total Returns1 As of 4/30/96
One Five Since
Year Years Inception2
<S> <C> <C> <C>
Class A 6.5% 37.6% 52.0%
Class B 6.1 34.8 78.4
Class C 5.8 N/A 8.1
Lipper High Yield Muni Avg3 6.4 37.3 84.0
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns1 As of 3/31/96
One Five Since
Year Years Inception2
<S> <C> <C> <C>
Class A 3.6 (3.5)%4 6.3 (6.2)%4 6.5
(6.4)%4
Class B 1.3 (1.2)4 6.3 (6.2)4 7.0
(6.7)4
Class C 5.0 (4.9)4 N/A 4.9
</TABLE>
<TABLE>
<CAPTION>
Dividends and
Yields
As of 4/30/96
Taxable Equivalent
Yield5
Total Dividends 30-Day At Tax Rates Of
Paid for 12 Mos. SEC Yield 36% 39.6%
<S> <C> <C> <C>
<C>
Class A $0.47 3.94% (3.89)4 6.16% (6.08)4
6.52% (6.44)4
Class B $0.43 3.67 (3.62)4 5.73 (5.66)4
6.08 (5.99)4
Class C $0.40 3.42 (3.37)4 5.34 (5.27)4
5.66 (5.58)4
</TABLE>
Past performance is not indicative of future results. Principal and investment
return will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
1Source: Prudential Mutual Fund Management and Lipper Analytical Services. The
cumulative total returns do not take into account sales charges. The average
annual returns do take into account applicable sales charges. The Fund charges
a maximum front-end sales load of 3% for Class A shares and a declining
contingent deferred sales charge (CDSC) of 5%, 4%, 3%, 2%, 1% and 1% for six
years, for Class B shares. Class C shares have a 1% CDSC for one year. Class B
shares automatically convert to Class A shares on a quarterly basis, after
approximately seven years.
2Inception dates: 1/22/90 for Class A; 9/17/87 for Class B; and 8/1/94 for
Class C.
3The Lipper fund average includes 135 funds for one year, 31 funds for five
years and 22 funds since inception of the Class B shares on 9/17/87.
4The numbers in parentheses () show the Series' average annual returns, 30-day
SEC yield and taxable equivalent yields without waiver of management fees and/
or expense subsidization.
5Some investors may be subject to the federal alternative minimum tax and/or
state and local taxes. Taxable equivalent yields reflect federal taxes only.
The Intermediate Series seeks to provide a high level of income that is
eligible for exclusion from federal income taxes, consistent with preservation
of capital. It invests primarily in investment grade municipal bonds with 3- to
15-year maturities, and will have a dollar-weighted average portfolio maturity
of more than 3 years and less than 10 years. The Series is structured to be
less price sensitive to interest rate changes than if it held only longer term
bonds. There can be no assurance that the Series will achieve its investment
objective.
Revenue Bonds Dominate.
Expressed as a percentage of
total net assets as of 4/30/96.
(GRAPH)
- -------------------------------------------------------------------------------
4
<PAGE>
What Went Well.
We Like Insured Bonds.
We increased our holdings in insured bonds substantially, to 57% of total net
assets as of April 30, 1996, up from 40% on April 30, 1995, for several
reasons:
- - They were attractively priced. So we took this opportunity to upgrade the
quality of our portfolio by buying insured bonds, which offer the highest
credit rating available. (Of course, with insured bonds, only the interest and
principal are insured, not the daily market value of the bond.)
- - Insured bonds represent the single largest group of non-callable bonds, which
we wanted to buy to help us better manage our maturities in a time of rapidly
changing interest rates.
And Not So Well.
- - Late last year, both New York City and state issued a substantial number of
bonds. Looking back, we wish we had bought some of these bonds, particularly
because they were offered at good prices. On April 30, 1996, we held 2.5% of
total net assets in New York, and we would like to increase that amount.
- - A shorter duration this year would have helped. Duration measures the Series'
sensitivity to interest rate changes. In 1995, we lengthened our duration to
6.4 years in December, from 5.7 years in April, to capitalize on falling
interest rates. If we had been able to reduce our duration before interest
rates shot back up in February we would have held on to more of our gains.
Looking Ahead
Although interest rates have jumped significantly in recent months -- and bond
prices have fallen -- we believe this may be a temporary phenomenon. A surge in
economic activity sent interest rates higher, and these higher rates will
surely push economic activity lower again soon. Already, we see a slowdown in
refinancing and housing-related activity as a result of the recent runup in
interest rates.
We believe this volatility may bring a buying opportunity. Yields are rising
to a level we have not seen in some time. Right now, municipal bond prices are
relatively stable.
Intermediate Series
Five Largest Issuers.
5.6% Washington State
Public Power
Nuclear Project #2/#3
4.4% Oklahoma
Industrial Development
Authority
3.8% New Jersey
Economic Development
Authority
3.8% Puerto Rico
General Obligation
3.0% Dade County, FL
School District
Expressed as a percentage of total net assets as of 4/30/96.
57% Insured Bonds.
Expressed as a percentage of
total net assets as of 4/30/96.
(GRAPH)
- -------------------------------------------------------------------------------
5
<PAGE>
A Talk With Peter Allegrini.
What's Hot -- and What's Not -- In Today's Municipal Bond Markets.
We talked to Peter Allegrini, portfolio manager of the Prudential Municipal
Bond Fund -- High Yield Series and co-portfolio manager of the Insured Series,
about what he's watching in today's market.
Q. Peter, you have a strong background in research. What kind of bonds look
attractive to you right now?
A. In the high yield market these days there isn't a wide difference in yield
between a AAA-rated bond and a BBB-rated bond. When interest rates fell
sharply in 1995, this gap narrowed, because demand for all types of bonds
surged as prices rose. So comparatively speaking, investors haven't been
receiving the high yields they have come to expect. That makes us more
selective, because we want to be fairly compensated for any risk we take on.
Q. What has your research uncovered?
A. Selective bonds issued by retirement centers offer a lot of yield these
days with reasonable risk. Certain industrial development bonds, with the
proper structure and corporate credit, can also give you good yield. There are
some electric utilities offer good value, too.
Q. What do retirement homes, electric utilities and industrial development
bonds have in common?
A. I look at the source of their revenues. I'm searching for industries with
dependable revenues. As we look ahead over the next couple of years, I don't
foresee an economic boom. True, we've had a little bit of a surge in economic
growth in the first quarter, but I think it is only temporary. When 1996 is
over I think you'll find that growth was somewhat subdued. So I'm interested
in areas that will grow slowly but steadily.
Peter Allegrini
(PHOTO)
- -------------------------------------------------------------------------------
6
<PAGE>
President's Letter June 3, 1996
(PHOTO)
Dear Shareholder:
Last year, U.S. stocks and bonds generally posted extraordinary returns.
Investors celebrated this performance by putting record amounts of new money
into mutual funds in the first few months of 1996. According to figures released
by the Investment Company Institute, a mutual fund industry trade group, new
investments in mutual funds reached an all-time monthly high of $33 billion in
January of 1996. An additional $66 billion was invested in the following three
months.
While we are pleased that mutual funds are attracting new investors, we're
concerned that some of them may be "buying last year's returns." Few expect
1995's virtual non-stop returns from the stock and bond markets. In fact,
1996's markets have been volatile so far (stock and bond prices go down just
as they go up). There's no better time than now to be talking with your
Financial Advisor or Registered Representative. She or he can help you
determine reasonable expectations about both the potential performance and
risks associated with your investments.
Board of Directors Election.
Late this summer, we'll be sending you a notice about a special shareholder
meeting to elect new Prudential mutual fund boards of directors. Your Board of
Directors has approved a proposal to place a common board of experienced
directors across many of Prudential's mutual funds to improve business
efficiency. The materials you'll receive this summer will contain more complete
information about this proposal.
Changes at Prudential.
Finally, there have been some important changes recently at Prudential that
were made with you in mind. Prudential Mutual Funds has moved under the
umbrella of Prudential's newly created "Money Management Group." This group
manages and administers nearly $190 billion in client assets and provides
mutual funds, annuities, defined benefit and defined contribution plans to our
individual and institutional investors. We plan to improve the range and
quality of investment products and services that we can provide you by better
leveraging Prudential's strengths. There will, however, be no change in the
service you receive from your Financial Advisor, Registered Representative or
our Customer Service unit.
We're excited about our future and hope that you are, too. Thank you for your
continued support and confidence in Prudential Mutual Funds.
Sincerely,
Richard A. Redeker
President
- -------------------------------------------------------------------------------
7
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1996 HIGH YIELD SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a) (Unaudited)
Rate Date (000) (Note 1)
<S> <C> <C>
<C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
LONG-TERM INVESTMENTS--97.7%
- -----------------------------------------------------------------------------
- -------------------------------------------------
Alabama--0.5%
Ft. Payne Ind. Dev. Brd. Rev., Gametime Inc. NR
10.25% 8/01/09 $ 4,269 $ 4,613,295
- -----------------------------------------------------------------------------
- -------------------------------------------------
Arizona--1.0%
Ft. Mojave Indian Tribe Wtr. & Swr. Rev. NR
10.25 9/01/19 3,000(c) 1,531,560
Pima Cnty. Ind. Dev. Auth., Multifam. Mtge. Rev., La
Cholla Proj. NR
8.50 7/01/20 9,960 8,602,552
--------------
10,134,112
- -----------------------------------------------------------------------------
- -------------------------------------------------
California--11.9%
Alameda Cmnty. Facs. Dist. Spec. Tax Rev. No. 1, Harbor
Bay NR
7.75 9/01/19 8,175 8,464,967
California Hsg. Fin. Agcy. Rev., Home Mtge., Ser. G Aa
8.15 8/01/19 1,010 1,053,309
Corona Ctfs. of Part., Vista Hosp. Sys. Inc., Ser. C NR
8.375 7/01/11 10,000 9,786,200
Delano Ctfs. of Part., Regl. Med. Ctr., Ser. 92A NR
9.25 1/01/22 6,820 7,614,939
Folsom Spec. Tax Dist. No. 2 NR
7.70 12/01/19 3,130 3,219,424
Long Beach Redev. Agcy. Hsg.,
Multifam. Hsg. Rev., Pacific Court Apts. NR
6.80 9/01/13 3,805 3,072,690
Multifam. Hsg. Rev., Pacific Court Apts. NR
6.95 9/01/23 6,195 4,906,254
Los Angeles Cnty. Valencia/Newhall Area, Spec. Tax NR
7.125 9/01/20 3,000 2,890,770
Los Angeles Regl. Arpts. Impvt. Corp., Cont. Air
Sublease NR
9.25 8/01/24 10,345 11,626,228
Orange Cnty. Cmnty. Loc. Trans. Auth., Reg. Linked
Savrs. & Ribs Aa
6.20 2/14/11 7,000 7,038,920
Richmond Redev. Agcy. Rev., Multifam. Bridge Affordable
Hsg. NR
7.50 9/01/23 10,000 9,838,800
Roseville Joint Union H.S. Dist.,
Ser. B, F.G.I.C. Aaa
Zero 8/01/08 1,660 836,740
Ser. B, F.G.I.C. Aaa
Zero 8/01/09 1,740 818,757
Ser. B, F.G.I.C. Aaa
Zero 8/01/11 1,890 776,242
Ser. B, F.G.I.C. Aaa
Zero 8/01/14 2,220 751,936
Sacramento City Fin. Auth. Rev., Tax Alloc., M.B.I.A. Aaa
Zero 11/01/15 5,695 1,768,525
Sacramento Cnty. Spec. Tax Rev.,
Dist. No. 1, Elliot Ranch NR
8.20 8/01/21 3,750 3,935,475
Dist. No. 1, Laguna Creek Ranch NR
8.25 12/01/20 4,500 4,757,220
San Francisco Int'l. Arpt. Rev., Second Ser. Issue 10 A,
M.B.I.A. Aaa
5.625 5/01/21 5,150 4,813,242
San Joaquin Hills Trans. Corr. Agcy.,
Toll Rd. Rev. NR
Zero 1/01/11 12,900 4,368,069
Toll Rd. Rev. NR
Zero 1/01/14 8,000 2,496,720
Toll Rd. Rev. NR
Zero 1/01/22 25,000 4,481,250
Toll Rd. Rev. NR
Zero 1/01/25 15,700 2,301,934
</TABLE>
- --------------------------------------------------------------------------------
- ----- 8 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1996 HIGH YIELD SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a) (Unaudited)
Rate Date (000) (Note 1)
<S> <C> <C>
<C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
California (cont'd.)
Santa Margarita/Dana Point Auth., Impvt. Dist.
Ser. A, M.B.I.A. Aaa
7.25% 8/01/13 $ 1,990 $ 2,337,792
Ser. B, M.B.I.A. Aaa
7.25 8/01/12 3,000 3,523,320
So. California Pub. Pwr. Auth. Trans., Cap. Apprec. Aa
Zero 7/01/14 8,500 2,827,780
So. San Francisco Redev. Agcy., Tax Alloc., Gateway
Redev. Proj. NR
7.60 9/01/18 2,375 2,449,908
South Tahoe Joint Pwrs. Fin. NR
8.00 10/01/01 5,795 5,795,000
Victor Valley Union H.S. Dist.,
Gen. Oblig., M.B.I.A. Aaa
Zero 9/01/12 3,605 1,378,948
Gen. Oblig., M.B.I.A. Aaa
Zero 9/01/14 4,740 1,597,570
Gen. Oblig., M.B.I.A. Aaa
Zero 9/01/16 3,990 1,173,339
--------------
122,702,268
- -----------------------------------------------------------------------------
- -------------------------------------------------
Colorado--2.7%
Eagle Cnty. Co., Lake Creek Affordable Hsg., Ser. A NR
8.00 12/01/23 11,610 11,933,919
San Miguel Cnty., Mountain Vlge. Met. Dist. NR
8.10 12/01/11 3,200 3,522,176
Superior Met. Dist. No. 1, Wtr. & Swr.,
Rev. NR
7.50 12/01/98 2,400 2,500,248
Rev. NR
8.50 12/01/13 8,900 9,718,533
--------------
27,674,876
- -----------------------------------------------------------------------------
- -------------------------------------------------
Connecticut--0.8%
Connecticut St. Dev. Auth. Swr., Netco Waterbury Ltd. NR
9.375 6/01/16 8,000 8,187,520
- -----------------------------------------------------------------------------
- -------------------------------------------------
District Of Columbia--1.5%
Dist. of Columbia Rev.,
America Geophysical Union, Ser. A, M.B.I.A. Aaa
6.50 6/01/10 6,000 6,594,900
Nat'l. Public Radio NR
7.625 1/01/18 8,800 9,212,720
--------------
15,807,620
- -----------------------------------------------------------------------------
- -------------------------------------------------
Florida--5.8%
Crossings At Fleming Island Cmnty. Dev. Dist., Clay City NR
8.25 5/01/16 8,000 8,534,720
Escambia Cnty. Hlth. Facs. Auth. Rev.,
Azalea Trace NR
9.25 1/01/06 2,605 2,789,043
Baptist Hosp. Ref., Ser. A BBB+(d)
8.60 10/01/02 4,385 4,810,696
Florida Hsg. Fin. Agcy., Palm Aire Proj., Multifam.
Mtge. Rev. NR
10.00 1/01/20 9,448(c) 6,519,459
No. Springs Impvt. Dist. Wtr. Mgt.,
Ser. A NR
8.20 5/01/24 1,980 2,096,582
Ser. A NR
8.30 5/01/24 1,740 1,855,014
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 9 -----
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1996 HIGH YIELD SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a) (Unaudited)
Rate Date (000) (Note 1)
<S> <C> <C>
<C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Florida (cont'd.)
Orlando Util. Comm., Wtr. & Elec. Rev., Ser. D Aa
6.75% 10/01/17 $ 2,000 $ 2,249,740
Palm Beach Cnty. Hsg. Auth., Banyan Club Apts. NR
7.75 3/01/23 4,580 4,840,648
Sarasota Hlth. Facs., Kobernick Hsg. Meadow Park Proj. NR
10.00 7/01/22 6,950(g) 8,779,101
Seminole Cnty. Ind. Dev. Auth. Rev., Fern Park NR
9.25 4/01/12 6,175 6,624,293
Tampa Rev., Aquarium Proj. NR
7.75 5/01/27 7,500 7,612,200
Tampa Sports Auth. Rev., Tampa Bay Arena Proj., M.B.I.A. Aaa
5.75 10/01/15 2,500 2,508,600
--------------
59,220,096
- -----------------------------------------------------------------------------
- -------------------------------------------------
Georgia--2.3%
Atlanta Urban Res. Fin. Auth., Clark Atlanta Univ. Dorm.
