PRUDENTIAL MUNICIPAL BOND FUND, 485BPOS, 2000-06-30

PRUDENTIAL MUNICIPAL BOND FUND
485BPOS, 2000-06-30

Previous: LEHMAN BROTHERS HOLDINGS INC, 424B2, 2000-07-03

Next: PRUDENTIAL MUNICIPAL BOND FUND, 485BPOS, EX-99.(B), 2000-06-30

<PAGE>

As filed with the Securities and Exchange Commission on June 30, 2000

Securities Act Registration No. 33-10649
Investment Company Act Registration No. 811-4930
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /

PRE-EFFECTIVE AMENDMENT NO. / /

POST-EFFECTIVE AMENDMENT NO. 21 /X/

AND/OR

REGISTRATION STATEMENT UNDER THE

INVESTMENT COMPANY ACT OF 1940 / /

AMENDMENT NO. 25 /X/

(Check appropriate box or boxes)
------------------------

PRUDENTIAL MUNICIPAL BOND FUND

(Exact name of registrant as specified in charter)

GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077

(Address of Principal Executive Offices) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (973) 367-7521

DEBORAH A. DOCS, ESQ.
GATEWAY CENTER THREE
100 MULBERRY STREET
NEWARK, NEW JERSEY 07102-4077
(NAME AND ADDRESS OF AGENT FOR SERVICE)

APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE
DATE OF THE REGISTRATION STATEMENT.

IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE
(CHECK APPROPRIATE BOX):

/X/ immediately upon filing pursuant to paragraph (b)

/ / on (date) pursuant to paragraph (b)

/ / 60 days after filing pursuant to paragraph (a)(1)

/ / on (date) pursuant to paragraph (a)(1)

/ / 75 days after filing pursuant to paragraph (a)(2)

/ / on (date) pursuant to paragraph (a)(2) of Rule 485.

If appropriate, check the following box:

/ / this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.

Title of Securities Being Registered....Shares of Beneficial Interest, par value
$.01 per share.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

PROSPECTUS JUNE 30, 2000

PRUDENTIAL MUNICIPAL BOND FUND
INSURED SERIES
HIGH INCOME SERIES

FUND TYPE Municipal bond

OBJECTIVE Insured Series: Maximum amount of income that is eligible for
exclusion from federal income taxes consistent with the preservation of
capital
High Income Series: Maximum amount of income that is eligible for exclusion
from federal income taxes

Build on the Rock [GRAPHIC]

As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the Fund's shares nor has the SEC determined that this
prospectus is complete or accurate. It is a criminal offense to state otherwise.

[PRUDENTIAL LOGO]
<PAGE>
TABLE OF CONTENTS
-------------------------------------

<TABLE>
<S> <C>
1 RISK/RETURN SUMMARY
Insured Series:
1 Investment Objective and Principal Strategies
2 Principal Risks
3 Evaluating Performance
5 Fees and Expenses of the Series
High Income Series:
7 Investment Objective and Principal Strategies
7 Principal Risks
9 Evaluating Performance
11 Fees and Expenses of the Series

13 HOW THE FUND INVESTS
13 Insured Series: Investment Objective and Policies
14 High Income Series: Investment Objective and Policies
16 Other Investments and Strategies
19 Investment Risks

24 HOW THE FUND IS MANAGED
24 Board of Trustees
24 Manager
24 Investment Adviser
26 Distributor

27 FUND DISTRIBUTIONS AND TAX ISSUES
27 Distributions
28 Tax Issues
29 If You Sell or Exchange Your Shares
</TABLE>

-------------------------------------------------------------------
PRUDENTIAL MUNICIPAL BOND FUND [ICON] (800) 225-1852
<PAGE>
TABLE OF CONTENTS

------------------------------------------------

<TABLE>
<S> <C>
31 HOW TO BUY, SELL AND EXCHANGE SHARES OF THE FUND
31 How to Buy Shares
38 How to Sell Your Shares
41 How to Exchange Your Shares
43 Telephone Redemptions or Exchanges

44 FINANCIAL HIGHLIGHTS
Insured Series:
45 Class A Shares
46 Class B Shares
47 Class C Shares
48 Class Z Shares
High Income Series:
49 Class A Shares
50 Class B Shares
51 Class C Shares
52 Class Z Shares

53 THE PRUDENTIAL MUTUAL FUND FAMILY

A-1 DESCRIPTION OF SECURITY RATINGS

FOR MORE INFORMATION (Back Cover)
</TABLE>

--------------------------------------------------------------------------------
<PAGE>
RISK/RETURN SUMMARY
-------------------------------------

This prospectus provides information about the PRUDENTIAL MUNICIPAL BOND FUND
(the Fund), which consists of two separate series--the INSURED SERIES and the
HIGH INCOME SERIES (each, a Series). While the two Series have some common
attributes, each one has its own investment objective and policies, performance
information, financial highlights and risks. Therefore, some sections of this
prospectus deal with each Series separately, while other sections address both
Series at the same time.

In sections that concern just the Insured Series, "the Series" refers to the
Insured Series. In sections that concern just the High Income Series, "the
Series" refers to the High Income Series.
This section highlights key information about each Series. Additional
information follows this summary.

INSURED SERIES
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
Our investment objective is to provide the MAXIMUM AMOUNT OF INCOME THAT IS
ELIGIBLE FOR EXCLUSION FROM FEDERAL INCOME TAXES, CONSISTENT WITH THE
PRESERVATION OF CAPITAL. To achieve our objective, we normally invest at least
80% of the Series' net assets in municipal bonds, which are fixed-income
securities issued by states and municipalities. The Series' portfolio consists
primarily of MUNICIPAL BONDS THAT ARE (1) INSURED BY AN ENTITY WHOSE
CLAIMS-PAYING ABILITY AT THE TIME OF PURCHASE IS RATED Aaa BY MOODY'S INVESTORS
SERVICE (MOODY'S) OR AAA BY STANDARD AND POOR'S RATINGS SERVICE (S&P) OR
COMPARABLY RATED BY ANOTHER MAJOR RATING SERVICE SO THAT THE BOND IS RATED AAA
OR Aaa OR MEETS THE ELIGIBILITY CRITERIA IMPOSED BY SUCH INSURERS, (2) RATED Aaa
OR AAA BY MOODY'S OR S&P, RESPECTIVELY, OR COMPARABLY RATED BY ANOTHER MAJOR
RATING SERVICE, OR (3) BACKED BY THE FULL FAITH AND CREDIT OF THE
U.S. GOVERNMENT. Under normal market conditions, at least 70% of the Series'
total assets will consist of insured municipal bonds, which are municipal bonds
whose interest and/or principal payments are insured by the bond issuers or
other parties. The Series may hold certain municipal bonds, the interest on
which is subject to the federal alternative minimum tax (AMT).

In determining which securities to buy and sell, the investment adviser will
consider, among other things, yield, maturity, issue, quality characteristics
and expectations regarding economic and political developments, including
movements in interest rates and demand for municipal bonds. The investment
adviser will seek to anticipate interest rate movements and will purchase and
sell municipal bonds accordingly. The investment adviser will also consider the
claims-paying ability with respect to insurers of municipal bonds. The
investment adviser will also seek to take advantage of differentials in yields
with respect to securities with similar

-------------------------------------------------------------------
1 PRUDENTIAL MUNICIPAL BOND FUND [ICON] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY

------------------------------------------------

credit ratings and maturities, but which vary according to the purpose for which
they were issued, as well as securities issued for similar purposes with similar
maturities, but which vary according to ratings. While we make every effort to
achieve our objective, we can't guarantee success.

PRINCIPAL RISKS

Although we try to invest wisely, all investments involve risk. Since the Series
invests at least 80% of its net assets in municipal bonds, there is the risk
that the bonds may lose value because interest rates change or because there is
a lack of confidence in the borrower or in the bond's insurer. Bonds with longer
maturity dates typically produce higher yields and are subject to greater price
fluctuations as a result of changes in interest rates than bonds with shorter
maturity dates.

Bond prices and the Series' net asset value generally move in opposite
directions from interest rates--if interest rates go up, the prices of the bonds
in the Series' portfolio may fall because the bonds the Series holds won't, as a
rule, pay as well as the newer bonds issued. Bonds that are issued when interest
rates are high generally increase in value when interest rates fall.
In addition to interest rate changes, municipal bonds are subject to the
risk that the issuer may be unable to make principal and interest payments when
they are due. The Series purchases insured municipal bonds to reduce such credit
risks. Although insurance coverage reduces credit risks by providing that the
insurer will make timely payment of interest and/or principal, it does not
provide protection against the market fluctuations of insured bonds or
fluctuations in the price of the shares of the Series. An insured municipal bond
fluctuates in value largely based on factors relating to the insurer's
creditworthiness or ability to satisfy its obligations.

Municipal bonds and, in particular, municipal leases may be subject to the
risk that the municipality may not set aside funds in future budgets to make the
bond or lease payments.

Like any mutual fund, an investment in the Series could lose value, and you
could lose money. For more detailed information about the risks associated with
the Series, see "How the Fund Invests--Investment Risks."
An investment in the Series is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
-------------------------------------------------------------------
2
<PAGE>
RISK/RETURN SUMMARY
------------------------------------------------

EVALUATING PERFORMANCE

A number of factors--including risk--can affect how the Insured Series performs.
The following bar chart shows the Series' performance for each full calendar
year of operation for the last 10 years. The bar chart and table below
demonstrate the risk of investing in the Series by showing how returns can
change from year to year and by showing how the Series' average annual total
returns compare with those of a broad measure of market performance and a group
of similar mutual funds. Past performance does not mean that the Series will
achieve similar results in the future.

ANNUAL RETURNS* (Class B shares)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

BEST QUARTER: 6.25% (1st quarter of 1995) WORST QUARTER: (6.03%) (1st quarter of
1994)

* THESE ANNUAL RETURNS DO NOT INCLUDE SALES CHARGES. IF THE SALES CHARGES
WERE INCLUDED, THE ANNUAL RETURNS WOULD BE LOWER THAN THOSE SHOWN. WITHOUT
THE MANAGEMENT FEE WAIVER, THE ANNUAL RETURNS WOULD HAVE BEEN LOWER, TOO.
THE RETURN OF THE CLASS B SHARES FOR THE QUARTER ENDED MARCH 31, 2000
WAS 2.83%.

-------------------------------------------------------------------
3 PRUDENTIAL MUNICIPAL BOND FUND [ICON] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY

------------------------------------------------

AVERAGE ANNUAL RETURNS(1) (AS OF 12-31-99)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------
1 YR 5 YRS 10 YRS SINCE INCEPTION
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares (6.83)% 5.22% N/A 5.95% (since 1-22-90)
Class B shares (9.18)% 5.31% 5.79% 6.66% (since 9-17-87)
Class C shares (6.38)% 5.00% N/A 4.21% (since 8-1-94)
Class Z shares (3.63)% N/A N/A 4.21% (since 9-16-96)
Lehman Muni Bond Index(2) (2.06)% 6.91% 6.89% N/A
Lipper Insured Average(3) (4.69)% 5.68% 5.96% N/A
</TABLE>

1 THE SERIES' RETURNS ARE AFTER DEDUCTION OF SALES CHARGES AND EXPENSES.
WITHOUT THE MANAGEMENT FEE WAIVER FOR EACH CLASS AND THE DISTRIBUTION AND
SERVICE (12b-1) FEE WAIVER FOR CLASS A AND CLASS C SHARES, THE RETURNS
WOULD HAVE BEEN LOWER.
2 THE LEHMAN BROTHERS MUNICIPAL BOND INDEX--AN UNMANAGED INDEX OF OVER 39,000
LONG-TERM INVESTMENT-GRADE MUNICIPAL BONDS--GIVES A BROAD LOOK AT HOW
LONG-TERM INVESTMENT-GRADE MUNICIPAL BONDS HAVE PERFORMED. THESE RETURNS DO
NOT INCLUDE THE EFFECT OF ANY SALES CHARGES OR OPERATING EXPENSES OF A
MUTUAL FUND. THESE RETURNS WOULD BE LOWER IF THEY INCLUDED THE EFFECT OF
SALES CHARGES AND OPERATING EXPENSES. THE LEHMAN MUNI BOND INDEX RETURNS
SINCE THE INCEPTION OF EACH CLASS ARE 7.00% FOR CLASS A, 7.71% FOR
CLASS B, 5.86% FOR CLASS C AND 4.89% FOR CLASS Z SHARES. SOURCE: LEHMAN
BROTHERS.
3 THE LIPPER INSURED AVERAGE IS BASED ON THE AVERAGE RETURN OF ALL MUTUAL
FUNDS IN THE LIPPER INSURED MUNICIPAL DEBT FUNDS CATEGORY. THESE RETURNS DO
NOT INCLUDE THE EFFECT OF ANY SALES CHARGES. THESE RETURNS WOULD BE LOWER
IF THEY INCLUDED THE EFFECT OF SALES CHARGES. LIPPER RETURNS SINCE THE
INCEPTION OF EACH CLASS ARE 7.05% FOR CLASS A, 4.65% FOR CLASS B, 3.34% FOR
CLASS C AND 6.13% FOR CLASS Z SHARES. SOURCE: LIPPER INC.

-------------------------------------------------------------------
4
<PAGE>
RISK/RETURN SUMMARY
------------------------------------------------

FEES AND EXPENSES OF THE SERIES

These tables show the sales charges, fees and expenses that you may pay if you
buy and hold shares of each class of the Insured Series--Class A, B, C and Z.
Each share class has different sales charges--known as loads--and expenses, but
represents an investment in the same fund. Class Z shares are available only to
a limited group of investors. For more information about which share class may
be right for you, see "How to Buy, Sell and Exchange Shares of the Fund."

SHAREHOLDER FEES(1) (paid directly from your investment)

<TABLE>
<CAPTION>
------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Z
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge (load)
imposed on purchases (as a
percentage of offering 3% None 1% None
price)
Maximum deferred sales
charge (load) (as a
percentage of the lower of
original purchase price or
sale proceeds) None 5%(2) 1%(3) None
Maximum sales charge (load)
imposed on reinvested
dividends and other
distributions None None None None
Redemption fees None None None None
Exchange fee None None None None
</TABLE>

ANNUAL SERIES OPERATING EXPENSES (deducted from Series assets)

<TABLE>
<CAPTION>
------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Z
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management fees .50% .50% .50% .50%
+ Distribution and service
(12b-1) fees(4) .30% .50% 1.00% None
+ Other expenses .13% .13% .13% .13%
= Total annual Series
operating expenses .93% 1.13% 1.63% .63%
- Fee waiver or expense
reimbursement(4) .05% None .25% None
= NET ANNUAL SERIES
OPERATING EXPENSES .88% 1.13% 1.38% .63%
</TABLE>

1 YOUR BROKER MAY CHARGE YOU A SEPARATE OR ADDITIONAL FEE FOR PURCHASES AND
SALES OF SHARES.
2 THE CONTINGENT DEFERRED SALES CHARGE (CDSC) FOR CLASS B SHARES DECREASES BY
1% ANNUALLY TO 1% IN THE FIFTH AND SIXTH YEARS AND 0% IN THE SEVENTH YEAR.
CLASS B SHARES CONVERT TO CLASS A SHARES APPROXIMATELY SEVEN YEARS AFTER
PURCHASE.
3 THE CDSC FOR CLASS C SHARES IS 1% FOR SHARES REDEEMED WITHIN 18 MONTHS OF
PURCHASE.
4 FOR THE FISCAL YEAR ENDING APRIL 30, 2001, THE DISTRIBUTOR OF THE FUND HAS
CONTRACTUALLY AGREED TO REDUCE ITS DISTRIBUTION AND SERVICE (12b-1) FEES
FOR CLASS A AND CLASS C SHARES TO .25 OF 1% AND .75 OF 1% OF THE AVERAGE
DAILY NET ASSETS OF CLASS A AND CLASS C SHARES, RESPECTIVELY.

-------------------------------------------------------------------
5 PRUDENTIAL MUNICIPAL BOND FUND [ICON] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY
------------------------------------------------

EXAMPLE

This example will help you compare the fees and expenses of the Insured Series'
different share classes and compare the cost of investing in the Series with the
cost of investing in other mutual funds.

The example assumes that you invest $10,000 in the Series for the time
periods indicated and then sell all of your shares at the end of those periods.
The example also assumes that your investment has a 5% return each year and that
the Series' operating expenses remain the same, except for the Distributor's
reduction of distribution and service (12b-1) fees for Class A and Class C
shares during the first year. Although your actual costs may be higher or lower,
based on these assumptions, your costs would be:

<TABLE>
<CAPTION>
-----------------------------------------------------------
1 YR 3 YRS 5 YRS 10 YRS
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $387 $583 $795 $1,404
Class B shares $615 $659 $722 $1,293
Class C shares $339 $585 $954 $1,993
Class Z shares $64 $202 $351 $786
</TABLE>

You would pay the following expenses on the same investment if you did not sell
your shares:

<TABLE>
<CAPTION>
-----------------------------------------------------------
1 YR 3 YRS 5 YRS 10 YRS
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $387 $583 $795 $1,404
Class B shares $115 $359 $622 $1,293
Class C shares $239 $585 $954 $1,993
Class Z shares $64 $202 $351 $786
</TABLE>

-------------------------------------------------------------------
6
<PAGE>
RISK/RETURN SUMMARY
-------------------------------------

HIGH INCOME SERIES
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES

Our investment objective is to provide the MAXIMUM AMOUNT OF INCOME THAT IS
ELIGIBLE FOR EXCLUSION FROM FEDERAL INCOME TAXES. To achieve our objective we
normally invest at least 80% of the Series' net assets in municipal bonds, which
are fixed-income securities issued by states and muncipalities. The Series'
portfolio consists primarily of municipal bonds which are rated B or better by
Moody's or S&P or bonds either rated by another major rating service or unrated
bonds of comparable quality. Bonds rated B or Ba by Moody's or B or BB by S&P
are considered to be speculative with respect to their capacity to make interest
and principal payments and are commonly referred to as JUNK BONDS. The municipal
bonds in which the Series invests generally have maturities in excess of 10
years at the time of purchase, although the Series also will invest in municipal
bonds having maturities ranging from one year to 10 years, provided that the
weighted average maturity of the Series' investment portfolio remains within the
15- to 30- year range. The Series may hold certain municipal bonds, the interest
on which is subject to the federal alternative minimum tax (AMT).

In determining which securities to buy and sell, the investment adviser will
consider, among other things, yield, maturity, issue, quality characteristics
and expectations regarding economic and political developments, including
movements in interest rates and demand for municipal bonds. The investment
adviser will seek to anticipate interest rate movements and will purchase and
sell municipal bonds accordingly. The investment adviser will also seek to take
advantage of differentials in yields with respect to securities with similar
credit ratings and maturities, but which vary according to the purpose for which
they were issued, as well as securities issued for similar purposes with similar
maturities, but which vary according to ratings. While we make every effort to
achieve our objective, we can't guarantee success.

PRINCIPAL RISKS

Although we try to invest wisely, all investments involve risk. The securities
in which the Series invests are generally subject to the risk that the issuer
may be unable to make principal and interest payments when they are due, as well
as the risk that the securities may lose value because interest rates

-------------------------------------------------------------------
7 PRUDENTIAL MUNICIPAL BOND FUND [ICON] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY

------------------------------------------------

change or because there is a lack of confidence in the issuer. Bonds with longer
maturity dates typically produce higher yields and are subject to greater price
fluctuations as a result of changes in interest rates than bonds with shorter
maturity dates. Since the Series invests in lower-rated bonds, commonly known as
junk bonds, there is a greater risk of default of payment of principal and
interest. Furthermore, junk bonds tend to be less liquid than higher-rated
securities. Therefore, an investment in the Series may not be appropriate for
short-term investing.

Municipal bonds and, in particular, municipal leases may be subject to the
risk that the municipality may not set aside funds in future budgets to make the
bond or lease payments.

Like any mutual fund, an investment in the Fund could lose value, and you
could lose money. For more detailed information about the risks associated with
the Series, see "How the Fund Invests--Investment Risks."
An investment in the Series is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
--------------------------------------------------------------------------------
8
<PAGE>
RISK/RETURN SUMMARY
------------------------------------------------

EVALUATING PERFORMANCE

A number of factors--including risk--can affect how the High Income Series
performs. The following bar chart shows the Series' performance for each full
calendar year of operation for the last 10 years. The bar chart and table below
demonstrate the risk of investing in the Series by showing how returns can
change from year to year and by showing how the Series' average annual total
returns compare with those of a broad measure of market performance and a group
of similar mutual funds. Past performance does not mean that the Series will
achieve similar results in the future.

ANNUAL RETURNS* (CLASS B SHARES)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

BEST QUARTER: 5.86% (1st quarter of 1995) WORST QUARTER: (4.14)% (1st quarter of
1994)

-------------------------------------------------------------------
9 PRUDENTIAL MUNICIPAL BOND FUND [ICON] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY

------------------------------------------------

AVERAGE ANNUAL RETURNS(1) (as of 12-31-99)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------
1 YR 5 YRS 10 YRS SINCE INCEPTION
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares (.76)% 8.27% N/A 9.26% (since 1-22-90)
Class B shares (2.14)% 8.39% 9.04% 9.44% (since 9-17-87)
Class C shares .83% 8.31% N/A 7.49% (since 8-1-94)
Class Z shares 3.79% N/A N/A 6.55% (since 9-16-96)
Lehman Muni Bond Index(2) (2.06)% 6.91% 6.89% N/A
Lipper High Yield Average(3) (4.16)% 6.06% 6.14% N/A
</TABLE>

1 THE SERIES' RETURNS ARE AFTER DEDUCTION OF SALES CHARGES AND EXPENSES.
WITHOUT THE MANAGEMENT FEE WAIVER FOR EACH CLASS AND THE DISTRIBUTION AND
SERVICE (12b-1) FEE WAIVER FOR CLASS A AND CLASS C SHARES, THE RETURNS
WOULD HAVE BEEN LOWER.
2 THE LEHMAN BROTHERS MUNICIPAL BOND INDEX--AN UNMANAGED INDEX OF OVER 39,000
LONG-TERM INVESTMENT-GRADE MUNICIPAL BONDS--GIVES A BROAD LOOK AT HOW
LONG-TERM INVESTMENT-GRADE MUNICIPAL BONDS HAVE PERFORMED. THESE RETURNS DO
NOT INCLUDE THE EFFECT OF ANY SALES CHARGES OR OPERATING EXPENSES OF A
MUTUAL FUND. THESE RETURNS WOULD BE LOWER IF THEY INCLUDED THE EFFECT OF
SALES CHARGES AND OPERATING EXPENSES. THE LEHMAN MUNI BOND INDEX RETURNS
SINCE THE INCEPTION OF EACH CLASS ARE 7.00% FOR CLASS A, 7.71% FOR
CLASS B, 5.86% FOR CLASS C AND 4.89% FOR CLASS Z SHARES. SOURCE: LEHMAN
BROTHERS.
3 THE LIPPER HIGH YIELD AVERAGE IS BASED ON THE AVERAGE RETURN OF ALL MUTUAL
FUNDS IN THE LIPPER HIGH YIELD MUNICIPAL DEBT FUNDS CATEGORY. THESE RETURNS
DO NOT INCLUDE THE EFFECT OF ANY SALES CHARGES. THESE RETURNS WOULD BE
LOWER IF THEY INCLUDED THE EFFECT OF SALES CHARGES. THE LIPPER RETURNS
SINCE THE INCEPTION OF EACH CLASS ARE 6.29% FOR CLASS A, 7.18% FOR
CLASS B, 5.14% FOR CLASS C AND 4.11% FOR CLASS Z SHARES. SOURCE: LIPPER
INC.

--------------------------------------------------------------------------------
10
<PAGE>
RISK/RETURN SUMMARY
------------------------------------------------

FEES AND EXPENSES OF THE SERIES

These tables show the sales charges, fees and expenses that you may pay if you
buy and hold shares of each class of the High Income Series--Class A, B, C and
Z. Each share class has different sales charges--known as loads--and expenses,
but represents an investment in the same fund. Class Z shares are available only
to a limited group of investors. For more information about which share class
may be right for you, see "How to Buy, Sell and Exchange Shares of the Fund."

SHAREHOLDER FEES(1) (paid directly from your investment)

ANNUAL SERIES OPERATING EXPENSES (deducted from Series assets)

<TABLE>
<CAPTION>
------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Z
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management fees .50% .50% .50% .50%
+ Distribution and service
(12b-1) fees(4) .30% .50% 1.00% None
+ Other expenses .07% .07% .07% .07%
= Total annual Series
operating expenses .87% 1.07% 1.57% .57%
- Fee waiver or expense
reimbursement(4) .05% None .25% None
= NET ANNUAL SERIES
OPERATING EXPENSES .82% 1.07% 1.32% .57%
</TABLE>

-------------------------------------------------------------------
11 PRUDENTIAL MUNICIPAL BOND FUND [ICON] (800) 225-1852
<PAGE>
RISK/RETURN SUMMARY
------------------------------------------------

EXAMPLE

This example will help you compare the fees and expenses of the High Income
Series' different share classes and compare the cost of investing in the Series
with the cost of investing in other mutual funds.

<TABLE>
<CAPTION>
--------------------------------------------------------------
1 YR 3 YRS 5 YRS 10 YRS
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $381 $564 $763 $1,336
Class B shares $609 $640 $690 $1,223
Class C shares $333 $567 $923 $1,928
Class Z shares $58 $183 $318 $714
</TABLE>

You would pay the following expenses on the same investment if you did not sell
your shares:

<TABLE>
<CAPTION>
--------------------------------------------------------------
1 YR 3 YRS 5 YRS 10 YRS
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A shares $381 $564 $763 $1,336
Class B shares $109 $340 $590 $1,223
Class C shares $233 $567 $923 $1,928
Class Z shares $58 $183 $318 $714
</TABLE>

--------------------------------------------------------------------------------
12
<PAGE>
HOW THE FUND INVESTS
-------------------------------------

Each Series invests substantially all and, in any event, at least 80% of the
value of the Series' net assets in MUNICIPAL BONDS, which include MUNICIPAL
NOTES and other municipal securities. Municipal bonds pay interest that
generally is eligible for exclusion from federal income taxation. Each Series,
however, may hold certain private activity bonds, which are municipal bonds, the
interest on which is subject to the federal alternative minimum tax (AMT). See
"Fund Distributions and Tax Issues--Distributions." Municipal notes, like
municipal bonds, are fixed-income securities issued by states and
municipalities, except that municipal notes mature in one year or less.

Municipal bonds include GENERAL OBLIGATION BONDS and REVENUE BONDS. General
obligation bonds are obligations supported by the credit of an issuer that has
the power to tax and are payable from that issuer's general revenues and not
from any specific source. Revenue bonds, on the other hand, are payable from
revenues derived from a particular source.

INSURED SERIES: INVESTMENT OBJECTIVE AND POLICIES

The investment objective of this Series is to provide the MAXIMUM AMOUNT OF
INCOME THAT IS ELIGIBLE FOR EXCLUSION FROM FEDERAL INCOME TAXES, CONSISTENT WITH
THE PRESERVATION OF CAPITAL. While we make every effort to achieve our
objective, we can't guarantee success.

The Series' portfolio consists primarily of MUNICIPAL BONDS THAT ARE
(1) INSURED BY AN ENTITY WHOSE CLAIMS-PAYING ABILITY AT THE TIME OF PURCHASE IS
RATED Aaa BY MOODY'S OR AAA BY S&P, OR COMPARABLY RATED BY ANOTHER MAJOR RATING
SERVICE SO THAT THE BOND IS RATED AAA OR Aaa OR MEETS THE ELIGIBILITY CRITERIA
IMPOSED BY SUCH INSURERS, (2) RATED Aaa OR AAA BY MOODY'S OR S&P, RESPECTIVELY,
OR COMPARABLY RATED BY ANOTHER MAJOR RATING SERVICE, OR (3) BACKED BY THE FULL
FAITH AND CREDIT OF THE U.S. GOVERNMENT. Under normal market conditions, at
least 70% of the Series' total assets will consist of insured municipal bonds.
Generally, the yields on insured bonds are lower than the yields on uninsured
bonds of

-------------------------------------------------------------------

MUNICIPAL BONDS
States and municipalities issue bonds in order to borrow money to finance a
project. You can think of bonds as loans that investors make to the state, local
government or other issuer. The government gets the cash needed to complete the
project and investors earn income on their investment.
-------------------------------------------------------------------
-------------------------------------------------------------------
13 PRUDENTIAL MUNICIPAL BOND FUND [ICON] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS

------------------------------------------------

comparable quality. Insurance reduces the insured bond's credit risk and may
increase the bond's value.

A rating is an assessment of the likelihood of the timely payment of debt
(with respect to a municipal bond) or claims (with respect to an insurer of a
municipal bond), and can be useful when comparing different municipal bonds.
These ratings are not a guarantee of quality. The opinions of the rating
agencies do not reflect market risk and they may, at times, lag behind the
current financial condition of an issuer or insurer. An investor can evaluate
the expected likelihood of default by an issuer or an insurer by looking at its
ratings as compared to another similar issuer or insurer. The Series may also
invest in municipal bonds that are not rated if, based upon a credit analysis by
the Series' investment adviser, the investment adviser believes that such
securities are of comparable quality to other municipal bonds that the Series
may purchase.

For more information, see "Investment Risks" below and the Statement of
Additional Information, "Description of the Fund, Its Investments and Risks."
The Statement of Additional Information--which we refer to as the SAI--contains
additional information about the Series. To obtain a copy, see the back cover
page of this prospectus.

The Series' investment objective is a fundamental policy that cannot be
changed without shareholder approval. The Board of the Fund can change
investment policies of the Series that are not fundamental.

HIGH INCOME SERIES: INVESTMENT OBJECTIVE AND POLICIES
The investment objective of this Series is to provide the MAXIMUM AMOUNT OF
INCOME THAT IS ELIGIBLE FOR EXCLUSION FROM FEDERAL INCOME TAXES. While we make
every effort to achieve our objective, we can't guarantee success.

The Series' portfolio consists primarily of MUNICIPAL BONDS RATED B OR
BETTER BY MOODY'S OR S&P OR BONDS EITHER RATED BY ANOTHER MAJOR RATING SERVICE
OR UNRATED BONDS OF COMPARABLE QUALITY. Municipal bonds rated Ba or BB or lower
by Moody's or S&P, respectively, are considered lower-rated or HIGH-YIELD
SECURITIES or JUNK BONDS. Municipal bonds rated Baa by Moody's or BBB by S&P are
regarded as investment-grade, but have speculative characteristics and are
riskier than higher-rated municipal bonds. A description of bond ratings is
contained in Appendix A.

Lower-rated bonds tend to offer higher yields, but also offer greater risks,
than higher-rated bonds. Under certain economic conditions, however,

-------------------------------------------------------------------
14
<PAGE>
HOW THE FUND INVESTS
------------------------------------------------

lower or medium-rated bonds might not yield significantly more than higher-
rated bonds, or comparable unrated bonds. If that happens, the Series may invest
in higher-rated bonds that offer similar yields but have less risk. Furthermore,
if issuers redeem their high-yield bonds at a higher than expected rate, which
might happen during periods of declining interest rates, the Series could be
forced to buy higher-rated, lower-yielding securities, which would decrease the
Series' return.

During the fiscal year ended April 30, 2000, the monthly dollar-weighted
average ratings of the debt securities held by the Series, expressed as a
percentage of the Series' total investments, were as follows:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------
PERCENTAGE OF TOTAL
RATINGS INVESTMENTS
-----------------------------------------------------------------------
<S> <C>
AAA/Aaa 19.4%
AA/Aa 4.0%
A/A 3.0%
BBB/Baa 12.2%
BB/Ba 6.0%
B/B 1.5%
CCC/Caa 0.3%
Unrated
AAA/Aaa 7.2%
AA/Aa 0.2%
A/A 0.2%
BBB/Baa 4.2%
BB/Ba 22.9%
B/B 16.2%
CCC/Caa 0.5%
D 2.2%
</TABLE>

-------------------------------------------------------------------
15 PRUDENTIAL MUNICIPAL BOND FUND [ICON] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS

------------------------------------------------

OTHER INVESTMENTS AND STRATEGIES

In addition to the principal strategies, each Series also may use the following
investment strategies to increase the Series' returns or protect its assets if
market conditions warrant.

FLOATING RATE BONDS, VARIABLE RATE BONDS, INVERSE FLOATERS AND

SECONDARY INVERSE FLOATERS

Each Series may invest in floating rate bonds, variable rate bonds, inverse
floaters and secondary inverse floaters. FLOATING RATE BONDS are municipal bonds
that have an interest rate that is set as a specific percentage of a designated
rate, such as the rate on Treasury bonds or the prime rate at major commercial
banks. The interest rate on floating rate bonds changes when there is a change
in the designated rate. VARIABLE RATE BONDS are municipal bonds that have an
interest rate that is adjusted based on the market rate at a specified period.
They generally allow the Series to demand payment of the bond on short notice
for an amount that may be more or less than the amount paid. INVERSE FLOATERS
are municipal bonds with a floating or variable interest rate that moves in the
opposite direction of the interest rate on another security or the value of an
index. SECONDARY INVERSE FLOATERS are municipal asset-backed securities with a
floating or variable interest rate that moves in the opposite direction of the
interest rate on another security or the value of an index.

MUNICIPAL LEASE OBLIGATIONS

Each Series may invest in municipal lease obligations. MUNICIPAL LEASE
OBLIGATIONS are obligations where the interest and principal are paid out of
lease payments made by the party leasing the facilities that were built with the
bonds. Typically, municipal lease obligations are issued by states or financing
authorities to provide money for construction projects such as schools, offices
or stadiums. The entity that leases the building or facility would be
responsible for paying the interest and principal on the obligation.

MUNICIPAL ASSET-BACKED SECURITIES
Each Series may invest in municipal asset-backed securities. A MUNICIPAL
ASSET-BACKED SECURITY is a type of pass-through instrument that pays interest
which is eligible for exclusion from federal income taxation based upon the
income from an underlying pool of municipal bonds.
-------------------------------------------------------------------
16
<PAGE>
HOW THE FUND INVESTS
------------------------------------------------

WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES

Each Series may purchase municipal bonds on a WHEN-ISSUED or DELAYED-DELIVERY
basis, without limit. When the Series makes this type of purchase, the price and
interest rate are fixed at the time of purchase, but delivery and payment for
the bonds take place at a later time. The Series does not earn interest income
until the date the bonds are delivered.

DISTRESSED SECURITIES

The High Income Series may invest up to 10% of its assets in DISTRESSED
SECURITIES, that is, securities of issuers that are financially troubled and
which we believe are currently valued at less than their long-term potential.
The Series is also permitted to invest in defaulted bonds and in bonds having a
rating of D or better by Moody's, S&P or another major rating service or unrated
bonds of comparable quality.

TEMPORARY DEFENSIVE INVESTMENTS

In response to adverse market, economic or political conditions, each Series may
hold up to 100% of its assets in cash, cash equivalents or investment-grade
taxable bonds, including bonds that are generally exempt from state, but not
federal, income taxation. Investing heavily in these securities limits our
ability to achieve each Series' investment objective, but can help to preserve
each Series' assets.

DERIVATIVE STRATEGIES

We may use various DERIVATIVE STRATEGIES to try to improve each Series' returns.
We may use hedging techniques to try to protect each Series' assets. We cannot
guarantee that these strategies and techniques will work, that the instruments
necessary to implement these strategies and techniques will be available, or
that a Series will not lose money. Derivatives--such as futures contracts,
options on futures and interest rate swaps--involve costs and can be volatile.
With derivatives, the investment adviser tries to predict if the underlying
investment, whether a security, market index, interest rate, or some other
investment, will go up or down at some future date. We may use derivatives to
try to reduce risk or to increase return consistent with a Series' overall
investment objective. The investment adviser will consider other factors (such
as cost) in deciding whether to employ any particular strategy or technique, or
use any

-------------------------------------------------------------------
17 PRUDENTIAL MUNICIPAL BOND FUND [ICON] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS

------------------------------------------------

particular instrument. Any derivatives we may use may not match a Series'
underlying holdings.

FUTURES CONTRACTS AND RELATED OPTIONS

Each Series may purchase and sell futures contracts and related options on
financial futures. A FUTURES CONTRACT is an agreement to buy or sell a set
quantity of an underlying product at a future date, or to make or receive a cash
payment based on the value of a securities index. An OPTION is the right to buy
or sell a security, or in the case of an option on a futures contract, the right
to buy or sell a futures contract, in exchange for a premium.

INTEREST RATE SWAP TRANSACTIONS

Each Series may enter into INTEREST RATE SWAP TRANSACTIONS. In a swap
transaction, a Series and another party "trade" income streams. The swap is done
to preserve a return or spread on a particular investment or portion of a
portfolio or to protect against any increase in the price of securities a Series
anticipates purchasing at a later date.

For more information about these strategies, see the SAI, "Description of
the Fund, Its Investments and Risks."

ADDITIONAL STRATEGIES

Each Series also follows certain policies when it BORROWS MONEY (each Series can
borrow up to 33 1/3% of the value of its total assets); PURCHASES SHARES OF
OTHER INVESTMENT COMPANIES (each Series may hold up to 10% of its total assets
in such securities, which entail duplicate management and advisory fees to
shareholders); LENDS ITS SECURITIES to others (each Series can lend up to 33% of
the value of its total assets); and HOLDS ILLIQUID SECURITIES (each Series may
hold up to 15% of its net assets in illiquid securities, including securities
with legal or contractual restrictions on resale, those without a readily
available market and repurchase agreements with maturities longer than seven
days). Each Series is subject to certain investment restrictions that are
fundamental policies, which means they cannot be changed without shareholder
approval. For more information about these restrictions, see the SAI.

-------------------------------------------------------------------
18
<PAGE>
HOW THE FUND INVESTS

------------------------------------------------

INVESTMENT RISKS
As noted, all investments involve risk, and investing in a Series is no
exception. Since each Series' holdings can vary significantly from broad market
indexes, performance of the Series can deviate from performance of the indexes.
This chart outlines the key risks and potential rewards of each Series'
principal investments and certain other non-principal investments each Series
may make. See, too, "Description of the Fund, Its Investments and Risks" in the
SAI.

INVESTMENT TYPE

<TABLE>
<CAPTION>
% OF EACH SERIES'
--------------------------------------------------------------------------------
TOTAL ASSETS RISKS POTENTIAL REWARDS
--------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS -- Credit risk--the risk -- Tax-exempt interest
BOTH SERIES: that the borrower income, except with
can't pay back the respect to certain
AT LEAST 80% OF EACH money borrowed or bonds, such as
SERIES' NET ASSETS make interest private activity
UNDER NORMAL payments (lower for bonds, which are
CONDITIONS insured and higher subject to the
rated bonds) federal alternative
-- Market risk--the risk minimum tax (AMT)
that bonds will lose -- If interest rates
value in the market decline, long-term
because interest yields should be
rates rise or there higher than money
is a lack of market yields
confidence in the
borrower
-- Concentration
risk--the risk that
bonds may lose value
because of
political, economic
or other events in
the geographic
region where a
Series' investments
are focused
-- Tax risk--the risk
that federal income
tax rates may
decrease, which
could decrease
demand for municipal
bonds or that a
change in law may
limit or eliminate
exemption of
interest on
municipal bonds from
such taxes
-- Illiquidity risk--the
risk that bonds may
be difficult to
value precisely and
sell at time or
price desired, in
which case valuation
would depend more on
investment adviser's
judgment than is
generally the case
with other types of
municipal bonds
-- Nonappropriation
risk--the risk that
the municipality may
not include the bond
obligations in
future budgets
--------------------------------------------------------------------------------
</TABLE>

-------------------------------------------------------------------
19 PRUDENTIAL MUNICIPAL BOND FUND [ICON] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
------------------------------------------------

INVESTMENT TYPE (CONT'D)

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
% OF EACH SERIES'
TOTAL ASSETS RISKS POTENTIAL REWARDS
--------------------------------------------------------------------------------
<S> <C> <C>
HIGH-YIELD MUNICIPAL -- See credit risk -- May offer higher
BONDS (JUNK BONDS) (particularly high), interest income and
HIGH INCOME SERIES market risk higher potential
ONLY: (particularly high) gains than
UP TO 100% and illiquidity risk higher-grade
(particularly high) municipal bonds
-- Most bonds rise in
value when interest
rates fall
--------------------------------------------------------------------------------
DISTRESSED SECURITIES -- See credit risk -- May offer greater
HIGH INCOME SERIES (particularly high), capital appreciation
ONLY: market risk and a higher rate of
UP TO 10% (particularly high) return if companies
and illiquidity risk fulfill their
-- More likely to anticipated
default, especially potential
during economic
downturns
-- Subject to greater
volatility than
securities of more
stable companies
-- To the extent the
Series invests in
bankrupt companies,
the Series may be
subject to
litigation risks and
costs
--------------------------------------------------------------------------------
MUNICIPAL LEASE -- See credit risk, -- Tax-exempt interest
OBLIGATIONS market risk, income, except with
BOTH SERIES: concentration risk, respect to certain
PERCENTAGE VARIES; tax risk, bonds, such as
USUALLY LESS THAN 25% illiquidity risk and private activity
nonappropriation bonds, which are
risk subject to the AMT
-- If interest rates
decline, long-term
yields should be
higher than money
market yields
--------------------------------------------------------------------------------
</TABLE>

-------------------------------------------------------------------
20
<PAGE>
HOW THE FUND INVESTS
------------------------------------------------

INVESTMENT TYPE (CONT'D)

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
% OF EACH SERIES'
TOTAL ASSETS RISKS POTENTIAL REWARDS
--------------------------------------------------------------------------------
<S> <C> <C>
DERIVATIVES -- Derivatives such as -- A Series could make
BOTH SERIES: futures, options on money and protect
PERCENTAGE VARIES; futures and interest against losses if
USUALLY LESS THAN 20% rate swaps that are the investment
used for hedging analysis proves
purposes may not correct
fully offset the -- One way to manage a
underlying positions Series' risk/return
and this could balance is to lock
result in losses to in the value of an
a Series that would investment ahead of
not have otherwise time
occurred -- Derivatives used for
-- Derivatives used for return enhancement
risk management may purposes involve a
not have the type of leverage and
intended effects and could generate
may result in losses substantial gains at
or missed low cost
opportunities
-- The other party to a
derivatives contract
could default
-- Certain types of
derivatives involve
costs to a Series
that can reduce
returns
-- Derivatives used for
return enhancement
purposes involve a
type of leverage
(borrowing for
investment) and
could magnify losses
--------------------------------------------------------------------------------
VARIABLE/FLOATING RATE -- Value lags value of -- May offer protection
BONDS fixed-rate against interest
BOTH SERIES: securities when rate changes
PERCENTAGE VARIES; interest rates
USUALLY LESS THAN 10% change
--------------------------------------------------------------------------------
INVERSE FLOATERS/ -- High market -- Income generally will
SECONDARY INVERSE risk--risk that increase when
FLOATERS inverse floaters interest rates
BOTH SERIES: will fluctuate in decrease
PERCENTAGE VARIES; value more
USUALLY LESS THAN 15% dramatically than
other debt
securities when
interest rates
change
-- See credit risk and
illiquidity risk
-- Secondary inverse
floaters are subject
to additional risks
of municipal
asset-backed
securities
--------------------------------------------------------------------------------
</TABLE>

-------------------------------------------------------------------
21 PRUDENTIAL MUNICIPAL BOND FUND [ICON] (800) 225-1852
<PAGE>
HOW THE FUND INVESTS
------------------------------------------------

INVESTMENT TYPE (CONT'D)

-------------------------------------------------------------------
22
<PAGE>
HOW THE FUND INVESTS
------------------------------------------------

INVESTMENT TYPE (CONT'D)

-------------------------------------------------------------------
23 PRUDENTIAL MUNICIPAL BOND FUND [ICON] (800) 225-1852
<PAGE>
HOW THE FUND IS MANAGED
-------------------------------------

BOARD OF TRUSTEES

The Fund's Board of Trustees oversees the actions of the Manager, investment
adviser and Distributor and decides on general policies. The Board also oversees
the Fund's officers, who conduct and supervise the daily business operations of
the Fund.

MANAGER

PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM)
GATEWAY CENTER THREE, 100 MULBERRY STREET
NEWARK, NJ 07102-4077

Under a Management Agreement with the Fund, PIFM manages the Fund's
investment operations and administers its business affairs. PIFM also is
responsible for supervising the Fund's investment adviser. For the fiscal year
ended April 30, 2000, the Insured Series and High Income Series paid PIFM
management fees of .50% and .45% of their respective average daily net assets.

PIFM and its predecessors have served as manager or administrator to
investment companies since 1987. As of April 30, 2000, PIFM served as the
manager to all 42 of the Prudential mutual funds, and as manager or
administrator to 22 closed-end investment companies, with aggregate assets of
approximately $76.2 billion.

INVESTMENT ADVISER

The Prudential Investment Corporation, called Prudential Investments, is each
Series' investment adviser and has served as an investment adviser to investment
companies since 1984. Its address is Prudential Plaza, 751 Broad Street, Newark,
NJ 07102. PIFM has responsibility for all investment advisory services,
supervises Prudential Investments and pays Prudential Investments for its
services.

Prudential Investments' Fixed Income Group manages more than $135 billion
for Prudential's retail investors, institutional investors, and policyholders.
Senior Managing Directors James J. Sullivan and Jack W. Gaston head the Group,
which is organized into teams specializing in different market sectors.
Top-down, broad investment decisions are made by the Fixed Income Policy
Committee, whereas bottom-up security selection is made by the sector teams.

-------------------------------------------------------------------
24
<PAGE>
HOW THE FUND IS MANAGED

------------------------------------------------

Mr. Sullivan has overall responsibility for overseeing portfolio management
and credit research. Prior to joining Prudential Investments in 1998, he was a
managing director in Prudential's Capital Management Group, where he oversaw
portfolio management and credit research for Prudential's General Account and
subsidiary fixed-income portfolios. He has more than 16 years of experience in
risk management, arbitrage trading, and corporate bond investing.

Mr. Gaston has overall responsibility for overseeing quantitative research
and risk management. Prior to this appointment in 1999, he was senior managing
director of the Capital Management Group where he was responsible for the
investment performance and risk management for Prudential's General Account and
subsidiary fixed-income portfolios. He has more than 20 years of experience in
investment management, including extensive experience applying quantitative
techniques to portfolio management.

The Fixed Income Investment Policy Committee is comprised of key senior
investment managers. Members include seven sector team leaders, the chief
investment strategist, and the head of risk management. The Committee uses a
top-down approach to investment strategy, asset allocation, and general risk
management, identifying sectors in which to invest.

The Municipal Bond Team, headed by Evan Lamp, is primarily responsible for
overseeing the day-to-day management of the Fund. This Team uses a bottom-up
approach, which focuses on individual securities, while staying within the
guidelines of the Investment Policy Committee and the Fund's investment
restrictions and policies. In addition, the Credit Research team of analysts
supports the sector teams using bottom-up fundamentals, as well as economic and
industry trends. Other sector teams may contribute to securities selection when
appropriate.

MUNICIPAL BONDS

ASSETS UNDER MANAGEMENT: $5.4 billion (as of December 31, 1999).

TEAM LEADER: Evan Lamp. GENERAL INVESTMENT EXPERIENCE: 7 years.

PORTFOLIO MANAGERS: 5. AVERAGE GENERAL INVESTMENT EXPERIENCE: 8 years, which
includes team members with significant mutual fund experience.

SECTOR: City, state and local government securities.

-------------------------------------------------------------------
25 PRUDENTIAL MUNICIPAL BOND FUND [ICON] (800) 225-1852
<PAGE>
HOW THE FUND IS MANAGED

------------------------------------------------

INVESTMENT STRATEGY: Focus is on identifying spread, credit quality and
liquidity trends to capitalize on changing opportunities in the municipal
market. Ultimately, they seek the highest expected return with the least risk.

DISTRIBUTOR

Prudential Investment Management Services LLC (PIMS) distributes the Fund's
shares under a Distribution Agreement with the Fund. The Fund has Distribution
and Service Plans under Rule 12b-1 of the Investment Company Act. Under the
Plans and the Distribution Agreement, PIMS pays the expenses of distributing the
Fund's Class A, B, C and Z shares and provides certain shareholder support
services. The Fund pays distribution and other fees to PIMS as compensation for
its services for each class of shares other than Class Z. These fees--known as
12b-1 fees--are shown in the "Fees and Expenses of the Series" tables.

