<PAGE>
(ICON)
Prudential
Municipal
Bond Fund
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High Income Series
Insured Series
ANNUAL
REPORT
April 30, 1999
(LOGO)
<PAGE>
Prudential Municipal Bond Fund--High Income Series
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(PHOTO)
Peter J. Allegrini
Fund Manager
Investment Goals and Style
We seek the maximum amount of income that is eligible for exclusion from
federal income taxes by investing primarily in noninvestment-grade municipal
bonds rated single-B or better by recognized credit-rating agencies such as
Standard & Poor's Ratings Group (S&P) or Moody's Investors Service (Moody's),
or in unrated bonds that our analysts believe are of comparable quality. On
April 30, 1999, noninvestment-grade municipal bonds rated BB or below (or
unrated bonds of comparable quality) comprised approximately 47% of the
portfolio, compared with about 56% on April 30, 1998. There can be no assurance
that the Series will achieve its investment objective.
Market Review
A narrow range
For most of the past year, the difference between high-yielding bonds that
performed well and those that performed poorly was minimal. We were able to add
bonds to your Series that produced higher-than-average yields, as compared to
our competitive universe, which helped returns. However, we unfortunately
purchased certain bonds that had credit problems, and that took away from the
returns on your Series--particularly bonds of the Graduate Hospital of PA; the
city of Robbins, IL; and Great Lakes Pulp and Fiber. These purchases--coupled
with a strong U.S. economy that we expected to slow--and the Series'
longer-than-average duration stance contributed to your Prudential Municipal
Bond Fund--High Income Series gaining 4.96% for Class A shares, compared to
5.27% for the Lipper Average High Yield Municipal Fund.
Market volatility
When the economic crisis that began in Asia in early 1998 spread to Russia and
eventually to Brazil, investors demanded quality investments for their money.
Concerned that the crisis would eventually slow the U.S. economy, investors
began investing their money in "safe haven" securities such as U.S. Treasuries.
This trend also drove prices of insured municipal bonds higher and their yields
lower. Your Series benefited since it held some of these securities. Then in
the fall of 1998, in an effort to stabilize the global economic situation and
improve investor confidence, the Federal Reserve cut interest rates on three
separate occasions. The Series initially benefited from these rate cuts as bond
yields fell even lower and their prices went higher.
Our fundamentals were solid
We anticipated, as did much of the market, that interest rates would fall
throughout 1998 as the global financial crisis spread. We positioned the Series
with a neutral average duration stance, as compared to our competitive
universe, from the spring of 1998 through October 1998, since we expected the
U.S. economy to slow. Duration is a measure of sensitivity to interest-rate
changes. A neutral duration stance makes it easier for the Series to lengthen
or shorten its duration when necessary. At this time, we felt investors would
be looking for safety, therefore we added bonds to your Series that were
higher-rated credits and cut back on our below-investment-grade bonds. In
hindsight, we did not hold as many New York state and California state
municipal bonds as we should have. These particular state bonds performed
<PAGE>
High Income Series Cont'd.
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extremely well during the summer and early fall of 1998, and would have added
to the Series' return had we held more of them.
The Fed cut rates and we moved
In the fall of 1998, when the Federal Reserve made its first of three
interest-rate cuts, we sought to lengthen our average duration on the Series. A
longer duration stance enables the Series to perform well when debt markets
rally. The debt market rally hit its peak when the Bond Buyer Index fell to
5.09% in early October--its lowest yield since the Index was compiled. To
extend duration, we bought noncallable municipal bonds since they cannot be
retired by the issuer prior to maturity. Furthermore, a portion of these bonds
were zero coupon bonds that are issued at a deep discount and redeemed at face
value when held to maturity. The difference between the discounted price and
the face value of the bond represents accrued interest. Since zero coupon bonds
trade at such sharp discounts to their face value, their prices had plenty of
room to rise as the tax-exempt market rallied. We were able to lock in current
yields on these bonds before their yields went lower. In the short term, the
Series benefited from this strategy.
The market stabilizes
The Federal Reserve's three interest-rate cuts accomplished what they set out
to do: stabilize the global financial crisis and improve investor confidence.
However, this eventually hurt our Series' performance as investors shifted
their money from the safety of U.S. Treasuries back into riskier investments.
Yields on municipal bonds began to rise again, and their prices began to fall.
Particularly hard hit were noncallable bonds and zero coupon bonds, whose
prices fell significantly. These bonds don't perform well when debt markets
sell off, as they began to do here. Moreover, we held long-term noncallable
bonds with 15- to 20-year yields. Bonds on that part of the yield curve
particularly did not perform well. The Series was hurt by its structure, since
our longer duration stance, which helped our returns in the early fall of
1998, hurt our returns as 1999 began.
Resiliency
As the first quarter of 1999 progressed, we thought that the U.S. economy would
slow down, feeling the aftereffects of the global financial crisis. Under this
scenario, investors within the market would fly to high-quality insured
investments. Therefore the Series kept its duration stance longer than its
competitive universe so the Series would benefit when debt markets rallied
once again. However, this scenario did not take place, as the U.S. economy
remained very resilient and actually grew at a strong pace. Investors sold off
U.S. Treasuries, and municipal bonds suffered as their prices plummeted.
Maintaining the Series' longer duration stance in the first few months of 1999
took away from our returns. Basically, what worked well for us in the fourth
quarter of 1998 did not work well in the first quarter of 1999.
Looking Ahead
Since the U.S. economy remains strong and fear of higher inflation is growing,
the Federal Reserve has announced that it is leaning toward raising interest
rates in the future. This announcement should eventually stabilize and benefit
the bond markets. Therefore we will position the Series with a neutral average
duration stance, as compared to our competitive universe, until we see a
definite move by the Fed. This will enable us to move quickly in the right
direction when the market dictates. Furthermore, we will look to add both New
York state and California state municipal bonds--as well as bonds from other
states with strong economies--to the Series' holdings since they should
continue to perform well, will improve the Series' credit rating, and will
bolster returns.
<PAGE>
High Income Series: Performance At A Glance
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<TABLE>
<CAPTION>
Portfolio Composition
Expressed as a percentage of total investment as of 4/30/99
<S> <C>
Revenue Bonds 66%
General Obligation 16
Prerefunded 12
Miscellaneous 4
Cash Equivalents 2
</TABLE>
<TABLE>
<CAPTION>
Credit Quality
Expressed as a percentage of total investment as of 4/30/99
<S> <C>
Insured 24%
BB 21
B 17
BBB 15
AAA 11
AA 5
Cash Equivalents 3
CCC 2
A 1
Not Rated 1
</TABLE>
<TABLE>
<CAPTION>
Five Largest Issuers
Expressed as a percentage of net assets as of 4/30/99
<S> <C>
Memphis Ctr. City Revenue
Finance Corp. 2.2%
Chicago, IL
O'Hare Int'l Airport 1.6
City of Cedar
Rapids Revenue 1.5
NJ State Transportation
Trust Fund Authority 1.4
Lake Creek Affordable
Housing Corp. 1.2
</TABLE>
Cumulative Total Returns1 As of 4/30/99
<TABLE>
<CAPTION>
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A 4.96% (4.87) 43.09% (42.84) N/A 96.59% (95.89)
Class B 4.59 (4.50) 40.34 (40.09) 101.86% (100.78) 143.99 (142.03)
Class C 4.33 (4.24) N/A N/A 35.74 (35.50)
Class Z 5.11 (5.02) N/A N/A 21.66 (21.55)
Lipper HY Muni Debt Fd. Avg.3 5.27 40.82 103.67 ***
</TABLE>
Average Annual Total Returns1 As of 3/31/99
<TABLE>
<CAPTION>
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A 1.09% (1.00) 6.80% (6.76) N/A 7.24% (7.19)
Class B -1.16 (-1.25) 6.86 (6.82) 7.45% (7.40) 8.01 (7.93)
Class C 1.55 (1.46) N/A N/A 6.47 (6.43)
Class Z 4.26 (4.17) N/A N/A 7.87 (7.83)
</TABLE>
Distributions and Yields As of 4/30/99
<TABLE>
<CAPTION>
Taxable Equivalent Yield4
Total Distributions 30-Day At Tax Rates Of
Paid for 12 Mos. SEC Yield 36% 39.6%
<S> <C> <C> <C> <C>
Class A $0.63 4.53% (4.48) 7.08% (7.00) 7.50% (7.42)
Class B $0.59 4.43 (4.38) 6.92 (6.84) 7.33 (7.25)
Class C $0.57 4.14 (4.09) 6.47 (6.39) 6.85 (6.77)
Class Z $0.65 4.93 (4.88) 7.70 (7.63) 8.16 (8.08)
</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.
1 Source: Prudential Investments Fund Management and Lipper, Inc. The
cumulative total returns do not take into account sales charges. The average
annual total returns do take into account applicable sales charges. The Series
charges a maximum front-end sales charge of 3% for Class A shares. Class B
shares are subject to a declining contingent deferred sales charge (CDSC) of
5%, 4%, 3%, 2%, 1%, and 1% for six years. Class B shares will automatically
convert to Class A shares, on a quarterly basis, approximately seven years
after purchase. Class C shares are subject to a front-end sales charge of 1%
and a CDSC of 1% for 18 months. Class C shares bought before November 2, 1998,
have a 1% CDSC if sold within one year. Class Z shares are not subject to a
sales charge or distribution fee. Without waiver of management fees and/or
expense subsidization, the Series' cumulative and average annual total returns
and 30-day SEC yields would have been lower, as indicated in parentheses ( ).
2 Inception dates: Class A, 1/22/90; Class B, 9/17/87; Class C, 8/1/94; Class
Z, 9/16/96.
3 Lipper average returns are for all funds in each share class for the one-,
five-, and ten-year periods in the High Yield Muni Debt Fund category.
4 Some 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 returns are 90.08% for Class A, 142.76% for Class B,
35.38% for Class C, and 17.59% for Class Z, based on all funds in each share
class.
1
<PAGE>
Prudential Municipal Bond Fund--Insured Series
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(PHOTO)
Christian Smith
Fund Manager
Investment Goals and Style
The Insured Series invests primarilyin 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, Moody's, or other nationally recognized credit-rating agencies. 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. There can be no assurance that the Series will
achieve its investment objective.
Our bonds are primarily insured by MBIA Insurance Corp., AMBAC Indemnity Corp.,
Financial Guaranty Insurance Co., and Financial Security Assurance Inc.
Market Review
Investors sought quality
Demand continued for AAA-rated insured municipal bonds throughout most of the
reporting period amid concerns that the global financial crisis would spread to
the U.S. economy. In this environment, insured bonds performed better than
lower-quality securities, and your Prudential Municipal Bond Fund--Insured
Series outperformed the Lipper Average Insured Municipal Fund during the year
ended April 30, 1999.
We positioned the Series correctly
Throughout the spring and early summer of 1998, concerns about the global
financial crisis became more prevalent, but the U.S. economy continued to grow
at a rapid pace. However, by August, the financial crisis that began in Asia
spread to Russia, and eventually to Brazil. Fearing the financial contagion
would spread to the United States, investors created a "flight to quality" by
investing their money in "safe haven" securities such as U.S. Treasuries and
municipal insured bonds. Within the tax-exempt market, insured bonds tend to
perform better when the economy slumps than lower-quality securities. This
"flight to quality" drove the prices of municipal bonds higher, their yields
lower and, therefore, your Series' return higher as well. In anticipation that
interest rates would decline as the year progressed, we increased your Series'
duration from 7.6 years in April 1998 to 8.4 years in October 1998. This was a
longer-than-average duration stance compared to its competitive universe.
Duration is a measure of sensitivity to interest rate changes. A longer average
duration enables shares of the Series to rise more rapidly when interest rates
fall.
We were able to achieve this longer duration stance by adding noncallable bonds
to the Series throughout the year. The Series increased its holdings in
noncallable bonds to 42% of its portfolio as of April 30, 1999. Noncallable
bond prices soared when interest rates began to decline because these bonds
cannot be retired prior to maturity. Therefore noncallable bonds are very
attractive during a bond market rally. Moreover, a portion of our noncallable
bond holdings were zero coupon bonds.
Continued on Page 4
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2
<PAGE>
<TABLE>
<CAPTION>
Portfolio Composition
Expressed as a percentage of total investment as of 4/30/99
<S> <C>
Revenue Bonds 60%
General Obligation 30
Prerefunded 7
Miscellaneous 2
Cash Equivalents 1
</TABLE>
<TABLE>
<CAPTION>
Credit Quality
Expressed as a percentage of total investment as of 4/30/99
<S> <C>
Insured 88%
AAA 7
AA 4
Cash Equivalents 1
</TABLE>
<TABLE>
<CAPTION>
Five Largest Issuers
Expressed as a percentage of net assets as of 4/30/99
<S> <C>
Chicago, IL
Board of Education 5.3%
Washington State
Public Power Supply 4.3
District of Columbia 3.5
Hawaii State Department
Budget & Finance 2.9
Austin, TX Combined
Utility Revenue 2.9
</TABLE>
Cumulative Total Returns1 As of 4/30/99
<TABLE>
<CAPTION>
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A 6.88% 39.55% (39.30) N/A 91.60% (90.40)
Class B 6.50 36.97 (36.73) 94.93% (92.66) 131.39 (127.26)
Class C 6.24 N/A N/A 32.61 (32.37)
Class Z 7.04 N/A N/A 19.66 (19.55)
Lipper INS Muni Debt Fd. Avg.3 6.04 38.54 100.04 ***
</TABLE>
Average Annual Total Returns1 As of 3/31/99
<TABLE>
<CAPTION>
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A 2.29% 6.27% (6.24) N/A 6.95% (6.87)
Class B -0.03 6.35 (6.31) 7.14% (7.01) 7.52 (7.35)
Class C 2.67 N/A N/A 5.96 (5.91)
Class Z 5.49 N/A N/A 7.17 (7.13)
</TABLE>
Distributions and Yields As of 4/30/99
<TABLE>
<CAPTION>
Taxable Equivalent Yield4
Total Distributions 30-Day At Tax Rates Of
Paid for 12 Mos. SEC Yield 36% 39.6%
<S> <C> <C> <C> <C>
Class A $0.63 3.95% 6.17% 6.54%
Class B $0.58 3.82 5.97 6.32
Class C $0.56 3.54 5.53 5.86
Class Z $0.64 4.32 6.75 7.15
</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.
1 Source: Prudential Investments Fund Management and Lipper, Inc. The
cumulative total returns do not take into account sales charges. The average
annual total returns do take into account applicable sales charges. The Series
charges a maximum front-end sales charge of 3% for Class A shares. Class B
shares are subject to a declining contingent deferred sales charge (CDSC) of
5%, 4%, 3%, 2%, 1%, and 1% for six years. Class B shares will automatically
convert to Class A shares, on a quarterly basis, approximately seven years
after purchase. Class C shares are subject to a front-end sales charge of 1%
and a CDSC of 1% for 18 months. Class C shares bought before November 2, 1998,
have a 1% CDSC if sold within one year. Class Z shares are not subject to a
sales charge or distribution fee. Without waiver of management fees and/or
expense subsidization, the Series' cumulative and average annual total returns
would have been lower, as indicated in parentheses ( ).
2 Inception dates: Class A, 1/22/90; Class B, 9/17/87; Class C, 8/1/94; Class
Z, 9/16/96.
3 Lipper average returns are for all funds in each share class for the one-,
five-, and ten-year periods in the Insured Muni Debt Fund category.
4 Some investors may be subject to the federal alternative minimum tax and/or
state and local taxes. Taxable equivalent yields reflect federal taxes only.
3
<PAGE>
Insured Series Cont'd.
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These bonds perform well when debt markets rally since they generally trade at
deep discounts to their face value at maturity. Furthermore, the difference
between the discounted price and the face value of the bond represents accrued
interest, and because zero coupon bonds trade at such sharp discounts to their
face value, their prices had plenty of room to rise. Your Series benefited
greatly from this strategy as we were able to anticipate the market's movements
correctly.
The Federal Reserve intervened
To stabilize the global financial crisis and improve investor confidence, the
Federal Reserve cut the Federal funds rate (the rate banks charge each other to
borrow money overnight) three times in the fall of 1998 by a quarter of a
percentage point each time. As investors felt more confident, the "flight to
quality" reversed, and investors began to move their money back into riskier
investments and away from the safety of U.S. Treasuries and municipal insured
bonds. This trend sent prices of municipal insured bonds lower and their yields
higher. These interest-rate cuts initially helped the returns on our Series;
however, with the global markets now stabilizing and the U.S. economy
continuing to experience strong growth, interest rates began to rise again, and
the Series' longer duration stance modestly hurt performance.