Proj. NR
9.25 6/01/10 4,625(g) 5,442,978
Effingham Cnty. Dev. Auth., Ft. Howard Corp. B1
7.90 10/01/05 10,000 10,505,700
Fulton Cnty. Wtr. & Swr. Rev., F.G.I.C. Aaa
6.375 1/01/14 6,000 6,432,840
Mun. Elec. Auth., Spec. Oblig., Proj. 1 A
6.50 1/01/12 1,500 1,592,640
--------------
23,974,158
- -----------------------------------------------------------------------------
- -------------------------------------------------
Hawaii--0.7%
Hawaii Cnty. Impvt. Dist. No. 17 NR
9.50 8/01/11 6,995 7,376,297
- -----------------------------------------------------------------------------
- -------------------------------------------------
Illinois--8.1%
Chicago Brd. Edl., Lease Ctfs., Ser. A, M.B.I.A. Aaa
6.00 1/01/20 14,000 14,033,880
Chicago O'Hare Int'l. Arpt.,
Amer. Airlines Proj, Ser. B Baa2
8.20 12/01/24 1,000 1,147,200
United Airlines, Ser. B Baa2
8.45 5/01/07 6,000 6,589,140
United Airlines, Ser. B Baa2
8.50 5/01/18 6,500 7,136,285
United Airlines, Ser. B Baa2
8.85 5/01/18 2,755 3,118,081
United Airlines, Ser. B Baa2
8.95 5/01/18 2,360 2,665,195
Hennepin Ind. Dev. Rev.,
Exolon-Esk Co. Proj. NR
8.875 1/01/18 8,000 8,304,480
Methchem. Corp. Proj., Ser. 89 NR
10.25 1/01/05 4,420(c) 75,140
Illinois, Hlth. Facs. Auth. Rev.,
Adventist Living Ctr. NR
11.00 12/01/15 2,245(c) 179,564
Beacon Hill Proj., Ser. A NR
9.00 8/15/19 7,331 7,895,634
Midwest Physician Group Ltd. Proj. BBB-(d)
8.10 11/15/14 3,135 3,298,208
Midwest Physician Group Ltd. Proj. BBB-(d)
8.125 11/15/19 3,285 3,461,963
Illinois, Series K, A.M.B.A.C. Aaa
6.25 1/01/13 6,825 7,157,173
</TABLE>
- --------------------------------------------------------------------------------
- ----- 10 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1996 HIGH YIELD SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a) (Unaudited)
Rate Date (000) (Note 1)
<S> <C> <C>
<C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Illinois (cont'd.)
Kane & De Kalb Cntys. Sch.,
Dist. No. 301, Cap. Apprec. A.M.B.A.C. Aaa
Zero 12/01/11 $ 3,360 $ 1,317,053
Dist. No. 301, Cap. Apprec. A.M.B.A.C. Aaa
Zero 12/01/13 4,065 1,389,051
Vlge. of Robbins, Cook Cnty. Robbins Res. Rec., LP Proj. NR
9.25% 10/15/14 16,000 11,200,000
Winnebago Cnty. Hsg. Auth., Park Tower Assoc., Sec. 8 NR
8.125 1/01/11 4,281 4,432,861
--------------
83,400,908
- -----------------------------------------------------------------------------
- -------------------------------------------------
Indiana--2.0%
Bluffton Econ. Dev. Rev., Kroger Co. Proj. Ba2
7.85 8/01/15 7,500 8,154,975
Indianapolis Loc. Pub. Impvt. Bond Bank Ref., Ser. A,
F.S.A. Aaa
6.50 1/01/13 4,200 4,558,050
Wabash Econ. Dev. Rev. Bonds, Connell Ltd. NR
8.50 11/24/17 7,250 7,779,178
--------------
20,492,203
- -----------------------------------------------------------------------------
- -------------------------------------------------
Iowa--2.0%
City of Cedar Rapids Rev., 1st Mtge., Cottage Grove
Place Proj. NR
9.00 7/01/18 9,375 9,665,906
Iowa St. Fin. Auth., Hlth. Care Facs. Rev., Mercy Hlth.
Initiatives Proj. NR
9.95 7/01/25 10,000 10,620,800
--------------
20,286,706
- -----------------------------------------------------------------------------
- -------------------------------------------------
Kentucky--0.7%
Kentucky St. Tpke. Auth. Rev., F.G.I.C. Aaa
Zero 1/01/10 8,250 3,765,960
Owensboro Elec. Lt. & Pwr. Rev.,
Ser. B, A.M.B.A.C. Aaa
Zero 1/01/14 5,000 1,738,200
Ser. B, A.M.B.A.C. Aaa
Zero 1/01/16 6,650 2,037,161
--------------
7,541,321
- -----------------------------------------------------------------------------
- -------------------------------------------------
Louisiana--3.6%
Hodge Util. Rev., Stone Container Corp. NR
9.00 3/01/10 9,000 9,747,450
New Orleans Home Mtge. Auth. Rev., Sngl. Fam. Mtge.,
Ser. A,
G.N.M.A. Aaa
8.60 12/01/19 1,670 1,756,957
New Orleans Ind. Dev. Rev. BB(d)
8.75 10/01/19 3,600 4,090,608
New Orleans, Gen. Oblig., Cap. Apprec., A.M.B.A.C. Aaa
Zero 9/01/18 3,090 781,739
St. Charles Parish Poll. Ctrl. Rev.,
Pwr. & Lt. Co. NR
8.25 6/01/14 10,000 10,953,300
Pwr. & Lt. Co., Ser. 1989 Baa3
8.00 12/01/14 3,500 3,851,540
West Feliciana Parish Poll. Ctrl. Rev., Gulf St. Util.
Co. Proj. NR
9.00 5/01/15 5,250 5,877,480
--------------
37,059,074
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 11 -----
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1996 HIGH YIELD SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a) (Unaudited)
Rate Date (000) (Note 1)
<S> <C> <C>
<C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Maryland--1.1%
Anne Arundel Cnty. 1st Mtge. Rev., Pleasant Living Conv. NR
8.50% 7/01/13 $ 3,410 $ 3,616,475
NE Wste. Disp. Auth.,
Sludge Comp. Fac. NR
7.25 7/01/07 4,582 4,675,977
Sludge Comp. Fac. NR
8.50 7/01/07 3,300 3,428,403
--------------
11,720,855
- -----------------------------------------------------------------------------
- -------------------------------------------------
Massachusetts--4.8%
Boston Ind. Dev. Fin. Auth. Ind. Rev., 1st Mtge.
Springhouse Proj. NR
9.25 7/01/15 8,000 8,378,560
Mass. Bay Trans. Auth., Gen. Trans. Sys., Ser. A,
F.G.I.C. Aaa
7.00 3/01/21 7,500 8,643,150
Mass. St. Coll. Bldg. Proj. and Ref. Bonds A
7.50 5/01/14 1,750 2,077,495
Mass. St. Hlth. & Edl. Facs. Auth. Rev.,
Cardinal Cushing Gen. Hosp. NR
8.875 7/01/18 7,500 8,025,375
St. Josephs Hosp., Ser. C NR
9.50 10/01/20 5,735(g) 6,501,655
Mass. St. Hsg. Fin. Agcy. Rev., Res. Hsg., Ser. B BBB+(d)
8.10 8/01/23 335 348,973
Mass. St. Ind. Fin. Agcy. Rev.,
Glenmeadow Proj. NR
7.00 2/15/06 3,700 3,644,278
Glenmeadow Proj. NR
8.625 2/15/26 2,720 2,726,365
Mass. St. Ind. Fin. Agcy. Cont. Res., Ser. A NR
9.50 2/01/00 2,200 2,308,548
Randolph Hsg. Auth., Multifam. Hsg., Liberty Place Proj.
A, Ser. A NR
9.00 12/01/21 6,015 6,191,179
--------------
48,845,578
- -----------------------------------------------------------------------------
- -------------------------------------------------
Michigan--5.3%
Grand Rapids Dev. Auth.
Cap. Apprec., M.B.I.A. Aaa
Zero 6/01/10 3,000 1,304,580
Cap. Apprec., M.B.I.A. Aaa
Zero 6/01/11 3,160 1,285,804
Cap. Apprec., M.B.I.A. Aaa
Zero 6/01/12 3,000 1,141,140
Gratiot Cnty. Econ. Dev. Corp., Danley Die Proj. Connell
L.P. NR
7.625 4/01/07 3,200 3,320,064
Holland Sch. Dist., Cap. Apprec., A.M.B.A.C. Aaa
Zero 5/01/17 2,950 814,908
Lowell Area Sch., F.G.I.C. Aaa
Zero 5/01/14 5,000 1,680,250
Meridian Econ. Dev. Corp. Rev., Burcham Hills Retirement
Facs. NR
9.625 7/01/19 2,850 3,026,614
Michigan St. Hosp. Fin. Auth. Rev., Saratoga Cmnty.
Hosp. NR
8.75 6/01/10 6,900 7,236,375
Michigan Strategic Fund Ltd. Oblig. Rev.,
Great Lakes Pulp & Fibre Proj. NR
10.25 12/01/16 20,000 18,622,600
Michigan Strategic Fund, Solid Wste. Disp., Gennese Pwr.
Station NR
7.50 1/01/21 10,000 10,018,900
Wayne Cnty. Bldg. Auth., Ser. A Baa
8.00 3/01/17 3,500(g) 4,091,535
West Ottawa Sch. Dist.,
F.G.I.C. Aaa
Zero 5/01/15 4,825 1,523,349
F.G.I.C. Aaa
Zero 5/01/18 3,215 846,124
--------------
54,912,243
</TABLE>
- --------------------------------------------------------------------------------
- ----- 12 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1996 HIGH YIELD SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a) (Unaudited)
Rate Date (000) (Note 1)
<S> <C> <C>
<C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Minnesota--1.1%
Minneapolis St. Paul Hsg. Fin. Brd., Multifam. Mtge.
Rev., Riverside Plaza, G.N.M.A. AAA(d)
8.25% 12/20/30 $ 4,000 $ 4,212,400
So. Minnesota Mun. Pwr. Agcy. Supply Sys.,
Ser. A, M.B.I.A. Aaa
Zero 1/01/19 25,875 6,578,719
Ser. A, M.B.I.A. Aaa
Zero 1/01/20 1,500 358,695
--------------
11,149,814
- -----------------------------------------------------------------------------
- -------------------------------------------------
Mississippi--1.8%
Claiborne Cnty. Poll. Ctrl. Rev.,
Mid. So. Engy. Sys. NR
9.875 12/01/14 6,100 6,882,752
Mid. So. Engy. Sys., Ser. A NR
9.50 12/01/13 10,350 11,592,311
--------------
18,475,063
- -----------------------------------------------------------------------------
- -------------------------------------------------
Missouri--1.6%
Sikeston Elec. Rev. Ref., M.B.I.A. Aaa
6.00 6/01/15 9,250 9,580,687
St. Louis Cnty. Ind. Dev. Auth. Rev.,
Soemm Proj. NR
10.25 7/01/08 2,350 2,386,002
St. Louis Cnty. Reg. Conv. & Sports Comp., Ser. C NR
7.90 8/15/21 4,250 4,589,533
--------------
16,556,222
- -----------------------------------------------------------------------------
- -------------------------------------------------
Nebraska--0.2%
Nebraska Invest. Fin. Auth., G.N.M.A., Sngl. Fam. Mtge.
Rev., Ser. I,
M.B.I.A. Aaa
8.125 8/15/38 2,350 2,449,852
- -----------------------------------------------------------------------------
- -------------------------------------------------
New Hampshire--1.5%
New Hampshire Higher Edl. & Hlth. Facs. Auth. Rev.,
Antioch College NR
7.875 12/01/22 5,470 5,939,599
Havenwood/Heritage Heights NR
9.75 12/01/19 7,685(g) 9,105,880
--------------
15,045,479
- -----------------------------------------------------------------------------
- -------------------------------------------------
New Jersey--5.3%
New Jersey Econ. Dev. Corp. Rev., Ref. Newark Arpt.
Marriot Hotel NR
7.00 10/01/14 3,800 3,778,720
New Jersey St. Econ. Dev. Auth. Rev., 1st Mtge.,
Fellowship Vlge., Proj. A NR
9.25 1/01/25 11,500 12,505,330
Keswick Pines Proj. NR
7.75 1/01/01 3,095 3,167,423
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 13 -----
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1996 HIGH YIELD SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a) (Unaudited)
Rate Date (000) (Note 1)
<S> <C> <C>
<C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
New Jersey (cont'd.)
New Jersey St. Tpke. Auth. Rev., Ser. C, M.B.I.A. Aaa
6.50% 1/01/16 $ 16,000 $ 17,400,960
New Jersey St. Trans. Trust Fund Auth., Trans. Sys.,
M.B.I.A. Aaa
6.50 6/15/11 15,500 17,110,140
--------------
53,962,573
- -----------------------------------------------------------------------------
- -------------------------------------------------
New York--4.4%
Met. Trans. Auth. Facs. Rev., Ser. N, F.G.I.C. Aaa
Zero 7/01/13 8,340 3,114,490
New York City Ind. Dev. Agcy.,
Amer. Airlines Inc. Baa2
8.00 7/01/20 3,320 3,520,760
Mesorah Pub. Ltd. NR
10.25 3/01/19 1,909 2,132,811
Visy Paper Inc. Proj. NR
7.95 1/01/28 6,000 6,051,120
New York City,
Ser. B Baa1
7.25 8/15/07 3,500 3,881,080
Ser. G Baa1
6.75 2/01/09 5,000 5,176,800
New York Hosp. Rev., Newark Wayne Cmnty. Hosp. Inc.,
Ser. A NR
7.60 9/01/15 3,305 3,247,427
New York St. Dorm. Auth. Rev.,
City Univ., Ser. A Baa1
5.625 7/01/16 5,000 4,682,050
Colgate Univ., M.B.I.A. Aaa
6.00 7/01/21 2,500 2,568,875
New York St. Engy. Res. & Dev. Auth. Rev., Brooklyn
Union Gas Co. Ser. D, M.B.I.A. Aaa
7.489 7/08/26 2,000(f) 1,697,500
Port Auth. of New York & New Jersey, USAir LaGuardia
Arpt. B2
9.125 12/01/15 4,000 4,404,680
Triborough Brdg. & Tunnel Auth. Rev., Genl. Purpose,
Ser. A Aa
6.00 1/01/10 5,000 5,227,800
--------------
45,705,393
- -----------------------------------------------------------------------------
- -------------------------------------------------
North Dakota--1.1%
Mercer Cnty., Antelope Valley Station, A.M.B.A.C. Aaa
7.20 6/30/13 10,000 11,688,100
- -----------------------------------------------------------------------------
- -------------------------------------------------
Ohio--3.4%
Cleveland Pub. Pwr. Sys. Rev.,
1st Mtge., M.B.I.A. Aaa
Zero 11/15/12 1,000 388,880
1st Mtge., M.B.I.A. Aaa
Zero 11/15/13 1,500 548,325
1st Mtge., Ser. A, M.B.I.A. Aaa
Zero 11/15/09 3,000 1,414,470
Mahoning Valley San. Dist. Wtr. Rev. NR
7.75 5/15/19 8,000 8,486,400
Montgomery Cnty. Hlthcare. Facs. Rev., Friendship Vlge.
Dayton,
Proj. B NR
9.25 2/01/16 4,500 4,737,870
Ohio St. Wtr. Dev. Auth. Poll. Ctrl. Facs., 1st Mtge.,
Toledo Edison Ba2
8.00 10/01/23 5,500 5,707,955
Ohio St. Wtr. Dev. Auth. Rev., Mid. Amer. Wste. Sys.
Inc. NR
7.75 9/01/07 8,390 7,076,965
Stark Cnty. Hlthcare Facs. Rev., Rose Lane Inc. Proj. NR
9.00 12/01/23 6,135 6,577,763
--------------
34,938,628
</TABLE>
- --------------------------------------------------------------------------------
- ----- 14 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1996 HIGH YIELD SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a) (Unaudited)
Rate Date (000) (Note 1)
<S> <C> <C>
<C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Oklahoma--1.0%
Grand River Dam Auth. Rev., A.M.B.A.C. Aaa
6.25% 6/01/11 $ 7,500 $ 8,087,175
Tulsa Ind. Dev. Auth., Univ. Tulsa, Ser. A, M.B.I.A. Aaa
6.00 10/01/16 2,500 2,565,275
--------------
10,652,450
- -----------------------------------------------------------------------------
- -------------------------------------------------
Pennsylvania--5.8%
Allegheny Cnty. Hosp. Rev., West Penn. Hosp. Hlth. Ctr. NR
8.50 1/01/20 2,800 3,062,332
Berks Cnty. Mun. Auth. Rev.,
Adventist Living Ctrs. Proj. NR
11.00 12/01/15 367(c) 29,397
Alvernia Coll. Proj. NR
7.75 11/15/16 5,240 5,513,266
Chartiers Valley Ind. & Coml. Dev. Auth. Rev.,
Friendship
Vlge./So. Hills NR
9.50 8/15/18 3,750 3,886,912
Dauphin Cnty. Gen. Auth. Hosp. Rev., NW Med. Ctr. Proj. BBB-(d)
8.625 10/15/13 6,640 7,310,109
Lancaster Cnty. Solid Wste. Mgmt., Res. Rec. Auth. Sys.
