<PAGE>
(ICON)
Prudential
Municipal
Bond Fund
- -------------------
High Yield Series
Insured Series
Intermediate Series
ANNUAL
REPORT
April 30, 1997
(LOGO)
<PAGE>
Portfolio Managers' Report
The economy grew at its fastest pace in more than nine years this
past winter, prompting the Federal Reserve to raise the federal
funds rate (the overnight bank lending rate) to keep inflation
in check. Yet the Prudential Municipal Bond Fund
provided solid returns over the last 12 months ended April 30,
1997, because we correctly anticipated interest rates moves
and the demand for tax-exempt bonds increased as the supply
of new bonds tapered off.
Performance varied among the three Series, with the High
Yield Series performing the best because it holds bonds
with the highest coupons, lowest credit quality and longest maturity.
The bonds in the Insured Series feature the highest quality
credit ratings -- Triple A -- so they carry lower interest
rates than lesser quality bonds. The Intermediate Series holds
bonds with shorter maturities and lower yields. Thus it typically
trails the other Series when interest rates decline but it
generally provides more price protection when interest rates climb.
The High Yield Series beat the average comparable fund measured
by Lipper Analytical Services by a significant margin, while the
Insured Series performed competitively. The Intermediate Series,
however, trailed its peer group. (Had we adjusted
duration more as interest rates rose, performance on this
Series might have been better.)
Rate Roller Coaster.
Tax-exempt municipal bond interest rates initially fell then rose,
ending the 12-month period lower. Interest rates declined and bond
prices increased as inflation remained tame and economic growth
slowed from its brisk pace in the second quarter of
1996. The Bond Buyer's Revenue Bond Index, calculated on
Thursdays, tumbled from 6.32% on May 2, 1996 to 5.80% on
November 27, 1996. But signs of renewed economic strength
pushed the Index back above 6.0% in January, 1997. Indeed,
the economy grew at a rapid 3.8% yearly pace in the fourth
quarter of 1996, then barreled ahead at an annualized 5.9%
in the first three months of 1997.
Investors typically fear that faster growth will drive up
inflation, which erodes the value of a bond's fixed principal
and interest payments. So the Federal Reserve on March 25,
1997 raised the overnight bank lending rate for the first time in two
years to ward off higher inflation. The federal funds rate
was raised by a quarter of a percentage point to 5.50%. Soon
after, the Bond Buyer's Revenue Bond Index climbed to 6.14%
on April 3, 1997.
Our portfolios were structured to ride out this turbulence
by adjusting each Series' duration, which is a measure of
sensitivity to interest rate changes. The longer the duration,
the more the Series' value will gain in price when interest rates
fall, and vice versa. A drop in the supply of new municipal
bonds also helped boost returns on each Series.
We discuss each Series in detail on the following pages.
How Investments Compared.
(As of 4/30/97)
(GRAPH)
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 returns 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 (PICTURE)
Prudential Municipal Bond Fund:
High Yield Series
Performance At A Glance.
<TABLE>
<CAPTION>
One Five Since
Year Years Inception2
<C> <S> <C> <C> <C>
Cumulative Class A 8.0% 41.6% 69.1%
Total Class B 7.7 38.8 111.4
Returns1 Class C 7.4 N/A 18.2
As of 4/30/97 Class Z N/A N/A 4.4
Lipper HY Muni Avg3 7.3 39.0 ***
</TABLE>
<TABLE>
One Five Since
Year Years Inception2
<C> <S> <C> <C> <C>
Average
Annual Total Class A 3.2% 6.6% 7.0%
Returns1 Class B 1.0 6.7 8.1
As of 3/31/97 Class C 4.7 N/A 6.2
</TABLE>
<TABLE>
<CAPTION>
Taxable Equivalent Yield5
Total Dividends 30-Day At Tax Rates Of
Paid for 12 Mos. SEC Yield 36% 39.6%
<C> <S> <C> <C> <C>
Dividends Class A $0.70 5.60% (5.55)4 8.75% (8.67)4 9.27% (9.19)4
and Class B $0.66 5.38 (5.33)4 8.41 (8.33)4 8.91 (8.82)4
Yields Class C $0.63 5.13 (5.08)4 8.02 (7.94)4 8.49 (8.41)4
As of 4/30/97 Class Z $0.45 5.88 (5.83)4 9.19 (9.11)4 9.74 (9.65)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 Investments 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 will automatically convert to Class A shares
on a quarterly basis, approximately seven years after purchase.
Class Z shares have no service or 12b-1 fee. Since Class Z
shares have been in existence less than a year, no average
annual returns are presented.
2Inception dates: 1/22/90 for Class A; 9/17/87 for Class B;
8/1/94 for Class C; and 9/16/96 for Class Z.
3Lipper average returns are for 43 funds for one year, and
20 funds for five years.
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.
*** Lipper Since Inception Averages are: Class A, 67.0% for
19 funds; Class B, 112.6% for 17 funds; Class C, 18.6% for
33 funds; and Class Z, 3.7% for 49 funds.
We seek 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 Corp. (S&P) or
Moody's Investors Service Inc., or unrated bonds that our
analysts believe to be of comparable quality. On April 30,
1997, approximately 55% of the portfolio was comprised of
non-investment grade municipal bonds rated BB or below (or
unrated bonds of comparable quality), an increase from 52%
on October 31, 1996. There can be no assurance that the
Series will achieve its investment objective.
Portfolio Breakdown.
Expressed as a percentage of
total investments as of 4/30/97.
(PIE CHART)
<PAGE>
High Yield Series
What Went Well.
Lower Quality
Bonds Shine.
We benefitted from our substantial holdings (55% of total
investments) in below investment grade bonds. Lower credit
quality bonds with higher yields often perform best when
interest rates rise as they have since January:
- -- Bonds issued on behalf of airline companies performed
very well. The growing profitability of the airline industry
made these securities very attractive. We also continue to believe
that select health care bonds, such as retirement centers,
hospitals, and nursing homes offer value.
- -- The supply of new high yield bonds declined more sharply
than volume in some other areas of the tax-exempt market, and
boosted prices. For example, the volume of new revenue bonds
issued to pay off earlier bonds fell 15% in the first four months
of this year.
- -- We extended duration in the third and fourth quarters of
1996 as interest rates edged lower. This helped our net asset
value to rise more rapidly. As economic growth accelerated
and interest rates were expected to climb in 1997, we cut duration to
6.8 years from 7.3 years to protect asset value.
- -- Our strategy has been to sell bonds in the 20-year range,
which have already performed well, and use the proceeds to
purchase 30-year bonds. This allows us to obtain slightly
higher yields and higher capital appreciation potential
over the longer term.
And Not So Well.
A Bad Apple Or Two.
Most of our holdings are below investment grade and sometimes
problems occur:
- -- Long Beach, CA Redevelopment Agency: We own bonds issued to
finance construction of Pacific Court Apartments located in
downtown Long Beach. Residential and commercial occupancy
failed to meet projections. On March 1, 1997 bondholders received
only a partial interest payment, causing the bonds to default.
- -- Michigan Strategic Fund: Construction cost overruns and
declines in the price of pulp paper imperiled profitability
at a paper de-inking and recycling plant located in Menominee,
Michigan. The de-inking facility appears to be able to produce a
high-quality product compared to other plants. But until pulp
prices increase, none of these types of operations will be
profitable. We hold bonds that financed construction of the facility.
Five Largest Issuers.
2.0% Chicago, IL
O'Hare Airport
2.0% Village of Robbins
Cook County, IL
1.8% Claiborne County, MS
1.6% Washington State
Public Power Supply
1.6% New Jersey State
Transportation
Trust Fund
Expressed as a percentage of total net assets as of 4/30/97.
Credit Quality.
Expressed as a percentage of
total investments as of 4/30/97.
(PIE CHART)
1
<PAGE>
Marie Conti, Fund Manager (PICTURE)
Prudential Municipal Bond Fund:
Insured Series
Performance At A Glance.
<TABLE>
<CAPTION>
One Five Since
Year Years Inception2
<C> <S> <C> <C> <C>
Cumulative Class A 5.7% 36.8% 65.0%
Total Class B 5.3 34.1 100.7
Returns1 Class C 5.1 N/A 15.6
As of 4/30/97 Class Z N/A N/A 2.9
Lipper INS Muni Avg3 5.8 37.3 ***
</TABLE>
<TABLE>
<CAPTION>
One Five Since
Year Years Inception2
<C> <S> <C> <C> <C>
Average
Annual Total Class A 1.5% 5.8% 6.7%
Returns1 Class B -0.8 5.9 7.5
As of 3/31/97 Class C 3.0 N/A 5.4
</TABLE>
<TABLE>
<CAPTION>
Taxable Equivalent Yield5
Total Dividends 30-Day At Tax Rates Of
Paid for 12 Mos. SEC Yield 36% 39.6%
<C> <S> <C> <C> <C>
Dividends Class A $0.67 4.84% (4.79)4 7.56% (7.48)4 8.01% (7.93)4
and Class B $0.62 4.59 (4.54)4 7.17 (7.09)4 7.60 (7.52)4
Yields Class C $0.60 4.34 (4.29)4 6.78 (6.70)4 7.19 (7.10)4
As of 4/30/97 Class Z $0.48 5.10 (5.05)4 7.97 (7.89)4 8.44 (8.36)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 total 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. Class Z shares have no service
or 12b-1 fee. Since Class Z shares have been in existence
less than a year, no average annual returns are presented.
2Inception dates: 1/22/90 for Class A; 9/17/87 for Class B;
8/1/94 for Class C; and 9/16/96 for Class Z.
3The Lipper fund average includes 49 funds for one year and
20 funds for five years.
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.
*** Lipper Since Inception Averages are: Class A, 64.8% for
19 funds; Class B, 110.5% for 17 funds; Class C, 17.3% for
38 funds; and Class Z, 2.2% for 52 funds.
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. The Series may also invest up to 5% of its
total assets in municipal obligations rated A/A or Aa/AA
by Moody's or S&P, respectively, although it held no such
securities as of April 30, 1997.
Portfolio Breakdown.
Expressed as a percentage of
total investments as of 4/30/97.
(PIE CHART)
2
<PAGE>
Insured Series
What Went Well.
Watching Duration.
Although insured bonds are virtually free of credit risk, their
prices can fluctuate sharply with changes in interest rates.
Remember, prices on previously issued bonds fall when interest
rates rise because newly issued bonds will have higher
coupons and vice versa. Interest rates were quite unsettled over
the last 12 months, so we adjusted duration (a measure of the
Series' sensitivity to interest rate fluctuations) from time
to time to take advantage of market conditions.
We worked to generally keep the portfolio's duration on a par
with our peers. Amid increasing evidence the U.S. economy was
strengthening, we expected interest rates would rise. Therefore,
we shortened duration to 7.9 years from 8.5 years to guard
asset values. This worked well because the Federal Reserve
did raise interest rates on March 25, 1997.
Don't Call Us.
The Series also performed competitively because we kept a significant
portion (39% of total investments as of April 30, 1997) in
non-callable bonds because they tend to react more predictably
than callable bonds whether prices rise or fall. Callable
bonds can be redeemed by their issuer before they mature, so
they can be refinanced if interest rates fall. During this
period of widely fluctuating interest rates, we favored
non-callable bonds because we knew we could keep them
if rates moved lower.
And Not So Well.
The Federal Reserve's decision to raise the federal funds rate
was widely anticipated in the bond markets. Prior to the March
25 increase, prices on previously issued bonds began to slide
considerably because investors considered them less
attractive. (New bonds issued after the central bank increased
the interest rate would carry higher coupons than the older
bonds.) Our performance suffered because 32% of the portfolio's
total investments were in bonds that mature in 11 to 15
years.
Five Largest
Issuers.
3.8% New York City
General Obligation
2.9% Commonwealth of
Puerto Rico
General Obligation
2.7% District of Columbia
2.7% New Jersey Economic
Development Authority
2.5% Port Authority of
New York & New Jersey
Expressed as a percentage of total net assets as of 4/30/97.
Credit Quality.
Expressed as a percentage of
total investments as of 4/30/97.
(PIE CHART)
3
<PAGE>
Marie Conti, Fund Manager (PICTURE)
Prudential Municipal Bond Fund:
Intermediate Series
Performance At A Glance.
<TABLE>
<CAPTION>
One Five Since
Year Years Inception2
<C> <S> <C> <C> <C>
Cumulative Class A 3.9% 32.1% 57.8%
Total Class B 3.4 29.4 84.6
Returns1 Class C 3.2 N/A 11.5
As of 4/30/97 Class Z N/A N/A 2.5
Lipper INT Muni Avg3 5.0 33.8 ***
</TABLE>
<TABLE>
<CAPTION>
One Five Since
Year Years Inception2
<C> <S> <C> <C> <C>
Average Class A 0.2% 5.2% 6.1%
Annual Total Class B -2.0 5.2 6.6
Returns1 Class C 1.7 N/A 4.1
As of 3/31/97
</TABLE>
<TABLE>
<CAPTION>
Taxable Equivalent Yield5
Total Dividends 30-Day At Tax Rates Of
Paid for 12 Mos. SEC Yield 36% 39.6%
<C> <S> <C> <C> <C>
Dividends Class A $0.47 3.95% (3.90)4 6.17% (6.09)4 6.54% (6.46)4
and Class B $0.43 3.67 (3.62)4 5.73 (5.66)4 6.08 (5.99)4
Yields Class C $0.40 3.42 (3.37)4 5.34 (5.27)4 5.66 (5.58)4
As of 4/30/97 Class Z $0.32 4.17 (4.12)4 6.52 (6.44)4 6.90 (6.82)4
</TABLE>
Past performance is not a guarantee 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. Class Z shares have no service or 12b-1 fee. Since
Class Z shares have been in existence less than a year, no
average annual returns are presented.
2Inception dates: 1/22/90 for Class A; 9/17/87 for Class B;
8/1/94 for Class C; and 9/16/96 for Class Z.
3The Lipper fund average includes 134 funds for one year and
33 funds for five years.
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.
*** Lipper Since Inception Averages are: Class A, 59.3% for
29 funds; Class B, 93.8% for 21 funds; Class C, 15.3% for
105 funds; and Class Z, 2.5% for 141 funds.
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 three- to 15-year maturities, and will have a
dollar-weighted average portfolio maturity of more
than three 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.
Portfolio Breakdown.
Expressed as a percentage of
total investments as of 4/30/97.
(PIE CHART)
4
<PAGE>
Intermediate Series
What Went Well.
We Improved Quality.
Insured bonds carry the revered triple-A credit rating along with
a lower yield and higher price than lesser quality bonds. But yields
on lower quality bonds declined during the 12-month period and their
prices rose closer to that of insured bonds. As a result, insured
bonds looked less expensive than usual. We took advantage of
this opportunity to upgrade the quality of the Series. We
increased the portfolio's holdings of insured bonds to 72%
of total investments as of April 30, 1997 from
58% on October 31, 1996.
And Not So Well.
Duration Difficulty.
During the summer of 1996, we figured that economic growth would
continue moderating from its brisk pace in the second quarter of
the year and interest rates would drift even lower. Instead, the
economy reaccelerated in the fourth quarter of 1996,
pushing interest rates higher. Our failure in the summer to
reduce duration, a measure of the Series' sensitivity to changes
in interest rates, hurt the portfolio. The shorter the duration,
the more the Series' value is protected when interest rates
climb.
We learned from this and managed duration more effectively in
early 1997, when we cut duration to 5.5 years from 6.3 years
amid increasing signs that the U.S. economy was gaining even
more momentum in the new year. This turned out to be the right
thing to do because the Federal Reserve increased interest rates
on March 25. Nevertheless, the total return on the Intermediate
Series trailed that of its peer group for the 12 month period
ended April 30, 1997.
The Outlook.
Although the economy grew very rapidly in the first quarter
of 1997, we expect that growth will slow considerably in the
second period and will remain fairly subdued during the rest
of the year.
So slower economic growth coupled with continued low inflation
should benefit mutual funds investing in tax-free municipal
bonds. With this in mind, we would consider extending duration
on the Intermediate and Insured Series if signs of slow
economic growth persist because their holdings are more likely
to appreciate should interest rates fall later this year.
Five Largest
Issuers.
8.0% New Jersey Economic
Development Authority
6.7% Washington State
Power Supply
5.3% Oklahoma Industrial
Development
4.6% Nassau County, NY
3.9% Austin, TX Utility System
Expressed as a percentage of total net assets as of 4/30/97.
Credit Quality.
Expressed as a percentage of
total investments as of 4/30/97.
(PIE CHART)
5
<PAGE>
President's Letter June 9, 1997
(PICTURE)
Staying The Course.
Dear Shareholder:
With the midpoint of 1997 upon us, I'm pleased to report that
the recent news from the financial markets has been decidedly
upbeat. The Dow Jones Industrial Average has gained nearly 17%
through mid-June, while lower long-term interest rates have
made bonds an attractive investment.
This stands in contrast to April when the Dow fell 10% from a
record high on fears of higher interest rates and surging inflation.
Interest rates have since fallen as the economy slowed and the
Dow has reached several new highs.
The market swings we've seen this year illustrate the importance
of "staying the course" to your financial goal. We realize that
maintaining investment discipline when faced with market
uncertainty isn't easy. Here are some thoughts that may help:
- -- Keep Your Expectations Realistic. The best investors
know that financial markets rise and fall -- and so too,
will the value of their investments. Over time, however,
stocks have been shown to produce very attractive returns
that were well ahead of inflation.