-------------------------------------------------------------------
26
<PAGE>
FUND DISTRIBUTIONS AND TAX ISSUES
-------------------------------------

Investors who buy shares of each Series should be aware of some important tax
issues. For example, each Series distributes DIVIDENDS of net investment income
monthly and CAPITAL GAINS, if any, at least annually to shareholders. Dividends
generally will be exempt from federal income taxes. If, however, the Series
invests in taxable obligations, it will pay dividends that are not exempt from
federal income taxes. Dividends and distributions from each Series also may be
subject to state and local income tax in the state where you live.

Also, if you sell shares of the Series for a profit, you may have to pay
capital gains taxes on the amount of your profit. The following briefly
discusses some of the important federal tax issues you should be aware of, but
is not meant to be tax advice. For tax advice, please speak with your tax
adviser.

DISTRIBUTIONS

Each Series distributes DIVIDENDS out of any net investment income, plus
short-term capital gains, to shareholders, typically every month. For example,
if the Series owns a City XYZ bond and the bond pays interest, the Series will
pay out a portion of this interest as a dividend to its shareholders, assuming
the Series' income is more than its costs and expenses. These dividends will
generally be EXEMPT FROM FEDERAL INCOME TAXES, as long as 50% or more of the
value of the Series' assets at the end of each quarter is invested in state,
municipal and other obligations. This interest is excluded from gross income for
federal income tax purposes. As we mentioned before, at least 80% of each
Series' net assets will be invested in such obligations during normal market
conditions. Dividends attributable to the taxable bonds held by the Series,
market discount and to short-term capital gains, however, will be subject to
federal, state and local income tax at ordinary income tax rates. Corporate
shareholders are not eligible for the 70% dividends-received deduction on
dividends paid by the Fund.

Some shareholders may be subject to federal alternative minimum tax
liability. Tax-exempt interest from certain bonds is treated as an item of tax
preference, and may be attributed to shareholders. A portion of all tax-exempt
interest is includable as an upward adjustment in determining a corporation's
alternative minimum taxable income. These rules could make you liable for the
alternative minimum tax (AMT).
-------------------------------------------------------------------
27 PRUDENTIAL MUNICIPAL BOND FUND [ICON] (800) 225-1852
<PAGE>
FUND DISTRIBUTIONS AND TAX ISSUES

------------------------------------------------

Each Series also distributes LONG-TERM CAPITAL GAINS to shareholders--
typically once a year. Long-term capital gains are generated when the Series
sells assets that it held for more than 12 months for a profit. For an
individual, the maximum long-term capital gains rate is 20%.

For your convenience, distributions of dividends and capital gains are
AUTOMATICALLY REINVESTED in the respective Series without any sales charge. If
you ask us to pay the distributions in cash, we will send you a check if your
account is with the Transfer Agent. Otherwise, if your account is with a broker,
you will receive a credit to your account. Either way, the distributions may be
subject to taxes. For more information about automatic reinvestment and other
shareholder services, see "Step 4: Additional Shareholder Services" in the next
section.

TAX ISSUES
FORM 1099
Every year, you will receive a Form 1099, which reports the amount of dividends
and long-term capital gains we distributed to you during the prior year.

Fund distributions are generally taxable to you in the calendar year they
are received, except when we declare certain dividends in the fourth quarter,
and actually pay them in January of the following year. In such cases, the
dividends are treated as if they were paid on December 31 of the prior year.

WITHHOLDING TAXES

If federal law requires you to provide the Fund with your taxpayer
identification number and certifications as to your tax status, and you fail to
do this, or if you are otherwise subject to backup withholding, we will withhold
and pay to the U.S. Treasury 31% of your taxable distributions and gross sale
proceeds. Dividends of net investment income and short-term capital gains paid
to a nonresident foreign shareholder generally will be subject to a U.S.
withholding tax of 30%. This rate may be lower, depending on any tax treaty the
U.S. may have with the shareholder's country.

-------------------------------------------------------------------
28
<PAGE>
FUND DISTRIBUTIONS AND TAX ISSUES

------------------------------------------------

IF YOU PURCHASE JUST BEFORE RECORD DATE

If you buy shares of the Fund just before the record date for a distribution
(the date that determines who receives the distribution), that distribution will
be paid to you. As explained above, the distribution may be subject to income or
capital gains taxes. You may think you've done well since you bought shares one
day and soon thereafter received a distribution. That is not so because when
dividends are paid out, the value of each share of the Fund decreases by the
amount of the dividend to reflect the payout although this may not be apparent
because the value of each share of the Fund also will be affected by market
changes, if any. The distribution you receive makes up for the decrease in share
value. However, if the distribution is taxable, the timing of your purchase does
mean that part of your investment came back to you as taxable income.

IF YOU SELL OR EXCHANGE YOUR SHARES

If you sell any shares of a Series for a profit, you have REALIZED A CAPITAL
GAIN which is subject to tax. For individuals, the maximum capital gains tax
rate is 20% for shares held for more than twelve months. If you sell shares of a
Series for a loss, you may have a capital loss, which you may use to offset
certain capital gains you have.

RECEIPTS FROM SALE $ --> +$ CAPITAL GAIN
(taxes owed)

RECEIPTS FROM SALE $ --> -$ CAPITAL LOSS
(offset against gain)

[GRAPH]

If you sell shares and realize a loss, you will not be permitted to use the
loss to the extent you replace the shares (including pursuant to the
reinvestment of a dividend) within a 61-day period (beginning 30 days before the
sale of the shares). Under certain circumstances, if you acquire shares of a
Series and sell or exchange your shares within 90 days, you may not be allowed
to include certain charges incurred in acquiring the shares for purposes of
calculating gain or loss realized upon the sale of the shares.

Exchanging your shares of a Series for the shares of another Prudential
mutual fund is considered a sale for tax purposes. In other words, it's a
"taxable event." Therefore, if the shares you exchanged have increased in value
since you purchased them, you have capital gains, which are subject
-------------------------------------------------------------------
29 PRUDENTIAL MUNICIPAL BOND FUND [ICON] (800) 225-1852
<PAGE>
FUND DISTRIBUTIONS AND TAX ISSUES
------------------------------------------------

to the taxes described above.

Any gain or loss you may have from selling or exchanging a Series' shares
will not be reported on Form 1099; however, proceeds from the sale or exchange
will be reported on Form 1099-B. Therefore, you or your financial adviser should
keep track of the dates on which you buy and sell--or exchange--Series shares,
as well as the amount of any gain or loss on each transaction. For tax advice,
please see your tax adviser.

AUTOMATIC CONVERSION OF CLASS B SHARES

We have obtained a legal opinion that the conversion of Class B shares into
Class A shares--which happens automatically approximately seven years after
purchase--is not a "taxable event." This opinion, however, is not binding on the
Internal Revenue Service. For more information about the automatic conversion of
Class B shares, see "Class B Shares Convert to Class A Shares After
Approximately Seven Years" in the next section.

-------------------------------------------------------------------
30
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
-------------------------------------

HOW TO BUY SHARES
STEP 1: OPEN AN ACCOUNT
If you don't have an account with us or a securities firm that is permitted to
buy or sell shares of a Series for you, call Prudential Mutual Fund Services LLC
(PMFS) at (800) 225-1852 or contact:

PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: INVESTMENT SERVICES
P.O. BOX 15020
NEW BRUNSWICK, NJ 08906-5020

To purchase by wire, call the number above to obtain an application. After
PMFS receives your completed application, you will receive an account number.
For additional information about purchasing shares of a Series, see the back
cover page of this prospectus. We have the right to reject any purchase order
(including an exchange into a Series) or suspend or modify a Series' sale of its
shares.

STEP 2: CHOOSE A SHARE CLASS
Individual investors can choose among Class A, Class B, Class C, and Class Z
shares of a Series, although Class Z shares are available only to a limited
group of investors.

Multiple share classes let you choose a cost structure that meets your
needs. With Class A shares, you pay the sales charge at the time of purchase,
but the operating expenses each year are lower than the expenses of Class B and
Class C shares. With Class B shares, you only pay a sales charge if you sell
your shares within six years (that is why it is called a Contingent Deferred
Sales Charge, or CDSC), but the operating expenses each year are higher than the
Class A share expenses. With Class C shares, you pay a 1% front-end sales charge
and a 1% CDSC if you sell within 18 months of purchase, but the operating
expenses are also higher than the expenses for Class A shares.

When choosing a share class, you should consider the following:

-- The amount of your investment

-- The length of time you expect to hold the shares and the impact of
the varying distribution fees

-- The different sales charges that apply to each share class--
Class A's front-end sales charge vs. Class B's CDSC vs. Class C's low
front-end sales charge and low CDSC
-------------------------------------------------------------------
31 PRUDENTIAL MUNICIPAL BOND FUND [ICON] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------

-- Whether you qualify for any reduction or waiver of sales charges

-- The fact that Class B shares automatically convert to Class A shares
approximately seven years after purchase

-- Whether you qualify to purchase Class Z shares.
See "How to Sell Your Shares" for a description of the impact of CDSCs.

SHARE CLASS COMPARISON. Use this chart to help you compare each Series'
different share classes. The discussion following this chart will tell you
whether you are entitled to a reduction or waiver of any sales charges.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Z
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Minimum purchase amount(1) $1,000 $1,000 $2,500 None
Minimum amount for $100 $100 $100 None
subsequent purchases(1)
Maximum initial sales charge 3% of the public None 1% of the public None
offering price offering price
Contingent Deferred Sales None If sold during: 1% on sales made None
Charge (CDSC)(2) Year 1 5% within 18 months
Year 2 4% of purchase
Year 3 3%
Year 4 2%
Year 5 1%
Year 6 1%
Year 7 0%
Annual distribution and .30 of 1% .50 of 1% 1% None
service (12b-1) fees (shown (.25 of 1% (.75 of 1%
as a percentage of average currently) currently)
net assets)(3)
</TABLE>

1 THE MINIMUM INVESTMENT REQUIREMENTS DO NOT APPLY TO CERTAIN CUSTODIAL
ACCOUNTS FOR MINORS. THE MINIMUM INITIAL AND SUBSEQUENT INVESTMENT FOR
PURCHASES MADE THROUGH THE AUTOMATIC INVESTMENT PLAN IS $50. FOR MORE
INFORMATION, SEE "STEP 4: ADDITIONAL SHAREHOLDER SERVICES-- AUTOMATIC
INVESTMENT PLAN."
2 FOR MORE INFORMATION ABOUT THE CDSC AND HOW IT IS CALCULATED, SEE "HOW TO
SELL YOUR SHARES--CONTINGENT DEFERRED SALES CHARGE (CDSC)."
3 THESE DISTRIBUTION AND SERVICE (12b-1) FEES ARE PAID FROM THE SERIES'
ASSETS ON A CONTINUOUS BASIS. OVER TIME, THE FEES WILL INCREASE THE COST OF
YOUR INVESTMENT AND MAY COST YOU MORE THAN PAYING OTHER TYPES OF SALES
CHARGES. CLASS A SHARES MAY PAY A SERVICE FEE OF UP TO .25 OF 1%. CLASS B
AND CLASS C SHARES WILL PAY A SERVICE FEE OF .25 OF 1%. THE DISTRIBUTION
FEE FOR CLASS A SHARES IS LIMITED TO .30 OF 1% (INCLUDING UP TO .25 OF 1%
AS A SERVICE FEE), IS .25 OF 1% FOR CLASS B SHARES AND IS .75 OF 1% FOR
CLASS C SHARES. FOR THE FISCAL YEAR ENDING APRIL 30, 2001, THE DISTRIBUTOR
OF THE FUND HAS CONTRACTUALLY AGREED TO REDUCE ITS DISTRIBUTION AND SERVICE
(12b-1) FEES FOR CLASS A AND CLASS C SHARES TO .25 OF 1% AND .75 OF 1% OF
THE AVERAGE DAILY NET ASSETS OF CLASS A AND CLASS C SHARES, RESPECTIVELY.

-------------------------------------------------------------------
32
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------

REDUCING OR WAIVING CLASS A'S INITIAL SALES CHARGE

The following describes the different ways investors can reduce or avoid
paying Class A's sales charge.

INCREASE THE AMOUNT OF YOUR INVESTMENT. You can reduce Class A's initial
sales charge by increasing the amount of your investment. This table shows
how the sales charge decreases as the amount of your investment
increases.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
SALES CHARGE AS % SALES CHARGE AS % DEALER
AMOUNT OF PURCHASE OF OFFERING PRICE OF AMOUNT INVESTED REALLOWANCE
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $99,000 3.00% 3.09% 3.00%
$100,000 to $249,999 2.50% 2.56% 2.50%
$250,000 to $499,999 1.50% 1.52% 1.50%
$500,000 to $999,999 1.00% 1.01% 1.00%
$1 million and above(1) None None None
</TABLE>

1 IF YOU INVEST $1 MILLION OR MORE, YOU CAN BUY ONLY CLASS A SHARES, UNLESS
YOU QUALIFY TO BUY CLASS Z SHARES.

To satisfy the purchase amounts above, you can:

-- Invest with an eligible group of related investors

-- Buy Class A shares of two or more Prudential mutual funds at the same
time

-- Use your RIGHTS OF ACCUMULATION, which allow you to combine the
current value of Prudential mutual fund shares you already own
(excluding money market fund shares other than those acquired through
the exchange privilege) with the value of the shares you are
purchasing for purposes of determining the applicable sales charge
(note: you must notify the Transfer Agent if you qualify for Rights
of Accumulation)

-- Sign a LETTER OF INTENT, stating in writing that you or an eligible
group of related investors will invest a specific dollar amount in
the Fund and other Prudential mutual funds within 13 months.

The Distributor may reallow Class A's sales charge to dealers.

MUTUAL FUND PROGRAMS. The initial sales charge will be waived for investors in
certain programs sponsored by broker-dealers, investment advisers and
-------------------------------------------------------------------
33 PRUDENTIAL MUNICIPAL BOND FUND [ICON] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------

financial planners who have agreements with Prudential Investments Advisory
Group relating to:

-- Mutual fund "wrap" or asset allocation programs, where the sponsor
places Fund trades and charges its clients a management, consulting
or other fee for its services

-- Mutual fund "supermarket" programs, where the sponsor links its
clients' accounts to a master account in the sponsor's name and the
sponsor charges a fee for its services.

Broker-dealers, investment advisers or financial planners sponsoring these
mutual fund programs may offer their clients more than one class of shares in
the Fund in connection with different pricing options for their programs.
Investors should consider carefully any separate transaction and other fees
charged by these programs in connection with investing in each available share
class before selecting a share class.

OTHER TYPES OF INVESTORS. Other investors may pay no sales charges, including
certain officers, employees or agents of Prudential and its affiliates, the
Prudential mutual funds, the subadvisers of the Prudential mutual funds and
registered representatives and employees of brokers that have entered into a
selected dealer agreement with the Distributor. To qualify for a reduction or
waiver of the sales charge, you must notify the Transfer Agent or your broker at
the time of purchase. For more information about reducing or eliminating
Class A's sales charge, see the SAI, "Purchase, Redemption and Pricing of Fund
Shares--Reduction and Waiver of Initial Sales Charge--Class A Shares."

WAIVING CLASS C'S INITIAL SALES CHARGE

INVESTMENT OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT COMPANIES. The initial
sales charge will be waived for purchases of Class C shares if the purchase is
made with money from the redemption of shares of any unaffiliated investment
company, as long as the shares were not held in an account at Prudential
Securities Incorporated (Prudential Securities) or one of its affiliates. These
purchases must be made within 60 days of the redemption. To qualify for this
waiver, you must do one of the following:

-- Purchase your shares through an account at Prudential Securities
-- Purchase your shares through an ADVANTAGE Account or an Investor
Account with Pruco Securities Corporation
-------------------------------------------------------------------
34
<PAGE>

HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------

-- Purchase your shares through another broker.

This waiver is not available to investors who purchase shares directly from
the Transfer Agent. If you are entitled to the waiver, you must notify your
broker, who may require any supporting documents it considers to be appropriate.

QUALIFYING FOR CLASS Z SHARES

MUTUAL FUND PROGRAMS. Class Z shares also can be purchased by participants in
any fee-based program or trust program sponsored by Prudential or an affiliate
that includes the Fund as an available option. Class Z shares also can be
purchased by investors in certain programs sponsored by broker-dealers,
investment advisers and financial planners who have agreements with Prudential
Investments Advisory Group relating to:

-- Mutual fund "wrap" or asset allocation programs, where the sponsor
places Fund trades, links its clients' accounts to a master account
in the sponsor's name and charges its clients a management,
consulting or other fee for its services

-- Mutual fund "supermarket" programs, where the sponsor links its
clients' accounts to a master account in the sponsor's name and the
sponsor charges a fee for its services.

OTHER TYPES OF INVESTORS. Class Z shares also can be purchased by any of the
following:

-- Certain participants in the MEDLEY Program (group variable annuity
contracts) sponsored by Prudential for whom Class Z shares of the
Prudential mutual funds are an available option
-- Current and former Directors/Trustees of the Prudential mutual funds
(including the Fund)
-- Prudential, with an investment of $10 million or more.
In connection with the sale of shares, the Manager, the Distributor or one
of their affiliates may pay brokers, financial advisers and other persons
-------------------------------------------------------------------
35 PRUDENTIAL MUNICIPAL BOND FUND [ICON] (800) 225-1852
<PAGE>

HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------

a commission of up to 4% of the purchase price for Class B shares, up to 2% of
the purchase price for Class C shares and a finder's fee for Class A or Class Z
shares from their own resources based on a percentage of the net asset value of
shares sold or otherwise.

CLASS B SHARES CONVERT TO CLASS A SHARES AFTER APPROXIMATELY SEVEN YEARS
If you buy Class B shares and hold them for approximately seven years, we will
automatically convert them into Class A shares without charge. At that time, we
will also convert any Class B shares that you purchased with reinvested
dividends and other distributions. Since the 12b-1 fees for Class A shares are
lower than for Class B shares, converting to Class A shares lowers your Series
expenses.
When we do the conversion, you will get fewer Class A shares than the number
of converted Class B shares if the price of the Class A shares is higher than
the price of Class B shares. The total dollar value will be the same, so you
will not have lost any money by getting fewer Class A shares. We do the
conversions quarterly, not on the anniversary date of your purchase. For more
information, see the SAI, "Purchase, Redemption and Pricing of Fund
Shares--Conversion Feature--Class B Shares."
STEP 3: UNDERSTANDING THE PRICE YOU'LL PAY

The price you pay for each share of a Series is based on the share value. The
share value of a mutual fund--known as the NET ASSET VALUE or NAV--is determined
by a simple calculation: it's the total value of a Series (assets minus
liabilities) divided by the total number of shares outstanding. For example, if
the value of the investments held by Fund XYZ (minus its liabilities) is $1,000
and there are 100 shares of Fund XYZ owned by shareholders, the price of one
share of the fund--or the NAV--is $10 ($1,000 divided by 100). Portfolio
securities are valued based upon market quotations or, if not readily available,
at fair value as determined in good faith under procedures established by the
Fund's Board. Most national newspapers

-------------------------------------------------------------------
MUTUAL FUND SHARES
The NAV of mutual fund shares changes every day because the value of a fund's
portfolio changes constantly. For example, if Fund XYZ holds City ABC bonds in
its portfolio and the price of City ABC bonds goes up, while the value of the
fund's other holdings remains the same and expenses don't change, the NAV of
Fund XYZ will increase.
-------------------------------------------------------------------
-------------------------------------------------------------------
36
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------

report the NAVs of most mutual funds, which allows investors to check the price
of mutual funds daily.

We determine the NAV of our shares once each business day at 4:15 p.m., New
York time, on days that the New York Stock Exchange (NYSE) is open for trading.
The NYSE is closed on most national holidays and Good Friday. We do not
determine the NAV with respect to a Series on days when we have not received any
orders to purchase, sell or exchange the Series' shares, or when changes in the
value of the Series' portfolio do not materially affect the NAV.

WHAT PRICE WILL YOU PAY FOR SHARES OF THE FUND?

For Class A and Class C shares, you'll pay the public offering price, which is
the NAV next determined after we receive your order to purchase, plus an initial
sales charge (unless you're entitled to a waiver). For Class B and Class Z
shares, you will pay the NAV next determined after we receive your order to
purchase (remember, there are no up-front sales charges for these share
classes). Your broker may charge you a separate or additional fee for purchases
of shares.

STEP 4: ADDITIONAL SHAREHOLDER SERVICES
As a Fund shareholder, you can take advantage of the following services and
privileges:

AUTOMATIC REINVESTMENT. As we explained in the "Fund Distributions and Tax
Issues" section, a Series pays out--or distributes--its net investment income
and capital gains to all shareholders. For your convenience, we will
automatically reinvest your distributions in the Series at NAV, without any
sales charge. If you want your distributions paid in cash, you can indicate this
preference on your application, notify your broker or notify the Transfer Agent
in writing (at the address below) at least five business days before the date we
determine who receives dividends.

PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: ACCOUNT MAINTENANCE
P.O. BOX 8159
PHILADELPHIA, PA 19101

-------------------------------------------------------------------
37 PRUDENTIAL MUNICIPAL BOND FUND [ICON] (800) 225-1852
<PAGE>

HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------

AUTOMATIC INVESTMENT PLAN. You can make regular purchases of a Series for as
little as $50 by having the money automatically withdrawn from your bank or
brokerage account at specified intervals.

THE PRUTECTOR PROGRAM. Optional group-term life insurance--which protects the
value of your Prudential mutual fund investment for your beneficiaries against
market declines--is available to investors who purchase their shares through
Prudential. Eligible investors who apply for PruTector coverage after the
initial 6-month enrollment period will need to provide satisfactory evidence of
insurability. This insurance is subject to other restrictions and is not
available in all states.

SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available that will
provide you with monthly, quarterly, semi-annual or annual redemption checks.
Remember, the sale of Class B and Class C shares may be subject to a CDSC.

REPORTS TO SHAREHOLDERS. Every year we will send you an annual report (along
with an updated prospectus) and a semi-annual report, which contain important
financial information about your Series. To reduce the Series' expenses, we will
send one annual shareholder report, one semi-annual shareholder report and one
annual prospectus per household, unless you instruct us or your broker
otherwise.
HOW TO SELL YOUR SHARES
You can sell your shares of a Series for cash (in the form of a check) at any
time, subject to certain restrictions.

When you sell shares of the Series--also known as redeeming your shares--the
price you will receive will be the NAV next determined after the Transfer Agent,
the Distributor or your broker receives your order to sell. If your broker holds
your shares, your broker must receive your order to sell by 4:15 p.m., New York
time, to process the sale on that day. Otherwise, contact:

PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: REDEMPTION SERVICES
P.O. BOX 8149
PHILADELPHIA, PA 19101

-------------------------------------------------------------------
38
<PAGE>

HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------

Generally, we will pay you for the shares that you sell within seven days
after the Transfer Agent, the Distributor or your broker receives your sell
order. If you hold shares through a broker, payment will be credited to your
account. If you are selling shares you recently purchased with a check, we may
delay sending you the proceeds until your check clears, which can take up to
10 days from the purchase date. You can avoid delay if you purchase by wire,
certified check or cashier's check. Your broker may charge you a separate or
additional fee for sales of shares.

RESTRICTIONS ON SALES

There are certain times when you may not be able to sell shares of the Fund, or
when we may delay paying you the proceeds from a sale. As permitted by the
Securities and Exchange Commission, this may happen only during unusual market
conditions or emergencies when the Fund can't determine the value of its assets
or sell its holdings. For more information, see the SAI, "Purchase, Redemption
and Pricing of Fund Shares--Sale of Shares."

If you are selling more than $100,000 of shares, if you want the check
payable or sent to someone or some place that is not in our records, or you are
a business or a trust and if you hold your shares directly with the Transfer
Agent, you will need to have the signature on your sell order signature
guaranteed by an "eligible guarantor institution." An "eligible guarantor
institution" includes any bank, broker-dealer, or credit union. For more
information, see the SAI, "Purchase, Redemption and Pricing of Fund Shares--Sale
of Shares--Signature Guarantee."

CONTINGENT DEFERRED SALES CHARGE (CDSC)

If you sell Class B shares within six years of purchase or Class C shares within
18 months of purchase, you will have to pay a CDSC. To keep the CDSC as low as
possible, we will sell amounts representing shares in the following order:

-- Amounts representing shares you purchased with reinvested dividends
and distributions

-- Amounts representing the increase in NAV above the total amount of
payments for shares made during the past six years for Class B shares
and 18 months for Class C shares

-- Amounts representing the cost of shares held beyond the CDSC period
(six years for Class B shares and 18 months for Class C shares).
-------------------------------------------------------------------
39 PRUDENTIAL MUNICIPAL BOND FUND [ICON] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------

Since shares that fall into any of the categories listed above are not
subject to the CDSC, selling them first helps you to avoid--or at least
minimize--the CDSC.
Having sold the exempt shares first, if there are any remaining shares that
are subject to the CDSC, we will apply the CDSC to amounts representing the cost
of shares held for the longest period of time within the applicable CDSC period.
As we noted before in the "Share Class Comparison" chart, the CDSC for
Class B shares is 5% in the first year, 4% in the second, 3% in the third, 2% in
the fourth and 1% in the fifth and sixth years. The rate decreases on the first
day of the month following the anniversary date of your purchase, not on the
anniversary date itself. The CDSC is 1% for Class C shares--which is applied to
shares sold within 18 months of purchase. For both Class B and Class C shares,
the CDSC is the lesser of the original purchase price or the redemption
proceeds. For purposes of determining how long you've held your shares, all
purchases during the month are grouped together and considered to have been made
on the last day of the month.

The holding period for purposes of determining the applicable CDSC will be
calculated from the first day of the month after purchase, excluding any time
shares were held in a money market fund.

WAIVER OF THE CDSC--CLASS B SHARES
The CDSC will be waived if the Class B shares are sold:

-- After a shareholder is deceased or disabled (or, in the case of a
trust account, the death or disability of the grantor). This waiver
applies to individual shareholders, as well as shares owned in joint
tenancy, provided the shares were purchased before the death or
disability

-- On certain sales effected through the Systematic Withdrawal Plan.

For more information on the above and other waivers, see the SAI, "Purchase,
Redemption and Pricing of Fund Shares--Contingent Deferred Sales Charge--Waiver
of Contingent Deferred Sales Charge--Class B Shares."

-------------------------------------------------------------------
40
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------

REDEMPTION IN KIND
If the sales of Fund shares you make during any 90-day period reach the lesser
of $250,000 or 1% of the value of the Fund's net assets, we can then give you
securities from the Fund's portfolio instead of cash. If you want to sell the
securities for cash, you would have to pay the costs charged by a broker.

SMALL ACCOUNTS
If you make a sale that reduces your account value to less than $500, we may
sell the rest of your shares (without charging any CDSC) and close your account.
We would do this to minimize the Fund's expenses paid by other shareholders. We
will give you 60 days' notice, during which time you can purchase additional
shares to avoid this action.

90-DAY REPURCHASE PRIVILEGE

After you redeem your shares, you have a 90-day period during which you may
reinvest back into your account any of the redemption proceeds in shares of the
same Series without paying an initial sales charge. Also, if you paid a CDSC
when you redeemed your shares, we will credit your account with the appropriate
number of shares to reflect the amount of the CDSC you paid on that reinvested
portion of your redemption proceeds. In order to take advantage of this one-time
privilege, you must notify the Transfer Agent or your broker at the time of the
repurchase. See the SAI, "Purchase, Redemption and Pricing of Fund Shares--Sale
of Shares."

HOW TO EXCHANGE YOUR SHARES

You can exchange your shares of a Series for shares of the same class in certain
other Prudential mutual funds--including certain money market funds--if you
satisfy the minimum investment requirements. For example, you can exchange
Class A shares of a Series for Class A shares of another Prudential mutual fund,
but you can't exchange Class A shares for Class B, Class C or Class Z shares.
Class B and Class C shares may not be exchanged into money market funds other
than Prudential Special Money Market Fund, Inc. After an exchange, at redemption
the CDSC will be calculated from the first day of the month after initial
purchase, excluding any time shares were held in a money market fund. We may
change the terms of the exchange privilege after giving you 60 days' notice.

-------------------------------------------------------------------
41 PRUDENTIAL MUNICIPAL BOND FUND [ICON] (800) 225-1852
<PAGE>
HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------

If you hold shares through a broker, you must exchange shares through your
broker. Otherwise contact:

PRUDENTIAL MUTUAL FUND SERVICES LLC
ATTN: EXCHANGE PROCESSING
P.O. BOX 8157
PHILADELPHIA, PA 19101

There is no sales charge for exchanges. If, however, you exchange--and then
sell--Class B shares within approximately six years of your original purchase or
Class C shares within 18 months of your original purchase, you must still pay
the applicable CDSC. If you have exchanged Class B or Class C shares into a
money market fund, the time you hold the shares in the money market account will
not be counted in calculating the required holding period for CDSC liability.

Remember, as we explained in the section entitled "Fund Distributions and
Tax Issues--If You Sell or Exchange Your Shares," exchanging shares is
considered a sale for tax purposes. Therefore, if the shares you exchange are
worth more than you paid for them, you may have to pay capital gains tax. For
additional information about exchanging shares, see the SAI, "Shareholder
Investment Account--Exchange Privilege."
If you own Class B or Class C shares and qualify to purchase Class A shares
without paying an initial sales charge, we will automatically exchange your
Class B or Class C shares which are not subject to a CDSC for Class A shares. We
make such exchanges on a quarterly basis if you qualify for this exchange
privilege. We have obtained a legal opinion that this exchange is not a "taxable
event" for federal income tax purposes. This opinion is not binding on the IRS.

FREQUENT TRADING
Frequent trading of a Series' shares in response to short-term fluctuations in
the market--also known as "market timing"--may make it very difficult to manage
the Series' investments. When market timing occurs, the Series may have to sell
portfolio securities to have the cash necessary to redeem the market timer's
shares. This can happen at a time when it is not advantageous to sell any
securities, so the Series' performance may be hurt. When large dollar amounts
are involved, market timing can also make
-------------------------------------------------------------------
42
<PAGE>

HOW TO BUY, SELL AND
EXCHANGE SHARES OF THE FUND
------------------------------------------------

it difficult to use long-term investment strategies because we cannot predict
how much cash the Series will have to invest. When, in our opinion, such
activity would have a disruptive effect on portfolio management, each Series
reserves the right to refuse purchase orders and exchanges into the Series by
any person, group or commonly controlled account. The decision may be based upon
dollar amount, volume and frequency of trading. The Series may notify a market
timer of rejection of an exchange or purchase order after the day the order is
placed. If the Series allows a market timer to trade Series shares, it may
require the market timer to enter into a written agreement to follow certain
procedures and limitations.

TELEPHONE REDEMPTIONS OR EXCHANGES

You may redeem or exchange your shares in any amount by calling the Fund at
(800) 225-1852 before 4:15 p.m., New York time. You will receive a redemption
amount based on that day's NAV.

The Fund's Transfer Agent will record your telephone instructions and
request specific account information before redeeming or exchanging shares. The
Fund will not be liable if it follows instructions that it reasonably believes
are made by the shareholder. If the Fund does not follow reasonable procedures,
it may be liable for losses due to unauthorized or fraudulent telephone
instructions.

In the event of drastic economic or market changes, you may have difficulty
in redeeming or exchanging your shares by telephone. If this occurs, you should
consider redeeming or exchanging your shares by mail.

The telephone redemption and exchange privileges may be modified or
terminated at any time. If this occurs, you will receive a written notice from
the Fund.

-------------------------------------------------------------------
43 PRUDENTIAL MUNICIPAL BOND FUND [ICON] (800) 225-1852
<PAGE>
FINANCIAL HIGHLIGHTS
-------------------------------------

The financial highlights will help you evaluate the financial performance of
each Series. The TOTAL RETURN in each chart represents the rate that a
shareholder earned on an investment in that share class of the Series, assuming
reinvestment of all dividends and other distributions. The information is for
each share class for the periods indicated.

Review each chart with the financial statements and the report of
independent accountants, which appear in the SAI and are available upon request.
Additional performance information for each share class is contained in the
annual report, which you can receive at no charge.

-------------------------------------------------------------------
44
<PAGE>
FINANCIAL HIGHLIGHTS
------------------------------------------------

INSURED SERIES: CLASS A SHARES

The financial highlights for the four years ended April 30, 2000, were audited
by PricewaterhouseCoopers LLP, independent accountants, and the financial
highlights for the year ended April 30, 1996, were audited by other independent
auditors, whose reports were unqualified.

CLASS A SHARES (FISCAL YEARS ENDED 4-30)

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 2000 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
YEAR $11.18 $11.05 $10.90 $10.94 $10.83
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .51(4) .53 .53(2) .55(2) .58(2)
Net realized and unrealized
gain on investment
transactions (.78) .23 .40 .08 .11
TOTAL FROM INVESTMENT
OPERATIONS .27 .76 .93 .63 .69
----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from net investment
income (.51) (.53) (.53) (.55) (.58)
Distributions in excess of net
investment income -- (.01) --(3) (.01) --
Distributions from capital
gains -- (.09) (.25) (.11) --
TOTAL DISTRIBUTIONS (.51) (.63) (.78) (.67) (.58)
NET ASSET VALUE, END OF YEAR $10.40 $11.18 $11.05 $10.90 $10.94
TOTAL RETURN(1) (2.38)% 6.88% 8.67% 5.74% 6.47%
----------------------------
<CAPTION>
----------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 2000 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------------
-------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSETS, END OF YEAR (000) $238,690 $251,300 $224,409 $208,411 $139,548
AVERAGE NET ASSETS (000) $243,756 $240,652 $222,115 $187,371 $102,456
RATIOS TO AVERAGE NET ASSETS:
Expenses, including
distribution and service
(12b-1) fees .88%(4) 0.75% 0.69%(2) 0.68%(2) 0.68%(2)
Expenses, excluding
distribution and service
(12b-1) fees .63%(4) 0.60% 0.59%(2) 0.58%(2) 0.58%(2)
Net investment income 4.78%(4) 4.61% 4.75%(2) 4.95%(2) 5.20%(2)
Portfolio turnover 26% 15% 85% 110% 68%
----------------------------
</TABLE>

1 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER DISTRIBUTIONS,
BUT DOES NOT INCLUDE THE EFFECT OF SALES CHARGES. IT IS CALCULATED ASSUMING
SHARES ARE PURCHASED ON THE FIRST DAY AND SOLD ON THE LAST DAY OF EACH YEAR
REPORTED.
2 NET OF MANAGEMENT FEE WAIVER.
3 LESS THAN $.005 PER SHARE.
4 NET OF DISTRIBUTION AND SERVICE (12B-1) FEE WAIVER.

-------------------------------------------------------------------
45 PRUDENTIAL MUNICIPAL BOND FUND [ICON] (800) 225-1852
<PAGE>
FINANCIAL HIGHLIGHTS
------------------------------------------------

INSURED SERIES: CLASS B SHARES

CLASS B SHARES (FISCAL YEARS ENDED 4-30)

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 2000 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
YEAR $11.19 $11.06 $10.91 $10.95 $10.84
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .48 .48 .49(2) .50(2) .54(2)
Net realized and unrealized
gain on investment
transactions (.78) .23 .40 .08 .11
TOTAL FROM INVESTMENT
OPERATIONS (.30) .71 .89 .58 .65
----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from net investment
income (.48) (.48) (.49) (.50) (.54)
Distributions in excess of net
investment income -- (.01) --(3) (.01) --
Distributions from capital
gains -- (.09) (.25) (.11) --
TOTAL DISTRIBUTIONS (.48) (.58) (.74) (.62) (.54)
NET ASSET VALUE, END OF YEAR $10.41 $11.19 $11.06 $10.91 $10.95
TOTAL RETURN(1) (2.62)% 6.50% 8.23% 5.32% 6.04%
----------------------------
<CAPTION>
----------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 2000 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------------
-------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSETS, END OF YEAR (000) $91,989 $175,520 $236,370 $298,005 $443,391
AVERAGE NET ASSETS (000) $131,052 $208,775 $270,553 $365,891 $524,452
RATIOS TO AVERAGE NET ASSETS:
Expenses, including
distribution and service
(12b-1) fees 1.13% 1.10% 1.09%(2) 1.08%(2) 1.08%(2)
Expenses, excluding
distribution and service
(12b-1) fees .63% 0.60% 0.59%(2) 0.58%(2) 0.58%(2)
Net investment income 4.51% 4.25% 4.35%(2) 4.54%(2) 4.80%(2)
Portfolio turnover 26% 15% 85% 110% 68%
----------------------------
</TABLE>

-------------------------------------------------------------------
46
<PAGE>
FINANCIAL HIGHLIGHTS
------------------------------------------------

INSURED SERIES: CLASS C SHARES

CLASS C SHARES (FISCAL YEARS ENDED 4-30)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
YEAR $11.19 $11.06 $10.91 $10.95 $10.84
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .46(4) .45 .46(2) .48(2) .51(2)
Net realized and unrealized
gain on investment
transactions (.78) .23 .40 .08 .11
TOTAL FROM INVESTMENT
OPERATIONS (.32) .68 .86 .56 .62
------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment
income (.46) (.45) (.46) (.48) (.51)
Distributions in excess of net
investment income -- (.01) --(3) (.01) --
Distributions from capital
gains -- (.09) (.25) (.11) --
TOTAL DISTRIBUTIONS (.46) (.55) (.71) (.60) (.51)
NET ASSET VALUE, END OF YEAR $10.41 $11.19 $11.06 $10.91 $10.95
TOTAL RETURN(1) (2.86)% 6.24% 7.96% 5.06% 5.78%
----------------------------
<CAPTION>
------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------
-------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSETS, END OF YEAR (000) $2,949 $2,708 $1,509 $888 $1,137
AVERAGE NET ASSETS (000) $2.988 $1,856 $1,142 $973 $827
RATIOS TO AVERAGE NET ASSETS:
Expenses, including
distribution and
service (12b-1) fees 1.38%(4) 1.35% 1.34%(2) 1.33%(2) 1.33%(2)
Expenses, excluding
distribution and
service (12b-1) fees .63%(4) 0.60% 0.59%(2) 0.58%(2) 0.58%(2)
Net investment income 4.29%(4) 4.03% 4.11%(2) 4.29%(2) 4.56%(2)
Portfolio turnover 26% 15% 85% 110% 68%
----------------------------
</TABLE>

-------------------------------------------------------------------
47 PRUDENTIAL MUNICIPAL BOND FUND [ICON] (800) 225-1852
<PAGE>
FINANCIAL HIGHLIGHTS
------------------------------------------------

INSURED SERIES: CLASS Z SHARES

The financial highlights for the three years ended April 30, 2000, and for the
period from September 16, 1996, through April 30, 1997, were audited by
PricewaterhouseCoopers LLP, independent accountants, whose reports were
unqualified.

CLASS Z SHARES (FISCAL YEARS ENDED 4-30)

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 2000 1999 1998 1997(1)
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $11.18 $11.05 $10.91 $11.05
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .54 .54 .54(3) .36(3)
Net realized and unrealized
gain (loss) on investment
transactions (.78) .23 .39 (.02)
TOTAL FROM INVESTMENT
OPERATIONS (.24) .77 .93 .34
---------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment
income (.54) (.54) (.54) (.36)
Distributions in excess of net
investment income -- (.01) --(5) (.01)
Distributions from capital
gains -- (.09) (.25) (.11)
TOTAL DISTRIBUTIONS (.54) (.64) (.79) (.48)
NET ASSET VALUE, END OF PERIOD $10.40 $11.18 $11.05 $10.91
TOTAL RETURN(2) (2.13)% 7.04% 8.68% 2.86%
------------------------------
<CAPTION>
---------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 2000 1999 1998 1997
---------------------------------------------------------------------------------------------------
-------------------------------
<S> <C> <C> <C> <C>
NET ASSETS, END OF PERIOD
(000) $1,429 $4,312 $418 $15
AVERAGE NET ASSETS (000) $1,960 $3,523 $173 $10
RATIOS TO AVERAGE NET ASSETS:
Expenses, including
distribution and
service (12b-1) fees .63% .60% 0.60%(3) 0.58%(3),(4)
Expenses, excluding
distribution and
service (12b-1) fees .63% .60% 0.60%(3) 0.58%(3),(4)
Net investment income 4.94% 4.77% 4.92%(3) 4.18%(3),(4)
Portfolio turnover 26% 15% 85% 110%
------------------------------
</TABLE>

1 INFORMATION SHOWN IS FOR THE PERIOD FROM SEPTEMBER 16, 1996 (WHEN CLASS Z
SHARES WERE FIRST OFFERED) THROUGH APRIL 30, 1997.
2 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER DISTRIBUTIONS.
IT IS CALCULATED ASSUMING SHARES ARE PURCHASED ON THE FIRST DAY AND SOLD ON
THE LAST DAY OF EACH PERIOD REPORTED. TOTAL RETURNS FOR PERIODS OF LESS
THAN A FULL YEAR ARE NOT ANNUALIZED.
3 NET OF MANAGEMENT FEE WAIVER.
4 ANNUALIZED.
5 LESS THAN $.005 PER SHARE.

-------------------------------------------------------------------
48
<PAGE>
FINANCIAL HIGHLIGHTS
------------------------------------------------

HIGH INCOME SERIES: CLASS A SHARES

CLASS A SHARES (FISCAL YEARS ENDED 4-30)

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 2000 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
YEAR $11.21 $11.31 $10.84 $10.70 $10.72
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .63(3) .63(2) .67(2) .70(2) .72(2)
Net realized and unrealized
gain (loss) on investment
transactions (.99) (.10) .47 .14 (.02)
TOTAL FROM INVESTMENT
OPERATIONS (.36) .53 1.14 .84 .70
----------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment
income (.63) (.63) (.67) (.70) (.72)
NET ASSET VALUE, END OF YEAR $10.22 $11.21 $11.31 $10.84 $10.70
TOTAL RETURN(1) (3.31)% 4.96% 10.80% 8.03% 6.55%
----------------------------
<CAPTION>
----------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 2000 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------------
-------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSETS, END OF YEAR (000) $503,874 $514,952 $421,504 $334,062 $223,073
AVERAGE NET ASSETS (000) $506,888 $474,901 $381,735 $294,940 $162,329
RATIOS TO AVERAGE NET ASSETS:
Expenses, including
distribution and service
(12b-1) fees .82%(3) 0.66%(2) 0.62%(2) 0.64%(2) 0.64%(2)
Expenses, excluding
distribution and service
(12b-1) fees .57%(3) 0.51%(2) 0.52%(2) 0.54%(2) 0.54%(2)
Net investment income 5.86%(3) 5.73%(2) 6.03%(2) 6.44%(2) 6.58%(2)
Portfolio turnover 27% 16% 13% 26% 35%
----------------------------
</TABLE>

1 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER DISTRIBUTIONS,
BUT DOES NOT INCLUDE THE EFFECT OF SALES CHARGES. IT IS CALCULATED ASSUMING
SHARES ARE PURCHASED ON THE FIRST DAY AND SOLD ON THE LAST DAY OF EACH YEAR
REPORTED.
2 NET OF MANAGEMENT FEE WAIVER.
3 NET OF DISTRIBUTION AND SERVICE (12B-1) FEE WAIVER.

-------------------------------------------------------------------
49 PRUDENTIAL MUNICIPAL BOND FUND [ICON] (800) 225-1852
<PAGE>
FINANCIAL HIGHLIGHTS
------------------------------------------------

HIGH INCOME SERIES: CLASS B SHARES

CLASS B SHARES (FISCAL YEARS ENDED 4-30)

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $11.21 $11.31 $10.84 $10.69 $10.72
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .60 .59(2) .63(2) .66(2) .68(2)
Net realized and unrealized gain
(loss) on investment transactions (.99) (.10) .47 .15 (.03)
TOTAL FROM INVESTMENT OPERATIONS (.39) .49 1.10 .81 .65
--------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment
income (.60) (.59) (.63) (.66) (.68)
NET ASSET VALUE, END OF YEAR $10.22 $11.21 $11.31 $10.84 $10.69
TOTAL RETURN(1) (3.55)% 4.59% 10.36% 7.71% 6.12%
-----------------------------------
<CAPTION>
--------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------------------
-----------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSETS, END OF YEAR (000) $457,841 $649,706 $669,223 $665,525 $799,048
AVERAGE NET ASSETS (000) $559,879 $666,885 $669,132 $725,305 $900,115
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution
and service (12b-1) fees 1.07% 1.01%(2) 1.02%(2) 1.04%(2) 1.04%(2)
Expenses, excluding distribution
and service (12b-1) fees .57% .51%(2) 0.52%(2) 0.54%(2) 0.54%(2)
Net investment income 5.59% 5.38%(2) 5.63%(2) 6.05%(2) 6.19%(2)
Portfolio turnover 27% 16% 13% 26% 35%
-----------------------------------
</TABLE>

-------------------------------------------------------------------
50
<PAGE>
FINANCIAL HIGHLIGHTS
------------------------------------------------

HIGH INCOME SERIES: CLASS C SHARES

CLASS C SHARES (FISCAL YEARS ENDED 4-30)

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $11.21 $11.31 $10.84 $10.69 $10.72
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .57(3) .57(2) .61(2) .63(2) .65(2)
Net realized and unrealized gain
(loss) on investment transactions (.99) (.10) .47 .15 (.03)
TOTAL FROM INVESTMENT OPERATIONS (.42) .47 1.08 .78 .62
--------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment
income (.57) (.57) (.61) (.63) (.65)
NET ASSET VALUE, END OF YEAR $10.22 $11.21 $11.31 $10.84 $10.69
TOTAL RETURN(1) (3.79)% 4.33% 10.09% 7.44% 5.86%
---------------------------------
<CAPTION>
--------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 2000 1999 1998 1997 1996
--------------------------------------------------------------------------------------------------------------
-----------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSETS, END OF YEAR (000) $30,061 $32,939 $20,554 $9,563 $6,471
AVERAGE NET ASSETS (000) $32,762 $26,114 $14,932 $8,060 $5,608
RATIOS TO AVERAGE NET ASSETS:
Expenses, including distribution
and service (12b-1) fees 1.32%(3) 1.26%(2) 1.27%(2) 1.29%(2) 1.29%(2)
Expenses, excluding distribution
and service (12b-1) fees .57%(3) .51%(2) 0.52%(2) 0.54%(2) 0.54%(2)
Net investment income 5.36%(3) 5.15%(2) 5.39%(2) 5.80%(2) 5.93%(2)
Portfolio turnover 27% 16% 13% 26% 35%
---------------------------------
</TABLE>

1 TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS AND ANY OTHER DISTRIBUTIONS,
BUT DOES NOT INCLUDE THE EFFECT OF SALES CHARGES. IT IS CALCULATED ASSUMING
SHARES ARE PURCHASED ON THE FIRST DAY AND SOLD ON THE LAST DAY OF EACH YEAR
REPORTED.
2 NET OF MANAGEMENT FEE WAIVER.
3 NET OF DISTRIBUTION AND SERVICE (12B-1) FEE WAIVER.

-------------------------------------------------------------------
51 PRUDENTIAL MUNICIPAL BOND FUND [ICON] (800) 225-1852
<PAGE>
FINANCIAL HIGHLIGHTS
------------------------------------------------

HIGH INCOME SERIES: CLASS Z SHARES

CLASS Z SHARES (FISCAL YEARS ENDED 4-30)

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 2000 1999 1998 1997(1)
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $11.20 $11.30 $10.83 $10.79
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .65 .65(3) .68(3) .45(3)
Net realized and unrealized
gain (loss) on investment
transactions (.99) (.10) .47 .04
TOTAL FROM INVESTMENT
OPERATIONS (.34) .55 1.15 .49
---------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment
income (.65) (.65) (.68) (.45)
NET ASSET VALUE, END OF PERIOD $10.21 $11.20 $11.30 $10.83
TOTAL RETURN(2) (3.07)% 5.11% 10.91% 4.36%
------------------------------
<CAPTION>
---------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA 2000 1999 1998 1997
---------------------------------------------------------------------------------
-------------------------------
<S> <C> <C> <C> <C>
NET ASSETS, END OF PERIOD
(000) $7,802 $13,839 $9,919 $2,719
AVERAGE NET ASSETS (000) $10,493 $13,648 $6,064 $704
RATIOS TO AVERAGE NET ASSETS:
Expenses, including
distribution and
service (12b-1) fees .57% .51%(3) 0.52%(3) 0.54%(3),(4)
Expenses, excluding
distribution and
service (12b-1) fees .57% .51%(3) 0.52%(3) 0.54%(3),(4)
Net investment income 6.07% 5.89%(3) 6.14%(3) 6.55%(3),(4)
Portfolio turnover 27% 16% 13% 26%
---------------------------------------------------------------------------------
</TABLE>

-------------------------------------------------------------------
52
<PAGE>
THE PRUDENTIAL MUTUAL FUND FAMILY
-------------------------------------

Prudential offers a broad range of mutual funds designed to meet your individual
needs. For more information about these funds, contact your financial adviser or
call us at (800) 225-1852. Read the prospectus carefully before you invest or
send money.