Rev.,
Ser. A A
8.50 12/15/10 5,965 6,330,595
Penn. St. Higher Edl. Facs. Auth. Rev., Med. Coll. of
Pennsylvania,
Ser. A Baa
8.375 3/01/11 5,200 5,585,216
Pennsylvania Econ. Dev. Fin. Auth. Recyc. Rev. NR
9.25 1/01/22 7,000 6,982,710
Philadelphia Auth., Ind. Dev. Rev. NR
7.75 12/01/17 5,000 5,193,300
Philadelphia Hosp. Auth. & Higher Ed., Grad. Hlth. Sys. Baa1
7.25 7/01/18 2,000 2,009,480
Philadelphia Wtr. & Wstewtr. Auth. Rev.,
M.B.I.A. Aaa
6.25 8/01/08 3,250 3,528,395
M.B.I.A. Aaa
6.25 8/01/10 2,500 2,688,450
M.B.I.A. Aaa
6.25 8/01/12 3,000 3,199,350
Wilkes Barre Gen. Mun. Auth. Coll. Rev.,
Misericordia Coll., Ser. A NR
7.75 12/01/12 1,245 1,310,126
Misericordia Coll., Ser. B NR
7.75 12/01/12 2,400 2,463,168
--------------
59,092,806
- -----------------------------------------------------------------------------
- -------------------------------------------------
Puerto Rico--1.9%
Puerto Rico Elec. Pwr. Auth., Ref. Bonds, Ser. S Baa1
6.125 7/01/09 7,375 7,689,691
Puerto Rico Tel. Auth. Rev.,
Ser. I, M.B.I.A. Aaa
6.87 1/25/07 6,500(f) 6,256,250
Ser. I, M.B.I.A. Aaa
7.036 1/16/15 6,150(f) 5,511,938
--------------
19,457,879
- -----------------------------------------------------------------------------
- -------------------------------------------------
Rhode Island--1.7%
Rhode Island Hsg. & Mtge. Fin. Corp., Homeownership
Opport., Ser. 1A A1
8.20 10/01/17 6,000 6,315,300
Rhode Island Redev. Agcy., Ser. A NR
8.00 9/01/24 10,835 11,353,021
--------------
17,668,321
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 15 -----
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1996 HIGH YIELD SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a) (Unaudited)
Rate Date (000) (Note 1)
<S> <C> <C>
<C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
South Carolina--0.4%
So. Carolina St. Hsg. Fin. & Dev. Auth., Homeownership
Mtge. Aa
7.75% 7/01/22 $ 4,345 $ 4,552,691
- -----------------------------------------------------------------------------
- -------------------------------------------------
South Dakota--0.5%
So. Dakota Econ. Dev. Fin. Auth., Dakota Park NR
10.25 1/01/19 5,060 5,008,084
- -----------------------------------------------------------------------------
- -------------------------------------------------
Tennessee--1.5%
Knox Cnty. Hlth. & Edl. Facs. Rev., Baptist Hlth. Hosp. NR
8.50 4/15/04 6,515 6,928,312
Rutherford Cnty. Hlth. & Edl. Facs., Brd. 1st Mtge. Rev. NR
9.50 12/01/19 7,300 7,939,626
--------------
14,867,938
- -----------------------------------------------------------------------------
- -------------------------------------------------
Texas--4.3%
Alliance Arpt. Auth. Inc. Spec. Facs., Fed. Ex. Corp.
Proj. Baa2
6.375 4/01/21 6,000 5,896,740
Beaumont Hsg. Fin. Corp., Sngl. Fam. Mtge. Rev. A
9.20 3/01/12 1,795 1,959,386
Bell Cnty. Hlth. Facs. Dev. Corp.,
Adventist Living Tech. Proj., Ser. A NR
10.50 6/15/18 2,390 1,959,800
Adventist Living Tech. Proj., Ser. A NR
10.50 6/15/18 2,905 2,382,100
Brownsville Util. Sys. Rev. Ref., A.M.B.A.C. Aaa
6.25 9/01/10 4,085 4,402,609
Houston Wtr. & Swr. Sys. Rev., Ser. C, A.M.B.A.C. Aaa
Zero 12/01/10 5,000 2,110,950
Keller Ind. Sch. Dist., Cap Apprec., Ref., Ser. A,
P.S.F.G. Aaa
Zero 8/15/17 4,075 1,117,446
New Braunfels Ind. Sch. Dist.,
Cap. Apprec. Aaa
Zero 2/01/08 2,365 1,221,688
Cap. Apprec. Aaa
Zero 2/01/09 2,365 1,140,687
Cap. Apprec. Aaa
Zero 2/01/12 2,365 924,833
Cap. Apprec. Aaa
Zero 2/01/13 1,365 498,826
Port Corpus Christi Ind. Dev. Corp., Valero Ref. & Mfg.
Co.,
Ser. A Baa3
10.25 6/01/17 1,300 1,405,846
Retama Dev. Corp., Spec. Fac., Retama Park Racetrack NR
8.75 12/15/18 7,255(c) 1,668,631(h)
Round Rock Ind. Sch. Dist., M.B.I.A. Aaa
Zero 8/15/11 4,385 1,762,551
San Antonio Elec. & Gas Rev.,
F.G.I.C. Aaa
Zero 2/01/09 5,000 2,411,600
Ser. B, F.G.I.C. Aaa
Zero 2/01/12 7,500 2,932,875
Tarrant Cnty. Hlth. Facs. Dev. Corp. Rev., Foundation
Proj. NR
10.25 9/01/19 5,000 5,193,050
Texas Mun. Pwr. Agcy. Rev., M.B.I.A. Aaa
Zero 9/01/15 16,300 5,046,969
--------------
44,036,587
</TABLE>
- --------------------------------------------------------------------------------
- ----- 16 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1996 HIGH YIELD SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a) (Unaudited)
Rate Date (000) (Note 1)
<S> <C> <C>
<C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Virginia--1.6%
Pittsylvania Cnty. Ind. Dev. Auth. Rev. Multitrade NR
7.45% 1/01/09 $ 3,500 $ 3,713,815
Pittsylvania Cnty. Ind. Dev. Auth. Rev. Multitrade NR
7.55 1/01/19 12,000 12,729,480
--------------
16,443,295
- -----------------------------------------------------------------------------
- -------------------------------------------------
Washington--2.2%
Bellevue Conv. Ctr. Auth.,
King City, Oblig. Rev., M.B.I.A. Aaa
Zero 2/01/10 870 388,438
King City, Oblig. Rev., M.B.I.A. Aaa
Zero 2/01/11 1,200 498,084
King City, Oblig. Rev., M.B.I.A. Aaa
Zero 2/01/12 1,300 504,491
King City, Oblig. Rev., M.B.I.A. Aaa
Zero 2/01/14 1,385 468,476
Thurston Cnty. Sch. Dist. 333,
F.G.I.C., Ser. B Aaa
Zero 12/01/11 6,415 2,514,551
F.G.I.C. Aaa
Zero 12/01/12 6,830 2,500,873
Washington St. Pub. Pwr. Sup. Sys. Rev.,
Nuclear Proj. No. 1, Ser. B Aa
7.25 7/01/09 5,000 5,631,100
Nuclear Proj. No. 3 Aa
Zero 7/01/16 10,000 2,757,600
Nuclear Proj. No. 3 Aa
Zero 7/01/17 5,000 1,285,600
Nuclear Proj. No. 3, Ser. B Aa
7.125 7/01/16 5,000 5,521,500
--------------
22,070,713
- -----------------------------------------------------------------------------
- -------------------------------------------------
West Virginia--1.6%
So. Charleston Ind. Dev. Rev., Union Carbide Chem. &
Plastics Co. Baa2
8.00 8/01/20 2,450 2,617,164
Weirton Poll. Ctrl. Rev., Weirton Steel Proj. B2
8.625 11/01/14 4,000 4,164,360
West Virginia St. Hsg. Dev. Fund Hsg. Fin., Ser. A A1
7.95 5/01/17 6,760 7,084,074
West Virginia St. Pkwys. Econ. Dev. & Tourism Auth.,
F.G.I.C. Aaa
7.585 5/16/19 3,250(f) 3,034,687
--------------
16,900,285
--------------
Total long-term investments (cost $991,101,696)
1,004,671,303
--------------
SHORT-TERM INVESTMENTS--0.3%
- -----------------------------------------------------------------------------
- -------------------------------------------------
Kansas--0.1%
Butler Cnty., Texaco, Ser. B, F.R.D.D. P1
4.45 5/01/96 1,000 1,000,000
- -----------------------------------------------------------------------------
- -------------------------------------------------
Texas--0.2%
Gulf Coast Wste. Disp., Amoco Corp., Ser. 94, F.R.D.D. VMIG1
4.25 5/01/96 2,000 2,000,000
--------------
Total short-term investments (cost $3,000,000)
3,000,000
--------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 17 -----
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1996 HIGH YIELD SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Expiration Amount Value
Description (a) (Unaudited)
Rate Date (000) (Note 1)
<S> <C> <C>
<C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
OUTSTANDING CALL OPTIONS-PURCHASED(b)
United States Treasury Bond Future, Aug '96 @$118.00 NR
-- 8/24/96 $ 480 $ 97,500
United States Treasury Bond Future, Nov '96 @$116.00 NR
-- 11/16/96 500 367,187
--------------
Total options - purchased (cost $718,511)
464,687
--------------
- -----------------------------------------------------------------------------
- -------------------------------------------------
Total Investments--98.0%
(cost $994,820,207; Note 4)
1,008,135,990
Other assets in excess of liabilities--2.0%
20,455,457
--------------
Net Assets--100%
$1,028,591,447
--------------
--------------
</TABLE>
- ---------------
(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.R.D.D.--Floating Rate (Daily) Demand Note(e)
F.S.A.--Financial Security Assurance
G.N.M.A.--Government National Mortgage Association
M.B.I.A.--Municipal Bond Insurance Association
P.S.F.G.--Public School Fund Guaranty
(b) Non-income producing security.
(c) Issuer in default of interest payment (b).
(d) Standard & Poor's Rating.
(e) The maturity date shown is 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.
(f) Inverse floating rate bond. The coupon is inversely indexed to a floating
interest rate. The rate shown is the rate at year end.
(g) Prerefunded issues are secured by escrowed cash and direct U.S.
guaranteed obligations.
(h) Fair valued security.
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.
- --------------------------------------------------------------------------------
- ----- 18 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Statement of Assets and Liabilities HIGH YIELD SERIES
- --------------------------------------------------------------------------------
<TABLE>
<S>
<C>
Assets
April 30, 1996
Investments, at value (cost
$994,820,207)...................................................................
$1,008,135,990
Cash.........................................................................
............................... 55,775
Interest
receivable...................................................................
...................... 21,373,116
Receivable for investments
sold.........................................................................
.... 8,474,767
Receivable for Fund shares
sold.........................................................................
.... 1,211,925
Deferred
expenses.....................................................................
...................... 11,382
--------------
Total
assets.......................................................................
...................... 1,039,262,955
--------------
Liabilities
Payable for investments
purchased....................................................................
....... 6,027,499
Payable for Fund shares
reacquired...................................................................
....... 2,126,649
Dividends
payable......................................................................
..................... 1,610,155
Management fee
payable......................................................................
................ 381,480
Distribution fee
payable......................................................................
.............. 352,692
Accrued
expenses.....................................................................
....................... 173,033
--------------
Total
liabilities..................................................................
...................... 10,671,508
--------------
Net
Assets.......................................................................
........................... $1,028,591,447
--------------
--------------
Net assets were comprised of:
Shares of beneficial interest, at
par.................................................................... $
961,755
Paid-in capital in excess of
par.........................................................................
1,028,397,860
--------------
1,029,359,615
Accumulated net realized loss on
investments.............................................................
(14,083,951)
Net unrealized appreciation of
investments...............................................................
13,315,783
--------------
Net assets, April 30,
1996.........................................................................
......... $1,028,591,447
--------------
--------------
Class A:
Net asset value and redemption price per share
($223,072,757 / 20,854,307 shares of beneficial interest issued and
outstanding)...................... $10.70
Maximum sales charge (3% of offering
price)..............................................................
.33
--------------
Maximum offering price to
public.........................................................................
$11.03
--------------
--------------
Class B:
Net asset value, offering price and redemption price per share
($799,047,793 / 74,716,080 shares of beneficial interest issued and
outstanding)...................... $10.69
--------------
--------------
Class C:
Net asset value, offering price and redemption price per share
($6,470,897 / 605,084 shares of beneficial interest issued and
outstanding)........................... $10.69
--------------
--------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 19 -----
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
HIGH YIELD SERIES
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income April 30, 1996
<S> <C>
Income
Interest.................................. $ 77,192,819
--------------
Expenses
Management fee............................ 5,308,978
Distribution fee--Class A................. 162,329
Distribution fee--Class B................. 4,500,574
Distribution fee--Class C................. 42,063
Transfer agent's fees and expenses........ 470,000
Reports to shareholders................... 170,000
Custodian's fees and expenses............. 160,000
Registration fees......................... 83,000
Legal fees and expenses................... 48,500
Insurance expense......................... 29,503
Audit fees and expenses................... 19,500
Trustees' fees and expenses............... 16,000
Miscellaneous............................. 8,300
--------------
Total expenses......................... 11,018,747
Less: Management fee waiver............... (534,026)
Custodian fee credit................... (16,486)
--------------
Net expenses........................... 10,468,235
--------------
Net investment income........................ 66,724,584
--------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain on:
Investment transactions................... 5,632,109
Financial futures contract transactions... 2,242,223
--------------
7,874,332
--------------
Net change in unrealized depreciation of:
Investments............................... (9,762,878)
Financial futures contracts............... (136,625)
--------------
(9,899,503)
--------------
Net loss on investments...................... (2,025,171)
--------------
Net Increase in Net Assets
Resulting from Operations.................... $ 64,699,413
--------------
--------------
</TABLE>
PRUDENTIAL MUNICIPAL BOND FUND
HIGH YIELD SERIES
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended April 30,
<S> <C> <C>
in Net Assets 1996 1995
Operations
Net investment income....... $ 66,724,584 $ 69,751,519
Net realized gain (loss) on
investment
transactions............. 7,874,332 (15,484,052)
Net change in unrealized
appreciation
(depreciation) of
investments.............. (9,899,503) 10,858,413
-------------- --------------
Net increase in net assets
resulting from
operations............... 64,699,413 65,125,880
-------------- --------------
Dividends and distributions
(Note 1):
Dividends from net
investment income
Class A.................. (10,686,945) (4,456,405)
Class B.................. (55,704,885) (65,229,614)
Class C.................. (332,754) (65,500)
-------------- --------------
(66,724,584) (69,751,519)
-------------- --------------
Distributions in excess of
net investment income
Class A.................. (21,756) (2,229)
Class B.................. (103,384) (47,585)
Class C.................. (746) (60)
-------------- --------------
(125,886) (49,874)
-------------- --------------
Series share transactions (net of
share conversions) (Note 5):
Net proceeds from shares
subscribed............... 125,110,592 135,404,221
Net asset value of shares
issued in reinvestment of
dividends and
distributions............ 30,125,436 31,059,195
Cost of shares reacquired... (177,927,248) (262,484,590)
-------------- --------------
Net decrease in net assets
from Series share
transactions............. (22,691,220) (96,021,174)
-------------- --------------
Total decrease................. (24,842,277) (100,696,687)
Net Assets
Beginning of year.............. 1,053,433,724 1,154,130,411
-------------- --------------
End of year.................... $1,028,591,447 $1,053,433,724
-------------- --------------
-------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
- ----- 20 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1996 INSURED SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a) (Unaudited)
Rate Date (000) (Note 1)
<S> <C> <C>
<C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
LONG-TERM INVESTMENTS--91.6%
- -----------------------------------------------------------------------------
- -------------------------------------------------
Alabama--0.4%
Huntsville Solid Wste. Disp. Auth., F.G.I.C. Aaa
7.00% 10/01/08 $ 2,000 $ 2,147,640
- -----------------------------------------------------------------------------
- -------------------------------------------------
Alaska--4.4%
Alaska St. Engy. Auth. Pwr. Rev., Bradley Lake Hydro, 1st
Ser., A.M.B.A.C. Aaa
7.25 7/01/16 2,000 2,168,080
Alaska St. Hsg. Fin. Corp., Ser. A, M.B.I.A. Aaa
5.875 12/01/30 15,950 15,170,683
Anchorage Hosp. Rev., Sisters of Providence, A.M.B.A.C. Aaa
7.125 10/01/05 5,000 5,524,950
No. Slope Boro., Cap. Appr., Ser. A, M.B.I.A. Aaa
Zero 6/30/06 5,000 2,865,900
------------
25,729,613
- -----------------------------------------------------------------------------
- -------------------------------------------------
Arizona--4.9%
Maricopa Cnty. Ind. Dev. Auth. Rev.,
Hosp. Fac., John C. Lincoln Hosp., F.S.A. Aaa
7.00 12/01/00 2,740 3,004,218
Hosp. Fac., John C. Lincoln Hosp., F.S.A. Aaa
7.50 12/01/13 2,250 2,488,343
Maricopa Cnty. Unified Sch. Dist. No.69, Paradise Valley,
Ser. E, F.G.I.C. Aaa
6.80 7/01/12 3,700 4,197,613
Pima Cnty. Ind. Dev. Auth. Rev., Tucson Elec. Pwr. Co.,
F.S.A. Aaa
7.25 7/15/10 14,000 15,333,360
Tucson, Gen. Oblig., Ser. 1984, F.G.I.C. Aaa
7.625 7/01/14 3,140 3,858,840
------------
28,882,374
- -----------------------------------------------------------------------------
- -------------------------------------------------
California--9.4%
California St. Gen. Oblig.,
M.B.I.A. Aaa
6.30 9/01/08 6,000 6,589,200
F.G.I.C. Aaa
6.60 2/01/11 8,510 9,464,907
Contra Costa Wtr. Dist. Wtr. Rev., Ser. E, A.M.B.A.C. Aaa
6.25 10/01/12 1,455 1,555,599
Roseville Joint Union H.S. Dist., Ser. B, F.G.I.C. Aaa
Zero 8/01/13 2,015 724,211
San Diego Cnty. Wtr. Auth. Wtr. Rev., Ctfs. of Part.,
F.G.I.C. Aaa
7.088 4/26/06 5,800(b) 5,865,250
San Jose Redev.,
Tax Alloc., M.B.I.A. Aaa
6.00 8/01/07 3,050 3,252,917
Tax Alloc., M.B.I.A. Aaa
6.00 8/01/08 5,340 5,678,182
Tax Alloc., M.B.I.A. Aaa
6.00 8/01/09 4,250 4,497,010
Santa Margarita/Dana Point Auth.,
Impvt. Dist., M.B.I.A. Aaa
7.25 8/01/10 2,180 2,558,012
Impvt. Dist., M.B.I.A. Aaa
7.25 8/01/11 1,750 2,053,240
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 21 -----
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1996 INSURED SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a) (Unaudited)
Rate Date (000) (Note 1)
<S> <C> <C>
<C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
California (cont'd.)