U.S. economy remained resilient
Even though the Federal Reserve stabilized the global financial markets and
drove investor confidence higher, we thought it would not have a lasting
effect, and that U.S. economic growth would eventually succumb to global
financial pressures and experience a slowdown. However, at the beginning of
1999, the U.S. economy was very resilient and did not slow, but actually
experienced further growth. Furthermore, with long-term interest rates rising
again, prices of municipal bonds fell--particularly prices of noncallable bonds
and zero coupon bonds. We did shorten the average duration of your Series from
8.4 years back to 7.6 years during the latter part of the first quarter of
1999. However, we began implementing this strategy later than we should have
and, as a result, gave back some of the gains the Series experienced during the
year. Overall, the Series' duration stance ended the reporting period where it
began--at 7.6 years.
A neutral position going forward
Even though the U.S. economy remains strong, the Federal Reserve has announced
that it is leaning toward raising interest rates in the future to quell
inflationary fears. We anticipate this move will eventually stabilize and
benefit the bond markets. Therefore we will position the Series with a neutral
duration stance, as compared to our competitive universe, until we see a
definite move by the Fed.
4
<PAGE>
A Message to Our Shareholders June 18, 1999
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(PHOTO)
Dear Shareholder:
In the last couple of years, the recurring possibility of a global economic
crisis caused investors to focus on securities they perceived to be safe. In
the equity market, they focused on the stocks of a handful of very large
companies that were perceived to be well-buffeted from an economic slowdown.
These stocks became very expensive--out of proportion to their earnings
expectations. As a result, there was a substantial disparity in value between
large and small companies and between growth and value stocks.
Since earlier this year, however, that gap has narrowed significantly amid
news of strong U.S. economic growth and faster-than-expected global stability.
While the long-term prospects of U.S. growth stocks are still very good, many
of the smaller and economically sensitive companies favored by our value
managers now are posting very attractive returns.
In the bond market, U.S. Treasuries and select European government bonds were
the major beneficiaries of the flight to quality that occurred in recent years.
When this trend reversed itself toward the end of 1998, other sectors of the
bond market rebounded. However, with a strong U.S. economy comes the threat of
higher inflation, which erodes the value of bonds' fixed interest payments.
The recent inflation concerns jolted the bond market and helped send long-term
interest rates to a 19-month high.
The winds of change in the equity market and the recent turbulence in the bond
market not only highlight the value of professional portfolio management, they
illustrate why investors should have a well-diversified asset allocation
strategy. It is also a good practice to rebalance your holdings, when
necessary, to keep your asset allocation consistent with your long-term
objectives and risk tolerance. A properly diversified portfolio of value- and
growth-oriented equity funds, international bond funds, and money market funds
could help you weather inevitable market turbulence and achieve more consistent
returns over time. Prudential offers a wide range of mutual funds to help our
shareholders diversify, as well as several balanced and diversified funds to
allow one-decision diversification.
Thank you for your continued confidence in Prudential mutual funds.
Sincerely,
John R. Strangfeld
President
Prudential Municipal Bond Fund--High Income Series
Prudential Municipal Bond Fund--Insured Series
5
<PAGE>
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1999 HIGH INCOME 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--96.5%
- ------------------------------------------------------------------------------------------------------------------------------
Arizona--1.7%
Coconino Cnty. Pol. Ctrl. Corp. Rev.
Tucson Elec. Pwr., Navajo A, A.M.T. B2 7.125% 10/01/32 $ 5,000 $ 5,519,050
Tucson Elec. Pwr., Navajo B B2 7.00 10/01/32 1,700 1,880,506
Pima Cnty. Ind. Dev. Auth.,
Multifam. Mtge. Rev., La Cholla Proj., A.M.T. NR 8.50 7/01/20 9,575 10,712,797
Tuscon Elec. Pwr. Co., Ser. A, A.M.T. B2 6.10 9/01/25 2,000 2,008,360
--------------
20,120,713
- ------------------------------------------------------------------------------------------------------------------------------
Arkansas--0.9%
Northwest Arkansas Reg'l. Arpt. Auth.
Rev., A.M.T. NR 7.00 2/01/10 3,000 3,279,750
Rev., A.M.T. NR 7.625 2/01/27 7,000 8,027,810
--------------
11,307,560
- ------------------------------------------------------------------------------------------------------------------------------
California--9.7%
Abag Fin. Auth. For Nonprofit Corps. Ref. Amer. Baptist
Homes.,
Ser. A BBB(b) 6.20 10/01/27 3,200 3,383,488
California Hsg. Fin. Agcy. Rev., Home Mtge., Ser. G,
A.M.T. Aa2 8.15 8/01/19 655 668,965
Corona Ctfs. of Part., Vista Hosp. Sys. Inc., Ser. C NR 8.375 7/01/11 10,000(e) 9,992,800
Delano Ctfs. of Part., Reg'l. Med. Ctr., Ser. A NR 9.25 1/01/22 6,620(c) 8,039,791
Folsom Spec. Tax Dist. No. 2 NR 7.70 12/01/19 3,130(c) 3,273,135
Long Beach Harbor Rev. Ref., Ser. A., F.G.I.C., A.M.T. Aaa 6.00 5/15/19 4,000 4,497,120
Long Beach Redev. Agcy. Hsg.,
Multifam. Hsg. Rev., Pacific Court Apts. NR 6.95 9/01/23 6,195(e) 3,407,312
Multifam. Hsg. Rev., Pacific Court Apts., Issue B NR 6.80 9/01/13 3,805(e) 2,092,788
Los Angeles Regl. Arpts. Impvt. Corp., Cont. Air
Sublease, A.M.T. NR 9.25 8/01/24 10,185 11,943,338
Orange Cnty. Cmnty. Loc. Trans. Auth., Reg. Linked
Savrs. & Ribs NR 6.20 2/14/11 7,000 8,105,160
Richmond Redev. Agcy. Rev., Multifam. Bridge Affordable
Hsg. NR 7.50 6/01/23 10,000 10,539,200
Roseville Joint Union H.S. Dist.,
Ser. B, F.G.I.C. Aaa Zero 8/01/09 1,740 1,103,648
Ser. B, F.G.I.C. Aaa Zero 8/01/11 1,890 1,068,398
Ser. B, F.G.I.C. Aaa Zero 8/01/14 2,220 1,056,187
Sacramento City Fin. Auth. Rev., Tax Alloc., M.B.I.A. Aaa Zero 11/01/15 5,695 2,524,935
Sacramento Cnty. Spec. Tax Rev., Dist. No. 1 NR 8.25 12/01/20 4,500(c) 4,915,080
San Joaquin Hills Trans. Corr. Agcy.,
Toll Rd. Rev. Aaa Zero 1/01/14 8,420 4,168,826
Toll Rd. Rev. Aaa Zero 1/01/25 10,000 2,696,200
</TABLE>
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See Notes to Financial Statements. 6
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1999 HIGH INCOME 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 Luis Obispo Ctfs. of part., Vista Hosp. Sys., Inc. NR 8.375% 7/01/29 $ 4,000 $ 3,995,720
Santa Margarita/Dana Point Auth., Impvt. Dist.,
Ser. A, M.B.I.A. Aaa 7.25 8/01/13 1,990 2,538,345
Ser. B, M.B.I.A. Aaa 7.25 8/01/12 3,000 3,801,990
So. California Pub. Pwr. Auth. Trans., Cap. Apprec. Aa Zero 7/01/14 8,500 4,036,395
So. San Francisco Redev. Agcy., Tax Alloc., Gateway
Redev. Proj. NR 7.60 9/01/18 2,375(c) 2,713,936
So. Tahoe Joint Pwrs. Fin. NR 8.00 10/01/01 5,795(c) 5,807,517
Turlock Irrigation Dist. Rev., Ser. A, M.B.I.A. Aaa 6.25 1/01/12 5,000 5,827,050
Victor Valley Union H.S. Dist.,
Gen. Oblig., M.B.I.A. Aaa Zero 9/01/12 3,605 1,935,128
Gen. Oblig., M.B.I.A. Aaa Zero 9/01/14 4,740 2,273,020
Gen. Oblig., M.B.I.A. Aaa Zero 9/01/16 3,990 1,706,443
--------------
118,111,915
- ------------------------------------------------------------------------------------------------------------------------------
Colorado--3.3%
Denver Urban Ren. Auth. Tax,
Inc. Rev. NR 7.50 9/01/04 3,000 3,246,570
Inc. Rev. NR 7.75 9/01/16 4,000 4,584,160
Denver Co. Hlth & Hosp. Rev., Ser. A Baa2 5.375 12/01/28 5,000 4,845,050
Lake Creek Affordable Hsg. Corp. Multifamily Rev.,
Ser. A NR 6.25 12/01/23 13,215 13,292,704
Ser. B NR 7.00 12/01/23 1,050 1,055,848
San Migual Cnty., Mountain Vlge. Met. Dist. NR 8.10 12/01/11 2,160(c) 2,486,463
San Migual Cnty., Mountain Vlge. Met. Dist. NR 8.10 12/01/11 1,040 1,164,914
Superior Met. Dist. No. 1, Wtr. & Swr., Rev. NR 8.50 12/01/13 8,900 9,862,802
--------------
40,538,511
- ------------------------------------------------------------------------------------------------------------------------------
Connecticut--1.3%
Connecticut St. Dev. Auth. Mystic Marinelife Aquarium
Proj. Rev. NR 7.00 12/01/27 1,500 1,585,935
Connecticut St. Dev. Auth. Pollutn. Ctl. Rev.
Ref. Connecticut Light & Pwr., A.M.T. Ba3 5.95 9/01/28 5,000 4,984,400
Connecticut St. Dev. Auth. Swr., Netco Waterbury Ltd. NR 9.375 6/01/16 7,600 8,893,140
--------------
15,463,475
- ------------------------------------------------------------------------------------------------------------------------------
District of Columbia--1.0%
Dist. of Columbia Ref., Ser. B., M.B.I.A. Aaa 6.00 6/01/20 2,000 2,250,280
Dist. of Columbia Rev., Nat'l. Public Radio NR 7.625 1/01/18 8,800 9,482,968
--------------
11,733,248
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1999 HIGH INCOME 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--4.1%
Bayside Impt. Cmmty. Dev. Dist. Ser. B NR 6.375% 5/01/18 $ 1,020 $ 1,024,794
Crossings At Fleming Island Cmnty. Dev. Dist., Clay City NR 8.25 5/01/16 7,550 8,292,618
Florida Hsg. Fin. Agcy., Palm Aire Proj., Multifam.
Mtge. Rev., A.M.T. NR 10.00 1/01/20 9,102(e) 8,692,574
Florida Hsg. Fin. Corp. Rev.,
Cypress Trace Apts., Ser. G, A.M.T. NR 6.60 7/01/38 4,750 4,790,517
Westchase Apts., Ser. B, A.M.T. NR 6.61 7/01/38 4,000 4,034,080
No. Springs Impvt. Dist. Wtr. Mgt.,
Ser. A NR 8.20 5/01/24 1,935 2,264,221
Ser. A NR 8.30 5/01/24 1,680 1,853,006
Northern Palm Beach Cnty. Impt. Ref., Wtr. Ctl. & Impt.
Unit Dev. NR 6.00 8/01/10 2,990 3,048,514
Orlando Util. Comm., Wtr. & Elec. Rev., Ser. D Aa2 6.75 10/01/17 2,000 2,428,660
Palm Beach Cnty. Hsg. Auth., Banyan Club Apts. NR 7.75 3/01/23 4,410 4,767,960
Sarasota Hlth. Facs., Kobernick Hsg. Meadow Park Proj. Aaa 10.00 7/01/22 6,785(c) 8,108,550
--------------
49,305,494
- ------------------------------------------------------------------------------------------------------------------------------
Georgia--3.2%
Atlanta Arpt. Facs. Rev., M.B.I.A., A.M.T. Aaa Zero 1/01/10 2,000 1,131,920
Atlanta Urban Res. Fin. Auth., Clark Atlanta Univ. Dorm.
Proj. NR 9.25 6/01/10 4,255(c) 4,607,824
Atlanta Wtr. Rev. Ser. A, F.G.I.C. Aaa 5.50 11/01/22 3,000 3,210,330
Effingham Cnty. Dev. Auth., Ft. Howard Corp. Baa3 7.90 10/01/05 10,000 10,422,800
Fulton Cnty. Wtr. & Swr. Rev., F.G.I.C. Aaa 6.375 1/01/14 5,810(c) 6,779,921
Fulton Cnty. Wtr. & Swr. Rev., F.G.I.C. Aaa 6.375 1/01/14 190 220,125
Henry Cnty. Wtr. & Swg. Auth. Rev., A.M.B.A.C. Aaa 6.15 2/01/20 3,000 3,459,090
Rockdale Cnty. Dev. Auth., Solid Wste. Disp. Rev. NR 7.50 1/01/26 8,100 8,573,445
--------------
38,405,455
- ------------------------------------------------------------------------------------------------------------------------------
Hawaii--0.6%
Hawaii Cnty. Impvt. Dist. No. 17 NR 9.50 8/01/11 6,320 6,771,564
- ------------------------------------------------------------------------------------------------------------------------------
Illinois--9.1%
Chicago Brd. of Edl.,
Capital Appreciation Schl. Ref. Ser. A, F.G.I.C. Aaa Zero 12/01/20 5,745 1,849,603
Lease Ctfs., Ser. A, M.B.I.A. Aaa 6.00 1/01/20 10,000 11,264,600
Ref. Schl. Ser. A, F.G.I.C. Aaa 5.25 12/01/23 4,775 4,908,413
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 8
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1999 HIGH INCOME SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Illinois (cont'd.)
Chicago O'Hare Int'l. Arpt.,
Amer. Airlines Proj., Ser. B Baa2 8.20% 12/01/24 $ 1,000 $ 1,173,690
United Airlines, Ser. B, A.M.T. Baa2 8.45 5/01/07 6,000 6,354,060
United Airlines, Ser. B, A.M.T. Baa2 8.50 5/01/18 6,500 6,889,025
United Airlines, Ser. B Baa2 8.85 5/01/18 2,585 2,829,334
United Airlines, Ser. B, A.M.T. Baa2 8.95 5/01/18 2,225 2,435,085
Chicago Pub. Bldg.
Comm. Rev., Ser. A, M.B.I.A. Aaa 7.00 1/01/20 6,530 8,170,858
Ref. Schl. Ref. Ser. B, F.G.I.C. Aaa 5.25 12/01/18 3,720 3,854,032
Chicago Wtr. Rev., F.G.I.C. Aaa 6.50 11/01/15 3,005 3,575,139
Hennepin Ind. Dev. Rev., Exolon-Esk Co. Proj. NR 8.875 1/01/18 7,900 8,738,269
Illinois Reg'l. Trans. Auth. Ref., F.G.I.C. Aaa 6.00 6/01/14 3,530 3,993,065
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 7,021 7,217,869
Midwest Physician Group Ltd. Proj. BBB-(b) 8.10 11/15/14 3,010(c) 3,650,437
Midwest Physician Group Ltd. Proj. BBB-(b) 8.125 11/15/19 3,285(c) 3,987,826
Illinois, Ser. K, A.M.B.A.C. Aaa 6.25 1/01/13 5,000 5,758,300
Kane And De Kalb Cntys. Sch.,
Dist. No. 301, Cap. Apprec. A.M.B.A.C. Aaa Zero 12/01/11 3,360 1,833,720
Dist. No. 301, Cap. Apprec. A.M.B.A.C. Aaa Zero 12/01/13 4,065 1,975,183
Metropolitan Pier & Exposition Auth. Dedicated St. Tax
Rev., F.G.I.C. Aaa 5.50 6/15/29 7,000 7,446,110
Vlge. of Robbins, Cook Cnty. Robbins Res. Rec., A.M.T. NR 8.375 10/15/16 14,000(e) 7,525,000
Winnebago Cnty. Hsg. Auth., Park Tower Assoc., Sec. 8 NR 8.125 1/01/11 3,769 4,056,636
--------------
109,688,264
- ------------------------------------------------------------------------------------------------------------------------------
Indiana--2.2%
Bluffton Econ. Dev. Rev., Kroger Co. Proj. Baa3 7.85 8/01/15 7,500 8,317,725
Indiana Transn. Fin. Auth. Hwy. Rev., Ser. A Aa2 5.50 12/01/22 3,990 4,218,627
Indianapolis Int'l. Arpt. Auth. Rev., Federal Express
Corp. Proj., A.M.T. Baa2 7.10 1/15/17 6,000 6,685,620
Wabash Econ. Dev. Rev. Bonds, Connell Ltd., A.M.T. NR 8.50 11/24/17 7,250 7,885,825
--------------
27,107,797
- ------------------------------------------------------------------------------------------------------------------------------
Iowa--2.5%
City of Cedar Rapids Rev.,
1st Mtge., Cottage Grove Place Proj. NR 9.00 7/01/18 9,375(c) 11,895,563
1st Mtge., Cottage Grove Place Proj. NR 9.00 7/01/25 4,435(c) 5,627,394
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 9
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1999 HIGH INCOME 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>
- ------------------------------------------------------------------------------------------------------------------------------
Iowa (cont'd.)