STOCK FUNDS

PRUDENTIAL EMERGING GROWTH FUND, INC.

PRUDENTIAL EQUITY FUND, INC.
PRUDENTIAL EQUITY INCOME FUND
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL SMALL-CAP INDEX FUND
PRUDENTIAL STOCK INDEX FUND
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.

PRUDENTIAL JENNISON EQUITY OPPORTUNITY FUND

PRUDENTIAL JENNISON GROWTH FUND

PRUDENTIAL MID-CAP VALUE FUND
PRUDENTIAL REAL ESTATE SECURITIES FUND
PRUDENTIAL SECTOR FUNDS, INC.
PRUDENTIAL FINANCIAL SERVICES FUND
PRUDENTIAL HEALTH SERVICES FUND
PRUDENTIAL TECHNOLOGY FUND
PRUDENTIAL UTILITY FUND

PRUDENTIAL SMALL COMPANY FUND, INC.

PRUDENTIAL TAX MANAGED FUNDS

PRUDENTIAL TAX-MANAGED EQUITY FUND

PRUDENTIAL TAX-MANAGED SMALL-CAP FUND, INC.

PRUDENTIAL 20/20 FOCUS FUND
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND

TARGET FUNDS

LARGE CAPITALIZATION GROWTH FUND

LARGE CAPITALIZATION VALUE FUND

SMALL CAPITALIZATION GROWTH FUND

SMALL CAPITALIZATION VALUE FUND

ASSET ALLOCATION/BALANCED FUNDS
PRUDENTIAL BALANCED FUND
PRUDENTIAL DIVERSIFIED FUNDS
CONSERVATIVE GROWTH FUND
MODERATE GROWTH FUND
HIGH GROWTH FUND
THE PRUDENTIAL INVESTMENT PORTFOLIOS, INC.
PRUDENTIAL ACTIVE BALANCED FUND
GLOBAL FUNDS
GLOBAL STOCK FUNDS
PRUDENTIAL DEVELOPING MARKETS FUND
PRUDENTIAL DEVELOPING MARKETS EQUITY FUND
PRUDENTIAL LATIN AMERICA EQUITY FUND
PRUDENTIAL EUROPE GROWTH FUND, INC.
PRUDENTIAL GLOBAL GENESIS FUND, INC.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL EUROPE INDEX FUND
PRUDENTIAL PACIFIC INDEX FUND
PRUDENTIAL NATURAL RESOURCES FUND, INC.
PRUDENTIAL PACIFIC GROWTH FUND, INC.
PRUDENTIAL WORLD FUND, INC.

PRUDENTIAL GLOBAL GROWTH FUND

PRUDENTIAL INTERNATIONAL VALUE FUND

PRUDENTIAL JENNISON INTERNATIONAL GROWTH FUND

GLOBAL UTILITY FUND, INC.

TARGET FUNDS

INTERNATIONAL EQUITY FUND

GLOBAL BOND FUNDS

PRUDENTIAL GLOBAL TOTAL RETURN FUND, INC.

PRUDENTIAL INTERNATIONAL BOND FUND, INC.

-------------------------------------------------------------------
53 PRUDENTIAL MUNICIPAL BOND FUND [ICON] (800) 225-1852
<PAGE>

-------------------------------------

BOND FUNDS
TAXABLE BOND FUNDS

PRUDENTIAL GOVERNMENT INCOME FUND, INC.

PRUDENTIAL GOVERNMENT SECURITIES TRUST
SHORT-INTERMEDIATE TERM SERIES
PRUDENTIAL HIGH YIELD FUND, INC.
PRUDENTIAL HIGH YIELD TOTAL RETURN FUND, INC.
PRUDENTIAL INDEX SERIES FUND
PRUDENTIAL BOND MARKET INDEX FUND

PRUDENTIAL SHORT-TERM CORPORATE BOND FUND, INC.

INCOME PORTFOLIO

PRUDENTIAL TOTAL RETURN BOND FUND, INC.

TARGET FUNDS

TOTAL RETURN BOND FUND

TAX-EXEMPT BOND FUNDS
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA SERIES
CALIFORNIA INCOME SERIES
PRUDENTIAL MUNICIPAL BOND FUND
HIGH INCOME SERIES
INSURED SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
FLORIDA SERIES
MASSACHUSETTS SERIES
NEW JERSEY SERIES
NEW YORK SERIES
NORTH CAROLINA SERIES
OHIO SERIES
PENNSYLVANIA SERIES
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
MONEY MARKET FUNDS
TAXABLE MONEY MARKET FUNDS
CASH ACCUMULATION TRUST
LIQUID ASSETS FUND
NATIONAL MONEY MARKET FUND
PRUDENTIAL GOVERNMENT SECURITIES TRUST
MONEY MARKET SERIES
U.S. TREASURY MONEY MARKET SERIES
PRUDENTIAL SPECIAL MONEY MARKET FUND, INC.
MONEY MARKET SERIES
PRUDENTIAL MONEYMART ASSETS, INC.

TAX-FREE MONEY MARKET FUNDS
PRUDENTIAL TAX-FREE MONEY FUND, INC.
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA MONEY MARKET SERIES
PRUDENTIAL MUNICIPAL SERIES FUND
CONNECTICUT MONEY MARKET SERIES
MASSACHUSETTS MONEY MARKET SERIES
NEW JERSEY MONEY MARKET SERIES
NEW YORK MONEY MARKET SERIES

COMMAND FUNDS

COMMAND MONEY FUND

COMMAND GOVERNMENT FUND

COMMAND TAX-FREE FUND

INSTITUTIONAL MONEY MARKET FUNDS
PRUDENTIAL INSTITUTIONAL LIQUIDITY PORTFOLIO, INC.
INSTITUTIONAL MONEY MARKET SERIES

-------------------------------------------------------------------
54
<PAGE>

Notes
-------------------------------------------------------------------
55 PRUDENTIAL MUNICIPAL BOND FUND [ICON] (800) 225-1852
<PAGE>

Notes

-------------------------------------------------------------------
56
<PAGE>
APPENDIX A
-------------------------------------

DESCRIPTION OF SECURITY RATINGS

MOODY'S INVESTORS SERVICE

BOND RATINGS
Aaa: Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present that make the
long-term risks appear somewhat larger than in Aaa securities.
A: Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment some time in the future.
Baa: Bonds that are rated Baa are considered as medium grade obligations I.E.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds that are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds that are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or maintenance of other
terms of the contract over any long period of time may be small.
-------------------------------------------------------------------
A-1 PRUDENTIAL MUNICIPAL BOND FUND [ICON] (800) 225-1852
<PAGE>
APPENDIX A
------------------------------------------------

Bonds rated within the Aa, A, Baa, Ba and B categories that Moody's believes
possess the strongest credit attributes within those categories are designated
by the symbols Aa1, A1, Baa1, Ba1 and B1.
Caa: Bonds that are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds that are rated Ca represent obligations that are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C: Bonds that are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

SHORT-TERM DEBT RATINGS
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations which have an original maturity not exceeding
one year.
P-1: Issuers rated "Prime-1" or "P-1" (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations.
P-2: Issuers rated "Prime-2" or "P-2" (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations.

P-3: Issuers rated "Prime-3" or "P-3" (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations.

SHORT-TERM RATINGS
Moody's ratings for tax-exempt notes and other short-term loans are designated
Moody's Investment Grade (MIG). This distinction is in recognition of the
differences between short-term and long-term credit risk.
MIG 1: Loans bearing the designation MIG 1 are of the best quality. There is
present strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
MIG 2: Loans bearing the designation MIG 2 are of high quality. Margins of
protection are ample although not so large as in the preceding group.
MIG 3: Loans bearing the designation MIG 3 are of favorable quality. All
security elements are accounted for but there is lacking the undeniable strength
of the preceding grades.
-------------------------------------------------------------------
A-2
<PAGE>
APPENDIX A
------------------------------------------------

MIG 4: Loans bearing the designation MIG 4 are of adequate quality. Protection
commonly regarded as required of an investment security is present and although
not distinctly or predominantly speculative, there is specific risk.

STANDARD & POOR'S RATINGS GROUP

DEBT RATINGS
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
BB, B, CCC, CC AND C: Debt rated BB, B, CCC, CC and C is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. BB indicates the least degree of speculation and C
the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
to adverse conditions.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.

COMMERCIAL PAPER RATINGS
S&P's commercial paper ratings are current assessments of the likelihood of
timely payment of debt considered short-term in the relevant market.
A-1: The A-1 designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely
-------------------------------------------------------------------
A-3 PRUDENTIAL MUNICIPAL BOND FUND [ICON] (800) 225-1852
<PAGE>
APPENDIX A
------------------------------------------------

strong safety characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with the designation A-2 is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-3: Issues with the A-3 designation have adequate capacity for timely payment.
They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.

MUNICIPAL NOTES
A municipal note rating reflects the liquidity factors and market access risks
unique to notes. Notes maturing in three years or less will likely receive a
note rating. Notes maturing beyond three years will most likely receive a
long-term debt rating. Municipal notes are rated SP-1, SP-2 or SP-3. The
designation SP-1 indicates a very strong capacity to pay principal and interest.
Those issues determined to possess extremely strong characteristics are given a
plus (+) designation. An SP-2 designation indicates a satisfactory capacity to
pay principal and interest. An SP-3 designation indicates speculative capacity
to pay principal and interest.
-------------------------------------------------------------------
A-4
<PAGE>
FOR MORE INFORMATION

Please read this prospectus before you invest in the Fund and keep it for future
reference. For information or shareholder questions contact

PRUDENTIAL MUTUAL FUND SERVICES LLC
P.O. BOX 8098
PHILADELPHIA, PA 19101
(800) 225-1852
(732) 482-7555 (Calling from outside the U.S.)

Outside brokers should contact

PRUDENTIAL INVESTMENT MANAGEMENT
SERVICES LLC
P.O. BOX 8310
PHILADELPHIA, PA 19101
(800) 778-8769

Visit Prudential's website at

http://www.prudential.com

Additional information about the Fund can
be obtained without charge and can be
found in the following documents

STATEMENT OF ADDITIONAL INFORMATION (SAI)
(incorporated by reference into this prospectus)
ANNUAL REPORT
(contains a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance)
SEMI-ANNUAL REPORT

You can also obtain copies of Fund documents from the Securities and Exchange
Commission as follows

BY MAIL
Securities and Exchange Commission
Public Reference Section
Washington, DC 20549-0102

BY ELECTRONIC REQUEST

[email protected]
(The SEC charges a fee to copy documents.)

IN PERSON

Public Reference Room in Washington, DC
(For hours of operation, call
1-202-942-8090)

VIA THE INTERNET
http://www.sec.gov

CUSIP Numbers NASDAQ Symbols

Insured Series

Class A Shares--74435L-30-1 PMIAX

Class B Shares--74435L-40-0 PMINX

Class C Shares--74435L-80-6 PMICX

Class Z Shares--74435L-86-3 PMIZX

High Income Series

Class A Shares--74435L-10-3 PRHAX

Class B Shares--74435L-20-2 PMHYX

Class C Shares--74435L-70-7 PHICX

Class Z Shares--74435L-87-1 PHIZX

Investment Company Act File No. 811-4930

MF133A
[RECYCLED LOGO]
Printed on Recycled Paper
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND

Statement of Additional Information
dated June 30, 2000

Prudential Municipal Bond Fund (the Fund) is an open-end, diversified,
management investment company, or mutual fund, consisting of two separate
portfolios--the High Income Series and the Insured Series. 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 and (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. Although each Series
will seek income that is eligible for exclusion from federal income taxes, a
portion of the dividends and distributions paid by each Series (and, in
particular, the High Income Series) may be treated as a preference item for
purposes of the alternative minimum tax. Each Series seeks to achieve its
objective through the separate investment policies described under "Description
of the Fund, Its Investments and Risks." There can be no assurance that a
Series' investment objective will be achieved.

The Fund's address is Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102-4077, and its telephone number is (800) 225-1852.

This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Fund's Prospectus dated June 30, 2000, a copy of
which may be obtained from the Fund upon request.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fund History......................................... B-2
Description of the Fund, Its Investments and Risks... B-2
Investment Restrictions.............................. B-18
Management of the Fund............................... B-19
Control Persons and Principal Holders of
Securities......................................... B-22
Investment Advisory and Other Services............... B-23
Brokerage Allocation and Other Practices............. B-27
Capital Shares, Other Securities and Organization.... B-29
Purchase, Redemption and Pricing of Fund Shares...... B-29
Shareholder Investment Account....................... B-37
Net Asset Value...................................... B-41
Taxes, Dividends and Distributions................... B-41
Performance Information.............................. B-45
Financial Statements................................. B-50
Report of Independent Accountants.................... B-111
Appendix I -- General Investment Information......... I-1
Appendix II -- Historical Performance Data........... II-1
</TABLE>

MF133B
<PAGE>
FUND HISTORY

The Fund was organized in Massachusetts on November 3, 1986. On May 3, 1995,
the Trustees approved a change in the name of the Modified Term Series to the
Intermediate Series, effective June 29, 1995. On June 23, 1998, the Trustees
approved a change in the name of the High Yield Series to the High Income
Series, effective July 1, 1998. On January 22, 1999, shareholders of
Intermediate Series received shares of Prudential National Municipals Fund, Inc.
pursuant to an Agreement and Plan of Reorganization, approved by shareholders at
a Special Meeting of Shareholders of Intermediate Series held on January 14,
1999, under which the assets of Intermediate Series were transferred to the
Prudential National Municipals Fund, Inc. in exchange for shares of Prudential
National Municipals Fund, Inc. and Prudential National Municipals Fund, Inc.
assumed the liabilities, if any, of Intermediate Series. Shares of Intermediate
Series are no longer offered pursuant to the Fund's Prospectus.

DESCRIPTION OF THE FUND, ITS INVESTMENTS AND RISKS

(a) CLASSIFICATION. The Fund is a diversified, open-end management
investment company.

(b) AND (c) INVESTMENT STRATEGIES, POLICIES AND RISKS. 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 and (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. There can be no
assurance that either Series will achieve its objective. Although each Series
will seek income that is eligible for exclusion from federal income taxes, a
portion of the dividends and distributions paid by each Series (and, in
particular, the High Income Series) may be treated as a preference item for
purposes of the alternative minimum tax. See "Fund Distributions and Tax Issues"
in the Prospectus.

Each Series will seek to achieve its investment objective by investing in a
diversified portfolio of obligations issued by or on behalf of states,
territories and possessions of the United States and the District of Columbia
and their political subdivisions, agencies and instrumentalities, the interest
on which is eligible for exclusion from federal income taxation (municipal
obligations or municipal securities). From time to time, a Series may own the
majority of a municipal obligation. Such majority-owned holdings may present
additional market and credit risks.

While the principal investment policies and strategies for seeking to
achieve each Series' objective are described in the Series' Prospectus, a Series
may from time to time also use the securities, instruments, policies and
principal and non-principal strategies described below in seeking to achieve its
objective.

GENERAL

The Prudential Investment Corporation (PIC), doing business as Prudential
Investments (PI, the Subadviser or the investment adviser), maintains a
fixed-income research group which provides credit analysis and research on
fixed-income securities. The portfolio manager consults routinely with the
research group in managing the Fund's portfolios. The fixed-income research
group, which currently maintains a staff of credit analysts, reviews on an
ongoing basis issuers of fixed-income obligations, including prospective
purchases and portfolio holdings of the Series. Credit analysts have broad
access to research and financial reports, data retrieval services and industry
analysts. They review financial and operating statements supplied by state and
local governments and other issuers of municipal securities to evaluate revenue
projections and the financial soundness of municipal issuers. They study the
impact of economic and political developments on state and local governments,
evaluate industry sectors and meet periodically with public officials and other
representatives of state and local governments and other tax-exempt issuers to
discuss such matters as budget projections, debt policy, the strength of the
regional economy and, in the case of revenue bonds, the demand for facilities.
They also make site inspections to review specific projects and to evaluate the
progress of construction or the operation of a facility.

Each Series may invest in municipal securities which are not rated if, based
upon a credit analysis by the Subadviser, the Subadviser believes that the
securities are of comparable quality to other municipal securities that the
Series may purchase. A description of the ratings is set forth under the heading
"Description of Security Ratings" in the Fund's Prospectus. The ratings of
Moody's and S&P represent the respective opinions of those firms of the quality
of the securities each undertakes to rate. The ratings are general and are not
absolute standards of quality. In determining the suitability for investment in
a particular unrated security, the Subadviser will take into consideration asset
and debt service coverage, the purpose of the financing, the history of the
issuer, the existence of other rated securities of the issuer, any credit
enhancement by virtue of a letter of credit or other financial guaranty deemed
suitable by the investment adviser and other factors as may be relevant,
including comparability to other issuers.

B-2
<PAGE>
After its purchase by a Series of the Fund, an issue of municipal bonds or
notes may cease to be rated or its rating(s) may be reduced. Neither event
requires the elimination of that obligation from the portfolio of the Series,
but each event will be a factor in determining whether the Series should
continue to hold that issue in its portfolio.

Each Series will attempt to invest substantially all of its net assets in
municipal securities. Under normal market conditions, each Series anticipates
that its assets will be invested so that at least 80% of its net assets will be
invested in municipal securities. Each Series will continuously monitor its
portfolio to ensure that the asset investment test is met at all times, except
for temporary defensive positions during abnormal market conditions.

A Series may invest its assets from time to time on a temporary basis in
debt securities, the interest on which is subject to federal, state or local
income tax: (i) pending the investment or reinvestment in municipal securities
of the proceeds from the sale of shares of the Series or sales of portfolio
securities, (ii) in order to avoid the necessity of liquidating portfolio
investments to meet redemptions of shares by investors, or (iii) where market
conditions due to rising interest rates or other adverse factors warrant
temporary investing. Investments in taxable securities may include: obligations
of the U.S. Government, its agencies or instrumentalities; commercial paper
rated in the two highest grades by either Moody's or S&P (A-1 and A-2, or P-1
and P-2, respectively), except that the Insured Series may invest only in
commercial paper rated A-1 or P-1; certificates of deposit and bankers'
acceptances; other debt securities rated within the three highest grades by
either Moody's or S&P or, if unrated, judged by the Subadviser to possess
comparable creditworthiness; and repurchase agreements with respect to any of
the foregoing investments. Each Series does not intend to invest more than 5% of
its assets in any one category of the foregoing taxable securities. A Series may
also hold its assets in other cash equivalents or in cash.

U.S. Government securities are instruments issued or guaranteed by the U.S.
Treasury or by an agency or instrumentality of the U.S. Government. U.S.
Government guarantees do not extend to the yield or value of the securities or
the Fund's shares. Not all U.S. Government securities are backed by the full
faith and credit of the United States. Some are supported only by the credit of
the issuing agency.

The Fund, as well as each Series of the Fund, is classified as diversified
under the Investment Company Act of 1940, as amended (the Investment Company
Act). This means that with respect to 75% of the assets of a Series, (i) the
Series may not invest more than 5% of its total assets in the securities of any
one issuer (except U.S. Government obligations) and (ii) the Series may not own
more than 10% of the outstanding voting securities of any one issuer. For
purposes of diversification and concentration under the Investment Company Act,
the identification of the issuer of the municipal obligation depends upon the
terms and conditions of the obligation. If the assets and revenues of an agency,
authority, instrumentality or other political subdivision are separate from
those of the government creating the subdivision and the obligation is backed
only by the assets and revenues of the subdivision, the subdivision is regarded
as the sole issuer. Similarly, in the case of an industrial development revenue
bond or pollution control revenue bond, if the bond is backed only by the assets
and revenues of the non-governmental user, the non-governmental user is regarded
as the sole issuer. If, in either case, the creating government or another
entity guarantees an obligation, the guaranty may be regarded as a separate
security and treated as an issue of the guarantor.

Each Series will treat an investment in a municipal bond refunded with
escrowed U.S. Government securities as U.S. Government securities for purposes
of the Investment Company Act's diversification requirements provided: (i) the
escrowed securities are "government securities" as defined in the Investment
Company Act, (ii) the escrowed securities are irrevocably pledged only to
payment of debt service on the refunded bonds, except to the extent there are
amounts in excess of funds necessary for such debt service, (iii) principal and
interest on the escrowed securities will be sufficient to satisfy all scheduled
principal, interest and any premiums on the refunded bonds and a verification
report prepared by a party acceptable to a nationally recognized statistical
rating agency, or counsel to the holders of the refunded bonds, so verifies,
(iv) the escrow agreement provides that the issuer of the refunded bonds grants
and assigns to the escrow agent, for the equal and ratable benefit of the
holders of the refunded bonds, an express first lien on, pledge of and perfected
security interest in the escrowed securities and the interest income thereon,
(v) the escrow agent had no lien of any type with respect to the escrowed
securities for payment of its fees or expenses except to the extent there are
excess securities, as described in (ii) above.

Since securities issued or guaranteed by states or municipalities are not
voting securities, there is no limitation on the percentage of a single issuer's
securities which a Series may own so long as, with respect to 75% of its assets,
it does not invest more than 5% of its total assets in the securities of that
issuer (except obligations issued or guaranteed by the U.S. Government). As for
the other 25% of the assets of a Series not subject to the limitation described
above, there is no minimum limitation as to the number of issuers in whose
securities these assets may be invested.

The Fund expects that normally a Series will not invest 25% or more of its
total assets in any one industry.

B-3
<PAGE>
A portion of the dividends and distributions paid on the shares of each
Series of the Fund may be treated as a preference item for purposes of the
alternate minimum tax for individuals and corporations. Such treatment may cause
certain investors, depending upon other aspects of their individual tax
situation, to incur some federal income tax liability. In addition, corporations
are subject to an alternative minimum tax which treats as a tax preference item
75% of a corporation's adjusted current earnings. A corporation's adjusted
current earnings would include interest paid on municipal obligations and
dividends paid on shares of the Fund. See "Taxes, Dividends and Distributions."

From time to time, proposals have been introduced to limit the use, or tax
and other advantages, of municipal securities which, if enacted, could adversely
affect each Series' NAV and investment practices. Such proposals could also
adversely affect the secondary market for high yield municipal securities, the
financial condition of issuers of these securities and the value of outstanding
high yield municipal securities. Reevaluation of each Series' investment
objective and structure might be necessary in the future due to market
conditions which may result from future changes in state or federal law.

Unlike many issues of common and preferred stock and corporate bonds which
are traded between brokers acting as agents for their customers on securities
exchanges, municipal obligations are customarily purchased from or sold to
dealers who are selling or buying for their own account. Most municipal
obligations are not required to be registered with or qualified for sale by
federal or state securities regulators. Since there are large numbers of
municipal obligation issues of many different issuers, most issues do not trade
on any single day. On the other hand, most issues are always marketable, since a
major dealer will normally, on request, bid for any issue, other than obscure
ones. Regional municipal securities dealers are frequently more willing to bid
on issues of municipalities in their geographic area.

Although almost all municipal obligations are marketable, the structure of
the market introduces its own element of risk; a seller may find, on occasion,
that dealers are unwilling to make bids for certain issues that the seller
considers reasonable. If the seller is forced to sell, he or she may realize a
capital loss that would not have been necessary in different circumstances.
Because the net asset value of a Series' shares reflects the degree of
willingness of dealers to bid for municipal obligations, the price of a Series'
shares may be subject to greater fluctuation than shares of other investment
companies with different investment policies.

MUNICIPAL SECURITIES

Municipal securities include notes and bonds issued by or on behalf of
states, territories and possessions of the United States and their political
subdivisions, agencies and instrumentalities and the District of Columbia, the
interest on which is generally eligible for exclusion from federal income tax
and, in certain instances, applicable state or local income and personal
property taxes. Such securities are traded primarily in the over-the-counter
market.

MUNICIPAL BONDS. Municipal bonds are issued to obtain funds for various
public purposes, including the construction of a wide range of public facilities
such as airports, bridges, highways, housing, hospitals, mass transportation,
schools, streets, water and sewer works and gas and electric utilities.
Municipal bonds also may be issued in connection with the refunding of
outstanding obligations and obtaining funds to lend to other public institutions
or for general operating expenses.

The two principal classifications of municipal bonds are general obligation
and revenue. General obligation bonds are secured by the issuer's pledge of its
full faith, credit and taxing power for the payment of principal and interest.
Revenue bonds are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source. Private activity bonds that
are municipal bonds are in most cases revenue bonds and do not generally
constitute the pledge of the credit of the issuer of such bonds. The credit
quality of private activity revenue bonds is usually directly related to the
credit standing of the industrial user involved. There are, in addition, a
variety of hybrid and special types of municipal obligations as well as numerous
differences in the security of municipal bonds, both within and between the two
principal classifications described above.

Industrial development bonds (IDBs) are issued by or on behalf of public
authorities to obtain funds to provide various privately-operated facilities for
business and manufacturing, housing, sports, sewage and pollution control, and
for airport, mass transit, port and parking facilities. The Internal Revenue
Code restricts the types of industrial development bonds (IDBs) which qualify to
pay interest exempt from federal income tax, and interest on certain IDBs issued
after August 7, 1986 is subject to the alternative minimum tax. Although IDBs
are issued by municipal authorities, they are generally secured by the revenues
derived from payments of the industrial user. The payment of the principal and
interest on IDBs is dependent solely on the ability of the user of the
facilities financed by the bonds to meet its financial obligations and the
pledge, if any, of real and personal property so financed as security for the
payment.

The interest rates payable on certain municipal bonds and municipal notes
are not fixed and may fluctuate based upon changes in market rates. Municipal
bonds and notes of this type are called "variable rate" obligations. The
interest rate payable on

B-4
<PAGE>

a variable rate obligation is adjusted either at predesignated intervals or
whenever there is a change in the market rate of interest on which the interest
rate payable is based. Other features may include the right whereby the Fund may
demand prepayment of the principal amount of the obligation prior to its stated
maturity (a demand feature) and the right of the issuer to prepay the principal
amount prior to maturity. The principal benefit of a variable rate obligation is
that the interest rate adjustment minimizes changes in the market value of the
obligation. As a result, the purchase of variable rate obligations should
enhance the ability of a Series to maintain a stable NAV per share and to sell
an obligation prior to maturity at a price approximating the full principal
amount of the obligation. For further discussion, see "Floating Rate and
Variable Rate Municipal Securities" below.

MUNICIPAL NOTES. Municipal notes generally are used to provide for
short-term capital needs and generally have maturities of one year or less.
Municipal notes include:

1. TAX ANTICIPATION NOTES. Tax Anticipation Notes are issued to finance
working capital needs of municipalities. Generally, they are issued in
anticipation of various seasonal tax revenues, such as income, sales, use and
business taxes, and are payable from these specific future taxes.

2. REVENUE ANTICIPATION NOTES. Revenue Anticipation Notes are issued in the
expectation of reception of other kinds of revenue, such as federal revenues
available under the Federal Revenue Sharing Programs.

3. BOND ANTICIPATION NOTES. Bond Anticipation Notes are issued to provide
interim financing until long-term financing can be arranged. In most cases, the
long-term bonds then provide the money for the repayment of the Notes.

4. CONSTRUCTION LOAN NOTES. Construction Loan Notes are sold to provide
construction financing. Permanent financing, the proceeds of which are applied
to the payment of Construction Loan Notes, is sometimes provided by a commitment
by the Government National Mortgage Association (GNMA) to purchase the loan,
accompanied by a commitment by the Federal Housing Administration to insure
mortgage advances thereunder. In other instances, permanent financing is
provided by commitments of banks to purchase the loan.

TAX-EXEMPT COMMERCIAL PAPER. Issues of tax-exempt commercial paper, the
interest on which is generally exempt from federal income taxes, typically are
represented by short-term, unsecured, negotiable promissory notes. These
obligations are issued by agencies of state and local governments to finance
seasonal working capital needs of municipalities or to provide interim
construction financing and are paid from general revenues of municipalities or
are refinanced with long-term debt. In most cases, tax-exempt commercial paper
is backed by letters of credit, lending agreements, note repurchase agreements
or other credit facility agreements offered by banks or other institutions and
is actively traded.

THE HIGH INCOME SERIES

The High Income Series will invest primarily in municipal obligations which
are rated B or better by Moody's Investors Service (Moody's) or Standard &
Poor's Ratings Group (S&P) or a similar nationally recognized statistical rating
organization (NRSRO) and which generally have maturities in excess of ten years
at the time of purchase, although the Series also will invest in municipal
obligations having maturities ranging from one year to ten years, provided that
the weighted average maturity of the Series' investment portfolio remains within
the fifteen to thirty year range. Securities rated Baa by Moody's or BBB by S&P,
although considered to be investment grade, lack outstanding investment
characteristics and in fact have speculative characteristics as well. Securities
rated Ba or BB or lower by Moody's or S&P, respectively, are generally
considered to be predominantly speculative with respect to the issuer's capacity
to pay interest and repay principal and are commonly referred to as junk bonds.
While such securities may have some quality and protective characteristics,
those are outweighed by large uncertainties or major risk exposures to adverse
conditions. See "Description of Security Ratings" in the Prospectus.

The Series may also invest in municipal securities which are not rated if,
based upon a credit analysis by the Fund's investment adviser, the investment
adviser believes that such securities are of comparable quality to rated
municipal securities in which the Series may invest. The High Income Series
normally can be expected to offer the highest yields of the two Series, but it
will also be subject to the greatest market and credit risk.

The Series also may invest in short-term municipal obligations (that
is, cash equivalents) that are, at the time of purchase, rated within the four
highest quality grades as determined by either Moody's (currently MIG 1, MIG 2,
MIG 3 and MIG 4 for notes and P-1, P-2 and P-3 for commercial paper) or S&P
(currently A-1, A-2 and A-3 for commercial paper and SP-1 and SP-2 for notes).

RISK FACTORS RELATING TO INVESTING IN HIGH-YIELD SECURITIES. Fixed-income
securities are subject to the risk of an issuer's inability to meet principal
and interest payments on the obligations (credit risk) and may also be subject
to price volatility due to such factors as interest rate sensitivity and the
market perception of the creditworthiness of the issuer (market risk). Lower
rated

B-5
<PAGE>

(that is, high-yield) securities or non-rated securities of comparable quality
are more likely to react to developments affecting market and credit risk than
are more highly rated securities, which react primarily to movements in the
general level of interest rates. Low-rated and comparable unrated securities
tend to offer higher yields than higher rated securities with the same
maturities because the historical financial condition of the issuers of such
securities may not have been as strong as that of other issuers. Fluctuations in
the prices of fixed-income securities may be caused by, among other things, the
supply and demand for similarly rated securities. Fluctuations in the prices of
portfolio securities subsequent to their acquisition will not affect cash income
from such securities but will be reflected in the Series' net asset value. The
investment adviser considers both credit risk and market risk in making
investment decisions for the Series. Investors should carefully consider the
relative risks of investing in high-yield securities and understand that such
securities are not generally meant for short-term investing. Since lower rated
securities generally involve greater risks of loss of income and principal than
higher rated securities, investors should consider carefully the relative risks
associated with investments in securities which carry lower ratings and in
comparable unrated securities.

An economic downturn could severely affect the ability of highly leveraged
issuers to service their debt obligations or to repay their obligations upon
maturity. Furthermore, changes in economic conditions and other circumstances
are more likely to lead to a weakened capacity to make principal and interest
payments than in the case of higher grade bonds. In addition to the risk of
default, there are the related costs of recovery on defaulted issues. In
addition, the secondary market for high-yield securities, which is concentrated
in relatively few market makers, may not be as liquid as the secondary market
for more highly rated securities. Under adverse market or economic conditions,
the secondary market for high-yield securities could contract further,
independent of any specific adverse changes in the condition of a particular
issuer. As a result, the investment adviser could find it more difficult to sell
these securities or may be able to sell the securities only at prices lower than
if such securities were widely traded. Prices realized upon the sale of such
lower rated or unrated securities, under these circumstances, may be less than
the prices used in calculating the Series' NAV. Under circumstances where the
Series owns the majority of an issue, market and credit risks may be greater.
Moreover, from time to time, it may be more difficult to value high-yield
securities than more highly rated securities.

Debt rated Ba, B, Caa, Ca and C by Moody's, and debt rated BB, B, CCC, CC
and C by S&P is regarded by the rating agency, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. Among junk bonds,
Ba/BB indicates the lowest degree of speculation and C/D the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions. Debt rated C by S&P is the lowest rated debt
that is not in default as to principal or interest and such issues so rated can
be regarded as having extremely poor prospects of ever attaining any real
investment standing. Such securities are also generally considered to be subject
to greater risk than securities with higher ratings with regard to a
deterioration of general economic conditions. Debt rated D by S&P is in payment
default. Moody's does not have a D rating. See the "Description of Security
Ratings" in the Prospectus.

Lower rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, the Series may
have to replace the security with a lower yielding security, resulting in a
decreased return for investors. If the Series experiences unexpected net
redemptions, it may be forced to sell its higher rated securities, resulting in
a decline in the overall credit quality of the portfolio and increasing the
exposure of the Series to the risks of high-yield securities.

Since investors generally perceive that there are greater risks associated
with the medium to lower rated securities of the type in which the Series may
invest, the yields and prices of such securities may tend to fluctuate more than
those for higher rated securities. In the lower quality segments of the
fixed-income securities market, changes in perceptions of issuers'
creditworthiness tend to occur more frequently and in a more pronounced manner
than do changes in higher quality segments of the fixed-income securities which,
as a general rule, fluctuate in response to the general level of interest rates.

SECURITIES OF FINANCIALLY AND OPERATIONALLY TROUBLED OBLIGORS

The Series may also invest up to 10% of its total assets in debt securities
of financially troubled and operationally troubled obligors (collectively,
distressed securities). Financially troubled obligors (financially troubled
obligors) include obligors involved in bankruptcy or reorganization proceedings
or financial restructurings or otherwise in default on their obligations.
Operationally troubled obligors (operationally troubled obligors) are ones
experiencing poor operating results that may have severely depressed earnings or
have special competitive or product obsolescence problems.

B-6
<PAGE>

The Series' portfolio manager may consult the Subadviser's fixed-income
research group in managing the portfolio and in researching financially troubled
and operationally troubled obligors. The Series' portfolio manager reviews on an
ongoing basis financially troubled and operationally troubled obligors,
including prospective purchases and portfolio holdings of the Series. The
portfolio manager has broad access to research and financial reports, data
retrieval services and industry analysts.

The Series is permitted to invest in defaulted securities and in low quality
debt securities having a rating of D or better as determined by S&P or Moody's
or having a comparable rating determined by another NRSRO, or in unrated
securities which, in the opinion of the investment adviser, are of equivalent
quality. See "Description of Security Ratings" in the Prospectus. Such lower-
quality debt securities are considered to have speculative characteristics, and
involve greater risk of default or price changes due to changes in the obligor's
creditworthiness, or they may already be in default. The market prices of these
securities may fluctuate more than higher-quality securities and may decline
significantly in periods of general or regional economic difficulty.

The securities of financially and operationally troubled obligors may
require active monitoring and at times may require the Series' investment
adviser to participate in bankruptcy or reorganization proceedings on behalf of
the Series. To the extent the investment adviser becomes involved in such
proceedings, the Series may have a more active participation in the affairs of
the issuer than is generally assumed by an investor and such participation may
subject the Series to the litigation risks described below. However, the Series
does not invest in the securities of financially or operationally troubled
obligors for the purpose of exercising day-to-day management of any obligor's
affairs.

RISKS OF FINANCIALLY AND OPERATIONALLY TROUBLED OBLIGORS

Investment in the securities of financially and operationally troubled
obligors involves a high degree of credit and market risk. See "Risk Factors
Relating to Investing in High-Yield Securities" above. There is a possibility
that the Series may incur substantial or total losses on its investments. During
an economic downturn or recession, securities of financially troubled obligors
are more likely to go into default than securities of other obligors. In
addition, it may be difficult to obtain information about financially and
operationally troubled obligors.

Investment in the securities of financially and operationally troubled
obligors is a long-term investment strategy and, accordingly, investors in the
Series should have the financial ability and willingness to remain invested for
the long term. Securities of financially troubled obligors are less liquid and
more volatile than securities of companies not experiencing financial
difficulties. The market prices of such securities are subject to erratic and
abrupt market movements and the spread between bid and asked prices may be
greater than normally expected. In addition, it is anticipated that many of
these investments may not be widely traded and that the Series' position in such
securities may be substantial relative to the market for such securities. As a
result, the Series may experience delays and incur losses and other costs in
connection with the sale of its portfolio securities.

The Series may invest in the securities of companies involved in bankruptcy
proceedings, reorganizations and financial restructurings and may have a more
active participation in the affairs of the obligor than is generally assumed by
an investor. This may subject the Series to litigation risks or prevent the
Series from disposing of securities. In a bankruptcy or other proceeding, the
Series as a creditor may be unable to enforce its rights in any collateral or
may have its security interest in any collateral challenged, disallowed or
subordinated to the claims of other creditors. While the Series will attempt to
avoid taking the types of actions that would lead to equitable subordination or
creditor liability, there can be no assurance that such claims will not be
asserted or that the Series will be able to successfully defend against them.
Because (unlike the Series) other investors may purchase the securities of these
companies for the purpose of exercising control or management, the Series may be
at a disadvantage to the extent that the Series' interests differ from the
interests of these other investors.

THE INSURED SERIES

The Insured Series will invest primarily in municipal obligations which are
(i) insured by an entity whose claims-paying ability at the time of purchase is
rated Aaa by Moody's or AAA by S&P, or a similar NRSRO, so that the obligation
is rated AAA or Aaa or meets the eligibility criteria imposed by such insurers,
(ii) rated Aaa or AAA by Moody's or S&P, respectively, or a similar NRSRO (or,
in the case of notes or variable rate securities, A-1, P-1, MIG 1 or SP-1),
based on the credit of the issuer or (iii) backed by the full faith and credit
of the U.S. Government. The Series may also invest up to 5% of its total assets
in municipal obligations which are rated A/A or Aa/AA by Moody's or S&P,
respectively, or a similar NRSRO. See "Description of Security Ratings" in the
Prospectus. The Series may also invest in municipal securities which are not
rated if, based upon a credit analysis by the Fund's investment adviser, the
investment adviser believes that such securities are of comparable quality to
other municipal securities that the Series may purchase.

B-7
<PAGE>

Under normal market conditions, at least 70% of the Series' total assets
will consist of insured municipal obligations. This insurance may be provided
either (i) under a new issue insurance policy obtained by the issuer or
underwriter of a bond or note or (ii) under a secondary market insurance policy
on a particular bond or note purchased either by the Series or a previous
bondholder or noteholder. See "Insurance" below. As noted above, the Series will
acquire insurance only from, and purchase municipal bonds and notes insured by,
insurers whose claims-paying ability is rated AAA or Aaa at the time of
purchase. Changes in the financial condition of an insurer could result in a
subsequent reduction or withdrawal of this rating. In each case, the insurance
policies protect only against the timely payment of principal and interest on
the insured municipal bonds and notes. The price of the municipal obligations,
which may fluctuate due to changes in interest rates generally or factors
affecting the credit of the insurer, and the stability of the Series' NAV are
not insured.

THE INSURED SERIES AND THE HIGH INCOME SERIES

INSURANCE. Each Series may at times purchase secondary market insurance on
municipal bonds and notes which it holds or acquires. Secondary market insurance
would be reflected in the market value of the municipal obligation and may
enable the Series to dispose of a defaulted obligation at a price similar to
that of comparable municipal obligations which are not in default.

Insurance is not a substitute for the basic credit of an issuer, but
supplements the existing credit and provides additional security therefor. While
insurance coverage for the municipal bonds and notes held by a Series reduces
credit risk by providing that the insurance company will make timely payment of
principal and interest if the issuer defaults on its obligation to make such
payment, it does not afford protection against fluctuation in the price, that
is, the market value, of the municipal obligations caused by changes in interest
rates and other factors, nor in turn against fluctuations in the NAV of the
shares of the Series. The ratings of insured municipal obligations depend, in
substantial part, on the creditworthiness of the insurer; thus their value will
fluctuate largely on the basis of factors relating to the insurer's ability to
satisfy its obligations, as well as on market factors generally. New issue
insurance is obtained by the issuer or underwriter upon issuance of a bond or
note, and the insurance premiums are reflected in the price of such bond or
note. Insurance premiums with respect to secondary insurance may, on the other
hand, be paid by a Series. Premiums paid for secondary market insurance will be
treated as capital costs, increasing the cost basis of the investment and
thereby reducing the effective yield of the investment. No Series will invest in
obligations insured by The Prudential Insurance Company of America (Prudential),
except as may be permitted by applicable law, nor will a Series settle any claim
under portfolio insurance provided by an insurer whose insurance obligations are
reinsured by an affiliate of Prudential for less than full payment except in
accordance with an exemptive order, if any, obtained from the Securities and
Exchange Commission (Commission).

THE INSURED SERIES. It is anticipated that, under current market conditions,
a great majority of the municipal obligations held by the Insured Series will be
insured by the following entities: MBIA Insurance Corporation (MBIA Corp.)
(formerly known as Municipal Bond Investors Assurance Corporation), AMBAC
Assurance Corporation (AMBAC) (formerly known as AMBAC Indemnity Corporation),
Financial Guaranty Insurance Company (FGIC) and Financial Security Assurance
Inc. (FSA). Each of these entities is described more fully below. S&P and
Moody's rates the claims paying ability of such insurers AAA and Aaa,
respectively. The Insured Series may, from time to time, purchase municipal
securities insured by other entities or acquire insurance coverage for
individual uninsured municipal securities directly from another insurer provided
any such entity has a claims-paying ability rated AAA or Aaa by S&P or Moody's,
respectively.

MBIA Corp. is the principal operating subsidiary of MBIA Inc., a New York
Stock Exchange listed company. As of December 31, 1999, MBIA Corp. had admitted
assets of approximately $7.00 billion, total liabilities of approximately
$4.60 billion and total policyholders' surplus of approximately $2.40 billion.
MBIA Corp. is domiciled in the state of New York and licensed to do business in
all 50 states, the District of Columbia, the Commonwealth of Puerto Rico, the
Commonwealth of Northern Mariana Islands, the Virgin Islands of the United
States and the Territory of Guam.

FGIC Corporation, the owner of FGIC, is an indirect subsidiary of General
Electric Capital Corporation. Neither FGIC Holdings nor General Electric Capital
Corporation is obligated to pay the debts of or claims against FGIC. As of
December 31, 1999, FGIC had admitted assets of approximately $2.719 billion,
total liabilities of approximately $1.447 billion and total policyholders'
surplus of approximately $1.272 billion.

AMBAC is a Wisconsin-domiciled stock insurance corporation regulated by the
Office of the Commissioner of Insurance of the State of Wisconsin and licensed
to do business in 50 states, the District of Columbia, the Territory of Guam and
the Commonwealth of Puerto Rico, with net admitted assets of approximately
$4.013 billion, total liabilities of approximately $2.510

B-8
<PAGE>

billion and total policyholders' surplus of approximately $1.503 billion as of
December 31, 1999. Statutory capital consists of AMBAC policyholders' surplus
and statutory contingency reserve. AMBAC is a wholly-owned subsidiary of AMBAC
Financial Group, Inc. a 100% publicly-held company.

FSA is a wholly-owned subsidiary of Financial Security Assurance Holdings,
Ltd. (Holdings), a New York Stock Exchange listed company. At December 31, 1999,
Holdings was owned 5.3% by MediaOne Capital Corporation, 21.2% by White
Mountains Insurance Group, Ltd., formerly Fund American Enterprise Holdings,
Inc., 8.0% by the Tokio Marine and Fire Insurance Co. Ltd., 7.8% by XL Capital
Ltd. and 57.7% by the public and employees. As of December 31, 1999, FSA had net
admitted assets of approximately $2.306 billion, total liabilities of
approximately $1.460 billion and total policyholders' surplus of approximately
$.847 billion.

HIGH INCOME SERIES. It is anticipated that, under current market conditions,
certain of the municipal obligations held by the High Income Series will be
insured by the entities described above. The High Income Series may also
purchase secondary market insurance from insurers whose claims paying ability is
rated AAA/Aaa, or lower, by various credit rating agencies. Certain insurers
whose claims paying ability is lower than AAA/Aaa, may subject the Series to
greater credit risk.

FLOATING RATE AND VARIABLE RATE SECURITIES. Each Series may invest more than
5% of its assets in floating rate and variable rate securities, including
participation interests therein and inverse floaters. Floating rate securities
normally have a rate of interest that is set as a specific percentage of a
designated base rate, such as the rate on Treasury Bonds or Bills or the prime
rate at a major commercial bank. The interest rate on floating rate securities
changes whenever there is a change in the designated base interest rate.
Variable rate securities provide for a specific periodic adjustment in the
interest rate based on prevailing market rates and generally would allow a
Series to demand payment of the obligation on short notice at par plus accrued
interest, which amount may be more or less than the amount the Series paid for
them. Floating rate and variable rate securities typically have long maturities
but afford the holder the right to demand payment at earlier dates. Such
floating rate and variable rate securities will be treated as having maturities
equal to the period of adjustment of the interest rate.

Each Series may invest in participation interests in variable rate
tax-exempt securities (such as certain IDBs) owned by banks. A participation
interest gives a Series an undivided interest in the tax-exempt security in the
proportion that a Series' participation interest bears to the total principal
amount of the tax-exempt security and generally provides that the holder may
demand repurchase within one to seven days. Participation interests frequently
are backed by an irrevocable letter of credit or guarantee of a bank that the
investment adviser, under the supervision of the Trustees, has determined meets
the prescribed quality standards for a Series. A Series generally has the right
to sell the instrument back to the bank and draw on the letter of credit on
demand, on seven days' notice, for all or any part of a Series' participation
interest in the par value of the tax-exempt security, plus accrued interest. A
Series intends to exercise the demand under the letter of credit only (1) upon a
default under the terms of the documents of the tax-exempt security, (2) as
needed to provide liquidity in order to meet redemptions or (3) to maintain a
high quality investment portfolio. Banks will retain a service and letter of
credit fee and a fee for issuing repurchase commitments in an amount equal to
the excess of the interest paid by the issuer on the tax-exempt securities over
the negotiated yield at which the instruments were purchased from the bank by a
Series. The investment adviser will monitor the pricing, quality and liquidity
of the variable rate demand instruments held by a Series, including the IDB's
supported by bank letters of credit or guarantees, on the basis of published
financial information, reports of rating agencies and other bank analytical
services to which the investment adviser may subscribe. Participation interests
will be purchased only if, in the opinion of counsel, interest income on such
interests will be tax-exempt when distributed as dividends to shareholders.

INVERSE AND SECONDARY INVERSE FLOATERS. Each Series may invest in inverse
floaters and secondary inverse floaters. An inverse floater is a debt instrument
with a floating or variable interest rate that moves in the opposite direction
of the interest rate on another security or the value of an index. A secondary
inverse floater is an asset-backed security, generally evidenced by a trust or
custodial receipt, the interest rate on which moves in the opposite direction of
the interest rate on another security or the value of an index. Changes in the
interest rate on the other security or index inversely affect the residual
interest rate paid on such instruments. Generally, income from inverse floating
rate bonds will decrease when short-term interest rates increase, and will
increase when short-term interest rates decrease. Such securities have the
effect of providing a degree of investment leverage, since they may increase or
decrease in value in response to changes, as an illustration, in market interest
rates at a rate that is a multiple (typically two) of the rate at which
fixed-rate, long-term, tax-exempt securities increase or decrease in response to
such changes. As a result, the market values of such securities generally will
be more volatile than the market values of fixed-rate tax-exempt securities. To
seek to limit the volatility of these securities, a Series may, but is not
required to, purchase inverse floating obligations with shorter-term maturities
or which contain limitations on the extent to which the interest rate may vary.
Inverse floaters represent a flexible portfolio management instrument that
allows us to vary the degree of investment leverage relatively efficiently under
different market conditions. The market for inverse floaters is relatively new.