- -- Remember Your Time Horizon. If your investment goals are
long term (several years or more), so should your time horizon.
During this period, it's not unusual for stocks and bonds to
experience several periods of market uncertainty.
- -- We're On Your Side. Your Prudential Securities Financial
Advisor or Pruco Securities Registered Representative can help
you understand what's happening in the financial markets. They
can assist you in making informed decisions based upon a
thorough knowledge of your financial needs and long-term goals.
Call him or her today.
Thank you for your continued confidence in Prudential mutual
funds. We'll do everything we can to keep you informed and
to earn your trust.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
6
<PAGE>
Portfolio of Investments as PRUDENTIAL MUNICIPAL BOND FUND
of April 30, 1997 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--96.9%
- ------------------------------------------------------------------------------------------------------------------------------
Alabama--0.5%
Ft. Payne Ind. Dev. Brd. Rev., Gametime Inc. NR 10.25% 8/01/09 $ 4,119 (c) $ 4,669,628
- ------------------------------------------------------------------------------------------------------------------------------
Arizona--1.7%
Coconino Cnty. Pol. Ctrl. Corp. Rev.
Tucson Elec. Pwr., Navajo A B2 7.125 10/01/32 5,000 5,097,000
Tucson Elec. Pwr., Navajo B B2 7.00 10/01/32 1,700 1,728,781
Ft. Mojave Indian Tribe Wtr. & Swr. Rev. NR 10.25 9/01/19 3,000 (e) 1,500,000
Pima Cnty. Ind. Dev. Auth., Multifam. Mtge. Rev., La
Cholla Proj. NR 8.50 7/01/20 9,835 8,630,212
--------------
16,955,993
- ------------------------------------------------------------------------------------------------------------------------------
California--11.3%
California Hsg. Fin. Agcy. Rev., Home Mtge., Ser. G Aa 8.15 8/01/19 885 916,763
Corona Ctfs. of Part., Vista Hosp. Sys. Inc., Ser. C NR 8.375 7/01/11 10,000 10,729,400
Delano Ctfs. of Part., Regl. Med. Ctr., Ser. A NR 9.25 1/01/22 6,735 7,534,781
Folsom Spec. Tax Dist. No. 2 NR 7.70 12/01/19 3,130 3,263,275
Long Beach Redev. Agcy. Hsg.,
Multifam. Hsg. Rev., Pacific Court Apts., Issue B NR 6.80 9/01/13 3,805 (e) 2,473,250
Multifam. Hsg. Rev., Pacific Court Apts. NR 6.95 9/01/23 6,195 (e) 4,026,750
Los Angeles Regl. Arpts. Impvt. Corp., Cont. Air
Sublease NR 9.25 8/01/24 10,345 12,241,342
Orange Cnty. Cmnty. Loc. Trans. Auth., Reg. Linked
Savrs. & Ribs Aa 6.20 2/14/11 7,000 7,384,720
Richmond Redev. Agcy. Rev., Multifam. Bridge Affordable
Hsg. NR 7.50 9/01/23 10,000 9,632,700
Roseville Joint Union H.S. Dist.,
Ser. B, F.G.I.C. Aaa Zero 8/01/09 1,740 895,004
Ser. B, F.G.I.C. Aaa Zero 8/01/11 1,890 855,433
Ser. B, F.G.I.C. Aaa Zero 8/01/14 2,220 825,085
Sacramento City Fin. Auth. Rev., Tax Alloc., M.B.I.A. Aaa Zero 11/01/15 5,695 1,956,005
Sacramento Cnty. Spec. Tax Rev.,
Dist. No. 1, Elliot Ranch NR 8.20 8/01/21 3,750 3,899,212
Dist. No. 1, Laguna Creek Ranch NR 8.25 12/01/20 4,500 4,795,650
San Joaquin Hills Trans. Corr. Agcy.,
Toll Rd. Rev. NR Zero 1/01/11 12,900 5,123,880
Toll Rd. Rev. NR Zero 1/01/14 8,420 2,998,951
Toll Rd. Rev. NR Zero 1/01/22 25,000 5,234,250
Toll Rd. Rev. NR Zero 1/01/25 10,000 1,731,100
Santa Margarita/Dana Point Auth., Impvt. Dist.,
Ser. A, M.B.I.A. Aaa 7.25 8/01/13 1,990 2,336,439
Ser. B, M.B.I.A. Aaa 7.25 8/01/12 3,000 3,518,820
</TABLE>
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 7
<PAGE>
Portfolio of Investments as PRUDENTIAL MUNICIPAL BOND FUND
of April 30, 1997 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.)
So. California Pub. Pwr. Auth. Trans., Cap. Apprec. Aa Zero 7/01/14 $ 8,500 $ 3,200,845
So. San Francisco Redev. Agcy., Tax Alloc., Gateway
Redev. Proj. NR 7.60% 9/01/18 2,375 2,509,639
So. Tahoe Joint Pwrs. Fin. NR 8.00 10/01/01 5,795 5,917,912
Turlock Irrigation Dist. Rev., Ser. A Aaa 6.25 1/01/12 5,000 5,389,450
Victor Valley Union H.S. Dist.,
Gen. Oblig., M.B.I.A. Aaa Zero 9/01/12 3,605 1,522,536
Gen. Oblig., M.B.I.A. Aaa Zero 9/01/14 4,740 1,753,279
Gen. Oblig., M.B.I.A. Aaa Zero 9/01/16 3,990 1,291,363
--------------
113,957,834
- ------------------------------------------------------------------------------------------------------------------------------
Colorado--3.3%
Denver Urban Ren. Auth. Tax,
Inc. Rev. NR 7.50 9/01/04 3,000 3,001,380
Inc. Rev. NR 7.75 9/01/16 4,000 4,014,160
Eagle Cnty. Co., Lake Creek Affordable Hsg., Ser. A NR 8.00 12/01/23 11,505 11,915,959
San Miguel Cnty., Mountain Vlge. Met. Dist. NR 8.10 12/01/11 3,200 3,540,928
Superior Met. Dist. No. 1, Wtr. & Swr.,
Rev. NR 7.50 12/01/98 1,600 1,645,344
Rev. NR 8.50 12/01/13 8,900 9,709,188
--------------
33,826,959
- ------------------------------------------------------------------------------------------------------------------------------
Connecticut--0.9%
Connecticut St. Dev. Auth. Swr., Netco Waterbury Ltd. NR 9.375 6/01/16 8,000 9,134,960
- ------------------------------------------------------------------------------------------------------------------------------
District Of Columbia--0.9%
Dist. of Columbia Rev., Nat'l. Public Radio NR 7.625 1/01/18 8,800 9,302,920
- ------------------------------------------------------------------------------------------------------------------------------
Florida--4.5%
Crossings At Fleming Island Cmnty. Dev. Dist., Clay City NR 8.25 5/01/16 7,860 8,353,765
Escambia Cnty. Hlth. Facs. Auth. Rev., Baptist Hosp.
Ref., Ser. A BBB+(b) 8.60 10/01/02 3,900 4,164,927
Florida Hsg. Fin. Agcy., Palm Aire Proj., Multifam.
Mtge. Rev. NR 10.00 1/01/20 9,448 (e) 6,613,944
No. Springs Impvt. Dist. Wtr. Mgt.,
Ser. A NR 8.20 5/01/24 1,960 2,087,419
Ser. A NR 8.30 5/01/24 1,720 1,843,118
Orlando Util. Comm., Wtr. & Elec. Rev., Ser. D Aa 6.75 10/01/17 2,000 2,282,920
Palm Beach Cnty. Hsg. Auth., Banyan Club Apts. NR 7.75 3/01/23 4,530 4,855,209
</TABLE>
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 8
<PAGE>
Portfolio of Investments as PRUDENTIAL MUNICIPAL BOND FUND
of April 30, 1997 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.)
Sarasota Hlth. Facs., Kobernick Hsg. Meadow Park Proj. Aaa 10.00% 7/01/22 $ 6,920 (c) $ 8,542,117
Seminole Cnty. Ind. Dev. Auth. Rev., Fern Park NR 9.25 4/01/12 5,990 6,373,420
--------------
45,116,839
- ------------------------------------------------------------------------------------------------------------------------------
Georgia--3.2%
Atlanta Urban Res. Fin. Auth., Clark Atlanta Univ. Dorm.
Proj. NR 9.25 6/01/10 4,440 5,078,694
Effingham Cnty. Dev. Auth., Ft. Howard Corp. B1 7.90 10/01/05 10,000 10,414,800
Fulton Cnty. Wtr. & Swr. Rev., F.G.I.C. Aaa 6.375 1/01/14 6,000 6,546,960
Rockdale Cnty. Dev. Auth., Solid Wste. Disp. Rev. NR 7.50 1/01/26 10,100 10,435,926
--------------
32,476,380
- ------------------------------------------------------------------------------------------------------------------------------
Hawaii--0.7%
Hawaii Cnty. Impvt. Dist. No. 17 NR 9.50 8/01/11 6,790 6,790,000
- ------------------------------------------------------------------------------------------------------------------------------
Illinois--9.5%
Chicago Brd. Edl., Lease Ctfs., Ser. A, M.B.I.A. Aaa 6.00 1/01/20 10,000 10,326,400
Chicago O'Hare Int'l. Arpt.,
Amer. Airlines Proj., Ser. B Baa2 8.20 12/01/24 1,000 1,167,790
United Airlines, Ser. B Baa2 8.45 5/01/07 6,000 6,528,000
United Airlines, Ser. B Baa2 8.50 5/01/18 6,500 7,080,775
United Airlines, Ser. B Baa2 8.85 5/01/18 2,700 3,034,800
United Airlines, Ser. B Baa2 8.95 5/01/18 2,320 2,603,110
Chicago Pub. Bldg. Comm. Rev., Ser. A Aaa 7.00 1/01/20 6,530 7,493,501
Hennepin Ind. Dev. Rev., Exolon-Esk Co. Proj. NR 8.875 1/01/18 8,000 8,759,040
Illinois St. Hlth. Facs. Auth. Rev.,
Adventist Living Ctr. NR 11.00 12/01/15 2,245 (e) 202,010
Beacon Hill Proj., Ser. A NR 9.00 8/15/19 7,240 7,723,704
Midwest Physician Group Ltd. Proj. BBB-(b) 8.10 11/15/14 3,135 3,437,966
Midwest Physician Group Ltd. Proj. BBB-(b) 8.125 11/15/19 3,285 3,607,259
Illinois, Ser. K, A.M.B.A.C. Aaa 6.25 1/01/13 6,825 7,320,085
Kane And De Kalb Cntys. Sch.,
Dist. No. 301, Cap. Apprec. A.M.B.A.C. Aaa Zero 12/01/11 3,360 1,465,565
Dist. No. 301, Cap. Apprec. A.M.B.A.C. Aaa Zero 12/01/13 4,065 1,557,098
Vlge. of Robbins, Cook Cnty. Robbins Res. Rec. NR 8.375 10/15/16 19,000 19,775,580
Winnebago Cnty. Hsg. Auth., Park Tower Assoc., Sec. 8 NR 8.125 1/01/11 4,124 4,311,395
--------------
96,394,078
</TABLE>
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 9
<PAGE>
Portfolio of Investments as PRUDENTIAL MUNICIPAL BOND FUND
of April 30, 1997 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>
- ------------------------------------------------------------------------------------------------------------------------------
Indiana--2.2%
Bluffton Econ. Dev. Rev., Kroger Co. Proj. Baa3 7.85% 8/01/15 $ 7,500 $ 8,335,725
Indianapolis Int'l. Arpt. Auth. Rev., Federal Express
Corp. Proj. Baa2 7.10 1/15/17 6,000 6,456,000
Wabash Econ. Dev. Rev. Bonds, Connell Ltd. NR 8.50 11/24/17 7,250 7,804,262
--------------
22,595,987
- ------------------------------------------------------------------------------------------------------------------------------
Iowa--2.6%
City of Cedar Rapids Rev.,
1st Mtge., Cottage Grove Place Proj. NR 9.00 7/01/18 9,375 10,199,156
1st Mtge., Cottage Grove Place Proj. NR 9.00 7/01/25 4,435 4,796,808
Iowa St. Fin. Auth., Hlth. Care Facs. Rev., Mercy Hlth.
Initiatives Proj. NR 9.25 7/01/25 10,000 11,688,900
--------------
26,684,864
- ------------------------------------------------------------------------------------------------------------------------------
Kentucky--0.8%
Kentucky St. Tpke. Auth. Rev., F.G.I.C. Aaa Zero 1/01/10 8,250 4,113,120
Owensboro Elec. Lt. & Pwr. Rev.,
Ser. B, A.M.B.A.C. Aaa Zero 1/01/14 5,000 1,937,150
Ser. B, A.M.B.A.C. Aaa Zero 1/01/16 6,650 2,258,008
--------------
8,308,278
- ------------------------------------------------------------------------------------------------------------------------------
Louisiana--3.4%
Hodge Util. Rev., Stone Container Corp. NR 9.00 3/01/10 7,000 7,453,670
New Orleans Home Mtge. Auth. Rev., Sngl. Fam. Mtge.,
Ser. A, G.N.M.A. Aaa 8.60 12/01/19 1,670 1,742,027
New Orleans Ind. Dev. Rev. BB+(b) 8.75 10/01/19 3,600 4,095,288
New Orleans, Gen Oblig., Cap. Apprec., A.M.B.A.C. Aaa Zero 9/01/18 3,090 880,774
St. Charles Parish Poll. Ctrl. Rev.,
Pwr. & Lt. Co. Baa3 8.25 6/01/14 10,000 10,838,000
Pwr. & Lt. Co., Ser. 1989 Baa3 8.00 12/01/14 3,500 3,816,435
West Feliciana Parish Poll. Ctrl. Rev., Gulf St. Util.
Co. Proj. NR 9.00 5/01/15 5,250 5,806,657
--------------
34,632,851
- ------------------------------------------------------------------------------------------------------------------------------
Maryland--1.9%
Anne Arundel Cnty. 1st Mtge. Rev., Pleasant Living Conv. NR 8.50 7/01/13 3,325 3,536,669
Northeast Wste. Disp. Auth.,
Sludge Comp. Fac. NR 7.25 7/01/07 4,330 4,489,301
Sludge Comp. Fac. NR 8.50 7/01/07 3,200 3,371,008
</TABLE>
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 10
<PAGE>
Portfolio of Investments as PRUDENTIAL MUNICIPAL BOND FUND
of April 30, 1997 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 (cont'd.)
Washington Sub. San. Dist.
Ref., Gen. Const. Aa1 6.00% 6/01/18 $ 3,705 $ 3,920,001
Ref., Gen. Const. Aa1 6.00 6/01/19 3,940 4,169,072
--------------
19,486,051
- ------------------------------------------------------------------------------------------------------------------------------
Massachusetts--4.5%
Boston Ind. Dev. Fin. Auth. Ind. Rev., 1st Mtge.
Springhouse Proj. NR 9.25 7/01/15 8,000 8,665,600
Mass. Bay Trans. Auth., Gen. Trans. Sys., Ser. A,
F.G.I.C. Aaa 7.00 3/01/21 7,500 8,805,375
Mass. St. Coll. Bldg. Proj. and Ref. Bonds A1 7.50 5/01/14 1,750 2,115,925
Mass. St. Hlth. & Edl. Facs. Auth. Rev.,
Cardinal Cushing Gen. Hosp. NR 8.875 7/01/18 7,500 8,106,450
St. Josephs Hosp., Ser. C NR 9.50 10/01/20 5,735 (c) 6,392,690
Mass. St. Ind. Fin. Agcy. Cont. Res., Ser. A NR 9.50 2/01/00 1,650 1,716,165
Mass. St. Ind. Fin. Agcy. Rev., Glenmeadow Proj. NR 7.00 2/15/06 3,700 3,700,888
Randolph Hsg. Auth., Multifam. Hsg., Liberty Place Proj.
A, Ser. A NR 9.00 12/01/21 5,955 6,161,817
--------------
45,664,910
- ------------------------------------------------------------------------------------------------------------------------------
Michigan--4.3%
Grand Rapids Dev. Auth.
Cap. Apprec., M.B.I.A. Aaa Zero 6/01/10 3,000 1,445,160
Cap. Apprec., M.B.I.A. Aaa Zero 6/01/11 3,160 1,429,774
Cap. Apprec., M.B.I.A. Aaa Zero 6/01/12 3,000 1,273,710
Gratiot Cnty. Econ. Dev. Corp., Danley Die Proj. Connell
L.P. NR 7.625 4/01/07 3,200 3,358,048
Holland Sch. Dist., Cap. Apprec., A.M.B.A.C. Aaa Zero 5/01/17 2,950 911,255
Lowell Area Sch., F.G.I.C. Aaa Zero 5/01/14 5,000 1,872,700
Michigan St. Hosp. Fin. Auth. Rev., Saratoga Cmnty.
Hosp. NR 8.75 6/01/10 6,345 7,089,268
Michigan Strategic Fund Ltd. Oblig. Rev., Great Lakes
Pulp & Fibre Proj. NR 10.25 12/01/16 20,000 (e) 9,399,800
Michigan Strategic Fund, Solid Wste. Disp., Gennese Pwr.