Iowa St. Fin. Auth., Hlth. Care Facs. Rev., Mercy Hlth.
Initiatives Proj. NR 9.25% 7/01/25 $ 10,000 $ 13,161,500
--------------
30,684,457
- ------------------------------------------------------------------------------------------------------------------------------
Kentucky--0.9%
Kentucky St. Tpke. Auth. Rev., F.G.I.C. Aaa Zero 1/01/10 8,250 5,041,410
Owensboro Elec. Lt. & Pwr. Rev.,
Ser. B, A.M.B.A.C. Aaa Zero 1/01/14 5,000 2,436,850
Ser. B, A.M.B.A.C. Aaa Zero 1/01/16 6,650 2,881,711
--------------
10,359,971
- ------------------------------------------------------------------------------------------------------------------------------
Louisiana--2.8%
Hodge Util. Rev., Stone Container Corp., A.M.T. NR 9.00 3/01/10 7,000 7,314,020
New Orleans Home Mtge. Auth. Rev., Sngl. Fam. Mtge.,
Ser. A, G.N.M.A., A.M.T. Aaa 8.60 12/01/19 1,670(f) 1,722,204
New Orleans Ind. Dev. Rev. BBB(b) 8.75 10/01/19 3,600 4,276,476
New Orleans, Gen Oblig., Cap. Apprec., A.M.B.A.C. Aaa Zero 9/01/18 3,090 1,142,991
St. Charles Parish Poll. Ctrl. Rev.,
Pwr. & Lt. Co. Baa3 8.25 6/01/14 10,000 10,325,800
Pwr. & Lt. Co., Ser. 1989 Baa3 8.00 12/01/14 3,500 3,668,875
West Feliciana Parish Poll. Ctrl. Rev., Gulf St. Util.
Co. Proj. NR 9.00 5/01/15 5,250 5,633,513
--------------
34,083,879
- ------------------------------------------------------------------------------------------------------------------------------
Maryland--1.3%
Northeast Wste. Disp. Auth.,
Sludge Comp. Fac. NR 7.25 7/01/07 3,769 4,132,181
Sludge Comp. Fac., A.M.T. NR 8.50 7/01/07 2,995 3,345,864
Washington Sub. San. Dist.
Ref., Gen. Const. Aa1 6.00 6/01/18 3,705 4,226,330
Ref., Gen. Const. Aa1 6.00 6/01/19 3,940 4,500,741
--------------
16,205,116
- ------------------------------------------------------------------------------------------------------------------------------
Massachusetts--3.9%
Boston Ind. Dev. Fin. Auth. Rev.,
First Mtge. Springhouse Proj. NR 9.25 7/01/15 8,000(c) 10,088,000
First Mtge. Springhouse Proj. NR 6.00 7/01/28 4,000 3,994,120
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 10
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1999 HIGH INCOME SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Massachusetts (cont'd.)
Mass. Bay Trans. Auth., Gen. Trans. Sys., Ser. A,
F.G.I.C. Aaa 7.00% 3/01/21 $ 7,500 $ 9,432,300
Mass. St. Coll. Bldg. Proj. and Ref. Bonds Aa3 7.50 5/01/14 1,750 2,247,245
Mass. St. Hlth. & Edl. Facs. Auth. Rev.,
Cardinal Cushing Gen. Hosp. NR 8.875 7/01/18 7,500 7,727,700
St. Josephs Hosp., Ser. C NR 9.50 10/01/20 5,610(c) 5,863,348
Massachusetts St. Indl. Fin. Agcy.
Ref., Chestnut Knoll Proj. A NR 5.50 2/15/18 1,250 1,213,562
Ref., Chestnut Knoll Proj. A NR 5.625 2/15/25 1,250 1,209,438
Randolph Hsg. Auth., Multifam. Hsg., Liberty Place Proj.
A, Ser. A NR 9.00 12/01/21 5,810 6,016,894
--------------
47,792,607
- ------------------------------------------------------------------------------------------------------------------------------
Michigan--4.4%
Dexter Cmnty. Schs., F.G.I.C. Aaa 5.10 5/01/18 2,250 2,299,635
Grand Rapids Dev. Auth.
Cap. Apprec., M.B.I.A. Aaa Zero 6/01/10 3,000 1,788,600
Cap. Apprec., M.B.I.A. Aaa Zero 6/01/11 3,160 1,776,994
Cap. Apprec., M.B.I.A. Aaa Zero 6/01/12 3,000 1,594,230
Gratiot Cnty. Econ. Dev. Corp., Danley Die Proj. Connell
L.P. NR 7.625 4/01/07 3,200 3,433,056
Holland Sch. Dist., Cap. Apprec., A.M.B.A.C. Aaa Zero 5/01/17 2,950 1,178,968
Lowell Area Sch., F.G.I.C. Aaa Zero 5/01/14 5,000 2,379,900
Michigan St. Hosp. Fin. Auth. Rev., Saratoga Cmnty.
Hosp. NR 8.75 6/01/10 6,065(c) 6,909,248
Michigan St. Strategic Fd. Res. Recovery Ltd. Oblig.
Rev.,
Central Wayne Energy Rec. A, A.M.T. NR 6.90 7/01/19 1,500 1,532,835
Central Wayne Energy Rec. A NR 7.00 7/01/27 3,500 3,603,950
Michigan Strategic Fund, Great Lakes Pulp & Fiber Proj. NR 8.00 12/01/27 13,085 9,159,507
Michigan Strategic Fund, Solid Wste. Disp., Gennese Pwr.
Station, A.M.T. NR 7.50 1/01/21 10,000 10,721,400
Wayne Cnty. Bldg. Auth., Ser. A, A.M.T. Baa2 8.00 3/01/17 3,500(c) 3,951,290
West Ottawa Sch. Dist.,
F.G.I.C. Aaa Zero 5/01/15 4,825 2,168,741
F.G.I.C. Aaa Zero 5/01/18 3,000 1,128,900
--------------
53,627,254
- ------------------------------------------------------------------------------------------------------------------------------
Mississipi--1.5%
Claiborne Cnty. Poll. Ctrl. Rev., Mid. So. Engy. Sys.,
Ser. A Ba1 9.50 12/01/13 8,260 8,536,214
Mississippi Bus. Fin. Corp. Pollutn. Ctl. Rev., Sys.
Engy. Res., Inc. Ba1 5.875 4/01/22 9,500 9,532,205
--------------
18,068,419
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 11
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1999 HIGH INCOME 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>
- ------------------------------------------------------------------------------------------------------------------------------
Missouri--2.2%
Bridgeton Ind. Dev. Auth. SR. Hsg. Rev., Sarah Cmnty.
Proj. NR 5.90% 5/01/28 $ 4,250 $ 4,163,342
Sikeston Elec. Rev. Ref., M.B.I.A. Aaa 6.00 6/01/15 9,250 10,562,297
St. Louis Cnty. Ind. Dev. Auth. Rev.,
Soemm Proj. NR 10.25 7/01/08 1,475 1,479,912
Soemm Proj., A.M.T. NR 10.25 7/01/08 560 561,865
St. Louis Cnty. Reg. Conv. & Sports Comp., Ser. C Aaa 7.90 8/15/21 8,820 10,245,665
--------------
27,013,081
- ------------------------------------------------------------------------------------------------------------------------------
Nebraska--0.4%
Kearney Ind. Dev. Rev.,
Cap. Apprec. Great Platte Rvr. Rd. NR Zero 1/01/17 4,000 2,451,120
Great Platte Rvr. Rd. NR 6.75 1/01/28 2,750 2,645,748
--------------
5,096,868
- ------------------------------------------------------------------------------------------------------------------------------
Nevada--0.3%
Clark Cnty. Ind. Dev. Rev., Ref. Pwr. Co., Ser. B,
A.M.T. BBB-(b) 5.90 10/01/30 3,500 3,582,740
- ------------------------------------------------------------------------------------------------------------------------------
New Hampshire--1.5%
New Hampshire Higher Edl. & Hlth. Facs. Auth. Rev.,
Antioch College NR 7.875 12/01/22 5,260 5,808,302
Havenwood/Heritage Heights NR 9.75 12/01/19 7,385(c) 7,876,841
New Hampshire St. Bus. Pollutn. Ref., Pub. Svc. Co.,
A.M.T. Ba3 6.00 5/01/21 5,000 4,984,850
--------------
18,669,993
- ------------------------------------------------------------------------------------------------------------------------------
New Jersey--6.7%
Hudson Cnty. Improvement Auth. Rev., A.M.T. BBB-(b) 6.125 1/01/29 3,000 2,991,150
New Jersey Econ. Dev. Auth. Rev.,
Development Rev. NR Zero 4/01/12 1,115 502,519
Fellowship Vlge., Proj. A Aaa 9.25 1/01/25 11,500(c) 14,613,625
Kaplowski Rd., Ser. A NR 6.375 4/01/31 7,000 7,193,550
Leisure Park Proj. Ser. A NR 5.875 12/01/27 1,000 979,070
Ref. Newark Arpt. Marriot Hotel NR 7.00 10/01/14 3,800 4,153,362
New Jersey Hlthcare Facs., Fin. Auth. Rev. NR 8.00 7/01/27 5,000 5,418,700
New Jersey St. Edl. Facs. Auth. Rev., Felician College
of Lodi,
Ser. D. NR 7.375 11/01/22 4,000 4,365,160
New Jersey St. Ref., Ser. E Aa1 6.00 7/15/10 10,000 11,346,000
New Jersey St. Tpke. Auth. Rev., Ser. C, M.B.I.A. Aaa 6.50 1/01/16 11,000 13,094,290
New Jersey St. Trans. Trust Fund Auth., Trans. Sys.,
M.B.I.A. Aaa 6.50 6/15/11 14,500 17,096,950
--------------
81,754,376
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 12
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1999 HIGH INCOME 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 Mexico--0.4%
Farmington Pollutn. Ctrl. Rev.,
Ref., Pub. Svc. Co. A Ba1 5.80% 4/01/22 $ 1,500 $ 1,508,205
Ref., Pub. Svc. Co. B Ba1 5.80 4/01/22 3,000 3,016,410
--------------
4,524,615
- ------------------------------------------------------------------------------------------------------------------------------
New York--4.4%
Met. Trans. Auth. Facs. Rev., Ser. N, F.G.I.C. Aaa Zero 7/01/13 8,340 4,211,783
New York City Ind. Dev. Agcy.,
Bklyn. Navy Yard Cogen Partners, A.M.T. Baa3 6.20 10/01/22 8,175 9,078,665
Mesorah Pub. Ltd., A.M.T. NR 10.25 3/01/19 1,834 1,911,908
Visy Paper Inc. Proj., A.M.T. NR 7.95 1/01/28 4,000 4,406,600
New York N.Y.
Prerefunded, Ser. I A3 6.25 4/15/27 1,480 1,690,811
Unrefunded Balance, Ser. I A3 6.25 4/15/27 1,520 1,676,864
New York N.Y.C. Ind. Dev. Agcy. Rev.,
Ref. Laguardia Assoc. L.P. Proj. NR 6.00 11/01/28 4,000 4,025,760
New York St. Dorm. Auth. Rev. Comm. College Ser. A BBB+(b) 5.00 7/01/28 4,275 4,085,318
New York St. Dorm. Auth. Rev.,
Colgate Univ., M.B.I.A. Aaa 6.00 7/01/21 3,350 3,805,299
Memorial Sloan Kettering Cancer Ctr. M.B.I.A. Aaa 5.75 7/01/20 5,000 5,513,700
Port Auth. of New York & New Jersey, USAir LaGuardia
Arpt., A.M.T. Ba2 9.125 12/01/15 4,000 4,346,680
Rockland Cnty. Ind. Dev. Agcy. Rev.,
Dominican Coll. Proj. NR 5.90 5/01/10 2,090 2,117,003
Dominican Coll. Proj. NR 6.25 5/01/28 3,000 3,035,670
Suffolk County Ind. Dev. Agcy. Ind. Dev. Revenue, A.M.T. NR 5.50 1/01/23 3,000 3,007,950
--------------
52,914,011
- ------------------------------------------------------------------------------------------------------------------------------
North Dakota--1.0%
Mercer Cnty., Antelope Valley Station, A.M.B.A.C. Aaa 7.20 6/30/13 10,000 12,358,900
- ------------------------------------------------------------------------------------------------------------------------------
Ohio--4.4%
Cleveland Pub. Pwr. Sys. Rev.,
1st Mtge., M.B.I.A. Aaa Zero 11/15/12 1,000 521,910
1st Mtge., M.B.I.A. Aaa Zero 11/15/13 1,500 738,780
1st Mtge., Ser. A, M.B.I.A., A.M.T. Aaa Zero 11/15/09 3,000 1,863,180
Franklin Cnty. Hosp. Rev., Senior Doctors Hlth. Corp. Baa3 5.60 12/01/28 10,000 9,759,600
Mahoning Valley San. Dist. Wtr. Rev. NR 7.75 5/15/19 8,000 8,813,440
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 13
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1999 HIGH INCOME 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>
- ------------------------------------------------------------------------------------------------------------------------------
Ohio (cont'd.)
Montgomery Cnty. Hlthcare. Facs. Rev., Friendship Vlge.
Dayton,
Proj. B NR 9.25% 2/01/16 $ 4,500(c) $ 4,779,495
Ohio St. Air Quality Dev. Auth. Ref., Amt. Coll. Poll.