So. Orange Cnty. Pub. Fin. Auth.,
Foothill Area Proj., F.G.I.C. Aaa
8.00% 8/15/08 $ 2,500 $ 3,108,875
Foothill Area Proj., F.G.I.C. Aaa
6.50 8/15/10 2,725 2,997,691
Victor Valley Element. Sch. Dist.,
Cap. Apprec., Ser. A, M.B.I.A. Aaa
Zero 6/01/17 3,550 990,556
Cap. Apprec., Ser. A, M.B.I.A. Aaa
Zero 6/01/18 4,050 1,056,888
Victor Valley Union H.S. Dist.,
Gen. Oblig., 1994 Elec., M.B.I.A. Aaa
Zero 9/01/10 2,635 1,149,650
Gen. Oblig., 1994 Elec., M.B.I.A. Aaa
Zero 9/01/11 3,780 1,544,962
Gen. Oblig., 1994 Elec., M.B.I.A. Aaa
Zero 9/01/13 4,450 1,591,498
------------
54,678,648
- -----------------------------------------------------------------------------
- -------------------------------------------------
Colorado--1.0%
Denver City and Cnty. Arpt. Rev., Ser. C, M.B.I.A. Aaa
6.125 11/15/25 5,195 5,163,206
Jefferson Cnty. Sngl. Fam. Mtge. Rev., Ser. A, M.B.I.A. Aaa
8.875 10/01/13 755 812,418
------------
5,975,624
- -----------------------------------------------------------------------------
- -------------------------------------------------
Delaware--0.9%
Delaware St. Econ. Dev. Auth. Rev., Delmarva Pwr. & Lt.,
1st Mtge., Ser. A, M.B.I.A. Aaa
7.60 3/01/20 5,000 5,430,300
- -----------------------------------------------------------------------------
- -------------------------------------------------
District Of Columbia--4.2%
Dist. of Columbia Hosp. Rev., Medlantic Hlthcare. Grp.,
M.B.I.A Aaa
5.875 8/15/19 3,500(e) 3,391,815
M.B.I.A. Aaa
5.75 8/15/26 3,000(e) 2,847,510
Dist. of Columbia Met. Area Transit Auth.,
Gross Rev., F.G.I.C. Aaa
6.00 7/01/09 2,400 2,527,296
Gross Rev., F.G.I.C. Aaa
6.00 7/01/10 1,500 1,568,490
Dist. of Columbia Ref., Ser. B, F.S.A Aaa
5.50 6/01/10 7,565 7,506,069
Dist. of Columbia Rev., Ser. A, M.B.I.A. Aaa
6.50 6/01/10 6,000 6,594,900
------------
24,436,080
- -----------------------------------------------------------------------------
- -------------------------------------------------
Florida--5.9%
Alachua Cnty. Hlth. Facs. Auth., Shands Teaching Hosp. and
Clinics, Ser A, M.B.I.A. Aaa
5.80 12/01/26 6,750 6,607,710
Dade Cnty. Aviation Dept., Ser. A, M.B.I.A. Aaa
5.75 10/01/26 2,750 2,646,792
</TABLE>
- --------------------------------------------------------------------------------
- ----- 22 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1996 INSURED SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a) (Unaudited)
Rate Date (000) (Note 1)
<S> <C> <C>
<C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Florida (cont'd.)
Florida St. Dept. Trans., Right of Way, M.B.I.A. Aaa
5.875% 7/01/24 $10,000 $ 9,883,700
Florida St. Div. Bond Fin. Dept., Genl. Serv., Envirn.
Pres., M.B.I.A. Aaa
5.50 7/01/13 11,515 11,263,858
So. Miami Hlth. Facs. Auth., Baptist Hlth. Sys. Oblig.
Grp., M.B.I.A. Aaa
5.50 10/01/20 4,435 4,168,634
------------
34,570,694
- -----------------------------------------------------------------------------
- -------------------------------------------------
Georgia--4.9%
Atlanta Arpt. Facs. Rev., A.M.B.A.C. Aaa
6.50 1/01/10 2,000 2,208,520
Burke Cnty. Dev. Auth., Oglethorpe Pwr. Corp., 1st Mtge.,
M.B.I.A. Aaa
8.00 1/01/22 11,000 13,005,300
Georgia Mun. Elec. Auth. Pwr. Rev.,
F.S.A. Aaa
6.375 1/01/16 9,200 9,826,152
M.B.I.A. Aaa
6.20 1/01/10 3,495 3,759,012
------------
28,798,984
- -----------------------------------------------------------------------------
- -------------------------------------------------
Illinois--4.2%
Chicago, Ser. K, A.M.B.A.C. Aaa
6.25 1/01/13 6,800 7,130,956
Chicago Brd. of Ed., Chicago Schl. Reform, M.B.I.A. Aaa
6.00 12/01/26 10,000 9,807,200
Onterie Ctr. Hsg. Fin. Corp. Mtge. Rev.,
Ser. A, M.B.I.A. Aaa
7.00 7/01/12 1,575 1,663,531
Ser. A, M.B.I.A. Aaa
7.05 7/01/27 5,400 5,671,728
------------
24,273,415
- -----------------------------------------------------------------------------
- -------------------------------------------------
Indiana--1.7%
Marion Cnty. Hosp. Auth. Facs. Rev., A.M.B.A.C. Aaa
8.625 10/01/12 8,500(d) 9,754,090
- -----------------------------------------------------------------------------
- -------------------------------------------------
Kansas--0.4%
Sedgwick Cnty. Mtge. Loan Rev., Ser. B, A.M.B.A.C. Aaa
7.80 6/01/22 2,245 2,350,784
- -----------------------------------------------------------------------------
- -------------------------------------------------
Louisiana--1.2%
Jefferson Parish Sales Tax Dist., Ser. A, F.G.I.C. Aaa
6.75 12/01/06 5,000 5,447,600
New Orleans, Gen. Oblig., Cap. Apprec., A.M.B.A.C. Aaa
Zero 9/01/09 4,000 1,842,000
------------
7,289,600
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 23 -----
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1996 INSURED SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a) (Unaudited)
Rate Date (000) (Note 1)
<S> <C> <C>
<C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Massachusetts--1.4%
Mass. St. Wtr. Res. Auth., Ser. B, M.B.I.A. Aaa
6.25% 12/01/13 $ 2,905 $ 3,114,363
Mass. Hlth. & Edl. Facs. Auth. Rev.,
Fallon Hlthcare., Ser. A, C.G.I.C. AAA(c)
6.875 6/01/11 3,000 3,224,820
Mass. Gen. Hosp., Ser. F, A.M.B.A.C. Aaa
6.25 7/01/12 1,500 1,601,025
------------
7,940,208
- -----------------------------------------------------------------------------
- -------------------------------------------------
Michigan--5.4%
Detroit Swr. Disp. Rev., Ser. 1993 A, F.G.I.C. Aaa
7.44 7/01/23 6,500(b) 5,825,625
Michigan St. Hosp. Fin. Auth. Rev.,
Mid. Michigan Oblig., M.B.I.A. Aaa
7.50 6/01/15 2,350 2,577,339
Sisters Of Mercy, M.B.I.A. Aaa
5.25 8/15/21 4,500 4,041,675
Monroe Cnty. Poll. Ctrl. Rev.,
Detroit Edison Co., Proj. 1, F.G.I.C. Aaa
7.65 9/01/20 8,000 8,797,440
Detroit Edison Co., Proj. 1, Ser. I, A.M.B.A.C. Aaa
7.30 9/01/19 3,250 3,539,445
Saginaw Hosp. Fin. Auth., St. Luke's Hosp., Ser. C,
M.B.I.A. Aaa
6.50 7/01/11 4,000 4,195,360
Three Rivers Cmnty. Sch., M.B.I.A. Aaa
6.00 5/01/23 2,400(e) 2,374,680
------------
31,351,564
- -----------------------------------------------------------------------------
- -------------------------------------------------
Mississippi--0.4%
Harrison Cnty. Wste. Wtr. Mgmt. Dist. Rev., Wstewtr.
Treatmt. Facs. Auth., F.G.I.C. Aaa
6.50 2/01/06 2,400 2,585,160
- -----------------------------------------------------------------------------
- -------------------------------------------------
Missouri--0.3%
Missouri St. Hlth. & Edl. Facs. Auth. Rev., SSM Hlthcare.,
Ser. AA, M.B.I.A. Aaa
6.25 6/01/16 1,500 1,535,220
- -----------------------------------------------------------------------------
- -------------------------------------------------
Montana--1.9%
Forsyth Poll. Ctrl. Rev.,
Puget Sound Pwr. & Lt. Co., 1st Mtge., Ser. A,
A.M.B.A.C. Aaa
7.05 8/01/21 2,000 2,197,520
Washington Wtr. Pwr. Proj., 1st Mtge., M.B.I.A. Aaa
7.125 12/01/13 8,000 8,679,840
------------
10,877,360
</TABLE>
- --------------------------------------------------------------------------------
- ----- 24 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1996 INSURED SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a) (Unaudited)
Rate Date (000) (Note 1)
<S> <C> <C>
<C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
New Jersey--6.5%
Jersey City Swr. Auth.,
A.M.B.A.C. Aaa
6.00% 1/01/10 $ 2,585 $ 2,730,794
A.M.B.A.C. Aaa
6.25 1/01/14 4,255 4,498,429
Mkt. Transition Fac. Rev., Sr. Lien, M.B.I.A. Aaa
5.80 7/01/09 3,340 3,422,197
New Jersey Hlthcare. Facs. Fin. Auth. Rev., Hackensack
Med. Ctr., F.G.I.C. Aaa
6.625 7/01/17 5,000 5,265,600
New Jersey St. Ed. Facs. Auth., Montclair St. Univ.,
A.M.B.A.C. Aaa
5.40 7/01/12 3,330 3,232,598
New Jersey St. Trans. Trust Fund Auth., Ser. A, A.M.B.A.C. Aaa
5.25 6/15/08 3,750 3,719,925
New Jersey St. Tpke. Auth. Rev., Ser. C, M.B.I.A. Aaa
6.50 1/01/16 14,000(g) 15,225,840
------------
38,095,383
- -----------------------------------------------------------------------------
- -------------------------------------------------
New Mexico--0.8%
Santa Fe Util. Rev., Ser. A, A.M.B.A.C. Aaa
8.00 6/01/07 3,695 4,565,247
- -----------------------------------------------------------------------------
- -------------------------------------------------
New York--5.0%
Erie Cnty. Wtr. Auth. Rev., A.M.B.A.C. Aaa
Zero 12/01/17 770 161,769
Islip Res. Rec., Ser. B, A.M.B.A.C. Aaa
7.20 7/01/10 1,750 2,024,925
New York City, Ser. D, M.B.I.A. Aaa
6.20 2/01/07 8,520 9,206,882
New York St. Dorm. Auth. Rev., City Univ., M.B.I.A. Aaa
6.25 7/01/19 3,000 3,051,450
New York St. Engy. Res. & Dev. Auth., Poll. Ctrl. Rev.,
F.G.I.C. Aaa
7.375 10/01/14 4,000 4,403,000
Suffolk Cnty. Ind. Dev. Agcy., SW Swr. Sys. Rev., F.G.I.C. Aaa
6.00 2/01/08 5,000 5,325,350
Suffolk Cnty. Wtr. Auth. Wtrwks. Rev., M.B.I.A. Aaa
6.00 6/01/14 5,165 5,326,355
------------
29,499,731
- -----------------------------------------------------------------------------
- -------------------------------------------------
North Carolina--1.3%
North Carolina Mun. Pwr. Agcy. Elec. Rev., No. 1 Catawba,
M.B.I.A. Aaa
6.00 1/01/11 7,500 7,835,025
- -----------------------------------------------------------------------------
- -------------------------------------------------
North Dakota--2.0%
Mercer Cnty., Antelope Valley Station, A.M.B.A.C. Aaa
7.20 6/30/13 10,000 11,688,100
- -----------------------------------------------------------------------------
- -------------------------------------------------
Ohio--0.2%
Franklin Cnty. Childrens Hosp. Proj. Aa
5.875 11/01/25 1,000 969,380
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 25 -----
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1996 INSURED SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a) (Unaudited)
Rate Date (000) (Note 1)
<S> <C> <C>
<C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Oklahoma--1.1%
Grand Rvr. Dam Auth., A.M.B.A.C. Aaa
6.25% 6/01/11 $ 6,000 $ 6,469,740
- -----------------------------------------------------------------------------
- -------------------------------------------------
Pennsylvania--3.3%
Delaware Rvr. Port Auth., PA & NJ Rev., F.G.I.C. Aaa
5.50 1/01/26 5,000 4,714,300
North Umberland Cnty. Lease Auth. Rev., Correctional
Facs., M.B.I.A. Aaa
Zero 10/15/10 7,500(d) 3,226,500
Philadelphia Mun. Auth. Rev., Criminal Justice Ctr., Ser.
A, M.B.I.A. Aaa
6.90 11/15/03 3,000 3,340,410
Philadelphia Wtr. & Wstewtr., F.S.A. Aaa
5.625 6/15/08 7,570 7,760,234
------------
19,041,444
- -----------------------------------------------------------------------------
- -------------------------------------------------
Puerto Rico--2.0%
Puerto Rico Gen. Oblig., M.B.I.A. Aaa
6.25 7/01/13 1,250 1,345,950
Puerto Rico Elec. Pwr. Auth. Rev., M.B.I.A. Aaa
Zero 7/01/04 2,000 1,332,840
Puerto Rico Pub. Bldgs. Auth. Rev., Gov't. Facs., Ser. A,
A.M.B.A.C. Aaa
6.25 7/01/13 1,700 1,830,492
Puerto Rico Tel. Auth. Rev.,
Ser. I, M.B.I.A. Aaa
6.87 1/25/07 4,100(b) 3,946,250
Ser. I, M.B.I.A. Aaa
7.036 1/16/15 3,800(b) 3,405,750
------------
11,861,282
- -----------------------------------------------------------------------------
- -------------------------------------------------
South Carolina--1.0%
Berkeley Cnty. Wtr. & Swr. Rev., M.B.I.A. Aaa
6.50 6/01/06 2,500 2,700,650
Piedmont Mun. Pwr. Agcy. Elec. Rev., F.G.I.C. Aaa
5.00 1/01/22 3,800 3,256,600
------------
5,957,250
- -----------------------------------------------------------------------------
- -------------------------------------------------
Texas--11.3%
Austin Util. Sys. Rev.,
M.B.I.A. Aaa
Zero 5/15/03 8,000 5,554,000
A.M.B.A.C. Aaa
6.50 5/15/11 5,000 5,270,650
Brazos River Auth. Rev.,
Houston Lt. & Pwr., Ser. A, 1st Mtge., A.M.B.A.C. Aaa
6.70 3/01/17 5,000 5,360,650
Houston Lt. & Pwr., Ser. B, 1st Mtge., F.G.I.C. Aaa
7.20 12/01/18 1,000 1,090,520
</TABLE>
- --------------------------------------------------------------------------------
- ----- 26 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1996 INSURED SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a) (Unaudited)
Rate Date (000) (Note 1)
<S> <C> <C>
<C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Texas (cont'd.)
Harris Cnty. Toll Rd.,
F.G.I.C. Aaa
5.00% 8/15/16 $ 6,930 $ 6,219,814
M.B.I.A. Aaa
8.00 8/15/11 10,290 12,950,376
Houston Arpt. Sys. Rev. Aaa
7.20 7/01/13 3,900(d) 4,445,883
Keller Ind. Schl. Dist. P.S.F.G. Aaa
Zero 8/15/15 4,945 1,535,522
Matagorda Cnty. Nav. Poll. Ctrl. Rev., Dist. No. 1, 1st
Mtge., A.M.B.A.C. Aaa
7.50 12/15/14 2,300 2,550,861
New Braunfels Ind. Sch. Dist. Gen. Oblig., P.S.F.G. Aaa
Zero 2/01/07 2,000 1,110,160
Round Rock Ind. Sch. Dist. Gen. Oblig., M.B.I.A. Aaa
Zero 8/15/11 4,300 1,728,385
Texas St. Mun. Pwr. Agcy. Rev.,
A.M.B.A.C. Aaa
6.75 9/01/12 3,960 4,245,120
M.B.I.A. Aaa
Zero 9/01/13 12,300 4,303,770
M.B.I.A. Aaa
Zero 9/01/14 10,000 3,293,300
Texas St. Pub. Fin. Auth. Bldg. Rev., M.B.I.A. Aaa
Zero 2/01/14 6,900 2,354,142
Texas Wtr. Res. Fin. Auth. Rev., A.M.B.A.C. Aaa
7.50 8/15/13 2,000 2,130,460
Ysleta Ind. Schl. Dist., El Paso Cnty., P.S.F.G. Aaa
Zero 8/15/09 4,065 1,864,697
------------
66,008,310
- -----------------------------------------------------------------------------
- -------------------------------------------------
Virginia--2.0%
Arlington Cnty., Gen. Oblig. Aaa
6.00 6/01/11 2,000 2,118,400
Riverside Regl. Jail Auth. Rev., M.B.I.A. Aaa
6.00 7/01/25 6,750 6,820,470
Virginia Beach Auth. Hosp. Facs. Rev.,
1st Mtge., A.M.B.A.C. Aaa
6.00 2/15/10 1,220 1,283,135
1st Mtge., A.M.B.A.C. Aaa
6.00 2/15/13 1,455 1,512,836
------------
11,734,841
- -----------------------------------------------------------------------------
- -------------------------------------------------
Washington--2.2%
Clark Cnty. Pub. Util. Dist., F.G.I.C. Aaa
6.00% 1/01/08 3,000 3,154,080
Washington St. Pub. Pwr. Supply Sys.,
Nuclear Proj. No. 2, Ser. A, M.B.I.A. Aaa
Zero 7/01/11 5,210 2,078,634
Nuclear Proj. No. 2, Ser. B, F.G.I.C. Aaa
7.25 7/01/03 3,000 3,294,990
Nuclear Proj. No. 3, Ser. B, F.G.I.C., Aaa
7.00 7/01/05 2,000 2,162,260
Nuclear Proj. No. 3, F.G.I.C. Aaa
Zero 7/01/08 4,500 2,217,690
------------
12,907,654
------------
Total long-term investments (cost $518,168,431)
535,240,745
------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 27 -----
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1996 INSURED SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a) (Unaudited)
Rate Date (000) (Note 1)
<S> <C> <C>
<C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
SHORT-TERM INVESTMENTS--8.8%
- -----------------------------------------------------------------------------
- -------------------------------------------------
Alabama--0.6%
Decatur Ind. Dev. Brd., Amoco Corp., Ser. 95, F.R.D.D. P-1
4.25% 5/01/96 $ 3,800 $ 3,800,000
- -----------------------------------------------------------------------------
- -------------------------------------------------
Illinois--0.8%
Sw. Ill. Dev. Auth., Shell Oil Co., Wood Rvr. Proj., Ser.