Station NR 7.50 1/01/21 10,000 10,215,300
Wayne Cnty. Bldg. Auth., Ser. A Baa2 8.00 3/01/17 3,500 (c) 4,009,040
West Ottawa Sch. Dist.,
F.G.I.C. Aaa Zero 5/01/15 4,825 1,693,865
F.G.I.C. Aaa Zero 5/01/18 3,000 873,840
--------------
43,571,760
- ------------------------------------------------------------------------------------------------------------------------------
Minnesota--0.4%
Minneapolis St. Paul Hsg. Fin. Brd., Multifam. Mtge.
Rev., Riverside Plaza, G.N.M.A. AAA(b) 8.25 12/20/30 4,000 4,172,320
</TABLE>
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 11
<PAGE>
Portfolio of Investments as PRUDENTIAL MUNICIPAL BOND FUND
of April 30, 1997 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>
- ------------------------------------------------------------------------------------------------------------------------------
Mississippi--1.8%
Claiborne Cnty. Poll. Ctrl. Rev.,
Mid. So. Engy. Sys. Ba1 9.875% 12/01/14 $ 6,100 $ 6,668,703
Mid. So. Engy. Sys., Ser. A Ba1 9.50 12/01/13 10,350 11,279,223
--------------
17,947,926
- ------------------------------------------------------------------------------------------------------------------------------
Missouri--2.2%
Sikeston Elec. Rev. Ref., M.B.I.A. Aaa 6.00 6/01/15 9,250 9,710,002
St. Louis Cnty. Ind. Dev. Auth. Rev.,
Soemm Proj. NR 10.25 7/01/08 1,635 1,638,761
Soemm Proj. NR 10.25 7/01/08 620 621,426
St. Louis Cnty. Reg. Conv. & Sports Comp., Ser. C Aaa 7.90 8/15/21 8,820 10,179,074
--------------
22,149,263
- ------------------------------------------------------------------------------------------------------------------------------
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 1,940 2,018,473
- ------------------------------------------------------------------------------------------------------------------------------
New Hampshire--1.4%
New Hampshire Higher Edl. & Hlth. Facs. Auth. Rev.,
Antioch College NR 7.875 12/01/22 5,405 5,849,345
Havenwood/Heritage Heights NR 9.75 12/01/19 7,595 (c) 8,725,288
--------------
14,574,633
- ------------------------------------------------------------------------------------------------------------------------------
New Jersey--6.4%
New Jersey Econ. Dev. Corp. Rev., Ref. Newark Arpt.
Marriot Hotel NR 7.00 10/01/14 3,800 3,917,876
New Jersey Hlthcare Facs., Fin. Auth. Rev. NR 8.00 7/01/27 5,000 4,983,850
New Jersey St. Econ. Dev. Auth. Rev., 1st Mtge.,
Fellowship Vlge., Proj. A NR 9.25 1/01/25 11,500 13,353,685
Keswick Pines Proj. NR 7.75 1/01/01 3,095 3,148,265
New Jersey St. Ref., Ser. E Aa1 6.00 7/15/10 10,000 10,667,800
New Jersey St. Tpke. Auth. Rev., Ser. C, M.B.I.A. Aaa 6.50 1/01/16 11,000 12,149,830
New Jersey St. Trans. Trust Fund Auth., Trans. Sys.,
M.B.I.A. Aaa 6.50 6/15/11 14,500 16,091,375
--------------
64,312,681
</TABLE>
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 12
<PAGE>
Portfolio of Investments as PRUDENTIAL MUNICIPAL BOND FUND
of April 30, 1997 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 York--4.7%
Met. Trans. Auth. Facs. Rev., Ser. N, F.G.I.C. Aaa Zero 7/01/13 $ 8,340 $ 3,403,721
New York City Ind. Dev. Agcy.,
Amer. Airlines Inc. Baa2 8.00% 7/01/20 3,320 3,510,269
Mesorah Pub. Ltd. NR 10.25 3/01/19 1,886 2,046,970
Visy Paper Inc. Proj. NR 7.95 1/01/28 9,500 10,199,390
New York City,
Ser. F Baa1 5.875 8/01/24 10,500 10,026,135
Ser. H Baa1 6.00 8/01/17 1,000 981,510
Ser. I Baa1 6.25 4/15/27 5,000 4,979,700
New York Hosp. Rev., Newark Wayne Cmnty. Hosp. Inc.,
Ser. A NR 7.60 9/01/15 2,425 2,348,176
New York St. Dorm. Auth. Rev., Colgate Univ., M.B.I.A. Aaa 6.00 7/01/21 3,350 3,498,707
New York St. Engy. Res. & Dev. Auth. Rev., B.U.G. Co.,
Ser. D, M.B.I.A. Aaa 7.214 7/08/26 2,000 (d) 1,740,000
Port Auth. of New York & New Jersey, USAir LaGuardia
Arpt. B3 9.125 12/01/15 4,000 4,513,480
--------------
47,248,058
- ------------------------------------------------------------------------------------------------------------------------------
North Dakota--1.2%
Mercer Cnty., Antelope Valley Station, A.M.B.A.C Aaa 7.20 6/30/13 10,000 11,768,600
- ------------------------------------------------------------------------------------------------------------------------------
Ohio--3.0%
Cleveland Pub. Pwr. Sys. Rev.,
1st Mtge., M.B.I.A. Aaa Zero 11/15/12 1,000 421,300
1st Mtge., M.B.I.A. Aaa Zero 11/15/13 1,500 592,965
1st Mtge., Ser. A, M.B.I.A. Aaa Zero 11/15/09 3,000 1,522,830
Mahoning Valley San. Dist. Wtr. Rev. NR 7.75 5/15/19 8,000 8,534,480
Montgomery Cnty. Hlthcare. Facs. Rev., Friendship Vlge.
Dayton, Proj. B NR 9.25 2/01/16 4,500 4,732,605
Ohio St. Solid Wste. Rev., Rep. Eng. Steels Inc. NR 9.00 6/01/21 2,250 2,269,282
Ohio St. Wtr. Dev. Auth. Poll. Ctrl. Facs., 1st Mtge.,
Toledo Edison Ba2 8.00 10/01/23 5,500 5,944,400
Stark Cnty. Hlthcare. Facs. Rev., Rose Lane Inc. Proj. NR 9.00 12/01/23 6,135 6,627,886
--------------
30,645,748
- ------------------------------------------------------------------------------------------------------------------------------
Oklahoma--1.1%
Grand River Dam Auth. Rev., A.M.B.A.C. Aaa 6.25 6/01/11 7,500 8,153,700
Tulsa Ind. Dev. Auth., Univ. Tulsa, Ser. A, M.B.I.A. Aaa 6.00 10/01/16 3,250 3,398,590
--------------
11,552,290
</TABLE>
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 13
<PAGE>
Portfolio of Investments as PRUDENTIAL MUNICIPAL BOND FUND
of April 30, 1997 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>
- ------------------------------------------------------------------------------------------------------------------------------
Pennsylvania--5.3%
Allegheny Cnty. Hosp. Rev., West Penn. Hosp. Hlth. Ctr. NR 8.50% 1/01/20 $ 2,800 $ 3,036,796
Berks Cnty. Mun. Auth. Rev.,
Adventist Living Ctrs. Proj. NR 11.00 12/01/15 367 (e) 33,072
Alvernia Coll. Proj. NR 7.75 11/15/16 5,240 5,593,857
Dauphin Cnty. Gen. Auth. Hosp. Rev., NW Med. Ctr. Proj. BBB-(b) 8.625 10/15/13 6,605 7,515,631
Lancaster Cnty. Solid Wste. Mgmt., Res. Rec. Auth. Sys.
Rev.,
Ser. A A 8.50 12/15/10 5,965 6,222,151
Pennsylvania Econ. Dev. Fin. Auth. Recyc. Rev. NR 9.25 1/01/22 7,000 6,015,730
Philadelphia Auth., Ind. Dev. Rev. NR 7.75 12/01/17 5,000 5,332,650
Philadelphia Wtr. & Wstewtr. Auth. Rev.,
M.B.I.A. Aaa 6.25 8/01/10 2,500 2,703,975
M.B.I.A. Aaa 6.25 8/01/12 3,000 3,236,400
Somerset Cnty. Hosp. Auth. Rev.,
Hlthcare 1st Mtge. NR 8.40 6/01/09 2,415 2,617,111
Hlthcare 1st Mtge. NR 8.50 6/01/24 8,805 9,538,985
Wilkes Barre Gen. Mun. Auth. Coll. Rev., Misericordia
Coll.,
Ser. A NR 7.75 12/01/12 1,245 1,326,411
--------------
53,172,769
- ------------------------------------------------------------------------------------------------------------------------------
Rhode Island--1.6%
Rhode Island Hsg. & Mtge. Fin. Corp., Homeownership
Opport., Ser. 1A Aa2 8.20 10/01/17 4,620 4,739,889
Rhode Island Redev. Agcy., Ser. A NR 8.00 9/01/24 10,750 11,194,512
--------------
15,934,401
- ------------------------------------------------------------------------------------------------------------------------------
South Carolina--0.5%
So. Carolina St. Hsg. Fin. & Dev. Auth., Homeownership
Mtge. Aa2 7.75 7/01/22 4,345 4,556,471
- ------------------------------------------------------------------------------------------------------------------------------
South Dakota--0.5%
So. Dakota Econ. Dev. Fin. Auth., Dakota Park NR 10.25 1/01/19 5,000 5,291,400
- ------------------------------------------------------------------------------------------------------------------------------
Tennessee--1.4%
Knox Cnty. Hlth. & Edl. Facs. Rev., Baptist Hlth. Hosp. Aaa 8.50 4/15/04 5,905 (c) 6,440,584
Rutherford Cnty. Hlth. & Edl. Facs., Brd. 1st Mtge. Rev. NR 9.50 12/01/19 7,300 8,013,502
--------------
14,454,086
</TABLE>
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 14
<PAGE>
Portfolio of Investments as PRUDENTIAL MUNICIPAL BOND FUND
of April 30, 1997 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>
- ------------------------------------------------------------------------------------------------------------------------------
Texas--3.4%
Beaumont Hsg. Fin. Corp., Sngl. Fam. Mtge. Rev. A1 9.20% 3/01/12 $ 1,575 $ 1,748,691
Houston Arpt. Sys. Rev. Ba2 6.125 7/15/27 5,200 4,961,268
Houston Wtr. & Swr. Sys. Rev., Ser. C, A.M.B.A.C. Aaa Zero 12/01/10 5,000 2,339,250
Keller Ind. Sch. Dist., Cap. Apprec. Ref., Ser. A,
P.S.F.G. Aaa Zero 8/15/17 4,075 1,235,133
New Braunfels Ind. Sch. Dist.,
Cap. Apprec. Aaa Zero 2/01/08 2,365 1,318,251
Cap. Apprec. Aaa Zero 2/01/09 2,365 1,234,317
Cap. Apprec. Aaa Zero 2/01/12 2,365 1,021,822
Cap. Apprec. Aaa Zero 2/01/13 1,365 552,907
Port Corpus Christi Ind. Dev. Corp., Valero Ref. & Mfg.
Co.,
Ser. A Baa3 10.25 6/01/17 1,300 1,345,799
Round Rock Ind. Sch. Dist., Gen. Oblig., M.B.I.A. Aaa Zero 8/15/11 4,385 1,958,516
San Antonio Elec. & Gas Rev., F.G.I.C. Aaa Zero 2/01/09 5,000 2,609,550
Ser. B, F.G.I.C. Aaa Zero 2/01/12 7,500 3,240,450
Tarrant Cnty. Hlth. Facs. Dev. Corp. Rev., Foundation
Proj. NR 10.25 9/01/19 5,000 5,273,850
Texas Mun. Pwr. Agcy. Rev., M.B.I.A. Aaa Zero 9/01/15 16,300 5,602,473
--------------
34,442,277
- ------------------------------------------------------------------------------------------------------------------------------
Virginia--1.5%
Norfolk Redev. & Hsg. Auth., Multifam. Rental Hsg. Fac.
Rev. NR 5.25 9/01/26 6,000 6,014,100
Pittsylvania Cnty. Ind. Dev. Auth. Rev. Multitrade NR 7.55 1/01/19 9,000 9,462,240
--------------
15,476,340
- ------------------------------------------------------------------------------------------------------------------------------
Washington--2.9%
Bellevue Conv. Ctr. Auth.,
King City, Oblig. Rev., M.B.I.A. Aaa Zero 2/01/10 870 423,803
King City, Oblig. Rev., M.B.I.A. Aaa Zero 2/01/11 1,200 548,820
King City, Oblig. Rev., M.B.I.A. Aaa Zero 2/01/12 1,300 557,674
King City, Oblig. Rev., M.B.I.A. Aaa Zero 2/01/14 1,385 521,176
Chelan Cnty. Pub. Util., Dist. No. 1, Columbia River
Rock, Hydro Elec. Sys. Rev. Aaa Zero 6/01/15 7,585 2,622,134
Thurston Cnty. Sch. Dist. 333, F.G.I.C. Aaa Zero 12/01/12 6,830 2,814,370
Ser. B, F.G.I.C. Aaa Zero 12/01/11 6,415 2,817,981
Washington St. Ref., Ser R, 97A Aa Zero 7/01/16 7,000 2,262,330
Washington St. Pub. Pwr. Supply Sys. Rev.,
Nuclear Proj. No. 1, Ser. B Aa1 7.25 7/01/09 5,000 5,725,150
Nuclear Proj. No. 3, M.B.I.A. Aaa Zero 7/01/16 10,000 3,178,200
Nuclear Proj. No. 3, M.B.I.A. Aaa Zero 7/01/17 5,000 1,482,250
Nuclear Proj. No. 3, Ser. B, M.B.I.A. Aaa 7.125 7/01/16 5,000 5,817,400
--------------
28,771,288
</TABLE>
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 15
<PAGE>
Portfolio of Investments as PRUDENTIAL MUNICIPAL BOND FUND
of April 30, 1997 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>
- ------------------------------------------------------------------------------------------------------------------------------
West Virginia--1.2%
So. Charleston Ind. Dev. Rev., Union Carbide Chem. &
Plastics Co. Baa2 8.00% 8/01/20 $ 2,450 $ 2,617,017
Weirton Poll. Ctrl. Rev., Weirton Steel Proj. B2 8.625 11/01/14 4,000 4,158,240
West Virginia St. Hsg. Dev. Fund Hsg. Fin., Ser. A Aaa 7.95 5/01/17 2,655 2,686,329
West Virginia St. Pkwys. Econ. Dev. & Tourism Auth.,
F.G.I.C. Aaa 7.555 5/16/19 3,250 (d) 3,107,812
--------------
12,569,398
- ------------------------------------------------------------------------------------------------------------------------------
Total Investments--96.9%
(cost $949,207,739; Note 4) 980,628,714
Other assets in excess of liabilities--3.1% 31,240,129
--------------
Net Assets--100% $1,011,868,843
--------------
--------------
</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
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) Standard & Poor's Rating.
(c) Prerefunded issues are secured by escrowed cash and direct U.S. guaranteed
obligations.
(d) Inverse floating rate bond. The coupon is inversely indexed to a floating
interest rate. The rate shown is the rate at year end.
(e) Issuer in default of interest payment. Non-income producing 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.