Ctrl.,
Ser. A Ba1 6.10 8/01/20 3,000 3,075,480
Ohio St. Solid Wste. Rev.,
Cscltd. Proj., A.M.T. NR 8.50 8/01/22 7,000 7,257,600
Rep. Eng. Steels Inc., A.M.T. NR 9.00 6/01/21 2,250 2,446,808
Ohio St. Wtr. Dev. Auth. Poll. Ctrl. Facs., 1st Mtge.,
Toledo Edison, A.M.T. Ba1 8.00 10/01/23 5,500 6,240,630
Stark Cnty. Hlthcare. Facs. Rev., Rose Lane Inc. Proj. NR 9.00 12/01/23 6,135(c) 7,334,883
--------------
52,831,806
- ------------------------------------------------------------------------------------------------------------------------------
Oklahoma--1.9%
Grand River Dam Auth. Rev., A.M.B.A.C. Aaa 6.25 6/01/11 12,000 13,855,680
Oklahoma Dev. Fin. Auth. Rev. Ref. Healthcare Ser. A Baa2 5.625 8/15/29 4,000 3,980,000
Tulsa Ind. Dev. Auth., Univ. Tulsa, Ser. A, M.B.I.A. Aaa 6.00 10/01/16 4,250(f) 4,809,427
--------------
22,645,107
- ------------------------------------------------------------------------------------------------------------------------------
Oregon--0.4%
Klamath Falls Elec. Rev. Ref. Sr. Lien NR 6.00 1/01/25 5,000 5,032,850
- ------------------------------------------------------------------------------------------------------------------------------
Pennsylvania--3.7%
Allegheny Cnty. Hosp. Rev., West Penn. Hosp. Hlth. Ctr. NR 8.50 1/01/20 2,800 2,934,764
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 5,757,921
Dauphin Cnty. Gen. Auth. Hosp. Rev., NW Med. Ctr. Proj. BBB-(b) 8.625 10/15/13 6,370 7,493,095
Philadelphia Auth., Ind. Dev. Rev. NR 7.75 12/01/17 5,000 5,554,650
Philadelphia Hosps. & Higher Ed. Facs. Auth. Rev.,
Grad. Hlth. Sys. Ca 7.00 7/01/05 2,500(e) 950,000
Grad. Hlth. Sys. Ca 7.25 7/01/18 3,435(e) 1,305,300
Grad. Hlth. Sys., Ser. A Ca 6.25 7/01/13 3,050(e) 1,159,000
Philadelphia Wtr. & Wstewtr. Auth. Rev.,
M.B.I.A. Aaa 6.25 8/01/10 2,500 2,851,900
M.B.I.A. Aaa 6.25 8/01/12 3,000 3,451,350
Somerset Cnty. Hosp. Auth. Rev.,
Hlthcare 1st Mtge. NR 8.40 6/01/09 2,185 2,421,789
Hlthcare 1st Mtge. NR 8.50 6/01/24 8,805 9,768,619
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 14
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1999 HIGH INCOME 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 (cont.d)
Wilkes Barre Gen. Mun. Auth. Coll. Rev., Misericordia
Coll.,
Ser. A NR 7.75% 12/01/12 $ 1,245 $ 1,348,472
--------------
45,029,932
- ------------------------------------------------------------------------------------------------------------------------------
Rhode Island--0.9%
Rhode Island Redev. Agcy., Ser. A NR 8.00 9/01/24 10,430 11,326,459
- ------------------------------------------------------------------------------------------------------------------------------
South Carolina--0.4%
So. Carolina St. Hsg. Fin. & Dev. Auth., Homeownership
Mtge., A.M.T. Aa2 7.75 7/01/22 4,345 4,519,539
- ------------------------------------------------------------------------------------------------------------------------------
South Dakota--0.7%
Education Lns. Inc. Student Ln. Rev., A.M.T. A2 5.60 6/01/20 3,300 3,323,661
So. Dakota Econ. Dev. Fin. Auth., Dakota Park, A.M.T. NR 10.25 1/01/19 4,855 5,031,188
--------------
8,354,849
- ------------------------------------------------------------------------------------------------------------------------------
Tennessee--2.9%
Memphis Center City Rev. Fin. Corp. Ser. B NR 6.50 9/01/28 26,000 26,382,720
Rutherford Cnty. Hlth. & Edl. Facs., Brd. 1st Mtge. Rev. NR 9.50 12/01/19 7,300 8,391,423
--------------
34,774,143
- ------------------------------------------------------------------------------------------------------------------------------
Texas--3.4%
Austin Rev., Ref. Sub. Lien, M.B.I.A. Aaa 5.25 5/15/25 5,000 5,151,200
Beaumont Hsg. Fin. Corp., Sngl. Fam. Mtge. Rev. A 9.20 3/01/12 1,165 1,280,207
Brazos River Auth. Texas Rev. Reliant Energy Proj. A Baa1 5.375 4/01/19 4,000 3,988,000
Houston Wtr. & Swr. Sys. Rev., Ser. C, A.M.B.A.C. Aaa Zero 12/01/10 5,000 2,908,950
Keller Ind. Sch. Dist., Cap. Apprec. Ref., Ser. A,
P.S.F.G. Aaa Zero 8/15/17 4,075 1,601,923
Meadow Parc Dev. Inc. Multifamily Rev. Housing Meadow
Proj. NR 6.50 12/01/30 5,000 5,006,700
New Braunfels Ind. Sch. Dist.,
Cap. Apprec., P.S.F.G. Aaa Zero 2/01/08 2,365 1,600,656
Cap. Apprec., P.S.F.G. Aaa Zero 2/01/09 2,365 1,516,296
Cap. Apprec., P.S.F.G. Aaa Zero 2/01/12 2,365 1,275,610
Round Rock Ind. Sch. Dist., Gen. Oblig., M.B.I.A. Aaa Zero 8/15/11 4,385 2,438,937
San Antonio Elec. & Gas Rev.,
F.G.I.C. Aaa Zero 2/01/09 5,000 3,205,700
F.G.I.C., Ser. B Aaa Zero 2/01/12 7,500 4,045,275
Texas Mun. Pwr. Agcy. Rev., M.B.I.A. Aaa Zero 9/01/15 16,300 7,194,005
--------------
41,213,459
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 15
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1999 HIGH INCOME 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>
- ------------------------------------------------------------------------------------------------------------------------------
Utah--0.5%
Carbon Cnty. Solid Wste. Disp. Rev. Ref., Laidlaw
Environmental,
Ser. A, A.M.T. NR 7.45% 7/01/17 $ 1,500 $ 1,631,655
Tooele Cnty Poll. Ctrl. Rev. Ref., Laidlaw
Environmental, Ser. A, A.M.T. NR 7.55 7/01/27 4,000 4,372,320
--------------
6,003,975
- ------------------------------------------------------------------------------------------------------------------------------
Virginia--1.8%
Loudoun Cnty. Ind. Dev. Auth., Rev. NR 7.125 9/01/15 2,000 2,182,600
Norfolk Redev. & Hsg. Auth., Multifam. Rental Hsg. Fac.
Rev., A.M.T. NR 8.00 9/01/26 6,000 6,207,360
Pittsylvania Cnty. Ind. Dev. Auth. Rev. Multitrade,
A.M.T. NR 7.55 1/01/19 9,000 9,802,890
Pocahontas Pkwy. Assoc. Toll Rd. Rev.,
Cap. Apprec., Ser. B Baa3 Zero 8/15/16 7,000 2,604,560
Cap. Apprec., Ser. C Ba1 Zero 8/15/16 3,300 1,169,487
--------------
21,966,897
- ------------------------------------------------------------------------------------------------------------------------------
Washington--2.5%
Bellevue Conv. Ctr. Auth.,
King City, Oblig. Rev., M.B.I.A. Aaa Zero 2/01/10 870 524,062
King City, Oblig. Rev., M.B.I.A. Aaa Zero 2/01/11 1,200 681,684
King City, Oblig. Rev., M.B.I.A. Aaa Zero 2/01/12 1,300 698,568
King City, Oblig. Rev., M.B.I.A. Aaa Zero 2/01/14 1,385 663,609
Chelan Cnty. Pub. Util., Dist. No. 1, Columbia River
Rock,
Hydro Elec. Sys. Rev. M.B.I.A. Aaa Zero 6/01/15 7,585 3,347,564
Thurston Cnty. Sch. Dist. 333,
F.G.I.C. Aaa Zero 12/01/12 6,830 3,524,212
F.G.I.C., Ser. B Aaa Zero 12/01/11 6,415 3,500,986
Washington St. Ref., Ser R, 97A Aa1 Zero 7/01/16 7,000 2,953,300
Washington St. Pub. Pwr. Supply Sys. Rev.,
Nuclear Proj. No. 1, Ser. B Aa1 7.25 7/01/09 5,000 5,907,550
Nuclear Proj. No. 3, M.B.I.A. Aaa Zero 7/01/17 5,000 1,967,400
Nuclear Proj. No. 3, Ser. B, M.B.I.A. Aaa 7.125 7/01/16 5,000 6,240,900
--------------
30,009,835
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 16
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1999 HIGH INCOME 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--0.9%
So. Charleston Ind. Dev. Rev., Union Carbide Chem. &
Plastics Co., A.M.T. Baa2 8.00% 8/01/20 $ 2,450 $ 2,592,737
Weirton Poll. Ctrl. Rev., Weirton Steel Proj. B2 8.625 11/01/14 4,000 4,048,440
West Virginia St. Pkwys. Econ. Dev. & Tourism Auth.,
F.G.I.C. Aaa 8.022 5/16/19 3,250(d) 3,668,438
--------------
10,309,615
- ------------------------------------------------------------------------------------------------------------------------------
Wisconsin--0.8%
Oconto Falls Cmnty. Dev. Auth. Dev. Rev., Oconto Falls
Tissue,
Inc. Proj., A.M.T. NR 7.75 12/01/22 4,000 4,241,880
Southeast Prof. Baseball Pk. Dist. Sales Tax Rev., Ser.
A Aaa 5.50 12/15/26 2,500 2,666,450
Wisconsin St. Health & Edl. Fac., Ser. A A-(b) 5.60 2/15/29 3,000 2,961,180
--------------
9,869,510
--------------
Total long-term investments (cost $1,099,591,130) 1,169,178,259
--------------
SHORT-TERM INVESTMENTS--1.9%
- ------------------------------------------------------------------------------------------------------------------------------
District of Columbia--0.1%
Dist. of Columbia, Gen. Oblig., Ser. 92A-6, F.R.D.D. VMIG1 4.30 5/03/99 1,000 1,000,000
- ------------------------------------------------------------------------------------------------------------------------------
Louisiana--0.1%
Calcasieu Parish Inc. Indl. Dev. Rev., Ser. 95 F.R.D.D.,
A.M.T. VMIG1 4.30 5/03/99 400 400,000
West Baton Rouge Parish Ind. Dist. No. 3 Rev.,
Dow Chemical Co. Proj., Ser. 94A, F.R.D.D., A.M.T. P-1 4.35 5/03/99 500 500,000
Dow Chemical Co. Proj., Ser. 95, F.R.D.D., A.M.T. P-1 4.35 5/03/99 500 500,000
--------------
1,400,000
- ------------------------------------------------------------------------------------------------------------------------------
Rhode Island--0.1%
Rhode Island Hlth. & Edl. Corp., Institution Rev.,
F.R.D.D. A-1(b) 4.30 5/03/99 500 500,000
- ------------------------------------------------------------------------------------------------------------------------------
South Carolina--0.2%
So. Carolina Jobs Econ. Dev. Auth., Wellman Inc. Proj.,
Ser. 90, F.R.D.D., A.M.T. CPS-1 4.40 5/03/99 2,600 2,600,000
- ------------------------------------------------------------------------------------------------------------------------------
Texas--1.3%
Brazos River Harbor Nav. Dist. Rev.,
Dow Chemical Co., Ser. 92A, F.R.D.D., A.M.T. P-1 4.35 5/03/99 100 100,000
Dow Chemical Co., Ser. 93, F.R.D.D., A.M.T. P-1 4.35 5/03/99 4,600 4,600,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 17
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1999 HIGH INCOME 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.)
Brazos River Harbor Nav. Dist. Rev.,
Dow Chemical Co., Ser. 97, F.R.D.D., A.M.T. P-1 4.35% 5/03/99 $ 8,500 $ 8,500,000
Dow Chemical Co., Ser.98 F.R.D.D., A.M.T. NR 4.35 5/03/99 2,000 2,000,000
Gulf Coast Wste. Displ. Auth. Fac. Rev. Ser. 97,
F.R.D.D., A.M.T. P-1 4.30 5/03/99 700 700,000
--------------
15,900,000
- ------------------------------------------------------------------------------------------------------------------------------
Virginia--0.0%
Campbell Cnty. Ind. Dev. Auth. Rev., Hadson Pwr., Ser.
90A F.R.D.D., A.M.T. Aa2 4.40 5/03/99 300 300,000
- ------------------------------------------------------------------------------------------------------------------------------
Washington--0.1%
Washington Hsg. Fin. Comm., Canyon Lakes II Proj., Ser.
94 F.R.D.D., A.M.T. VMIG1 4.45 5/03/99 1,100 1,100,000
--------------
Total short-term investments (cost $22,800,000) 22,800,000
- ------------------------------------------------------------------------------------------------------------------------------
Total Investments--98.4%
(cost $1,122,391,130; Note 4) 1,191,978,259
Other assets in excess of liabilities--1.6% 19,457,961
--------------
Net Assets--100% $1,211,436,220
--------------
--------------
</TABLE>
- ---------------
(a) The following abbreviations are used in portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance Corporation
A.M.T.--Alternative Minimum Tax
F.G.I.C.--Financial Guaranty Insurance Company
F.R.D.D.--Floating Rate (Daily) Demand Note (g)
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.
(f) All or partial principal amount segregated as initial margin on financial
futures contracts.
(g) 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.
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. 18
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Statement of Assets and Liabilities HIGH INCOME SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets April 30, 1999
<S> <C>
Investments, at value (cost $1,122,391,130)................................................................. $1,191,978,259
Cash........................................................................................................ 72,938
Interest receivable......................................................................................... 22,668,362
Receivable for investments sold............................................................................. 5,694,643
Receivable for Series shares sold........................................................................... 1,563,898
Due from broker - variation margin.......................................................................... 203,125
Other assets................................................................................................ 15,488
--------------
Total assets............................................................................................. 1,222,196,713
--------------
Liabilities
Payable for investments purchased........................................................................... 4,792,139
Payable for Series shares reacquired........................................................................ 3,116,449
Dividends payable........................................................................................... 1,873,928
Management fee payable...................................................................................... 440,650
Distribution fee payable.................................................................................... 393,442
Accrued expenses............................................................................................ 143,885
--------------
Total liabilities........................................................................................ 10,760,493
--------------
Net Assets.................................................................................................. $1,211,436,220
--------------
--------------
Net assets were comprised of:
Shares of beneficial interest, at par.................................................................... $ 1,080,836
Paid-in capital in excess of par......................................................................... 1,164,895,754
--------------
1,165,976,590
Accumulated net realized loss on investments............................................................. (24,311,874)
Net unrealized appreciation of investments............................................................... 69,771,504
--------------
Net assets, April 30, 1999.................................................................................. $1,211,436,220
--------------
--------------
Class A:
Net asset value and redemption price per share
($514,952,068 / 45,940,859 shares of beneficial interest issued and outstanding)...................... $11.21
Maximum sales charge (3% of offering price).............................................................. .35
--------------
Maximum offering price to public......................................................................... $11.56
--------------
--------------
Class B:
Net asset value, offering price and redemption price per share
($649,706,164 / 57,968,234 shares of beneficial interest issued and outstanding)...................... $11.21
--------------
--------------
Class C:
Net asset value and redemption price per share
($32,939,296 / 2,938,864 shares of beneficial interest issued and outstanding)........................ $11.21
Sales charge (1% of offering price)...................................................................... .11
--------------
Offering price to public................................................................................. $11.32
--------------
--------------
Class Z:
Net asset value, offering price and redemption price per share
($13,838,692 / 1,235,626 shares of beneficial interest issued and outstanding)........................ $11.20
--------------
--------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 19
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
HIGH INCOME SERIES
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income April 30, 1999
<S> <C>
Income
Interest.................................. $ 75,573,140
--------------
Expenses
Management fee............................ 5,816,965
Distribution fee--Class A................. 725,526
Distribution fee--Class B................. 3,334,425
Distribution fee--Class C................. 195,856
Transfer agent's fees and expenses........ 434,000
Custodian's fees and expenses............. 152,000
Reports to shareholders................... 81,000
Registration fees......................... 64,000
Insurance expense......................... 24,000
Legal fees and expenses................... 19,000
Trustees' fees and expenses............... 16,000
Audit fees and expenses................... 15,000
Miscellaneous............................. 10,812
--------------
Total expenses......................... 10,888,584
Less: Management fee waiver............... (590,774)
Custodian fee credit................... (6,191)
--------------
Net expenses........................... 10,291,619
--------------
Net investment income........................ 65,281,521
--------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions................... 2,580,571
Financial futures contract transactions... (1,954,344)
--------------
626,227
--------------
Net change in unrealized appreciation (depreciation) of:
Investments............................... (12,185,440)
Financial futures contracts............... 184,375
--------------
(12,001,065)
--------------
Net loss on investments...................... (11,374,838)
--------------
Net Increase in Net Assets
Resulting from Operations.................... $ 53,906,683
--------------
--------------
</TABLE>
PRUDENTIAL MUNICIPAL BOND FUND
HIGH INCOME SERIES
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended April 30,
in Net Assets 1999 1998
<S> <C> <C>
Operations
Net investment income....... $ 65,281,521 $ 61,876,042
Net realized gain (loss) on
investment
transactions............. 626,227 (6,450,845)
Net change in unrealized
appreciation
(depreciation) of
investments.............. (12,001,065) 50,351,593
-------------- --------------
Net increase in net assets
resulting from
operations............... 53,906,683 105,776,790
-------------- --------------
Dividends and distributions
(Note 1)
Dividends from net
investment income
Class A.................. (27,230,164) (23,016,599)
Class B.................. (35,903,105) (37,682,645)
Class C.................. (1,344,435) (804,495)
Class Z.................. (803,817) (372,303)
-------------- --------------
(65,281,521) (61,876,042)
-------------- --------------
Series share transactions (net of
share conversions) (Note 5):
Net proceeds from shares
subscribed............... 271,203,411 194,658,081
Net asset value of shares
issued in reinvestment of
dividends................ 30,134,516 27,600,737
Cost of shares reacquired... (199,757,462) (156,797,816)
-------------- --------------
Net increase in net assets
from Series share
transactions............. 101,580,465 65,461,002
-------------- --------------
Total increase................. 90,205,627 109,361,750
Net Assets
Beginning of year.............. 1,121,230,593 1,011,868,843
-------------- --------------
End of year.................... $1,211,436,220 $1,121,230,593
-------------- --------------
-------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 20
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1999 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--97.9%
- ------------------------------------------------------------------------------------------------------------------------------
Alabama--0.8%
Huntsville Solid Wste. Disp. Auth., F.G.I.C., A.M.T. Aaa 7.00% 10/01/08 $ 2,000 $ 2,124,020
Jefferson Cnty. Swr. Rev. Wste., Ser. D, F.G.I.C. Aaa 5.75 2/01/22 1,200 1,281,444
------------
3,405,464
- ------------------------------------------------------------------------------------------------------------------------------
Alaska--2.1%
Anchorage Hosp. Rev., Sisters of Providence, A.M.B.A.C. Aaa 7.125 10/01/05 5,000 5,473,150
No. Slope Boro., Cap. Apprec., Ser. A, M.B.I.A. Aaa Zero 6/30/06 5,000 3,678,250
------------
9,151,400
- ------------------------------------------------------------------------------------------------------------------------------
Arizona--1.9%
Maricopa Cnty. Ind. Dev. Auth. Rev.,
Hosp. Facs., John C. Lincoln Hosp., F.S.A. Aaa 7.00 12/01/00 1,210 1,255,762
Hosp. Facs., John C. Lincoln Hosp., F.S.A. Aaa 7.50 12/01/13 1,045(c) 1,128,767
Hosp. Facs., John C. Lincoln Hosp., F.S.A. Aaa 7.50 12/01/13 1,205 1,297,882
Maricopa Cnty. Unified Sch. Dist. No. 69, Paradise
Valley,
Ser. E, F.G.I.C. Aaa 6.80 7/01/12 3,700(e) 4,470,858
------------
8,153,269
- ------------------------------------------------------------------------------------------------------------------------------
California--6.3%
California St. Pub. Wks. Brd.,
Comm. Coll. Proj., Ser. A, A.M.B.A.C. Aaa 5.625 3/01/16 2,000 2,126,420
Dept. of Corrections, A.M.B.A.C. Aaa 5.75 1/01/12 2,000 2,174,680
Contra Costa Wtr. Dist. Wtr. Rev., Ser. E, A.M.B.A.C. Aaa 6.25 10/01/12 1,455 1,706,133
Inland Empire Solid Wste. Fin. Auth., Landfill Impvt.