B-9
<PAGE>

WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. Each Series may purchase
municipal obligations on a when-issued or delayed-delivery basis and may from
time to time sell obligations on a delayed delivery basis, in each case without
limit. When municipal obligations are offered on a when-issued or
delayed-delivery basis, the price and coupon rate are fixed at the time the
commitment to purchase is made, but delivery and payment for the when-issued
securities take place at a later date. During the period between purchase and
settlement, no interest accrues to the purchaser. In the case of purchases by a
Series, the price that the Series is required to pay on the settlement date may
be in excess of the market value of the municipal obligations on that date and
an increase in the percentage of the Series' assets committed to the purchase of
securities on a when-issued or delayed-delivery basis may increase the
volatility of the Series' NAV. While securities may be sold prior to the
settlement date, each Series intends to purchase these securities with the
purpose of actually acquiring them unless a sale would be desirable for
investment reasons. At the time a Series makes the commitment to purchase a
municipal obligation on a when-issued or delayed-delivery basis, it will record
the transaction and thereafter reflect the value of the obligation, each day, in
determining its NAV. This value may fluctuate from day to day in the same manner
as values of municipal obligations otherwise held by the Series. If the seller
defaults in the sale, the Series could fail to realize the appreciation, if any,
that had occurred. If a Series chooses to dispose of the right to acquire a
when-issued security prior to its acquisition, it could, as with the disposition
of any other portfolio security, incur a gain or loss due to market
fluctuations. Each Series will establish a segregated account in which it will
maintain cash or other liquid assets having a value equal to or greater than the
Series' purchase commitments.

As in the case of purchases, the price of the municipal obligations sold on
a delayed delivery basis is determined at the time of the commitment. The price
that a Series may be required to accept on the settlement date may be less than
the market value of the obligation on that date.

Each Series may also purchase municipal forward contracts. A municipal
forward contract is a municipal security which is purchased on a when-issued
basis with delivery taking place up to five years from the date of purchase. The
investment adviser will monitor the liquidity, value, credit quality and
delivery of the security under the supervision of the Trustees.

MUNICIPAL LEASE OBLIGATIONS. Each Series may invest in municipal lease
obligations. A municipal lease obligation is a municipal security the interest
on and principal of which is payable out of lease payments made by the party
leasing the facilities financed by the issue. Typically, municipal lease
obligations are issued by a state or municipal financing authority to provide
funds for the construction of facilities (for example, schools, dormitories,
office buildings or prisons) or the acquisition of equipment. The facilities are
typically used by the state or municipality pursuant to a lease with a financing
authority. Certain municipal lease obligations may trade infrequently.
Accordingly, the investment adviser will monitor the liquidity of municipal
lease obligations under the supervision of the Trustees. See "Illiquid
Securities" below.

MUNICIPAL ASSET-BACKED SECURITIES. Each Series may invest in municipal
asset-backed securities. A municipal asset-backed security is a debt or equity
interest in a trust, special purpose corporation or other pass-through
structure, the interest or income on which generally is eligible for exclusion
from federal income taxation based upon the income from an underlying pool of
municipal bonds.

LENDING OF SECURITIES. Consistent with applicable regulatory requirements,
each Series may lend its portfolio securities to brokers, dealers and financial
institutions, provided that outstanding loans do not exceed in the aggregate 33%
of the value of the Series' total assets and provided that such loans are
callable at any time by the Series and are at all times secured by cash or
equivalent collateral or that the borrower obtains a letter of credit in favor
of the Series that is equal to at least 100% of the market value, determined
daily, of the loaned securities. The advantage of such loans is that the Series
continues to receive payments in lieu of the interest and dividends on the
loaned securities, while at the same time earning interest either directly from
the borrower or on the collateral which will be invested in short-term
obligations.

A loan may be terminated by the borrower on one business day's notice or by
the Series any time. If the borrower fails to maintain the requisite amount of
collateral, the loan automatically terminates, and the Series can use the
collateral to replace the securities while holding the borrower liable for any
excess of replacement cost over collateral. As with any extensions of credit,
there are risks of delay in recovery and in some cases loss of rights in the
collateral should the borrower of the securities fail financially. However,
these loans of portfolio securities will only be made to firms determined to be
creditworthy pursuant to procedures approved by the Fund's Trustees. The
advantage of such loans is that the Series continues to receive payments in lieu
of the interest and dividends of the loaned securities, while at the same time
earning interest either directly from the borrower or on the collateral which
will be invested in short-term obligations. On termination of the loan, the
borrower is required to return the securities to the Series, and any gain or
loss in the market price during the loan would inure to the Series.

Since voting or consent rights which accompany loaned securities pass to the
borrower, the Series will follow the policy of calling the loan, in whole or in
part as may be appropriate, to permit the exercise of such rights if the matters
involved would have a

B-10
<PAGE>
material effect on the Series' investment in the securities which are the
subject of the loan. The Series will pay reasonable finders', administrative and
custodial fees in connection with a loan of its securities or may share the
interest earned on collateral with the borrower.

HEDGING STRATEGIES

Each Series is authorized to purchase and sell certain derivatives,
including financial futures contracts (futures contracts), options on futures
contracts and interest rate swaps for the purpose of attempting to hedge its
investment in municipal obligations against fluctuations in value caused by
changes in prevailing market interest rates, attempting to hedge against
increases in the cost of securities the Series intends to purchase and in
certain cases, attempting to enhance return. A Series, and thus an investor, may
lose money through unsuccessful use of these strategies. The successful use of
futures contracts, options on futures contracts and interest rate swaps by a
Series involves additional transaction costs, is subject to various risks and
depends upon the investment adviser's ability to predict the direction of the
market and interest rates. A Series' ability to use these strategies may be
limited by various factors, such as market conditions, regulatory limits and tax
considerations, and there can be no assurance that any of these strategies will
succeed. If new financial products and risk management techniques are developed,
a Series may use them to the extent consistent with its investment objective and
policies.

Each Series intends to engage in futures contracts and options thereon as a
hedge against changes, resulting from market conditions, in the value of
securities which are held in the Series' portfolio or which the Series intends
to purchase, in accordance with the rules and regulations of the Commodity
Futures Trading Commission (the CFTC). The Series also intend to engage in such
transactions when they are economically appropriate for the reduction of risks
inherent in the ongoing management of the Series. A Series may purchase and sell
futures contracts and options thereon for bona fide hedging transactions, except
that a Series may purchase and sell futures contracts and options thereon for
any other purpose to the extent that the aggregate initial margin and option
premiums do not exceed 5% of the liquidation value of the Series' total assets.
In addition, a Series may not purchase or sell futures contracts or purchase
options thereon if, immediately thereafter, the sum of initial and net
cumulative variation margin on outstanding futures contracts, together with
premiums paid on options thereon, would exceed 20% of the total assets of the
Series. There are no limitations on the percentage of a portfolio which may be
hedged and no limitations on the use of a Series' assets to cover futures
contracts and options thereon, except that the aggregate value of the
obligations underlying put options will not exceed 50% of a Series' assets.

FUTURES CONTRACTS. A futures contract obligates the seller of a contract to
deliver to the purchaser of a contract cash equal to a specific dollar amount
times the difference between the value of a specific fixed-income security or
index at the close of the last trading day of the contract and the price at
which the agreement is made. No physical delivery of the underlying securities
is made. A Series will engage in transactions in only those futures contracts
and options thereon that are traded on a commodities exchange or a board of
trade.

Each Series may engage in transactions in financial futures contracts as a
hedge against interest rate related fluctuations in the value of securities
which are held in the investment portfolio or which the Series intends to
purchase. A clearing corporation associated with the commodities exchange on
which a futures contract trades assumes responsibility for the completion of
transactions and guarantees that open futures contracts will be closed. Although
interest rate futures contracts call for actual delivery or acceptance of debt
securities, in most cases the contracts are closed out before the settlement
date without the making or taking of delivery.

A Series neither pays nor receives money upon the purchase or sale of a
futures contract. Instead, when the futures contract is entered into, each party
deposits in a segregated account approximately 5% of the contract amount, called
the initial margin. Initial margin in futures transactions is different from
margin in securities transactions in that futures contract initial margin does
not involve the borrowing of funds by the customer to finance the transactions.
Rather, initial margin is in the nature of a good faith deposit on the contract
which is returned to a Series upon termination of the futures contract, assuming
all contractual obligations have been satisfied. Subsequent payments to and from
the broker, called variation margin, will be made on a daily basis as the price
of the underlying security or index fluctuates, making the long and short
positions in the futures contracts more or less valuable, a process known as
"marking to market." In the case of options on futures contracts, the holder of
the option pays a premium and receives the right, upon exercise of the option at
a specified price during the option period, to assume a position in the futures
contract (a long position if the option is a call and a short position if the
option is a put). If the option is exercised by the holder before the last
trading day during the option period, the option writer delivers the futures
position, as well as any balance in the writer's futures margin account. If it
is exercised on the last trading day, the option writer delivers to the option
holder cash in an amount equal to the difference between the option exercise
price and the closing level of the relevant index on the date the option
expires.

B-11
<PAGE>
When a Series purchases a futures contract, it will maintain an amount of
cash or other liquid assets in a segregated account so that the amount so
segregated plus the amount of initial and variation margin held in the account
of its broker equals the market value of the futures contract, thereby ensuring
that the use of such futures contract is unleveraged. A Series that has sold a
futures contract may cover that position by owning the instruments underlying
the futures contract or by holding a call option on such futures contract. A
Series will not sell futures contracts if the value of such futures contracts
exceeds the total market value of the securities of the Series. It is not
anticipated that transactions in futures contracts will have the effect of
increasing portfolio turnover.

Currently, futures contracts are available on several types of fixed-income
securities, including U.S. Treasury Bonds and Notes, Government National
Mortgage Association modified pass-through mortgage-backed securities,
three-month U.S. Treasury Bills and bank certificates of deposit. Futures
contracts are also available on a municipal bond index, based on THE BOND BUYER
Municipal Bond Index, an index of 40 actively traded municipal bonds. Each
Series may also engage in transactions in other futures contracts that become
available, from time to time, in other fixed-income securities or municipal bond
indexes and in other options on such contracts if the investment adviser
believes such contracts and options would be appropriate for hedging investments
in municipal obligations.

OPTIONS ON FINANCIAL FUTURES. Each Series may purchase call options and
write put and call options on futures contracts and enter into closing
transactions with respect to such options to terminate an existing position.
Each Series will use options on futures in connection with hedging strategies.

An option on a futures contract gives the purchaser the right, but not the
obligation, in return for the premium paid, to assume a position in a futures
contract (a long position if the option is a call or a short position if the
option is a put) at a specified exercise price at any time during the period of
the option. Upon exercise of the option, the delivery of the futures position by
the writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's futures margin account which
represents the amount by which the market price of the futures contract, at
exercise, exceeds, in the case of a call, or is less than, in the case of a put,
the exercise price of the option on the futures contract. If an option is
exercised on the last trading day prior to the expiration date of the option,
the settlement will be made entirely in cash equal to the difference between the
exercise price of the option and the closing price of the futures contract on
the expiration date. Currently options can be purchased or written with respect
to futures contracts on U.S. Treasury Bonds, among other fixed-income
securities, and on municipal bond indices on the Chicago Board of Trade. As with
options on debt securities, the holder or writer of an option may terminate his
or her position by selling or purchasing an option of the same series. There is
no guaranty that such closing transactions can be effected.

When a Series hedges its portfolio by purchasing a put option, or writing a
call option, on a futures contract, it will own a long futures position or an
amount of debt securities corresponding to the open option position. When a
Series writes a put option on a futures contract, it may, rather than establish
a segregated account, sell the futures contract underlying the put option or
purchase a similar put option.

LIMITATIONS ON PURCHASE AND SALE. Under regulations of the Commodity
Exchange Act, investment companies registered under the Investment Company Act
are exempted from the definition of commodity pool operator, subject to
compliance with certain conditions. The exemption is conditioned upon a Series'
purchasing and selling futures contracts and options thereon for BONA FIDE
hedging transactions, except that a Series may purchase and sell futures
contracts and options thereon for any other purpose, to the extent that the
aggregate initial margin and option premiums do not exceed 5% of the liquidation
value of the Series' total assets. Each Series will use financial futures in a
manner consistent with these requirements. Each Series will continue to invest
at least 80% of its net assets in municipal bonds and municipal notes except in
certain circumstances, as described in the Prospectus under "How the Fund
Invests--Investment Objective and Policies." A Series may not enter into futures
contracts if, immediately thereafter, the sum of the amount of initial and net
cumulative variation margin on outstanding futures contracts, together with
premiums paid on options thereon, would exceed 20% of the total assets of the
Series.

INTEREST RATE SWAP TRANSACTIONS

Each Series may enter into interest rate swaps (including interest rate
swaps with embedded options), on either an asset-based or liability-based basis,
depending on whether it is hedging its assets or its liabilities. Under normal
circumstances, a Series will enter into interest rate swaps on a net basis, that
is, the two payment streams netted out, with a Series receiving or paying, as
the case may be, only the net amount of the two payments. The net amount of the
excess, if any, of a Series' obligations over its entitlements with respect to
each interest rate swap, will be accrued on a daily basis and an amount of cash
or other liquid assets having an aggregate net asset value per share (NAV) at
least equal to the accrued excess will be maintained in a segregated account by
a custodian that satisfies the requirements of the Investment Company Act. To
the extent that a Series enters into interest rate swaps on other than a net
basis, the amount maintained in a segregated account will be the full amount of
a Series'

B-12
<PAGE>

obligations, if any, with respect to such interest rate swaps, accrued on a
daily basis. Inasmuch as segregated accounts are established for these hedging
transactions, the investment adviser and the Fund believe such obligations do
not constitute senior securities. If there is a default by the other party to
such a transaction, a Series will have contractual remedies pursuant to the
agreement related to the transaction. The swap market has grown substantially in
recent years with a large number of banks and investment banking firms acting
both as principals and as agents utilizing standardized swap documentation. As a
result, the swap market has become relatively liquid. A Series will enter into
interest rate swaps only with parties meeting creditworthiness standards
approved by the Fund's Board of Trustees. The investment adviser will monitor
the creditworthiness of such parties under the supervision of the Board of
Trustees.

A Series may enter into interest rate swaps as a hedge against changes in
the interest rate of a security in its portfolio or that of a security a Series
anticipates buying. If a Series purchases an interest rate swap to hedge against
a change in an interest rate of a security a Series anticipates buying, and such
interest rate changes unfavorably for a Series, then a Series may determine not
to invest in the securities as planned and will realize a loss on the interest
rate swap that is not offset by a change in the interest rates or the price of
the securities.

The use of interest rate swaps is a highly speculative activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. If the investment adviser is
incorrect in its forecast of market values, interest rates and other applicable
factors, the investment performance of a Series would diminish compared to what
it would have been if this investment technique was never used.

A Series may enter into interest rate swaps traded on an exchange or in the
over-the-counter market. A Series may only enter into interest rate swaps to
hedge its portfolio. Interest rate swaps do not involve the delivery of
securities or other underlying assets or principal. Accordingly, the risk of
loss with respect to interest rate swaps is limited to the net amount of
interest payments that a Series is contractually obligated to make. If the other
party to an interest rate swap defaults, a Series' risk of loss consists of the
net amount of interest payments that a Series is contractually entitled to
receive. Since interest rate swaps are individually negotiated, a Series expects
to achieve an acceptable degree of correlation between its rights to receive
interest on its portfolio securities and its rights and obligations to receive
and pay interest pursuant to interest rate swaps.

RISKS OF HEDGING STRATEGIES

Participation in the options or futures markets involves investment risks
and transaction costs to which a Series would not be subject absent the use of
these strategies. Each Series, and thus its investors, may lose money through
the unsuccessful use of these strategies. If the investment adviser's
predictions of movements in the direction of the securities and interest rate
markets are inaccurate, the adverse consequences to the Series may leave the
Series in a worse position than if such strategies were not used. Risks inherent
in the use of interest rate swap transactions, futures contracts and options on
futures contracts include (1) dependence on the investment adviser's ability to
predict correctly movements in the direction of interest rates and securities
prices; (2) imperfect correlation between the price of options and futures
contracts and options thereon and movements in the prices of the securities or
currencies being hedged; (3) the fact that skills needed to use these strategies
are different from those needed to select portfolio securities; (4) the possible
absence of a liquid secondary market for any particular instrument at any time;
and (5) the possible inability of the Series to purchase or sell a portfolio
security at a time that otherwise would be favorable for it to do so, or the
possible need for the fund to sell a portfolio security at a disadvantageous
time, due to the need for the Series to maintain cover or to segregate
securities in connection with hedging transactions.

A Series may sell a futures contract to protect against the decline in the
value of securities held by the Series. However, it is possible that the futures
market may advance and the value of securities held in the Series' portfolio may
decline. If this were to occur, the Series would lose money on the futures
contracts and also experience a decline in value in its portfolio securities.

When a Series purchases a futures contract to hedge against the increase in
value of securities it intends to buy, and the value of such securities
decreases, then the Series may determine not to invest in the securities as
planned and will realize a loss on the futures contract that is not offset by a
reduction in the price of the securities.

There is a risk that the prices of securities subject to futures contracts
(and thereby the futures contract prices) may correlate imperfectly with the
behavior of the cash prices of the Series' portfolio securities. Another such
risk is that prices of futures contracts may not move in tandem with the changes
in prevailing interest rates against which the Series seeks a hedge. A
correlation may also be distorted by the fact that the futures market is
dominated by short-term traders seeking to profit from the difference between a
contract or security price objective and their cost of borrowed funds. Such
distortions are generally minor and would diminish as the contract approached
maturity.

B-13
<PAGE>
There may exist an imperfect correlation between the price movements of
futures contracts purchased by the Series and the movements in the prices of the
securities which are the subject of the hedge. If participants in the futures
market elect to close out their contracts through offsetting transactions rather
than meet margin deposit requirements, distortions in the normal relationships
between the debt securities and futures market could result. Price distortions
could also result if transactions due to the resultant reduction in the
liquidity of the futures market. In addition, due to the fact that, from the
point of view of speculators, the deposit requirement in the futures markets are
less onerous than margin requirements in the cash market, increased
participation by speculators in the futures markets could cause temporary price
distortions. Due to the possibility of price distortions in the futures market
and because of the imperfect correlation between movements in the prices of
securities (or currencies) and movements in the prices of futures contracts, a
correct forecast of interest rate trends by the investment adviser may still not
result in a successful hedging transaction.

The risk of imperfect correlation increases as the composition of a Series'
securities portfolio diverges from the securities that are the subject of the
futures contract, for example, those included in the municipal index. Because
the change in price of the futures contract may be more or less than the change
in prices of the underlying securities, even a correct forecast of interest rate
changes may not result in a successful hedging transaction.

Pursuant to the requirements of the Commodity Exchange Act, all futures
contracts and options thereon must be traded on an exchange. Each Series intends
to purchase and sell futures contracts only on exchanges where there appears to
be a market in such futures sufficiently active to accommodate the volume of its
trading activity. The Series' ability to establish and close out positions in
futures contracts and options on futures contracts would be impacted by the
liquidity of these exchanges. Although the Series generally would purchase or
sell only those futures contracts and options thereon for which there appeared
to be a liquid market, there is no assurance that a liquid market on an exchange
will exist for any particular futures contract or option at any particular time.
In the event no liquid market exists for a particular futures contract or option
thereon in which the Series maintains a position, it would not be possible to
effect a closing transaction in that contract or to do so at a satisfactory
price and the Series would have to either make or take delivery under the
futures contract or, in the case of a written call option, wait to sell
underlying securities until the option expired or was exercised or, in the case
of a purchased option, exercise the option and comply with the margin
requirements for the underlying futures contract to realize any profit. In the
case of a futures contract or an option on a futures contract which the Series
had written and which the Series was unable to close, the Series would be
required to maintain margin deposits on the futures contract or option and to
make variation margin payments until the contract was closed. In the event
futures contracts have been sold to hedge portfolio securities, such securities
will not be sold until the offsetting futures contracts can be executed.
Similarly, in the event futures have been bought to hedge anticipated securities
purchases, such purchases will not be executed until the offsetting futures
contracts can be sold.

Successful use of futures contracts by a Series is subject to, among other
things, the ability of the Series' investment adviser to predict correctly
movements in the direction of interest rates and other factors affecting markets
for securities. For example, if a Series has hedged against the possibility of
an increase in interest rates which would adversely affect the price of
securities in its portfolio and the price of such securities increases instead,
a Series will lose part or all of the benefit of the increased value of its
securities because it will have offsetting losses in its futures positions. In
addition, in such situations, if a Series has insufficient cash to meet daily
variation margin requirements, it may have to sell securities to meet such
requirements. Such sales of securities may be, but will not necessarily be, at
increased prices which reflect the rising market. A Series may have to sell
securities at a time when it is disadvantageous to do so.

Exchanges on which futures and related options trade may impose limits on
the positions that a Series may take in certain circumstances. In addition, the
hours of trading of financial futures contracts and options thereon may not
conform to the hours during which the Series may trade the underlying
securities. To the extent the futures markets close before the securities
markets, significant price and rate movements can take place in the securities
markets that cannot be reflected in the futures markets.

Under regulations of the Commodity Exchange Act, investment companies
registered under the Investment Company Act are exempt from the definition of
commodity pool operator, subject to compliance with certain conditions. Each
Series may purchase and sell futures and related options contracts without limit
for BONA FIDE hedging purchases within the meaning of the regulations of the
CFTC.

In order to determine that a Series is entering into transactions in futures
contracts for hedging purposes as such term is defined by the CFTC, either:
(1) a substantial majority (that is, approximately 75%) of all anticipatory
hedge transactions (transactions in which the Series does not own at the time of
the transaction, but expects to acquire, the securities underlying the relevant
futures contract) involving the purchase of futures contracts will be completed
by the purchase of securities, which are

B-14
<PAGE>
the subject of the hedge, or (2) the underlying value of all long positions in
futures contracts will not exceed the total value of (a) all short-term debt
obligations held by the Series; (b) cash held by the Series; (c) cash proceeds
due to the Series on investments within thirty days; (d) the margin deposited on
the contracts; and (e) any unrealized appreciation in the value of the
contracts.

If a Series maintains a short position in a futures contract, it will cover
this position by holding, in a segregated account, cash or liquid assets equal
in value (when added to any initial or variation margin on deposit) to the
market value of the securities underlying the futures contract. Such a position
may also be covered by owning the securities underlying the futures contract, or
by holding a call option permitting the Series to purchase the same contract at
a price no higher than the price at which the short position was established.

In addition, if a Series holds a long position in a futures contract, it
will hold cash or liquid assets equal to the purchase price of the contract
(less the amount of initial or variation margin on deposit) in a segregated
account. Alternatively, the Series could cover its long position by purchasing a
put option on the same futures contract with an exercise price as high or higher
than the price of the contract held by the Series.

Exchanges limit the amount by which the price of a futures contract may move
on any day. If the price moves equal the daily limit on successive days, then it
may prove impossible to liquidate a futures position until the daily limit moves
have ceased. In the event of adverse price movements, the Series would continue
to be required to make daily cash payments of variation margin on open futures
positions. In such situations, if the Series has insufficient cash, it may be
disadvantageous to do so. In addition, the Series may be required to take or
make delivery of the instruments underlying futures contracts it holds at a time
when it is disadvantageous to do so. The ability to close out options and
futures positions could also have an adverse impact on the Series' ability to
effectively hedge its portfolio.

In the event of the bankruptcy of a broker through which the Series engages
in transactions in futures or options thereon, the Series could experience
delays and/or losses in liquidating open positions purchased or sold through the
broker and/or incur a loss of all or part of its margin deposits with the
broker. Transactions are entered into by the Series only with brokers or
financial institutions deemed creditworthy by the investment adviser.

RISKS OF TRANSACTIONS IN OPTIONS ON FINANCIAL FUTURES. In addition to the
risks which apply to all options transactions, there are several special risks
relating to options on futures. The ability to establish and close out positions
on such options will be subject to the maintenance of a liquid secondary market.
Compared to the sale of financial futures, the purchase of put options on
financial futures involves less potential risk to a Series because the maximum
amount at risk is the premium paid for the options (plus transaction costs).
However, there may be circumstances when the purchase of a put option on a
financial future would result in a loss to a Series when the sale of a financial
future would not, such as when there is no movement in the price of debt
securities.

An option position may be closed out only on an exchange which provides a
secondary market for an option of the same series. Although a Series generally
will purchase only those options for which there appears to be an active
secondary market, there is no assurance that a liquid secondary market on an
exchange will exist for any particular option, or at any particular time, and
for some options, no secondary market on an exchange may exist. In such event,
it might not be possible to effect closing transactions in particular options
with the result that a Series would have to exercise its options in order to
realize any profit and would incur transaction costs upon the sale of underlying
securities pursuant to the exercise of put options.

Reasons for the absence of a liquid secondary market on an exchange include
the following: (1) there may be insufficient trading interest in certain
options; (2) restrictions may be imposed by an exchange on opening transactions
or closing transactions or both; (3) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; (4) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (5) the facilities of an exchange
may not at all times be adequate to handle current trading volume; or (6) one or
more exchanges could, for economic or other reasons, decide or be compelled at
some future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that exchange (or in
that class or series of options) would cease to exist, although outstanding
options on that exchange could continue to be exercisable in accordance with
their terms.

There is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain clearing facilities
inadequate, and thereby result in the institution by an exchange of special
procedures which may interfere with the timely execution of customers' orders.

REPURCHASE AGREEMENTS. Each Series may on occasion enter into repurchase
agreements, whereby the seller of a security agrees to repurchase that security
from the Series at a mutually agreed-upon time and price. The period of maturity
is usually quite

B-15
<PAGE>
short, possibly overnight or a few days, although it may extend over a number of
months. The resale price is in excess of the purchase price, reflecting an
agreed-upon rate of return effective for the period of time the Series' money is
invested in the repurchase agreement. The Series' repurchase agreements will at
all times be fully collateralized by U.S. Government obligations in an amount at
least equal to the resale price. The instruments held as collateral are valued
daily and, if the value of the instruments declines, the Series will require
additional collateral. If the seller defaults and the value of the collateral
securing the repurchase agreement declines, the Series may incur a loss.

Each Series participates in a joint repurchase account with other investment
companies managed by Prudential Investments Fund Management LLC (PIFM) pursuant
to an order of the Commission. On a daily basis, any uninvested cash balances of
the Series may be aggregated with those of such investment companies and
invested in one or more repurchase agreements. Each fund participates in the
income earned or accrued in the joint account based on the percentage of its
investment.

SECURITIES OF OTHER INVESTMENT COMPANIES. Each Series may invest up to 10%
of its total assets in shares of other investment companies. To the extent that
a Series does invest in securities of other investment companies, shareholders
of the Series may be subject to duplicate management and advisory fees. See
"Investment Restrictions" below.

ILLIQUID SECURITIES. Each Series may hold up to 15% of its net assets in
illiquid securities. If a Series were to exceed this limit, the investment
adviser would take prompt action to reduce a Series' holdings in illiquid
securities to no more than 15% of its net assets, as required by applicable law.
Illiquid securities include repurchase agreements which have a maturity of
longer than seven days, securities with legal or contractual restrictions on
resale (restricted securities) and securities that are not readily marketable
either within or outside of the United States. Securities, including municipal
lease obligations, that have a readily available market are not considered
illiquid for purposes of this limitation. The Subadviser will monitor the
liquidity of such restricted securities under the supervision of the Trustees.
Repurchase agreements subject to demand are deemed to have a maturity equal to
the applicable notice period.

Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the Securities Act),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.

In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities, convertible securities and corporate bonds and notes. Institutional
investors depend on an efficient institutional market in which the unregistered
security can be readily resold or on an issuer's ability to honor a demand for
repayment. The fact that there are contractual or legal restrictions on resale
to the general public or to certain institutions may not be indicative of the
liquidity of such investments.

Rule 144A under the Securities Act allows for a broader institutional
trading market for securities otherwise subject to restriction on resale to the
general public. Rule 144A establishes a "safe harbor" from the registration
requirements of the Securities Act for resales of certain securities to
qualified institutional buyers. The investment adviser anticipates that the
market for certain restricted securities such as institutional commercial paper
and foreign securities will expand further as a result of this regulation and
the development of automated systems for the trading, clearance and settlement
of unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc. (NASD).
A Series' investment in Rule 144A securities could have the effect of increasing
illiquidity to the extent that qualified institutional buyers become, for a
time, uninterested in purchasing Rule 144A securities.

Municipal lease obligations and certain other securities for which there is
a readily available market will not be considered illiquid for purposes of the
each Series' 15% limitation on illiquid securities only when deemed liquid under
procedures established by the Fund. In reaching liquidity decisions, the
investment adviser will consider, among others, the following factors: (1) the
frequency of trades and quotes for the security; (2) the number of dealers
wishing to purchase or sell the security and the number of other potential
purchasers; (3) dealer undertakings to make a market in the security; and
(4) the nature of the security and the nature of the marketplace trades (for
example, the time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer). With respect to municipal lease
obligations, the investment adviser also considers: (1) the willingness

B-16
<PAGE>
of the municipality to continue, annually or biannually, to appropriate funds
for payment of the lease; (2) the general credit quality of the municipality and
the essentiality to the municipality of the property covered by the lease;
(3) in the case of unrated municipal lease obligations, an analysis of factors
similar to that performed by nationally recognized statistical rating
organizations in evaluating the credit quality of a municipal lease obligation,
including (i) whether the lease can be cancelled; (ii) if applicable, what
assurance there is that the assets represented by the lease can be sold;
(iii) the strength of the lessee's general credit (for example, its debt,
administrative, economic and financial characteristics); (iv) the likelihood
that the municipality will discontinue appropriating funding for the leased
property because the property is no longer deemed essential to the operations of
the municipality (for example, the potential for an event of nonappropriation);
(v) the legal recourse in the event of failure to appropriate; and (4) any other
factors unique to municipal lease obligations as determined by the investment
adviser.

BORROWING. Each Series may borrow an amount equal to no more than 33 1/3% of
the value of its total assets (calculated when the loan is made) for temporary,
extraordinary or emergency purposes and to take advantage of investment
opportunities or for the clearance of transactions. Each Series may pledge up to
33 1/3% of the value of its total assets to secure these borrowings. If a
Series' asset coverage for borrowings falls below 300%, the Series will take
prompt action to reduce its borrowings as required by law. If the 300% asset
coverage should decline as a result of market fluctuations or other reasons, the
Series may be required to sell portfolio securities to reduce the debt and
restore the 300% asset coverage, even though it may be disadvantageous from an
investment standpoint to sell securities at that time.

If a Series borrows to invest in securities, any investment gains made on
the securities in excess of interest paid on the borrowing will cause the NAV of
the shares to rise faster than would otherwise be the case. On the other hand,
if the investment performance of the additional securities purchased fails to
cover their cost (including any interest paid on the money borrowed) to the
Series, the Series' NAV will decrease faster than would otherwise be the case.
This is the speculative factor known as leverage. Money borrowed for leveraging
will be subject to interest costs which may or may not be recovered by
appreciation of the securities purchased and may exceed the income from the
securities purchased. In addition, the Series may be required to maintain
minimum average balances in connection with such borrowing or pay a commitment
fee to maintain a line of credit which would increase the cost of borrowing over
the stated interest rate.

(d) TEMPORARY DEFENSIVE STRATEGY

When the investment adviser believes that market, economic or political
conditions warrant a temporary defensive investment posture or when necessary to
meet large redemptions, a Series may hold more than 20% of its net assets in
cash, cash equivalents or investment-grade taxable obligations, including
obligations that are generally exempt from state, but not federal, income
taxation. Investing heavily in these securities limits our ability to achieve
each Series' investment objective, but can help to preserve each Series' assets.

(e) PORTFOLIO TURNOVER

A Series may engage in short-term trading consistent with its investment
objective. Portfolio transactions will be undertaken in response to anticipated
movements in the general level of interest rates. Municipal securities or
futures contracts may be sold in anticipation of a market decline (resulting
from a rise in interest rates) or purchased in anticipation of a market rise
(resulting from a decline in interest rates) and later sold. In addition, a
security may be sold and another purchased at approximately the same time to
take advantage of what the investment adviser believes to be a temporary
disparity in the normal yield relationship between the two securities. Yield
disparities may occur for reasons not directly related to the investment quality
of particular issues or the general movement of interest rates, due to factors
such as changes in the overall demand for or supply of various types of
municipal securities or changes in the investment objectives of investors.

The portfolio turnover rate is generally the percentage computed by dividing
the lesser of portfolio purchases or sales (excluding all securities, including
options, whose maturities or expiration date at acquisition were one year or
less) by the monthly average value of the portfolio. A 100% turnover rate would
occur, for example, if all of the securities held in a Series' portfolio were
sold and replaced within one year. High portfolio turnover (over 100%) involves
correspondingly greater brokerage commissions and other transaction costs, which
are borne directly by a Series. In addition, high portfolio turnover may also
mean that a proportionately greater amount of distributions to interest holders
will be taxed as ordinary income rather than long-term capital gains compared to
investment companies with lower portfolio turnover. For the fiscal year ended
April 30, 1999 and the fiscal year ended April 30, 2000, the portfolio turnover
rates for the High Income Series and the Insured Series were 16% and 15%, and
27% and 26%, respectively. See "Taxes, Dividends and Distributions" below.

B-17
<PAGE>
SEGREGATED ACCOUNTS

When the Fund is required to segregate assets in connection with certain
hedging transactions, it will maintain cash or other liquid assets in a
segregated account. "Liquid assets" means cash, U.S. Government securities,
foreign securities, equity securities, debt obligations or other liquid,
unencumbered assets marked-to-market daily.

INVESTMENT RESTRICTIONS

The following restrictions are fundamental policies. Fundamental policies
are those which cannot be changed without the approval of the holders of a
majority of a Series' outstanding voting securities. A "majority of the
outstanding voting securities" of a Series, when used in this Statement of
Additional Information, means the lesser of (i) 67% of the voting shares
represented at a meeting at which more than 50% of the outstanding voting shares
are present in person or represented by proxy or (ii) more than 50% of the
outstanding voting shares.

Each Series may not:

1. Purchase securities on margin (but the Series may obtain such short-term
credits as may be necessary for the clearance of transactions and for margin
payments in connection with transactions in financial futures contracts and
options thereon).

2. Make short sales of securities or maintain a short position.

3. Issue senior securities, borrow money or pledge its assets, except that
each Series may borrow up to 33 1/3% of the value of its total assets
(calculated when the loan is made) for temporary, extraordinary or emergency
purposes and to take advantage of investment opportunities or for the clearance
of transactions. The Series may pledge up to 33 1/3% of the value of its total
assets to secure such borrowings. For purposes of this restriction, the
preference as to shares of a Series in liquidation and as to dividends over all
other Series of the Fund with respect to assets specifically allocated to that
Series, the purchase or sale of securities on a when-issued or delayed delivery
basis, the purchase and sale of financial futures contracts and collateral
arrangements with respect thereto and obligations of the Series to Trustees,
pursuant to deferred compensation arrangements, are not deemed to be the
issuance of a senior security or a pledge of assets.

4. Purchase any security if as a result, with respect to 75% of the total
assets of the Series, more than 5% of the total assets of the Series would be
invested in the securities of any one issuer (provided that this restriction
shall not apply to obligations issued or guaranteed as to principal and interest
by the U.S. Government or its agencies or instrumentalities).

5. Purchase securities (other than municipal obligations and obligations
guaranteed as to principal and interest by the U.S. Government or its agencies
or instrumentalities) if, as a result of such purchase, 25% or more of the total
assets of the Series (taken at current market value) would be invested in any
one industry. (For purposes of this restriction, industrial development bonds,
where the payment of the principal and interest is the ultimate responsibility
of companies within the same industry, are grouped together as an "industry.")

6. Buy or sell commodities or commodity contracts, except financial futures
contracts and options thereon.

7. Buy or sell real estate or interests in real estate, although it may
purchase and sell securities which are secured by real estate and securities of
companies which invest or deal in real estate.

8. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter under
certain federal securities laws.

9. Purchase securities of other investment companies, except in the open
market involving only customary brokerage commissions and as a result of which
no more than 10% of its total assets (determined at the time of investment)
would be invested in such securities or except in connection with a merger,
consolidation, reorganization or acquisition of assets.

10. Invest in interests in oil, gas or other mineral exploration or
development programs.

11. Make loans, except through repurchase agreements and loans of portfolio
securities (limited to 33% of the Series' total assets).

12. Purchase or write puts, calls or combinations thereof except as
described in the Prospectus and this Statement of Additional Information with
respect to puts and options on futures contracts.

13. Invest for the purpose of exercising control or management of another
company.

B-18
<PAGE>
Whenever any fundamental investment policy or investment restriction states
a maximum percentage of a Series' assets, it is intended that if the percentage
limitation is met at the time the investment is made, a later change in
percentage resulting from changing total or net asset values will not be
considered a violation of such policy. However, in the event that a Series'
asset coverage for borrowings falls below 300%, the Series will take prompt
action to reduce its borrowings, as required by applicable law.

MANAGEMENT OF THE FUND

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS(1) AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
------------------------ ------------------ ----------------------
<S> <C> <C>
Eugene C. Dorsey (72) Trustee Retired President, Chief Executive Officer and Trustee of the
Gannett Foundation (now Freedom Forum); former Publisher of four
Gannett newspapers and Vice President of Gannett Company; past
Chairman of Independent Sector (national coalition of
philanthropic organizations); former Chairman of the American
Council for the Arts; former Director of the Advisory Board of
Chase Manhattan Bank of Rochester.

Delayne Dedrick Gold (61) Trustee Marketing and Management Consultant.

*Robert F. Gunia (53) Vice President and Executive Vice President and Chief Administrative Officer (since
Trustee June 1999) of Prudential Investments; Corporate Vice President
(September 1997-March 1999) of The Prudential Insurance Company
of America (Prudential); Executive Vice President and Treasurer
(since December 1996) of Prudential Investments Fund Management
LLC (PIFM); President (since April 1999) of Prudential
Investment Management Services LLC (PIMS); former Senior Vice
President (March 1987-May 1999) and former Chief Administrative
Officer (July 1990-September 1996) of Prudential Securities
Incorporated (Prudential Securities); Director (January
1989-September 1996), Executive Vice President, Treasurer and
Chief Financial Officer (June 1987-December 1996) of Prudential
Mutual Fund Management, Inc. (PMF); Vice President and Director
(since May 1989) of The Asia Pacific Fund, Inc.

Thomas T. Mooney (58) Trustee President of the Greater Rochester Metro Chamber of Commerce;
former Rochester City Manager; former Deputy Monroe County
Executive; Trustee of Center for Governmental Research, Inc.;
Director of Blue Cross of Rochester, Monroe County Water
Authority, Executive Service Corps of Rochester.

Stephen P. Munn (57) Trustee Chairman (since January 1994), Director and President (since
1988) and Chief Executive Officer (since 1988) of Carlisle
Companies Incorporated (manufacturer of industrial products).

*David R. Odenath, Jr. (42) Vice President and Officer in Charge, President, Chief Executive Officer and Chief
Trustee Operating Officer (since June 1999) of PIFM; Senior Vice
President (since June 1999) of Prudential; Senior Vice President
(August 1993-May 1999) of PaineWebber Group, Inc.
</TABLE>

B-19
<PAGE>

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS(1) AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
------------------------ ------------------ ----------------------
<S> <C> <C>
Richard A. Redeker (56) Trustee Former employee of Prudential Investments (October 1996-December
1998); prior thereto, President, Chief Executive Officer and
Director (October 1993-September 1996) of PMF; Executive Vice
President, Director and Member of the Operating Committee
(October 1993-September 1996) of Prudential Securities; Director
(October 1993-September 1996) of Prudential Securities Group,
Inc.; Executive Vice President of The Prudential Investment
Corporation (January 1994-September 1996); Director
(January 1994-September 1996) of Prudential Mutual Fund
Distributors, Inc. and Prudential Mutual Fund Services, Inc.;
formerly Senior Executive Vice President and Director of Kemper
Financial Services, Inc. (September 1978-September 1993).

*John R. Strangfeld, Jr. (45) President and Trustee Chief Executive Officer, Chairman, President and Director (since
January 1990) of The Prudential Investment Corporation;
Executive Vice President (since February 1998) of Prudential
Global Asset Management Group of Prudential; and Chairman (since
August 1989) of Pricoa Capital Group; formerly various positions
to Chief Executive Officer (November 1994-December 1998) of
Private Asset Management Group of Prudential and Senior Vice
President (January 1986-August 1989) of Prudential Capital
Group, a unit of Prudential.

Nancy H. Teeters (69) Trustee Economist; former Vice President and Chief Economist (July
1984-July 1990) of International Business Machines Corporation;
former Governor of Federal Reserve System (1978-1984); former
Director of Inland Steel Industries (July 1991-1999).

Louis A. Weil, III (59) Trustee Chairman (since January 1999), President and Chief Executive
Officer (since January 1996) and Director (since September 1991)
of Central Newspapers, Inc; Chairman of the Board (since January
1996), Publisher and Chief Executive Officer (August
1991-December 1995) of Phoenix Newspapers, Inc.; former
Publisher of Time Magazine (May 1989-March 1991); former
President, Publisher and Chief Executive Officer of The Detroit
News (February 1986-August 1989); member of the Advisory Board,
Chase Manhattan Bank-Westchester.

Grace C. Torres (40) Treasurer and Principal First Vice President (since December 1996) of PIFM; former First
Financial and Vice President (March 1993-May 1999) of Prudential Securities;
Accounting Officer First Vice President (March 1994-September 1996) of Prudential
Mutual Fund Management, Inc.

Deborah A. Docs (42) Secretary Vice President (since December 1996) of PIFM; former Vice
President and Associate General Counsel (June 1991-September
1996) of Prudential Securities; Vice President and Associate
General Counsel (June 1991-September 1996) of PMF.
</TABLE>

B-20
<PAGE>

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, ADDRESS(1) AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
------------------------ ------------------ ----------------------
<S> <C> <C>
William V. Healey (46) Assistant Secretary Vice President and Associate General Counsel (since 1998) of
Prudential; Chief Legal Officer (since August 1998) of
Prudential Investments; Director (since June 1999) of ICI Mutual
Insurance Company; prior to August 1998, Associate General
Counsel of The Dreyfus Corporation ("Dreyfus"), a subsidiary of
Mellon Bank, N.A. ("Mellon Bank"), and an officer and/or
director of various affiliates of Mellon Bank and Dreyfus.
------------------------
</TABLE>

* "Interested" Trustee, as defined in the Investment Company Act, by reason of
his or her affiliation with Prudential Securities Incorporated (Prudential
Securities), Prudential or PIFM.

(1) The address for each of the above persons is c/o: Prudential Investments
Fund Management LLC, Gateway Center Three, 100 Mulberry Street, 9th Floor,
Newark, New Jersey 07102-4077.

Trustees and officers of the Fund are also trustees, directors and officers
of some or all of the other investment companies distributed by Prudential
Investment Management Services LLC.

The officers conduct and supervise the daily business operations of the
Fund, while the Trustees, in addition to their functions set forth under
"Investment Advisory and Other Services--Manager and Investment Adviser" and
"--Principal Underwriter, Distributor and Rule 12b-1 Plans," review such actions
and decide on general policy.

Pursuant to the terms of the Management Agreement with the Fund, the Manager
pays all compensation of officers and employees of the Fund as well as the fees
and expenses of all Trustees of the Fund who are affiliated persons of the
Manager.

The Fund pays each of its Trustees who is not an affiliated person of PIFM
or Prudential Investments annual compensation of $7050, in addition to certain
out-of-pocket expenses. The amount of annual compensation paid to each Trustee
may change as a result of the introduction of additional funds upon which the
Trustee will be asked to serve.

Trustees may receive their Trustees' fees pursuant to a deferred fee
agreement with the Fund. Under the terms of such agreement, the Fund accrues
daily the amount of Trustee's fees which accrue interest at a rate equivalent to
the prevailing rate applicable to 90-day U.S. Treasury Bills at the beginning of
each calendar quarter or, pursuant to a Commission exemptive order, at the daily
rate of return of any Prudential mutual fund. Payment of the interest so accrued
is also deferred and accruals become payable at the option of the Trustee. The
Fund's obligation to make payments of deferred Trustees' fees, together with
interest thereon, is a general obligation of the Fund.

The Trustees have adopted a retirement policy which calls for the retirement
of Trustees on December 31 of the year in which they reach the age of 75.

B-21
<PAGE>

The following table sets forth the aggregate compensation paid by the Fund
to the Trustees who are not affiliated with the Manager for the fiscal year
ended April 30, 2000 and the aggregate compensation paid to such Trustees for
service on the Fund's Board and the Boards of all other investment companies
managed by PIFM (Fund Complex) for the calendar year ended December 31, 1999.

COMPENSATION TABLE

<TABLE>
<CAPTION>
PENSION OR
RETIREMENT TOTAL 1999 COMPENSATION
AGGREGATE BENEFITS ACCRUED ESTIMATED ANNUAL FROM FUND AND FUND
COMPENSATION AS PART OF FUND BENEFITS UPON COMPLEX PAID TO
NAME AND POSITION FROM FUND EXPENSES RETIREMENT DIRECTORS
----------------- ------------ ---------------- ---------------- -----------------------
<S> <C> <C> <C> <C>
Edward D. Beach, Trustee(a) $ 7050 None N/A $142,500(43/70)*
Eugene C. Dorsey, Trustee** $ 7050 None N/A $ 81,000(17/48)*
Delayne Dedrick Gold, Trustee $ 7325 None N/A $144,500(43/70)*
Robert F. Gunia, Trustee and Vice
President+ -- -- -- --
Thomas T. Mooney, Trustee** $ 7050 None N/A $129,500(35/75)*
Stephen P. Munn, Trustee $ 1800 None N/A $ 62,250(29/53)*
Thomas H. O'Brien, Trustee(a) $ 7050 None N/A $ 47,500(11/26)*
David R. Odenath, Jr., Trustee and Vice
President+ -- -- -- --
Richard A. Redeker, Trustee $ 7050 None N/A $ 95,000(29/53)*
John R. Strangfeld, Jr., Trustee and
President+ -- -- -- --
Nancy H. Teeters, Trustee $ 7050 None N/A $ 97,000(25/43)*
Louis A. Weil, III, Trustee $ 7175 None N/A $ 96,000(29/53)*
</TABLE>

------------------------
* Indicates number of funds/portfolios in Fund Complex (including the Fund) to
which aggregate compensation relates.

** Total aggregate compensation from all of the funds in the Fund Complex for
the calendar year ended December 31, 1999, includes amounts deferred at the
election of Directors under the Fund's deferred compensation plans.
Including accrued interest, total compensation amounted to $103,574 and
$135,102 for Eugene C. Dorsey and Thomas T. Mooney, respectively.

+ Trustees who are "interested" do not receive compensation from the Fund or
any fund in the Fund Complex.

(a) Former Trustee, retired on December 31, 1999.

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

Trustees of the Fund are eligible to purchase Class Z shares of each Series,
which are sold without an initial sales charge or contingent deferred sales
charge.

As of June 9, 2000, the Trustees and officers of the Fund, as a group, owned
beneficially less than 1% of the outstanding shares of beneficial interest of
each Class of each Series of the Fund.

As of June 9, 2000, Prudential Securities was record holder for other
beneficial owners of 34,121,042 Class A shares of the High Income Series (or
65.2% of the outstanding Class A shares), 34,014,449 Class B shares of the High
Income Series (or 84.3% of the outstanding Class B shares), 2,438,185 Class C
shares of the High Income Series (or 85.9% of the outstanding Class C shares)
and 767,924 Class Z shares of the High Income Series (or 99.9% of the
outstanding Class Z shares). Prudential Securities was also record holder for
other beneficial owners of 9,305,925 Class A shares of the Insured Series (or
39.2% of the outstanding Class A shares), 3,205,879 Class B shares of the
Insured Series (or 42.9% of the outstanding Class B shares), 223,880 Class C
shares of the Insured Series (or 76.9% of the outstanding Class C shares) and
137,480 Class Z shares of the Insured Series (or 99.9% of the outstanding
Class Z shares). In the event of any meetings of shareholders, Prudential
Securities will forward, or cause the forwarding of, proxy material to the
beneficial owners for which it is the record holder.