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 16
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Statement of Assets and Liabilities HIGH YIELD SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets April 30, 1997
<S> <C>
Investments, at value (cost $949,207,739)................................................................... $ 980,628,714
Interest receivable......................................................................................... 20,085,956
Receivable for investments sold............................................................................. 14,753,647
Receivable for Series shares sold........................................................................... 1,471,150
Other assets................................................................................................ 17,758
--------------
Total assets............................................................................................. 1,016,957,225
--------------
Liabilities
Bank overdraft.............................................................................................. 848,399
Dividends payable........................................................................................... 1,689,491
Payable for Series shares reacquired........................................................................ 1,659,863
Management fee payable...................................................................................... 372,844
Distribution fee payable.................................................................................... 305,461
Accrued expenses............................................................................................ 212,324
--------------
Total liabilities........................................................................................ 5,088,382
--------------
Net Assets.................................................................................................. $1,011,868,843
--------------
--------------
Net assets were comprised of:
Shares of beneficial interest, at par.................................................................... $ 933,657
Paid-in capital in excess of par......................................................................... 998,001,465
--------------
998,935,122
Accumulated net realized loss on investments............................................................. (18,487,254)
Net unrealized appreciation of investments............................................................... 31,420,975
--------------
Net assets, April 30, 1997.................................................................................. $1,011,868,843
--------------
--------------
Class A:
Net asset value and redemption price per share
($334,061,835 / 30,821,253 shares of beneficial interest issued and outstanding)...................... $10.84
Maximum sales charge (3% of offering price).............................................................. .34
--------------
Maximum offering price to public......................................................................... $11.18
--------------
--------------
Class B:
Net asset value, offering price and redemption price per share
($665,524,650 / 61,411,036 shares of beneficial interest issued and outstanding)...................... $10.84
--------------
--------------
Class C:
Net asset value, offering price and redemption price per share
($9,562,939 / 882,442 shares of beneficial interest issued and outstanding)........................... $10.84
--------------
--------------
Class Z:
Net asset value, offering price and redemption price per share
($2,719,419 / 251,085 shares of beneficial interest issued and outstanding)........................... $10.83
--------------
--------------
</TABLE>
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 17
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
HIGH YIELD SERIES
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income April 30, 1997
<S> <C>
Income
Interest.................................. $ 72,933,887
--------------
Expenses
Management fee............................ 5,129,335
Distribution fee--Class A................. 294,940
Distribution fee--Class B................. 3,626,526
Distribution fee--Class C................. 60,452
Transfer agent's fees and expenses........ 479,000
Reports to shareholders................... 196,000
Custodian's fees and expenses............. 149,000
Registration fees......................... 64,000
Insurance expense......................... 29,000
Legal fees and expenses................... 18,000
Audit fee................................. 15,000
Trustees' fees and expenses............... 15,000
Miscellaneous............................. 8,448
--------------
Total expenses......................... 10,084,701
Less: Management fee waiver............... (514,371)
Custodian fee credit................... (4,554)
--------------
Net expenses........................... 9,565,776
--------------
Net investment income........................ 63,368,111
--------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions................... (5,055,767)
Financial futures contract transactions... 783,950
--------------
(4,271,817)
--------------
Net change in unrealized appreciation of:
Investments............................... 18,105,192
--------------
Net gain on investments...................... 13,833,375
--------------
Net Increase in Net Assets
Resulting from Operations.................... $ 77,201,486
--------------
--------------
</TABLE>
<TABLE>
PRUDENTIAL MUNICIPAL BOND FUND
HIGH YIELD SERIES
Statement of Changes in Net Assets
- ------------------------------------------------------------
<CAPTION>
Increase (Decrease) Year Ended April 30,
in Net Assets 1997 1996
<S> <C> <C>
Operations
Net investment income....... $ 63,368,111 $ 66,724,584
Net realized gain (loss) on
investment
transactions............. (4,271,817) 7,874,332
Net change in unrealized
appreciation
(depreciation) of
investments.............. 18,105,192 (9,899,503)
-------------- --------------
Net increase in net assets
resulting from
operations............... 77,201,486 64,699,413
-------------- --------------
Dividends and distributions
(Note 1):
Dividends from net
investment income
Class A.................. (18,998,681) (10,686,945)
Class B.................. (43,873,295) (55,704,885)
Class C.................. (467,478) (332,754)
Class Z.................. (28,657) --
-------------- --------------
(63,368,111) (66,724,584)
-------------- --------------
Distributions in excess of
net investment income
Class A.................. (39,610) (21,756)
Class B.................. (82,405) (103,384)
Class C.................. (965) (746)
Class Z.................. (28) --
-------------- --------------
(123,008) (125,886)
-------------- --------------
Series share transactions (net of
share conversions) (Note 5):
Net proceeds from shares
subscribed............... 116,459,010 125,110,592
Net asset value of shares
issued in reinvestment of
dividends................ 28,109,609 30,125,436
Cost of shares reacquired... (175,001,590) (177,927,248)
-------------- --------------
Net decrease in net assets
from Series share
transactions............. (30,432,971) (22,691,220)
-------------- --------------
Total decrease................. (16,722,604) (24,842,277)
Net Assets
Beginning of year.............. 1,028,591,447 1,053,433,724
-------------- --------------
End of year.................... $1,011,868,843 $1,028,591,447
-------------- --------------
-------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 18
<PAGE>
Portfolio of Investments as PRUDENTIAL MUNICIPAL BOND FUND
of April 30, 1997 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--95.6%
- ------------------------------------------------------------------------------------------------------------------------------
Alabama--0.7%
Huntsville Solid Wste. Disp. Auth., F.G.I.C. Aaa 7.00% 10/01/08 $ 2,000 $ 2,147,500
Jefferson Cnty. Swr. Rev. Wste., Ser. D, F.G.I.C. Aaa 5.75 2/01/22 1,200 1,187,376
------------
3,334,876
- ------------------------------------------------------------------------------------------------------------------------------
Alaska--2.1%
Alaska St. Engy. Auth. Pwr. Rev., Bradley Lake Hydro, 1st
Ser., A.M.B.A.C. Aaa 7.25 7/01/16 2,000 (h) 2,142,160
Anchorage Hosp. Rev., Sisters of Providence, A.M.B.A.C. Aaa 7.125 10/01/05 5,000 5,530,350
No. Slope Boro., Cap. Apprec., Ser. A, M.B.I.A. Aaa Zero 6/30/06 5,000 3,067,950
------------
10,740,460
- ------------------------------------------------------------------------------------------------------------------------------
Arizona--3.2%
Arizona St. Trans. Brd. Excise Tax Rev., Maricopa Cnty.
Reg'l. Area Rd., A.M.B.A.C. Aaa 5.60 7/01/03 6,950 7,179,698
Maricopa Cnty. Ind. Dev. Auth. Rev.,
Hosp. Facs., John C. Lincoln Hosp., F.S.A. Aaa 7.00 12/01/00 2,265 2,439,065
Hosp. Facs., John C. Lincoln Hosp., F.S.A. Aaa 7.50 12/01/13 1,045 (c) 1,160,734
Hosp. Facs., John C. Lincoln Hosp., F.S.A. Aaa 7.50 12/01/13 1,205 1,317,065
Maricopa Cnty. Unified Sch. Dist. No. 69, Paradise
Valley, Ser. E, F.G.I.C. Aaa 6.80 7/01/12 3,700 4,221,478
------------
16,318,040
- ------------------------------------------------------------------------------------------------------------------------------
California--11.6%
California St. Pub. Wks. Brd.,
Comm. Coll. Proj., Ser. A, A.M.B.A.C. Aaa 5.625 3/01/16 2,000 1,973,560
Dept. of Corrections, A.M.B.A.C. Aaa 5.75 1/01/12 2,000 2,017,280
California St., Gen. Oblig., F.G.I.C. Aaa 6.60 2/01/11 2,010 2,245,954
Contra Costa Wtr. Dist. Wtr. Rev., Ser. E, A.M.B.A.C. Aaa 6.25 10/01/12 1,455 1,572,113
Inland Empire Solid Wste. Fin. Auth., Landfill Impvt.
Fin., Proj. B, F.S.A. Aaa 6.00 8/01/16 2,000 2,003,020
Los Angeles Cnty. Pub. Wks. Fin. Auth.,
Lease Rev., M.B.I.A. Aaa 5.20 9/01/09 6,500 6,404,190
Lease Rev., M.B.I.A. Aaa 5.25 9/01/13 5,000 4,772,700
Los Angeles Dept. Wtr. & Pwr. Elec. Plant Rev., F.G.I.C. Aaa 4.75 11/15/19 6,400 5,460,352
Roseville Joint Union H.S. Dist., Ser. B, F.G.I.C. Aaa Zero 8/01/13 2,015 799,391
</TABLE>
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 19
<PAGE>
Portfolio of Investments as PRUDENTIAL MUNICIPAL BOND FUND
of April 30, 1997 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.)
San Diego Cnty. Wtr. Auth. Wtr. Rev., Ctfs. of Part.,
F.G.I.C Aaa 7.24% 4/26/06 $ 5,800 (d) $ 6,061,000
Santa Margarita/Dana Point Auth.,
Impvt. Dist., M.B.I.A. Aaa 7.25 8/01/10 2,180 2,557,314
Impvt. Dist., M.B.I.A. Aaa 7.25 8/01/11 1,750 2,051,158
So. Orange Cnty. Pub. Fin. Auth.,
Foothill Area Proj., F.G.I.C Aaa 8.00 8/15/08 2,500 (h) 3,091,875
Foothill Area Proj., F.G.I.C. Aaa 6.50 8/15/10 2,725 3,028,347
Univ. California Reg'l. Ref., Multi. Purp. Proj.,
A.M.B.A.C. Aaa 4.75 9/01/16 9,075 7,880,095
Victor Valley Element. Sch. Dist.,
Cap. Apprec., Ser. A, M.B.I.A. Aaa Zero 6/01/17 3,550 1,093,364
Cap. Apprec., Ser. A, M.B.I.A. Aaa Zero 6/01/18 3,700 1,074,665
Victor Valley Union H.S. Dist.,
Gen. Oblig., 1995 Elec., M.B.I.A. Aaa Zero 9/01/10 2,635 1,264,800
Gen. Oblig., 1995 Elec., M.B.I.A. Aaa Zero 9/01/11 3,780 1,702,928
Gen. Oblig., 1995 Elec., M.B.I.A. Aaa Zero 9/01/13 4,450 1,757,082
------------
58,811,188
- ------------------------------------------------------------------------------------------------------------------------------
Colorado--1.1%
Denver City & Cnty. Arpt. Rev., Ser. C, M.B.I.A. Aaa 5.60 11/15/11 5,000 4,916,950
Jefferson Cnty. Sngl. Fam. Mtge. Rev., Ser. A, M.B.I.A. Aaa 8.875 10/01/13 585 625,464
------------
5,542,414
- ------------------------------------------------------------------------------------------------------------------------------
Connecticut--1.0%
Connecticut St. Res. Rec. Auth., Mid. Connecticut Sys.,
Ser. A, M.B.I.A. Aaa 5.25 11/15/08 5,000 4,974,250
- ------------------------------------------------------------------------------------------------------------------------------
District Of Columbia--4.8%
Dist. of Columbia Hosp. Rev. Medlantic Hlthcare Grp.,
M.B.I.A. Aaa 5.875 8/15/19 3,500 3,475,990
M.B.I.A. Aaa 5.75 8/15/26 3,000 (h) 2,921,010
Dist. of Columbia Met. Area Trans. Auth.,
Gross Rev., F.G.I.C. Aaa 6.00 7/01/09 2,400 2,553,504
Gross Rev., F.G.I.C. Aaa 6.00 7/01/10 1,500 1,591,185
Dist. of Columbia Ref., Ser. B, F.S.A. Aaa 5.50 6/01/10 7,565 (h) 7,419,525
Dist. of Columbia Rev., Ser. A, M.B.I.A. Aaa 6.50 6/01/10 6,000 6,524,940
------------
24,486,154
</TABLE>
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 20
<PAGE>
Portfolio of Investments as PRUDENTIAL MUNICIPAL BOND FUND
of April 30, 1997 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--9.9%
Brevard Hlth. Facs. Auth. Rev., Holmes Reg'l. Med. Ctr.,
M.B.I.A. Aaa 5.60% 10/01/10 $ 6,000 (h) $ 6,014,700
Dade Cnty. Edl. Facs. Auth. Rev. Ref., Ser. A, M.B.I.A. Aaa 5.625 4/01/06 5,000 5,167,900
Dade Cnty. Res. Rec., Facs. Rev. Ref., A.M.B.A.C. Aaa 5.10 10/01/04 3,355 3,344,633
Dade Cnty. Sch. Brd. Ctfs. of Part., Ser. B, A.M.B.A.C. Aaa 5.70 8/01/16 5,475 5,461,750
Dade Cnty. Spec. Oblig., Ref., Ser. B, A.M.B.A.C. Aaa 5.00 10/01/35 8,140 7,209,517
No. Broward Hosp. Dist. Rev., Ref. & Impvts., M.B.I.A. Aaa 5.25 1/15/17 1,800 1,694,520
Orange Cnty. Hlth. Facs. Auth. Rev. Hosp., Orlando Reg'l.
Hlthcare, Ser. A, M.B.I.A. Aaa 6.25 10/01/07 3,160 3,413,590
Palm Beach Cnty. Solid Wste. Auth. Rev., Ref., Ser. A,
A.M.B.A.C. Aaa 6.00 10/01/09 2,500 2,641,300
So. Miami Hlth. Facs. Auth.,
Baptist Hlth. Sys. Oblig. Grp., M.B.I.A. Aaa 5.375 10/01/16 6,555 6,261,991
Baptist Hlth. Sys. Oblig. Grp., M.B.I.A. Aaa 5.50 10/01/20 4,435 4,249,085
Tampa Occ. License Tax, Ser. B, F.G.I.C. Aaa 5.50 10/01/27 5,000 4,786,550
------------
50,245,536
- ------------------------------------------------------------------------------------------------------------------------------
Georgia--2.3%
Atlanta Arpt. Facs. Rev., A.M.B.A.C. Aaa 6.50 1/01/10 2,000 2,209,480
Georgia Mun. Elec. Auth., Pwr. Rev., M.B.I.A. Aaa 6.20 1/01/10 3,495 (e) 3,755,482
Mun. Elec. Auth., Proj. No. 1, A.M.B.A.C. Aaa 6.00 1/01/06 5,570 5,869,388
------------
11,834,350
- ------------------------------------------------------------------------------------------------------------------------------
Illinois--2.3%
Chicago Midway Arpt. Rev., Ser. B, M.B.I.A. Aaa 5.75 1/01/22 2,400 2,326,032
Chicago O' Hare Int'l. Arpt. Rev., Pass. Facs. Chrg.,
Ser. A, A.M.B.A.C. Aaa 5.625 1/01/15 2,000 1,959,280
Onterie Ctr. Hsg. Fin. Corp. Mtge. Rev.,
Ser. A, M.B.I.A. Aaa 7.00 7/01/12 1,575 1,665,704
Ser. A, M.B.I.A. Aaa 7.05 7/01/27 5,400 5,680,962
------------
11,631,978
- ------------------------------------------------------------------------------------------------------------------------------
Indiana--2.8%
Indiana Trans. Fin. Auth. Arpt. Facs., Lease Rev.,
A.M.B.A.C. Aaa 5.00 11/01/14 5,005 4,630,626
Marion Cnty. Hosp. Auth. Facs. Rev., A.M.B.A.C. Aaa 8.625 10/01/12 8,500 (c)(h) 9,440,780
------------
14,071,406
- ------------------------------------------------------------------------------------------------------------------------------
Louisiana--0.4%
New Orleans, Gen. Oblig., Cap. Apprec., A.M.B.A.C. Aaa Zero 9/01/09 4,000 2,021,360
</TABLE>
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 21
<PAGE>
Portfolio of Investments as PRUDENTIAL MUNICIPAL BOND FUND
of April 30, 1997 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>
- ------------------------------------------------------------------------------------------------------------------------------
Maryland--0.1%
Maryland St. Hlth. & Higher Edl. Facs. Auth. Rev., Loyola
College, Ser. A, M.B.I.A. Aaa 5.375% 10/01/26 $ 750 $ 715,380
- ------------------------------------------------------------------------------------------------------------------------------
Massachusetts--1.8%
Massachusetts Mun. Whsl. Elec. Co., Pwr. Supply Sys.
Rev., M.B.I.A. Aaa 4.75 7/01/10 2,000 1,823,800
Massachusetts St. Hlth. & Edl. Facs. Auth. Rev.,
Baystate Med. Ctr., Ser. E, F.S.A. Aaa 6.00 7/01/26 2,475 2,482,747
Mass. Gen. Hosp., Ser. F, A.M.B.A.C. Aaa 6.25 7/01/12 1,500 1,612,980
Massachusetts St. Wtr. Res. Auth., Ser. B, M.B.I.A. Aaa 6.25 12/01/13 2,905 3,139,898
------------
9,059,425
- ------------------------------------------------------------------------------------------------------------------------------
Michigan--3.5%
Detroit Swr. Disp. Rev., Ser. 1993A, F.G.I.C. Aaa 7.212 7/01/23 6,500 (d)(h) 5,931,250
Michigan St. Hosp. Fin. Auth. Rev.,
Mid. Michigan Oblig., M.B.I.A. Aaa 7.50 6/01/15 2,350 2,546,460
Sisters Of Mercy, M.B.I.A. Aaa 5.25 8/15/21 1,650 1,502,457
Monroe Cnty. Poll. Ctrl. Rev., Detroit Edison Co., Proj.
1, Ser. I, A.M.B.A.C. Aaa 7.30 9/01/19 3,250 3,500,218
Saginaw Hosp. Fin. Auth., St. Luke's Hosp., Ser. C,
M.B.I.A. Aaa 6.50 7/01/11 4,000 4,263,120
------------
17,743,505
- ------------------------------------------------------------------------------------------------------------------------------
Mississippi--0.5%
Harrison Cnty. Wste. Wtr. Mgmt. Dist. Rev., Wste. Wtr.