95, F.R.D.D. VMIG1
4.25 5/01/96 4,500 4,500,000
- -----------------------------------------------------------------------------
- -------------------------------------------------
Louisiana--0.5%
Plaquemines Parish, British Petroleum Co., Ser. 94,
F.R.D.D. P-1
4.30 5/01/96 2,700 2,700,000
- -----------------------------------------------------------------------------
- -------------------------------------------------
Mississippi--1.5%
Jackson Cnty. Ind. Swr., Chevron USA, Ser. 94, F.R.D.D. P-1
4.25 5/01/96 8,500 8,500,000
- -----------------------------------------------------------------------------
- -------------------------------------------------
New Mexico--0.7%
Farmington Pub. Serv., Ser. 94C, F.R.D.D. P-1
4.25 5/01/96 4,000 4,000,000
- -----------------------------------------------------------------------------
- -------------------------------------------------
Texas--3.9%
Brazos River Auth., Tx. Utils. Elec. Co.
Ser. 95C, F.R.D.D. VMIG1
4.25 5/01/96 5,000 5,000,000
Ser. 96A, F.R.D.D. VMIG1
4.25 5/01/96 11,700 11,700,000
Gulf Coast Wste. Disp., Amoco Corp., Ser. 94, F.R.D.D. VMIG1
4.25 5/01/96 5,800 5,800,000
Trinity Rvr. Auth., Tx. Util. Elec., Ser. 96A, F.R.D.D. VMIG1
4.25 5/01/96 600 600,000
------------
23,100,000
- -----------------------------------------------------------------------------
- -------------------------------------------------
Virginia--0.3%
King George Co. Ind. Dev. Auth., Birchwood Pwr. Proj.,
Ser. 94, F.R.D.D. A-1
4.30 5/01/96 1,900 1,900,000
</TABLE>
- --------------------------------------------------------------------------------
- ----- 28 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1996 INSURED SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a) (Unaudited)
Rate Date (000) (Note 1)
<S> <C> <C>
<C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Wyoming--0.5%
Green Rvr. Pwr. Crtl. Rev., Oriental Chemical Co., Ser.
94, F.R.D.D. VMIG1
4.45% 5/01/96 $ 2,800 $ 2,800,000
------------
Total short-term investments (cost $51,300,000)
51,300,000
------------
- -----------------------------------------------------------------------------
- -------------------------------------------------
Total Investments--100.4%
(cost $569,468,431; Note 4)
586,540,745
Liabilities in excess of other assets--(0.4)%
(2,464,252)
------------
Net Assets--100%
$584,076,493
------------
------------
</TABLE>
- ---------------
(a) The following abbreviations are used in portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance Corporation
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)
F.S.A.--Financial Security Assurance
M.B.I.A.--Municipal Bond Insurance Association
P.S.F.G.--Public School Fund Guaranty
(b) Inverse floating rate bond. The coupon is inversely indexed to a floating
interest rate. The rate shown is the rate at year end.
(c) Standard & Poor's rating.
(d) Prerefunded issues are secured by escrowed cash and direct U.S. guaranteed
obligations.
(e) Indicates a when-issued or extended settlement security.
(f) The maturity date shown is 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.
(g) Portion of or entire principal amount pledged as initial margin on financial
futures contracts.
The Fund's current Prospectus contains a description of Moody's and Standard &
Poor's ratings.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 29 -----
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Statement of Assets and Liabilities INSURED SERIES
- --------------------------------------------------------------------------------
<TABLE>
<S>
<C>
Assets
April 30, 1996
Investments, at value (cost
$569,468,431)...................................................................
$ 586,540,745
Cash.........................................................................
............................... 2,915,908
Interest
receivable...................................................................
...................... 8,628,993
Receivable for investments
sold.........................................................................
.... 361,150
Receivable for Fund shares
sold.........................................................................
.... 324,441
Due from broker - variation
margin..........................................................................
68,750
Deferred
expenses.....................................................................
...................... 8,865
--------------
Total
assets.......................................................................
...................... 598,848,852
--------------
Liabilities
Payable for investments
purchased....................................................................
....... 12,920,256
Dividends
payable......................................................................
..................... 698,412
Payable for Fund shares
reacquired...................................................................
....... 479,369
Accrued
expenses.....................................................................
....................... 261,377
Management fee
payable......................................................................
................ 217,452
Distribution fee
payable......................................................................
.............. 195,493
--------------
Total
liabilities..................................................................
...................... 14,772,359
--------------
Net
Assets.......................................................................
........................... $ 584,076,493
--------------
--------------
Net assets were comprised of:
Shares of beneficial interest, at
par.................................................................... $
533,433
Paid-in capital in excess of
par.........................................................................
566,821,334
--------------
567,354,767
Accumulated net realized loss on
investments.............................................................
(625,588)
Net unrealized appreciation of
investments...............................................................
17,347,314
--------------
Net assets, April 30,
1996.........................................................................
...... $ 584,076,493
--------------
--------------
Class A:
Net asset value and redemption price per share
($139,548,425 / 12,755,223 shares of beneficial interest issued and
outstanding)...................... $10.94
Maximum sales charge (3.0% of offering
price)............................................................
.34
--------------
Maximum offering price to
public.........................................................................
$11.28
--------------
--------------
Class B:
Net asset value, offering price and redemption price per share
($443,390,971 / 40,484,236 shares of beneficial interest issued and
outstanding)...................... $10.95
--------------
--------------
Class C:
Net asset value, offering price and redemption price per share
($1,137,097 / 103,826 shares of beneficial interest issued and
outstanding)........................... $10.95
--------------
--------------
</TABLE>
- --------------------------------------------------------------------------------
- ----- 30 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
INSURED SERIES
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income April 30, 1996
<S> <C>
Income
Interest.................................. $ 36,855,590
--------------
Expenses
Management fee............................ 3,138,673
Distribution fee--Class A................. 102,456
Distribution fee--Class B................. 2,622,259
Distribution fee--Class C................. 6,203
Transfer agent's fees and expenses........ 391,000
Custodian's fees and expenses............. 144,500
Reports to shareholders................... 137,000
Registration fees......................... 53,000
Audit fees and expenses................... 18,000
Insurance expense......................... 18,000
Trustees' fees and expenses............... 16,000
Legal fees and expenses................... 11,000
Miscellaneous............................. 5,381
--------------
Total expenses......................... 6,663,472
Less: Management fee waiver............... (313,867)
Custodian fee credit................... (32,100)
--------------
Net expenses........................... 6,317,505
--------------
Net investment income........................ 30,538,085
--------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions................... 14,823,756
Financial futures contract transactions... (196,156)
--------------
14,627,600
--------------
Net change in unrealized
appreciation (depreciation) of:
Investments............................... (6,535,739)
Financial futures contracts............... 153,844
--------------
(6,381,895)
--------------
Net gain on investments...................... 8,245,705
--------------
Net Increase in Net Assets
Resulting from Operations.................... $ 38,783,790
--------------
--------------
</TABLE>
PRUDENTIAL MUNICIPAL BOND FUND
INSURED SERIES
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended April 30,
<S> <C> <C>
in Net Assets 1996 1995
Operations
Net investment income......... $ 30,538,085 $ 35,097,294
Net realized gain (loss) on
investment transactions.... 14,627,600 (10,107,133)
Net change in unrealized
appreciation (depreciation)
of investments............. (6,381,895) 14,364,251
------------ -------------
Net increase in net assets
resulting from
operations................. 38,783,790 39,354,412
------------ -------------
Dividends and distributions (Note
1):
Dividends from net investment
income
Class A.................... (5,328,224) (2,149,982)
Class B.................... (25,172,135) (32,939,088)
Class C.................... (37,726) (8,224)
------------ -------------
(30,538,085) (35,097,294)
------------ -------------
Distributions in excess of net
investment income
Class A.................... (34,680) (2,529)
Class B.................... (153,181) (60,060)
Class C.................... (265) (20)
------------ -------------
(188,126) (62,609)
------------ -------------
Series share transactions (net of
share conversions) (Note 5):
Net proceeds from shares
subscribed................. 50,187,534 46,070,613
Net asset value of shares
issued in reinvestment of
dividends and
distributions.............. 17,105,830 19,337,321
Cost of shares reacquired..... (135,247,446) (196,745,726)
------------ -------------
Net decrease in net assets
from Series share
transactions............... (67,954,082) (131,337,792)
------------ -------------
Total decrease................... (59,896,503) (127,143,283)
Net Assets
Beginning of year................ 643,972,996 771,116,279
------------ -------------
End of year...................... $584,076,493 $ 643,972,996
------------ -------------
------------ -------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 31 -----
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1996 INTERMEDIATE SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a) (Unaudited)
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
LONG-TERM INVESTMENTS--97.2%
- -----------------------------------------------------------------------------
- -------------------------------------------------
Alabama--2.5%
Univ. So. Alabama Hosp. & Aux. Rev., A.M.B.A.C. Aaa
7.00% 5/15/04 $ 1,250(b) $ 1,360,913
- -----------------------------------------------------------------------------
- -------------------------------------------------
Alaska--3.9%
Alaska Ind. Dev. & Expt. Auth., Revolving Loan Fund A
5.40 4/01/01 1,005 1,011,844
No. Slope Boro., Gen. Oblig., Ser. C Baa1
8.35 6/30/98 1,000 1,075,750
------------
2,087,594
- -----------------------------------------------------------------------------
- -------------------------------------------------
Arizona--3.0%
Maricopa Cnty., Cmnty. Coll. Aa
6.00 7/01/06 1,500 1,588,125
- -----------------------------------------------------------------------------
- -------------------------------------------------
California--3.8%
San Jose Redev.,
Tax Alloc., M.B.I.A. Aaa
6.00 8/01/06 500 537,190
Tax Alloc., M.B.I.A. Aaa
6.00 8/01/08 500 531,665
Statewide Cmntys. Dev. Corp.,
Cedars Sinai Med. Ctr. A1
4.80 11/01/04 1,000 968,790
------------
2,037,645
- -----------------------------------------------------------------------------
- -------------------------------------------------
Colorado--7.4%
Colorado Student Oblig. Bond Auth., Student Loan Rev.,
Ser. A3 A
7.25 9/01/05 1,480 1,550,122
Denver City & Cnty. Arprt. Rev., Ser. A, M.B.I.A. Aaa
7.30 11/15/03 1,250 1,409,100
Jefferson Cnty. Sch. Dist. R-001 Baa1
4.50 12/15/03 1,000 967,950
------------
3,927,172
- -----------------------------------------------------------------------------
- -------------------------------------------------
Connecticut--2.1%
Connecticut Spec. Tax Oblig. Rev., Ser. A A1
7.00 6/01/03 1,000(b) 1,109,860
- -----------------------------------------------------------------------------
- -------------------------------------------------
District Of Columbia--1.3%
Dist. of Columbia Rev., America Geophysical Union, Ser.
199 BBB-(c)
5.50 9/01/03 700 684,026
- -----------------------------------------------------------------------------
- -------------------------------------------------
Florida--4.8%
Dade Cnty. Pub. Facs. Rev., Jackson Mem. Hosp., Ser. A,
M.B.I.A. Aaa
4.75 6/01/08 1,000 932,690
Dade Cnty. Sch. Dist., M.B.I.A. Aaa
6.00 7/15/06 1,500 1,605,030
------------
2,537,720
</TABLE>
- --------------------------------------------------------------------------------
- ----- 32 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1996 INTERMEDIATE SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a) (Unaudited)
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Georgia--2.1%
Burke Cnty. Dev. Auth. Poll. Ref., Oglethorpe Pwr. Co.,
M.B.I.A. Aaa
7.50% 1/01/03 $ 1,000 $ 1,105,250
- -----------------------------------------------------------------------------
- -------------------------------------------------
Guam--1.8%
Guam Pwr. Auth. Rev., Ser. A BBB(c)
5.25 10/01/05 1,000 986,820
- -----------------------------------------------------------------------------
- -------------------------------------------------
Illinois--0.8%
Illinois Hlth. Facs. Auth. Rev., Edward Hosp., Ser. A A
5.75 2/15/09 450 434,943
- -----------------------------------------------------------------------------
- -------------------------------------------------
Indiana--1.8%
Indianapolis Gas Util. Rev., Ser. B, F.G.I.C. Aaa
5.00 6/01/06 1,000 981,340
- -----------------------------------------------------------------------------
- -------------------------------------------------
Maryland--5.8%
Maryland St. Stadium Auth. Lease Rev., Conv. Ctr.
Expansion, A.M.B.A.C. Aaa
5.375 12/15/00 1,000 1,033,580
NE Maryland Wste. Disp. Auth., Mont. Co. Res. Rec. A
5.90 7/01/05 1,250 1,279,013
Ocean City Maryland, M.B.I.A. Aaa
5.10 10/01/08 825 801,545
------------
3,114,138
- -----------------------------------------------------------------------------
- -------------------------------------------------
Massachusetts--2.1%
Mass. Gen. Oblig., Ser. C Aaa
6.75 8/01/06 1,000(b) 1,111,010
- -----------------------------------------------------------------------------
- -------------------------------------------------
Michigan--4.6%
Battle Creek Wtr. Supp. Sys. Rev., Ref., A.M.B.A.C. Aaa
4.75 9/01/10 1,000 899,550
Greenville Pub. Sch., M.B.I.A. Aaa
5.75 5/01/09 1,000 1,021,350
Michigan Mun. Bond Auth. Rev., Wayne Cnty. Proj., M.B.I.A. Aaa
7.40 12/01/02 500(b) 549,085
------------
2,469,985
- -----------------------------------------------------------------------------
- -------------------------------------------------
Minnesota--2.0%
Minneapolis & St. Paul Hsg. Redev. Auth., Hlthcare Sys.
Rev.,
Ser. A, M.B.I.A. Aaa
7.20 8/15/00 1,000 1,097,270
- -----------------------------------------------------------------------------
- -------------------------------------------------
Missouri--1.0%
New Madrid Elec. Pwr. Ctr. Pwr. Plant, A.M.B.A.C. Aaa
5.35 12/01/00 500 516,370
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 33 -----
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1996 INTERMEDIATE SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a) (Unaudited)
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
New Jersey--10.5%
New Jersey Econ. Dev. Auth.,
Mkt. Trans. Fac. Rev., M.B.I.A. Aaa
5.75% 7/01/06 $ 950 $ 992,313
Mkt. Trans. Fac. Rev., M.B.I.A. Aaa
5.80 7/01/07 1,000 1,041,390
New Jersey St. Trans. Trust Fund Auth., Ser. A. M.B.I.A. Aaa
5.50 6/15/11 1,500 1,480,215
So. Rvr. Sch. Dist., F.G.I.C. Aaa
5.00 12/01/06 1,050 1,045,684
West Windsor Plainsboro Sch., F.G.I.C. Aaa
5.25 12/01/05 1,000 1,018,810
------------
5,578,412
- -----------------------------------------------------------------------------
- -------------------------------------------------
New York--2.5%
New York St. Urban Dev. Corp. Rev., Baa1
5.25 1/01/11 1,500 1,347,855
- -----------------------------------------------------------------------------
- -------------------------------------------------
Ohio--1.0%
Ohio St. Bldg. Auth., Admin. Bldg. Fund Proj., M.B.I.A. Aaa
5.60 10/01/06 500 522,045
- -----------------------------------------------------------------------------
- -------------------------------------------------
Oklahoma--4.4%
Oklahoma St. Ind. Auth. Rev. Hlth. Sys., Integris Bapt.,
A.M.B.A.C. Aaa
6.00 8/15/09 2,240 2,344,406
- -----------------------------------------------------------------------------
- -------------------------------------------------
Oregon--3.5%
Multnomah Cnty. Sch. Dist. No. 3, Park Rose, F.G.I.C. Aaa
5.60 12/01/07 1,000 1,030,910
Oregon St. Dept. Trans. Rev., Reg. Lt. Rail Westside
Proj., M.B.I.A. Aaa
7.00 6/01/03 750 844,725
------------
1,875,635
- -----------------------------------------------------------------------------
- -------------------------------------------------
Pennsylvania--6.6%
Allegheny Cnty. Ind. Dev. Rev., USX Proj. Baa3
5.30 12/01/96 1,000 997,290
Montgomery Cnty. Redev. Auth., Multifam. Hsg. Rev., Ser. A NR
5.75 7/01/99 780 778,370
Pennsylvania St. Ctfs. of Part., Ser. A, F.S.A. Aaa
6.25 11/01/06 600 639,108
Philadelphia Hosp. Auth. & Higher Edl. Auth., Childrens
Seashore House, Ser. A A-(c)
7.00 8/15/03 1,000 1,089,620
------------
3,504,388
</TABLE>
- --------------------------------------------------------------------------------
- ----- 34 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1996 INTERMEDIATE SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a) (Unaudited)
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Puerto Rico--9.1%
Puerto Rico Aqueduct & Swr. Auth. Rev., M.B.I.A. Aaa
6.00% 7/01/07 $ 1,250 $ 1,330,537
Puerto Rico Gen. Oblig., Ser. A, M.B.I.A. Aaa
6.25 7/01/10 750 784,538
Puerto Rico Gen. Oblig., Pub. Impvt., M.B.I.A. Aaa
6.50 7/01/08 1,115 1,246,537
Puerto Rico Hwy. Auth. Rev.,
Ser. Q Baa1
7.50 7/01/01 330(b) 372,171
Ser. Q Baa1
7.60 7/01/02 975(b) 1,103,573
------------
4,837,356
- -----------------------------------------------------------------------------
- -------------------------------------------------
Texas--1.2%
San Antonio Elec. & Gas Rev., Ser. A, F.G.I.C. Aaa
Zero 2/01/05 1,000 629,950
- -----------------------------------------------------------------------------
- -------------------------------------------------
Utah--2.0%
Utah St. Brd. of Regents, Student Loan Rev., Ser. F,
A.M.B.A.C. Aaa
7.00 11/01/01 1,000(d) 1,079,730
- -----------------------------------------------------------------------------
- -------------------------------------------------
Washington--5.6%
Washington St. Pub. Pwr. Supp. Sys.,
Nuclear Proj. No.2, Ser A Aa
4.90 7/01/05 2,000 1,907,960
Nuclear Proj. No.3, Ser. B Aa
7.00 7/01/99 1,000 1,066,000
------------
2,973,960
- -----------------------------------------------------------------------------
- -------------------------------------------------
Total Investments--97.2%
(cost $50,695,167; Note 4)
51,843,918
Other assets in excess of liabilities--2.8%
1,483,150
------------
Net Assets--100%
$ 53,327,068
------------
------------
</TABLE>
- ---------------
(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.S.A.--Financial Security Assurance
M.B.I.A.--Municipal Bond Insurance Association
(b) Prerefunded issues are secured by escrowed cash and direct U.S. guaranteed
obligations.