Fin.,
Proj. B, F.S.A. Aaa 6.00 8/01/16 2,000 2,178,880
Metropolitan Wtr Dist. So. Cal., Election 1966, Ser. H,
F.G.I.C. Aaa 4.75 3/01/28 3,000 2,837,790
Roseville Joint Union H.S. Dist., Ser. B, F.G.I.C. Aaa Zero 8/01/13 2,015 1,016,346
San Diego Cnty. Wtr. Auth. Wtr. Rev., Ctfs. of Part.,
F.G.I.C Aaa 7.696 4/26/06 5,800(d) 6,844,000
So. Orange Cnty. Pub. Fin. Auth.,
Foothill Area Proj., F.G.I.C Aaa 8.00 8/15/08 2,000(e) 2,563,500
Foothill Area Proj., F.G.I.C. Aaa 6.50 8/15/10 2,725(e) 3,237,763
Victor Valley Element. Sch. Dist.,
Cap. Apprec., Ser. A, M.B.I.A. Aaa Zero 6/01/17 3,550 1,427,775
Cap. Apprec., Ser. A, M.B.I.A. Aaa Zero 6/01/18 3,700 1,407,147
------------
27,520,434
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 21
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1999 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>
- ------------------------------------------------------------------------------------------------------------------------------
Colorado--1.3%
Denver City & Cnty. Arpt. Rev., Ser. C, M.B.I.A. Aaa 5.60% 11/15/11 $ 5,000 $ 5,303,700
Jefferson Cnty. Sngl. Fam. Mtge. Rev., Ser. A, M.B.I.A. Aaa 8.875 10/01/13 275 291,132
------------
5,594,832
- ------------------------------------------------------------------------------------------------------------------------------
District of Columbia--7.2%
Dist. of Columbia, Assoc. American Med. Colleges,
A.M.B.A.C. Aaa 5.375 2/15/27 4,500 4,572,540
Dist. of Columbia Gen. Oblig.,
Ser. A, M.B.I.A. Aaa 6.50 6/01/10 6,000(e) 6,941,700
Ser. B, F.S.A. Aaa 5.50 6/01/10 7,565 8,096,441
Dist. of Columbia Hosp. Rev. Medlantic Hlthcare Grp.,
M.B.I.A. Aaa 5.875 8/15/19 3,500 3,844,365
M.B.I.A. Aaa 5.75 8/15/26 3,000 3,262,320
Dist. of Columbia Met. Area Trans. Auth.,
Gross Rev., F.G.I.C. Aaa 6.00 7/01/09 2,400 2,705,640
Gross Rev., F.G.I.C. Aaa 6.00 7/01/10 1,500 1,691,505
------------
31,114,511
- ------------------------------------------------------------------------------------------------------------------------------
Florida--3.7%
Brevard Hlth. Facs. Auth. Rev., Holmes Reg'l. Med. Ctr.,
M.B.I.A. Aaa 5.60 10/01/10 6,000 6,455,280
Dade Cnty. Edl. Facs. Auth. Rev. Ref., Univ. Miami, Ser.
A, M.B.I.A. Aaa 5.625 4/01/06 3,000 3,265,560
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(e) 3,579,363
Palm Beach Cnty. Solid Wste. Auth. Rev. Ref.,
Ser. A, A.M.B.A.C. Aaa 6.00 10/01/09 2,500 2,824,143
------------
16,124,346
- ------------------------------------------------------------------------------------------------------------------------------
Georgia--2.9%
Atlanta Arpt. Facs. Rev., A.M.B.A.C. Aaa 6.50 1/01/10 2,000 2,322,920
Georgia Mun. Elec. Auth.,
Proj. No. 1, A.M.B.A.C. Aaa 6.00 1/01/06 5,570(e) 6,137,360
Pwr. Rev., M.B.I.A. Aaa 6.20 1/01/10 3,495(e) 3,971,578
------------
12,431,858
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 22
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1999 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>
- ------------------------------------------------------------------------------------------------------------------------------
Hawaii--3.2%
Hawaii St. Dept. Bud. & Fin. Spec. Purpose Rev., Hawaiian
Elec. Co. Inc., Ser. A, M.B.I.A., A.M.T. Aaa 5.65% 10/01/27 $ 12,000 $ 12,642,360
Honolulu Hawaii City & County Wstewtr. Sys.
Revenue, Cap. Apprec., F.G.I.C. Aaa Zero 7/01/18 1,465 542,504
Revenue, Cap. Apprec., F.G.I.C. Aaa Zero 7/01/19 2,305 807,280
------------
13,992,144
- ------------------------------------------------------------------------------------------------------------------------------
Illinois--11.2%
Arlington Hts. Park Dist. Cap. Apprec., Ser. E, F.G.I.C. Aaa Zero 12/01/13 4,175 2,028,632
Chicago Bd. Edl.
Cap. Apprec. Chicago Sch. Rfm., Ser. A, A.M.B.A.C. Aaa Zero 12/01/11 5,000 2,712,000
Cap. Apprec. Chicago Sch. Rfm., Ser. A, A.M.B.A.C. Aaa Zero 12/01/12 6,000 3,075,480
Cap. Apprec. Chicago Sch. Rfm., Ser. A, A.M.B.A.C. Aaa Zero 12/01/13 3,500 1,688,575
Cap. Apprec. Chicago Sch. Rfm., Ser. A, A.M.B.A.C. Aaa Zero 12/01/14 7,195 3,277,035
Cap. Apprec. Chicago Sch. Rfm., Ser. A, A.M.B.A.C. Aaa Zero 12/01/15 3,245 1,393,922
Chicago Bd. Edl. Sch. Ref., A.M.B.A.C. Aaa 5.75 12/01/27 10,000 10,652,500
Chicago Midway Arpt. Rev., Ser. B, M.B.I.A., A.M.T. Aaa 5.75 1/01/22 6,835 7,160,004
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 2,105,600
Chicago Skyway Toll Brdg. Rev., M.B.I.A. Aaa 5.50 1/01/23 650 670,105
Chicago Wstewtr. Trans. Rev.,
Cap. Apprec. Ref., Ser. A, M.B.I.A. Aaa Zero 1/01/20 7,275 2,482,521
Cap. Apprec. Ref., Ser. A, M.B.I.A. Aaa Zero 1/01/21 8,655 2,791,930
Chicago Wtr. Rev. Cap. Apprec., F.G.I.C. Aaa Zero 11/01/16 3,055 1,258,874
Onterie Ctr. Hsg. Fin. Corp. Mtge. Rev.,
Ser. A, M.B.I.A. Aaa 7.00 7/01/12 1,575 1,679,186
Ser. A, M.B.I.A. Aaa 7.05 7/01/27 5,400(e) 5,768,226
------------
48,744,590
- ------------------------------------------------------------------------------------------------------------------------------
Indiana--1.3%
Trans. Fin. Auth. Hwy., Ser. A Aa2 5.50 12/01/22 5,500 5,815,150
- ------------------------------------------------------------------------------------------------------------------------------
Louisiana--0.6%
New Orleans, Gen. Oblig., Cap. Apprec., A.M.B.A.C. Aaa Zero 9/01/09 4,000 2,502,360
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 23
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1999 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--1.3%
Baltimore Cons. Pub. Improv.
Cap. Apprec. Ref., F.G.I.C. Aaa Zero 10/15/10 $ 1,550 $ 916,360
Ref., Ser. C, F.G.I.C. Aaa 5.50% 10/15/15 2,620 2,858,289
Cap. Apprec. Ref., F.G.I.C. Aaa Zero 10/15/11 3,000 1,673,610
------------
5,448,259
- ------------------------------------------------------------------------------------------------------------------------------
Massachusetts--0.6%
Massachusetts St. Hlth. & Edl. Facs. Auth. Rev., Baystate
Med. Ctr., Ser. E, F.S.A. Aaa 6.00 7/01/26 2,475 2,668,025
- ------------------------------------------------------------------------------------------------------------------------------
Michigan--4.0%
Detroit Dwntwn. Dev., Ser. A, A.M.B.A.C. Aaa 5.75 7/15/15 1,820 1,947,072
Detroit Michigan Sewage Disposal Rev.
Prerefunded Aaa 7.822 7/09/23 5,000(c)(d) 5,831,250
Non-prerefunded Aaa 7.822 7/09/23 1,500(d) 1,648,125
Michigan St. Hosp. Fin. Auth. Rev., Mid. Michigan Oblig.,
M.B.I.A. Aaa 7.50 6/01/15 2,350(c) 2,496,734
Saginaw Hosp. Fin. Auth., St. Luke's Hosp., Ser. C,
M.B.I.A. Aaa 6.50 7/01/11 4,000 4,276,360
St. Johns Public Sch. Ref., Gen. Oblig., F.G.I.C. Aaa 5.10 5/01/25 1,000 1,005,750
------------
17,205,291
- ------------------------------------------------------------------------------------------------------------------------------
Mississipi--0.6%
Harrison Cnty. Wste. Wtr. Mgmt. Dist. Rev., Wste. Wtr.
Treatmt.,
Facs. Auth., F.G.I.C. Aaa 6.50 2/01/06 2,400 2,556,168
- ------------------------------------------------------------------------------------------------------------------------------
Missouri--0.4%
Missouri St. Hlth. & Edl. Facs. Rev.,
SSM Hlthcare Ref, Ser. AA, M.B.I.A. NR 6.25 6/01/16 285(c) 311,177
SSM Hlthcare, Unref., Ser. AA, M.B.I.A. Aaa 6.25 6/01/16 1,215 1,312,127
------------
1,623,304
- ------------------------------------------------------------------------------------------------------------------------------
Montana--0.5%
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(e) 2,159,900
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 24
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1999 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--7.0%
East Orange Bd. Edl. Ctfs. Part.,
Cap. Apprec., F.S.A. Aaa Zero 2/01/15 $ 1,425 $ 654,559
Cap. Apprec., F.S.A. Aaa Zero 2/01/16 1,000 434,360
Cap. Apprec., F.S.A. Aaa Zero 2/01/17 1,425 584,849
Cap. Apprec., F.S.A. Aaa Zero 2/01/18 2,845 1,102,409
Cap. Apprec., F.S.A. Aaa Zero 8/01/18 1,425 538,394
Cap. Apprec., F.S.A. Aaa Zero 2/01/20 1,845 640,971
Cap. Apprec., F.S.A. Aaa Zero 8/01/21 2,845 910,514
Cap. Apprec., F.S.A. Aaa Zero 8/01/23 1,400 402,528
Jersey City Swr. Auth.,
A.M.B.A.C. Aaa 6.00% 1/01/10 2,585(e) 2,905,850
A.M.B.A.C. Aaa 6.25 1/01/14 4,255(e) 4,952,990
New Jersey Econ. Dev. Auth. Rev., Natural Gas Facs. Rev.,
M.B.I.A., A.M.T. Aaa 5.70 6/01/32 5,000 5,294,700
New Jersey Econ. Dev. Auth.,
Mkt. Trans. Facs. Rev., M.B.I.A. Aaa 5.875 7/01/11 5,900 6,467,108
Mkt. Trans. Facs. Rev., Sr. Lien, M.B.I.A. Aaa 5.80 7/01/09 3,340 3,657,668
New Jersey Impvt. Auth. Rev., Util. Sys., M.B.I.A. Aaa 5.75 7/01/27 1,500 1,618,095
------------
30,164,995
- ------------------------------------------------------------------------------------------------------------------------------
New York--12.0%
Islip Res. Rec., Ser. B, A.M.B.A.C. Aaa 7.20 7/01/10 1,750 2,126,320
Met. Trans. Auth. N.Y. Trans. Facs. Rev., F.S.A. Aaa 5.75 7/01/11 5,000 5,438,850
New York City Mun. Wtr. Fin. Auth., Wtr. & Swr. Sys.
Rev., M.B.I.A. Aaa 5.75 6/15/26 5,000 5,369,200
New York City,
Ser. G, M.B.I.A. Aaa 5.75 2/01/14 3,000 3,211,290
Cap. Apprec., Ser. G, M.B.I.A. Aaa Zero 8/01/07 4,000 2,804,280
Cap. Apprec., Ser. G, M.B.I.A. Aaa Zero 8/01/08 3,325 2,218,772
New York St. Dorm. Auth. Rev., Montefiore Med. Ctr.,
A.M.B.A.C. Aaa 6.00 8/01/08 3,400 3,809,564
New York St. Envir. Facs. Corp.,
Poll. Ctrl. Rev. Aaa 5.70 7/15/12 3,375 3,645,236
Poll. Ctrl. Rev. Aaa 5.75 7/15/13 1,060 1,149,708
Poll. Ctrl. Rev. Aaa 5.80 7/15/14 3,755 4,067,153
New York St. Thrwy. Auth. Gen. Rev.,
Ser. D Aa3 5.40 1/01/11 5,370 5,717,439
Ser. D Aa3 5.50 1/01/12 3,865 4,133,772
Port Auth. New York & New Jersey Cons., Ser. 99,
F.G.I.C., A.M.T. Aaa 5.90 11/01/11 7,665 8,207,529
------------
51,899,113
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 25
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1999 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>
- ------------------------------------------------------------------------------------------------------------------------------
Ohio--2.7%
Cleveland City Sch. Dist., Rev. Antic. Nts., A.M.B.A.C. Aaa 5.75% 6/01/07 $ 5,870 $ 6,445,906
Kent City Sch. Dist., F.G.I.C. Aaa 5.75 12/01/21 1,000 1,072,230
Lorain Cnty. Hosp. Rev., Catholic Hlthcare Partners,
M.B.I.A. Aaa 5.50 9/01/27 4,000 4,149,800
------------
11,667,936
- ------------------------------------------------------------------------------------------------------------------------------
Oklahoma--1.6%
Norman Reg'l. Hosp. Auth., Rev. Ref., Ser. A, M.B.I.A. Aaa 5.50 9/01/11 4,110 4,346,325
Oklahoma City Arpt. Trust, Jr. Lien, Ser. 24, A.M.B.A.C.,
A.M.T. Aaa 5.75 2/01/18 2,620 2,741,358
------------
7,087,683
- ------------------------------------------------------------------------------------------------------------------------------
Pennsylvania--1.3%
Philadelphia Mun. Auth. Rev., Criminal Justice Ctr., Ser.