Treatmt., Facs. Auth., F.G.I.C. Aaa 6.50 2/01/06 2,400 2,567,424
- ------------------------------------------------------------------------------------------------------------------------------
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 1,554,525
- ------------------------------------------------------------------------------------------------------------------------------
Montana--0.4%
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 2,169,080
</TABLE>
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 22
<PAGE>
Portfolio of Investments as PRUDENTIAL MUNICIPAL BOND FUND
of April 30, 1997 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--6.2%
Jersey City Swr. Auth.,
A.M.B.A.C. Aaa 6.00% 1/01/10 $ 2,585 $ 2,737,954
A.M.B.A.C. Aaa 6.25 1/01/14 4,255 4,575,785
New Jersey Econ. Dev. Auth.,
Mkt. Trans. Facs. Rev., M.B.I.A. Aaa 5.875 7/01/11 9,990 10,256,034
Mkt. Trans. Facs. Rev., Sr. Lien, M.B.I.A. Aaa 5.80 7/01/09 3,340 3,426,105
New Jersey St. Tpke. Auth. Rev., Ser. A, A.M.B.A.C. Aaa 5.80 1/01/02 5,000 5,181,200
Salem Cnty. Ind. Poll. Fin. Auth. Rev., M.B.I.A. Aaa 6.20 8/01/30 5,000 5,177,300
------------
31,354,378
- ------------------------------------------------------------------------------------------------------------------------------
New Mexico--0.9%
Santa Fe Util. Rev., Ser. A, A.M.B.A.C. Aaa 8.00 6/01/07 3,695 4,482,626
- ------------------------------------------------------------------------------------------------------------------------------
New York--10.9%
Erie Cnty. Wtr. Auth. Rev., A.M.B.A.C. Aaa Zero 12/01/17 770 176,484
Hempstead Ind. Dev. Agcy. Res., Rec. Rev., M.B.I.A. Aaa 5.00 12/01/09 5,000 4,805,550
Islip Res. Rec., Ser. B, A.M.B.A.C. Aaa 7.20 7/01/10 1,750 2,018,853
Met. Trans. Auth. Trans. Facs. Rev., F.S.A. Aaa 5.75 7/01/11 5,000 5,052,950
New York City,
Ser. B, F.G.I.C. Aaa 5.875 8/15/12 7,000 7,111,930
Ser. D, M.B.I.A. Aaa 6.20 2/01/07 8,520 9,070,562
Ser. G, M.B.I.A. Aaa 5.75 2/01/14 3,000 2,980,590
New York St. Dorm. Auth. Rev., Montefiore Med. Ctr.,
A.M.B.A.C. Aaa 6.00 8/01/08 3,400 3,596,486
New York St. Envir. Facs. Corp.,
Poll. Ctrl. Rev. Aaa 5.70 7/15/12 3,375 3,412,429
Poll. Ctrl. Rev. Aaa 5.75 7/15/13 1,060 1,071,723
Poll. Ctrl. Rev. Aaa 5.80 7/15/14 3,755 3,801,224
Port Auth. New York & New Jersey Cons., Ser. 99, F.G.I.C. Aaa 5.90 11/01/11 7,665 7,855,782
Port Auth. New York & New Jersey Spec. Oblig. Rev., JFK
Int'l. Arpt. Term. No. 6, M.B.I.A. Aaa 5.75 12/01/25 4,750 (g) 4,623,270
------------
55,577,833
- ------------------------------------------------------------------------------------------------------------------------------
Ohio--0.8%
Franklin Cnty. Children's Hosp. Proj., M.B.I.A. Aaa 5.875 11/01/25 1,000 1,002,720
Hamilton Cnty. Swr. Sys. Rev. & Impvt., Ser. A, F.G.I.C. Aaa 5.50 12/01/17 3,000 2,924,130
------------
3,926,850
</TABLE>
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 23
<PAGE>
Portfolio of Investments as PRUDENTIAL MUNICIPAL BOND FUND
of April 30, 1997 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--1.3%
Grand Rvr. Dam Auth., A.M.B.A.C. Aaa 6.25% 6/01/11 $ 6,000 $ 6,522,960
- ------------------------------------------------------------------------------------------------------------------------------
Pennsylvania--2.0%
No. Umberland Cnty. Lease Auth. Rev., Correctional Facs.,
M.B.I.A. Aaa Zero 10/15/10 7,500 3,575,850
Pennsylvania St. Ind. Dev. Auth. Rev., Econ. Dev.,
A.M.B.A.C. Aaa 6.00 7/01/06 3,000 3,184,260
Philadelphia Mun. Auth. Rev., Criminal Justice Ctr., Ser.
A, M.B.I.A. Aaa 6.90 11/15/03 3,000 3,305,220
------------
10,065,330
- ------------------------------------------------------------------------------------------------------------------------------
Puerto Rico--4.8%
Puerto Rico Gen. Oblig.,
M.B.I.A. Aaa 5.50 7/01/01 7,450 7,669,924
M.B.I.A. Aaa 6.25 7/01/13 1,250 1,357,863
Pub. Impvt., Ser. B, A.M.B.A.C. Aaa 5.50 7/01/03 5,700 5,873,679
Puerto Rico Pub. Bldgs. Auth. Rev., Gov't. Facs., Ser. A,
A.M.B.A.C. Aaa 6.25 7/01/13 1,700 1,846,693
Puerto Rico Tel. Auth. Rev.,
Ser. I, M.B.I.A. Aaa 6.667 1/25/07 4,100 (d) 4,115,375
Ser. I, M.B.I.A. Aaa 6.56 1/16/15 3,800 (d) 3,581,500
------------
24,445,034
- ------------------------------------------------------------------------------------------------------------------------------
Rhode Island--0.5%
Rhode Island St. Hlth. & Edl. Bldg. Corp., Rev., M.B.I.A. Aaa 5.625 6/01/26 2,500 2,401,450
- ------------------------------------------------------------------------------------------------------------------------------
South Carolina--0.7%
So. Carolina Pub. Serv. Auth. Rev., Ser. A, A.M.B.A.C. Aaa 6.25 1/01/03 3,390 3,601,807
- ------------------------------------------------------------------------------------------------------------------------------
Tennessee--1.0%
Metro. Gov't. Nashville & Davidson Cnty. Wtr. & Swr.
Rev., A.M.B.A.C. Aaa 8.124 1/01/22 5,000 (c) 5,056,250
- ------------------------------------------------------------------------------------------------------------------------------
Texas--10.3%
Austin Comb. Util. Sys. Rev., Ser. A, M.B.I.A. Aaa 4.875 11/15/10 5,500 5,134,745
Austin Util. Sys. Rev., M.B.I.A. Aaa Zero 5/15/03 8,000 5,918,720
Bexar Cnty. Hlth. Facs. Dev. Corp. Rev., F.S.A. Aaa 6.10 11/15/23 12,230 12,362,207
Brazos Rvr. Auth. Rev., Houston Lt. & Pwr., Ser. B, 1st.
Mtge, F.G.I.C. Aaa 7.20 12/01/18 1,000 1,074,340
Houston Arpt. Sys. Rev. Aaa 7.20 7/01/13 3,900 4,462,575
</TABLE>
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 24
<PAGE>
Portfolio of Investments as PRUDENTIAL MUNICIPAL BOND FUND
of April 30, 1997 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.)
Houston Arpt. Sys. Rev., Spec. Facs. People Mover, Ser.
A, F.S.A. Aaa 6.00% 7/15/05 $ 3,255 $ 3,395,974
Keller Ind. Sch. Dist., P.S.F.G. Aaa Zero 8/15/15 4,945 1,704,047
New Braunfels Ind. Sch. Dist., Gen. Oblig., P.S.F.G Aaa Zero 2/01/07 2,000 1,188,300
Round Rock Ind. Sch. Dist., Gen. Oblig., M.B.I.A. Aaa Zero 8/15/11 4,300 1,920,552
San Antonio Hotel Occ. Rev., Henry B. Gonzalez Conv.,
F.G.I.C. Aaa 5.70 8/15/26 2,100 2,064,552
Texas St. Mun. Pwr. Agcy. Rev.,
M.B.I.A. Aaa Zero 9/01/13 12,300 4,818,279
M.B.I.A. Aaa Zero 9/01/14 10,000 3,667,800
Texas St. Pub. Fin. Auth. Bldg. Rev., M.B.I.A. Aaa Zero 2/01/14 6,900 2,617,653
Texas Wtr. Res. Fin. Auth. Rev., A.M.B.A.C. Aaa 7.50 8/15/13 1,985 2,106,442
------------
52,436,186
- ------------------------------------------------------------------------------------------------------------------------------
Virginia--2.9%
Chesapeake Bay Brdg. & Tunn. Comm., Dist. Rev., F.G.I.C. Aaa 5.875 7/01/10 5,000 5,165,750
Riverside Reg'l. Jail Auth. Rev., M.B.I.A. Aaa 6.00 7/01/25 6,750 6,846,795
Virginia Beach Hosp. Facs. Rev.,
1st Mtge., A.M.B.A.C. Aaa 6.00 2/15/10 1,220 1,288,027
1st Mtge., A.M.B.A.C. Aaa 6.00 2/15/13 1,455 1,523,123
------------
14,823,695
- ------------------------------------------------------------------------------------------------------------------------------
Washington--4.5%
Clark Cnty. Pub. Util. Dist., F.G.I.C. Aaa 6.00 1/01/08 3,000 3,169,200
Washington St. Hlthcare Facs. Auth. Rev., Yakima Valley
Memorial Hosp. Assoc. AAA(b) 5.25 12/01/20 2,500 2,288,400
Washington St. Pub. Pwr. Supply Sys.,
Nuclear Proj. No. 1, Ser. A, M.B.I.A. Aaa 5.75 7/01/10 7,000 7,051,030
Nuclear Proj. No. 2, Ser. A, M.B.I.A. Aaa Zero 7/01/11 5,210 2,311,000
Nuclear Proj. No. 2, Ser. B, F.G.I.C. Aaa 7.25 7/01/03 3,000 3,266,010
Nuclear Proj. No. 3, Ser. B, F.G.I.C. Aaa 7.00 7/01/05 2,000 2,144,600
Nuclear Proj. No. 3, Ser. B, F.G.I.C. Aaa Zero 7/01/08 4,500 2,425,635
------------
22,655,875
------------
Total long-term investments (cost $475,346,078) 485,171,625
------------
SHORT-TERM INVESTMENTS--3.2%
- ------------------------------------------------------------------------------------------------------------------------------
Nevada--0.6%
Washoe Cnty. Wtr. Facs. Rev., Sierra Pac. Pwr. Co., Ser.
90, F.R.D.D. P1 4.10 5/01/97 2,800 2,800,000
</TABLE>
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 25
<PAGE>
Portfolio of Investments as PRUDENTIAL MUNICIPAL BOND FUND
of April 30, 1997 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--1.2%
Brazos Rvr. Auth., Tx. Utils. Elec. Co., Ser. 96A,
F.R.D.D. VMIG1 4.10% 5/01/97 $ 1,300 $ 1,300,000
Gulf Coast Ind. Dev. Auth., CITGO Petroleum, Ser. 95,
F.R.D.D. VMIG1 4.15 5/01/97 4,800 4,800,000
------------
6,100,000
- ------------------------------------------------------------------------------------------------------------------------------
Virginia--1.4%
King George Cnty. Ind. Dev. Auth.,
Birchwood Pwr. Proj., Ser. 94A, F.R.D.D. A1+(b) 4.15 5/01/97 4,050 4,050,000
Birchwood Pwr. Proj., Ser. 94B, F.R.D.D. A1+(b) 4.15 5/01/97 3,200 3,200,000
------------
7,250,000
------------
Total short-term investments (cost $16,150,000) 16,150,000
------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investments--98.8%
(cost $491,496,078; Note 4) 501,321,625
Other assets in excess of liabilities--1.2% 5,996,793
------------
Net Assets--100% $507,318,418
------------
------------
</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(f)
F.S.A.--Financial Security Assurance
M.B.I.A.--Municipal Bond Insurance Association
P.S.F.G.--Public School Fund Guaranty
(b) Standard & Poor's rating.
(c) Prerefunded issues are secured by escrowed cash and direct U.S.
guaranteed obligations.
(d) Inverse floating rate bond. The coupon is inversely indexed to
a floating interest rate. The rate shown is the rate at year
end.
(e) Principal amount pledged as initial margin on financial
futures contracts.
(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) When-issued security.
(h) Segregated as collateral for when-issued security.
The Fund's current Prospectus contains a description of Moody's and Standard &
Poor's ratings.
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 26
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Statement of Assets and Liabilities INSURED SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets April 30, 1997
<S> <C>
Investments, at value (cost $491,496,078)................................................................... $501,321,625
Cash........................................................................................................ 49,165
Interest receivable......................................................................................... 7,089,171
Receivable for investments sold............................................................................. 5,401,394
Receivable for Series shares sold........................................................................... 99,460
Other assets................................................................................................ 9,995
--------------
Total assets............................................................................................. 513,970,810
--------------
Liabilities
Payable for investments purchased........................................................................... 4,655,893
Dividends payable........................................................................................... 676,849
Payable for Series shares reacquired........................................................................ 520,587
Accrued expenses............................................................................................ 289,470
Management fee payable...................................................................................... 189,854
Due to broker - variation margin............................................................................ 178,749
Distribution fee payable.................................................................................... 140,990
--------------
Total liabilities........................................................................................ 6,652,392
--------------
Net Assets.................................................................................................. $507,318,418
--------------
--------------
Net assets were comprised of:
Shares of beneficial interest, at par.................................................................... $ 465,017
Paid-in capital in excess of par......................................................................... 491,427,700
--------------
491,892,717
Accumulated net realized gain on investments............................................................. 5,791,841
Net unrealized appreciation of investments............................................................... 9,633,860
--------------
Net assets, April 30, 1997.................................................................................. $507,318,418
--------------
--------------
Class A:
Net asset value and redemption price per share
($208,410,644 / 19,114,835 shares of beneficial interest issued and outstanding)...................... $10.90
Maximum sales charge (3.0% of offering price)............................................................ .34
--------------
Maximum offering price to public......................................................................... $11.24
--------------
--------------
Class B:
Net asset value, offering price and redemption price per share
($298,004,619 / 27,304,141 shares of beneficial interest issued and outstanding)...................... $10.91
--------------
--------------
Class C:
Net asset value, offering price and redemption price per share
($888,071 / 81,368 shares of beneficial interest issued and outstanding).............................. $10.91
--------------
--------------
Class Z:
Net asset value, offering price and redemption price per share
($15,084 / 1,383 shares of beneficial interest issued and outstanding)................................ $10.91
--------------
--------------
</TABLE>
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 27
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
INSURED SERIES
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income April 30, 1997
<S> <C>
Income
Interest.................................. $ 31,173,544
--------------
Expenses
Management fee............................ 2,771,203
Distribution fee--Class A................. 187,371
Distribution fee--Class B................. 1,829,455
Distribution fee--Class C................. 7,299
Transfer agent's fees and expenses........ 359,000
Reports to shareholders................... 149,000
Custodian's fees and expenses............. 96,000
Registration fees......................... 81,000
Insurance expense......................... 16,000
Audit fee................................. 15,000
Trustees' fees and expenses............... 15,000
Legal fees and expenses................... 11,000
Miscellaneous............................. 4,952
--------------
Total expenses......................... 5,542,280
Less: Management fee waiver............... (277,120)
Custodian fee credit................... (3,508)
--------------
Net expenses........................... 5,261,652
--------------
Net investment income........................ 25,911,892
--------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions................... 13,420,738
Financial futures contract transactions... (1,289,716)
--------------
12,131,022
--------------
Net change in unrealized
depreciation on:
Investments............................... (7,246,767)
Financial futures contracts............... (466,687)
--------------
(7,713,454)
--------------
Net gain on investments...................... 4,417,568
--------------
Net Increase in Net Assets
Resulting from Operations.................... $ 30,329,460
--------------
--------------
</TABLE>
<TABLE>
PRUDENTIAL MUNICIPAL BOND FUND
INSURED SERIES
Statement of Changes in Net Assets
- ------------------------------------------------------------
<CAPTION>
Increase (Decrease) Year Ended April 30,
in Net Assets 1997 1996
<S> <C> <C>
Operations
Net investment income........ $ 25,911,892 $ 30,538,085
Net realized gain on
investment transactions... 12,131,022 14,627,600
Net change in unrealized
depreciation of
investments............... (7,713,454) (6,381,895)
------------- -------------
Net increase in net assets
resulting from
operations................ 30,329,460 38,783,790
------------- -------------
Dividends and distributions
(Note 1):
Dividends from net investment
income
Class A................... (9,267,489) (5,328,224)
Class B................... (16,602,381) (25,172,135)
Class C................... (41,775) (37,726)
Class Z................... (247) --
------------- -------------
(25,911,892) (30,538,085)
------------- -------------
Dividends in excess of net
investment income
Class A................... (117,523) (34,680)
Class B................... (180,111) (153,181)
Class C................... (467) (265)
Class Z................... -- --
------------- -------------
(298,101) (188,126)
------------- -------------
Distributions from net
capital gains
Class A................... (2,135,002) --
Class B................... (3,272,015) --
Class C................... (8,473) --
Class Z................... (2) --
------------- -------------
(5,415,492) --
------------- -------------
Series share transactions (net
of
share conversions) (Note 5):
Net proceeds from shares
subscribed................ 201,450,948 50,187,534
Net asset value of shares
issued in reinvestment of
dividends and
distributions............. 17,841,830 17,105,830
Cost of shares reacquired.... (294,754,828) (135,247,446)
------------- -------------
Net decrease in net assets
from Series share
transactions.............. (75,462,050) (67,954,082)
------------- -------------
Total decrease.................. (76,758,075) (59,896,503)
Net Assets
Beginning of year............... 584,076,493 643,972,996
------------- -------------
End of year..................... $ 507,318,418 $ 584,076,493
------------- -------------
------------- -------------
</TABLE>
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 28
<PAGE>
Portfolio of Investments as PRUDENTIAL MUNICIPAL BOND FUND
of April 30, 1997 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--97.6%
- ------------------------------------------------------------------------------------------------------------------------------
Alaska--4.6%
Alaska Ind. Dev. & Expt. Auth., Revolving Loan Fund A(b) 5.40% 4/01/01 $ 1,000 $ 1,003,380
No. Slope Boro., Gen. Oblig., Ser. C Baa1 8.35 6/30/98 1,000 1,045,640
------------
2,049,020
- ------------------------------------------------------------------------------------------------------------------------------
Arizona--2.3%
Pima Cnty. Ind. Dev. Auth., Ref. Insrd. Hlthpart., Ser. A,
M.B.I.A. Aaa 5.125 4/01/05 1,000 1,000,280
- ------------------------------------------------------------------------------------------------------------------------------
Connecticut--2.5%
Conn. Spec. Tax Oblig. Rev., Ser. A A1(b) 7.00 6/01/03 1,000 (c) 1,089,710
- ------------------------------------------------------------------------------------------------------------------------------
District Of Columbia--1.6%
Dist. of Columbia Rev., America Geophysical Union, Ser.