As of June 9, 2000, the beneficial owners, directly or indirectly, of more
than 5% of the outstanding shares of any class of beneficial interest of a
Series were: Mary D. Howard, 7010 Shallow Lake Rd, Prospect, KY 40059-9361, who
held 94,657 Class Z shares of the High Income Series (or 12.3% of the
outstanding Class Z shares); Jeff L. Gladow & Joan L. Gladow, 730 Hazeltine Ave
SE, Salem, OR 97306-9352, who held 39,314 Class Z shares of the High Income
Series (or 5.1% of the outstanding Class Z shares); Elizabeth A. Straubmuller,
1598 Silver Run Rd, Millville, NJ 08332-7334 who held 35,077 Class C shares of
the Insured Series (or 12.0% of the outstanding Class C shares); Mrs. Lois Clara
Stewart, Succ OHL-48868, Trustee, Russell M. Stewart, Rev Liv Trust UA DTD
07/01/92, 1350 Ala Moana Blvd. Apt. 2910, Honolulu, HI 96815-4228, who held
17,547 Class C shares of the

B-22
<PAGE>

Insured Series (or 6.0% of the outstanding Class C shares); Mary C. Brusnighan,
T.O.D. Account, 103 Trailing IVY LN, Serverna Park, MD 21146-4735, who held
26,585 Class Z shares of the Insured Series (or 19.3% of the outstanding
Class Z shares); Mrs. Barbara J. Glazier TTEE OZJ-33555, Barbara J. Glazier
RVCBL TR, UA DTD 10/07/99, 2381 River Birch CT, Avon, IN 46123-7476, who held
10,284 Class Z shares of the Insured Series (or 7.5% of the outstanding Class Z
shares); Brian Forrest Cooke, Account 2, 13017 Water Ridge Dr. McCordsville, IN
46055-9651, who held 37,855 Class Z shares of the Insured Series (or 27.5% of
the outstanding Class Z shares); Mr. Ted Bates, 11121 Woods Bay Ln,
Indianapolis, IN 46236-9021, who held 9,581 Class Z shares of the Insured Series
(or 7.0% of the outstanding Class Z shares).

INVESTMENT ADVISORY AND OTHER SERVICES

(a) MANAGER AND INVESTMENT ADVISER

The manager of the Fund is Prudential Investments Fund Management LLC (PIFM
or the Manager), Gateway Center Three, Newark, 100 Mulberry Street, New Jersey
07102-4077. The Manager serves as manager to all of the other open-end
management investment companies that, together with the Fund, comprise the
Prudential Mutual Funds. See "How the Fund is Managed--Fund Manager" in the
Prospectus. As of April 30, 2000, PIFM managed and/or administered open-end and
closed-end management investment companies with assets of approximately $76.2
billion and, according to the Investment Company Institute, as of September 30,
1999, the Prudential mutual funds were the 20th largest family of mutual funds
in the United States.

The Manager is a subsidiary of Prudential Securities and Prudential.
Prudential Mutual Fund Services LLC (the Transfer Agent), a wholly owned
subsidiary of the Manager, serves as the Transfer Agent and dividend
distribution agent for the Prudential mutual funds and, in addition, provides
customer service, recordkeeping and management and administration services to
qualified plans.

Pursuant to the Management Agreement with the Fund (the Management
Agreement), the Manager, subject to the supervision of the Fund's Trustees and
in conformity with the stated policies of the Fund, manages both the investment
operations of each Series and the composition of each Series' portfolio,
including the purchase, retention, disposition and loan of securities. In
connection therewith, the Manager is obligated to keep certain books and records
of the Fund. The Manager has hired the Subadviser to provide subadvisory
services to the Fund. The Manager also administers the Fund's business affairs
and, in connection therewith, furnishes the Fund with office facilities,
together with those ordinary clerical and bookkeeping services which are not
being furnished by State Street Bank and Trust Company, the Fund's custodian,
and the Fund's transfer and dividend disbursing agent. The services of the
Manager for the Fund are not exclusive under the terms of the Management
Agreement and the Manager is free to, and does, render management services to
others.

For its services, the Manager receives, pursuant to the Management
Agreement, a fee at an annual rate of .50 of 1% of the average daily net assets
of each Series up to $1 billion and .45 of 1% of the average daily net assets in
excess of $1 billion. The fee is computed daily and payable monthly. The
Management Agreement also provides that, in the event the expenses of the Fund
(including the fees of the Manager, but excluding interest, taxes, brokerage
commissions, distribution fees and litigation and indemnification expenses and
other extraordinary expenses not incurred in the ordinary course of the Fund's
business) for any fiscal year exceed the lowest applicable annual expense
limitation established and enforced pursuant to the statutes or regulations of
any jurisdiction in which the Fund's shares are qualified for offer and sale,
the compensation due the Manager will be reduced by the amount of such excess.
Reductions in excess of the total compensation payable to the Manager will be
paid by the Manager to the Fund. Currently, the Fund believes there are no such
expense limitations.

In connection with its management of the business affairs of the Fund, the
Manager bears the following expenses:

(a) the salaries and expenses of all of its and the Fund's personnel except
the fees and expenses of Trustees who are not affiliated persons of the Manager
or the Subadviser;

(b) all expenses incurred by the Manager or by the Fund in connection with
managing the ordinary course of the Fund's business, other than those assumed by
the Fund as described below; and

(c) the costs and expenses payable to the Subadviser pursuant to the
subadvisory agreement between the Manager and the Subadviser (the Subadvisory
Agreement).

Under the terms of the Management Agreement, the Fund is responsible for the
payment of the following expenses: (a) the fees payable to the Manager; (b) the
fees and expenses of Trustees who are not affiliated persons of the Manager or
the Subadviser; (c) the fees and certain expenses of the Custodian and Transfer
Agent, including the cost of providing records to the Manager in connection with
its obligation of maintaining required records of the Fund and of pricing the
Fund's shares; (d) the

B-23
<PAGE>

charges and expenses of legal counsel and independent accountants for the Fund;
(e) brokerage commissions and any issue or transfer taxes chargeable to the Fund
in connection with its securities transactions; (f) all taxes and corporate fees
payable by the Fund to governmental agencies; (g) the fees of any trade
associations of which the Fund may be a member; (h) the cost of share
certificates representing shares of the Fund; (i) the cost of fidelity and
liability insurance; (j) certain organization expenses of the Fund and the fees
and expenses involved in registering and maintaining registration of the Fund
and of its shares with the Commission, and the states under state securities
laws, including the preparation and printing of the Fund's registration
statements and prospectuses for such purposes and paying the fees and expenses
of notice filings made in accordance with state securities laws; (k) allocable
communications expenses with respect to investor services and all expenses of
shareholders' and Trustees' meetings and of preparing, printing and mailing
reports, proxy statements and prospectuses to shareholders in the amount
necessary for distribution to the shareholders; (l) litigation and
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of the Fund's business; and (m) distribution fees.

The Management Agreement provides that the Manager will not be liable for
any error of judgment or for any loss suffered by the Fund in connection with
the matters to which the Management Agreement relates, except a loss resulting
from willful misfeasance, bad faith, gross negligence or reckless disregard of
duty. The Management Agreement provides that it will terminate automatically if
assigned, and that it may be terminated without penalty by either party upon not
more than 60 days' nor less than 30 days' written notice. The Management
Agreement will continue in effect for a period of more than two years from the
date of execution only so long as such continuance is specifically approved at
least annually in conformity with the Investment Company Act.

For the fiscal years ended April 30, 2000, April 30, 1999, and April 30,
1998, the Fund paid PIFM management fees of $1,898,781, $2,274,028, and
$2,469,913, respectively, for the Insured Series. For the fiscal years ended
April 30, 2000, April 30, 1999, and April 30, 1998, the Fund paid PIFM
management fees of $5,495,099, $5,816,965, and $5,323,382, respectively, for the
High Income Series.

PIFM has entered into a Subadvisory Agreement with the Subadviser, a
wholly-owned subsidiary of Prudential. The Subadvisory Agreement provides that
the Subadviser will furnish investment advisory services in connection with the
management of the Fund. In connection therewith, the Subadviser is obligated to
keep certain books and records of the Fund. The Manager continues to have
responsibility for all investment advisory services pursuant to the Management
Agreement and supervises the Subadviser's performance of such services. The
Subadviser was reimbursed by the Manager for the reasonable costs and expenses
incurred by the Subadviser in furnishing those services. Effective January 1,
2000, the Subadviser is paid by the Manager at an annual rate of .250 of 1% of
the average daily net assets of each Series up to and including $1 billion, and
.214 of 1% of over $1 billion of each Series average daily net assets.

The Subadvisory Agreement provides that it will terminate in the event of
its assignment (as defined in the Investment Company Act) or upon the
termination of the Management Agreement. The Subadvisory Agreement may be
terminated by the Fund, PIFM or the Subadviser upon not more than 60 days', nor
less than 30 days', written notice. The Subadvisory Agreement provides that it
will continue in effect for a period of more than two years from its execution
only so long as such continuance is specifically approved at least annually in
accordance with the requirements of the Investment Company Act.

Prudential Investment's Fixed Income Group includes the following sector
team which may contribute towards security selection in addition to the sector
team described in the prospectus (assets under management are as of
December 31, 1999).

MONEY MARKETS

ASSETS UNDER MANAGEMENT: $36.0 billion.

TEAM LEADER: Joseph Tully. GENERAL INVESTMENT EXPERIENCE: 16 years.

PORTFOLIO MANAGERS: 9. AVERAGE GENERAL INVESTMENT EXPERIENCE: 10 years, which
includes team members with significant mutual fund experience.

SECTOR: High-quality, short-term securities, including both taxable and
tax-exempt instruments.

INVESTMENT STRATEGY: Focus is on safety of principal, liquidity and
controlled risk.

CODE OF ETHICS

The Board of Trustees of the Fund has adopted a Code of Ethics. In addition,
the Manager, Subadviser and Distributor have each adopted a Code of Ethics (the
"Codes"). The Codes permit personnel subject to the Codes to invest in
securities, including

B-24
<PAGE>

securities that may be purchased or held by the Fund. However, the protective
provisions of the Codes prohibit certain investments and limit such personnel
from making investments during periods when the Fund is making such investments.
The Codes are on public file with, and are available from, the Commission.

(b) PRINCIPAL UNDERWRITER, DISTRIBUTOR AND RULE 12b-1 PLANS

Prudential Investment Management Services LLC (PIMS or the Distributor)
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077, acts
as the distributor of the shares of the Fund. The Distributor is a subsidiary of
Prudential.

Pursuant to separate Distribution and Service Plans (the Class A Plan, the
Class B Plan and the Class C Plan, collectively, the Plans) adopted by the Fund
under Rule 12b-1 under the Investment Company Act and a distribution agreement
(the Distribution Agreement), the Distributor incurs the expenses of
distributing the Fund's Class A, Class B and Class C shares. The Distributor
incurs the expenses of distributing the Fund's Class Z shares under a
Distribution Agreement, none of these expenses of distribution are reimbursed or
paid for by the Fund. See "How the Fund is Managed--Distributor" in the
Prospectus.

The expenses incurred under the Plans include commissions and account
servicing fees paid to or on account of brokers or financial institutions that
have entered into agreements with the Distributor, advertising expenses, the
cost of printing and mailing prospectuses to potential investors and indirect
and overhead costs of the Distributor associated with the sale of Fund shares
including lease, utility, communications and sales promotion expenses.

Under the Plans, the Fund is obligated to pay distribution and/or service
fees to the Distributor as compensation for its distribution and service
activities, not as reimbursement for specific expenses incurred. If the
Distributor's expenses exceed its distribution and service fees, the Fund will
not be obligated to pay any additional expenses. If the Distributor's expenses
are less than such distribution and service fees, it will retain its full fees
and realize a profit.

The distribution and/or service fees may also be used by the Distributor to
compensate on a continuing basis brokers in consideration for the distribution,
marketing, administrative and other services and activities provided by brokers
with respect to the promotion of the sale of the Fund's shares and the
maintenance of related shareholder accounts.

CLASS A PLAN. Under the Class A Plan, the Fund may pay the Distributor for
its distribution-related activities with respect to Class A shares at an annual
rate of up to .30 of 1% of the average daily net assets of the Class A shares of
each Series. The Class A Plan provides that (1) up to .25 of 1% of the average
daily net assets of the Class A shares of each Series may be used to pay for
personal service and/or the maintenance of shareholder accounts (service fee)
and (2) total distribution fees (including the service fee of .25 of 1%) may not
exceed .30 of 1% of each Series. The Distributor has contractually agreed to
limit its distribution-related fees payable under the Class A Plan to .25 of 1%
of the average daily net assets of the Class A shares of the Series for the
fiscal year ending April 30, 2001. Fee waivers will increase the Series' total
return.

For the fiscal year ended April 30, 2000, the Distributor received payments
of $1,267,219 and $609,392 from the Fund on behalf of the High Income Series and
the Insured Series, respectively, under the Class A Plan and spent approximately
$1,251,000 and $613,000 in distributing the High Income Series' and the Insured
Series' Class A shares, respectively. These amounts were primarily expended for
payments of account servicing fees to financial advisers and other persons who
sell Class A shares. For the fiscal year ended April 30, 2000, the Distributor
also received approximately $167,500 and $27,500 from the Fund on behalf of the
High Income Series and the Insured Series, respectively, in initial sales
charges attributable to Class A shares.

CLASS B AND CLASS C PLANS. Under the Class B and Class C Plans, the Fund may
pay the Distributor for its distribution-related activities with respect to
Class B and Class C shares at an annual rate of up to .50 of 1% and up to 1% of
the average daily net asset of the Class B and Class C shares, respectively, of
each Series. The Class B Plan provides for the payment to the Distributor of
(1) an asset-based sales charge of up to .50 of 1% of the average daily net
assets of the Class B shares of each Series, and (2) a service fee of up to .25
of 1% of the average daily net assets of the Class B shares of each Series,
provided that the total distribution-related fee does not exceed .50 of 1% of
each Series. The Class C Plan provides for the payment to the Distributor of (1)
an asset-based sales charge of up to .75 of 1% of the average daily net assets
of the Class C shares of each Series, and (2) a service fee of up to .25 of 1%
of the average daily net assets of the Class C shares of each Series. The
service fee is used to pay for personal service and/or the maintenance of
shareholder accounts. The Distributor also receives contingent deferred sales
charges from certain redeeming shareholders and, with respect to Class C shares,
initial sales charges. The Distributor has contractually agreed to limit its
distribution-related fees payable under the Class C Plan to .75 of 1% of the
average daily net assets of the Series for the fiscal year ending April 30,
2001. Fee waivers will increase the Series' total return.

B-25
<PAGE>

CLASS B PLAN. For the fiscal year ended April 30, 2000, the Distributor
received $2,799,395 and $655,259 from the Fund on behalf of the High Income
Series and the Insured Series, respectively, under the Class B Plan. For the
fiscal year ended April 30, 2000, the Distributor spent approximately the
following amounts on behalf of each Series of the Fund:

<TABLE>
<CAPTION>
APPROXIMATE
PRINTING AND COMPENSATION TO TOTAL
MAILING DISTRIBUTOR FOR AMOUNT
PROSPECTUSES TO COMMISSION COMMISSION SPENT BY
OTHER THAN PAYMENTS TO PAYMENTS TO DISTRIBUTOR
CURRENT FINANCIAL OVERHEAD COSTS REPRESENTATIVES ON BEHALF
SERIES SHAREHOLDERS ADVISERS OF DISTRIBUTOR OF DISTRIBUTOR* AND OTHER EXPENSES* OF SERIES
------------------ ---------------- ------------------------ -------------------- -------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income Series $ 0 (0%) $1,876,661 (54.3%) $1,388,537 (40.1%) $193,839 (5.6%) $3,459,037
Insured Series $ 0 (0%) $ 352,948 (64.0%) $ 79,449 (14.4%) $119,426 (21.6%) $ 551,823
</TABLE>

------------------------
* Including lease, utility and sales promotion expenses.

The Distributor also receives the proceeds of contingent deferred sales
charges paid by shareholders of Class B shares upon certain redemptions of
Class B shares. See "How to Buy, Sell and Exchange Shares of the Fund--How to
Sell Your Shares--Contingent Deferred Sales Charge (CDSC)" in the Prospectus.
For the fiscal year ended April 30, 2000, the Distributor received approximately
$1,214,600 and $182,200 on behalf of the High Income Series and the Insured
Series, respectively, in contingent deferred sales charges attributable to
Class B shares.

CLASS C PLAN. For the fiscal year ended April 30, 2000, the Distributor
received $245,716 and $22,410 from the Fund on behalf of the High Income Series
and the Insured Series, respectively, under the Class C Plan. For the fiscal
year ended April 30, 2000, the Distributor spent approximately the following
amounts on behalf of each Series of the Fund:

<TABLE>
<CAPTION>
APPROXIMATE
PRINTING AND COMPENSATION TO TOTAL
MAILING DISTRIBUTOR FOR AMOUNT
PROSPECTUSES TO COMMISSION COMMISSION SPENT BY
OTHER THAN PAYMENTS TO PAYMENTS TO DISTRIBUTOR
CURRENT FINANCIAL OVERHEAD COSTS REPRESENTATIVES ON BEHALF
SERIES SHAREHOLDERS ADVISERS OF DISTRIBUTOR OF DISTRIBUTOR* AND OTHER EXPENSES* OF SERIES
------------------ ---------------- ------------------------ -------------------- -------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Income Series $ 0 (0%) $ 183,538 (75.3%) $ 54,094 (22.2%) $ 6,134 (2.5%) $ 243,766
Insured Series $ 0 (0%) $ 14,377 (88.6%) $ 1,654 (10.2%) $ 197 (1.2%) $ 16,228
</TABLE>

------------------------
* Including lease, utility and sales promotion expenses.

For the fiscal year ended April 30, 2000 the Distributor also received
approximately $99,900 and $2,700 on behalf of the High Income Series and the
Insured Series, respectively, in initial sales charges attributable to Class C
shares.

The Distributor also receives the proceeds of contingent deferred sales
charges paid by shareholders upon certain redemptions of Class C shares. See
"How to Buy, Sell and Exchange Shares of the Fund--How to Sell Your
Shares--Contingent Deferred Sales Charge (CDSC)" in the Prospectus. For the
fiscal year ended April 30, 2000, the Distributor received approximately $39,400
and $2,000 on behalf of the High Income Series and Insured Series, respectively,
in contingent deferred sales charges attributable to Class C shares.

Distribution expenses attributable to the sale of Class A, Class B and Class
C shares of each Series are allocated to each such class based upon the ratio of
each such class to the sales of Class A, Class B and Class C shares of the
Series other than expenses allocable to a particular class. The distribution fee
and sales charge of one class will not be used to subsidize the sale of another
class.

The Class A, Class B and Class C Plans continue in effect from year to year,
provided that each such continuance is approved at least annually by a vote of
the Board of Trustees, including a majority vote of the Trustees who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the Class A, Class B or Class C Plan or on any agreement related to
the Plans (Rule 12b-1 Trustees) cast in person at a meeting called for the
purpose of voting on such continuance. A Plan may be terminated at any time,
without penalty, by the vote of a majority of the Rule 12b-1 Trustees or by the
vote of the holders of a majority of the outstanding shares of the applicable
class on not more than 30 days' written notice to any other party to the Plan.
The Plans may not be amended to increase materially the amounts to be spent for
the services described therein without approval by the shareholders of the
applicable class (by both Class A and Class B shareholders, voting separately,
in the case of material amendments to the Class A Plan), and all material
amendments are required to be approved by the Board of Trustees in the manner
described above. Each Plan will automatically terminate in the event of its
assignment. The Fund will not be contractually obligated to pay expenses
incurred under any Plan if it is terminated or not continued.

B-26
<PAGE>
Pursuant to each Plan, the Board of Trustees will review at least quarterly
a written report of the distribution expenses incurred on behalf of each class
of shares of the Fund by the Distributor. The report will include an itemization
of the distribution expenses and the purposes of such expenditures. In addition,
as long as the Plans remain in effect, the selection and nomination of the Rule
12b-1 Trustees shall be committed to the Rule 12b-1 Trustees.

Pursuant to the Distribution Agreement, the Fund has agreed to indemnify the
Distributor to the extent permitted by applicable law against certain
liabilities under federal securities law.

In addition to distribution and service fees paid by the Fund under the
Class A, Class B and Class C Plans, the Manager (or one of its affiliates) may
make payments out of its own resources to dealers (including Prudential
Securities) and other persons which distribute shares of the Fund (including
Class Z shares). Such payments may be calculated by reference to the net asset
value of shares sold by such persons or otherwise.

FEE WAIVERS/SUBSIDIES

PIFM may from time to time waive all or a portion of its management fee and
subsidize all or a portion of the operating expenses of the Fund. In addition,
the Distributor has contractually agreed to waive a portion of its distribution
fees for Class A and Class C shares as described above. Fee waivers and
subsidies will increase the Fund's total return.

NASD MAXIMUM SALES CHARGE RULE. Pursuant to rules of the NASD, the
Distributor is required to limit aggregate initial sales charges, deferred sales
charges and asset-based sales charges to 6.25% of total gross sales of each
class of shares. Interest charges on unreimbursed distribution expenses equal to
the prime rate plus one percent per annum may be added to the 6.25% limitation.
Sales from the reinvestment of dividends and distributions are not included in
the calculation of the 6.25% limitation. The annual asset-based sales charge on
shares of a Series may not exceed .75 of 1% per class. The 6.25% limitation
applies to each class of each Series of the Fund rather than on a per
shareholder basis. If aggregate sales charges were to exceed 6.25% of total
gross sales of any class, all sales charges on shares of that class would be
suspended.

State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the Fund's portfolio securities and
cash and, in that capacity, maintains certain financial and accounting books and
records pursuant to an agreement with the Fund. Subcustodians provide custodial
services for the Fund's foreign assets held outside the United States.

Prudential Mutual Fund Services LLC (PMFS), 194 Wood Avenue South, Iselin,
New Jersey 08830, serves as the transfer and dividend disbursing agent of the
Fund. PMFS is a wholly-owned subsidiary of PIFM. PMFS provides customary
transfer agency services to the Fund, including the handling of shareholder
communications, the processing of shareholder transactions, the maintenance of
shareholder account records, the payment of dividends and distributions and
related functions. For these services, PMFS receives an annual fee of $13.00 per
shareholder account, a new account set-up fee of $2.00 for each manually
established shareholder account and a monthly inactive zero balance account fee
of $.20 per shareholder account. PMFS is also reimbursed for its out-of-pocket
expenses, including but not limited to postage, stationery, printing, allocable
communication expenses and other costs.

For the fiscal year ended April 30, 2000, the Fund incurred expenses of
approximately $352,100 and $178,100 for the services of PMFS on behalf of the
High Income Series and the Insured Series, respectively.

PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036, serves as the Fund's independent accountants and in that capacity audits
the Fund's annual financial statements.

BROKERAGE ALLOCATION AND OTHER PRACTICES

The Manager is responsible for decisions to buy and sell securities and
financial futures for each Series of the Fund, the selection of brokers, dealers
and futures commission merchants to effect the transactions and the negotiation
of brokerage commissions, if any. The term "Manager" as used in this section
includes the Subadviser. Purchases and sales of securities on a securities
exchange, which are not expected to be a significant portion of the portfolio
securities of any Series, are effected through brokers who charge a commission
for their services. Orders may be directed to any broker or futures commission
merchant including, to the extent and in the manner permitted by applicable law,
the Distributor and its affiliates. Brokerage commissions on United States
securities, options and futures exchanges or boards of trade are subject to
negotiation between the Manager and the broker or futures commission merchant.

B-27
<PAGE>
In the over-the-counter market, securities are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission, although the price of the security usually includes a profit to the
dealer. In underwritten offerings, securities are purchased at a fixed price
which includes an amount of compensation to the underwriter, generally referred
to as the underwriter's concession or discount. On occasion, certain money
market instruments may be purchased directly from an issuer, in which case no
commissions or discounts are paid. The Fund will not deal with the Distributor
or an affiliate in any transaction in which the Distributor or an affiliate acts
as principal. Thus it will not deal in over-the-counter securities with the
Distributor or an affiliate acting as a market-maker, and it will not execute a
negotiated trade with the Distributor or an affiliate if the execution involves
the Distributor or an affiliate acting as principal with respect to any part of
the Fund's order.

In placing orders for portfolio securities for the Fund, the Manager is
required to give primary consideration to obtaining the best possible
combination of favorable price and efficient execution. Within the framework of
this policy, the Manager will consider the research and investment services
provided by brokers, dealers or futures commission merchants who effect or are
parties to portfolio transactions of the Fund, the Manager or the Manager's
other clients. These research and investment services are those which brokerage
houses customarily provide to institutional investors and include statistical
and economic data and research reports on particular companies and industries.
These services are used by the Manager in connection with all of its investment
activities, and some of these services obtained in connection with the execution
of transactions for the Fund may be used in managing other investment accounts.
Conversely, brokers, dealers or futures commission merchants furnishing these
services may be selected for the execution of transactions of these other
accounts, whose aggregate assets may be far larger than the Fund, and the
services furnished by the brokers, dealers or futures commission merchants may
be used by the Manager in providing investment management for the Fund.
Commission rates are established pursuant to negotiations with the broker,
dealer or futures commission merchant based on the quality and quantity of
execution services provided by the broker in the light of generally prevailing
rates. The policy of the Manager is to pay higher commissions to brokers, other
than the Distributor or an affiliate, for particular transactions than might be
charged if a different broker had been selected, on occasions when, in the
Manager's opinion, this policy furthers the objective of obtaining best price
and execution. In addition, the Manager is authorized to pay higher commissions
on brokerage transactions for the Fund to brokers other than the Distributor or
an affiliate in order to secure research and investment services described
above, subject to review by the Fund's Trustees from time to time as to the
extent and continuation of this practice. The allocation of orders among brokers
and the commission rates paid are reviewed periodically by the Fund's Trustees.
Portfolio securities may not be purchased from any underwriting or selling
syndicate of which the Distributor (or any affiliate), during the existence of
the syndicate, is a principal underwriter (as defined in the Investment Company
Act), except in accordance with rules of the Commission. This limitation, in the
opinion of the Fund, will not significantly affect the Series ability to pursue
their present investment objectives. However, in the future in other
circumstances, the Series may be at a disadvantage because of this limitation in
comparison to other funds with similar objectives but not subject to such
limitations.

Subject to the above considerations, the Distributor or an affiliate may act
as a securities broker or futures commission merchant for the Fund. In order for
the Distributor or an affiliate to effect any portfolio transactions for the
Fund, the commissions, fees or other remuneration received by the Distributor or
an affiliate must not exceed certain rates set forth in the Investment Company
Act and must be reasonable and fair compared to the commissions, fees or other
remuneration paid to other brokers or futures commission merchants in connection
with comparable transactions involving similar securities or futures being
purchased or sold on an exchange during a comparable period of time. This
standard would allow the Distributor or an affiliate to receive no more than the
remuneration which would be expected to be received by an unaffiliated broker or
futures commission merchant in a commensurate arm's-length transaction.
Furthermore, the Trustees of the Fund, including a majority of the
non-interested Trustees, have adopted procedures which are reasonably designed
to provide that any commissions, fees or other remuneration paid to the
Distributor or an affiliate are consistent with the foregoing standard. In
accordance with Section 11(a) of the Securities Exchange Act of 1934, the
Distributor or an affiliate may not retain compensation for effecting
transactions on a national securities exchange for the Fund unless the Fund has
expressly authorized the retention of such compensation. The Distributor and its
affiliates must furnish to the Fund at least annually a statement setting forth
the total amount of all compensation retained by the Distributor and its
affiliates from transactions effected for the Fund during the applicable period.
Brokerage and futures transactions with the Distributor or an affiliate are also
subject to such fiduciary standards as may be imposed upon the Distributor (or
such affiliate) by applicable law.

During the fiscal years ended April 30, 2000, 1999 and 1998, the Fund paid
$59,115, $102,621 and $136,400, respectively, in brokerage commissions on
certain options and/or futures transactions. No such brokerage commissions were
paid to the Distributor or any affiliate thereof.

B-28
<PAGE>

The Fund is required to disclose its holdings of securities of its regular
brokers and dealers (as defined under Rule 10b-1 of the Investment Company Act)
and their parents at April 30, 2000. As of April 30, 2000, the Fund did not hold
any securities of its regular brokers and dealers.

CAPITAL SHARES, OTHER SECURITIES AND ORGANIZATION

The Fund is authorized to issue an unlimited number of shares of beneficial
interest, divided into four classes, designated Class A, Class B, Class C and
Class Z. Each class of beneficial interest with respect to each Series
represents an interest in the same assets of the Series and is identical in all
respects except that (1) each class is subject to different sales charges and
distribution and/or service fees (except for Class Z shares, which are not
subject to any sales charge or distribution and/or service fees), which may
affect performance, (2) each class has exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangement and has
separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other class, (3) each
class has a different exchange privilege, and (4) only Class B shares have a
conversion feature. Class Z shares are offered exclusively for sale to a limited
group of investors. Currently, the Fund is offering Class A, Class B, Class C
and Class Z shares of beneficial interest. In accordance with the Fund's
Declaration of Trust, the Board of Trustees may authorize the creation of
additional series and classes within such series, which such preferences,
privileges, limitations and voting and dividend rights as the Board may
determine.

Shares of the Fund, when issued, are fully paid, nonassessable, fully
transferable and redeemable at the option of the holder. Shares are also
redeemable at the option of the Fund under certain circumstances. Each share of
each class of each Series is equal as to earnings, assets and voting privileges,
except as noted above, and each class (with the exception of Class Z shares,
which are not subject to any distribution and/or service fees) bears the
expenses related to the distribution of its shares. Except for the conversion
feature applicable to the Class B shares, there are no conversion, preemptive or
other subscription rights. In the event of liquidation, each share of beneficial
interest of each Series is entitled to its portion of all of the Series' assets
after all debts and expenses of the Series have been paid. Since Class B and
Class C shares generally bear higher distribution expenses than Class A shares,
the liquidation proceeds to shareholders of those classes are likely to be lower
than to Class A shareholders and to Class Z shareholders, whose shares are not
subject to any distribution and/or service fees. The Fund's shares do not have
cumulative voting rights for the election of Directors.

The Fund does not intend to hold annual meetings of shareholders unless
otherwise required by law. The Fund will not be required to hold meetings of
shareholders unless, for example, the election of Trustees is required to be
acted on by shareholders under the Investment Company Act. Shareholders have
certain rights, including the right to call a meeting upon a vote of 10% or more
of the Fund's outstanding shares for the purpose of voting on the removal of one
or more Trustees or to transact any other business.

PURCHASE, REDEMPTION AND PRICING OF FUND SHARES

Shares of each Series of the Fund may be purchased at a price equal to the
next determined net asset value per share (NAV) plus a sales charge which, at
the election of the investor, may be imposed either (1) at the time of purchase
(Class A or Class C shares) or (2) on a deferred basis (Class B or Class C
shares). Class Z shares of the Fund are offered to a limited group of investors
at NAV without any sales charges. See "How to Buy, Sell and Exchange Shares of
the Fund--How to Buy Shares" in the Prospectus.

PURCHASE BY WIRE. For an initial purchase of shares of the Fund by wire, you
must complete an application and telephone PMFS at (800) 225-1852 (toll-free) to
receive an account number. The following information will be requested: your
name, address, tax identification number, fund, series, and class election,
dividend distribution election, amount being wired and wiring bank. Instructions
should then be given by you to your bank to transfer funds by wire to State
Street Bank and Trust Company (State Street), Boston, Massachusetts, Custody and
Shareholder Services Division. Attention: Prudential Municipal Bond Fund,
specifying on the wire the account number assigned by PMFS and your name and
identifying the Series (Insured or High Income) and the class in which you are
investing (Class A, Class B, Class C or Class Z shares).

If you arrange for receipt by State Street of federal funds prior to the
calculation of NAV (4:15 p.m., New York time) on a business day, you may
purchase shares of the Fund as of that day.

In making a subsequent purchase by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential Municipal Bond
Fund, the Series (Insured or High Income) and Class A, Class B, Class C or
Class Z shares and your name and individual account number. It is not necessary
to call PMFS to make subsequent purchase orders using federal funds. The minimum
amount which may be invested by wire is $1,000.

B-29
<PAGE>
ISSUANCE OF FUND SHARES FOR SECURITIES

Transactions involving the issuance of Fund shares for securities (rather
than cash) will be limited to (1) reorganizations, (2) statutory mergers, or
(3) other acquisitions of portfolio securities that: (a) meet the investment
objectives and policies of the Fund, (b) are liquid and not subject to
restrictions on resale, (c) have a value that is readily ascertainable via
listing on or trading in a recognized United States or international exchange or
market, and (d) are approved by the Fund's investment adviser.

SPECIMEN PRICE MAKE-UP

Under the current distribution arrangements between the Fund and the
Distributor, Class A shares are sold at a maximum sales charge of 3%, Class C*
shares are sold with a 1% sales charge, and Class B* and Class Z shares are sold
at NAV. Using the Fund's NAV at April 30, 2000, the maximum offering prices of
the Fund's shares are as follows:

<TABLE>
<CAPTION>
HIGH INCOME INSURED
SERIES SERIES
CLASS A ----------- --------
<S> <C> <C>
Net asset value and redemption price per Class A share...... $10.22 $10.40
Maximum sales charge (3% of offering price)................. .32 .32
------ ------
Offering price to public.................................... $10.54 $10.72
====== ======

CLASS B
Net asset value, redemption price and offering price to
public per Class B share*................................. $10.22 $10.41
====== ======

CLASS C
Net asset value and redemption price per Class C share*..... $10.22 $10.41
Sales charge (1% of offering price)......................... .10 .11
------ ------
Offering price to public.................................... $10.32 $10.52
====== ======

CLASS Z
Net asset value, offering price and redemption price per
Class Z share............................................. $10.21 $10.40
====== ======
</TABLE>

------------------------

* Class B and Class C shares are subject to a contingent deferred sales charge
on certain redemptions. See "How to Buy, Sell and Exchange Shares of the
Fund--How to Sell Your Shares--Contingent Deferred Sales Charge (CDSC)" in
the Prospectus.

SELECTING A PURCHASE ALTERNATIVE

The following is provided to assist you in determining which method of
purchase best suits your individual circumstances and is based on current fees
and expenses being charged to the Fund:

If you intend to hold your investment in a Fund for less than 3 years and do
not qualify for a reduced sales charge on Class A shares, since Class A shares
are subject to a maximum initial sales charge of 3% and Class B shares are
subject to a CDSC of 5% which declines to zero over 6 year period, you should
consider purchasing Class C shares over either Class A or Class B shares.

If you intend to hold your investment for more than 3 years, but more than 4
years, or for more than 5 years, but less than 6 years, you should consider
purchasing Class A shares because that maximum 3% initial sales charge plus the
cumulative annual distribution-related fee on Class A shares would be lower
than: (i) the contingent deferred sales charge plus the cumulative annual
distribution-related fee on Class B shares; and (ii) the 1% initial sales charge
plus the cumulative annual distribution-related fee on Class C shares.

If you intend to hold your investment for more than 4 years, but less than 5
years, you may consider purchasing Class A or Class B shares because: (i) the
maximum 3% initial sales charge plus the cumulative annual distribution-related
fee on Class A shares and (ii) the contingent deferred sales charge plus the
cumulative annual distribution-related fee on Class B shares would be lower than
the 1% initial sales charge plus the cumulative annual distribution-related fee
on Class C shares.

If you intend to hold your investment for more than 6 years and do not
qualify for a reduced sales charge on Class A shares, since Class shares convert
to Class A shares approximately 7 years after purchase and because all of your
money would be invested initially in the case of Class B shares, you should
consider purchasing Class B shares over either Class A or Class C shares.

B-30
<PAGE>
If you qualify for a reduced sales charge on Class A shares, it may be more
advantageous for you to purchase class A shares over either Class B or Class C
shares regardless of how long you intend to hold your investment. However,
unlike Class B shares, you would not have all of your money invested initially
because the sales charge on Class A shares is deducted at the time of purchase.

If you do not qualify for a reduced sales charge on Class A shares and your
purchase Class C shares, your would have to hold your investment for more than 3
years for the 1% initial sales charge plus the higher cumulative annual
distribution-related fee on the Class C shares to exceed the initial sales
charge plus cumulative annual distribution-related fee on Class A shares. This
does not take into account the time value of money, which further reduces the
impact of the higher Class C distribution-related fee on the investment
fluctuations in NAV, the effect on the return on the investment over this period
of time or redemptions when the CDSC is applicable.

REDUCTION AND WAIVER OF INITIAL SALES CHARGE--CLASS A SHARES

Class A shares may be purchased at NAV, through the Distributor or the
Transfer Agent by:

- officers of the Prudential mutual funds (including the Fund)

- employees of the Distributor, Prudential Securities, PIFM and their
subsidiaries and members of the families of such persons who maintain an
"employee related" account at Prudential Securities or the Transfer Agent

- employees of subadvisers of the Prudential mutual funds provided that
purchases at NAV are permitted by such person's employer

- members of the Board of Directors of Prudential

- real estate brokers, agents and employees of real estate brokerage
companies affiliated with The Prudential Real Estate Affilliates who
maintain an account at Prudential Securities, Prusec or with the Transfer
Agent

- Prudential, employees and special agents of Prudential and its
subsidiaries and all persons who have retired directly from active service
with Prudential or one of its subsidiaries

- registered representatives and employees of brokers who have entered into
a selected dealer agreement with the Distributor provided that purchases
at NAV are permitted by such person's employer

- investors who have a business relationship with a financial adviser who
joined Prudential Securities from another investment firm, provided that
(1) the purchase is made within 180 days of the commencement of the
financial adviser's employment at Prudential Securities (2) the purchase
is made with proceeds of a redemption of shares of any open-end non-money
market fund sponsored by the financial adviser's previous employer (other
than a fund which imposes a distribution or service fee of .25 of 1% or
less) and (3) the financial adviser served as the client's broker on the
previous purchase

- orders placed by broker-dealers, investment advisers or financial planners
who have entered into an agreement with the Distributor, who place trades
for their own accounts or the accounts of their clients and who charge a
management, consulting or other fee for the services (for example, mutual
fund "wrap" or asset allocation programs)

- orders placed by clients of broker-dealers, investment advisers or
financial planners who place trades for customer accounts if the accounts
are linked to the master account of such broker-dealer, investment adviser
or financial planner and the broker-dealer, investment adviser or
financial planner charges its clients a separate fee for its services (for
example, mutual fund "supermarket programs").

Broker-dealers, investment advisers or financial planners sponsoring
fee-based programs (such as mutual fund "wrap" or asset allocation programs and
mutual fund "supermarket" programs) may offer their clients more than one class
of shares in the Fund in connection with different pricing options for their
programs. Investors should consider carefully any separate transaction and other
fees charged by these programs in connection with investing in each available
share class before selecting a share class.

For an investor to obtain any reduction or waiver of the initial sales
charges, at the time of the sale either the Transfer Agent must be notified
directly by the investor or the Distributor must be notified by the broker
facilitating the transaction that the sale qualifies for the reduced or waived
sales charge. The reduction or waiver will be granted subject to confirmation of
your entitlement. No initial sales charge is imposed upon Class A shares
acquired upon the reinvestment of dividends and distributions.

B-31
<PAGE>

REDUCTION AND WAIVER OF INITIAL SALES CHARGE--CLASS A SHARES

COMBINED PURCHASE AND CUMULATIVE PURCHASE PRIVILEGE. If an investor or
eligible group of related investors purchases Class A shares of the Fund
concurrently with Class A shares of other series of the Fund or other Prudential
mutual funds, the purchases may be combined to take advantage of the reduced
sales charges applicable to larger purchases. See "How to Buy, Sell and Exchange
Shares of the Fund--How to Buy Shares--Step 2: Choose a Share Class--Reducing or
Waiving Class A's Initial Sales Charge" in the Prospectus.

An eligible group of related Fund investors includes any combination of the
following:

- an individual

- the individual's spouse, their children and their parents

- the individual's and spouse's Individual Retirement Account (IRA)

- any company controlled by the individual (a person, entity or group that
holds 25% or more of the outstanding voting securities of a corporation
will be deemed to control the corporation, and a partnership will be
deemed to be controlled by each of its general partners)

- a trust created by the individual, the beneficiaries of which are the
individual, his or her spouse, parents or children

- a Uniform Gifts to Minors Act/Uniform Transfers to Minors Act account
created by the individual or the individual's spouse

- one or more employee benefit plans of a company controlled by an
individual.

In addition, an eligible group of related Fund investors may include an
employer (or group of related employers) and one or more retirement or group
plans of such employer or employers (an employer controlling, controlled by or
under common control with another employer is deemed related to that employer).

The Transfer Agent, the Distributor or your broker must be notified at the
time of purchase that the investor is entitled to a reduced sales charge. The
reduced sales charges will be granted subject to confirmation of the investor's
holdings. The Combined Purchase and Cumulative Purchase Privilege does not apply
to individual participants in any retirement or group plans.

LETTERS OF INTENT. Reduced sales charges are also available to investors (or
an eligible group of related investors) who enter into a written Letter of
Intent providing for the investment, within a thirteen-month period, of a
specific dollar amount in the Fund and other Prudential mutual funds (Letter of
Intent).

For purposes of the Letter of Intent, the value of all shares of the Fund
and shares of other Prudential mutual funds (excluding money market funds other
than those acquired pursuant to the exchange privilege) which were previously
purchased and are still owned are also included in determining the applicable
reduction. However, the value of shares held directly with the Transfer Agent or
its affiliates, and through your broker, will not be aggregated to determine the
reduced sales charge.

A Letter of Intent permits an investor to establish a total investment goal
to be achieved by any number of investments over a thirteen-month period. Each
investment made during the period will receive the reduced sales charge
applicable to the amount represented by the goal as if it were a single
investment. Escrowed Class A shares totaling 5% of the dollar amount of the
Letter of Intent will be held by the Transfer Agent in the name of the investor.
The effective date of a Letter of Intent may be back-dated up to 90 days, in
order that any investments made during this 90-day period, valued at the
investor's cost, can be applied to the fulfillment of the Letter of Intent goal.

The Letter of Intent does not obligate the investor to purchase, nor the
Fund to sell, the indicated amount. In the event the Letter of Intent goal is
not satisfied within the thirteen-month period, the investor is required to pay
the difference between the sales charges otherwise applicable to the purchases
made during this period and the sales charges actually paid. Such payment may be
made directly to the Distributor or, if not paid, the Distributor will liquidate
sufficient escrowed shares to obtain such difference. Investors electing to
purchase Class A shares of the Fund pursuant to a Letter of Intent should
carefully read such Letter of Intent.

The Distributor must be notified at the time of purchase that the investor
is entitled to a reduced sales charge. The reduced sales charge will be granted
subject to confirmation of the investor's holdings.

B-32
<PAGE>
CLASS B SHARES

The offering price of Class B shares for investors choosing one of the
deferred sales charge alternatives is the NAV next determined following receipt
of an order in proper form by the Transfer Agent, your broker or the
Distributor. Redemptions of Class B shares may be subject to a CDSC. See
"Contingent Deferred Sales Charge" below.

The Distributor will pay, from its own resources, sales commissions of up to
4% of the purchase price of Class B shares to brokers, financial advisers and
other persons who sell Class B shares at the time of sale. This facilitates the
ability of the Fund to sell the Class B shares without an initial sales charge
being deducted at the time of purchase. The Distributor anticipates that it will
recoup its advancement of sales commissions from the combination of the CDSC and
the distribution fee.

CLASS C SHARES

The offering price of Class C shares is the next determined NAV plus a 1%
sales charge. In connection with the sale of Class C shares, the Distributor
will pay, from its own resources, brokers, financial advisers and other persons
which distribute Class C shares a sales commission of up to 2% of the purchase
price at the time of the sale.

WAIVER OF INITIAL SALES CHARGE--CLASS C SHARES

INVESTMENT OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT COMPANIES. Investors
may purchase Class C shares at NAV, without the initial sales charge, with the
proceeds from the redemption of shares of any unaffiliated registered investment
company which were not held through an account with any Prudential affiliate.
Such purchases must be made within 60 days of the redemption. Investors eligible
for this waiver include: (1) investors purchasing shares through an account at
Prudential Securities; (2) investors purchasing shares through an ADVANTAGE
Account or an Investor Account with Prusec; and (3) investors purchasing shares
through other brokers. This waiver is not available to investors who purchase
shares directly from the Transfer Agent. You must notify your broker if you are
entitled to this waiver and provide it with such supporting documents as it may
deem appropriate.

CLASS Z SHARES

MUTUAL FUND PROGRAMS. Class Z shares also can be purchased by participants
in any fee-based program or trust program sponsored by Prudential or an
affiliate that includes mutual funds as investment options and the Fund as an
available option. Class Z shares also can be purchased by investors in certain
programs sponsored by broker-dealers, investment advisers and financial planners
who have agreements with Prudential Investments Advisory Group relating to:

- Mutual fund "wrap" or asset allocation programs, where the sponsor places
Fund trades, links its clients' accounts to a master account in the
sponsor's name and charges its clients a management, consulting or other
fee for its services

- Mutual fund "supermarket" programs, where the sponsor links its clients'
accounts to a master account in the sponsor's name and the sponsor charges
a fee for its services.

OTHER TYPES OF INVESTORS. Class Z shares currently also are available for
purchase by the following categories of investors:

- Certain participants in the MEDLEY Program (group variable annuity
contracts) sponsored by Prudential for whom Class Z shares of the
Prudential mutual funds are an available investment option

- Current and former Directors/Trustees of the Prudential mutual funds
(including the Fund)

- Prudential, with an investment of $10 million or more.

In connection with the sale of Class Z shares,the Manager, the Distributor
or one of their affiliates may pay dealers, financial advisers and other persons
which distribute shares a finders' fee from its own resources based on a
percentage of the net asset value of shares sold by such persons.

RIGHTS OF ACCUMULATION. Reduced sales charges are also available through
Rights of Accumulation, under which an investor or an eligible group of related
investors, as described above under "Combined Purchase and Cumulative Purchase
Privilege," may aggregate the value of their existing holdings of shares of the
Fund and shares of other Prudential mutual funds (excluding money

B-33
<PAGE>

market funds other than those acquired pursuant to the exchange privilege) to
determine the reduced sales charge. Rights of Accumulation may be applied across
the classes of the Prudential mutual funds. However, the value of shares held
directly with the Transfer Agent and through the Distributor or a dealer will
not be aggregated to determine the reduced sales charge. The value of existing
holdings for purposes of determining the reduced sales charge is calculated
using the maximum offering price (net asset value plus maximum sales charge) as
of the previous business day. See "Risk/Return Summary--Evaluating Performance"
in the Prospectus.

The Distributor or the Transfer Agent must be notified at the time of
purchase that the shareholder is entitled to a reduced sales charge. The reduced
sales charge will be granted subject to confirmation of the investors' holdings.
Rights of Accumulation are not available to individual participants in any
retirement or group plans.

SALE OF SHARES

You can redeem your shares at any time for cash at the NAV next determined
after the redemption request is received in proper form (in accordance with
procedures established by the Transfer Agent in connection with investors'
accounts) by the Transfer Agent, the Distributor or your broker. In certain
cases, however, redemption proceeds will be reduced by the amount of any
applicable CDSC, as described below. See "Contingent Deferred Sales Charge"
below. If you are redeeming your shares through a broker, your broker must
receive your sell order before the Fund computes its NAV for the day (that is,
4:15 p.m., New York time) in order to receive that day's NAV. Your broker will
be responsible for furnishing all necessary documentation to the Distributor and
may charge you for its services in connection with redeeming shares of the Fund.

If you hold shares of the Fund through Prudential Securities, you must
redeem your shares through Prudential Securities. Please contact your Prudential
Securities financial adviser.

In order to redeem shares, a written request for redemption signed by you
exactly as the account is registered is required. If you hold certificates, the
certificates must be received by the Transfer Agent, the Distributor or your
broker in order for the redemption request to be processed. If redemption is
requested by a corporation, partnership, trust or fiduciary, written evidence of
authority acceptable to the Transfer Agent must be submitted before such request
will be accepted. All correspondence and documents concerning redemptions should
be sent to the Fund in care of its Transfer Agent, Prudential Mutual Fund
Services LLC, Attention: Redemption Services, P.O. Box 8149, Philadelphia, PA
19101, to the Distributor, or to your broker.

SIGNATURE GUARANTEE. If the proceeds of the redemption (1) exceed $100,000,
(2) are to be paid to a person other than the record owner, (3) are to be sent
to an address other than the address on the Transfer Agent's records, or
(4) are to be paid to a corporation, partnership, trust or fiduciary, the
signature(s) on the redemption request or stock power must be signature
guaranteed by an "eligible guarantor institution." An "eligible guarantor
institution" includes any bank, broker, dealer or credit union. The Transfer
Agent reserves the right to request additional information from, and make
reasonable inquires of, any eligible guarantor institution. In the case of
redemptions from a PruArray Plan, if the proceeds of the redemption are invested
in another investment option of the plan in the name of the record holder and at
the same address as reflected in the Transfer Agent's records, a signature
guarantee is not required.