A, M.B.I.A. Aaa 6.90 11/15/03 3,000(e) 3,282,360
Philadelphia, Sch. Dist., Ser. B, A.M.B.A.C. Aaa 5.375 4/01/27 2,500 2,545,850
------------
5,828,210
- ------------------------------------------------------------------------------------------------------------------------------
Puerto Rico--2.8%
Puerto Rico Gen. Oblig., M.B.I.A. Aaa 6.25 7/01/13 1,250 1,465,750
Puerto Rico Pub. Bldgs. Auth. Rev., Gov't. Facs., Ser. A,
A.M.B.A.C. Aaa 6.25 7/01/13 1,700 1,993,420
Puerto Rico Tel. Auth. Rev.,
Ser. I, M.B.I.A., R.I.B.S. Aaa 6.91 1/25/07 4,100(c) 4,561,250
Ser. I, M.B.I.A., R.I.B.S. Aaa 7.574 1/16/15 3,800(c) 4,279,750
------------
12,300,170
- ------------------------------------------------------------------------------------------------------------------------------
South Dakota--1.4%
So. Dakota Hsg. Dev. Auth., Homeownership Mtge., Ser. F,
A.M.T. Aa1 5.80 5/01/28 6,000 6,221,160
- ------------------------------------------------------------------------------------------------------------------------------
Tennessee--1.3%
Metro. Gov't. Nashville & Davidson Cnty. Wtr. & Swr.
Rev., A.M.B.A.C., R.I.B.S. Aaa 8.723 1/01/22 5,000(c) 5,750,000
- ------------------------------------------------------------------------------------------------------------------------------
Texas--5.7%
Austin Util. Sys. Rev. Comb., Ser. A, M.B.I.A. Aaa 4.875 11/15/10 5,500 5,591,850
Austin Util. Sys. Rev., M.B.I.A. Aaa Zero 5/15/03 8,000 6,827,440
Houston Arpt. Sys. Rev. Aaa 7.20 7/01/13 3,900 4,676,958
Houston Arpt. Sys. Rev., Spec. Facs. People Mover, Ser.
A, F.S.A., A.M.T. Aaa 6.00 7/15/05 3,255 3,555,306
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 26
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1999 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.)
Keller Ind. Sch. Dist., P.S.F.G. Aaa Zero 8/15/15 $ 4,945 $ 2,187,322
Texas Wtr. Res. Fin. Auth. Rev., A.M.B.A.C. Aaa 7.50% 8/15/13 1,725 1,746,062
------------
24,584,938
- ------------------------------------------------------------------------------------------------------------------------------
Virginia--5.2%
Chesapeake Bay Brdg. & Tunn. Comm., Dist. Rev., F.G.I.C. Aaa 5.875 7/01/10 5,000 5,522,300
Richmond Met. Auth. Expwy. Rev. Ref., F.G.I.C. Aaa 5.25 7/15/22 5,265 5,451,539
Virginia Beach Hosp. Facs. Rev.,
1st Mtge., A.M.B.A.C. Aaa 6.00 2/15/10 1,220 1,377,221
1st Mtge., A.M.B.A.C. Aaa 6.00 2/15/13 1,455 1,654,801
Virginia Coll. Bldg. Auth. Edl. Facs. Rev., M.B.I.A. Aaa 5.25 1/01/26 8,275 8,552,461
------------
22,558,322
- ------------------------------------------------------------------------------------------------------------------------------
Washington--7.0%
Central Puget Sound Washington Regional Transit Auth. Tax
Rev., F.G.I.C. Aaa 5.25 2/01/21 8,725 8,999,838
Washington St. Hlthcare Facs. Auth. Rev., Yakima Valley
Memorial Hosp. Assoc. AAA(b) 5.25 12/01/20 2,500 2,461,800
Washington St. Pub. Pwr. Supply Sys.,
Nuclear Proj. No. 1, Ser. A, M.B.I.A. Aaa 5.75 7/01/10 7,000 7,582,960
Nuclear Proj. No. 2, Ser. A, M.B.I.A. Aaa Zero 7/01/11 5,210 2,900,928
Nuclear Proj. No. 2, Ser. B, F.G.I.C. Aaa 7.25 7/01/03 3,000(c) 3,185,220
Nuclear Proj. No. 3, Ser. B, F.G.I.C. Aaa 7.00 7/01/05 2,000(c) 2,087,340
Nuclear Proj. No. 3, Ser. B, F.G.I.C. Aaa Zero 7/01/08 4,500 2,981,520
------------
30,199,606
------------
Total long-term investments (cost $395,361,689) 424,473,438
------------
SHORT-TERM INVESTMENTS--1.1%
- ------------------------------------------------------------------------------------------------------------------------------
District of Columbia--0.2%
Dist. of Columbia., Gen. Oblig., Ser. 92A-1, F.R.D.D. VMIG1 4.30 5/03/99 800 800,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 27
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Portfolio of Investments as of April 30, 1999 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--0.9%
Gulf Coast Wste Disp. Auth., Poll. Ctrl. Rev., Ser. 95,
F.R.D.D., A.M.T. VMIG1 4.30% 5/03/99 $ 2,600 $ 2,600,000
Port Corpus Christi Indl Dev Corp., Ser. 98-2, F.R.D.D.,
A.M.T. VMIG1 4.30 5/03/99 1,500 1,500,000
------------
4,100,000
------------
Total short-term investments (cost $4,900,000) 4,900,000
- ------------------------------------------------------------------------------------------------------------------------------
Total Investments--99.0%
(cost $400,261,689; Note 4) 429,373,438
Other assets in excess of liabilities--1.0% 4,466,870
------------
Net Assets--100% $433,840,308
------------
------------
</TABLE>
- ---------------
(a) The following abbreviations are used in portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance Corporation
A.M.T.--Alternative Minimum Tax
F.G.I.C.--Financial Guaranty Insurance Company
F.R.D.D.--Floating Rate (Daily) Damand Note(f)
F.S.A.--Financial Security Assurance
M.B.I.A.--Municipal Bond Insurance Association
P.S.F.G.--Public School Fund Guaranty
R.I.B.S.--Residual Interest Bearing Securities
(b) Standard & Poor's rating.
(c) Prerefunded issues are secured by escrowed cash or 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 period end.
(e) All or partial principal amount segregated as initial margin for 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.
The Fund's current prospectus contains a description of Moody's and Standard &
Poor's ratings.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 28
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Statement of Assets and Liabilities INSURED SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets April 30, 1999
<S> <C>
Investments, at value (cost $400,261,689)................................................................... $ 429,373,438
Interest receivable......................................................................................... 5,759,068
Due from broker - variation margin.......................................................................... 70,469
Receivable for Series shares sold........................................................................... 27,576
Receivable for investments sold............................................................................. 25,185
Other assets................................................................................................ 7,939
--------------
Total assets............................................................................................. 435,263,675
--------------
Liabilities
Bank overdraft.............................................................................................. 32,409
Dividends payable........................................................................................... 529,078
Payable for Series shares reacquired........................................................................ 421,005
Management fee payable...................................................................................... 179,645
Accrued expenses............................................................................................ 134,902
Distribution fee payable.................................................................................... 126,328
--------------
Total liabilities........................................................................................ 1,423,367
--------------
Net Assets.................................................................................................. $ 433,840,308
--------------
--------------
Net assets were comprised of:
Shares of beneficial interest, at par.................................................................... $ 387,964
Paid-in capital in excess of par......................................................................... 404,782,410
--------------
405,170,374
Accumulated net realized loss on investments............................................................. (474,853)
Net unrealized appreciation on investments............................................................... 29,144,787
--------------
Net assets, April 30, 1999.................................................................................. $ 433,840,308
--------------
--------------
Class A:
Net asset value and redemption price per share
($251,299,998 / 22,482,087 shares of beneficial interest issued and outstanding)...................... $11.18
Maximum sales charge (3% of offering price).............................................................. .35
--------------
Maximum offering price to public......................................................................... $11.53
--------------
--------------
Class B:
Net asset value, offering price and redemption price per share
($175,520,479 / 15,686,477 shares of beneficial interest issued and outstanding)...................... $11.19
--------------
--------------
Class C:
Net asset value and redemption price per share
($2,707,851 / 242,004 shares of beneficial interest issued and outstanding)........................... $11.19
Sales charge (1% of offering price)...................................................................... .11
--------------
Offering price to public................................................................................. $11.30
--------------
--------------
Class Z:
Net asset value, offering price and redemption price per share
($4,311,980 / 385,789 shares of beneficial interest issued and outstanding)........................... $11.18
--------------
--------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 29
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
INSURED SERIES
Statement of Oerations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income April 30, 1999
<S> <C>
Income
Interest.................................. $ 24,355,689
--------------
Expenses
Management fee............................ 2,274,028
Distribution fee--Class A................. 364,183
Distribution fee--Class B................. 1,043,873
Distribution fee--Class C................. 13,918
Transfer agent's fees and expenses........ 203,000
Custodian's fees and expenses............. 93,000
Reports to shareholders................... 52,000
Registration fees......................... 43,000
Trustees' fees and expenses............... 16,000
Audit fees and expenses................... 15,000
Insurance expense......................... 12,000
Legal fees and expenses................... 11,000
Miscellaneous............................. 5,576
--------------
Total expenses......................... 4,146,578
Less: Custodian fee credit................ (304)
--------------
Net expenses........................... 4,146,274
--------------
Net investment income........................ 20,209,415
--------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions................... 2,613,118
Financial futures contract transactions... (1,527,854)
--------------
1,085,264
--------------
Net change in unrealized
appreciation (depreciation) on:
Investments............................... 8,706,158
Financial futures contracts............... (73,025)
--------------
8,633,133
--------------
Net gain on investments...................... 9,718,397
--------------
Net Increase in Net Assets
Resulting from Operations.................... $ 29,927,812
--------------
--------------
</TABLE>
PRUDENTIAL MUNICIPAL BOND FUND
INSURED SERIES
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended April 30,
in Net Assets 1999 1998
<S> <C> <C>
Operations
Net investment income.......... $ 20,209,415 $ 22,374,316
Net realized gain on investment
transactions................ 1,085,264 7,419,069
Net change in unrealized
appreciation of
investments................. 8,633,133 10,877,794
------------ ------------
Net increase in net assets
resulting from operations... 29,927,812 40,671,179
------------ ------------
Dividends and distributions (Note
1):
Dividends from net investment
income
Class A..................... (11,087,816) (10,553,524)
Class B..................... (8,878,895) (11,765,355)
Class C..................... (74,699) (46,954)
Class Z..................... (168,005) (8,483)
------------ ------------
(20,209,415) (22,374,316)
------------ ------------
Dividends in excess of net
investment income
Class A..................... (165,620) (80,333)
Class B..................... (128,222) (90,260)
Class C..................... (1,348) (469)
Class Z..................... (2,596) (60)
------------ ------------
(297,786) (171,122)
------------ ------------
Distributions from net capital
gains
Class A..................... (2,053,682) (4,980,680)
Class B..................... (1,589,957) (5,596,092)
Class C..................... (16,718) (29,102)
Class Z..................... (32,185) (3,703)
------------ ------------
(3,692,542) (10,609,577)
------------ ------------
Series share transactions (net of
share conversions) (Note 5):
Net proceeds from shares
subscribed.................. 56,402,154 17,849,201
Net asset value of shares
issued in reinvestment of
dividends and
distributions............... 13,991,834 19,222,401
Cost of shares reacquired...... (104,987,356) (89,200,577)
------------ ------------
Net decrease in net assets from
Series share transactions... (34,593,368) (52,128,975)
------------ ------------
Total decrease.................... (28,865,299) (44,612,811)
Net Assets
Beginning of year................. 462,705,607 507,318,418
------------ ------------
End of year....................... $433,840,308 $462,705,607
------------ ------------
------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 30
<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 two series: the High Income Series and the
Insured 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 Income Series is to provide the maximum amount of income that is eligible
for exclusion from federal income taxes, (ii) the objective of the Insured
Series is to provide the maximum amount of income that is eligible for exclusion
from federal income taxes consistent with the preservation of capital. 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
- --------------------------------------------------------------------------------
31
<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 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, 1999, the effect of applying this statement was
to increase undistributed net investment income and increase accumulated net
realized losses by $297,786 due to the sale of securities purchased with market
discount for the Insured Series.
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'), doing business as Prudential Investments ('PI,'
the Subadviser or the investment adviser); 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 the High Income
Series management fee, which amounted to $590,774. Such amount represents .05 of
1% of average daily net assets, or $.005 cents per share for the year ended
April 30, 1999. The Series is not required to reimburse PIFM for such waiver.
The Fund had a distribution agreement with Prudential Securities Incorporated
('PSI'), which acted as the distributor of the Class A, Class B, Class C and
Class Z shares of the Fund through May 31, 1998. Prudential Investment
Management Services LLC ('PIMS') became the distributor of the Fund effective
June 1, 1998 and is serving the Fund under the same terms and conditions as
under the arrangement with PSI. The Fund compensated PSI and PIMS for
distributing and servicing the Fund's Class A, Class B and Class C shares,
pursuant to plans of distribution (the 'Class A, B and C Plans'), regardless of
expenses actually incurred by them. The distribution fees are accrued daily and
payable monthly. No distribution or service fees were paid to PSI or PIMS as
distributor of the Class Z shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensated PSI and PIMS 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, for the year ended April 30, 1999. Effective January 1, 1999, such
expenses for the Fund were .25 of 1%, .50 of 1% and .75 of 1% of the average
daily net assets of the Class A, B and C shares, respectively. Prior to January
1, 1999, 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.
PSI and PIMS have advised the High Income Series and Insured Series that they
received approximately $679,000 ($600,700-Class A; $78,300-Class C) and $62,100
($54,100-Class A; $8,000-Class C), respectively, in front-end sales charges
during the year ended April 30, 1999. From these fees, PSI and PIMS paid such
sales charges to affiliated broker-dealers which in turn paid commissions to
salespersons and incurred other distribution costs.
PSI and PIMS have advised the Fund that for the year ended April 30, 1999, they
received approximately $776,500 ($765,300-Class B; $11,200-Class C) and $179,800
($179,700-Class B; $100-Class C), respectively, in contingent deferred sales
charges imposed upon certain redemptions by Class B and C shareholders.
PSI, PIC, PIMS and PIFM are indirect, wholly owned subsidiaries of The
Prudential Insurance Company of America.
- --------------------------------------------------------------------------------
32
<PAGE>
Notes to Financial Statements PRUDENTIAL MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
As of March 11, 1999, the Fund, along with other affiliated registered
investment companies (the 'Funds'), entered into a syndicated credit agreement
('SCA') with an unaffiliated lender. The maximum commitment under the SCA is $1
billion. The Funds pay a commitment fee at an annual rate of .065 of 1% on the
unused portion of the credit facility, which is accrued and paid quarterly on a
pro rata basis by the Funds. The SCA expires on March 9, 2000. Prior to March
11, 1999, the Funds had a credit agreement with a maximum commitment of
$200,000,000. The commitment fee was .055 of 1% on the unused portion of the
credit facility. The Fund did not borrow any amounts pursuant to either
agreement during the year ended April 30, 1999. The purpose of the agreements is
to serve as an alternative source of funding for capital share redemptions.
- ------------------------------------------------------------
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, 1999, the
Fund incurred fees of approximately $559,800 ($363,800-High Income Series;
$196,000-Insured Series) for the services of PMFS. As of April 30, 1999,
approximately $46,600 ($30,800-High Income Series; $15,800-Insured 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 nonaffiliates.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of portfolio securities, excluding short-term investments,
for the year ended April 30, 1999, were as follows:
<TABLE>
<CAPTION>
Series Purchases Sales
- -------------------------------- ------------ ------------
<S> <C> <C>
High Income..................... $259,477,461 $183,381,647
Insured......................... 69,662,835 114,331,334
</TABLE>
At April 30, 1999, the High Income Series sold 100 U.S. Treasury bond futures
expiring in June 1999 and the Insured Series sold 55 U.S. Treasury bond futures
expiring in June 1999. The values of these financial futures contracts at April
30, 1999 were as follows:
<TABLE>
<CAPTION>
Financial Futures
Contracts Sold
-------------------------
High Income Insured
Series Series
----------- ----------
<S> <C> <C>
Value at disposition............... $12,018,750 $6,808,351
Value at April 30, 1999............ 12,203,125 6,775,313
----------- ----------
Unrealized gain.................... $ 184,375 $ 33,038
----------- ----------
----------- ----------
</TABLE>
The federal income tax basis of the Fund's investments, at April 30, 1999 was
$1,123,106,081 for High Income Series and $400,262,989 for Insured 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 Income......... $ 68,872,178 $92,086,875 $23,214,697
Insured............. 29,110,449 29,414,544 304,095
</TABLE>
The High Income Series has a net capital loss carryforward as of April 30, 1999
of approximately $20,684,000, of which $2,024,000 expires in 2002, $5,361,000
expires in 2003, $6,383,000 expires in 2004, $3,225,000 expires in 2005,
$554,000 expires in 2006 and 3,137,000 expires in 2007. 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 Income Series and Insured Series elected to treat net
realized capital losses of approximately $2,765,000 and $600,700, respectively
incurred in the six month period ended April 30, 1999 as having been incurred in
the following fiscal year.