199 BBB-(b) 5.50 9/01/03 700 695,149
- ------------------------------------------------------------------------------------------------------------------------------
Florida--5.7%
Dade Cnty. Pub. Facs. Rev., Jackson Mem. Hosp., Ser. A,
M.B.I.A. Aaa 4.75 6/01/08 1,000 944,670
Dade Cnty. Sch. Dist., Gen. Oblig., M.B.I.A. Aaa 6.00 7/15/06 1,500 1,599,225
------------
2,543,895
- ------------------------------------------------------------------------------------------------------------------------------
Georgia--2.5%
Burke Cnty. Dev. Auth., Oglethorpe Pwr. Co., M.B.I.A. Aaa 7.50 1/01/03 1,000 1,090,040
- ------------------------------------------------------------------------------------------------------------------------------
Illinois--1.0%
Illinois Hlth. Facs. Auth. Rev., Edward Hosp., Ser. A A(b) 5.75 2/15/09 450 440,541
- ------------------------------------------------------------------------------------------------------------------------------
Maryland--2.3%
Maryland St. Stadium Auth. Lease Rev., Conv. Ctr.
Expansion, A.M.B.A.C. Aaa 5.375 12/15/00 1,000 1,023,870
- ------------------------------------------------------------------------------------------------------------------------------
Massachusetts--2.2%
Mass. St. Spec. Oblig. Rev., Ser. A, A.M.B.A.C. Aaa 5.25 6/01/09 1,000 992,010
</TABLE>
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 29
<PAGE>
Portfolio of Investments as PRUDENTIAL MUNICIPAL BOND FUND
of April 30, 1997 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>
- ------------------------------------------------------------------------------------------------------------------------------
Michigan--3.3%
Battle Creek Wtr. Supp. Sys. Rev. Ref., A.M.B.A.C. Aaa 4.75% 9/01/10 $ 1,000 $ 915,530
Michigan Mun. Bond Auth. Rev., Wayne Cnty. Proj., M.B.I.A. Aaa 7.40 12/01/02 500 545,730
------------
1,461,260
- ------------------------------------------------------------------------------------------------------------------------------
New Jersey--15.7%
Brick Twnshp., Mun. Util. Auth. Rev., F.G.I.C. Aaa 5.50 12/01/03 1,295 1,333,824
New Jersey Econ. Dev. Auth. Rev.,
Mkt. Trans. Facs. Rev., M.B.I.A. Aaa 5.75 7/01/06 950 986,242
Mkt. Trans. Facs. Rev., M.B.I.A. Aaa 5.80 7/01/07 1,000 1,044,870
Performing Arts Ctr., A.M.B.A.C. Aaa 6.00 6/15/08 1,410 1,504,287
So. Reg'l. High Sch. Dist., M.B.I.A. Aaa 5.50 9/01/06 1,010 1,041,906
West Windsor Plainsboro Sch., F.G.I.C. Aaa 5.25 12/01/05 1,000 1,016,540
------------
6,927,669
- ------------------------------------------------------------------------------------------------------------------------------
New York--14.4%
Hempstead Twn. Ind. Dev. Agcy. Res., Rec. Rev., M.B.I.A. Aaa 5.00 12/01/09 1,000 961,110
Met. Trans. Auth. N.Y. Trans. Facs. Rev., F.S.A. Aaa 5.75 7/01/11 675 682,148
Nassau Cnty., Gen. Impvt., Ser. U, A.M.B.A.C. Aaa 5.125 11/01/03 2,000 2,015,940
New York St. Env. Facs. Corp., Poll. Ctrl. Rev. Aaa 5.80 1/15/14 1,280 1,295,757
New York St. Urban Dev. Corp. Rev. Baa1 5.25 1/01/11 1,500 1,405,245
------------
6,360,200
- ------------------------------------------------------------------------------------------------------------------------------
Ohio--3.4%
Cuyahoga Cnty. Hosp. Rev., Ref. & Impt. Met. Hlth. Sys.
Proj., M.B.I.A. Aaa 5.375 2/15/12 1,000 973,560
Ohio St. Bldg. Auth., Admin. Bldg. Fund Proj., M.B.I.A. Aaa 5.60 10/01/06 500 516,980
------------
1,490,540
- ------------------------------------------------------------------------------------------------------------------------------
Oklahoma--5.3%
Oklahoma St. Ind. Auth. Rev. Hlth. Sys., Integris Bapt.,
A.M.B.A.C. Aaa 6.00 8/15/09 2,240 2,347,050
- ------------------------------------------------------------------------------------------------------------------------------
Oregon--2.3%
Multnomah Cnty. Sch. Dist. No.3, Park Rose, F.G.I.C. Aaa 5.60 12/01/07 1,000 1,031,560
</TABLE>
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 30
<PAGE>
Portfolio of Investments as PRUDENTIAL MUNICIPAL BOND FUND
of April 30, 1997 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>
- ------------------------------------------------------------------------------------------------------------------------------
Pennsylvania--7.4%
Montgomery Cnty. Redev. Auth., Multifam. Hsg. Rev., Ser. A NR 5.75% 7/01/99 $ 780 $ 783,237
Pennsylvania St. Ctfs. of Part., Ser. A, F.S.A. Aaa 6.25 11/01/06 600 635,766
Pennsylvania St. Higher Edl. Facs. Auth., Hlth. Svs. Rev.,
M.B.I.A. Aaa 5.70 11/15/11 755 764,672
Philadelphia Hosp. Auth. & Higher Edl. Auth., Childrens
Seashore House, Ser. A A-(b) 7.00 8/15/03 1,000 1,083,180
------------
3,266,855
- ------------------------------------------------------------------------------------------------------------------------------
Puerto Rico--1.8%
Puerto Rico, Gen. Oblig., Ser. A, M.B.I.A. Aaa 6.25 7/01/10 750 792,457
- ------------------------------------------------------------------------------------------------------------------------------
Rhode Island--2.4%
Rhode Island St., Ref. Cons. Cap. Dev. Loan, M.B.I.A. Aaa 6.00 8/01/06 1,000 1,061,850
- ------------------------------------------------------------------------------------------------------------------------------
Texas--7.8%
Austin Util. Sys. Rev. Comb., Ser. A, M.B.I.A. Aaa 4.875 11/15/10 1,830 1,708,469
Gulf Coast Wste. Disp. Auth. Rev., Bayport Area Sys.,
F.S.A. Aaa 5.50 10/01/10 1,075 1,068,905
San Antonio Elec. & Gas Rev., Ser. A, F.G.I.C. Aaa Zero 2/01/05 1,000 669,130
------------
3,446,504
- ------------------------------------------------------------------------------------------------------------------------------
Utah--2.4%
Utah St. Brd. of Regents, Student Loan Rev., Ser. F,
A.M.B.A.C. Aaa 7.00 11/01/01 1,000 (e) 1,071,440
- ------------------------------------------------------------------------------------------------------------------------------
Washington--6.7%
Wash. St. Pub. Pwr. Supp. Sys.,
Nuclear Proj. No. 2, Ser. A Aa1 4.90 7/01/05 2,000 1,932,960
Nuclear Proj. No. 3, Ser. B Aa1 7.00 7/01/99 1,000 1,046,190
------------
2,979,150
------------
Total long-term investments (cost $42,725,811) 43,161,050
------------
</TABLE>
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 31
<PAGE>
Portfolio of Investments as PRUDENTIAL MUNICIPAL BOND FUND
of April 30, 1997 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>
- ------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS--1.4%
- ------------------------------------------------------------------------------------------------------------------------------
Texas--1.4%
Brazos River Auth. Poll. Ctrl. Rev., Texas Util. Elec.
Co., Ser. 95A, F.R.D.D. VMIG1 4.10% 5/01/97 $ 600 $ 600,000
------------
Total short-term investments (cost $600,000) 600,000
------------
Total Investments--99.0%
(cost $ 43,325,811; Note 4) 43,761,050
Other assets in excess of liabilities--1.0% 462,202
------------
Net Assets--100% $ 44,223,252
------------
------------
</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 (d)
F.S.A.--Financial Security Assurance
M.B.I.A.--Municipal Bond Insurance Association
(b) Standard & Poor's Rating.
(c) Prerefunded issues are secured by escrowed cash and direct
U.S. guaranteed obligations.
(d) 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.
(e) 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. 32
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Statement of Assets and Liabilities INTERMEDIATE SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets April 30, 1997
<S> <C>
Investments, at value (cost $43,325,811).................................................................... $ 43,761,050
Interest receivable......................................................................................... 804,103
Receivable for Series shares sold........................................................................... 465
Other assets................................................................................................ 936
--------------
Total assets............................................................................................. 44,566,554
--------------
Liabilities
Bank overdraft.............................................................................................. 13,996
Payable for Series shares reacquired........................................................................ 148,479
Accrued expenses............................................................................................ 84,773
Dividends payable........................................................................................... 49,611
Management fee payable...................................................................................... 16,538
Due to broker - variation margin............................................................................ 16,200
Distribution fee payable.................................................................................... 13,705
--------------
Total liabilities........................................................................................ 343,302
--------------
Net Assets.................................................................................................. $ 44,223,252
--------------
--------------
Net assets were comprised of:
Shares of beneficial interest, at par.................................................................... $ 41,764
Paid-in capital in excess of par......................................................................... 43,580,830
--------------
43,622,594
Accumulated net realized gain on investments............................................................. 152,513
Net unrealized appreciation on investments............................................................... 448,145
--------------
Net assets, April 30, 1997.................................................................................. $ 44,223,252
--------------
--------------
Class A:
Net asset value and redemption price per share
($13,740,343 / 1,297,928 shares of beneficial interest issued and outstanding)........................ $10.59
Maximum sales charge (3% of offering price).............................................................. .33
--------------
Maximum offering price to public......................................................................... $10.92
--------------
--------------
Class B:
Net asset value, offering price and redemption price per share
($29,979,941 / 2,830,936 shares of beneficial interest issued and outstanding)........................ $10.59
--------------
--------------
Class C:
Net asset value, offering price and redemption price per share
($257,180 / 24,285 shares of beneficial interest issued and outstanding).............................. $10.59
--------------
--------------
Class Z:
Net asset value, offering price and redemption price per share
($245,788 / 23,211 shares of beneficial interest issued and outstanding).............................. $10.59
--------------
--------------
</TABLE>
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 33
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
INTERMEDIATE SERIES
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income April 30, 1997
<S> <C>
Income
Interest.................................. $2,661,312
--------------
Expenses
Management fee............................ 244,485
Distribution fee--Class A................. 13,487
Distribution fee--Class B................. 176,107
Distribution fee--Class C................. 1,121
Reports to shareholders................... 83,000
Custodian's fees and expenses............. 69,000
Registration fees......................... 54,000
Transfer agent's fees and expenses........ 41,000
Trustees' fees and expenses............... 15,000
Audit fee................................. 15,000
Legal fees and expenses................... 10,000
Miscellaneous............................. 6,289
--------------
Total expenses......................... 728,489
Less: Management fee waiver............... (24,449)
Custodian fee credit................... (957)
--------------
Net expenses........................... 703,083
--------------
Net investment income........................ 1,958,229
--------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions................... 641,986
Financial futures contract transactions... (163,950)
--------------
478,036
--------------
Net change in unrealized
appreciation (depreciation) on:
Investments............................... (713,512)
Financial futures contracts............... 13,843
--------------
(699,669)
--------------
Net loss on investments...................... (221,633)
--------------
Net Increase in Net Assets
Resulting from Operations.................... $1,736,596
--------------
--------------
</TABLE>
<TABLE>
PRUDENTIAL MUNICIPAL BOND FUND
INTERMEDIATE SERIES
Statement of Changes in Net Assets
- ------------------------------------------------------------
<CAPTION>
Increase (Decrease) Year Ended April 30,
in Net Assets 1997 1996
<S> <C> <C>
Operations
Net investment income........... $ 1,958,229 $ 2,384,372
Net realized gain on investment
transactions................. 478,036 636,281
Net change in unrealized
appreciation
(depreciation) of
investments.................. (699,669) 613,155
----------- ------------
Net increase in net assets
resulting from operations.... 1,736,596 3,633,808
----------- ------------
Dividends and distributions (Note
1):
Dividends from net investment
income
Class A...................... (579,475) (549,044)
Class B...................... (1,371,478) (1,828,010)
Class C...................... (5,456) (7,318)
Class Z...................... (1,820) --
----------- ------------
(1,958,229) (2,384,372)
----------- ------------
Distributions in excess of net
investment income
Class A...................... (9,615) --
Class B...................... (22,423) --
Class C...................... (75) --
Class Z...................... (3) --
----------- ------------
(32,116) --
----------- ------------
Series share transactions (net of
share conversions) (Note 5):
Net proceeds from shares
subscribed................... 5,261,896 5,139,324
Net asset value of shares issued
in reinvestment of
dividends.................... 1,242,265 1,485,489
Cost of shares reacquired....... (15,354,228) (16,260,658)
----------- ------------
Net decrease in net assets from
Series share transactions.... (8,850,067) (9,635,845)
----------- ------------
Total decrease..................... (9,103,816) (8,386,409)
Net Assets
Beginning of year.................. 53,327,068 61,713,477
----------- ------------
End of year........................ $44,223,252 $ 53,327,068
----------- ------------
----------- ------------
</TABLE>
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 34
<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. Investment operations for Class A,
Class B, Class C and Class Z shares of each series commenced on January 22,
1990, September 17, 1987, August 1, 1994 and September 16, 1996, 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.
- ------------------------------------------------------------
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 with respect to securities 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 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 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. The Fund amortizes premiums and accretes original issue discount
on portfolio securities as adjustments to interest income. Net investment
income, other than distribution fees, and realized and unrealized gains or
losses are allocated daily to each class of shares based upon the relative
proportion of net assets of each class at the
- --------------------------------------------------------------------------------
-----
35
<PAGE>
Notes to Financial Statements PRUDENTIAL MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
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, 1997, the effect of applying this statement was
to increase undistributed net investment income by $123,008, increase
accumulated net realized loss by $131,486 and increase paid-in capital in excess
of par by $8,478 for the High Yield Series. For the Insured Series, the effect
of applying this statement was to increase undistributed net investment income
and decrease accumulated net realized gain by $298,101. The effect of applying
this statement for the Intermediate Series was to increase undistributed net
investment income by $32,116, decrease accumulated net realized gain by $32,022
and decrease paid-in capital in excess of par by $94. The current year effect of
applying the Statement of Position was due to the sale of securities purchased
with market discount. Net investment income, net realized gains and net assets
were not affected by this change.
Custody Fee Credits: The Fund has an arrangement with its custodian bank,
whereby uninvested monies earn credits which reduce the fees charged by the
custodian.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential Investments Fund Management
LLC ('PIFM'). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PIFM 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. PIFM 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 PIFM 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 assets of each series in excess
of $1 billion. PIFM has agreed to voluntarily waive a portion of each Series'
management fee, which amounted to $514,371, $277,120, and $24,449 for the High
Yield Series, Insured Series, and Intermediate Series, respectively for the year
ended April 30, 1997. Such amounts represented .05 of 1% of average daily net
assets for each Series or $.006 per share.
The Fund has a distribution agreement with Prudential Securities Incorporated
('PSI'), which acts as the distributor of the Class A, Class B, Class C and
Class Z shares of the Fund. The Fund compensates 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 PSI. The distribution fees are accrued daily and payable monthly. No
distribution or service fees are paid to PSI as distributor of the Class Z
shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensates PSI 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, 1997.
PSI has advised the Fund that it received approximately $303,500 ($210,200-High
Yield Series; $88,800-Insured Series; $4,500-Intermediate Series) in front-end
sales charges resulting from sales of Class A shares during the year ended April
30, 1997. From these fees, PSI paid such sales charges to 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, 1997, it received
approximately $1,940,800 ($1,204,200-High Yield Series; $649,600-Insured Series;
$87,000-Intermediate Series) in contingent deferred sales charges imposed upon
certain redemptions by Class B and C shareholders.
PSI, PIC and PIFM are indirect, wholly-owned subsidiaries of The Prudential
Insurance Company of America.
- --------------------------------------------------------------------------------
-----
36
<PAGE>
Notes to Financial Statements PRUDENTIAL MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
The Fund, along with other affiliated registered investment companies (the
'Funds'), entered into a credit agreement (the 'Agreement') on December 31, 1996
with an unaffiliated lender. The maximum commitment under the Agreement is
$200,000,000. The Agreement expires on December 30, 1997. Interest on any such
borrowings outstanding will be at market rates. The purpose of the Agreement is
to serve as an alternative source of funding for capital share redemptions. The
Fund has not borrowed any amounts pursuant to the Agreement as of April 30,
1997. The Funds pay a commitment fee at an annual rate of .055 of 1% on the
unused portion of the credit facility. The commitment fee is accrued and paid
quarterly on a pro-rata basis by the Funds.