Payment for shares presented for redemption will be made by check within
seven days after receipt by the Transfer Agent, the Distributor or your broker
of the written request and certificates, if issued, except as indicated below.
If you hold shares through a broker payment for shares presented for redemption
will be credited to your account at your broker, unless you indicate otherwise.
Such payment may be postponed or the right of redemption suspended at times
(1) when the New York Stock Exchange is closed for other than customary weekends
and holidays, (2) when trading on such Exchange is restricted, (3) when an
emergency exists as a result of which disposal by the Fund of securities owned
by it is not reasonably practicable or it is not reasonably practicable for the
Fund fairly to determine the value of its net assets, or (4) during any other
period when the Securities and Exchange Commission (the Commission), by order,
so permits; provided that applicable rules and regulations of the Commission
shall govern as to whether the conditions prescribed in (2), (3) or (4) exist.

Payment for redemption of recently purchased shares will be delayed until
the Fund or its Transfer Agent has been advised that the purchase check has been
honored, which may take up to 10 calendar days from the time of receipt of the
purchase check by the Transfer Agent. Such delay may be avoided by purchasing
shares by wire or by certified or cashier's check.

REDEMPTION IN KIND. If the Board of Trustees determines that it would be
detrimental to the best interests of the remaining shareholders of the Fund to
make payment wholly or partly in cash, the Fund may pay the redemption price in
whole or in part by a distribution in kind of securities from the investment
portfolio of the Fund, in lieu of cash, in conformity with applicable rules of
the Commission. Securities will be readily marketable and will be valued in the
same manner as in a regular redemption. If your shares

B-34
<PAGE>

are redeemed in kind, you would incur transaction costs in converting the assets
into cash. The Fund, however, has elected to be governed by Rule 18f-1 under the
Investment Company Act, under which the Fund is obligated to redeem shares
solely in cash up to the lesser of $250,000 or 1% of the NAV of the Fund during
any 90-day period for any one shareholder.

INVOLUNTARY REDEMPTION. In order to reduce expenses of the Fund, the Board
of Trustees may redeem all of the shares of any shareholder whose account has a
net asset value of less than $500 due to a redemption. The Fund will give such
shareholders 60 days' prior written notice in which to purchase sufficient
additional shares to avoid such redemption. No CDSC will be imposed on any such
involuntary redemption.

90-DAY REPURCHASE PRIVILEGE. If you redeem your shares and have not
previously exercised the repurchase privilege, you may reinvest back into your
account any portion or all of the proceeds of such redemption in shares of the
same Fund at the NAV next determined after the order is received, which must be
within 90 days after the date of the redemption. Any CDSC paid in connection
with such redemption will be credited (in shares) to your account. (If less than
a full repurchase is made, the credit will on a PRO RATA basis). You must notify
the Transfer Agent, either directly or through the Distributor or your broker,
at the time the repurchase privilege is exercised, to adjust your account for
the CDSC you previously paid. Thereafter, any redemptions will be subject to the
CDSC applicable at the time of the redemption. See "Contingent Deferred Sales
Charge" below. Exercise of the repurchase privilege may affect the federal tax
treatment of the redemption.

CONTINGENT DEFERRED SALES CHARGE

Redemptions of Class B shares will be subject to a contingent deferred sales
charge or CDSC declining from 5% to zero over a six-year period. Class C shares
redeemed within 18 months of purchase will be subject to a 1% CDSC. The CDSC
will be deducted from the redemption proceeds and reduce the amount paid to you.
The CDSC will be imposed on any redemption by you which reduces the current
value of your Class B or Class C shares to an amount which is lower than the
amount of all payments by you for shares during the preceding six years, in the
case of Class B shares, and 18 months, in the case of Class C shares. A CDSC
will be applied on the lesser of the original purchase price or the current
value of the shares being redeemed. Increases in the value of your shares or
shares acquired through reinvestment of dividends or distributions are not
subject to a CDSC. The amount of any CDSC will be paid to and retained by the
Distributor.

The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of shares until the time of redemption
of such shares. Solely for purposes of determining the number of years from the
time of any payment for the purchase of shares, all payments during a month will
be aggregated and deemed to have been made on the last day of the month. The
CDSC will be calculated from the first day of the month after the initial
purchase, excluding the time shares were held in a money market fund. See
"Shareholder Investment Account--Exchange Privilege" below.

The following table sets forth the rates of the CDSC applicable to
redemption of Class B shares:

<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE
YEAR SINCE PURCHASE OF DOLLARS INVESTED OR
PAYMENT MADE REDEMPTION PROCEEDS
-------------------------------------------------- -------------------------
<S> <C>
First............................................. 5.0%
Second............................................ 4.0%
Third............................................. 3.0%
Fourth............................................ 2.0%
Fifth............................................. 1.0%
Sixth............................................. 1.0%
Seventh........................................... None
</TABLE>

In determining whether a CDSC is applicable to redemption, the calculation
will be made in a manner that results in the lowest possible rate. It will be
assumed that the redemption is made first of amounts representing shares
acquired pursuant to the reinvestment of dividends and distributions; then of
amounts representing the increase in NAV above the total amount of payments for
the purchase of Fund shares made during the preceding six years; then of amounts
representing the cost of shares held beyond the applicable CDSC period; and
finally, of amounts representing the cost of shares held for the longest period
of time within the applicable CDSC period.

For example, assume you purchased 100 Class B shares at $10 per share for a
cost of $1,000. Subsequently, you acquired 5 additional Class B shares through
dividend reinvestment. During the second year after the purchase you decided to
redeem $500 of your investment. Assuming at the time of the redemption the NAV
had appreciated to $12 per share, the value of your Class B

B-35
<PAGE>
shares would be $1,260 (105 shares at $12 per share). The CDSC would not be
applied to the value of the reinvested dividend shares and the amount which
represent appreciation ($260). Therefore, $240 of the $500 redemption proceeds
($500 minus $260) would be charged at a rate of 4% (the applicable rate in the
second year after purchase) for a total CDSC of $9.60.

For federal income tax purposes, the amount of the CDSC will reduce the gain
or increase the loss, as the case may be, on the amount recognized on the
redemption of shares.

WAIVER OF CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES

The CDSC will be waived in the case of a redemption following the death or
disability of a shareholder or, in the case of a trust account, following the
death or disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person, either individually or in joint
tenancy, at the time of death or initial determination of disability, provided
that the shares were purchased prior to death or disability.

In addition, the CDSC will be waived on redemptions of shares held by
Trustees of the Fund.

You must notify the Fund's Transfer Agent either directly or through your
broker, at the time of redemption, that you are entitled to waiver of the CDSC
and provide the Transfer Agent with such supporting documentation as it may deem
appropriate. The waiver will be granted subject to confirmation of your
entitlement.

In connection with these waivers, the Transfer Agent will require you to
submit the supporting documentation set forth below.

<TABLE>
<CAPTION>
CATEGORY OF WAIVER REQUIRED DOCUMENTATION
<S> <C>
Death A copy of the shareholder's death certificate
or, in the case of a trust, a copy of the
grantor's death certificate, plus a copy of
the trust agreement identifying the grantor.

Disability - An individual will be considered A copy of the Social Security Administration
disabled if he or she is unable to engage in award letter or a letter from a physician on
any substantial gainful activity by reason of the physician's letterhead stating that the
any medically determinable physical or mental shareholder (or, in the case of a trust, the
impairment which can be expected to result in grantor (a copy of the trust agreement
death or to be of long-continued and identifying the grantor will be required as
indefinite duration. well)) is permanently disabled. The letter
must also indicate the date of disability.

The Transfer Agent reserves the right to request such additional documents as it may deem
appropriate.
</TABLE>

SYSTEMATIC WITHDRAWAL PLAN

The CDSC will be waived (or reduced) on certain redemptions effected through
the Systematic Withdrawal Plan. On an annual basis, up to 12% of the total
dollar amount subject to the CDSC may be redeemed without charge. The Transfer
Agent will calculate the total amount available for this waiver annually on the
anniversary date of your purchase or, for shares purchased prior to March 1,
1998, on March 1 of the current year. The CDSC will be waived (or reduced) on
redemptions until this threshold 12% is reached.

QUANTITY DISCOUNT--CLASS B SHARES PURCHASED PRIOR TO AUGUST 1, 1994

The CDSC is reduced on redemptions of Class B shares of the Fund purchased
prior to August 1, 1994 if immediately after a purchase of such shares, the
aggregate cost of all Class B shares of a Series of the Fund owned by you in a
single account exceeded $500,000. For example, if you purchased $100,000 of
Class B shares of the Fund and the following year purchased an additional
$450,000 of Class B shares with the result that the aggregate cost of your
Class B shares of the Fund following the second purchase was $550,000, the
quantity discount would be available for the second purchase of $450,000 but not
for the first purchase of $100,000. The quantity discount will be imposed at the
following rates depending on whether the aggregate value exceeded $500,000 or
$1 million:

<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE AS A
PERCENTAGE OF DOLLARS INVESTED OR
REDEMPTION PROCEEDS
---------------------------------------
YEAR SINCE PURCHASE PAYMENT MADE $500,001 TO $1 MILLION OVER $1 MILLION
-------------------------------- ---------------------- ---------------
<S> <C> <C>
First........................................ 3.0 % 2.0%
Second....................................... 2.0 % 1.0%
Third........................................ 1.0 % 0 %
Fourth and thereafter........................ 0 % 0 %
</TABLE>

B-36
<PAGE>
You must notify the Fund's Transfer Agent either directly or through the
Distributor, Prudential Securities, Prusec, or your Dealer, at the time of
redemption, that you are entitled to the reduced CDSC. The reduced CDSC will be
granted subject to confirmation of your holdings.

CONVERSION FEATURE--CLASS B SHARES

Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. Conversions will be effected at
relative net asset value without the imposition of any additional sales charge.

Since the Fund tracks amounts paid rather than the number of shares bought
on each purchase of Class B shares, the number of Class B shares eligible to
convert to Class A shares (excluding shares acquired through the automatic
reinvestment of dividends and other distributions) (the Eligible Shares) will be
determined on each conversion date in accordance with the following formula: (1)
the ratio of (a) the amounts paid for Class B shares purchased at least seven
years prior to the conversion date to (b) the total amount paid for all Class B
shares purchased and then held in your account (2) multiplied by the total
number of Class B shares purchased and then held in your account. Each time any
Eligible Shares in your account convert to Class A shares, all shares or amounts
representing Class B shares then in your account that were acquired through the
automatic reinvestment of dividends and other distributions will convert to
Class A shares.

For purposes of determining the number of Eligible Shares, if the Class B
shares in your account on any conversion date are the result of multiple
purchases at different net asset values per share, the number of Eligible Shares
calculated as described above will generally be either more or less than the
number of shares actually purchased approximately seven years before such
conversion date. For example, if 100 shares were initially purchased at $10 per
share (for a total of $1,000) and a second purchase of 100 shares was
subsequently made at $11 per share (for a total of $1,100), 95.24 shares would
convert approximately seven years from the initial purchase (that is, $1,000
divided by $2,100 (47.62%), multiplied by 200 shares equals 95.24 shares). The
Manager reserves the right to modify the formula for determining the number of
Eligible Shares in the future as it deems appropriate on notice to shareholders.

Since annual distribution-related fees are lower for Class A shares than
Class B shares, the per share NAV of the Class A shares may be higher than that
of the Class B shares at the time of conversion. Thus, although the aggregate
dollar value will be the same, you may receive fewer Class A shares than Class B
shares converted.

For purposes of calculating the applicable holding period for conversions,
all payments for Class B shares during a month will be deemed to have been made
on the last day of the month, or for Class B shares acquired through exchange,
or a series of exchanges, on the last day of the month in which the original
payment for purchases of such Class B shares was made. For Class B shares
previously exchanged for shares of a money market fund, the time period during
which such shares were held in the money market fund will be excluded. For
example, Class B shares held in a money market fund for one year would not
convert to Class A shares until approximately eight years from purchase. For
purposes of measuring the time period during which shares are held in a money
market fund, exchanges will be deemed to have been made on the last day of the
month. Class B shares acquired through exchange will convert to Class A shares
after expiration of the conversion period applicable to the original purchase of
such shares.

The conversion feature may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service (1) that the
dividends and other distributions paid on Class A, Class B, Class C and Class Z
shares will not constitute "preferential dividends" under the Internal Revenue
Service Code and (2) that the conversion of shares does not constitute a taxable
event. The conversion of Class B shares into Class A shares may be suspended if
such opinions or rulings are no longer available. If conversions are suspended,
Class B shares of the Fund will continue to be subject, possibly indefinitely,
to their higher annual distribution and service fee.

SHAREHOLDER INVESTMENT ACCOUNT

Upon the initial purchase of Fund shares, a Shareholder Investment Account
is established for each investor under which the shares are held for the
investor by the Transfer Agent. If a share certificate is desired, it must be
requested in writing for each transaction. Certificates are issued only for full
shares and may be redeposited in the Account at any time. There is no charge to
the investor for issuance of a certificate. The Fund makes available to its
shareholders the following privileges and plans.

AUTOMATIC REINVESTMENT OF DIVIDENDS AND/OR DISTRIBUTIONS

For the convenience of investors, all dividends and distributions are
automatically reinvested in full and fractional shares of the Fund at net asset
value per share. An investor may direct the Transfer Agent in writing not less
than five full business days prior

B-37
<PAGE>

to the record date to have subsequent dividends and/or distributions sent in
cash rather than reinvested. In the case of recently purchased shares for which
registration instructions have not been received by the record date, cash
payment will be made directly to the broker. Any shareholder who receives
dividends or distributions in cash may subsequently reinvest any such dividend
or distribution at NAV by returning the check to the Transfer Agent within 30
days after the payment date. Such reinvestment will be made at the NAV per share
next determined after receipt of the check by the Transfer Agent. Shares
purchased with reinvested dividends and/or distributions will not be subject to
CDSC upon redemption.

EXCHANGE PRIVILEGE

The Fund makes available to its shareholders the privilege of exchanging
their shares of the Fund for shares of certain other Prudential mutual funds,
including one or more specified money market funds, subject in each case to the
minimum investment requirements of such funds. Shares of such other Prudential
mutual funds may also be exchanged for shares of the Fund. All exchanges are
made on the basis of the relative NAV next determined after receipt of an order
in proper form. An exchange will be treated as a redemption and purchase for tax
purposes. Shares may be exchanged for shares of another fund only if shares of
such fund may legally be sold under applicable state laws.

It is contemplated that the Exchange Privilege may be applicable to new
mutual funds whose shares may be distributed by the Distributor.

In order to exchange shares by telephone, you must authorize telephone
exchanges on your initial application form or by written notice to the Transfer
Agent and hold shares in non-certificate form. Thereafter, you may call the Fund
at (800) 225-1852 to execute a telephone exchange of shares, on weekdays, except
holidays, between the hours of 8:00 a.m. and 8:00 p.m., New York time. For your
protection and to prevent fraudulent exchanges, your telephone call will be
recorded and you will be asked to provide your personal identification number. A
written confirmation of the exchange transaction will be sent to you. Neither
the Fund nor its agents will be liable for any loss, liability or cost which
results from acting upon instructions reasonably believed to be genuine under
the foregoing procedures. All exchanges will be made on the basis of the
relative NAV of the two funds next determined after the request is received in
good order.

If you hold shares through Prudential Securities, you must exchange your
shares by contacting your Prudential Securities financial adviser.

If you hold certificates, the certificates must be returned in order for the
shares to be exchanged.

You may also exchange shares by mail by writing to Prudential Mutual Fund
Services LLC, Attention: Exchange Processing, P.O. Box 8157, Philadelphia, PA
19101.

In periods of severe market or economic conditions the telephone exchange of
shares may be difficult to implement and you should make exchanges by mail by
writing to Prudential Mutual Fund Services LLC, at the address noted above.

CLASS A. Shareholders of the Fund may exchange their Class A shares for
Class A shares of certain other Prudential mutual funds, shares of Prudential
Government Securities Trust (Short-Intermediate Term Series) and shares of the
money market funds specified below. No fee or sales load will be imposed upon
the exchange. Shareholders of money market funds who acquired such shares upon
exchange of Class A shares may use the exchange privilege only to acquire
Class A shares of the Prudential mutual funds participating in the exchange
privilege.

The following money market funds participate in the Class A exchange
privilege:

Prudential California Municipal Fund
(California Money Market Series)
Prudential Government Securities Trust
(Money Market Series)
(U.S. Treasury Money Market Series)
Prudential Municipal Series Fund
(Connecticut Money Market Series)
(Massachusetts Money Market Series)
(New Jersey Money Market Series)
(New York Money Market Series)
Prudential MoneyMart Assets, Inc.
Prudential Tax-Free Money Fund, Inc.

B-38
<PAGE>

CLASS B AND CLASS C. Shareholders of the Fund may exchange their Class B and
Class C shares of the Fund for Class B and Class C shares, respectively, of
certain other Prudential mutual funds and shares of Prudential Special Money
Market Fund, Inc., a money market mutual fund. No CDSC will be payable upon such
exchange, but a CDSC may be payable upon the redemption of the Class B and
Class C shares acquired as a result of the exchange. The applicable sales charge
will be that imposed by the fund in which shares were initially purchased and
the purchase date will be deemed to be the first day of the month after the
initial purchase, rather than the date of the exchange.

Class B and Class C shares of the Fund may also be exchanged for shares of
an eligible money market fund without imposition of any CDSC at the time of
exchange. Upon subsequent redemption from such money market fund or after
re-exchange into the Fund, such shares will be subject to the CDSC calculated by
excluding the time such shares were held in the money market fund. In order to
minimize the period of time in which shares are subject to a CDSC, shares
exchanged out of the money market fund will be exchanged on the basis of their
remaining holding periods, with the longest remaining holding periods being
exchanged first. In measuring the time period shares are held in a money market
fund and "tolled" for purposes of calculating the CDSC holding period, exchanges
are deemed to have been made on the last day of the month. Thus, if shares are
exchanged into the Fund from a money market fund during the month (and are held
in the Fund at the end of the month), the entire month will be included in the
CDSC holding period. Conversely, if shares are exchanged into a money market
fund prior to the last day of the month (and are held in the money market fund
on the last day of the month), the entire month will be excluded from the CDSC
holding period. For purposes of calculating the seven year holding period
applicable to the Class B conversion feature, the time period during which
Class B shares were held in a money market fund will be excluded.

At any time after acquiring shares of other funds participating in the
Class B or Class C Exchange Privilege, a shareholder may again exchange those
shares (and any reinvested dividends and distributions) for Class B or Class C
shares of the Fund, respectively, without subjecting such shares to any CDSC.
Shares of any fund participating in the Class B or Class C exchange privilege
that were acquired through reinvestment of dividends or distributions may be
exchanged for Class B or Class C shares, respectively, of other funds without
being subject to any CDSC.

CLASS Z. Class Z shares may be exchanged for Class Z shares of other
Prudential mutual funds.

SPECIAL EXCHANGE PRIVILEGES. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV and for shareholders
who qualify to purchase Class Z shares. Under this exchange privilege, amounts
representing any Class B and Class C shares which are not subject to a CDSC held
in such a shareholder's account will be automatically exchanged for Class A
shares for shareholders who qualify to purchase Class A shares at NAV on a
quarterly basis, unless the shareholder elects otherwise. Similarly,
shareholders who qualify to purchase Class Z shares will will have their
Class B and Class C shares which are not subject to a CDSC and their Class A
shares exchanged for Class Z shares on a quarterly basis. Eligibility for this
exchange privilege will be calculated on the business day prior to the date of
the exchange. Amounts representing Class B and Class C shares which are not
subject to a CDSC include the following: (1) amounts representing Class B or
Class C shares acquired pursuant to the automatic reinvestment of dividends and
distributions, (2) amounts representing the increase in the net asset value
above the total amount of payments for the purchase of Class B or Class C shares
and (3) amounts representing Class B and Class C shares held beyond the
applicable CDSC period. Class B and Class C shareholders must notify the
Transfer Agent either directly or through Prudential Securities, Prusec or
another broker that they are eligible for this special exchange privilege.

Participants in any fee-based program for which a Series is an available
option will have their Class A shares, if any, exchanged for Class Z shares when
they elect to have those assets become a part of the fee-based program. Upon
leaving the program (whether voluntarily or not), such Class Z shares (and, to
the extent provided for in the program, Class Z shares acquired through
participation in the program) will be exchanged for Class A shares at net asset
value.

Additional details about the exchange privilege and prospectuses for each of
the Prudential mutual funds are available from the Fund's Transfer Agent, the
Distributor or your broker. The exchange privilege may be modified, terminated
or suspended on sixty days' notice and any fund, including the Fund, or the
Distributor, has the right to reject any exchange application relating to such
fund's shares. See "How to Buy, Sell and Exchange Shares of the Fund--Frequent
Trading" in the Prospectus.

DOLLAR COST AVERAGING

Dollar cost averaging is a method of accumulating shares by investing a
fixed amount of dollars in shares at set intervals. An investor buys more shares
when the price is low and fewer shares when the price is high. The average cost
per share is lower than it would be if a constant number of shares were bought
at set intervals.

B-39
<PAGE>
Dollar cost averaging may be used, for example, to plan for retirement, to
save for a major expenditure, such as the purchase of a home, or to finance a
college education. The cost of a year's education at a four-year college
averages around $14,000 at a private college and around $6,000 at a public
university. Assuming these costs increase at a rate of 7% a year, as has been
projected, for the freshman class beginning in 2011, the cost of four years at a
private college could reach $210,000 and over $90,000 at a public university.(1)

The following chart shows how much you would need in monthly investments to
achieve specified lump sums to finance your investment goals.(2)

<TABLE>
<CAPTION>
PERIOD OF
MONTHLY INVESTMENTS: $100,000 $150,000 $200,000 $250,000
-------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
25 years...................... $ 110 $ 165 $ 220 $ 275
20 years...................... 176 264 352 440
15 years...................... 296 444 592 740
10 years...................... 555 833 1,110 1,388
5 years...................... 1,371 2,057 2,742 3,428
See "Automatic Investment Plan (AIP)" below.
</TABLE>

------------------------------
(1)Source information concerning the costs of education at public and
private universities is available from The College Board Annual Survey of
Colleges, 1993. Average costs for private institutions include tuition, fees and
room and board for the 1993-1994 academic year.
(2)The chart assumes an effective rate of return of 8% (assuming monthly
compounding). This example is for illustrative purposes only and is not intended
to reflect the performance of an investment in shares of the Fund. The
investment return and principal value of an investment will fluctuate so that an
investor's shares when redeemed may be worth more or less than their original
cost.

AUTOMATIC INVESTMENT PLAN (AIP)

Under AIP, an investor may arrange to have a fixed amount automatically
invested in shares of a Series of the Fund by authorizing his or her bank
account or Prudential Securities account (including a Command Account) to be
debited to invest specified dollar amounts for subsequent investment into the
Fund. The investor's bank must be a member of the Automatic Clearing House
System.

Further information about this program and an application form can be
obtained from the Transfer Agent, the Distributor or your broker.

SYSTEMATIC WITHDRAWAL PLAN

A systematic withdrawal plan is available to shareholders through Prudential
Securities or the Transfer Agent. Such withdrawal plan provides for monthly,
quarterly, semi-annual or annual redemption checks in any amount, except as
provided below, up to the value of the shares in the shareholder's account.
Systematic withdrawals of Class B or Class C shares may be subject to a CDSC.
See "How to Buy, Sell and Exchange Shares of the Fund--How to Sell Your
Shares--Contingent Deferred Sales Charge (CDSC)" in the Prospectus.

In the case of shares held through the Transfer Agent (1) a $10,000 minimum
account value applies, (2) systematic withdrawals may not be for less than $100
and (3) all dividends and/or distributions must be automatically reinvested in
additional full and fractional shares of the Fund in order for the shareholder
to participate in the plan. See "Automatic Reinvestment of Dividends and/or
Distributions" above.

The Distributor, the Transfer Agent or your broker acts as an agent for the
shareholder in redeeming sufficient full and fractional shares to provide the
amount of the systematic withdrawal payment. The systematic withdrawal plan may
be terminated at any time, and the Distributor reserves the right to initiate a
fee of up to $5 per withdrawal, upon 30 days' written notice to the shareholder.

Systematic withdrawal payments should not be considered as dividends, yield
or income. If systematic withdrawals continuously exceed reinvested dividends
and distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.

Furthermore, each systematic withdrawal constitutes a redemption of shares,
and any gain or loss realized must be recognized for federal income tax
purposes. In addition, systematic withdrawals made concurrently with purchases
of additional shares are inadvisable because of the sales charge applicable to
(1) the purchase of Class A and Class C shares and (2) the redemption of
Class B and Class C shares. Each shareholder should consult his or her own tax
adviser with regard to the tax consequences of the systematic withdrawal plan,
particularly if used in connection with a retirement plan.

B-40
<PAGE>

MUTUAL FUND PROGRAMS

From time to time, the Fund may be included in a mutual fund program with
other Prudential mutual funds. Under such a program, a group of portfolios will
be selected and thereafter marketed collectively. Typically, these programs are
marketed with an investment theme, such as pursuit of greater diversification,
protection from interest rate movements or access to different management
styles. In the event such a program is instituted, there may be a minimum
investment requirement for the program as a whole. The Fund may waive or reduce
the minimum initial investment requirements in connection with such a program.

The mutual funds in the program may be purchased individually or as a part
of a program. Since the allocation of portfolios included in the program may not
be appropriate for all investors, investors should consult their Prudential
Securities Financial Adviser, Prudential/Pruco Securities Representative, or
other Dealer concerning the appropriate blends of portfolios for them. If
investors elect to purchase the individual mutual funds that constitute the
program in an investment ratio different from that offered by the program, the
standard minimum investment requirements for the individual mutual funds will
apply.

NET ASSET VALUE

The NAV is the net worth of a Series (assets, including securities at value,
minus liabilities) divided by the number of shares outstanding. NAV is
calculated separately for each class. Under the Investment Company Act, the
Trustees are responsible for determining in good faith the fair value of
securities of each Series of the Fund. The Trustees have fixed the specific time
of day for the computation of each Series' NAV to be at 4:15 p.m., New York
time. In the event the New York Stock Exchange closes early on any business day,
the NAV of the Series' shares shall be determined at a time between such closing
and 4:15 p.m., New York time.

Portfolio securities for which market quotations are readily available are
valued at their bid quotations. Futures contracts are valued daily at 4:15 p.m.,
New York time, at market quotations provided by the Chicago Board of Trade.
Under the Investment Company Act, the Trustees are responsible for determining
in good faith the fair value of securities and other assets of the Fund for
which market quotations are not readily available. Securities for which market
quotations are not readily available are valued at fair value in accordance with
procedures adopted by the Trustees. Under these procedures, the Manager values
municipal securities on the basis of valuations provided by a pricing service
which uses information with respect to transactions in securities, quotations
from bond dealers, market transactions in comparable securities and various
relationships between securities in determining value. This service is furnished
by Kenny-S&P, a division of J.J. Kenny Information Systems. Reliable market
quotations generally are not readily available for purposes of valuing municipal
securities. As a result, depending on the particular municipal securities owned
by the Fund, it is likely that most of the valuations for such securities will
be based upon fair value determined under the foregoing procedures. Short-term
investments are valued at amortized cost if their original term to maturity was
less than 60 days, or by amortizing their value on the 61st day prior to
maturity if their original term to maturity when acquired by the Fund was more
than 60 days, unless this valuation is determined not to represent fair value by
the Trustees.

NAV is calculated separately for each class. As long as long as a Series
declares dividends daily, the NAV of the Class A, Class B, Class C and Class Z
shares of the Series will generally be the same. Series' dividends will differ
by approximately the amount any distribution and/or service fee expense accrual
differential among the classes.

TAXES, DIVIDENDS AND DISTRIBUTIONS

Each Series of the Fund is qualified as, intends to remain qualified as, and
has elected to be treated as a regulated investment company under Subchapter M
of the Internal Revenue Code for the taxable year. In general, such election
relieves each Series (but not its shareholders) from paying federal income tax
on income which is distributed to shareholders, and permits net capital gains of
the Series (that is, the excess of net capital gains from the sale of assets
held for more than 12 months over net short-term capital losses) to be treated
as long-term capital gains of the shareholders, regardless of how long shares in
the Series are held.

Qualification of the Fund as a regulated investment company under the
Internal Revenue Code requires, among other things, that (a) at least 90% of the
annual gross income of each Series (without reduction for losses from the sale
or other disposition of stock, securities, or foreign currency) be derived from
interest, dividends, payments with respect to securities loans and gains from
the sale or other disposition of stock, securities or options thereof or foreign
currencies, or other income (including but not limited to gains from options,
futures, or forward contracts) derived with respect to its business of investing
in such stock or securities or currencies; (b) each Series diversify its
holdings so that, at the end of each quarter of the taxable year, (i) at least
50% of the value of the assets of the Series is represented by cash, U.S.
Government securities and other stock or securities limited, in respect of any
one issuer, to an amount not greater than 5% of the market value of the assets
of the Series and 10% of the outstanding voting securities of the issuer, and
(ii) not more than 25% of the value of the assets of the Series is invested in
the

B-41
<PAGE>

securities of any one issuer (other than U.S. Government securities); and
(c) each Series distribute to its shareholders at least 90% of each of (i) its
net tax-exempt interest income and (ii) its net investment income and net
short-term capital gains (that is, the excess of net short-term capital gains
over net long-term capital losses) in each year.

Qualification as a regulated investment company will be determined at the
level of each Series and not at the level of the Fund. Accordingly, the
determination of whether any particular Series qualifies as a regulated
investment company will be based on the activities of that Series, including the
purchases and sales of securities and the income received and expenses incurred
in that Series. Net capital gains of a Series which are available for
distribution to shareholders will be computed by taking into account any capital
loss carryforward of that Series.

Subchapter M permits the character of tax-exempt interest distributed by a
regulated investment company to flow through as tax-exempt interest to its
shareholders provided that 50% or more of the value of its assets at the end of
each quarter of its taxable year is invested in state, municipal or other
obligations the interest on which is exempt for federal income tax purposes.
Distributions to shareholders of tax-exempt interest earned by any Series of the
Fund for the taxable year are generally not subject to federal income tax (see
the discussion of the alternative minimum tax below). Distributions of taxable
net investment income (including market discount on municipal obligations) and
of the excess of net short-term capital gain over net long-term capital loss are
taxable to shareholders as ordinary income.

The federal alternative minimum tax may affect corporations and other
shareholders in the Fund. Interest on certain categories of tax-exempt
obligations (that is, most private activity bonds issued after August 7, 1986)
will constitute a preference item for purposes of the alternative minimum tax.
Each Series has invested in such obligations and, therefore, receives interest
that will be treated as a preference item. Preference items received by a Series
will be allocated between the Series and its shareholders. It is possible that a
Series will incur some liability under the alternative minimum tax to the extent
preference items are allocated to it. Corporate shareholders in any of the
Series will also have to take into account interest on all municipal obligations
for purposes of the adjustment for current earnings for alternative minimum tax
purposes.

The alternative minimum tax is a tax equal to 20% of a corporation's
so-called alternative minimum taxable income and 26% of a non-corporate
taxpayer's so-called alternative minimum taxable income up to $175,000 and 28%
of such income in excess of $175,000. Individual taxpayers may reduce their
alternative minimum taxable income by a standard exemption amount of $45,000
($33,750 if filing singly), although the exemption amount is reduced for
taxpayers with adjusted gross incomes of more than $150,000 ($112,500 if filing
singly). Alternative minimum taxable income is determined by adding to the
taxpayer's regularly-computed taxable income items of tax preference and certain
other adjustments. All shareholders should consult their tax advisers to
determine whether their investment in the Fund will cause them to incur
liability for the alternative minimum tax.

For the fiscal year ended April 30, 2000, the Fund had net capital loss
carryforwards of approximately $26,590,300 and $2,919,000 for the High Income
Series and the Insured Series, respectively. 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 the
Insured Series elected to treat net realized capital losses of approximately
$9,439,600 and $1,784,400, respectively, incurred in the year ended April 30,
2000, as having been incurred in the following year.

Each Series may purchase debt securities (such as zero coupon bonds) that
contain original issue discount. Original issue discount that accrues in a
taxable year is treated as income earned by the Series and therefore is subject
to the distribution requirements of the Internal Revenue Code. Because the
original issue discount income earned by the Series in a taxable year may not be
represented by cash income, the Series may have to dispose of other securities
and use the proceeds to make distributions to satisfy the Internal Revenue
Code's distribution requirements.

Special rules will apply to futures contracts and options thereon in which
the Series invest. These investments will generally constitute "Section 1256
contracts" and will be required to be "marked to market" for federal income tax
purposes at the end of each Series' taxable year; that is, treated as having
been sold at market value. Sixty percent of any gain or loss recognized on such
"deemed sales" and on actual dispositions will be treated as long-term capital
gain or loss, and the remainder will be treated as short-term capital gain or
loss.

Each Series' gains and losses on the sale, lapse, or other termination of
call options it holds on financial futures contracts will generally be treated
as gains and losses from the sale of financial futures contracts. If call
options written by a Series expire unexercised, the premiums received by the
Series give rise to short-term capital gains at the time of expiration. Each
Series may also have short-term gains and losses associated with closing
transactions with respect to call options written by them. If call options
written by a Series are exercised, the selling price of the financial futures
contract is increased by the amount of the premium received by the Series, and
the character of the capital gain or loss on the sale of the futures contract
depending on the contract's holding period.

B-42
<PAGE>
Upon the exercise of a put held by a Series, the premium initially paid for
the put is offset against the amount received for the futures contract, bond or
note sold pursuant to the put thereby decreasing any gain (or increasing any
loss) realized on the sale. Generally, such gain or loss is capital gain or
loss, the character of which depends on the holding period of the futures
contract, bond or note. However, in certain cases in which the put is not
acquired on the same day as the underlying securities identified to be used in
the put's exercise, gain on the exercise, sale or disposition of the put is
short-term capital gain. If a put is sold prior to exercise, any gain or loss
recognized by a Series would be capital gain or loss, depending on the holding
period of the put. If a put expires unexercised, a Series would realize
short-term or long-term capital loss, the character of which depends on the
holding period of the put, in an amount equal to the premium paid for the put.
In certain cases in which the put and securities identified to be used in its
exercise are acquired on the same day, however, the premium paid for the
unexercised put is added to the basis of the identified securities.

Distributions of taxable net investment income and of the excess of net
short-term capital gains over net long-term capital losses are taxable to
shareholders as ordinary income. None of the income distributions of a Series
will be eligible for the deduction for dividends received by corporations.

Any net capital gains (that is, the excess of net capital gains from the
sale of assets held for more than 12 months over net short-term capital losses)
distributed to shareholders will be taxable as capital gains to the
shareholders, whether or not reinvested and regardless of the length of time a
shareholder has owned his or her shares. The maximum capital gains rate for
individuals with respect to capital gains recognized by a Series is 20%. The
maximum capital gains rate for corporate shareholders currently is the same as
the maximum tax rate for ordinary income.

If any net capital gains are retained by a Series for investment, requiring
federal income taxes to be paid thereon by the Series, the Series will elect to
treat these capital gains as having been distributed to shareholders. As a
result, these amounts will be taxed to shareholders as capital gains, and
shareholders will be able to claim their proportionate share of the federal
income taxes paid by the Series on the gains as a credit against their own
federal income tax liabilities and will be entitled to increase the adjusted tax
basis of their shares in that Series by the difference between their PRO RATA
share of such gains and their tax credit.

Distributions of taxable net investment income and net capital gains will be
taxable as described above, whether made in shares or in cash. Shareholders
electing to receive distributions in the form of additional shares will have a
cost basis for federal income tax purposes in each share so received equal to
the NAV of a share of the applicable Series of the Fund on the distribution
date.

Any gain or loss realized upon a sale or redemption of shares of a Series by
a shareholder who is not a dealer in securities will be treated as capital gain
or loss. Any such capital gain or loss will be treated as a long-term capital
gain or loss if the shares were held for more than 12 months.

Any loss realized on a sale, redemption or exchange of shares of the Fund by
a shareholder will be disallowed to the extent the shares are replaced within a
61-day period (beginning 30 days before the disposition of shares). Shares
purchased pursuant to the reinvestment of a dividend will constitute a
replacement of shares.

Any short-term capital loss realized upon the sale or redemption of shares
within six months (or such shorter period as may be established by Treasury
regulations) from the date of purchase of such shares and following receipt of
an exempt-interest dividend will be disallowed to the extent of such tax-exempt
dividend. Any loss realized upon the redemption of shares within 6 months from
the date of purchase of the shares and following receipt of a capital gain
distribution from the sale of assets held more than 12 months will be treated as
long-term capital loss to the extent of the capital gain distribution.

Interest on indebtedness and other expenses incurred by shareholders to
purchase or carry shares of the Fund will generally not be deductible for
federal income tax purposes under Section 265 of the Internal Revenue Code. In
addition, under rules used by the Internal Revenue Service for determining when
borrowed funds are considered to be used for the purpose of purchasing or
carrying particular assets, the purchase of shares may be considered to have
been made with borrowed funds even though the borrowed funds are not directly
traceable to the purchase of shares.

Persons holding certain municipal obligations who are also substantial users
(or persons related thereto) of facilities financed by such obligations may not
exclude interest on such obligations from their gross income. No investigation
as to the users of the facilities financed by municipal obligations in the
portfolios of the Series has been made by the Fund. Potential investors should
consult their tax advisers with respect to this matter before purchasing shares
of the Fund.

From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on certain state and municipal obligations. It can be expected that
similar proposals may be

B-43
<PAGE>
introduced in the future. If such a proposal were enacted, the availability of
state or municipal obligations for investment by each Series of the Fund and the
value of portfolio securities held by the Series would be affected. In addition,
each Series of the Fund would reevaluate its investment objective and policies.

All distributions of taxable net investment income and net capital gains,
whether received in shares or cash, must be reported by each shareholder on his
or her federal income tax return. In addition, each shareholder must disclose on
his or her return the amount of tax-exempt dividends received from the Fund.
Under federal income tax law, each Series of the Fund will be required to report
to the Internal Revenue Service all distributions of taxable income and capital
gains as well as gross proceeds from the redemption or exchange of shares of
such Series, except in the case of certain exempt shareholders. Further, all
such distributions and proceeds from the redemption or exchange of shares may be
subject to withholding of federal income tax at the rate of 31% in the case of
nonexempt shareholders who fail to furnish the appropriate Series of the Fund
with their taxpayer identification numbers on IRS Form W-9 and with required
certifications regarding their status under the federal income tax law. If the
withholding provisions are applicable, any such distributions and proceeds,
whether taken in cash or reinvested in shares, will be reduced by the amounts
required to be withheld. Investors may wish to consult their tax advisers about
the applicability of the backup withholding provisions.

Each Series is required under the Internal Revenue Code to distribute 98% of
its ordinary income in the same calendar year in which it is earned. Each Series
is also required to distribute during the calendar year 98% of the capital gain
net income it earned during the twelve months ending on October 31 of such
calendar year. In addition, the Series must distribute during the calendar year
any undistributed ordinary income and undistributed capital gain net income from
the prior year or the 12 month period ending on October 31 of such prior
calendar year, respectively. To the extent it does not meet these distribution
requirements, a Series will be subject to a non-deductible 4% excise tax on the
undistributed amount. For purposes of this excise tax, income on which the
Series pays income tax is treated as distributed.

Under certain circumstances, a shareholder who acquires shares of the Fund
and sells or otherwise disposes of such shares within 90 days of acquisition may
not be allowed to include certain sales charges incurred in acquiring such
shares for purposes of calculating gain or loss realized upon a sale or exchange
of shares of the Fund.

Dividends of net investment income and distributions of net short-term
capital gains paid to a shareholder (including a shareholder acting as a nominee
or fiduciary) who is a nonresident alien individual, a foreign corporation or a
foreign partnership (foreign shareholder) are subject to a 30% (or lower treaty
rate) withholding tax upon the gross amount of the dividends unless the
dividends are effectively connected with a U.S. trade or business conducted by
the foreign shareholder. Capital gain dividends paid to a foreign shareholder
are generally not subject to withholding tax. A foreign shareholder will,
however, be required to pay U.S. income tax on any dividends and capital gain
distributions which are effectively connected with a U.S. trade or business of
the foreign shareholder.

Each Series may be subject to state or local tax in certain other states
where it is deemed to be doing business. Further, in those states which have
income tax laws, the tax treatment of a Series and of its shareholders with
respect to distributions by such Series may differ from federal tax treatment.
The exemption of interest income for federal income tax purposes may not result
in a similar exemption under the laws of a particular state or local taxing
authority. Each Series will report annually to its shareholders the percentage
and source, on a state-by-state basis, of interest income on municipal
obligations received by such Series during the preceding year and on other
aspects of the federal income tax status of distributions made by such Series.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to federal, state or local taxes.

The per share dividends on Class B and Class C shares will be lower than the
per share dividends on Class A shares as a result of the higher
distribution-related fee applicable to the Class B and Class C shares. The per
share distributions of net capital gains, if any, will be paid in the same
amount for each Class of shares. The per share dividends on Class A shares will
be lower than the per share dividends on Class Z shares, since Class Z shares
bear no distribution-related fee.

B-44
<PAGE>
PERFORMANCE INFORMATION

YIELD. Each Series may from time to time advertise its yield as calculated
over a 30-day period. Yield is calculated separately for Class A, Class B, Class
C and Class Z shares. This yield will be computed by dividing a Series' net
investment income per share earned during this 30-day period by the maximum
offering price per share on the last day of this period. Yield is calculated
according to the following formula:

<TABLE>
<S> <C> <C>
a - b
YIELD = 2[( --------- +1)TO THE POWER OF 6 - 1]
cd
</TABLE>

Where: a = dividends and interest earned during the period.
b = expenses accrued for the period.
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.

Yield fluctuates and an annualized yield quotation is not a representation
by the Fund as to what an investment in the Fund will actually yield for any
given period.

The yield for the 30 days ended April 30, 2000 was 5.56% and 4.32% for
Class A shares of the High Income Series and Insured Series, respectively. The
yield for the 30 days ended April 30, 2000 was 5.48% and 4.25% for Class B
shares of the High Income Series and Insured Series, respectively. The yield for
the 30 days ended April 30, 2000 was 5.18% and 3.95% for Class C shares of the
High Income Series and Insured Series, respectively. The yield for the 30 days
ended April 30, 2000 was 5.99% and 4.75% for Class Z shares of the High Income
Series and Insured Series, respectively.

Each Series may also calculate the tax equivalent yield over a 30-day
period. The tax equivalent yield will be determined by first computing the yield
as discussed above. The Series will then determine what portion of that yield is
attributable to securities, the income of which is exempt for federal income tax
purposes. This portion of the yield will then be divided by one minus 39.6% (the
assumed maximum tax rate for individual taxpayers not subject to alternative
minimum tax) and then added to the portion of the yield that is attributable to
other securities. For the 30 days ended April 30, 2000, the tax equivalent yield
for the Class A shares of the High Income Series and Insured Series was 9.21%
and 7.15%, respectively. For the 30 days ended April 30, 2000, the tax
equivalent yield for the Class B shares of the High Income Series and Insured
Series was 9.07% and 7.04%, respectively. For the 30 days ended April 30, 2000,
the tax equivalent yield for the Class C shares of the High Income Series and
Insured Series was 8.58% and 6.51%, respectively. For the 30 days ended
April 30, 2000, the tax equivalent yield for the Class Z shares of the High
Income Series and Insured Series was 9.92% and 7.86%, respectively.

The following chart shows the tax-equivalent yield of an investment at
varying rates:

<TABLE>
<CAPTION>
A TAX-EXEMPT YIELD OF:
<S> <C> <C> <C> <C> <C> <C> <C>
3.5% 4.0% 4.5% 5.0% 5.5% 6% 6.5%
<CAPTION>
FEDERAL
TAX RATE IS EQUIVALENT TO A TAXABLE RATE OF:
<S> <C> <C> <C> <C> <C> <C> <C>
28% 4.86% 5.56% 6.25% 6.94% 7.64% 8.33% 9.03%
31% 5.07% 5.80% 6.52% 7.25% 7.97% 8.70% 9.42%
39.6% 5.79% 6.62% 7.45% 8.28% 9.11% 9.93% 10.76%
</TABLE>

Income earned on this portfolio could be subject to the federal alternative
minimum tax. The above information is for illustrative purposes only and is not
intended to imply actual performance.

AVERAGE ANNUAL TOTAL RETURN. Each Series may from time to time advertise its
average annual total return. Average annual total return is determined
separately for Class A, Class B, Class C and Class Z shares. See "Risk/Return
Summary--Evaluating Performance" in the Prospectus.

B-45
<PAGE>
Average annual total return is computed according to the following formula:

P(1+T) TO THE POWER OF n = ERV
Where: P = a hypothetical initial payment of $1000.
T = average annual total return.
n = number of years.
ERV = Ending Redeemable Value at the end of the 1, 5 or 10 year periods
(or fractional portion thereof) of a hypothetical $1000 payment
made at the beginning of the 1, 5 or 10 year periods.

Average annual total return assumes reinvestment of all dividends and
distributions and takes into account any applicable initial or contingent
deferred sales charges but does not take into account any federal or state
income taxes that may be payable upon redemption.

The average annual total return and subsidy/waiver adjusted average annual
total return of the Class A shares for the one, five and ten year periods ended
April 30, 2000 were as follows:

<TABLE>
<CAPTION>
SUBSIDY/WAIVER
ADJUSTED*
-----------------------------------------
FIVE YEARS FIVE YEARS
TEN YEARS ENDED YEAR ENDED TEN YEARS ENDED YEAR ENDED
ENDED APRIL 30, APRIL 30, APRIL 30, ENDED APRIL 30, APRIL 30, APRIL 30,
SERIES 2000 2000 2000 2000 2000 2000
------ --------------- ---------- ---------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
High Income Series 6.31% 4.61% (6.21)% 6.36% 4.66% (6.21)%
Insured Series 6.16% 4.33% (5.31)% 6.23% 4.37% (5.31)%
</TABLE>

The average annual total return and subsidy/waiver adjusted average annual
total return of the Class B shares for the one, five and ten year periods ended
April 30, 2000 were as follows:

<TABLE>
<CAPTION>
SUBSIDY/WAIVER
ADJUSTED*
------------------------------------
TEN YEARS FIVE YEARS TEN YEARS FIVE YEARS
ENDED ENDED YEAR ENDED ENDED ENDED YEAR ENDED
APRIL 30, APRIL 30, APRIL 30, APRIL 30, APRIL 30, APRIL 30,
SERIES 2000 2000 2000 2000 2000 2000
------ ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
High Income Series 6.22% 4.73% (8.55)% 6.27% 4.77% (8.55)%
Insured Series 6.09% 4.42% (7.62)% 6.14% 4.46% (7.62)%
</TABLE>

The average annual total return and subsidy/waiver adjusted average annual
total return from inception of the Class C shares (August 1, 1994) and for the
one and five year periods ended April 30, 2000 were as follows:

<TABLE>
<CAPTION>
SUBSIDY/WAIVER
ADJUSTED*
------------------------------------
FIVE YEARS YEAR FIVE YEARS
ENDED ENDED ENDED YEAR ENDED
FROM APRIL 30, APRIL 30, FROM APRIL 30, APRIL 30,
SERIES INCEPTION 2000 2000 INCEPTION 2000 2000
------ ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
High Income Series 4.53% 4.43% (5.75)% 4.57% 4.47% (5.75)%
Insured Series 4.29% 4.12% (4.83)% 4.32% 4.16% (4.83)%
</TABLE>

B-46
<PAGE>

The average annual total return and subsidy/waiver adjusted average annual
total return from inception of the Class Z shares (September 16, 1996) and for
the one year ended April 30, 2000 were as follows:

<TABLE>
<CAPTION>
SUBSIDY/WAIVER
ADJUSTED*
YEAR -----------------------
ENDED YEAR ENDED
FROM APRIL 30, FROM APRIL 30,
SERIES INCEPTION 2000 INCEPTION 2000
------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
High Income Series 4.60% (3.07)% 4.66% (3.07)%
Insured Series 4.43% (2.13)% 4.46% (2.13)%
</TABLE>

* With respect to the High Income Series, effective June 1, 1999, the
Manager discontinued its voluntary waiver of its management fee of .05 of 1% of
the High Income Series' average daily net assets. With respect to the Insured
Series, effective September 1, 1997, the Manager discontinued its voluntary
waiver of its management fee of .05 of 1% of the Insured Series' average daily
net assets.