- ------------------------------------------------------------
Note 5. Capital
The High Income Series and Insured 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.
Prior to November 2, 1998 Class C shares were sold with a contingent deferred
sales charge of 1% during the first year. Effective November 2, 1998, Class C
shares are sold with a front-end sales charge of 1% and a contingent deferred
sales charge of 1% during the first 18 months. 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. Class Z shares are not
subject to any sales or redemption charge and are offered exclusively for sale
to a limited group of investors.
- --------------------------------------------------------------------------------
33
<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 Income Series Insured Series
Class A Class A
------------------------------ ----------------------------
Year ended April 30, 1999 Shares Amount Shares Amount
- ------------------------------------------------------------ ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Shares issued............................................... 9,922,785 $ 112,624,489 3,150,940 $ 35,684,005
Shares issued in reinvestment of dividends and
distributions............................................ 1,173,562 13,319,273 669,267 7,562,399
Shares reacquired........................................... (7,359,450) (83,429,491) (3,182,291) (35,899,590)
----------- ------------- ---------- ------------
Net increase in shares outstanding before conversion........ 3,736,897 42,514,271 637,916 7,346,814
Shares issued upon conversion from Class B.................. 4,930,525 56,076,061 1,531,912 17,371,217
----------- ------------- ---------- ------------
Net increase in shares outstanding.......................... 8,667,422 $ 98,590,332 2,169,828 $ 24,718,031
----------- ------------- ---------- ------------
----------- ------------- ---------- ------------
<CAPTION>
High Income Series Insured Series
Class A Class A
------------------------------ ----------------------------
Year Ended April 30, 1998 Shares Amount Shares Amount
- ------------------------------------------------------------ ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Shares issued............................................... 5,097,999 $ 57,395,615 569,674 $ 6,395,067
Shares issued in reinvestment of dividends and
distributions............................................ 962,597 10,829,429 785,872 8,843,968
Shares reacquired........................................... (6,025,736) (67,587,666) (3,276,382) (36,775,017)
----------- ------------- ---------- ------------
Net increase (decrease) in shares outstanding before
conversion............................................... 34,860 637,378 (1,920,836) (21,535,982)
Shares issued upon conversion from Class B.................. 6,417,324 71,773,373 3,118,260 35,134,908
----------- ------------- ---------- ------------
Net increase in shares outstanding.......................... 6,452,184 $ 72,410,751 1,197,424 $ 13,598,926
----------- ------------- ---------- ------------
----------- ------------- ---------- ------------
<CAPTION>
High Income Series Insured Series
Class B Class B
------------------------------ ----------------------------
Year ended April 30, 1999 Shares Amount Shares Amount
- ------------------------------------------------------------ ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Shares issued............................................... 11,345,964 $ 128,924,744 1,204,352 $ 13,614,748
Shares issued in reinvestment of dividends and
distributions............................................ 1,343,215 15,249,705 547,328 6,190,618
Shares reacquired........................................... (8,975,019) (101,906,384) (5,908,598) (66,872,772)
----------- ------------- ---------- ------------
Net increase (decrease) in shares outstanding before
conversion............................................... 3,714,160 42,268,065 (4,156,918) (47,067,406)
Shares reaquired upon conversion to Class A................. (4,931,462) (56,076,061) (1,530,249) (17,371,217)
----------- ------------- ---------- ------------
Net decrease in shares outstanding.......................... (1,217,302) $ (13,807,996) (5,687,167) $(64,438,623)
----------- ------------- ---------- ------------
----------- ------------- ---------- ------------
<CAPTION>
High Income Series Insured Series
Class B Class B
------------------------------ ----------------------------
------------------------------ ----------------------------
Year Ended April 30, 1998 Shares Amount Shares Amount
- ------------------------------------------------------------ ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Shares issued............................................... 10,261,223 $ 115,317,304 894,372 $ 10,051,980
Shares issued in reinvestment of dividends and
distributions............................................ 1,416,916 15,920,018 915,681 10,310,964
Shares reacquired........................................... (7,485,320) (84,004,151) (4,626,069) (51,987,346)
----------- ------------- ---------- ------------
Net increase (decrease) in shares outstanding before
conversion............................................... 4,192,819 47,233,171 (2,816,016) (31,624,402)
Shares reacquired upon conversion to Class A................ (6,418,319) (71,773,373) (3,114,481) (35,134,908)
----------- ------------- ---------- ------------
Net decrease in shares outstanding.......................... (2,225,500) $ (24,540,202) (5,930,497) $(66,759,310)
----------- ------------- ---------- ------------
----------- ------------- ---------- ------------
</TABLE>
- --------------------------------------------------------------------------------
34
<PAGE>
Notes to Financial Statements PRUDENTIAL MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
High Income Series Insured Series
Class C Class C
------------------------------ ----------------------------
Year ended April 30, 1999 Shares Amount Shares Amount
- ------------------------------------------------------------ ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Shares issued............................................... 1,518,505 $ 17,214,668 125,361 $ 1,422,776
Shares issued in reinvestment of dividends and
distributions............................................ 76,753 870,798 4,553 51,493
Shares reacquired........................................... (474,223) (5,378,215) (24,331) (273,385)
----------- ------------- ---------- ------------
Net increase in shares outstanding.......................... 1,121,035 $ 12,707,251 105,583 $ 1,200,884
----------- ------------- ---------- ------------
----------- ------------- ---------- ------------
<CAPTION>
High Income Series Insured Series
Class C Class C
------------------------------ ----------------------------
Year Ended April 30, 1998 Shares Amount Shares Amount
- ------------------------------------------------------------ ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Shares issued............................................... 1,210,837 $ 13,633,168 75,353 $ 851,857
Shares issued in reinvestment of dividends and
distributions............................................ 45,608 514,159 4,949 55,759
Shares reacquired........................................... (321,058) (3,613,378) (25,249) (284,339)
----------- ------------- ---------- ------------
Net increase in shares outstanding.......................... 935,387 $ 10,533,949 55,053 $ 623,277
----------- ------------- ---------- ------------
----------- ------------- ---------- ------------
<CAPTION>
High Income Series Insured Series
Class Z Class Z
------------------------------ ----------------------------
Year ended April 30, 1999 Shares Amount Shares Amount
- ------------------------------------------------------------ ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Shares issued............................................... 1,096,115 $ 12,439,510 503,141 $ 5,680,625
Shares issued in reinvestment of dividends and
distributions............................................ 61,271 694,740 16,560 187,324
Shares reacquired........................................... (799,663) (9,043,372) (171,745) (1,941,609)
----------- ------------- ---------- ------------
Net increase in shares outstanding.......................... 357,723 $ 4,090,878 347,956 $ (3,926,340)
----------- ------------- ---------- ------------
----------- ------------- ---------- ------------
<CAPTION>
High Income Series Insured Series
Class Z Class Z
------------------------------ ----------------------------
Year Ended April 30, 1998 Shares Amount Shares Amount
- ------------------------------------------------------------ ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Shares issued............................................... 737,972 $ 8,311,994 49,053 $ 550,297
Shares issued in reinvestment of dividends and
distributions............................................ 29,882 337,131 1,039 11,710
Shares reacquired........................................... (141,036) (1,592,621) (13,642) (153,875)
----------- ------------- ---------- ------------
Net increase in shares outstanding.......................... 626,818 $ 7,056,504 36,450 $ 408,132
----------- ------------- ---------- ------------
----------- ------------- ---------- ------------
</TABLE>
- ------------------------------------------------------------
Note 6. Subsequent Event
Effective June 1, 1999, PIFM decided to eliminate its voluntary waiver of a
portion of its management fee (see Note 2).
- --------------------------------------------------------------------------------
35
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Financial Highlights HIGH INCOME SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
------------------------------------------------------------
Years Ended April 30,
------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year... $ 11.31 $ 10.84 $ 10.70 $ 10.72 $ 10.74
-------- -------- -------- -------- --------
Income from investment operations
Net investment income(b)............. .63 .67 .70 .72 .72
Net realized and unrealized gain
(loss) on investment
transactions...................... (.10) .47 .14 (.02) (.02)
-------- -------- -------- -------- --------
Total from investment
operations..................... .53 1.14 .84 .70 .70
-------- -------- -------- -------- --------
Less distributions
Dividends from net investment
income............................ (.63) (.67) (.70) (.72) (.72)
-------- -------- -------- -------- --------
Net asset value, end of year......... $ 11.21 $ 11.31 $ 10.84 $ 10.70 $ 10.72
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN(a):..................... 4.96% 10.80% 8.03% 6.55% 6.90%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)........ $514,952 $421,504 $334,062 $223,073 $115,501
Average net assets (000)............. $474,901 $381,735 $294,940 $162,329 $ 65,207
Ratios to average net assets:(b)
Expenses, including distribution
fees........................... .66% .62% 0.64% 0.64% 0.69%
Expenses, excluding distribution
fees........................... .51% .52% 0.54% 0.54% 0.59%
Net investment income............. 5.73% 6.03% 6.44% 6.58% 6.83%
For Class A, B, C and Z shares:
Portfolio turnover rate........... 16% 13% 26% 35% 39%
</TABLE>
- ---------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each year reported and includes reinvestment of dividends and
distributions.
(b) Net of management fee waiver.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 36
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Financial Highlights HIGH INCOME SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
--------------------------------------------------------------
Years Ended April 30,
--------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year... $ 11.31 $ 10.84 $ 10.69 $ 10.72 $ 10.74
-------- -------- -------- -------- ----------
Income from investment operations
Net investment income(b)............. .59 .63 .66 .68 .68
Net realized and unrealized gain
(loss) on investment
transactions...................... (.10) .47 .15 (.03) (.02)
-------- -------- -------- -------- ----------
Total from investment
operations..................... .49 1.10 .81 .65 .66
-------- -------- -------- -------- ----------
Less distributions
Dividends from net investment
income............................ (.59) (.63) (.66) (.68) (.68)
-------- -------- -------- -------- ----------
Net asset value, end of year......... $ 11.21 $ 11.31 $ 10.84 $ 10.69 $ 10.72
-------- -------- -------- -------- ----------
-------- -------- -------- -------- ----------
TOTAL RETURN(a):..................... 4.59% 10.36% 7.71% 6.12% 6.37%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)........ $649,706 $669,223 $665,525 $799,048 $ 934,725
Average net assets (000)............. $666,885 $669,132 $725,305 $900,115 $1,024,132
Ratios to average net assets:(b)
Expenses, including distribution
fees........................... 1.01% 1.02% 1.04% 1.04% 1.09%
Expenses, excluding distribution
fees........................... .51% .52% 0.54% 0.54% 0.59%
Net investment income............. 5.38% 5.63% 6.05% 6.19% 6.37%
</TABLE>
- ---------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each year reported and includes reinvestment of dividends and
distributions.
(b) Net of management fee waiver.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 37
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Financial Highlights HIGH INCOME SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C Class Z
---------------------------------------------------------------- -------------------
August 1,
1994(c) Years Ended April
Years Ended April 30, Through 30,
------------------------------------------------- April 30, -------------------
1999 1998 1997 1996 1995 1999 1998
------- --------- --------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 11.31 $ 10.84 $ 10.69 $ 10.72 $10.79 $ 11.30 $ 10.83
------- --------- --------- --------- ----- ------- -------
Income from investment operations
Net investment income(b)............. .57 .61 .63 .65 .49 .65 .68
Net realized and unrealized gain
(loss) on investment
transactions...................... (.10) .47 .15 (.03) (.07) (.10) .47
------- --------- --------- --------- ----- ------- -------
Total from investment
operations..................... .47 1.08 .78 .62 .42 .55 1.15
------- --------- --------- --------- ----- ------- -------
Less distributions
Dividends from net investment
income............................ (.57) (.61) (.63) (.65) (.49) (.65) (.68)
------- --------- --------- --------- ----- ------- -------
Net asset value, end of period....... $ 11.21 $ 11.31 $ 10.84 $ 10.69 $10.72 $ 11.20 $ 11.30
------- --------- --------- --------- ----- ------- -------
------- --------- --------- --------- ----- ------- -------
TOTAL RETURN(a):..................... 4.33% 10.09% 7.44% 5.86% 3.91% 5.11% 10.91%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...... $32,939 $20,554 $ 9,563 $ 6,471 $3,208 $13,839 $ 9,919
Average net assets (000)............. $26,114 $14,932 $ 8,060 $ 5,608 $1,385 $13,648 $ 6,064
Ratios to average net assets:(b)
Expenses, including distribution
fees........................... 1.26% 1.27% 1.29% 1.29% 1.34%(e) .51% .52%
Expenses, excluding distribution
fees........................... .51% .52% 0.54% 0.54% 0.59%(e) .51% .52%
Net investment income............. 5.15% 5.39% 5.80% 5.93% 6.34%(e) 5.89% 6.14%
<CAPTION>
<S> <C>
September 16,
1996(d)
Through
April 30,
1997
-------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 10.79
-----
Income from investment operations
Net investment income(b)............. .45
Net realized and unrealized gain
(loss) on investment
transactions...................... .04
-----
Total from investment
operations..................... .49
-----
Less distributions
Dividends from net investment
income............................ (.45)
-----
Net asset value, end of period....... $ 10.83
-----
-----
TOTAL RETURN(a):..................... 4.36%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...... $ 2,719
Average net assets (000)............. $ 704
Ratios to average net assets:(b)
Expenses, including distribution
fees........................... 0.54%(e)
Expenses, excluding distribution
fees........................... 0.54%(e)
Net investment income............. 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 period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(b) Net of 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. 38
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Financial Highlights INSURED SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------------
Years Ended April 30,
-----------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year... $ 11.05 $ 10.90 $ 10.94 $ 10.83 $ 10.71
-------- -------- -------- -------- -------
Income from investment operations
Net investment income................ .53 .53(b) .55(b) .58(b) .58(b)
Net realized and unrealized gain on
investment transactions........... .23 .40 .08 .11 .12
-------- -------- -------- -------- -------
Total from investment
operations..................... .76 .93 .63 .69 .70
-------- -------- -------- -------- -------
Less distributions
Dividends from net investment
income............................ (.53) (.53) (.55) (.58) (.58)
Distributions in excess of net
investment income................. (.01) --(c) (.01) -- --
Distributions from capital gains..... (.09) (.25) (.11) -- --
-------- -------- -------- -------- -------
Total distributions............... (.63) (.78) (.67) (.58) (.58)
-------- -------- -------- -------- -------
Net asset value, end of year......... $ 11.18 $ 11.05 $ 10.90 $ 10.94 $ 10.83
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
TOTAL RETURN(a):..................... 6.88% 8.67% 5.74% 6.47% 6.73%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)........ $251,300 $224,409 $208,411 $139,548 $75,800
Average net assets (000)............. $240,652 $222,115 $187,371 $102,456 $39,471
Ratios to average net assets:
Expenses, including distribution
fees........................... 0.75% 0.69%(b) 0.68%(b) 0.68%(b) 0.74(b)
Expenses, excluding distribution
fees........................... 0.60% 0.59%(b) 0.58%(b) 0.58%(b) 0.64(b)
Net investment income............. 4.61% 4.75%(b) 4.95%(b) 5.20%(b) 5.45(b)
For Class A, B, C and Z shares:
Portfolio turnover rate........... 15% 85% 110% 68% 64%
</TABLE>
- ---------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each year reported and includes reinvestment of dividends and
distributions.
(b) Net of management fee waiver.
(c) Less than $.005 per share.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 39
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Financial Highlights INSURED SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
------------------------------------------------------------
Years Ended April 30,
------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year.................. $ 11.06 $ 10.91 $ 10.95 $ 10.84 $ 10.71
-------- -------- -------- -------- --------
Income from investment operations
Net investment income............................... .48 .49(b) .50(b) .54(b) .54(b)
Net realized and unrealized gain on investment
transactions..................................... .23 .40 .08 .11 .13
-------- -------- -------- -------- --------
Total from investment operations................. .71 .89 .58 .65 .67
-------- -------- -------- -------- --------
Less distributions
Dividends from net investment income................ (.48) (.49) (.50) (.54) (.54)
Distributions in excess of net investment income.... (.01) --(c) (.01) -- --
Distributions from capital gains.................... (.09) (.25) (.11) -- --
-------- -------- -------- -------- --------
Total distributions.............................. (.58) (.74) (.62) (.54) (.54)
-------- -------- -------- -------- --------
Net asset value, end of year........................ $ 11.19 $ 11.06 $ 10.91 $ 10.95 $ 10.84
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
TOTAL RETURN(a):.................................... 6.50% 8.23% 5.32% 6.04% 6.40%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)....................... $175,520 $236,370 $298,005 $443,391 $567,648
Average net assets (000)............................ $208,775 $270,553 $365,891 $524,452 $660,237
Ratios to average net assets:
Expenses, including distribution fees............ 1.10% 1.09%(b) 1.08%(b) 1.08%(b) 1.14(b)
Expenses, excluding distribution fees............ 0.60% 0.59%(b) 0.58%(b) 0.58%(b) 0.64(b)
Net investment income............................ 4.25% 4.35%(b) 4.54%(b) 4.80%(b) 4.99(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 includes reinvestment of dividends and
distributions.