- ------------------------------------------------------------
Note 3. Other Transactions With Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly-owned subsidiary of PIFM,
serves as the Fund's transfer agent. During the year ended April 30, 1997, the
Fund incurred fees of approximately $653,000 ($370,500-High Yield Series;
$252,100-Insured Series; $30,400-Intermediate Series) for the services of PMFS.
As of April 30, 1997, approximately $53,200 ($30,700-High Yield Series;
$20,100-Insured Series; $2,400-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, 1997, were as follows:
<TABLE>
<CAPTION>
Series Purchases Sales
- -------------------------------- ------------ ------------
<S> <C> <C>
High Yield...................... $264,933,180 $305,927,926
Insured......................... 565,764,484 624,083,328
Intermediate.................... 21,414,325 30,041,885
</TABLE>
At April 30, 1997, the Insured Series and the Intermediate Series sold 517,000
and 47,000 financial futures contracts, respectively of U.S. Treasury Bonds
expiring in June 97.
The values of these financial futures contracts at April 30, 1997 were as
follows:
<TABLE>
<CAPTION>
Financial Futures
Contracts Sold
---------------------------
Insured Intermediate
Series Series
----------- ------------
<S> <C> <C>
Value at disposition............... $56,306,719 $ 5,149,125
Value at April 30, 1997............ 56,498,406 5,136,219
----------- ------------
Unrealized gain (loss)............. $ (191,687) $ 12,906
----------- ------------
----------- ------------
</TABLE>
The federal income tax basis of the Fund's investments, at April 30, 1997 was
$949,808,490-High Yield Series; $491,614,379-Insured Series; and
$43,325,811-Intermediate Series and, accordingly, net unrealized appreciation of
investments for federal income tax purposes was as follows:
<TABLE>
<CAPTION>
Gross Gross
Net unrealized unrealized unrealized
Series appreciation appreciation depreciation
- -------------------- -------------- ----------- -----------
<S> <C> <C> <C>
High Yield.......... $ 30,820,223 $54,840,506 $24,020,283
Insured............. 9,707,246 12,814,010 3,106,764
Intermediate........ 435,239 834,266 399,027
</TABLE>
The High Yield Series has a net capital loss carryforward as of April 30, 1997
of approximately $16,993,000, of which $2,024,000 expires in 2002, $5,361,000
expires in 2003, $6,383,000 expires in 2004 and $3,225,000 expires in 2005. No
capital gains distribution is expected to be paid to shareholders until net
gains have been realized in excess of the aggregate of such amounts. In
addition, the High Yield Series elected to treat net realized capital losses of
approximately $931,000 incurred in the six month period ended April 30, 1997, as
having been incurred in the following year. The Insured Series and Intermediate
Series utilized their capital loss carryforwards of approximately $631,000 and
$338,000, respectively, to partially offset each Series' net taxable gains
realized and recognized in the fiscal year ended April 30, 1997.
- ------------------------------------------------------------
Note 5. Capital
Each series offers Class A, Class B, Class C and Class Z 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 qualify to purchase Class A shares at net asset value.
Effective September 16, 1996, the Fund commenced offering Class Z shares. Class
Z shares are not subject to any sales or redemption charge and are offered
exclusively for sale to a limited group of investors.
- --------------------------------------------------------------------------------
-----
37
<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, 1997 Shares Amount Shares Amount Shares Amount
- -------------------------------- ----------- ------------- ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Shares issued................... 2,690,433 $ 29,194,209 17,268,103 $ 190,281,225 146,988 $ 1,570,573
Shares issued in reinvestment of
dividends and
distributions................ 816,257 8,853,738 562,530 6,209,882 33,834 360,674
Shares reacquired............... (5,951,712) (64,552,270) (20,358,917) (224,259,104) (505,221) (5,381,606)
----------- ------------- ----------- ------------- ---------- ------------
Net decrease in shares
outstanding before
conversion................... (2,445,022) (26,504,323) (2,528,284) (27,767,997) (324,399) (3,450,359)
Shares issued upon conversion
from Class B................. 12,411,968 133,842,041 8,887,896 97,509,503 443,554 4,710,903
----------- ------------- ----------- ------------- ---------- ------------
Net increase in shares
outstanding.................. 9,966,946 $ 107,337,718 6,359,612 $ 69,741,506 119,155 $ 1,260,544
----------- ------------- ----------- ------------- ---------- ------------
----------- ------------- ----------- ------------- ---------- ------------
<CAPTION>
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 B Class B Class B
---------------------------- ---------------------------- --------------------------
Year Ended April 30, 1997 Shares Amount Shares Amount Shares Amount
- -------------------------------- ----------- ------------- ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Shares issued................... 7,261,475 $ 78,657,488 991,206 $ 10,920,454 293,960 $ 3,134,459
Shares issued in reinvestment of
dividends and
distributions................ 1,747,161 18,927,857 1,049,549 11,593,012 82,134 875,459
Shares reacquired............... (9,901,712) (107,242,000) (6,341,050) (69,974,266) (909,089) (9,694,638)
----------- ------------- ----------- ------------- ---------- ------------
Net decrease in shares
outstanding before
conversion................... (893,076) (9,656,655) (4,300,295) (47,460,800) (532,995) (5,684,720)
Shares reacquired upon
conversion into Class A...... (12,411,968) (133,842,041) (8,879,800) (97,509,503) (443,243) (4,710,903)
----------- ------------- ----------- ------------- ---------- ------------
Net decrease in shares
outstanding.................. (13,305,044) $(143,498,696) (13,180,095) $(144,970,303) (976,238) $(10,395,623)
----------- ------------- ----------- ------------- ---------- ------------
----------- ------------- ----------- ------------- ---------- ------------
<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)
----------- ------------- ----------- ------------- ---------- ------------
----------- ------------- ----------- ------------- ---------- ------------
</TABLE>
- --------------------------------------------------------------------------------
-----
38
<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, 1997 Shares Amount Shares Amount Shares Amount
- -------------------------------- ----------- ------------- ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Shares issued................... 505,330 $ 5,472,765 21,265 $ 234,063 28,931 $ 311,189
Shares issued in reinvestment of
dividends and
distributions................ 28,059 304,264 3,510 38,759 436 4,639
Shares reacquired............... (256,031) (2,781,902) (47,234) (521,343) (26,221) (277,703)
----------- ------------- ----------- ------------- ---------- ------------
Net increase (decrease) in
shares outstanding........... 277,358 $ 2,995,127 (22,459) $ (248,521) 3,146 $ 38,125
----------- ------------- ----------- ------------- ---------- ------------
----------- ------------- ----------- ------------- ---------- ------------
<CAPTION>
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 Z Class Z Class Z
September 16, 1996(a) Through ---------------------------- ---------------------------- --------------------------
April 30, 1997 Shares Amount Shares Amount Shares Amount
- -------------------------------- ----------- ------------- ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Shares issued................... 287,958 $ 3,134,548 1,377 $ 15,206 23,097 $ 245,675
Shares issued in reinvestment of
dividends and
distributions................ 2,192 23,750 16 177 140 1,493
Shares reacquired............... (39,065) (425,418) (10) (115) (27) (281)
----------- ------------- ----------- ------------- ---------- ------------
Net increase in shares
outstanding.................. 251,085 $ 2,732,880 1,383 $ 15,268 23,210 $ 246,887
----------- ------------- ----------- ------------- ---------- ------------
----------- ------------- ----------- ------------- ---------- ------------
</TABLE>
- ---------------
(a) Commencement of offering of Class Z shares.
- --------------------------------------------------------------------------------
-----
39
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Financial Highlights HIGH YIELD SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Years Ended April 30,
----------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- ------- -------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year.................. $ 10.70 $ 10.72 $ 10.74 $ 11.14 $ 10.68
-------- -------- -------- ------- -------
Income from investment operations
Net investment income............................... .70 .72(b) .72(b) .72 .77
Net realized and unrealized gain (loss) on
investment transactions.......................... .14 (.02) (.02) (.39) .46
-------- -------- -------- ------- -------
Total from investment operations................. .84 .70 .70 .33 1.23
-------- -------- -------- ------- -------
Less distributions
Dividends from net investment income................ (.70) (.72) (.72) (.72) (.77)
Distributions from capital gains.................... -- -- -- (.01) --
-------- -------- -------- ------- -------
Total distributions.............................. (.70) (.72) (.72) (.73) (.77)
-------- -------- -------- ------- -------
Net asset value, end of year........................ $ 10.84 $ 10.70 $ 10.72 $ 10.74 $ 11.14
-------- -------- -------- ------- -------
-------- -------- -------- ------- -------
TOTAL RETURN(a):.................................... 8.03% 6.55% 6.90% 2.88% 11.90%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)....................... $334,062 $223,073 $115,501 $54,491 $43,529
Average net assets (000)............................ $294,940 $162,329 $ 65,207 $52,982 $31,658
Ratios to average net assets:
Expenses, including distribution fees............ 0.64%(b) 0.64%(b) 0.69%(b) 0.69% 0.74%
Expenses, excluding distribution fees............ 0.54%(b) 0.54%(b) 0.59%(b) 0.59% 0.64%
Net investment income............................ 6.44%(b) 6.58%(b) 6.83%(b) 6.42% 7.04%
For Class A, B, C and Z shares:
Portfolio turnover rate.......................... 26% 35% 39% 36% 27%
</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. Total returns for periods of less than a full year are not
annualized.
(b) Net of management fee waiver.
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 40
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Financial Highlights HIGH YIELD SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Years Ended April 30,
------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- ---------- ---------- ----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year.................. $ 10.69 $ 10.72 $ 10.74 $ 11.14 $ 10.68
-------- -------- ---------- ---------- ----------
Income from investment operations
Net investment income............................... .66(b) .68(b) .68(b) .68 .73
Net realized and unrealized gain (loss) on
investment transactions.......................... .15 (.03) (.02) (.39) .46
-------- -------- ---------- ---------- ----------
Total from investment operations................. .81 .65 .66 .29 1.19
-------- -------- ---------- ---------- ----------
Less distributions
Dividends from net investment income................ (.66) (.68) (.68) (.68) (.73)
Distributions from capital gains.................... -- -- -- (.01) --
-------- -------- ---------- ---------- ----------
Total distributions.............................. (.66) (.68) (.68) (.69) (.73)
-------- -------- ---------- ---------- ----------
Net asset value, end of year........................ $ 10.84 $ 10.69 $ 10.72 $ 10.74 $ 11.14
-------- -------- ---------- ---------- ----------
-------- -------- ---------- ---------- ----------
TOTAL RETURN(a):.................................... 7.71% 6.12% 6.37% 2.46% 11.47%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)....................... $665,525 $799,048 $ 934,725 $1,099,640 $1,028,480
Average net assets (000)............................ $725,305 $900,115 $1,024,132 $1,132,653 $ 893,203
Ratios to average net assets:
Expenses, including distribution fees............ 1.04%(b) 1.04%(b) 1.09%(b) 1.09% 1.14%
Expenses, excluding distribution fees............ 0.54%(b) 0.54%(b) 0.59%(b) 0.58% 0.64%
Net investment income............................ 6.05%(b) 6.19%(b) 6.37%(b) 6.02% 6.66%
</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. Total returns for periods of less than a full year are not
annualized.
(b) Net of management fee waiver.
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 41
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Financial Highlights HIGH YIELD SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C Class Z
-------------------------------------- -------------
August 1, September 16,
1994(c) 1996(d)
Years Ended April 30, Through Through
----------------------- April 30, April 30,
1997 1996 1995 1997
--------- --------- ---------- -------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year.................. $ 10.69 $ 10.72 $10.79 $ 10.79
--------- --------- ----- -----
Income from investment operations
Net investment income (b)........................... .63 .65 .49 .45
Net realized and unrealized gain (loss) on
investment transactions.......................... .15 (.03) (.07) .04
--------- --------- ----- -----
Total from investment operations................. .78 .62 .42 .49
--------- --------- ----- -----
Less distributions
Dividends from net investment income................ (.63) (.65) (.49) (.45)
--------- --------- ----- -----
Net asset value, end of year........................ $ 10.84 $ 10.69 $10.72 $ 10.83
--------- --------- ----- -----
--------- --------- ----- -----
TOTAL RETURN(a):.................................... 7.44% 5.86% 3.91% 4.36%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)....................... $ 9,563 $ 6,471 $3,208 $ 2,719
Average net assets (000)............................ $ 8,060 $ 5,608 $1,385 $ 704
Ratios to average net assets:
Expenses, including distribution fees(b)......... 1.29% 1.29% 1.34%(e) 0.54%(e)
Expenses, excluding distribution fees(b)......... 0.54% 0.54% 0.59%(e) 0.54%(e)
Net investment income(b)......................... 5.80% 5.93% 6.34%(e) 6.55%(e)
</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. Total returns for periods of less than a full year are not
annualized.
(b) Net of management fee waiver.
(c) Commencement of offering of Class C shares.
(d) Commencement of offering of Class Z shares.
(e) Annualized.
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 42
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Financial Highlights INSURED SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------
Years Ended April 30,
---------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year.................. $ 10.94 $ 10.83 $ 10.71 $ 11.44 $ 10.98
-------- -------- ------- ------- -------
Income from investment operations
Net investment income............................... .55(b) .58(b) .58(b) .58 .61
Net realized and unrealized gain (loss) on
investment transactions.......................... .08 .11 .12 (.43) .73
-------- -------- ------- ------- -------
Total from investment operations................. .63 .69 .70 .15 1.34
-------- -------- ------- ------- -------
Less distributions
Dividends from net investment income................ (.55) (.58) (.58) (.58) (.61)
Distributions in excess of net investment income.... (.01) -- -- -- --
Distributions from capital gains.................... (.11) -- -- (.30) (.27)
-------- -------- ------- ------- -------
Total distributions.............................. (.67) (.58) (.58) (.88) (.88)
-------- -------- ------- ------- -------
Net asset value, end of year........................ $ 10.90 $ 10.94 $ 10.83 $ 10.71 $ 11.44
-------- -------- ------- ------- -------
-------- -------- ------- ------- -------
TOTAL RETURN(a):.................................... 5.74% 6.47% 6.73% 1.04% 12.68%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)....................... $208,411 $139,548 $75,800 $30,669 $30,098
Average net assets (000)............................ $187,371 $102,456 $39,471 $32,309 $24,589
Ratios to average net assets:
Expenses, including distribution fees............ 0.68%(b) 0.68%(b) 0.74%(b) 0.71% 0.72%
Expenses, excluding distribution fees............ 0.58%(b) 0.58%(b) 0.64%(b) 0.61% 0.62%
Net investment income............................ 4.95%(b) 5.20%(b) 5.45%(b) 5.09% 5.46%
For Class A, B, C and Z shares:
Portfolio turnover rate.......................... 110% 68% 64% 105% 85%
</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. Total returns for periods of less than a full year are not
annualized.
(b) Net of management fee waiver.
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 43
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Financial Highlights INSURED SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
------------------------------------------------------------
Years Ended April 30,
------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year.................. $ 10.95 $ 10.84 $ 10.71 $ 11.44 $ 10.99
-------- -------- -------- -------- --------
Income from investment operations
Net investment income............................... .50(b) .54(b) .54(b) .54 .56
Net realized and unrealized gain (loss) on
investment transactions.......................... .08 .11 .13 (.43) .72
-------- -------- -------- -------- --------
Total from investment operations................. .58 .65 .67 .11 1.28
-------- -------- -------- -------- --------
Less distributions
Dividends from net investment income................ (.50) (.54) (.54) (.54) (.56)
Distributions in excess of net investment income.... (.01) -- -- -- --
Distributions from capital gains.................... (.11) -- -- (.30) (.27)
-------- -------- -------- -------- --------
Total distributions.............................. (.62) (.54) (.54) (.84) (.83)
-------- -------- -------- -------- --------
Net asset value, end of year........................ $ 10.91 $ 10.95 $ 10.84 $ 10.71 $ 11.44
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN(a):.................................... 5.32% 6.04% 6.40% 0.63% 12.14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)....................... $298,005 $443,391 $567,648 $740,447 $770,060
Average net assets (000)............................ $365,891 $524,452 $660,237 $807,794 $705,846
Ratios to average net assets:
Expenses, including distribution fees............ 1.08%(b) 1.08%(b) 1.14%(b) 1.11% 1.12%
Expenses, excluding distribution fees............ 0.58%(b) 0.58%(b) 0.64%(b) 0.61% 0.62%
Net investment income............................ 4.54%(b) 4.80%(b) 4.99%(b) 4.69% 5.06%
</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. Total returns for periods of less than a full year are not
annualized.
(b) Net of management fee waiver.