(c) Standard & Poor's Rating.
(d) Portion of or entire principal amount pledged as initial margin on
financial futures contracts.
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.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 35 -----
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Statement of Assets and Liabilities INTERMEDIATE SERIES
- --------------------------------------------------------------------------------
<TABLE>
<S>
<C>
Assets
April 30, 1996
Investments, at value (cost
$50,695,167)....................................................................
$ 51,843,918
Cash.........................................................................
............................... 806,752
Interest
receivable...................................................................
...................... 1,014,020
Receivable for Fund shares
sold.........................................................................
.... 24,409
Due from broker - variation
margin..........................................................................
10,312
Deferred
expenses.....................................................................
...................... 713
--------------
Total
assets.......................................................................
...................... 53,700,124
--------------
Liabilities
Payable for Fund shares
reacquired...................................................................
....... 205,173
Accrued
expenses.....................................................................
....................... 77,179
Dividends
payable......................................................................
..................... 52,527
Management fee
payable......................................................................
................ 20,188
Distribution fee
payable......................................................................
.............. 17,989
--------------
Total
liabilities..................................................................
...................... 373,056
--------------
Net
Assets.......................................................................
........................... $ 53,327,068
--------------
--------------
Net assets were comprised of:
Shares of beneficial interest, at
par.................................................................... $
50,071
Paid-in capital in excess of
par.........................................................................
52,422,684
--------------
52,472,755
Accumulated net realized loss on
investments.............................................................
(293,501)
Net unrealized appreciation of
investments...............................................................
1,147,814
--------------
Net assets, April 30,
1996.........................................................................
......... $ 53,327,068
--------------
--------------
Class A:
Net asset value and redemption price per share
($12,551,774 / 1,178,773 shares of beneficial interest issued and
outstanding)........................ $10.65
Maximum sales charge (3% of offering
price)..............................................................
.33
--------------
Maximum offering price to
public.........................................................................
$10.98
--------------
--------------
Class B:
Net asset value, offering price and redemption price per share
($40,550,143 / 3,807,175 shares of beneficial interest issued and
outstanding)........................ $10.65
--------------
--------------
Class C:
Net asset value, offering price and redemption price per share
($225,151 / 21,139 shares of beneficial interest issued and
outstanding).............................. $10.65
--------------
--------------
</TABLE>
- --------------------------------------------------------------------------------
- ----- 36 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
INTERMEDIATE SERIES
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
<S> <C>
Net Investment Income April 30, 1996
Income
Interest.................................. $3,254,289
--------------
Expenses
Management fee............................ 294,639
Distribution fee--Class A................. 12,604
Distribution fee--Class B................. 230,633
Distribution fee--Class C................. 1,481
Registration Fees......................... 90,000
Reports to shareholders................... 80,000
Custodian's fees and expenses............. 76,500
Transfer agent's fees and expenses........ 64,000
Legal fees and expenses................... 16,000
Trustees' fees and expenses............... 16,000
Audit fees and expenses................... 12,500
Miscellaneous............................. 6,266
--------------
Total expenses......................... 900,623
Less: Management fee waiver............... (29,464)
Custodian fee credit................... (1,242)
--------------
Net expenses........................... 869,917
--------------
Net investment income........................ 2,384,372
--------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions................... 904,706
Financial futures contracts............... (268,425)
--------------
636,281
--------------
Net change in unrealized appreciation of:
Investments............................... 573,247
Financial futures contracts............... 39,908
--------------
613,155
--------------
Net gain on investments...................... 1,249,436
--------------
Net Increase in Net Assets
Resulting from Operations.................... $3,633,808
--------------
--------------
</TABLE>
PRUDENTIAL MUNICIPAL BOND FUND
INTERMEDIATE SERIES
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended April 30,
<S> <C> <C>
in Net Assets 1996 1995
Operations
Net investment income.......... $ 2,384,372 $ 2,979,505
Net realized gain (loss) on
investment transactions..... 636,281 (658,871)
Net change in unrealized
appreciation of
investments................. 613,155 28,699
------------ ------------
Net increase in net assets
resulting from operations... 3,633,808 2,349,333
------------ ------------
Dividends and distributions (Note 1):
Dividends from net investment
income
Class A..................... (549,044) (368,417)
Class B..................... (1,828,010) (2,610,175)
Class C..................... (7,318) (913)
------------ ------------
(2,384,372) (2,979,505)
------------ ------------
Distributions in excess of
net investment income
Class A..................... -- (4,934)
Class B..................... -- (34,699)
Class C..................... -- (9)
------------ ------------
-- (39,642)
------------ ------------
Distributions from net realized
gains
Class A..................... -- (102,830)
Class B..................... -- (1,139,663)
------------ ------------
-- (1,242,493)
------------ ------------
Series share transactions (net of
share conversions) (Note 5):
Net proceeds from shares
subscribed.................. 5,139,324 13,939,416
Net asset value of shares
issued in reinvestment of
dividends................... 1,485,489 2,761,015
Cost of shares reacquired...... (16,260,658) (24,099,780)
------------ ------------
Net decrease in net assets from
Series share transactions... (9,635,845) (7,399,349)
------------ ------------
Total decrease.................... (8,386,409) (9,311,656)
Net Assets
Beginning of year................. 61,713,477 71,025,133
------------ ------------
End of year....................... $ 53,327,068 $ 61,713,477
------------ ------------
------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 37 -----
<PAGE>
Notes to Financial Statements PRUDENTIAL MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
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 Intermediate Series (formerly, the Modified Term Series).
Investment operations for Class A, Class B and Class C shares of each series
commenced on January 22, 1990, September 17, 1987 and August 1, 1994,
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 and
Intermediate 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 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. When the contract expires or is closed, the gain or loss is realized and
is presented in the statement of operations as net realized gain (loss) on
financial futures contracts.
The Fund invests in financial futures contracts in order to hedge its existing
portfolio securities, or securities the Fund intends to purchase, against
fluctuations in value caused by changes in prevailing 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.
Options: The Fund may either purchase or write options in order to hedge against
adverse market movements or fluctuations in value caused by changes in
prevailing interest rates or foreign currency exchange rates with respect to
securities or currencies which the Fund currently owns or intends to purchase.
When the Fund purchases an option, it pays a premium and an amount equal to that
premium is recorded as an investment. When the Fund writes an option, it
receives a premium and an amount equal to that premium is recorded as a
liability. The investment or liability is adjusted daily to reflect the current
market value of the option. If an option expires unexercised, the Fund realizes
a gain or loss to the extent of the premium received or paid. If an option is
exercised, the premium received or paid is an adjustment to the proceeds from
the sale or the cost basis of the purchase in determining whether the Fund has
realized a gain or loss. The difference between the premium and the amount
received or paid on effecting a closing purchase or sale transaction is also
treated as a realized gain or loss. Gain or loss on purchased options is
included in net realized gain (loss) on investment transactions.
The Fund, as writer of an option, has no control over whether the underlying
securities or currencies may be sold (called) or purchased (put). As a result,
the Fund bears the market risk of an unfavorable change in the price of the
security or currency underlying the written option. The Fund, as purchaser of
an
option, bears the risk of the potential inability of the counterparties to meet
the terms of their contracts.
Securities Transactions and Net Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis. 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
- --------------------------------------------------------------------------------
- ----- 38
<PAGE>
Notes to Financial Statements PRUDENTIAL MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
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. Expenses are
recorded on the accrual basis which may require the use of certain estimates by
management.
Federal Income Taxes: For federal income tax purposes, each series in the Fund
is treated as a separate 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.
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
Reclassification of Capital Accounts: The Fund accounts and reports for
distributions to shareholders in accordance with Statement of Position 93-2:
Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies. For
the fiscal year ended April 30, 1996, the effect of applying this statement was
to increase undistributed net investment income and increase accumulated
realized losses by $125,886 and $188,126 for the High Yield Series and Insured
Series, respectively. Net investment income, net realized gains and net assets
were not affected by this change.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential 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 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 up to $1
billion and .45 of 1% of the average daily net asets of each series in excess
of
$1 billion. PMF has agreed to voluntarily waive a portion of each Series'
management fee, which amounted to $534,026, $313,867, and $29,464 for the High
Yield Series, Insured Series, and Intermediate Series, respectively for the year
ended April 30, 1996. Such amounts represented .05 of 1% of average daily net
assets for each Series or $.006 per share.
The Fund had a distribution agreement with Prudential Mutual Fund Distributors,
Inc. (``PMFD''), which acted as the distributor of the Class A shares of the
Fund through January 1, 1996. Effective January 2, 1996, Prudential Securities
Incorporated (``PSI''), became the distributor of the Class A shares of the Fund
and is serving the Fund under the same terms and conditions as under the
arrangement with PMFD. PSI is also the distributor of the Class B and Class C
shares of the Fund. The Fund compensated PMFD and PSI for distributing and
servicing the Fund's Class A, Class B and Class C shares, pursuant to plans of
distribution (the ``Class A, B and C Plans''), regardless of expenses actually
incurred by them. The distribution fees are accrued daily and payable monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates the Distributors
for distribution-related activities at an annual rate of up to .30 of 1%, .50
of
1% and 1%, of the average daily net assets of the Class A, B and C shares,
respectively. Such expenses under the Plans were .10 of 1%, .50 of 1% and .75
of
1% of the average daily net assets of the Class A, B and C shares, respectively,
for the year ended April 30, 1996.
PMFD and PSI have advised the Fund that it received approximately $346,300
($282,500-High Yield Series; $59,200-Insured Series; $4,600-Intermediate Series)
in front-end sales charges resulting from sales of Class A shares during the
year ended April 30, 1996. From these fees, PMFD and PSI paid such sales charges
to Pruco Securities Corporation, affiliated broker-dealers, which in turn paid
commissions to salespersons and incurred other distribution costs.
PSI has advised the Fund that for the year ended April 30, 1996, it received
approximately $2,672,200 ($1,556,000-High Yield Series; $978,700-Insured Series;
$137,500-Intermediate Series) in contingent deferred sales charges imposed upon
certain redemptions by Class B and C shareholders.
PMFD is a wholly-owned subsidiary of PMF; PSI, PIC and PMF are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
- --------------------------------------------------------------------------------
39 -----
<PAGE>
Notes to Financial Statements PRUDENTIAL MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
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, 1996,
the Fund incurred fees of approximately $697,100 ($384,800--High Yield Series;
$278,400--Insured Series; $33,900--Intermediate Series) for the services of
PMFS. As of April 30, 1996, approximately $57,500 ($32,000--High Yield Series;
$22,700--Insured Series; $2,800--Intermediate 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, 1996, were as follows:
<TABLE>
<CAPTION>
Series Purchases Sales
- -------------------------------- ------------ ------------
<S> <C> <C>
High Yield...................... $365,016,526 $391,464,842
Insured......................... 406,430,083 497,459,796
Intermediate.................... 19,398,026 28,410,168
</TABLE>
At April 30, 1996, the Insured Series and the Intermediate Series bought 1,850
and 10 financial futures contracts, respectively of U.S. Treasury Bonds expiring
in June, 1996. In addition, the Insured Series and the Intermediate Series sold
1,850 and 30 financial futures contracts, respectively, of U.S. Treasury Bonds
expiring in June, 1996.
The values of these financial futures contracts at April 30, 1996 were as
follows:
<TABLE>
<CAPTION>
Financial Futures
Contracts Bought/Sold
--------------------------
Insured Intermediate
Series Series
----------- ------------
<S> <C> <C>
Value at disposition................ $11,190,625 $1,636,406
Value at April 30, 1996............. 10,915,625 1,637,343
----------- ------------
Unrealized gain (loss).............. $ 275,000 $ (937)
----------- ------------
----------- ------------
</TABLE>
The federal income tax basis of the Fund's investments, at April 30, 1996 was
$994,566,383-High Yield Series; $569,469,731-Insured Series; and
$50,695,167-Intermediate Series and, accordingly, net unrealized appreciation
of
investments for federal income tax purposes was as follows:
<TABLE>
<CAPTION>
Net unrealized Gross Gross
appreciation unrealized unrealized
Series (depreciation) appreciation depreciation
- -------------------- -------------- ----------- -----------
<S> <C> <C> <C>
High Yield.......... $ 13,569,607 $46,464,457 $32,894,850
Insured............. 17,071,014 22,549,334 5,478,320
Intermediate........ 1,148,751 1,750,242 601,491
</TABLE>
The High Yield Series has a net capital loss carryforward as of April 30, 1996
of approximately $13,768,000, of which $2,024,000 expires in 2002, $5,361,000
expires in 2003 and $6,383,000 expires in 2004. The Insured Series has a net
capital loss carryforward of $630,700, which expires in 2003. The Intermediate
Series has a net capital loss carryforward of $337,600, which expires in 2004.
- ------------------------------------------------------------
Note 5. Capital
Each series offers Class A, Class B and Class C shares. Class A shares are sold
with a front-end sales charge of up to 3.0%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Class C shares are sold with a contingent
deferred sales charge of 1% during the first year. Class B shares automatically
convert to Class A shares on a quarterly basis approximately seven years after
purchase. A special exchange privilege is also available for shareholders who
qualified to purchase Class A shares at net asset value. 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.