AGGREGATE TOTAL RETURN. Each Series may also advertise its aggregate total
return. Aggregate annual total return is determined separately for Class A,
Class B, Class C and Class Z shares.

Aggregate total return represents the cumulative change in the value of an
investment in a Series and is computed according to the following formula:
ERV - P
-------
P

Where: P = a hypothetical initial payment of $1000.
ERV = Ending Redeemable Value at the end of the 1, 5 or 10 year periods
(or fractional portion thereof) of a hypothetical $1000 payment
made at the beginning of the 1, 5 or 10 year periods.

Aggregate total return does not take into account any federal or state
income taxes that may be payable upon redemption or any applicable initial or
contingent deferred sales charge.

The aggregate total return and subsidy/waiver adjusted aggregate total
return of the Class A shares for the one, five and ten year periods ended
April 30, 2000 were as follows:

<TABLE>
<CAPTION>
SUBSIDY/WAIVER
ADJUSTED*
-----------------------------------
TEN YEARS FIVE YEARS TEN YEARS FIVE YEARS
ENDED ENDED YEAR ENDED ENDED ENDED YEAR ENDED
APRIL 30, APRIL 30, APRIL 30, APRIL 30, APRIL 30, APRIL 30,
SERIES 2000 2000 2000 2000 2000 2000
------ --------- ---------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
High Income Series 90.10% 29.18% (3.31)% 90.92% 29.43% (3.31)%
Insured Series 87.48% 27.40% (2.38)% 82.76% 27.65% (2.38)%
</TABLE>

The aggregate total return and subsidy/waiver adjusted aggregate total
return of the Class B shares for the one, five and ten year periods ended
April 30, 2000 were as follows:

<TABLE>
<CAPTION>
SUBSIDY/WAIVER
ADJUSTED*
------------------------------------
TEN YEARS FIVE YEARS TEN YEARS FIVE YEARS
ENDED ENDED YEAR ENDED ENDED ENDED YEAR ENDED
APRIL 30, APRIL 30, APRIL 30, APRIL 30, APRIL 30, APRIL 30,
SERIES 2000 2000 2000 2000 2000 2000
------ ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
High Income Series 82.89% 27.00% (3.55)% 83.61% 27.25% (3.55)%
Insured Series 80.66% 25.13% (2.62)% 81.54% 25.37% (2.62)%
</TABLE>

B-47
<PAGE>

The aggregate total return and subsidy/waiver adjusted aggregate total
return from inception of the Class C shares (August 1, 1994) and for the one and
five year periods ended April 30, 2000 were as follows:

<TABLE>
<CAPTION>
SUBSIDY/WAIVER
ADJUSTED*
------------------------------------
FIVE YEARS FIVE YEARS
ENDED YEAR ENDED ENDED YEAR ENDED
FROM APRIL 30, APRIL 30, FROM APRIL 30, APRIL 30,
SERIES INCEPTION 2000 2000 INCEPTION 2000 2000
------ ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
High Income Series 30.33% 25.43% (3.79)% 30.60% 25.68% (3.79)%
Insured Series 28.56% 23.58% (2.86)% 28.81% 23.82% (2.86)%
</TABLE>

The aggregate total return and subsidy/waiver adjusted aggregate total
return from inception of the Class Z shares (September 16, 1996) and for the one
year ended April 30, 2000 were as follows:

<TABLE>
<CAPTION>
SUBSIDY/WAIVER
ADJUSTED*
-----------------------
YEAR ENDED YEAR ENDED
FROM APRIL 30, FROM APRIL 30,
SERIES INCEPTION 2000 INCEPTION 2000
------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
High Income Series 17.69% (3.07)% 17.93% (3.07)%
Insured Series 17.00% (2.13)% 17.11% (2.13)%
</TABLE>

ADVERTISING. Advertising materials for each Series may include biographical
information relating to its portfolio manager(s), and may include or refer to
commentary by the Series' manager(s) concerning investment style, investment
discipline, asset growth, current or past business experience, business
capabilities, political, economic or financial conditions and other matters of
general interest to investors. Advertising materials for each Series' also may
include mention of The Prudential Insurance Company of America, its affiliates
and subsidiaries, and reference the assets, products and services of those
entities.

From time to time, advertising materials for each Series' may include
information concerning retirement and investing for retirement, may refer to the
approximate number of Series' shareholders and may refer to Lipper rankings or
Morningstar ratings, other related analyses supporting those ratings, other
industry publications, business periodicals and market indices. In addition,
advertising materials may reference studies or analyses performed by the Manager
or its affiliates. Advertising materials for sector funds, funds that focus on
market capitalizations, index funds and international/global funds may discuss
the potential benefits and risks of that investment style. Advertising materials
for fixed income funds may discuss the benefits and risks of investing in the
bond market including discussions of credit quality, duration and maturity.

B-48
<PAGE>

From time to time, the performance of a Series may be measured against
various indexes. Set forth below is a chart which compares the performance of
different types of investments over the long-term and the rate of inflation.(1)

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
PERFORMANCE
COMPARISON OF
DIFFERENT
TYPES OF INVESTMENTS
OVER THE LONG TERM
(12/31/1925-12/31/1999)
-----------------------
<S> <C>
COMMON STOCKS 11.2%
LONG-TERM GOVT. BONDS 5.3%
INFLATION 3.1%
</TABLE>

------------------------

(1)Source: Ibbotson Associates. Used with permission. All rights reserved.
Common stock returns are based on the Standard and Poor's 500
Composite Stock Index, a market-weighted, unmanaged index of 500
common stocks in a variety of industry sectors. It is a commonly used
indicator of broad stock price movements. This chart is for
illustrative purposes only, and is not intended to represent the
performance of any particular investment or fund. Investors cannot
invest directly in an index. Past performance is not a guarantee of
future results.

B-49
<PAGE>

PRUDENTIAL MUNICIPAL BOND FUND High Income Series
Portfolio of Investments as of April 30, 2000
<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 98.7%
------------------------------------------------------------------------------------------------------------
ALASKA 1.2%
Valdez Alaska Marine Terminal
Rev. Aa2 5.85% 8/01/25 $ 12,500 $ 11,959,250
-------------------------------------------------------------------------------------------------------
ARIZONA 2.2%
Coconino Cnty. Pol. Ctrl. Corp.
Rev.
Tucson Elec. Pwr., Navajo A,
A.M.T. Ba3 7.125 10/01/32 5,000 4,903,000
Tucson Elec. Pwr., Navajo B Ba3 7.00 10/01/32 1,700 1,676,302
Pima Cnty. Ind. Dev. Auth.,
Multifam. Mtge. Rev., La Cholla
Proj., A.M.T. NR 8.50 7/01/20 9,450 10,152,513
Tuscon Elec. Pwr. Co., Ser. A,
A.M.T. Ba3 6.10 9/01/25 2,000 1,745,100
Tuscon Elec. Pwr. Co., Ser. B,
A.M.T. Ba3 6.00 9/01/29 4,250 3,723,042
--------------
22,199,957
-------------------------------------------------------------------------------------------------------
ARKANSAS 1.1%
Northwest Arkansas Reg'l. Arpt.
Auth.
Rev., A.M.T. NR 7.00 2/01/10 3,000 3,001,650
Rev., A.M.T. NR 7.625 2/01/27 8,400 8,486,184
--------------
11,487,834
-------------------------------------------------------------------------------------------------------
CALIFORNIA 9.0%
Abag Fin. Auth. For Nonprofit
Corps. Ref. Amer. Baptist
Homes., Ser. A BBB(b) 6.20 10/01/27 3,200 2,824,384
Corona Ctfs. of Part., Vista
Hosp. Sys. Inc., Ser. C NR 6.45 7/01/11 10,000 9,043,400
Delano Ctfs. of Part., Reg'l.
Med. Ctr., Ser. A AAA(b) 9.25 1/01/22 6,530(c) 7,357,678
Foothill / Eastern Transp.
Corridor Agcy, Toll Rd. Rev. Baa3 Zero 1/15/28 11,700 5,985,252
</TABLE>
See Notes to Financial Statements

B-50
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND High Income Series
Portfolio of Investments as of April 30, 2000 Cont'd.
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
DESCRIPTION (a) (UNAUDITED) RATE DATE (000) (NOTE 1)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Lincoln Impvt. Bond Act 1915,
Pub. Fin.Auth.,Twelve Bridges NR 6.20% 9/02/25 $ 3,975 $ 3,757,766
Long Beach Redev. Agcy. Hsg.,
Multifam. Hsg. Rev., Pacific
Court Apts. NR Zero 9/01/23 6,195(e) 3,840,900
Multifam. Hsg. Rev., Pacific
Court Apts., Issue B NR Zero 9/01/13 3,805(e) 2,359,100
Los Angeles Reg'l. Arpts. Impvt.
Corp., Cont. Air Sublease,
A.M.T. NR 9.25 8/01/24 10,095 11,261,275
Orange Cnty. Cmnty. Loc. Trans.
Auth., Reg. Linked Savrs. & Ribs Aa3 6.20 2/14/11 7,000 7,583,520
Richmond Redev. Agcy. Rev.,
Multifam. Bridge Affordable Hsg. NR 7.50 6/01/23 10,000 10,088,600
Roseville Joint Union H.S. Dist.,
Ser. B, F.G.I.C. Aaa Zero 8/01/11 1,440 789,509
Ser. B, F.G.I.C. Aaa Zero 8/01/14 2,220 1,001,686
Sacramento City Fin. Auth. Rev.,
Tax Alloc., M.B.I.A. Aaa Zero 11/01/15 5,695 2,364,222
San Joaquin Hills Trans. Corr.
Agcy.,
Toll Rd. Rev. Aaa Zero 1/01/14 8,420 3,945,865
Toll Rd. Rev. Aaa Zero 1/01/25 10,000 2,292,100
San Luis Obispo Ctfs. of Part.,
Vista Hosp. Sys., Inc. NR 6.45 7/01/29 4,000 3,451,800
Santa Margarita/Dana Point Auth.,
Impvt. Dist.
Rites Pennsylvania 644F NR 13.071 8/01/13 660(c) 1,050,271
Rites Pennsylvania 664E NR 13.071 8/01/12 1,000(c) 1,562,500
Vallejo Ctfs. of Part., Touro
Univ. Ba2 7.375 6/01/29 3,500 3,446,940
Victor Valley Union H.S. Dist.,
Gen. Oblig., M.B.I.A. Aaa Zero 9/01/12 3,605 1,858,738
Gen. Oblig., M.B.I.A. Aaa Zero 9/01/14 4,740 2,146,699
Gen. Oblig., M.B.I.A. Aaa Zero 9/01/16 3,990 1,587,501
--------------
89,599,706
</TABLE>
See Notes to Financial Statements

B-51
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND High Income Series
Portfolio of Investments as of April 30, 2000 Cont'd.
<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 4.2%
Black Hawk Co. Bus. Impvt. Dist. NR 7.75% 12/01/19 $ 5,285 $ 5,420,560
Denver Urban Ren. Auth. Tax,
Inc. Rev. NR 7.50 9/01/04 2,840 2,967,346
Inc. Rev. NR 7.75 9/01/16 4,000 4,231,200
Denver Co. Hlth. & Hosp. Rev.,
Ser. A Baa2 5.375 12/01/28 5,000 3,887,650
Lake Creek Affordable Hsg. Corp.
Multifam. Rev.,
Ser. A NR 6.25 12/01/23 12,995 11,890,295
Ser. B NR 7.00 12/01/23 1,035 956,630
San Migual Cnty., Mountain Vlge.
Met. Dist. NR 8.10 12/01/11 2,160(c) 2,342,369
San Migual Cnty., Mountain Vlge.
Met. Dist. NR 8.10 12/01/11 1,040 1,110,980
Superior Met. Dist. No. 1, Wtr. &
Swr. Rev. NR 8.50 12/01/13 8,195 9,358,034
--------------
42,165,064
-------------------------------------------------------------------------------------------------------
CONNECTICUT 1.8%
Connecticut St. Dev. Auth.,
Mystic Marinelife Aquarium Proj.
Rev. NR 7.00 12/01/27 2,000 1,968,400
Connecticut St. Dev. Auth. Poll.
Ctl. Rev., Ref. Connecticut
Light & Pwr., A.M.T. Ba1 5.95 9/01/28 9,000 8,053,380
Connecticut St. Dev. Auth. Swr.,
Netco Waterbury Ltd. NR 9.375 6/01/16 7,300 8,136,069
--------------
18,157,849
-------------------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA 1.1%
Dist. of Columbia Ref., Ser. B.,
M.B.I.A. Aaa 6.00 6/01/20 2,000 2,049,360
Dist. of Columbia Rev., Nat'l.
Public Radio NR 7.625 1/01/18 8,800 9,048,248
--------------
11,097,608
</TABLE>
See Notes to Financial Statements

B-52
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND High Income Series
Portfolio of Investments as of April 30, 2000 Cont'd.
<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 6.2%
Bayside Impt. Cmnty. Dev. Dist.,
Ser. B NR 6.375% 5/01/18 $ 1,370 $ 1,267,305
Crossings at Fleming Island
Cmnty. Dev. Dist., Clay City NR 8.25 5/01/16 7,375 7,976,947
Florida Hsg. Fin. Agcy., Palm
Aire Proj., Multifam. Mtge.
Rev., A.M.T. NR Zero 1/01/20 8,561(e) 8,561,450
Florida Hsg. Fin. Corp. Rev.,
Cypress Trace Apts., Ser. G,
A.M.T. NR 6.60 7/01/38 4,750 4,467,185
Westchase Apts., Ser. B, A.M.T. NR 6.61 7/01/38 4,000 3,766,720
Martin Cnty. Ind. Dev. Auth.
Rev., Indiantown Cogen. Proj.,
Ser. A, A.M.T. Baa3 7.875 12/15/25 13,000 13,041,860
No. Springs Impvt. Dist. Wtr.
Mgt.,
Ser. A NR 8.20 5/01/24 1,885(c) 2,068,882
Ser. A NR 8.30 5/01/24 1,660 1,759,484
Northern Palm Beach Cnty. Impvt.
Ref., Wtr. Ctl. & Impvt. Unit
Dev. NR 6.00 8/01/10 2,815 2,710,479
Orlando & Orange Cntys. Exprswy.
Auth. Rev. Aaa 5.00 7/01/28 2,000 1,732,680
Orlando Util. Comm., Wtr. & Elec.
Rev., Ser. D Aa2 6.75 10/01/17 2,000 2,255,940
Palm Beach Cnty. Hsg. Auth.,
Banyan Club Apts. NR 7.75 3/01/23 4,345 4,551,301
Sarasota Hlth. Facs., Kobernick
Hsg. Meadow Park Proj. Aaa 10.00 7/01/22 6,705(c) 7,476,544
--------------
61,636,777
-------------------------------------------------------------------------------------------------------
GEORGIA 3.6%
Atlanta Arpt. Facs. Rev.,
M.B.I.A., A.M.T. Aaa Zero 1/01/10 2,000 1,117,960
Augusta Georgia Hsg. Auth.,
Emerald Coast Hsg., Ser. A NR 7.50 8/01/34 8,400 7,993,608
</TABLE>
See Notes to Financial Statements

B-53
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND High Income Series
Portfolio of Investments as of April 30, 2000 Cont'd.
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
DESCRIPTION (a) (UNAUDITED) RATE DATE (000) (NOTE 1)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Effingham Cnty. Dev. Auth., Ft.
Howard Corp. Baa2 7.90% 10/01/05 $ 10,000 $ 10,249,700
Henry Cnty. Wtr. & Swr. Auth.
Rev., A.M.B.A.C. Aaa 6.15 2/01/20 3,000 3,169,500
Private Colls. & Univs. Auth.
Georgia Rev., Emory Univ. Proj.,
Ser. A Aa1 5.50 11/01/31 5,000 4,746,700
Rockdale Cnty. Dev. Auth., Solid
Wste. Disp. Rev. NR 7.50 1/01/26 8,100 8,247,987
--------------
35,525,455
-------------------------------------------------------------------------------------------------------
ILLINOIS 6.5%
Chicago Brd. of Edl., Cap.
Apprec. Schl. Ref., Ser. A,
F.G.I.C. Aaa Zero 12/01/20 5,745 1,640,542
Chicago O'Hare Int'l. Arpt.,
Amer. Airlines Proj., Ser. B Baa1 8.20 12/01/24 1,000 1,089,690
United Airlines, Ser. B, A.M.T. Baa3 8.45 5/01/07 6,000 6,129,780
United Airlines, Ser. B Baa2 8.85 5/01/18 2,520 2,624,883
United Airlines, Ser. B, A.M.T. Baa3 8.50 5/01/18 6,500 6,639,425
United Airlines, Ser. B, A.M.T. Baa2 8.95 5/01/18 2,175 2,265,480
Chicago Pub. Bldg. Comm. Rev.,
Ser. A, M.B.I.A. Aaa 7.00 1/01/20 6,530 7,462,288
Hennepin Ind. Dev. Rev.,
Exolon-Esk Co. Proj. NR 8.875 1/01/18 7,800 8,323,692
Illinois Dev. Fin. Auth. Solid
Wste Disp. Rev., Ba1 5.05 1/01/10 4,000 3,341,120
Illinois St. Hlth. Facs. Auth.
Rev.,
Midwest Physician Group Ltd.
Proj. BBB-(b) 8.10 11/15/14 2,935(c) 3,298,060
Midwest Physician Group Ltd.
Proj. BBB-(b) 8.125 11/15/19 3,285(c) 3,719,868
Kane & De Kalb Cntys. Sch.,
Dist. No. 301, Cap. Apprec.,
A.M.B.A.C. Aaa Zero 12/01/11 3,360 1,761,379
Dist. No. 301, Cap. Apprec.,
A.M.B.A.C. Aaa Zero 12/01/13 4,065 1,876,242
</TABLE>
See Notes to Financial Statements

B-54
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND High Income Series
Portfolio of Investments as of April 30, 2000 Cont'd.
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
DESCRIPTION (a) (UNAUDITED) RATE DATE (000) (NOTE 1)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Metropolitan Pier & Exposition
Auth. Dedicated St. Tax Rev.,
F.G.I.C. Aaa Zero 6/15/29 $ 22,575 $ 3,790,568
Robbins Illinois Res. Rec. Rev.,
Restructuring Project Series C NR 7.25% 10/15/09 781 753,831
Restructuring Project Series D NR 7.00 10/15/09 788 370,771
Restructuring Project Series A NR 8.375 10/15/16 5,031 2,245,195
Restructuring Project Series B NR 8.375 10/15/16 1,969 878,555
Restructuring Project Series C NR 7.25 10/15/24 3,376 3,173,978
Winnebago Cnty. Hsg. Auth., Park
Tower Assoc., Sec. 8 NR 8.125 1/01/11 3,569 3,622,022
--------------
65,007,369
-------------------------------------------------------------------------------------------------------
INDIANA 1.6%
Bluffton Econ. Dev. Rev., Kroger
Co. Proj. Baa3 7.85 8/01/15 7,500 7,949,850
Wabash Econ. Dev. Rev. Bonds,
Connell Ltd., A.M.T. NR 8.50 11/24/17 7,250 7,610,832
--------------
15,560,682
-------------------------------------------------------------------------------------------------------
IOWA 2.8%
City of Cedar Rapids Rev.,
1st Mtge., Cottage Grove Place
Proj. Aaa(b) 9.00 7/01/18 9,375(c) 11,134,687
1st Mtge., Cottage Grove Place
Proj. Aaa(b) 9.00 7/01/25 4,435(c) 5,267,450
Iowa St. Fin. Auth., Hlthcare.
Facs. Rev., Mercy Hlth.
Initiatives Proj. NR 9.25 7/01/25 10,000 11,940,000
--------------
28,342,137
-------------------------------------------------------------------------------------------------------
KENTUCKY 0.7%
Louisville & Jefferson Cntys.
Met. Swr. & Drain. Sys. Rev. Aaa 5.00 5/15/30 2,000 1,713,180
</TABLE>
See Notes to Financial Statements

B-55
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND High Income Series
Portfolio of Investments as of April 30, 2000 Cont'd.
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
DESCRIPTION (a) (UNAUDITED) RATE DATE (000) (NOTE 1)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Owensboro Elec. Lt. & Pwr. Rev.,
Ser. B, A.M.B.A.C. Aaa Zero 1/01/14 $ 5,000 $ 2,299,950
Ser. B, A.M.B.A.C. Aaa Zero 1/01/16 6,650 2,672,901
--------------
6,686,031
-------------------------------------------------------------------------------------------------------
LOUISIANA 1.9%
Hodge Util. Rev., Stone Container
Corp., A.M.T. NR 9.00% 3/01/10 7,000 7,149,100
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) 1,691,326
New Orleans Ind. Dev. Rev. BBB+(b) 8.75 10/01/19 3,600 3,988,980
New Orleans, Gen Oblig., Cap.
Apprec., A.M.B.A.C. Aaa Zero 9/01/18 3,090 1,042,968
West Feliciana Parish Poll. Ctrl.
Rev., Gulf St. Util. Co. Proj. NR 9.00 5/01/15 5,250 5,475,382
--------------
19,347,756
-------------------------------------------------------------------------------------------------------
MAINE 0.4%
Maine Health & Higher Edl. Facs.
Auth. Rev.,
Piper Shores, Ser. A NR 7.50 1/01/19 1,000 969,160
Piper Shores, Ser. A NR 7.55 1/01/29 3,000 2,891,520
--------------
3,860,680
-------------------------------------------------------------------------------------------------------
MARYLAND 1.5%
Anne Arundel Cnty. Spec. Oblig.,
Arundel Mills Proj. NR 7.10 7/01/29 3,000 2,964,990
Maryland St. Health & Higher Edl.
Facs. Auth. Rev. Baa1 6.75 7/01/30 5,000 5,011,000
Northeast Wste. Disp. Auth.,
Sludge Comp. Facs. NR 7.25 7/01/07 3,457 3,569,491
Sludge Comp. Facs., A.M.T. NR 8.50 7/01/07 2,880 3,045,571
--------------
14,591,052
</TABLE>
See Notes to Financial Statements

B-56
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND High Income Series
Portfolio of Investments as of April 30, 2000 Cont'd.
<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 4.5%
Boston Ind. Dev. Fin. Auth. Rev.,
First Mtge. Springhouse Proj. Aaa 9.25% 7/01/15 $ 7,795(c) $ 9,130,985
First Mtge. Springhouse Proj. NR 6.00 7/01/28 4,500 3,681,180
Mass. Bay Trans. Auth., Gen.
Trans. Sys., Ser. A, F.G.I.C. Aaa 7.00 3/01/21 7,500 8,579,625
Mass. St. Coll. Bldg. Proj. &
Ref. Bonds Aa2 7.50 5/01/14 1,750 2,087,400
Mass. St. Hlth. & Ed. Facs. Auth.
Rev., Cardinal Cushing Gen.
Hosp. NR 8.875 7/01/18 7,500 7,674,225
Mass. St. Tpke. Auth., Met. Hgwy.
Sys. Rev., A.M.B.A.C. Aaa 5.00 1/01/39 10,000 8,359,600
Randolph Hsg. Auth., Multifam.
Hsg., Liberty Place Proj. A,
Ser. A NR 9.00 12/01/21 5,730 5,712,925
--------------
45,225,940
-------------------------------------------------------------------------------------------------------
MICHIGAN 4.3%
Grand Rapids Dev. Auth.,
Cap. Apprec., M.B.I.A. Aaa Zero 6/01/10 3,000 1,724,910
Cap. Apprec., M.B.I.A. Aaa Zero 6/01/11 3,160 1,708,833
Cap. Apprec., M.B.I.A. Aaa Zero 6/01/12 3,000 1,522,260
Gratiot Cnty. Econ. Dev. Corp.,
Danley Die Proj. Connell L.P. NR 7.625 4/01/07 3,200 3,299,360
Holland Sch. Dist., Cap. Apprec.,
A.M.B.A.C. Aaa Zero 5/01/17 2,950 1,084,656
Lowell Area Sch., F.G.I.C. Aaa Zero 5/01/14 5,000 2,247,600
Michigan St. Hosp. Fin. Auth.
Rev., Saratoga Cmnty. Hosp. NR 8.75 6/01/10 5,760(c) 6,197,415
Michigan St. Strategic Fd. Res.
Recovery Ltd. Oblig. Rev.,
Central Wayne Energy Rec. A NR 7.00 7/01/27 6,500 6,067,555
Central Wayne Energy Rec. A,
A.M.T. NR 6.90 7/01/19 1,500 1,423,890
</TABLE>
See Notes to Financial Statements

B-57
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND High Income Series
Portfolio of Investments as of April 30, 2000 Cont'd.
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
DESCRIPTION (a) (UNAUDITED) RATE DATE (000) (NOTE 1)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Michigan Strategic Fund, Great
Lakes Pulp & Fiber Proj. NR 8.00% 12/01/27 $ 14,297 $ 3,145,440
Michigan Strategic Fund, Solid
Wste. Disp., Gennese Pwr.
Station, A.M.T. NR 7.50 1/01/21 10,000 10,250,100
Wayne Cnty. Bldg. Auth., Ser. A,
A.M.T. A3 8.00 3/01/17 3,500(c) 3,753,190
West Ottawa Sch. Dist., F.G.I.C. Aaa Zero 5/01/18 3,000 1,030,980
--------------
43,456,189
-------------------------------------------------------------------------------------------------------
MINNESOTA 1.7%
Minnesota Agricultural & Econ.
Dev. Rev.,
Fairview Hlthcare. Sys, Ser. A A2 6.375 11/15/22 15,000 14,563,500
Fairview Hlthcare. Sys., Ser. A A2 6.375 11/15/29 3,000 2,876,970
--------------
17,440,470
-------------------------------------------------------------------------------------------------------
MISSOURI 1.5%
Bridgeton Ind. Dev. Auth. Sr.
Hsg. Rev., Sarah Cmnty. Proj. NR 5.90 5/01/28 4,000 3,241,360
St. Louis Cnty. Ind. Dev. Auth.
Rev.,
Soemm Proj., A.M.T. NR 10.25 7/01/08 1,385 1,387,382
Soemm Proj., A.M.T. NR 10.25 7/01/08 525 525,903
St. Louis Cnty. Reg. Conv. &
Sports Comp., Ser. C Aaa 7.90 8/15/21 8,820(c) 9,599,953
--------------
14,754,598
-------------------------------------------------------------------------------------------------------
NEBRASKA 0.2%
Kearney Ind. Dev. Rev., Cap.
Apprec., Great Platte Rvr. Rd. NR Zero 1/01/17 4,000 2,008,600
-------------------------------------------------------------------------------------------------------
NEVADA 0.5%
Clark Cnty. Impvt. Dist., No. 121
Southern Highlands Area NR 7.50 12/01/19 5,000 4,953,950
</TABLE>
See Notes to Financial Statements

B-58
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND High Income Series
Portfolio of Investments as of April 30, 2000 Cont'd.
<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 HAMPSHIRE 1.0%
New Hampshire Higher Edl. & Hlth.
Facs. Auth. Rev., Antioch
College NR 7.875% 12/01/22 $ 5,180 $ 5,554,359
New Hampshire St. Bus. Poll.
Ref., Pub. Svc. Co., A.M.T. Ba3 6.00 5/01/21 5,000 4,509,750
--------------
10,064,109
-------------------------------------------------------------------------------------------------------
NEW JERSEY 5.8%
New Jersey Econ. Dev. Auth. Rev.,
Continental Airlines, Inc. Proj. Ba2 6.25 9/15/29 12,000 10,911,000
Development Rev. NR Zero 4/01/12 1,115 496,822
Fellowship Vlge., Proj. A Aaa 9.25 1/01/25 11,500(c) 13,569,425
Kaplowski Rd., Ser. A NR 6.375 4/01/31 7,000 6,608,770
Ref. Newark Arpt. Marriot Hotel NR 7.00 10/01/14 3,800 3,835,302
New Jersey Hlthcare. Facs., Fin.
Auth.
Rev. NR 8.00 7/01/27 5,000 4,704,950
Rev. A3 6.00 1/01/34 5,000 4,711,300
New Jersey St. Edl. Facs. Auth.
Rev., Felician College Of Lodi,
Ser. D NR 7.375 11/01/22 4,000 4,135,920
New Jersey St. Tpke. Auth. Rev.,
Ser. C, M.B.I.A. Aaa 6.50 1/01/16 8,000 8,796,240
--------------
57,769,729
-------------------------------------------------------------------------------------------------------
NEW YORK 3.6%
Met. Trans. Auth. Facs. Rev.,
Ser. N, F.G.I.C. Aaa Zero 7/01/13 2,785 1,329,837
New York City Ind. Dev. Agcy.,
Bklyn. Navy Yard Cogen Partners,
A.M.T. Baa3 6.20 10/01/22 9,175 8,794,513
Visy Paper Inc. Proj., A.M.T. NR 7.95 1/01/28 4,000 4,202,000
New York City Ind. Dev. Agcy.,
Civic Touro College Proj., Ser.
A Ba2 6.35 6/01/29 5,600 5,149,816
New York City Ind. Dev. Agcy.
Rev., Ref. Laguardia Assoc. L.P.
Proj. NR 6.00 11/01/28 4,000 3,402,960
</TABLE>
See Notes to Financial Statements

B-59
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND High Income Series
Portfolio of Investments as of April 30, 2000 Cont'd.
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
DESCRIPTION (a) (UNAUDITED) RATE DATE (000) (NOTE 1)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
New York St. Dorm. Auth. Rev.,
Cmnty. College, Ser. A A 5.00% 7/01/28 $ 4,275 $ 3,547,609
Port Auth. of New York & New
Jersey, USAir LaGuardia Arpt.,
A.M.T. Ba2 9.125 12/01/15 4,000 4,154,400
Rockland Cnty. Ind. Dev. Agcy.
Rev.,
Dominican Coll. Proj. NR 5.90 5/01/10 2,090 1,997,580
Dominican Coll. Proj. NR 6.25 5/01/28 3,000 2,725,350
Suffolk Cnty N.Y. Ind. Dev. Agcy,
Continuing Care Ret. Cmnty Rev.,
First Mtge., Jefferson Ferry,
Ser. A NR 7.25 11/01/28 1,000 956,630
--------------
36,260,695
-------------------------------------------------------------------------------------------------------
NORTH DAKOTA 1.2%
Mercer Cnty., Antelope Valley
Station, A.M.B.A.C Aaa 7.20 6/30/13 10,000 11,525,100
-------------------------------------------------------------------------------------------------------
OHIO 4.2%
Cleveland Pub. Pwr. Sys. Rev.,
First Mtge., M.B.I.A. Aaa Zero 11/15/12 1,000 497,640
First Mtge., M.B.I.A. Aaa Zero 11/15/13 1,500 701,445
Franklin Cnty. Hosp. Rev., Senior
Doctors Hlth. Corp. Baa3 5.60 12/01/28 10,000 7,189,100
Mahoning Valley San. Dist. Wtr.
Rev. NR 7.75 5/15/19 8,000(c) 8,874,880
Ohio St. Air Quality Dev. Auth.
Ref., Amt. Coll. Poll. Ctrl.,
Ser. A Ba1 6.10 8/01/20 3,000 2,721,630
Ohio St. Solid Wste. Rev.,
Cscltd. Proj., A.M.T. NR 8.50 8/01/22 7,000 5,827,710
Rep. Eng. Steels, Inc., A.M.T. NR 9.00 6/01/21 2,250 714,420
Ohio St. Wtr. Dev. Auth. Poll.
Ctrl. Facs.,
1st Mtge., Toledo Edison, A.M.T. Ba1 8.00 10/01/23 5,500 5,846,225
Ohio St. Air Quality Dev. Auth.
Ref., Amt. Coll. Poll. Ctrl.,
Ser. A Ba1 6.10 8/01/20 3,000 2,721,630
</TABLE>
See Notes to Financial Statements

B-60
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND High Income Series
Portfolio of Investments as of April 30, 2000 Cont'd.
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
DESCRIPTION (a) (UNAUDITED) RATE DATE (000) (NOTE 1)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Stark Cnty. Hlthcare. Facs. Rev.,
Rose Lane, Inc. Proj. NR 9.00% 12/01/23 $ 6,135(c) $ 6,874,881
--------------
41,969,561
-------------------------------------------------------------------------------------------------------
OKLAHOMA 0.3%
Tulsa Ind. Dev. Auth., Univ.
Tulsa, Ser. A, M.B.I.A. Aaa 6.00 10/01/16 3,250(f) 3,409,705
-------------------------------------------------------------------------------------------------------
OREGON 0.7%
Klamath Falls Elec. Rev. Ref.,
Sr. Lien NR 6.00 1/01/25 8,250 7,186,492
-------------------------------------------------------------------------------------------------------
PENNSYLVANIA 4.4%
Allegheny Cnty. Hosp. Rev., West
Penn. Hosp. Hlth. Ctr. NR 8.50 1/01/20 2,800 2,891,000
Berks Cnty. Mun. Auth. Rev.,
Alvernia Coll. Proj. NR 7.75 11/15/16 5,240 5,558,225
Dauphin Cnty. Gen. Auth. Hosp.
Rev., NW Med. Ctr. Proj. BBB-(b) 8.625 10/15/13 6,145 6,730,312
Delaware Cnty. Ind. Dev. Auth.
Rev., Refund. Res. Rec. Facs.,
Ser A B2 6.00 1/01/09 6,500 5,963,100
Philadelphia Auth. Ind. Dev. Rev. NR 7.75 12/01/17 5,000 5,236,400
Philadelphia Hosps. & Higher Edl.
Facs. Auth. Rev.,
Grad. Hlth. Sys. Ca 7.00 7/01/05 2,500(e) 887,500
Grad. Hlth. Sys. Ca 7.25 7/01/18 3,435(e) 1,219,425
Grad. Hlth. Sys., Ser. A Ca 6.25 7/01/13 3,050(e) 1,082,750
Philadelphia Wtr. & Wstewtr.
Auth. Rev., M.B.I.A. Aaa 6.25 8/01/12 3,000 3,242,970
Somerset Cnty. Hosp. Auth. Rev.,
Hlthcare. First Mtge. NR 8.40 6/01/09 2,055 2,162,291
Hlthcare. First Mtge. NR 8.50 6/01/24 8,805 9,274,571
--------------
44,248,544
</TABLE>
See Notes to Financial Statements

B-61
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND High Income Series
Portfolio of Investments as of April 30, 2000 Cont'd.
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
DESCRIPTION (a) (UNAUDITED) RATE DATE (000) (NOTE 1)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RHODE ISLAND 1.1%
Rhode Island Redev. Agcy., Ser. A NR 8.00% 9/01/24 $ 10,305 $ 10,732,657
-------------------------------------------------------------------------------------------------------
SOUTH CAROLINA 1.0%
So. Carolina Jobs Econ. Dev.,
First Mtge. Lutheran Homes NR 6.625 5/01/28 5,000 4,624,750
Solid Wste. Recycling Facs. Rev. NR 9.00 12/01/11 2,000 1,971,820
So. Carolina St. Hsg. Fin. & Dev.
Auth., Homeownership Mtge.
A.M.T. Aa2 7.75 7/01/22 2,960 3,023,818
--------------
9,620,388
-------------------------------------------------------------------------------------------------------
SOUTH DAKOTA 0.8%
Education Lns., Inc. Student Ln.
Rev., A.M.T. A2 5.60 6/01/20 3,300 3,049,167
So. Dakota Econ. Dev. Fin. Auth.,
Dakota Park, A.M.T. NR 10.25 1/01/19 4,775 4,895,091
--------------
7,944,258
-------------------------------------------------------------------------------------------------------
TENNESSEE 3.1%
Memphis Center City Rev. Fin.
Corp., Ser. B NR 6.50 9/01/28 26,000 23,707,840
Rutherford Cnty. Hlth. & Edl.
Facs. Brd., First Mtge. Rev. NR 9.50 12/01/19 6,300 6,827,562
--------------
30,535,402
-------------------------------------------------------------------------------------------------------
TEXAS 6.6%
Austin Hsg. Fin. Corp., Multifam.
Hsg. Rev., Stony Creek, Ser. A NR 7.75 11/01/29 9,390 9,208,679
Beaumont Hsg. Fin. Corp., Sngl.
Fam. Mtge. Rev. A1 9.20 3/01/12 960 1,084,771
Dallas-Fort Worth Int'l Arpt.
Facs. Impvt. Corp. Rev.,
American Airlines, Inc. Baa1 7.25 11/01/30 7,000 7,136,780
Harris Cnty., Ref. Toll Road Sub.
Lien Aaa 6.00 8/01/14 13,075 13,490,916
</TABLE>
See Notes to Financial Statements

B-62
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND High Income Series
Portfolio of Investments as of April 30, 2000 Cont'd.
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
DESCRIPTION (a) (UNAUDITED) RATE DATE (000) (NOTE 1)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Houston Arpt. Sys. Rev.,
Spec. Facs. Continental
Airlines, Ser. C Ba1 6.125% 7/15/27 $ 5,800 $ 5,059,572
Sub. Lien, Ser. C, F.G.I.C. Aaa 5.00 7/01/28 2,950 2,513,901
Katy Texas Dev. Auth. Rev., Tax
Increment Contract, Ser. B NR 6.00 6/01/18 4,000 3,716,560
Keller Ind. Sch. Dist., Cap.
Apprec. Ref., Ser. A, P.S.F.G. Aaa Zero 8/15/17 4,075 1,465,655
Meadow Parc Dev. Inc. Multifam.
Rev. Hsg. Meadow Proj. NR 6.50 12/01/30 5,000 4,546,550
New Braunfels Ind. Sch. Dist.,
Cap. Apprec., P.S.F.G. Aaa Zero 2/01/08 2,365 1,551,275
Cap. Apprec., P.S.F.G. Aaa Zero 2/01/09 2,365 1,464,195
Cap. Apprec., P.S.F.G. Aaa Zero 2/01/12 2,365 1,218,519
Round Rock Ind. Sch. Dist., Gen.
Oblig., M.B.I.A. Aaa Zero 8/15/11 4,385 2,336,723
San Antonio Elec. & Gas Rev.,
F.G.I.C., Ser. B Aaa Zero 2/01/12 7,500 3,886,425
Texas Mun. Pwr. Agcy. Rev.,
M.B.I.A. Aaa Zero 9/01/15 17,300 7,100,266
--------------
65,780,787
-------------------------------------------------------------------------------------------------------
UTAH 0.1%
Carbon Cnty. Solid Wste. Disp.
Rev. Ref., Laidlaw
Environmental, Ser. A, A.M.T. NR 7.45 7/01/17 1,000 899,230
Tooele Cnty. Poll. Ctrl. Rev.
Ref., Laidlaw Environmental,
Ser. A, A.M.T. NR 7.55 7/01/27 4,000 599,920
--------------
1,499,150
-------------------------------------------------------------------------------------------------------
VIRGINIA 2.0%
Loudoun Cnty. Ind. Dev. Auth.
Rev. NR 7.125 9/01/15 2,000 2,050,580
Norfolk Redev. & Hsg. Auth.,
Multifam. Rental Hsg. Facs.
Rev., A.M.T. NR 8.00 9/01/26 6,000 5,801,940
</TABLE>
See Notes to Financial Statements

B-63
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND High Income Series
Portfolio of Investments as of April 30, 2000 Cont'd.
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
DESCRIPTION (a) (UNAUDITED) RATE DATE (000) (NOTE 1)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Pittsylvania Cnty. Ind. Dev.
Auth. Rev. Multitrade, A.M.T. NR 7.55% 1/01/19 $ 9,000 $ 9,177,570
Pocahontas Pkwy. Assoc. Toll Rd.
Rev.,
Cap. Apprec., Ser. B Baa3 Zero 8/15/16 7,000 2,220,750
Cap. Apprec., Ser. C Ba1 Zero 8/15/16 3,300 983,136
--------------
20,233,976
-------------------------------------------------------------------------------------------------------
WASHINGTON 2.5%
Bellevue Conv. Ctr. Auth.,
King City, Oblig. Rev., M.B.I.A. Aaa Zero 2/01/10 870 506,079
King City, Oblig. Rev., M.B.I.A. Aaa Zero 2/01/11 1,200 658,956
King City, Oblig. Rev., M.B.I.A. Aaa Zero 2/01/12 1,300 669,799
King City, Oblig. Rev., M.B.I.A. Aaa Zero 2/01/14 1,385 629,011
Thurston Cnty. Sch. Dist. 333,
F.G.I.C. Aaa Zero 12/01/12 6,830 3,357,492
F.G.I.C., Ser. B Aaa Zero 12/01/11 6,415 3,362,871
Washington St. Ref., Ser R-97A Aa1 Zero 7/01/16 7,000 2,715,860
Washington St. Pub. Pwr. Supply
Sys. Rev.,
Nuclear Proj. No. 1, Ser. B Aa1 7.25 7/01/09 5,000 5,527,550
Nuclear Proj. No. 3, M.B.I.A. Aaa Zero 7/01/17 5,000 1,799,350
Nuclear Proj. No. 3, Ser. B,
M.B.I.A. Aaa 7.125 7/01/16 5,000 5,744,100
--------------
24,971,068
-------------------------------------------------------------------------------------------------------
WEST VIRGINIA 0.8%
So. Charleston Ind. Dev. Rev.,
Union Carbide Chem. & Plastics
Co., A.M.T. Baa2 8.00 8/01/20 2,450 2,510,711
Weirton Poll. Ctrl. Rev., Weirton
Steel Proj. B2 8.625 11/01/14 2,700 2,662,740
West Virginia St. Pkwys. Econ.
Dev. & Tourism Auth., F.G.I.C. Aaa 7.129 5/16/19 3,250(b) 3,095,625
--------------
8,269,076
</TABLE>
See Notes to Financial Statements

B-64
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND High Income Series
Portfolio of Investments as of April 30, 2000 Cont'd.
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
DESCRIPTION (a) (UNAUDITED) RATE DATE (000) (NOTE 1)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
WISCONSIN 1.0%
Oconto Falls Cmnty. Dev. Auth.
Dev. Rev., NR 8.125% 12/01/22 $ 1,500 $ 1,476,225
Oconto Falls Cmnty. Dev. Auth.
Dev. Rev., Oconto Falls Tissue
Inc. Proj., A.M.T. NR 7.75 12/01/22 8,800 8,535,032
--------------
10,011,257
--------------
Total long-term investments (cost
$1,008,745,342) 987,096,908
--------------
SHORT-TERM INVESTMENTS 2.1%
-------------------------------------------------------------------------------------------------------
CALIFORNIA 0.1%
Newport Beach Rev., Var. Hoag
Mem. Hosp., F.R.D.D., Ser. A VMIG1 6.00 5/01/00 1,200 1,200,000
-------------------------------------------------------------------------------------------------------
FLORIDA 0.5%
Jacksonville Electric Auth. Rev.,
Merlots, F.R.W.D., Ser. F VMIG1 4.90 5/03/00 4,705 4,705,000
-------------------------------------------------------------------------------------------------------
ILLINOIS 0.1%
Madison Cnty. Enviromental Impvt.
Rev., Shell Wood Rvr. Proj.,
A.M.T., F.R.D.D., Ser. A VMIG1 6.20 5/01/00 500 500,000
-------------------------------------------------------------------------------------------------------
LOUISIANA 0.1%
St. Charles Parish Poll. Ctrl.
Rev., Shell Oil Co. Proj.,
F.R.D.D., A.M.T., Ser. A VMIG1 6.20 5/01/00 900 900,000
West Baton Rouge Parish Ind.
Dist. No. 3 Rev., Dow Chemical
Co. Proj., F.R.D.D., A.M.T.,
Ser. 93 P1 6.25 5/01/00 400 400,000
--------------
1,300,000
</TABLE>
See Notes to Financial Statements

B-65
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND High Income Series
Portfolio of Investments as of April 30, 2000 Cont'd.
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
DESCRIPTION (a) (UNAUDITED) RATE DATE (000) (NOTE 1)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NEVADA
Washoe Cnty. Wtr. Facs. Rev.,
Sierra Pac. Pwr. Co. Proj.,
A.M.T., F.R.D.D., Ser. 90 P1 6.25% 5/01/00 $ 400 $ 400,000
-------------------------------------------------------------------------------------------------------
SOUTH CAROLINA 0.2%
Florence Cnty. South Carolina
Solid Wste. Disp. & Wstewtr.
Treatment Facs. Rev., A.M.T.,
F.R.D.D. A1(b) 6.25 5/01/00 1,500 1,500,000
-------------------------------------------------------------------------------------------------------
TEXAS 0.6%
Brazos River Auth. Poll. Ctrl.
Rev., A.M.T., F.R.D.D, Ser. 96C VMIG1 6.25 5/01/00 800 800,000
Brazos River Harbor Nav. Dist.
Rev., Dow Chemical Co., Ser.
92A, F.R.D.D., A.M.T. P1 6.25 5/01/00 300 300,000
Gulf Coast Ind. Dev. Auth., Texas
Env. Facs. Rev., F.R.D.D. VMIG1 6.25 5/01/00 200 200,000
Gulf Coast Wste. Disp. Auth.
Facs. Rev. Ser. 97, F.R.D.D.,
A.M.T. P1 6.25 5/01/00 600 600,000
Gulf Coast Wste. Disp. Auth.,
Texas Environmental Facs. Rev. A1(b) 6.20 5/01/00 800 800,000
Texas Environmental Facs. Rev.,
A.M.T., F.R.D.D. VMIG1 6.20 5/01/00 200 200,000
Midlothian Ind. Dev. Corp. Exempt
Facs. Rev., A.M.T., F.R.D.D. A-1+(b) 6.25 5/01/00 1,700 1,700,000
Port Corpus Christi Ind. Citgo
Petroleum Corp. Proj., A.M.T.,
F.R.D.D. VMIG1 6.25 5/01/00 100 100,000
West Side Calhoun Cnty. Nav.
Dist., Swr. & Solid Wste. Disp.
Rev. Proj., A.M.T., F.R.D.D.,
Ser. 96 P-1 6.20 5/01/00 1,600 1,600,000
--------------
6,300,000
</TABLE>
See Notes to Financial Statements

B-66
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND High Income Series
Portfolio of Investments as of April 30, 2000 Cont'd.
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
DESCRIPTION (a) (UNAUDITED) RATE DATE (000) (NOTE 1)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
VIRGINIA 0.5%
Virginia St. Hsg. Dev. Auth.
Commwlth. Mtge., Merlots,
F.R.W.D., A.M.T., Ser. C VMIG1 5.23% 5/03/00 $ 5,000 $ 5,000,000
--------------
Total short-term investments
(cost $20,905,000) 20,905,000
--------------
TOTAL INVESTMENTS 100.8%
(COST $1,029,650,342; NOTE 4) 1,008,001,908
Liabilities in excess of other
assets (0.8)% (8,423,949)
--------------
NET ASSETS 100% $ 999,577,959
--------------
--------------
</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 (d)
F.R.W.D.--Floating Rate (Weekly) Demand Note (d)
G.N.M.A.--Government National Mortgage Association
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 and direct U.S. guaranteed
obligations.
(d) The maturity date shown is the later of the next date on which the security
can be redeemed at par or the next date on which the rate of interest is
adjusted.
(e) Issuer in default of interest payment. Non-income producing security.
(f) All or partial principal amount segregated as initial margin on financial
futures contracts.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current prospectus contains a description of Moody's and Standard &
Poor's ratings.