(b) Net of management fee waiver.
(c) Less than $.005 per share.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 40
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND
Financial Highlights INSURED SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C Class Z
--------------------------------------------------------------- -----------------
August 1,
1994(c) Years Ended
Years Ended April 30, Through April 30,
------------------------------------------------ April 30, -----------------
1999 1998 1997 1996 1995 1999 1998
------ --------- --------- --------- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $11.06 $ 10.91 $ 10.95 $ 10.84 $10.79 $11.05 $10.91
------ --------- --------- --------- ----- ------ ------
Income from investment operations
Net investment income................ .45 .46(b) .48(b) .51(b) .39(b) .54(b) .54(b)
Net realized and unrealized gain
(loss) on investment
transactions...................... .23 .40 .08 .11 .05 .23 .39
------ --------- --------- --------- ----- ------ ------
Total from investment
operations..................... .68 .86 .56 .62 .44 .77 .93
------ --------- --------- --------- ----- ------ ------
Less distributions
Dividends from net investment
income............................ (.45) (.46) (.48) (.51) (.39) (.54) (.54)
Distributions in excess of net
investment income................. (.01) --(f) (.01) -- -- (.01) --(f)
Distributions from capital gains..... (.09) (.25) (.11) -- -- (.09) (.25)
------ --------- --------- --------- ----- ------ ------
Total distributions............... (.55) (.71) (.60) (.51) (.39) (.64) (.79)
------ --------- --------- --------- ----- ------ ------
Net asset value, end of period....... $11.19 $ 11.06 $ 10.91 $ 10.95 $10.84 $11.18 $11.05
------ --------- --------- --------- ----- ------ ------
------ --------- --------- --------- ----- ------ ------
TOTAL RETURN(a):..................... 6.24% 7.96% 5.06% 5.78% 4.03% 7.04% 8.68%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...... $2,708 $ 1,509 $ 888 $ 1,137 $ 525 $4,312 $ 418
Average net assets (000)............. $1,856 $ 1,142 $ 973 $ 827 $ 224 $3,523 $ 173
Ratios to average net assets:
Expenses, including distribution
fees........................... 1.35% 1.34%(b) 1.33%(b) 1.33%(b) 1.39%(b)(e) 0.60% 0.60%(b)
Expenses, excluding distribution
fees........................... 0.60% 0.59%(b) 0.58%(b) 0.58%(b) 0.64%(b)(e) 0.60% 0.60%(b)
Net investment income............. 4.03% 4.11%(b) 4.29%(b) 4.56%(b) 4.92%(b)(e) 4.77% 4.92%(b)
<CAPTION>
<S> <C>
September 16,
1996(d)
Through
April 30,
1997
-------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 11.05
-----
Income from investment operations
Net investment income................ .36(b)
Net realized and unrealized gain
(loss) on investment
transactions...................... (.02)
-----
Total from investment
operations..................... .34
-----
Less distributions
Dividends from net investment
income............................ (.36)
Distributions in excess of net
investment income................. (.01)
Distributions from capital gains..... (.11)
-----
Total distributions............... (.48)
-----
Net asset value, end of period....... $ 10.91
-----
-----
TOTAL RETURN(a):..................... 2.86%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...... $ 15
Average net assets (000)............. $ 10
Ratios to average net assets:
Expenses, including distribution
fees........................... 0.58%(b)
Expenses, excluding distribution
fees........................... 0.58%(b)
Net investment income............. 4.18%(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 period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(b) Net of management fee waiver.
(c) Commencement of offering of Class C shares.
(d) Commencement of offering of Class Z shares.
(e) Annualized.
(f) Less than $.005 per share.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 41
<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 position of High Income Series and Insured
Series (constituting Prudential Municipal Bond Fund, hereafter referred to as
the 'Fund') at April 30, 1999, the results of each of their operations for the
year then ended, the changes in each of their net assets for each of the two
years in the period then ended and the financial highlights for each of the
three years in the period 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 audits. We conducted our audits 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 audits, which included
confirmation of securities at April 30, 1999 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above. The accompanying financial highlights for each of the two years in the
period ended April 30, 1996 were audited by other independent accountants, whose
opinion dated June 13, 1996 was unqualified.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
June 18, 1999
- --------------------------------------------------------------------------------
42
<PAGE>
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, 1999.
During its fiscal year ended April 30, 1999, 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 Income Series............ $ .63 $ .59 $ .57 $ .65
Insured Series................ $ .53 $ .48 $ .46 $ .54
</TABLE>
In addition to the above, the Insured Series paid dividends and distributions
totalling $.101 per share, comprised of $.008 ordinary income and $.057
short-term capital gains which are taxable as ordinary income and $.036
long-term capital gains which are taxable as such to Class A, B, C and Z
shareholders.
Shortly after the close of the calendar year ending December 31, 1999, you will
be advised again as to the federal tax status of the dividends and distributions
received in calendar 1999. 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.
- --------------------------------------------------------------------------------
43
<PAGE>
Getting The Most From Your Prudential Mutual Fund
Some mutual fund shareholders won't ever read this--they don't read annual and
semi-annual reports. It's quite understandable. These annual and semi-annual
reports are prepared to comply with Federal regulations. They are often written
in language that is difficult to understand. So, when most people run into
those particularly daunting sections of these reports, they don't read them.
We think that's a mistake.
At Prudential Mutual Funds, we've made some changes to our report to make it
easier to understand and more pleasant to read, in hopes you'll find it
profitable to spend a few minutes familiarizing yourself with your investment.
Here's what you'll find in the report:
At A Glance
Since an investment's performance is often a shareholder's primary concern, we
present performance information in two different formats. You'll find it first
on the "At A Glance" page where we compare the Fund and the comparable average
calculated by Lipper Analytical Services, a nationally recognized mutual fund
rating agency. We report both the cumulative total returns and the average
annual total returns. The cumulative total return is the total amount of income
and appreciation the Fund has achieved in various time periods. The average
annual total return is an annualized representation of the Fund's performance--
it generally smoothes out returns and gives you an idea how much the Fund has
earned in an average year, for a given time period. Under the performance box,
you'll see legends that explain the performance information, whether fees and
sales charges have been included in returns, and the inception dates for the
Fund's share classes.
See the performance comparison charts at the back of the report for more
performance information. And keep in mind that past performance is not
indicative of future results.
Portfolio Manager's Report
The portfolio manager who invests your money for you reports on successful--
and not-so-successful--strategies in this section of your report. Look for
recent purchases and sales here, as well as information about the sectors the
portfolio manager favors and any changes that are on the drawing board.
Portfolio Of Investments
This is where the report begins to look technical, but it's really just a
listing of each security held at the end of the reporting period, along with
valuations and other information. Please note that sometimes we discuss a
security in the Portfolio Manager's Report that doesn't appear in this listing
because it was sold before the close of the reporting period.
44
<PAGE>
Statement Of Assets And Liabilities
The balance sheet shows the assets (the value of the Fund's holdings),
liabilities (how much the Fund owes) and net assets (the Fund's equity, or
holdings after the Fund pays its debts) as of the end of the reporting period.
It also shows how we calculate the net asset value per share for each class of
shares. The net asset value is reduced by payment of your dividend, capital
gain, or other distribution, but remember that the money or new shares are
being paid or issued to you. The net asset value fluctuates daily along with
the value of every security in the portfolio.
Statement Of Operations
This is the income statement, which details income (mostly interest and
dividends earned) and expenses (including what you pay us to manage your
money). You'll also see capital gains here -- both realized and unrealized.
Statement Of Changes In Net Assets
This schedule shows how income and expenses translate into changes in net
assets. The Fund is required to pay out the bulk of its income to shareholders
every year, and this statement shows you how we do it -- through dividends and
distributions -- and how that affects the net assets. This statement also shows
how money from investors flowed into and out of the Fund.
Notes To Financial Statements
This is the kind of technical material that can intimidate readers, but it does
contain useful information. The Notes provide a brief history and explanation
of your Fund's objectives. In addition, they also outline how Prudential
Mutual Funds prices securities. The Notes also explain who manages and
distributes the Fund's shares and, more importantly, how much they are paid for
doing so. Finally, the Notes explain how many shares are outstanding, and the
number issued and redeemed over the period.
Financial Highlights
This information contains many elements from prior pages, but on a per share
basis. It is designed to help you understand how the Fund performed, and to
compare this year's performance and expenses to those of prior years.
Independent Auditor's Report
Once a year, an outside auditor looks over our books and certifies that the
information is fairly presented and complies with generally accepted accounting
principles.
Tax Information
This is information which we report annually about how much of your total
return is taxable. Should you have any questions, you may want to consult a tax
advisor.
Performance Comparison
These charts are included in the annual report and are required by the
Securities Exchange Commission. Performance is presented here as a hypothetical
$10,000 investment in the Fund since its inception or for 10 years (whichever
is shorter). To help you put that return in context, we are required to include
the performance of an unmanaged, broad-based securities index, as well. The
index does not reflect the cost of buying the securities it contains or the
cost of managing a mutual fund. Of course, the index holdings do not mirror
those of the fund -- the index is a broadly based reference point commonly
used by investors to measure how well they are doing. A definition of the
selected index is also provided. Investors generally cannot invest directly in
an index.
45
<PAGE>
Comparing A $10,000 Investment
- -----------------------------------------------------
Prudential Municipal Bond Fund--High Income Series vs.
the Lehman Brothers Municipal Bond Index.
Class A
(GRAPH)
Class B
(GRAPH)
Average Annual Total Returns
<TABLE>
<CAPTION>
With Sales Load
<S> <C> <C>
Since Inception 7.21% (7.17%)
Five Years 6.78% (6.74%)
One Year 1.81% (1.72%)
- ------------------------------
Without Sales Load
Since Inception 7.57% (7.52%)
Five Years 7.43% (7.39%)
One Year 4.96% (4.87%)
</TABLE>
Average Annual Total Returns
<TABLE>
<CAPTION>
With Sales Load
<S> <C> <C>
Since Inception 7.98% (7.91%)
Ten Years 7.28% (7.22%)
Five Years 6.86% (6.84%)
One Year -0.41% (-0.50%)
- ------------------------------
Without Sales Load
Since Inception 7.98% (7.91%)
Ten Years 7.28% (7.22%)
Five Years 7.01% (6.97%)
One Year 4.59% (4.50%)
</TABLE>
Past performance is not indicative of future results. Principal and investment
returns will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. The lines beneath the graphs are
designed to give you an idea of how much the Series' 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 compare a $10,000 investment in the Prudential Municipal Bond
Fund--High Income Series (Class A, B, C, and Z shares) with a similar
investment in the Lehman Brothers Municipal Bond Index (the Index) by
portraying the account values at the commencement of operations of Class A, C,
and Z shares, at the beginning of the ten-year period for Class B shares; and
at the end of the fiscal year (April 30), as measured on a quarterly basis,
beginning in 1990 for Class A, 1989 for Class B, 1994 for Class C, and 1996 for
Class Z shares. For purposes of the graphs, and unless otherwise indicated, it
has been assumed that (a) the maximum applicable front-end sales charge was
deducted from the initial $10,000 investment in Class A and Class C shares;
(b) 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, 1999; (c) all recurring fees (including management
fees) were deducted; and (d) all dividends and distributions were reinvested.
Class B shares will
<PAGE>
Class C
(GRAPH)
Class Z
(GRAPH)
Average Annual Total Returns
<TABLE>
<CAPTION>
With Sales Load
<S> <C> <C>
Since Inception 6.43% (6.39%)
One Year 2.29% (2.20%)
- -------------------------------
Without Sales Load
Since Inception 6.65% (6.61%)
One Year 4.33% (4.24%)
</TABLE>
Average Annual Total Returns
<TABLE>
<CAPTION>
<S> <C> <C>
Since Inception 7.78% (7.74%)
One Year 5.11% (5.02%)
</TABLE>
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 a sales charge or distribution fee.
The Index is a weighted index comprised of municipal bonds (general obligation
bonds, revenue bonds, insured bonds, and prerefunded bonds) selected by Lehman
Brothers as representative of the long-term, investment-grade municipal bond
market. The Index is unmanaged, and the total return includes the reinvestment
of all dividends, but does not reflect the payment of transaction costs and
advisory fees associated with an investment in the Series. The securities in
the Index may differ substantially from the securities in the Fund. The Index
is not the only index that may be used to characterize performance of municipal
bond funds. Other indexes may portray different comparative performance.
Investors cannot invest directly in an index.
These graphs are furnished to you in accordance with SEC regulations.
<PAGE>
Comparing A $10,000 Investment
- -------------------------------------------------
Prudential Municipal Bond Fund--Insured Series vs.
the Lehman Brothers Municipal Bond Index.
Class A
(GRAPH)
Class B
(GRAPH)
Average Annual Total Returns
<TABLE>
<CAPTION>
With Sales Load
<S> <C> <C>
Since Inception 6.92% (6.84%)
Five Years 6.24% (6.21%)
One Year 3.68%
- -------------------------------
Without Sales Load
Since Inception 7.27% (7.20%)
Five Years 6.89% (6.85%)
One Year 6.88%
</TABLE>
Average Annual Total Returns
<TABLE>
<CAPTION>
With Sales Load
<S> <C> <C>
Since Inception 7.49% (7.32%)
Ten Years 6.90% (6.78%)
Five Years 6.34% (6.30%)
One Year 1.50%
- -------------------------------
Without Sales Load
Since Inception 7.49% (7.32%)
Ten Years 6.90% (6.78%)
Five Years 6.49% (6.46%)
One Year 6.50%
</TABLE>
Past performance is not indicative of future results. Principal and investment
returns will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. The lines beneath the graphs are
designed to give you an idea of how much the Series' 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 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
account values at the commencement of operations of Class A, C, and Z shares,
at the beginning of the ten-year period for Class B shares; and at the end of
the fiscal year (April 30), as measured on a quarterly basis, beginning in 1990
for Class A, 1989 for Class B, 1994 for Class C, and 1996 for Class Z shares.
For purposes of the graphs, and unless otherwise indicated, it has been assumed
that (a) the maximum applicable front-end sales charge was deducted from the
initial $10,000 investment in Class A and Class C shares; (b) 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, 1999; (c) all recurring fees (including management fees) were deducted; and
(d) all dividends and distributions were reinvested. Class B shares will
<PAGE>
Class C
(GRAPH)
Class Z
(GRAPH)
Average Annual Total Returns
<TABLE>
<CAPTION
With Sales Load
<S> <C> <C>
Since Inception 5.90% (5.86%)
One Year 4.18%
- -------------------------------
Without Sales Load
Since Inception 6.13% (6.09%)
One Year 6.24%
</TABLE>
Average Annual Total Returns
<TABLE>
<CAPTION>
<S> <C> <C>
Since Inception 7.10% (7.06%)
One Year 7.04%
</TABLE>
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 a sales charge or distribution fee.
The Index is a weighted index comprised of municipal bonds (general obligation
bonds, revenue bonds, insured bonds, and prerefunded bonds) selected by Lehman
Brothers as representative of the long-term, investment-grade municipal bond
market. The Index is unmanaged, and the total return includes the reinvestment
of all dividends, but does not reflect the payment of transaction costs and
advisory fees associated with an investment in the Series. The securities in
the Index may differ substantially from the securities in the Fund. The Index
is not the only index that may be used to characterize performance of
municipal bond funds. Other indexes may portray different comparative
performance. Investors cannot invest directly in an index.
These graphs are furnished to you in accordance with SEC regulations.
<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
Thomas T. Mooney
Thomas H. O"Brien
Richard A. Redeker
John R. Strangfeld
Nancy H. Teeters
Louis A. Weil, III
Officers
John R. Strangfeld, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
Deborah A. Docs, 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 07102-3777
Distributor
Prudential Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
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
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Shereff Friedman Swidler Berlin, 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 MF133E
74435L202 74435L400
74435L707 74435L806
74435L871 74435L863