- --------------------------------------------------------------------------------
- ----- 40
<PAGE>
Notes to Financial Statements PRUDENTIAL MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
The Fund has authorized an unlimited number of shares of beneficial interest of
each class at $.01 par value per share. Transactions in shares of beneficial
interest were as follows:
<TABLE>
<CAPTION>
High Yield Series
Insured Series Intermediate Series
Class A
Class A Class A
----------------------------
- ---------------------------- --------------------------
Year Ended April 30, 1996 Shares Amount Shares
Amount Shares Amount
- -------------------------------- ----------- ------------- -----------
------------- ---------- ------------
<S> <C> <C> <C>
<C> <C> <C>
Shares issued................... 2,842,337 $ 31,224,578 2,115,326
$ 23,453,210 101,764 $ 1,079,376
Shares issued in reinvestment of
dividends and
distributions................ 474,421 5,188,074 266,368
2,962,597 31,524 338,680
Shares reacquired............... (3,287,941) (36,026,405)
(3,699,272) (41,190,146) (466,658) (4,985,578)
----------- ------------- -----------
------------- ---------- ------------
Net increase (decrease) in
shares outstanding before
conversion................... 28,817 386,247
(1,317,578) (14,774,339) (333,370) (3,567,522)
Shares issued upon conversion
from Class B................. 10,054,570 110,522,327 7,072,139
78,989,223 506,425 5,415,903
----------- ------------- -----------
------------- ---------- ------------
Net increase in shares
outstanding.................. 10,083,387 $ 110,908,574 5,754,561
$ 64,214,884 173,055 $ 1,848,381
----------- ------------- -----------
------------- ---------- ------------
----------- ------------- -----------
------------- ---------- ------------
<CAPTION>
Class A
Class A Class A
----------------------------
- ---------------------------- --------------------------
Year Ended April 30, 1995 Shares Amount Shares
Amount Shares Amount
- -------------------------------- ----------- ------------- -----------
------------- ---------- ------------
<S> <C> <C> <C>
<C> <C> <C>
Shares issued................... 1,722,172 $ 18,074,186 578,436
$ 6,194,773 386,371 $ 4,053,460
Shares issued in reinvestment of
dividends and
distributions................ 191,061 2,032,345 117,327
1,252,497 28,292 294,023
Shares reacquired............... (2,449,412) (25,729,145)
(1,161,102) (12,310,078) (528,916) (5,396,007)
----------- ------------- -----------
------------- ---------- ------------
Net decrease in shares
outstanding before
conversion................... (536,179) (5,622,614)
(465,339) (4,862,808) (114,253) (1,048,524)
Shares issued upon conversion
from Class B................. 6,231,397 65,928,185 4,601,490
49,190,670 575,671 5,946,716
----------- ------------- -----------
------------- ---------- ------------
Net increase in shares
outstanding.................. 5,695,218 $ 60,305,571 4,136,151
$ 44,327,862 461,418 $ 4,898,192
----------- ------------- -----------
------------- ---------- ------------
----------- ------------- -----------
------------- ---------- ------------
<CAPTION>
Class B
Class B Class B
----------------------------
- ---------------------------- --------------------------
Year Ended April 30, 1996 Shares Amount Shares
Amount Shares Amount
- -------------------------------- ----------- ------------- -----------
------------- ---------- ------------
<S> <C> <C> <C>
<C> <C> <C>
Shares issued................... 8,170,060 $ 89,622,344 2,338,885
$ 26,086,324 371,018 $ 4,000,248
Shares issued in reinvestment of
dividends and
distributions................ 2,260,660 24,711,652 1,268,212
14,112,201 106,165 1,139,952
Shares reacquired............... (12,855,885) (140,769,139)
(8,438,736) (93,993,036) (1,047,502) (11,264,240)
----------- ------------- -----------
------------- ---------- ------------
Net decrease in shares
outstanding before
conversion................... (2,425,165) (26,435,143)
(4,831,639) (53,794,511) (570,319) (6,124,040)
Shares reacquired upon
conversion into Class A...... (10,054,570) (110,522,327)
(7,065,810) (78,989,223) (506,284) (5,415,903)
----------- ------------- -----------
------------- ---------- ------------
Net decrease in shares
outstanding.................. (12,479,735) $(136,957,470)
(11,897,449) $(132,783,734) (1,076,603) $(11,539,943)
----------- ------------- -----------
------------- ---------- ------------
----------- ------------- -----------
------------- ---------- ------------
<CAPTION>
Class B
Class B Class B
----------------------------
- ---------------------------- --------------------------
Year Ended April 30, 1995 Shares Amount Shares
Amount Shares Amount
- -------------------------------- ----------- ------------- -----------
------------- ---------- ------------
<S> <C> <C> <C>
<C> <C> <C>
Shares issued................... 10,730,386 $ 113,885,074 3,705,037
$ 39,356,337 933,582 $ 9,719,753
Shares issued in reinvestment of
dividends and
distributions................ 2,736,532 28,982,453 1,703,306
18,078,117 236,331 2,466,290
Shares reacquired............... (22,442,732) (236,469,222)
(17,535,273) (184,427,038) (1,817,018) (18,703,768)
----------- ------------- -----------
------------- ---------- ------------
Net decrease in shares
outstanding before
conversion................... (8,975,814) (93,601,695)
(12,126,930) (126,992,584) (647,105) (6,517,725)
Shares reacquired upon
conversion into Class A...... (6,231,397) (65,928,185)
(4,597,262) (49,190,670) (575,671) (5,946,716)
----------- ------------- -----------
------------- ---------- ------------
Net decrease in shares
outstanding.................. (15,207,211) $(159,529,880)
(16,724,192) $(176,183,254) (1,222,776) $(12,464,441)
----------- ------------- -----------
------------- ---------- ------------
----------- ------------- -----------
------------- ---------- ------------
</TABLE>
- --------------------------------------------------------------------------------
41 -----
<PAGE>
Notes to Financial Statements PRUDENTIAL MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
High Yield Series
Insured Series Intermediate Series
Class C
Class C Class C
----------------------------
- ---------------------------- --------------------------
Year Ended April 30, 1996 Shares Amount Shares
Amount Shares Amount
- -------------------------------- ----------- ------------- -----------
------------- ---------- ------------
<S> <C> <C> <C>
<C> <C> <C>
Shares issued................... 389,662 $ 4,263,670 58,297
$ 648,000 5,515 $ 59,700
Shares issued in reinvestment of
dividends and
distributions................ 20,619 225,710 2,784
31,032 638 6,857
Shares reacquired............... (104,405) (1,131,704)
(5,738) (64,264) (1,003) (10,840)
----------- ------------- -----------
------------- ---------- ------------
Net increase in shares
outstanding.................. 305,876 $ 3,357,676 55,343
$ 614,768 5,150 $ 55,717
----------- ------------- -----------
------------- ---------- ------------
----------- ------------- -----------
------------- ---------- ------------
<CAPTION>
Class C
Class C Class C
August 1, 1994* through April ----------------------------
- ---------------------------- --------------------------
30, 1995 Shares Amount Shares
Amount Shares Amount
- -------------------------------- ----------- ------------- -----------
------------- ---------- ------------
<S> <C> <C> <C>
<C> <C> <C>
Shares issued................... 322,757 $ 3,444,961 48,655
$ 519,503 15,922 $ 166,203
Shares issued in reinvestment of
dividends and
distributions................ 4,207 44,397 631
6,707 67 702
Shares reacquired............... (27,756) (286,223)
(803) (8,610) -- (5)
----------- ------------- -----------
------------- ---------- ------------
Net increase in shares
outstanding.................. 299,208 $ 3,203,135 48,483
$ 517,600 15,989 $ 166,900
----------- ------------- -----------
------------- ---------- ------------
----------- ------------- -----------
------------- ---------- ------------
</TABLE>
- ---------------
* Commencement of offering of Class C shares.
- --------------------------------------------------------------------------------
- ----- 42
<PAGE>
PRUDENTIALMUNICIPAL BOND FUND
Financial Highlights HIGH YIELD SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class
A
- ---------------------------------------------------------
Years Ended
April 30,
- ---------------------------------------------------------
1996 1995 1994
1993 1992
-------- --------
- ------- ------- -------
<S> <C> <C> <C>
<C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of year............ $ 10.72 $ 10.74 $
11.14 $ 10.68 $ 10.45
-------- --------
- ------- ------- -------
Income from investment operations
Net investment income......................... .72(b) .72(b)
.72 .77 .77(b)
Net realized and unrealized gain (loss) on
investment transactions.................... (.02) (.02)
(.39) .46 .23
-------- --------
- ------- ------- -------
Total from investment operations........... .70 .70
.33 1.23 1.00
-------- --------
- ------- ------- -------
Less distributions
Dividends from net investment income.......... (.72) (.72)
(.72) (.77) (.77)
Distributions from capital gains.............. -- --
(.01) -- --
-------- --------
- ------- ------- -------
Total distributions........................ (.72) (.72)
(.73) (.77) (.77)
-------- --------
- ------- ------- -------
Net asset value, end of year.................. $ 10.70 $ 10.72 $
10.74 $ 11.14 $ 10.68
-------- --------
- ------- ------- -------
-------- --------
- ------- ------- -------
TOTAL RETURN(a):.............................. 6.55% 6.90%
2.88% 11.90% 9.82%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................. $223,073 $115,501
$54,491 $43,529 $24,725
Average net assets (000)...................... $162,329 $65,207
$52,982 $31,658 $19,702
Ratios to average net assets:
Expenses, including distribution fees...... 0.64%(b) 0.69%(b)
0.69% 0.74% 0.65%(b)
Expenses, excluding distribution fees...... 0.54%(b) 0.59%(b)
0.59% 0.64% 0.55%(b)
Net investment income...................... 6.58%(b) 6.83%(b)
6.42% 7.04% 7.25%(b)
Portfolio turnover rate....................... 35% 39%
36% 27% 34%
</TABLE>
- ---------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each year reported and reinvestment of dividends and
distributions.
(b) Net of expense subsidy and fee waivers.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 43 -----
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Financial Highlights HIGH YIELD SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Class C
- ------------------------------------------------------------------ ---------
Year
Years
Ended April 30, Ended
- ------------------------------------------------------------------ April 30,
1996 1995
1994 1993 1992 1996
-------- ----------
- ---------- ---------- -------- ---------
<S> <C> <C> <C>
<C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period.......... $ 10.72 $ 10.74 $
11.14 $ 10.68 $ 10.45 $ 10.72
-------- ----------
- ---------- ---------- -------- ---------
Income from investment operations
Net investment income......................... .68(b) .68(b)
.68 .73 .73(b) .65(b)
Net realized and unrealized gain (loss) on
investment transactions.................... (.03) (.02)
(.39) .46 .23 (.03)
-------- ----------
- ---------- ---------- -------- ---------
Total from investment operations........... .65 .66
.29 1.19 .96 .62
-------- ----------
- ---------- ---------- -------- ---------
Less distributions
Dividends from net investment income.......... (.68) (.68)
(.68) (.73) (.73) (.65)
Distributions from capital gains.............. -- --
(.01) -- -- --
-------- ----------
- ---------- ---------- -------- ---------
Total distributions........................ (.68) (.68)
(.69) (.73) (.73) (.65)
-------- ----------
- ---------- ---------- -------- ---------
Net asset value, end of period................ $ 10.69 $ 10.72 $
10.74 $ 11.14 $ 10.68 $ 10.69
-------- ----------
- ---------- ---------- -------- ---------
-------- ----------
- ---------- ---------- -------- ---------
TOTAL RETURN(a):.............................. 6.12% 6.37%
2.46% 11.47% 9.40% 5.86%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $799,048 $934,725
$1,099,640 $1,028,480 $803,838 $6,471
Average net assets (000)...................... $900,115 $1,024,132
$1,132,653 $893,203 $759,779 $5,608
Ratios to average net assets:
Expenses, including distribution fees...... 1.04%(b) 1.09%(b)
1.09% 1.14% 1.05%(b) 1.29%(b)
Expenses, excluding distribution fees...... 0.54%(b) 0.59%(b)
0.58% 0.64% 0.55%(b) 0.54%(b)
Net investment income...................... 6.19%(b) 6.37%(b)
6.02% 6.66% 6.85%(b) 5.93%(b)
Portfolio turnover rate....................... 35% 39%
36% 27% 34% 35%
<CAPTION>
<S> <C>
August 1,
1994(c)
Through
April 30,
1995
----------
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period.......... $10.79
-----
Income from investment operations
Net investment income......................... .49(b)
Net realized and unrealized gain (loss) on
investment transactions.................... (.07)
-----
Total from investment operations........... .42
-----
Less distributions
Dividends from net investment income.......... (.49)
Distributions from capital gains.............. --
-----
Total distributions........................ (.49)
-----
Net asset value, end of period................ $10.72
-----
-----
TOTAL RETURN(a):.............................. 3.91%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $3,208
Average net assets (000)...................... $1,385
Ratios to average net assets:
Expenses, including distribution fees...... 1.34%(d)
Expenses, excluding distribution fees...... 0.59%(d)
Net investment income...................... 6.34%(d)
Portfolio turnover rate....................... 39%
</TABLE>
- ---------------
(a) 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. Total returns for periods of less than a full year are not
annualized.
(b) Net of expense subsidy and fee waivers.
(c) Commencement of offering of Class C shares.
(d) Annualized.
- --------------------------------------------------------------------------------
- ----- 44 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Financial Highlights INSURED SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class
A
- --------------------------------------------------------
Years Ended
April 30,
- --------------------------------------------------------
1996 1995 1994
1993 1992
-------- ------- -------
------- -------
<S> <C> <C> <C>
<C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of year............ $ 10.83 $ 10.71 $ 11.44
$ 10.98 $ 10.76
-------- ------- -------
------- -------
Income from investment operations
Net investment income......................... .58(b) .58(b) .58
.61 .66(b)
Net realized and unrealized gain (loss) on
investment transactions.................... .11 .12
(.43) .73 .24
-------- ------- -------
------- -------
Total from investment operations........... .69 .70 .15
1.34 .90
-------- ------- -------
------- -------
Less distributions
Dividends from net investment income.......... (.58) (.58)
(.58) (.61) (.66)
Distributions from capital gains.............. -- --
(.30) (.27) (.02)
-------- ------- -------
------- -------
Total distributions........................ (.58) (.58)
(.88) (.88) (.68)
-------- ------- -------
------- -------
Net asset value, end of year.................. $ 10.94 $ 10.83 $ 10.71
$ 11.44 $ 10.98
-------- ------- -------
------- -------
-------- ------- -------
------- -------
TOTAL RETURN(a):.............................. 6.47% 6.73%
1.04% 12.68% 8.59%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................. $139,548 $75,800 $30,669
$30,098 $19,177
Average net assets (000)...................... $102,456 $39,471 $32,309
$24,589 $12,731
Ratios to average net assets:
Expenses, including distribution fees...... 0.68%(b) 0.74%(b)
0.71% 0.72% 0.62%(b)
Expenses, excluding distribution fees...... 0.58%(b) 0.64%(b)
0.61% 0.62% 0.52%(b)
Net investment income...................... 5.20%(b) 5.45%(b)
5.09% 5.46% 6.06%(b)
Portfolio turnover rate....................... 68% 64%
105% 85% 56%
</TABLE>
- ---------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each year reported and includes reinvestment of dividends and
distributions.
(b) Net of expense subsidy and fee waivers.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 45 -----
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Financial Highlights INSURED SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class
B Class C
- ------------------------------------------------------------ ---------
Year
Years Ended
April 30, Ended
- ------------------------------------------------------------ April 30,
1996 1995 1994
1993 1992 1996
-------- --------
- -------- -------- -------- ---------
<S> <C> <C> <C>
<C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period.......... $ 10.84 $ 10.71 $
11.44 $ 10.99 $ 10.76 $ 10.84
-------- --------
- -------- -------- -------- ---------
Income from investment operations
Net investment income......................... .54(b) .54(b)
.54 .56 .62(b) .51(b)
Net realized and unrealized gain (loss) on
investment transactions.................... .11 .13
(.43) .72 .25 .11
-------- --------
- -------- -------- -------- ---------
Total from investment operations........... .65 .67
.11 1.28 .87 .62
-------- --------
- -------- -------- -------- ---------
Less distributions
Dividends from net investment income.......... (.54) (.54)
(.54) (.56) (.62) (.51)
Distributions from capital gains.............. -- --
(.30) (.27) (.02) --
-------- --------
- -------- -------- -------- ---------
Total distributions........................ (.54) (.54)
(.84) (.83) (.64) (.51)
-------- --------
- -------- -------- -------- ---------
Net asset value, end of period................ $ 10.95 $ 10.84 $
10.71 $ 11.44 $ 10.99 $ 10.95
-------- --------
- -------- -------- -------- ---------
-------- --------
- -------- -------- -------- ---------
TOTAL RETURN(a):.............................. 6.04% 6.40%
0.63% 12.14% 8.24% 5.78%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $443,391 $567,648
$740,447 $770,060 $638,451 $ 1,137
Average net assets (000)...................... $524,452 $660,237
$807,794 $705,846 $609,516 $ 827
Ratios to average net assets:
Expenses, including distribution fees...... 1.08%(b) 1.14%(b)
1.11% 1.12% 1.02%(b) 1.33%(b)
Expenses, excluding distribution fees...... 0.58%(b) 0.64%(b)
0.61% 0.62% 0.52%(b) 0.58%(b)
Net investment income...................... 4.80%(b) 4.99%(b)
4.69% 5.06% 5.66%(b) 4.56%(b)
Portfolio turnover rate....................... 68% 64%
105% 85% 56% 68%
<CAPTION>
<S> <C>
August 1,
1994(c)
Through
April 30,
1995
----------
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period.......... $10.79
-----
Income from investment operations
Net investment income......................... .39(b)
Net realized and unrealized gain (loss) on
investment transactions.................... .05
-----
Total from investment operations........... .44
-----
Less distributions
Dividends from net investment income.......... (.39)
Distributions from capital gains.............. --
-----
Total distributions........................ (.39)
-----
Net asset value, end of period................ $10.84
-----
-----
TOTAL RETURN(a):.............................. 4.03%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $ 525
Average net assets (000)...................... $ 224
Ratios to average net assets:
Expenses, including distribution fees...... 1.39%(d)
Expenses, excluding distribution fees...... 0.64%(d)
Net investment income...................... 4.92%(d)
Portfolio turnover rate....................... 64%
</TABLE>
- ---------------
(a) 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.
(b) Net of expense subsidy and fee waivers.
(c) Commencement of offering of Class C shares.
(d) Annualized.
- --------------------------------------------------------------------------------
- ----- 46 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Financial Highlights INTERMEDIATE SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
- ----------------------------------------------------
Years Ended April
30,
- ----------------------------------------------------
1996 1995 1994
1993 1992
------- ------- ------
------ ------
<S> <C> <C> <C>
<C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of year............ $ 10.45 $ 10.67 $11.08
$10.59 $10.48
------- ------- ------
------ ------
Income from investment operations
Net investment income......................... .47(b) .51(b) .53
.54(b) .57(b)
Net realized and unrealized gain (loss) on
investment transactions.................... .20 (.03) (.19)
.60 .26
------- ------- ------
------ ------
Total from investment operations........... .67 .48 .34
1.14 .83
------- ------- ------
------ ------
Less distributions
Dividends from net investment income.......... (.47) (.51) (.53)
(.54) (.57)
Distributions in excess of net investment
income..................................... -- (.01) --
-- --
Distributions from capital gains.............. -- (.18) (.22)
(.11) (.15)
------- ------- ------
------ ------
Total distributions........................ (.47) (.70) (.75)
(.65) (.72)
------- ------- ------
------ ------
Net asset value, end of year.................. $ 10.65 $ 10.45 $10.67
$11.08 $10.59
------- ------- ------
------ ------
------- ------- ------
------ ------
TOTAL RETURN(a):.............................. 6.48% 4.52% 2.83%
11.13% 8.14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................. $12,552 $10,507 $5,810
$3,594 $1,424
Average net assets (000)...................... $12,604 $ 7,742 $4,981
$1,883 $ 599
Ratios to average net assets:
Expenses, including distribution fees...... 1.16%(b) 1.05%(b) 1.00%
1.06%(b) 1.06%(b)
Expenses, excluding distribution fees...... 1.06%(b) 0.95%(b) 0.90%
0.96%(b) 0.96%(b)
Net investment income...................... 4.36%(b) 4.75%(b) 4.63%
5.09%(b) 5.41%(b)
Portfolio turnover rate....................... 35% 30% 55%
22% 78%
</TABLE>
- ---------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each year reported and reinvestment of dividends and
distributions.