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 44
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Financial Highlights INSURED SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C Class Z
-------------------------------------- -------------
August 1, September 16,
1994(c) 1996(d)
Years Ended April 30, Through Through
----------------------- April 30, April 30,
1997 1996 1995 1997
--------- --------- ---------- -------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year.................. $ 10.95 $ 10.84 $10.79 $ 11.05
--------- --------- ----- -----
Income from investment operations
Net investment income (b)........................... .48 .51 .39 .36
Net realized and unrealized gain (loss) on
investment transactions.......................... .08 .11 .05 (.02)
--------- --------- ----- -----
Total from investment operations................. .56 .62 .44 .34
--------- --------- ----- -----
Less distributions
Dividends from net investment income................ (.48) (.51) (.39) (.36)
Distributions in excess net investment income....... (.01) -- -- (.01)
Distributions from capital gains.................... (.11) -- -- (.11)
--------- --------- ----- -----
Total distributions.............................. (.60) (.51) (.39) (.48)
--------- --------- ----- -----
Net asset value, end of year........................ $ 10.91 $ 10.95 $10.84 $ 10.91
--------- --------- ----- -----
--------- --------- ----- -----
TOTAL RETURN(a):.................................... 5.06% 5.78% 4.03% 2.86%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)....................... $ 888 $ 1,137 $ 525 $ 15
Average net assets (000)............................ $ 973 $ 827 $ 224 $ 10
Ratios to average net assets:
Expenses, including distribution fees(b)......... 1.33% 1.33% 1.39%(e) 0.58%(e)
Expenses, excluding distribution fees(b)......... 0.58% 0.58% 0.64%(e) 0.58%(e)
Net investment income(b)......................... 4.29% 4.56% 4.92%(e) 4.18%(e)
</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. Total returns for periods of less than a full year are not
annualized.
(b) Net of management fee waivers.
(c) Commencement of offering of Class C shares.
(d) Commencement of offering of Class Z shares.
(e) Annualized.
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 45
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Financial Highlights INTERMEDIATE SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
------------------------------------------------------
Years Ended April 30,
------------------------------------------------------
1997 1996 1995 1994 1993
-------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year.................. $ 10.65 $ 10.45 $ 10.67 $11.08 $10.59
-------- ------- ------- ------ ------
Income from investment operations
Net investment income............................... .46(b) .47(b) .51(b) .53 .54(b)
Net realized and unrealized gain (loss) on
investment transactions.......................... (.05) .20 (.03) (.19) .60
-------- ------- ------- ------ ------
Total from investment operations................. .41 .67 .48 .34 1.14
-------- ------- ------- ------ ------
Less distributions
Dividends from net investment income................ (.46) (.47) (.51) (.53) (.54)
Distributions in excess of net investment income.... (.01) -- (.01) -- --
Distributions from capital gains.................... -- -- (.18) (.22) (.11)
-------- ------- ------- ------ ------
Total distributions.............................. (.47) (.47) (.70) (.75) (.65)
-------- ------- ------- ------ ------
Net asset value, end of year........................ $ 10.59 $ 10.65 $ 10.45 $10.67 $11.08
-------- ------- ------- ------ ------
-------- ------- ------- ------ ------
TOTAL RETURN(a):.................................... 3.86% 6.48% 4.52% 2.83% 11.13%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)....................... $ 13,740 $12,552 $10,507 $5,810 $3,594
Average net assets (000)............................ $ 13,487 $12,604 $ 7,742 $4,981 $1,883
Ratios to average net assets:
Expenses, including distribution fees............ 1.15%(b) 1.16%(b) 1.05%(b) 1.00% 1.06%(b)
Expenses, excluding distribution fees............ 1.05%(b) 1.06%(b) 0.95%(b) 0.90% 0.96%(b)
Net investment income............................ 4.30%(b) 4.36%(b) 4.75%(b) 4.63% 5.09%(b)
For Class A, B, C and Z shares:
Portfolio turnover rate.......................... 46% 35% 30% 55% 22%
</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. Total returns for periods of less than a full year are not
annualized.
(b) Net of management fee waiver.
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 46
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Financial Highlights INTERMEDIATE SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
--------------------------------------------------------
Years Ended April 30,
--------------------------------------------------------
1997 1996 1995 1994 1993
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year.................. $ 10.65 $ 10.45 $ 10.68 $ 11.09 $ 10.60
-------- ------- ------- ------- -------
Income from investment operations
Net investment income............................... .42(b) .43(b) .45(b) .48 .50(b)
Net realized and unrealized gain (loss) on
investment transactions.......................... (.05) .20 (.04) (.19) .60
-------- ------- ------- ------- -------
Total from investment operations................. .37 .63 .41 .29 1.10
-------- ------- ------- ------- -------
Less distributions
Dividends from net investment income................ (.42) (.43) (.45) (.48) (.50)
Distributions in excess of net investment income.... (.01) -- (.01) -- --
Distributions from capital gains.................... -- -- (.18) (.22) (.11)
-------- ------- ------- ------- -------
Total distributions.............................. (.43) (.43) (.64) (.70) (.61)
-------- ------- ------- ------- -------
Net asset value, end of year........................ $ 10.59 $ 10.65 $ 10.45 $ 10.68 $ 11.09
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
TOTAL RETURN(a):.................................... 3.44% 6.05% 3.99% 2.43% 10.62%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)....................... $ 29,980 $40,550 $51,039 $65,215 $57,049
Average net assets (000)............................ $ 35,221 $46,127 $60,174 $59,811 $50,154
Ratios to average net assets:
Expenses, including distribution fees............ 1.55%(b) 1.56%(b) 1.45%(b) 1.40% 1.46%(b)
Expenses, excluding distribution fees............ 1.05%(b) 1.06%(b) 0.95%(b) 0.90% 0.96%(b)
Net investment income............................ 3.89%(b) 3.96%(b) 4.35%(b) 4.23% 4.69%(b)
</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. Total returns for periods of less than a full year are not
annualized.
(b) Net of management fee waiver.
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 47
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Financial Highlights INTERMEDIATE SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C Class Z
-------------------------------------- -------------
August 1, September 16,
1994(c) 1996(d)
Years Ended April 30, Through Through
----------------------- April 30, April 30,
1997 1996 1995 1997
--------- --------- ---------- -------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year.................. $ 10.65 $ 10.45 $10.54 $ 10.63
--------- --------- ----- -----
Income from investment operations
Net investment income (b)........................... .39 .40 .35 .31
Net realized and unrealized gain (loss) on
investment transactions.......................... (.05) .20 (.08) (.03)
--------- --------- ----- -----
Total from investment operations................. .34 .60 .27 .28
--------- --------- ----- -----
Less distributions
Dividends from net investment income................ (.39) (.40) (.35) (.31)
Distributions in excess of net investment income.... (.01) -- (.01) (.01)
--------- --------- ----- -----
Total distributions.............................. (.40) (.40) (.36) (.32)
--------- --------- ----- -----
Net asset value, end of year........................ $ 10.59 $ 10.65 $10.45 $ 10.59
--------- --------- ----- -----
--------- --------- ----- -----
TOTAL RETURN(a):.................................... 3.17% 5.79% 2.14% 2.50%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)....................... $ 257 $ 225 $ 167 $ 246
Average net assets (000)............................ $ 149 $ 197 $ 28 $ 63
Ratios to average net assets:
Expenses, including distribution fees(b)......... 1.80% 1.81% 1.81%(e) 1.05%(e)
Expenses, excluding distribution fees(b)......... 1.05% 1.06% 1.06%(e) 1.05%(e)
Net investment income(b)......................... 3.65% 3.71% 4.34%(e) 4.65%(e)
</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. Total returns for periods of less than a full year are not
annualized.
(b) Net of management fee waiver.
(c) Commencement of offering of Class C shares.
(d) Commencement of offering of Class Z shares.
(e) Annualized.
- --------------------------------------------------------------------------------
-----
See Notes to Financial Statements. 48
<PAGE>
Report of Independent Accountants PRUDENTIAL MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
To the Shareholders and Trustees of
Prudential Municipal Bond Fund
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial positions of the High Yield Series, Insured
Series and Intermediate Series (constituting Prudential Municipal Bond Fund,
hereafter referred to as the 'Fund') at April 30, 1997 and the results of each
of their operations, the changes in each of their net assets and the financial
highlights for the year then ended, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as 'financial statements') are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at April 30, 1997 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provides a reasonable basis
for the opinion expressed above. The accompanying Statement of Changes in Net
Assets for the year ended April 30, 1996, and the financial highlights for each
of the four years in the period ended April 30, 1996 were audited by other
independent accountants, whose opinion dated June 13, 1996 was unqualified.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
June 25, 1997
Tax Information (Unaudited) 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, 1997.
During its fiscal year ended April 30, 1997, 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 Class Z
------------------------------ ------- ------- ------- -------
<S> <C> <C> <C> <C>
High Yield Series............. $ .70 $ .66 $ .63 $ .45
Insured Series................ $ .55 $ .50 $ .48 $ .36
Intermediate Series........... $ .46 $ .42 $ .39 $ .31
</TABLE>
The Insured Series paid an ordinary distribution of $0.006 per share (taxable as
ordinary income) to Class A, B, C and Z shareholders, and a long-term capital
gain distribution of $0.109 per share (taxable as capital gains income) to Class
A, B, C and Z shareholders.
The High Yield Series and Intermediate Series paid ordinary distributions of
$.0013 and $.0072 per share, respectively (taxable as ordinary income) to Class
A, B, C and Z shareholders.
Shortly after the close of the calendar year ending December 31, 1997, you will
be advised again as to the federal tax status of the dividends and distributions
received in calendar 1997. 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>
Supplemental Proxy Information
(Unaudited) PRUDENTIAL MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
A meeting of shareholders of the Prudential Municipal Bond Fund (the 'Fund')
was held on Wednesday, October 30, 1996 at the offices of Prudential Securities
Incorporated, One Seaport Plaza, New York, New York. The meeting was held for
the following purposes:
(1) To elect Trustees as follows: Edward D. Beach, Eugene C. Dorsey, Delayne
Dedrick Gold, Robert F. Gunia, Harry A. Jacobs, Jr., Donald D. Lennox,
Mendel A. Melzer, Thomas T. Mooney, Thomas H. O'Brien, Richard A. Redeker,
Nancy H. Teeters and Louis A. Weil, III.
(2) Approval of an amendment to the Fund's Fundamental Investment Restriction
regarding investment in shares of other investment companies.
(3) Approval of an elimination of the Fund's fundamental investment restriction
relating to investment in securities of unseasoned issuers.
(4) Approval of an amendment to the Fund's investment restrictions to permit an
increase in the borrowing capabilities of the Fund.
(5) To ratify the selection of Deloitte & Touche LLP as independent public
accountants for the Fund for the fiscal year ending April 30, 1997.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
Trustee/Matter Votes for Votes against Abstentions
---------- ------------- -----------
<S> <C> <C> <C>
(1) Edward D. Beach 73,590,865 0 2,582,278
Eugene C. Dorsey 73,663,444 0 2,509,699
Delayne Dedrick Gold 73,696,037 0 2,477,106
Robert F. Gunia 73,615,603 0 2,557,540
Harry A. Jacobs, Jr. 73,532,869 0 2,640,274
Donald D. Lennox 73,525,199 0 2,647,944
Mendel A. Melzer 73,638,229 0 2,534,914
Thomas T. Mooney 73,629,429 0 2,543,714
Thomas H. O'Brien 73,707,161 0 2,465,982
Richard A. Redeker 73,643,688 0 2,529,435
Nancy H. Teeters 73,690,290 0 2,482,853
Louis A. Weil, III 73,628,575 0 2,544,568
(2) Amendment relating to investment in shares of other investment companies 63,342,978 3,795,309 3,828,292
(3) Amendment relating to investment in securities of unseasoned issuers 61,026,171 5,522,333 4,418,075
(4) Amendment relating to borrowing capabilities 60,690,174 5,784,514 4,491,891
(5) Ratification of Deloitte & Touche LLP 71,910,326 1,203,032 3,059,785
</TABLE>
Change in Auditors PRUDENTIAL MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
Effective March 1, 1997, Deloitte & Touche LLP was terminated as the Fund's
independent accountants. For the fiscal years ended April 30, 1993 through April
30, 1996, Deloitte & Touche LLP expressed an unqualified opinion on the Fund's
financial statements. There were no disagreements between Fund management and
Deloitte & Touche LLP prior to their termination. The Trustees approved the
termination of Deloitte & Touche LLP and the appointment of Price Waterhouse LLP
as the Fund's independent accountants.
- --------------------------------------------------------------------------------
-----
50
<PAGE>
Comparing A $10,000 Investment.
Prudential Municipal Bond Fund: High Yield Series
vs. the Lehman Brothers Municipal Bond Index.
- --Prudential Muni Bond Fund: High Yield Series
//Lehman Bros. Muni Bond Index
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 boxes on top of the graphs
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, C and Z 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, August 1, 1994 for Class C shares and September
16, 1996 for Class Z 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, 1994 for Class C shares and 1996
for Class Z 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, 1997; 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. Class
Z shares are not subject to sales charges or distribution
fees. Since Class Z shares have been in existence less
then a year, no average annual returns are shown.
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.
Best Year: 1995 16.8%
Worst Year: 1994 -3.0%
Class A (GRAPH)
Average Annual Total
Returns - Class A
With Sales Load
7.0% Since Inception
6.6% for 5 Years (6.5)
4.8% for 1 Year (4.7)
Without Sales Load
7.5% Since Inception
7.2% for 5 Years
8.0% for 1 Year
Best Year: 1995 16.3%
Worst Year: 1994 -3.4%
Class B (GRAPH)
Average Annual Total
Returns - Class B
With Sales Load
8.1% Since Inception (8.0)
6.6% for 5 Years
2.7% for 1 Year (2.6)
Without Sales Load
8.1% Since Inception (8.0)
6.8% for 5 Years
7.7% for 1 Year
Class C (GRAPH) Average Annual Total
Returns - Class C
With Sales Load
6.3% Since Inception (6.2)
6.4% for 1 Year (6.3)
Without Sales Load
6.3% Since Inception
7.4% for 1 Year
Class Z (GRAPH)
<PAGE>
Comparing A $10,000 Investment.
Prudential Municipal Bond Fund: Insured Series
vs. the Lehman Brothers Municipal Bond Index.
- --Prudential Muni Bond Fund: Insured Series
//Lehman Bros. Muni Bond Index
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 boxes on top of the graphs 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, C and Z 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, August 1, 1994 for Class C shares and September
16, 1996 for Class Z 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, 1994 for Class C shares and
1996 for Class Z 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, 1997; 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.
Class Z shares are not subject to sales charges or distribution
fees. Since Class Z shares have been in existence less then a
year, no average annual returns are shown.
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.
Best Year: 1995 16.7%
Worst Year: 1994 -5.3%
Class A (GRAPH)
Average Annual Total
Returns - Class A
With Sales Load
6.7% Since Inception (6.6)
5.8% for 5 Years
2.6% for 1 Year (2.5)
Without Sales Load
7.1% Since Inception
6.5% for 5 Years
5.7% for 1 Year
Best Year: 1995 16.3%
Worst Year: 1994 -5.6%
Class B (GRAPH)
Average Annual Total
Returns - Class B
With Sales Load
7.5% Since Inception (7.4)
5.9% for 5 Years (5.8)
0.3% for 1 Year (0.2)
Without Sales Load
7.5% Since Inception (7.4)
6.0% for 5 Years
5.3% for 1 Year
Class C (GRAPH)
Average Annual Total
Returns - Class C
With Sales Load
5.4% Since Inception
4.1% for 1 Year (4.0)
Without Sales Load
5.4% Since Inception
5.1% for 1 Year
Class Z (GRAPH)
<PAGE>
Comparing A $10,000 Investment.
Prudential Municipal Bond Fund: Intermediate Series
vs. the Lehman Brothers Municipal Bond Index.
- --Prudential Muni Bond Fund: Intermediate Series
//Lehman Bros. Muni Bond Index
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 boxes on top of the graphs
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, C and Z 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, August 1, 1994 for Class C shares and September
16, 1996 for Class Z 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, 1994 for Class C shares and 1996
for Class Z 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, 1997; 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. Class Z shares are
not subject to sales charges or distribution fees. Since
Class Z shares have been in existence less then a year,
no average annual returns are shown.
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.
Best Year: 1995 13.2%
Worst Year: 1994 -4.0%
Class A (GRAPH)
Average Annual Total
Returns - Class A
With Sales Load
6.0% Since Inception (5.9)
5.1% for 5 Years
0.7% for 1 Year (0.6)
Without Sales Load
6.5% Since Inception
5.7% for 5 Years
3.9% for 1 Year
Best Year: 1995 12.8%
Worst Year: 1994 -4.5%
Class B (GRAPH)
Average Annual Total
Returns - Class B
With Sales Load
6.6% Since Inception (6.3)
5.1% for 5 Years
- -1.6% for 1 Year (-1.7)
Without Sales Load
6.6% Since Inception (6.4)
5.3% for 5 Years
3.4% for 1 Year
Class C (GRAPH) Average Annual Total
Returns - Class C
With Sales Load
4.0% Since Inception
2.2% for 1 Year (2.1)
Without Sales Load
4.0% Since Inception
3.2% for 1 Year
Class Z (GRAPH)
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne D. Gold
Robert F. Gunia
Harry A. Jacobs, Jr.
Donald D. Lennox
Mendel A. Melzer
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Louis A. Weil, III
Officers
Richard A. Redeker, President
Susan C. Cote, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
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 LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Shereff, Friedman, Hoffman & Goodman LLP
919 Third Avenue
New York, NY 10022
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 74435L301 74435L509 MF133E
74435L202 74435L400 74435L608 Cat. #44416EK
74435L707 74435L806 74435L889
74435L871 74435L863 74435L855