(b) Net of expense subsidy and fee waivers.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 47 -----
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Financial Highlights INTERMEDIATE SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class
B Class C
- -------------------------------------------------------
- ------------------------
August 1,
Year 1994(c)
Years Ended
April 30, Ended Through
- ------------------------------------------------------- April 30, April
30,
1996 1995 1994
1993 1992 1996 1995
------- ------- -------
------- ------- --------- ----------
<S> <C> <C> <C>
<C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period.......... $ 10.45 $ 10.68 $ 11.09
$ 10.60 $ 10.48 $ 10.45 $10.54
------- ------- -------
------- ------- --------- -----
Income from investment operations
Net investment income......................... .43(b) .45(b) .48
.50(b) .53(b) .40(b) .35(b)
Net realized and unrealized gain (loss) on
investment transactions.................... .20 (.04) (.19)
.60 .27 .20 (.08)
------- ------- -------
------- ------- --------- -----
Total from investment operations........... .63 .41 .29
1.10 .80 .60 .27
------- ------- -------
------- ------- --------- -----
Less distributions
Dividends from net investment income.......... (.43) (.45) (.48)
(.50) (.53) (.40) (.35)
Distributions in excess of net investment
income..................................... -- (.01) --
-- -- -- (.01)
Distributions from capital gains.............. -- (.18) (.22)
(.11) (.15) -- --
------- ------- -------
------- ------- --------- -----
Total distributions........................ (.43) (.64) (.70)
(.61) (.68) (.40) (.36)
------- ------- -------
------- ------- --------- -----
Net asset value, end of period................ $ 10.65 $ 10.45 $ 10.68
$ 11.09 $ 10.60 $ 10.65 $10.45
------- ------- -------
------- ------- --------- -----
------- ------- -------
------- ------- --------- -----
TOTAL RETURN(a):.............................. 6.05% 3.99% 2.43%
10.62% 7.68% 5.79% 2.14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $40,550 $51,039 $65,215
$57,049 $45,401 $ 225 $ 167
Average net assets (000)...................... $46,127 $60,174 $59,811
$50,154 $44,439 $ 197 $ 28
Ratios to average net assets:
Expenses, including distribution fees...... 1.56%(b) 1.45%(b) 1.40%
1.46%(b) 1.46%(b) 1.81%(b) 1.81%(b)(d)
Expenses, excluding distribution fees...... 1.06%(b) 0.95%(b) 0.90%
0.96%(b) 0.96%(b) 1.06%(b) 1.06%(b)(d)
Net investment income...................... 3.96%(b) 4.35%(b) 4.23%
4.69%(b) 5.01%(b) 3.71%(b) 4.34%(b)(d)
Portfolio turnover rate....................... 35% 30% 55%
22% 78% 35% 30%
</TABLE>
- ---------------
(a) 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. Total returns for periods of less than a full year are not
annualized.
(b) Net of expense subsidy and fee waivers.
(c) Commencement of offering of Class C shares.
(d) Annualized.
- --------------------------------------------------------------------------------
- ----- 48 See Notes to Financial Statements.
<PAGE>
Report of Independent Auditors PRUDENTIAL MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
The Shareholders and Trustees
Prudential Municipal Bond Fund:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Prudential Municipal Bond Fund (consisting of
the High Yield Series, Insured Series and Intermediate Series) as of April 30,
1996, 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, 1996, 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 each of the
portfolios constituting the Prudential Municipal Bond Fund as of April 30, 1996,
the results of their operations, the changes in their net assets, and the
financial highlights for the respective stated periods in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
June 13, 1996
Tax Information PRUDENTIAL MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
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, 1996.
During its fiscal year ended April 30, 1996, 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 Class C
--------------------------------- -------
------- -------
<S> <C>
<C> <C>
High Yield Series................ $ .72
$ .68 $ .65
Insured Series................... $ .58
$ .54 $ .51
Intermediate Series.............. $ .47
$ .43 $ .40
</TABLE>
The High Yield Series and the Insured Series paid ordinary distributions of
$.0013 and $.0034 per share, respectively (taxable as ordinary income) to Class
A, B & C shareholders.
Shortly after the close of the calendar year ending December 31, 1996, you will
be advised again as to the federal tax status of the dividends and distributions
received in calendar 1996. 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.
- --------------------------------------------------------------------------------
49 -----
<PAGE>
Prudential Municipal Bond Fund:
High Yield Series Lehman Bros. Municipal Bond Index
The Prudential Municipal Bond Fund: High Yield Series and
the Lehman Bros. Municipal Bond Index:
Comparing a $10,000 Investment.
Class A
Average Annual Total Returns
With Sales Load
6.9% Since Inception (6.8)
6.9% for 5 Years
3.4% for 1 Year (3.3)
Without Sales Load
7.4% Since Inception
7.6% for 5 Years (7.5)
6.6% for 1 Year (6.5)
(GRAPH)
Class B
Average Annual Total Returns
With Sales Load
8.1% Since Inception (8.0)
7.0% for 5 Years (6.9)
1.1% for 1 Year (1.0)
Without Sales Load
8.1% Since Inception (8.0)
7.1% for 5 Years
6.1% for 1 Year (6.0)
(GRAPH)
Class C
Average Annual Total Returns
With Sales Load
5.6% Since Inception
4.9% for 1 Year (4.8)
Without Sales Load
5.6% Since Inception
5.9% for 1 Year (5.8)
(GRAPH)
Past performance is not indicative of future results and an investor's shares,
when redeemed, may be worth more or less than their original investment. The
charts on the right are designed to give you an idea how much the Fund's
returns can fluctuate from year to year by measuring the best and worst
calendar years in terms of total annual return since the inception of each
share class.
These graphs are furnished to you in accordance with SEC regulations. They
compare a $10,000 investment in the Prudential Municipal Bond Fund (High Yield
Series, Class A, B and C shares) with a similar investment in the Lehman
Brothers Municipal Bond Index (the Index) by portraying the initial account
values on January 22, 1990 for Class A shares, September 17, 1987 for Class B
shares and August 1, 1994 for Class C shares and subsequent account values at
the end of each fiscal year (April 30) as measured on a quarterly basis,
beginning in 1990 for Class A shares, 1987 for Class B shares and 1994 for
Class C shares. For the purposes of the graphs, and unless otherwise indicated,
the accompanying tables, it has been assumed that the maximum sales charge was
deducted from the initial $10,000 investment in Class A shares; the maximum
applicable contingent deferred sales charges were deducted from the value of
the investment in Class B and Class C shares assuming full redemption on April
30, 1996; all recurring fees -- including management fees -- were deducted; and
all dividends and distributions were reinvested. Class B shares will
automatically convert to Class A shares on a quarterly basis approximately
seven years after purchase. This conversion feature is not reflected in the
graphs. The numbers in () show the Series average annual total return without
waiver of management fees and/or expense subsidization.
The Lehman Brothers Index is a weighted index comprised of 21,000 municipal
bonds (general obligation bonds, revenue bonds, insured bonds and pre-refunded
bonds) selected by Lehman Brothers as representative of the long-term,
investment grade municipal bond market. The Index is unmanaged and includes the
reinvestment of all dividends but does not reflect the payment of transaction
costs and advisory fees associated with an investment in the Fund. The
securities which comprise the Index may differ substantially from the
securities held in the Fund's portfolio. The Lehman Brothers Index is not the
only benchmark that can be used to characterize performance of municipal bond
funds and other indexes may portray different comparative performance.
<PAGE>
Prudential Municipal Bond Fund:
Insured Series Lehman Bros. Municipal Bond Index
The Prudential Municipal Bond Fund: Insured Series and
the Lehman Bros. Municipal Bond Index:
Comparing a $10,000 Investment.
Class A
Average Annual Total Returns
With Sales Load
6.8% Since Inception
6.4% for 5 Years (6.3)
3.3% for 1 Year (3.2)
Without Sales Load
7.4% Since Inception (7.3)
7.0% for 5 Years
6.5% for 1 Year (6.4)
(GRAPH)
Class B
Average Annual Total Returns
With Sales Load
7.8% Since Inception (7.7)
6.5% for 5 Years (6.4)
1.0% for 1 Year
Without Sales Load
7.8% Since Inception (7.7)
6.6% for 5 Years
6.0% for 1 Year (5.9)
(GRAPH)
Class C
Average Annual Total Returns
With Sales Load
5.6% Since Inception
4.8% for 1 Year (4.7)
Without Sales Load
5.6% Since Inception
5.8% for 1 Year (5.7)
(GRAPH)
Past performance is not indicative of future results and an investor's shares,
when redeemed, may be worth more or less than their original investment. The
charts on the right are designed to give you an idea how much the Fund's
returns can fluctuate from year to year by measuring the best and worst
calendar years in terms of total annual return since the inception of each
share class.
These graphs are furnished to you in accordance with SEC regulations. They
compare a $10,000 investment in the Prudential Municipal Bond Fund (Insured
Series, Class A, B and C shares) with a similar investment in the Lehman
Brothers Municipal Bond Index (the Index) by portraying the initial account
values on January 22, 1990 for Class A shares, September 17, 1987 for Class B
shares and August 1, 1994 for Class C shares and subsequent account values at
the end of each fiscal year (April 30) as measured on a quarterly basis,
beginning in 1990 for Class A shares, 1987 for Class B shares and 1994 for
Class C shares. For the purposes of the graphs, and unless otherwise indicated,
the accompanying tables, it has been assumed that the maximum sales charge was
deducted from the initial $10,000 investment in Class A shares; the maximum
applicable contingent deferred sales charges were deducted from the value of
the investment in Class B and Class C shares assuming full redemption on April
30, 1996; all recurring fees -- including management fees -- were deducted; and
all dividends and distributions were reinvested. Class B shares will
automatically convert to Class A shares on a quarterly basis approximately
seven years after purchase. This conversion feature is not reflected in the
graphs. The numbers in () show the Series average annual total return without
waiver of management fees and/or expense subsidization.
The Lehman Brothers Index is a weighted index comprised of 21,000 municipal
bonds (general obligation bonds, revenue bonds, insured bonds and pre-refunded
bonds) selected by Lehman Brothers as representative of the long-term,
investment grade municipal bond market. The Index is unmanaged and includes
the reinvestment of all dividends but does not reflect the payment of
transaction costs and advisory fees associated with an investment in the Fund.
The securities which comprise the Index may differ substantially from the
securities held in the Fund's portfolio. The Lehman Brothers Index is not the
only benchmark that can be used to characterize performance of municipal bond
funds and other indexes may portray different comparative performance.
<PAGE>
Prudential Municipal Bond Fund:
Intermediate Series Lehman Bros. Municipal Bond Index
The Prudential Municipal Bond Fund: Intermediate Series and
the Lehman Bros. Municipal Bond Index:
Comparing a $10,000 Investment.
Class A
Average Annual Total Returns
With Sales Load
6.4% Since Inception (6.2)
5.9% for 5 Years (5.8)
3.3% for 1 Year (3.2)
Without Sales Load
6.9% Since Inception (6.8)
6.6% for 5 Years (6.5)
6.5% for 1 Year (6.4)
(GRAPH)
Class B
Average Annual Total Returns
With Sales Load
6.9% Since Inception (6.6)
6.0% for 5 Years (5.9)
1.1% for 1 Year (1.0)
Without Sales Load
6.9% Since Inception (6.6)
6.2% for 5 Years (6.1)
6.1% for 1 Year (6.0)
(GRAPH)
Class C
Average Annual Total Returns
With Sales Load
4.5% Since Inception
4.8% for 1 Year (4.7)
Without Sales Load
4.5% Since Inception
5.8% for 1 Year (5.7)
(GRAPH)
Past performance is not indicative of future results and an investor's shares,
when redeemed, may be worth more or less than their original investment. The
charts on the right are designed to give you an idea how much the Fund's returns
can fluctuate from year to year by measuring the best and worst calendar years
in terms of total annual return since the inception of each share class.
These graphs are furnished to you in accordance with SEC regulations. They
compare a $10,000 investment in the Prudential Municipal Bond Fund
(Intermediate Series, Class A, B and C shares) with a similar investment in
the Lehman Brothers Municipal Bond Index (the Index) by portraying the initial
account values on January 22, 1990 for Class A shares, September 17, 1987 for
Class B shares and August 1, 1994 for Class C shares and subsequent account
values at the end of each fiscal year (April 30) as measured on a quarterly
basis, beginning in 1990 for Class A shares, 1987 for Class B shares and 1994
for Class C shares. For the purposes of the graphs, and unless otherwise
indicated, the accompanying tables, it has been assumed that the maximum sales
charge was deducted from the initial $10,000 investment in Class A shares; the
maximum applicable contingent deferred sales charges were deducted from the
value of the investment in Class B and Class C shares assuming full redemption
on April 30, 1996; all recurring fees -- including management fees -- were
deducted; and all dividends and distributions were reinvested. Class B shares
will automatically convert to Class A shares on a quarterly basis approximately
seven years after purchase. This conversion feature is not reflected in the
graphs. The numbers in () show the Series' average annual total return without
waiver of management fees and/or expense subsidization.
The Lehman Brothers Index is a weighted index comprised of 21,000 municipal
bonds (general obligation bonds, revenue bonds, insured bonds and pre-refunded
bonds) selected by Lehman Brothers as representative of the long-term,
investment grade municipal bond market. The Index is unmanaged and includes
the reinvestment of all dividends but does not reflect the payment of
transaction costs and advisory fees associated with an investment in the Fund.
The securities which comprise the Index may differ substantially from the
securities held in the Fund's portfolio. The Lehman Brothers Index is not the
only benchmark that can be used to characterize performance of municipal bond
funds and other indexes may portray different comparative performance.
<PAGE>
How Does Your State Stack Up?
Economic conditions vary from state to state. While one region may be
experiencing strong fiscal management and prosperity, another may languish
under the weight of declining industry or chronic state budget problems.
State economic conditions, fiscal management and interest rates play dominant
roles in the performance of individual municipal bonds. A strong economy
generally leads to higher tax revenues and other income sources for the state,
enabling it to more easily repay its debts. Additionally, sound state financial
management often results in high ratings from bond rating agencies. High
ratings are attractive to investors and can help bonds retain value in the
market.
California
- - World's 8th largest economy.
- - Entertainment jobs growing.
- - Recovery continues, but growth is expected to be below the national average.
- - Increasing tax revenues may not cover soaring Medicaid costs.
Hawaii
- - Tourism provides 60% of jobs.
- - Strong financial management.
- - Slow recovery from early-1990s U.S. and Japanese recessions, which bit into
tourism and real estate.
- - Government eliminated 1,100 state jobs.
Ohiox
- - Shift from manufacturing to service trades.
- - Economic and personal income growth ahead of national averages.
- - Debt is low.
Pennsylvania
- - Slowly rebuilding economy, but needs new engine of growth.
- - Debt as a percentage of personal income is half the national average.
- - Sound financial management.
Michigan
- - Economic growth is 3.5%, higher than national average.
- - Once car capital of the world, now more diversified.
- - Strengthening fiscal management.
Massachusetts
- - Painful cuts in defense and health care eliminated jobs.
- - Slowly rebuilding economy.
- - Personal income is high.
New York
- - High taxes restrain growth.
- - Personal income remains high.
- - Debt level is high.
- - Federal budget, Medicaid reform impasses threaten planned budget savings.
Maryland
- - One of wealthiest states.
- - Personal income 115% ofnational average, but income growth has stabilized.
- - Good financial controls.
Florida
- - Economy and personal income growing much faster than national rate.
- - Unemployment and debt are low.
- - Ended 1995 with a budget surplus for the third year in a row.
Connecticut
- - Nation's wealthiest citizens.
- - Economically weak from defense cuts.
- - Slow growth -- recovery may take years.
- - Attempts at "quick fixes" won't provide permanent relief.
New Jersey
- - Broad-based economy and high personal wealth.
- - Economic growth slowing.
- - "Pro-business" tactics siphoned revenue, but may spur more growth.
North Carolina
- - Robust, model economy.
- - Personal income quickly growing.
- - Unemployment well below national average.
- - New jobs from financial services, research and high technology.
- - Strong financial management.
Source: Prudential Investment Corporation. Selected states are those for which
Prudential Mutual Fund Management manages a state-specific municipal bond
mutual fund Revised: June, 1996
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
(800) 225-1852
http:\\www.prudential.com
(LOGO)
Trustees
Edward D. Beach
Donald D. Lennox
Douglas H. McCorkindale
Thomas T. Mooney
Richard A. Redeker
Louis A. Weil, III
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Susan C. Cote, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Marguerite E.H. Morrison, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributor
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Auditors
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
The views expressed in this report and information about the Fund's portfolio
holdings are for the period covered by this report and are subject to change
thereafter.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
74435L103 74435L202 74435L707 MF133E
74435L301 74435L400 74435L806 Cat. #44416EK
74435L509 74435L608 74435L889