See Notes to Financial Statements

B-67
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND High Income Series
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
APRIL 30, 2000
--------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments, at value (cost $1,029,650,342) $1,008,001,908
Interest receivable 20,351,584
Receivable for investments sold 18,417,589
Receivable for Series shares sold 765,689
Deferred expenses and other assets 18,296
--------------
TOTAL ASSETS 1,047,555,066
--------------
LIABILITIES
Bank overdraft 66,243
Payable for investments purchased 43,844,420
Payable for Series shares reacquired 1,638,576
Dividends payable 1,522,316
Management fee payable 413,858
Distribution fee payable 312,628
Due to broker - variation margin 85,562
Accrued expenses 93,504
--------------
TOTAL LIABILITIES 47,977,107
--------------
NET ASSETS $ 999,577,959
--------------
--------------
Net assets were comprised of:
Shares of beneficial interest, at par $ 978,381
Paid-in capital in excess of par 1,057,696,707
--------------
1,058,675,088
Undistributed net investment income 36,989
Accumulated net realized loss on investments (37,273,075)
Net unrealized depreciation of investments (21,861,043)
--------------
Net assets, April 30, 2000 $ 999,577,959
--------------
--------------
</TABLE>

See Notes to Financial Statements

B-68
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND High Income Series
Statement of Assets and Liabilities Con't.
<TABLE>
<CAPTION>
APRIL 30, 2000
--------------------------------------------------------------------------------------
<S> <C>
Class A:
Net asset value and redemption price per share ($503,873,795
DIVIDED BY 49,316,443 shares of beneficial interest
issued and outstanding) $10.22
Maximum sales charge (3% of offering price) .32
--------------
Maximum offering price to public $10.54
--------------
--------------
Class B:
Net asset value, offering price and redemption price per
share ($457,840,842 DIVIDED BY 44,814,840 shares of
beneficial interest issued and outstanding) $10.22
--------------
--------------
Class C:
Net asset value and redemption price per share ($30,060,824
DIVIDED BY 2,942,485 shares of beneficial interest issued
and outstanding) $10.22
Sales charge (1% of offering price) .10
--------------
Offering price to public $10.32
--------------
--------------
Class Z:
Net asset value, offering price and redemption price per
share ($7,802,498 DIVIDED BY 764,357 shares of beneficial
interest issued and outstanding) $10.21
--------------
--------------
</TABLE>

See Notes to Financial Statements

B-69
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND High Income Series
Statement of Operations
<TABLE>
<CAPTION>
YEAR
ENDED
APRIL 30, 2000
----------------------------------------------------------------------------------------
<S> <C>
NET INVESTMENT INCOME
Income
Interest $ 73,960,296
--------------
Expenses
Management fee 5,495,099
Distribution fee--Class A 1,267,219
Distribution fee--Class B 2,799,395
Distribution fee--Class C 245,716
Transfer agent's fees and expenses 409,000
Custodian's fees and expenses 146,000
Reports to shareholders 73,000
Registration fees 65,000
Trustees' fees and expenses 26,000
Legal fees and expenses 20,000
Insurance expense 17,000
Audit fees and expenses 15,000
Miscellaneous 14,799
--------------
TOTAL EXPENSES 10,593,228
Less: Management fee waiver (50,963)
Custodial fee credit (7,345)
--------------
Net expenses 10,534,920
--------------
NET INVESTMENT INCOME 63,425,376
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on:
Investment transactions (13,602,468)
Financial futures contract transactions 822,156
Written and purchased options (143,900)
--------------
(12,924,212)
--------------
Net change in unrealized depreciation of:
Investments (91,235,563)
Financial futures contracts (396,984)
--------------
(91,632,547)
--------------
Net loss on investments (104,556,759)
--------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (41,131,383)
--------------
--------------
</TABLE>

See Notes to Financial Statements

B-70
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND High Income Series
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
APRIL 30, 2000 APRIL 30, 1999
---------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income $ 63,425,376 $ 65,281,521
Net realized gain (loss) on investment
transactions (12,924,212) 626,227
Net change in unrealized depreciation of
investments (91,632,547) (12,001,065)
-------------- --------------
Net increase (decrease) in net assets
resulting from operations (41,131,383) 53,906,683
-------------- --------------
DIVIDENDS FROM NET INVESTMENT INCOME (NOTE 1)
Class A (29,722,571) (27,230,164)
Class B (31,310,165) (35,903,105)
Class C (1,755,953) (1,344,435)
Class Z (636,687) (803,817)
-------------- --------------
(63,425,376) (65,281,521)
-------------- --------------
SERIES SHARE TRANSACTIONS (NET OF SHARE
CONVERSIONS) (NOTE 5):
Net proceeds from shares sold 195,654,738 271,203,411
Net asset value of shares issued in
reinvestment of dividends 29,467,610 30,134,516
Cost of shares reacquired (332,423,850) (199,757,462)
-------------- --------------
Net increase (decrease) in net assets from
Series share transactions (107,301,502) 101,580,465
-------------- --------------
Total increase (decrease) (211,858,261) 90,205,627
NET ASSETS
Beginning of year 1,211,436,220 1,121,230,593
-------------- --------------
End of year(a) $ 999,577,959 $1,211,436,220
-------------- --------------
-------------- --------------
---------------
(a) Includes undistributed net investment
income of $ 36,989 $ --
-------------- --------------
-------------- --------------
</TABLE>
See Notes to Financial Statements

B-71
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND Insured Series
Portfolio of Investments as of April 30, 2000 Cont'd.
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
DESCRIPTION (a) (UNAUDITED) RATE DATE (000) (NOTE 1)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LONG-TERM INVESTMENTS 97.7%
------------------------------------------------------------------------------------------------------------
ALABAMA 2.8%
Huntsville Solid Wste. Disp.
Auth., F.G.I.C., A.M.T. Aaa 7.00% 10/01/08 $ 2,000 $ 2,057,840
Jefferson Cnty. Swr. Rev. Wste.,
Ser. A, F.G.I.C. Aaa 5.375 2/01/27 8,000 7,386,080
--------------
9,443,920
-------------------------------------------------------------------------------------------------------
ALASKA 2.6%
Anchorage Hosp. Rev., Sisters of
Providence, A.M.B.A.C. Aaa 7.125 10/01/05 5,000 5,249,700
No. Slope Boro., Cap. Apprec.,
Ser. A, M.B.I.A. Aaa Zero 6/30/06 5,000 3,572,800
--------------
8,822,500
-------------------------------------------------------------------------------------------------------
ARIZONA 3.0%
Maricopa Cnty. Ind. Dev. Auth.
Rev.,
Hosp. Facs., John C. Lincoln
Hosp., F.S.A. Aaa 7.00 12/01/00 625 634,450
Hosp. Facs., John C. Lincoln
Hosp., F.S.A. Aaa 7.50 12/01/13 1,045(c) 1,084,396
Hosp. Facs., John C. Lincoln
Hosp., F.S.A. Aaa 7.50 12/01/13 1,205 1,247,380
Maricopa Cnty. Unified Sch. Dist.
No. 69, Paradise Valley, Ser. E,
F.G.I.C. Aaa 6.80 7/01/12 3,700 4,205,753
Tucson Arizona Street & Highway
User Rev., Jr. Lien, Ser. E,
F.G.I.C. Aaa 5.00 7/01/17 3,000 2,815,410
--------------
9,987,389
-------------------------------------------------------------------------------------------------------
CALIFORNIA 6.4%
Castaic Lake Wtr. Agcy. Rev.
Ctfs. Part.,
A.M.B.A.C. Aaa Zero 8/01/21 10,445 2,935,881
A.M.B.A.C. Aaa Zero 8/01/23 10,445 2,582,004
</TABLE>
See Notes to Financial Statements

B-72
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND Insured Series
Portfolio of Investments as of April 30, 2000 Cont'd.
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
DESCRIPTION (a) (UNAUDITED) RATE DATE (000) (NOTE 1)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Contra Costa Wtr. Dist. Wtr.
Rev., Ser. E, A.M.B.A.C. Aaa 6.25% 10/01/12 $ 1,455 $ 1,608,939
Inland Empire Solid Wste. Fin.
Auth., Landfill Impvt. Fin.,
Proj. B, F.S.A. Aaa 6.00 8/01/16 2,000 2,145,600
Roseville Joint Union H.S. Dist.,
Ser. B, F.G.I.C. Aaa Zero 8/01/13 2,015 970,102
San Diego Cnty. Wtr. Auth. Wtr.
Rev., Ctfs. of Part., F.G.I.C. Aaa 7.087 4/26/06 5,800 6,140,750
So. Orange Cnty. Pub. Fin. Auth.,
Foothill Area Proj., F.G.I.C. Aaa 8.00 8/15/08 2,000 2,395,660
Victor Valley Element. Sch.
Dist.,
Cap. Apprec., Ser. A, M.B.I.A. Aaa Zero 6/01/17 3,550 1,325,037
Cap. Apprec., Ser. A, M.B.I.A. Aaa Zero 6/01/18 3,700 1,289,968
--------------
21,393,941
-------------------------------------------------------------------------------------------------------
COLORADO 2.2%
Denver City & Cnty. Arpt. Rev.,
Ser. C, M.B.I.A. Aaa 5.60 11/15/11 5,000 5,020,050
E-470 Public Highway Auth.
Colorado Rev., Cap. Apprec.,
Ser. B, M.B.I.A. Aaa Zero 9/01/20 7,000 2,045,680
Jefferson Cnty. Sngl. Fam. Mtge.
Rev., Ser. A, M.B.I.A. Aaa 8.875 10/01/13 190 196,992
--------------
7,262,722
-------------------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA 7.7%
Dist. of Columbia Hosp. Rev.
Medlantic Hlthcare Grp.,
M.B.I.A. Aaa 5.875 8/15/19 3,500 3,507,595
M.B.I.A. Aaa 5.75 8/15/26 3,000 2,920,440
Dist. of Columbia Met. Area
Trans. Auth.,
Gross Rev., F.G.I.C. Aaa 6.00 7/01/09 2,400 2,529,528
Gross Rev., F.G.I.C. Aaa 6.00 7/01/10 1,500 1,582,845
</TABLE>
See Notes to Financial Statements

B-73
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND Insured Series
Portfolio of Investments as of April 30, 2000 Cont'd.
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
DESCRIPTION (a) (UNAUDITED) RATE DATE (000) (NOTE 1)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dist. of Columbia Ref.,
Ser. A, M.B.I.A. Aaa 6.50% 6/01/10 $ 6,000 $ 6,505,740
Ser. B, F.S.A. Aaa 5.50 6/01/10 4,565 4,585,817
Dist. of Columbia, Assoc.
American Med. Colleges,
A.M.B.A.C. Aaa 5.375 2/15/27 4,500 4,126,410
--------------
25,758,375
-------------------------------------------------------------------------------------------------------
FLORIDA 4.2%
Brevard Hlth. Facs. Auth. Rev.,
Holmes Reg'l. Med. Ctr.,
M.B.I.A. Aaa 5.60 10/01/10 6,000 6,112,740
Dade Cnty. Edl. Facs. Auth. Rev.
Ref., Univ. Miami, Ser. A,
M.B.I.A. Aaa 5.625 4/01/06 2,000 2,056,120
Orange Cnty. Hlth. Facs. Auth.
Rev. Hosp., Preref., Ser. A Aaa 6.25 10/01/07 2,235(c) 2,387,851
Orange Cnty. Hlth. Facs. Auth.
Rev., Unref., Ser. A, M.B.I.A. Aaa 6.25 10/01/07 925 983,562
Palm Beach Cnty. Solid Wste.
Auth. Rev. Ref.,
Ser. A, A.M.B.A.C. Aaa 6.00 10/01/09 295 313,072
Ser. A, A.M.B.A.C. Aaa 6.00 10/01/09 2,205 2,331,655
--------------
14,185,000
-------------------------------------------------------------------------------------------------------
GEORGIA 1.8%
Atlanta Arpt. Facs. Rev.,
A.M.B.A.C. Aaa 6.50 1/01/10 2,000 2,181,240
Georgia Mun. Elec. Auth., Pwr.
Rev., M.B.I.A. Aaa 6.20 1/01/10 3,495 3,733,114
--------------
5,914,354
-------------------------------------------------------------------------------------------------------
HAWAII 2.8%
Hawaii St. Dept. Bdg. & Fin.
Special Purpose Rev., Hawaiian
Electric Co. Inc. Pjs., Ser. C. Aaa 6.20 11/01/29 8,000 8,051,440
</TABLE>
See Notes to Financial Statements

B-74
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND Insured Series
Portfolio of Investments as of April 30, 2000 Cont'd.
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
DESCRIPTION (a) (UNAUDITED) RATE DATE (000) (NOTE 1)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Honolulu Hawaii City & Cnty.
Wstewtr. Sys.,
Rev. Cap. Apprec., F.G.I.C. Aaa Zero 7/01/18 $ 1,465 $ 492,386
Rev. Cap. Apprec., F.G.I.C. Aaa Zero 7/01/19 2,305 725,545
--------------
9,269,371
-------------------------------------------------------------------------------------------------------
ILLINOIS 6.7%
Arlington Hts. Park Dist., Cap.
Apprec., Ser. E, A.M.B.A.C. Aaa Zero 12/01/13 4,175 1,927,013
Chicago Illinois Ser. A, F.G.I.C. Aaa 6.75% 1/01/35 2,000 2,156,160
Chicago Midway Arpt. Rev., Ser.
B, M.B.I.A., A.M.T. Aaa 5.75 1/01/22 5,000 4,819,700
Chicago O' Hare Int'l. Arpt.
Rev., Pass. Facs. Chrg., Ser. A,
A.M.B.A.C. Aaa 5.625 1/01/15 2,000 1,987,000
Chicago Skyway Toll Brdg. Rev.,
M.B.I.A. Aaa 5.50 1/01/23 650 612,248
Chicago Wstewtr. Trans. Rev.,
Cap. Apprec. Ref., Ser. A,
M.B.I.A. Aaa Zero 1/01/21 8,655 2,444,259
Chicago Wtr. Rev., Cap. Apprec.,
F.G.I.C. Aaa Zero 11/01/16 3,055 1,151,246
Onterie Ctr. Hsg. Fin. Corp.
Mtge. Rev.,
Ser. A, M.B.I.A. Aaa 7.00 7/01/12 1,575 1,634,188
Ser. A, M.B.I.A. Aaa 7.05 7/01/27 5,400 5,610,600
--------------
22,342,414
-------------------------------------------------------------------------------------------------------
INDIANA 1.6%
Trans. Fin. Auth. Hwy., Ser. A Aa2 5.50 12/01/22 5,500 5,286,710
-------------------------------------------------------------------------------------------------------
LOUISIANA 0.7%
New Orleans, Gen. Oblig., Cap.
Apprec., A.M.B.A.C. Aaa Zero 9/01/09 4,000 2,407,360
</TABLE>
See Notes to Financial Statements

B-75
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND Insured Series
Portfolio of Investments as of April 30, 2000 Cont'd.
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
DESCRIPTION (a) (UNAUDITED) RATE DATE (000) (NOTE 1)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MAINE 0.7%
Maine Str. Turnpike Auth. Rev.,
F.G.I.C. Aaa 5.50% 7/01/30 $ 2,500 $ 2,362,950
-------------------------------------------------------------------------------------------------------
MASSACHUSETTS 0.6%
Massachusetts St. Hlth. & Edl.
Facs. Auth. Rev., F.G.I.C. Aaa 5.875 10/01/29 2,000 1,979,180
-------------------------------------------------------------------------------------------------------
MICHIGAN 4.5%
Detroit Dwntwn. Dev., Ser. A,
A.M.B.A.C. Aaa 5.75 7/15/15 1,820 1,834,051
Detroit Michigan Sewage Disposal
Rev.,
Non-prerefunded Aaa 6.857 7/01/23 1,500(d) 1,365,000
Prerefunded Aaa 6.857 7/01/23 5,000(c)(d) 5,256,250
Michigan St. Hosp. Fin. Auth.
Rev., Mid. Michigan Oblig.,
M.B.I.A. Aaa 7.50 6/01/15 2,350(c) 2,403,298
Saginaw Hosp. Fin. Auth., St.
Luke's Hosp., Ser. C, M.B.I.A. Aaa 6.50 7/01/11 4,000 4,142,760
--------------
15,001,359
-------------------------------------------------------------------------------------------------------
MISSISSIPI 0.7%
Harrison Cnty. Wste. Wtr. Mgmt.
Dist. Rev., Wstewtr. Treatmt.,
Facs. Auth., F.G.I.C. Aaa 6.50 2/01/06 2,400 2,482,128
-------------------------------------------------------------------------------------------------------
MISSOURI 0.5%
Missouri St. Hlth. & Edl. Facs.
Rev.,
SSM Hlthcare, Ref., Ser. AA Aaa 6.25 6/01/16 285(c) 298,084
SSM Hlthcare, Unref., Ser. AA,
M.B.I.A. Aaa 6.25 6/01/16 1,215 1,237,672
--------------
1,535,756
-------------------------------------------------------------------------------------------------------
MONTANA 0.6%
Forsyth Poll. Ctrl. Rev., Puget
Sound Pwr. & Lt. Co., 1st Mtge.,
Ser. A, A.M.B.A.C. Aaa 7.05 8/01/21 2,000 2,083,300
</TABLE>
See Notes to Financial Statements

B-76
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND Insured Series
Portfolio of Investments as of April 30, 2000 Cont'd.
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
DESCRIPTION (a) (UNAUDITED) RATE DATE (000) (NOTE 1)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NEW JERSEY 6.9%
East Orange Bd. Edl. Ctfs. Part.,
Cap. Apprec., F.S.A. Aaa Zero 2/01/15 $ 785 $ 331,843
Cap. Apprec., F.S.A. Aaa Zero 2/01/16 650 256,834
Cap. Apprec., F.S.A. Aaa Zero 2/01/18 2,645 913,054
Cap. Apprec., F.S.A. Aaa Zero 8/01/18 425 142,384
Jersey City Swr. Auth.,
A.M.B.A.C. Aaa 6.00% 1/01/10 2,585 2,738,420
A.M.B.A.C. Aaa 6.25 1/01/14 4,255 4,614,037
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 4,784,450
New Jersey Econ. Dev. Auth.,
Mkt. Trans. Facs. Rev., M.B.I.A. Aaa 5.875 7/01/11 5,900 6,069,920
Mkt. Trans. Facs. Rev., Sr.
Lien, M.B.I.A. Aaa 5.80 7/01/09 3,340 3,440,868
--------------
23,291,810
-------------------------------------------------------------------------------------------------------
NEW YORK 13.5%
Islip Res. Rec., Ser. B,
A.M.B.A.C. Aaa 7.20 7/01/10 1,750 1,977,815
Long Island Pwr. Auth. New York
Elec. Sys. Rev.,
Cap. Apprec., F.S.A. Aaa Zero 6/01/25 5,000 1,112,500
Cap. Apprec., F.S.A. Aaa Zero 6/01/26 7,500 1,571,700
Cap. Apprec., F.S.A. Aaa Zero 6/01/28 4,735 876,922
Met. Trans. Auth. N.Y. Trans.
Facs. Rev., F.S.A. Aaa 5.75 7/01/11 5,000 5,123,950
Metropolitan Trans. Auth. New
York Dedicated Tax Fund F.G.I.C. Aaa 6.00 4/01/30 3,000 3,019,890
New York City,
Ser. G, M.B.I.A. Aaa 5.75 2/01/14 3,000 3,037,110
Cap. Apprec., Ser. G, M.B.I.A. Aaa Zero 8/01/07 3,290 2,237,924
New York St. Dorm. Auth. Rev.,
Montefiore Med. Ctr., A.M.B.A.C. Aaa 6.00 8/01/08 3,400 3,564,152
</TABLE>
See Notes to Financial Statements

B-77
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND Insured Series
Portfolio of Investments as of April 30, 2000 Cont'd.
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
DESCRIPTION (a) (UNAUDITED) RATE DATE (000) (NOTE 1)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
New York St. Envir. Facs. Corp.,
Poll. Ctrl. Rev. Aaa 5.70% 7/15/12 $ 2,375 $ 2,424,661
Poll. Ctrl. Rev. Aaa 5.75 7/15/13 1,060 1,081,720
Poll. Ctrl. Rev. Aaa 5.80 7/15/14 3,755 3,829,424
New York St. Local Govt.
Assistance Corp., Ref. Ser. E,
M.B.I.A. Aaa 5.00 4/01/21 5,000 4,479,550
Port Auth. New York & New Jersey
Cons., Ser. 99, F.G.I.C. Aaa 5.90 11/01/11 7,665 7,882,609
Suffolk Cnty. Judicial Facs.
Agcy. Serv. Agreement Rev.,
A.M.B.A.C. Aaa 5.75 10/15/12 3,000 3,083,640
--------------
45,303,567
-------------------------------------------------------------------------------------------------------
OHIO 0.3%
Lebanon Wtrwks. Sys. Rev. Ref.
Impvt., 1st Mtg. Aaa 5.30 12/01/24 1,000 918,460
-------------------------------------------------------------------------------------------------------
OKLAHOMA 2.4%
Norman Reg'l. Hosp. Auth., Rev.
Ref., Ser. A, M.B.I.A. Aaa 5.50 9/01/11 4,110 4,115,097
Oklahoma City Arpt. Trust, Jr.
Lien, Ser. 24, A.M.B.A.C.,A.M.T. Aaa 5.75 2/01/18 2,620 2,565,556
Oklahoma Hsg. Fin. Agcy. Single
Family Rev., Amt. Mtg. Homeown.
Loan Pg. Series A 2, G.N.M.A.,
F.N.M.A. Aaa 6.35 9/01/27 1,430 1,439,538
--------------
8,120,191
-------------------------------------------------------------------------------------------------------
PENNSYLVANIA 0.9%
Philadelphia Mun. Auth. Rev.,
Criminal Justice Ctr., Ser. A,
M.B.I.A. Aaa 6.90 11/15/03 3,000 3,145,680
-------------------------------------------------------------------------------------------------------
PUERTO RICO 3.0%
Puerto Rico Pub. Bldgs. Auth.
Rev., Gov't. Facs., Ser. A,
A.M.B.A.C. Aaa 6.25 7/01/13 1,700 1,860,055
</TABLE>
See Notes to Financial Statements

B-78
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND Insured Series
Portfolio of Investments as of April 30, 2000 Cont'd.
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
DESCRIPTION (a) (UNAUDITED) RATE DATE (000) (NOTE 1)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Puerto Rico Tel. Auth. Rev.,
Ser. I, M.B.I.A., R.I.B.S. Aaa 6.639% 1/25/07 $ 4,100(c) $ 4,228,125
Ser. I, M.B.I.A., R.I.B.S. Aaa 6.56 1/16/15 3,800(c) 4,004,250
--------------
10,092,430
-------------------------------------------------------------------------------------------------------
SOUTH DAKOTA 1.7%
So. Dakota Hsg. Dev. Auth.,
Homeownership Mtge., Ser. F,
A.M.T. Aa1 5.80 5/01/28 5,975 5,681,986
-------------------------------------------------------------------------------------------------------
TENNESSEE 1.6%
Met. Gov't. Nashville & Davidson
Cnty. Wtr. & Swr. Rev.,
A.M.B.A.C., R.I.B.S Aaa 7.628 1/01/22 5,000(c) 5,356,250
-------------------------------------------------------------------------------------------------------
TEXAS 9.6%
Austin Util. Sys. Rev. Comb.,
Ser. A, M.B.I.A. Aaa 4.875 11/15/10 5,300 5,013,058
Austin Util. Sys. Rev.,
Preref. Cap. Apprec., Ser. A Aaa 5.40 5/15/03 725(c) 619,462
Unref. Bal. Cap. Apprec., Ser. A Aaa 5.40 5/15/03 3,275 2,791,610
Harris Cnty. Texas, Ref. Toll
Road Sub. Lien, F.G.I.C. Aaa 6.00 8/01/13 1,795 1,860,033
Houston Arpt. Sys. Rev., Aaa 7.20 7/01/13 3,900 4,325,295
Houston Arpt. Sys. Rev., Spec.
Facs. People Mover, Ser. A,
F.S.A. Aaa 6.00 7/15/05 3,255 3,364,791
Houston Wtr. & Swr. Sys. Rev.,
Jr. Lien, Ser. C, F.G.I.C. Aaa 5.375 12/01/27 10,000 9,137,800
Ref. Jr. Lien, Ser. D Aaa 6.125 12/01/25 3,000 3,005,130
Keller Ind. Sch. Dist., P.S.F.G. Aaa Zero 8/15/15 4,945 2,034,768
--------------
32,151,947
-------------------------------------------------------------------------------------------------------
VIRGINIA 2.3%
Richmond Met. Auth. Expwy. Rev.
Ref., F.G.I.C. Aaa 5.25 7/15/22 5,265 4,862,228
Virginia Beach Hosp. Facs. Rev.,
1st Mtge., A.M.B.A.C. Aaa 6.00 2/15/10 1,220 1,274,070
1st Mtge., A.M.B.A.C. Aaa 6.00 2/15/13 1,455 1,525,175
--------------
7,661,473
</TABLE>
See Notes to Financial Statements

B-79
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND Insured Series
Portfolio of Investments as of April 30, 2000 Cont'd.
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
DESCRIPTION (a) (UNAUDITED) RATE DATE (000) (NOTE 1)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
WASHINGTON 5.4%
Washington St. Hlthcare Facs.
Auth. Rev., Yakima Valley
Memorial Hosp. Assoc. AAA(b) 5.25% 12/01/20 $ 2,500 $ 2,247,175
Washington St. Pub. Pwr. Supply
Sys.,
Nuclear Proj. No. 1, Ser. A,
M.B.I.A. Aaa 5.75 7/01/10 7,000 7,141,050
Nuclear Proj. No. 2, Ser. A,
M.B.I.A. Aaa Zero 7/01/11 5,210 2,819,756
Nuclear Proj. No. 2, Ser. B,
F.G.I.C. Aaa 7.25 7/01/03 3,000(c) 3,074,070
Nuclear Proj. No. 3, Ser. B,
F.G.I.C. Aaa Zero 7/01/08 4,500 2,876,400
--------------
18,158,451
Total long-term investments (cost
$323,644,778) 327,400,974
--------------
SHORT-TERM INVESTMENTS 2.2%
-------------------------------------------------------------------------------------------------------
ILLINOIS 0.2%
Madison Cnty. Env. Improv. Rev.,
Adj., F.R.D.D., A.M.T., Ser. A A1+(b) 6.20 5/01/00 500 500,000
-------------------------------------------------------------------------------------------------------
LOUISIANA 0.2%
Plaquemines Parish Env. Rev.,
Adj. Ref. Bp. Exploration & Oil,
F.R.D.D., A.M.T. P1 6.20 5/01/00 600 600,000
-------------------------------------------------------------------------------------------------------
NEW MEXICO 0.7%
Farmington Poll. Ctrl. Rev.,
Merlots, F.R.W.D., Ser. DD NR 4.90 5/03/00 2,500 2,500,000
</TABLE>
See Notes to Financial Statements

B-80
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND Insured Series
Portfolio of Investments as of April 30, 2000 Cont'd.
<TABLE>
<CAPTION>
MOODY'S PRINCIPAL
RATING INTEREST MATURITY AMOUNT VALUE
DESCRIPTION (a) (UNAUDITED) RATE DATE (000) (NOTE 1)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TEXAS 1.1%
Brazos Rvr. Auth. Poll. Ctrl.
Rev.,
A.M.T., F.R.D.D., Ser. C VMIG1 6.25% 5/01/00 $ 1,200 $ 1,200,000
Texas Util. Elec. Co., F.R.D.D.,
A.M.T., A.M.B.A.C. VMIG1 6.25 5/01/00 100 100,000
Gulf Coast Wste. Disp. Auth.,
Env. Fac. Rev., A.M.T., Ser. 98 A1+(b) 6.20 5/01/00 1,100 1,100,000
Env. Fac. Rev., A.M.T., Ser. 97 P1 6.25 5/01/00 1,200 1,200,000
--------------
3,600,000
Total short-term investments
(cost $7,200,000) 7,200,000
--------------
TOTAL INVESTMENTS 99.9% (COST
$330,844,778; NOTE 4) 334,600,974
Other assets in excess of
liabilities 0.1% 454,962
--------------
NET ASSETS 100% $ 335,055,936
--------------
--------------
</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.N.M.A.--Federal National Mortgage Association
F.R.D.D.--Floating Rate (Daily) Demand Note (e)
F.R.W.D.--Floating Rate (Weekly) Demand Note (e)
F.S.A.--Financial Security Assurance
G.N.M.A.--Government National Mortgage Association
M.B.I.A.--Municipal Bond Insurance Association
P.S.F.G.--Public School Fund Guaranty
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 year end.
(e) The maturity date shown is the later of the next date on which the security
can be redeemed at par or the next date on which the rate of interest is
adjusted.
The Fund's current prospectus contains a description of Moody's and Standard &
Poor's ratings.

See Notes to Financial Statements

B-81
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND Insured Series
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
April 30, 2000
----------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments, at value (cost $330,844,778) $ 334,600,974
Cash 81,453
Interest receivable 4,837,102
Receivable for investments sold 2,067,660
Receivable for Series shares sold 165,947
Deferred expenses and other assets 9,174
--------------
TOTAL ASSETS 341,762,310
--------------
LIABILITIES
Payable for investments purchased 5,552,479
Payable for Series shares reacquired 474,865
Dividends payable 318,188
Management fee payable 139,977
Accrued expenses 130,691
Distribution fee payable 90,174
--------------
TOTAL LIABILITIES 6,706,374
--------------
NET ASSETS $ 335,055,936
--------------
--------------
Net assets were comprised of:
Shares of beneficial interest, at par $ 322,128
Paid-in capital in excess of par 335,518,190
--------------
335,840,318
Undistributed net investment income 162,490
Accumulated net realized loss on investments (4,703,068)
Net unrealized appreciation on investments 3,756,196
--------------
Net assets, April 30, 2000 $ 335,055,936
--------------
--------------
</TABLE>
See Notes to Financial Statements

B-82
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND Insured Series
Statement of Assets and Liabilities Con't.
<TABLE>
<CAPTION>
APRIL 30, 2000
----------------------------------------------------------------------------------------
<S> <C>
Class A:
Net asset value and redemption price per share ($238,689,736
DIVIDED BY 22,954,663 shares of beneficial interest issued
and outstanding) $10.40
Maximum sales charge (3% of offering price) .32
--------------
Maximum offering price to public $10.72
--------------
--------------
Class B:
Net asset value, offering price and redemption price per share
($91,988,842 DIVIDED BY 8,837,394 shares of beneficial
interest issued and outstanding) $10.41
--------------
--------------
Class C:
Net asset value and redemption price per share ($2,948,547
DIVIDED BY 283,270 shares of beneficial interest issued
and outstanding) $10.41
Sales charge (1% of offering price) .11
--------------
Offering price to public $10.52
--------------
--------------
Class Z:
Net asset value, offering price and redemption price per share
($1,428,811 DIVIDED BY 137,442 shares of beneficial interest
issued and outstanding) $10.40
--------------
--------------
</TABLE>
See Notes to Financial Statements

B-83
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND Insured Series
Statement of Operations
<TABLE>
<CAPTION>
YEAR
ENDED
APRIL 30, 2000
----------------------------------------------------------------------------------------
<S> <C>
NET INVESTMENT INCOME
Income
Interest $ 21,489,711
--------------
Expenses
Management fee 1,898,781
Distribution fee--Class A 609,390
Distribution fee--Class B 655,259
Distribution fee--Class C 22,410
Transfer agent's fees and expenses 227,000
Custodian's fees and expenses 115,000
Registration fees 55,000
Reports to shareholders 50,000
Legal fees and expenses 25,000
Audit fees and expenses 15,000
Trustees' fees and expenses 15,000
Insurance expense 5,000
Miscellaneous 4,795
--------------
TOTAL EXPENSES 3,697,635
Less: Custodian fee credit (1,630)
--------------
Net expenses 3,696,005
--------------
NET INVESTMENT INCOME 17,793,706
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on:
Investment transactions (4,988,005)
Financial futures contract transactions 922,280
--------------
(4,065,725)
--------------
Net change in unrealized depreciation on:
Investments (25,355,553)
Financial futures contracts (33,038)
--------------
(25,388,591)
--------------
Net loss on investments (29,454,316)
--------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (11,660,610)
--------------
--------------
</TABLE>
See Notes to Financial Statements

B-84
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND Insured Series
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
APRIL 30, 2000 APRIL 30, 1999
-----------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income $ 17,793,706 $ 20,209,415
Net realized gain (loss) on investment
transactions (4,065,725) 1,085,264
Net change in unrealized appreciation
(depreciation) of investments (25,388,591) 8,633,133
-------------- --------------
Net increase (decrease) in net assets
resulting from operations (11,660,610) 29,927,812
-------------- --------------
DIVIDENDS AND DISTRIBUTIONS (NOTE 1)
Dividends from net investment income
Class A (11,662,405) (11,087,816)
Class B (5,906,384) (8,878,895)
Class C (128,146) (74,699)
Class Z (96,771) (168,005)
-------------- --------------
(17,793,706) (20,209,415)
-------------- --------------
Dividends in excess of net investment income
Class A -- (165,620)
Class B -- (128,222)
Class C -- (1,348)
Class Z -- (2,596)
-------------- --------------
-- (297,786)
-------------- --------------
Dividends from net capital gains
Class A -- (2,053,682)
Class B -- (1,589,957)
Class C -- (16,718)
Class Z -- (32,185)
-------------- --------------
-- (3,692,542)
-------------- --------------
SERIES SHARE TRANSACTIONS (NET OF SHARE
CONVERSIONS)
(NOTE 5):
Net proceeds from shares sold 57,490,106 56,402,154
Net asset value of shares issued in
reinvestment of dividends and
distributions 10,004,943 13,991,834
Cost of shares reacquired (136,825,105) (104,987,356)
-------------- --------------
Net decrease in net assets from Series share
transactions (69,330,056) (34,593,368)
-------------- --------------
Total decrease (98,784,372) (28,865,299)
NET ASSETS
Beginning of year 433,840,308 462,705,607
-------------- --------------
End of year(a) $ 335,055,936 $ 433,840,308
-------------- --------------
-------------- --------------
---------------
(a) Includes undistributed net investment income
of $ 162,490 $ --
-------------- --------------
-------------- --------------
</TABLE>
See Notes to Financial Statements

B-85
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND

Notes to Financial Statements

Prudential Municipal Bond Fund (the "Fund") is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The Fund was organized as an unincorporated business trust in
Massachusetts on November 3, 1986 and consists of 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

B-86
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND

Notes to Financial Statements Cont'd.

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 beginning of the day.
Expenses are recorded on the accrual basis which may require the use of certain
estimates by management.

B-87
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND

Notes to Financial Statements Cont'd.

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, 2000, the effect of applying this statement was
to increase undistributed net investment income and decrease accumulated net
realized loss by $36,989 and $162,490 due to the sale of securities purchased
with market discount for the High Income and Insured Series, respectively.

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
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 $50,963 for the year ended April 30,
2000. Such amount represents .05 of 1% of average daily net assets, or $.005 per
share for the year

B-88
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND

Notes to Financial Statements Cont'd.

ended April 30, 2000. The Series is not required to reimburse PIFM for such
waiver. Effective June 1, 1999, PIFM eliminated its voluntary waiver of a
portion of its management fee.

The Fund has a distribution agreement with Prudential Investment
Management Services LLC ("PIMS"). The Fund compensates 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 it. The distribution fees are accrued daily and payable monthly. No
distribution or service fees were paid to PIMS as distributor of the Class Z
shares of the Fund.

Pursuant to the Class A, B and C Plans, the Fund compensates 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, 2000, 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.

PIMS has advised the High Income Series and Insured Series that it
received approximately $267,400 ($167,500-Class A; $99,900-Class C) and $30,200
($27,500-Class A; $2,700-Class C), respectively, in front-end sales charges
during the year ended April 30, 2000. From these fees, PIMS paid such sales
charges to affiliated broker-dealers which in turn paid commissions to
salespersons and incurred other distribution costs.

PIMS has advised the High Income Series and Insured Series that for the
year ended April 30, 2000, it received approximately $1,254,000
($1,214,600-Class B; $39,400-Class C) and $184,200 ($182,200-Class B;
$2,000-Class C), respectively, in contingent deferred sales charges imposed upon
certain redemptions by Class B and C shareholders.

PIC, PIMS and PIFM are wholly owned subsidiaries of The Prudential
Insurance Company of America.

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.
Interest on any such borrowings will be at market rates. The Funds pay a
commitment fee of .080 of 1% of the unused portion of the credit facility. The
commitment fee is accrued and paid quarterly on a pro rata basis by the Funds.
The expiration date of the SCA is March 9, 2001. Prior to March 9, 2000, the
commitment fee was .065 of 1% of the unused portion of the credit facility. The
Fund did not borrow any amounts pursuant to the SCA

B-89
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND

Notes to Financial Statements Cont'd.

during the year ended April 30, 2000. The purpose of the agreement 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, 2000, the
Fund incurred fees of approximately $530,200 ($352,100-High Income Series;
$178,100-Insured Series) for the services of PMFS. As of April 30, 2000,
approximately $42,200 ($28,200-High Income Series; $14,000-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, 2000, were as follows:
<TABLE>
<CAPTION>
SERIES PURCHASES SALES
------------------------------------------------------- ------------ ------------
<S> <C> <C>
High Income $293,848,358 $375,320,040
Insured 97,151,939 166,486,956
</TABLE>

At April 30, 2000, the High Income Series sold 176 U.S. Treasury bond
futures expiring in June 2000. The values of these financial futures contracts
at April 30, 2000 were as follows:
<TABLE>
<CAPTION>
HIGH INCOME
SERIES
-----------
<S> <C>
Value at disposition $16,782,391
Value at April 30, 2000 16,995,000
-----------
Unrealized loss $ (212,609)
-----------
-----------
</TABLE>

Transactions in options written during the year ended April 30, 2000 for
the High Income Series were as follows:
<TABLE>
<CAPTION>
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- --------
<S> <C> <C>
Options outstanding at April 30, 1999 -- --
Options written 400 $425,375
Options expired 400 425,375
--------- --------
Options outstanding at April 30, 2000 -- $ --
</TABLE>

B-90
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND

Notes to Financial Statements Cont'd.

The federal income tax basis of the Fund's investments, at April 30, 2000
was $1,008,001,908 for High Income Series and $334,600,974 for Insured Series
and, accordingly, net unrealized appreciation (depreciation) of investments for
federal income tax purposes was as follows:
<TABLE>
<CAPTION>
NET UNREALIZED GROSS GROSS
APPRECIATION UNREALIZED UNREALIZED
SERIES (DEPRECIATION) APPRECIATION DEPRECIATION
----------------------------------------- --------------- ----------- -----------
<S> <C> <C> <C>
High Income $ (23,104,186) $35,366,075 $58,470,261
Insured 3,756,196 8,819,696 5,063,500
</TABLE>

The High Income Series has a net capital loss carryforward as of April 30,
2000 of approximately $26,590,000, 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, $3,137,000 expires in 2007 and $5,906,000
expires in 2008. 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.

The Insured Series has a capital loss carryforward as of April 30, 2000 of
approximately $2,919,000, which expires in 2008. No capital gains distribution
is expected to be paid to shareholders until net gains have been realized in
excess of this amount.

In addition, the High Income Series and Insured Series elected to treat
net realized capital losses of approximately $9,439,586 and $1,784,353,
respectively incurred in the year ended April 30, 2000 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.
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.

B-91
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND

Notes to Financial Statements Cont'd.

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, 2000 SHARES AMOUNT SHARES AMOUNT
--------------------------- ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Shares issued 11,155,788 $ 118,089,368 4,272,410 $ 45,211,746
Shares issued in
reinvestment of
dividends and
distributions 1,400,233 14,812,765 614,176 6,469,154
Shares reacquired (15,491,720) (163,745,706) (6,006,710) (63,240,650)
----------- ------------- ---------- ------------
Net increase (decrease) in
shares outstanding
before conversion (2,935,699) (30,843,573) (1,120,124) (11,559,750)
Shares issued upon
conversion from Class B 6,311,283 66,835,489 1,592,700 16,791,582
----------- ------------- ---------- ------------
Net increase (decrease) in
shares outstanding 3,375,584 $ 35,991,916 472,576 $ 5,231,832
----------- ------------- ---------- ------------
----------- ------------- ---------- ------------
<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
----------- ------------- ---------- ------------
----------- ------------- ---------- ------------
</TABLE>

B-92
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND

Notes to Financial Statements Cont'd.
<TABLE>
<CAPTION>
HIGH INCOME SERIES INSURED SERIES
CLASS B CLASS B
----------------------------- ---------------------------
YEAR ENDED APRIL 30, 2000 SHARES AMOUNT SHARES AMOUNT
--------------------------- ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Shares issued 5,702,990 $ 60,755,141 876,277 $ 9,261,018
Shares issued in
reinvestment of
dividends and
distributions 1,237,118 13,119,382 319,614 3,379,000
Shares reacquired (13,781,073) (145,504,647) (6,454,293) (68,181,046)
----------- ------------- ---------- ------------
Net decrease in shares
outstanding before
conversion (6,840,965) (71,630,124) (5,258,402) (55,541,028)
Shares reacquired upon
conversion to Class A (6,312,429) (66,835,489) (1,590,681) (16,791,582)
----------- ------------- ---------- ------------
Net decrease in shares
outstanding (13,153,394) $(138,465,613) (6,849,083) $(72,332,610)
----------- ------------- ---------- ------------
----------- ------------- ---------- ------------
<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 C CLASS C
----------------------------- ---------------------------
YEAR ENDED APRIL 30, 2000 SHARES AMOUNT SHARES AMOUNT
--------------------------- ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Shares issued 1,049,114 $ 11,208,188 99,569 $ 1,066,589
Shares issued in
reinvestment of
dividends and
distributions 101,234 1,072,623 7,094 74,764
Shares reacquired (1,146,727) (12,092,217) (65,397) (684,934)
----------- ------------- ---------- ------------
Net increase in shares
outstanding 3,621 $ 188,594 41,266 $ 456,419
----------- ------------- ---------- ------------
----------- ------------- ---------- ------------
</TABLE>

B-93
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND

Notes to Financial Statements Cont'd.
<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 Z CLASS Z
----------------------------- ---------------------------
YEAR ENDED APRIL 30, 2000 SHARES AMOUNT SHARES AMOUNT
--------------------------- ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Shares issued 528,208 $ 5,602,041 186,798 $ 1,950,753
Shares issued in
reinvestment of
dividends and
distributions 43,432 462,840 7,710 82,025
Shares reacquired (1,042,909) (11,081,280) (442,855) (4,718,475)
----------- ------------- ---------- ------------
Net decrease in shares
outstanding (471,269) $ (5,016,399) (248,347) $ (2,685,697)
----------- ------------- ---------- ------------
----------- ------------- ---------- ------------
<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 (decrease) in
shares outstanding 357,723 $ 4,090,878 347,956 $ (3,926,340)
----------- ------------- ---------- ------------
----------- ------------- ---------- ------------
</TABLE>

B-94
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND

Portfolio of Investments as of April 30, 2000 Cont'd.

FINANCIAL
HIGHLIGHTS

B-95
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND High Income Series
Financial Highlights
<TABLE>
<CAPTION>
CLASS A
--------------
YEAR ENDED
APRIL 30, 2000
----------------------------------------------------------------------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF YEAR $ 11.21
--------------
Income from investment operations
Net investment income 0.63
Net realized and unrealized gain (loss) on investment
transactions (0.99)
--------------
Total from investment operations (0.36)
--------------
LESS DISTRIBUTIONS
Dividends from net investment income (0.63)
--------------
Net asset value, end of year $ 10.22
--------------
--------------
TOTAL RETURN(a): (3.31)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) $503,874
Average net assets (000) $506,888
Ratios to average net assets:
Expenses, including distribution fees .82%
Expenses, excluding distribution fees .57%
Net investment income 5.86%
For Class A, B, C and Z shares:
Portfolio turnover rate 27%
</TABLE>

See Notes to Financial Statements

B-96
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND High Income Series
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------------------------
YEAR ENDED APRIL 30,
-------------------------------------------------------------------------------------
1999 1998 1997 1996
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 11.31 $ 10.84 $ 10.70 $ 10.72
---------------- ---------------- ---------------- ----------------
.63(b) .67(b) .70(b) .72(b)
(.10) .47 .14 (.02)
---------------- ---------------- ---------------- ----------------
.53 1.14 .84 .70
---------------- ---------------- ---------------- ----------------
(.63) (.67) (.70) (.72)
---------------- ---------------- ---------------- ----------------
$ 11.21 $ 11.31 $ 10.84 $ 10.70
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
4.96% 10.80% 8.03% 6.55%
$514,952 $421,504 $334,062 $223,073
$474,901 $381,735 $294,940 $162,329
.66%(b) .62%(b) 0.64%(b) 0.64%(b)
.51%(b) .52%(b) 0.54%(b) 0.54%(b)
5.73%(b) 6.03%(b) 6.44%(b) 6.58%(b)
16% 13% 26% 35%
</TABLE>
See Notes to Financial Statements

B-97
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND High Income Series
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
CLASS B
--------------
YEAR ENDED
APRIL 30, 2000
----------------------------------------------------------------------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF YEAR $ 11.21
--------------
Income from investment operations
Net investment income 0.60
Net realized and unrealized gain (loss) on investment
transactions (0.99)
--------------
Total from investment operations (0.39)
--------------
LESS DISTRIBUTIONS
Dividends from net investment income (0.60)
--------------
Net asset value, end of year $ 10.22
--------------
--------------
TOTAL RETURN(a): (3.55)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) $457,841
Average net assets (000) $559,879
Ratios to average net assets:
Expenses, including distribution fees 1.07%
Expenses, excluding distribution fees .57%
Net investment income 5.59%
</TABLE>

B-98
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND High Income Series
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------------------------------------------
YEAR ENDED APRIL 30,
-------------------------------------------------------------------------------------
1999 1998 1997 1996
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 11.31 $ 10.84 $ 10.69 $ 10.72
---------------- ---------------- ---------------- ----------------
.59(b) .63(b) .66(b) .68(b)
(.10) .47 .15 (.03)
---------------- ---------------- ---------------- ----------------
.49 1.10 .81 .65
---------------- ---------------- ---------------- ----------------
(.59) (.63) (.66) (.68)
---------------- ---------------- ---------------- ----------------
$ 11.21 $ 11.31 $ 10.84 $ 10.69
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
4.59% 10.36% 7.71% 6.12%
$649,706 $669,223 $665,525 $799,048
$666,885 $669,132 $725,305 $900,115
1.01%(b) 1.02%(b) 1.04%(b) 1.04%(b)
.51%(b) .52%(b) 0.54%(b) 0.54%(b)
5.38%(b) 5.63%(b) 6.05%(b) 6.19%(b)
</TABLE>

See Notes to Financial Statements

B-99
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND High Income Series
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
CLASS C
--------------
YEAR ENDED
APRIL 30, 2000
----------------------------------------------------------------------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF YEAR $ 11.21
--------------
Income from investment operations
Net investment income 0.57
Net realized and unrealized gain (loss) on investment
transactions (0.99)
--------------
Total from investment operations (0.42)
--------------
LESS DISTRIBUTIONS
Dividends from net investment income (0.57)
--------------
Net asset value, end of year $ 10.22
--------------
--------------
TOTAL RETURN(a): (3.79)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) $ 30,061
Average net assets (000) $ 32,762
Ratios to average net assets:
Expenses, including distribution fees 1.32%
Expenses, excluding distribution fees .57%
Net investment income 5.36%
</TABLE>

B-100
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND High Income Series
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
CLASS C
-------------------------------------------------------------------------------------
YEAR ENDED APRIL 30,
-------------------------------------------------------------------------------------
1999 1998 1997 1996
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 11.31 $ 10.84 $10.69 $10.72
-------- -------- ------- -------
.57(b) .61(b) .63(b) .65(b)
(.10) .47 .15 (.03)
-------- -------- ------- -------
.47 1.08 .78 .62
-------- -------- ------- -------
(.57) (.61) (.63) (.65)
-------- -------- ------- -------
$ 11.21 $ 11.31 $10.84 $10.69
-------- -------- ------- -------
-------- -------- ------- -------
4.33% 10.09% 7.44% 5.86%
$ 32,939 $ 20,554 $9,563 $6,471
$ 26,114 $ 14,932 $8,060 $5,608
1.26%(b) 1.27%(b) 1.29%(b) 1.29%(b)
.51%(b) .52%(b) 0.54%(b) 0.54%(b)
5.15%(b) 5.39%(b) 5.80%(b) 5.93%(b)
</TABLE>
See Notes to Financial Statements

B-101
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND High Income Series
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
CLASS Z
---------------------------------------------------
SEPTEMBER 16,
YEAR YEAR ENDED 1996(c)
ENDED APRIL 30, THROUGH
APRIL 30, ------------------ APRIL 30,
2000 1999 1998 1997
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF
PERIOD $ 11.20 $ 11.30 $10.83 $ 10.79
---------- ------- ------ -------------
Income from investment
operations
Net investment income .65 .65(b) .68(b) .45(b)
Net realized and unrealized gain
(loss) on investment
transactions (.99) (.10) .47 .04
---------- ------- ------ -------------
Total from investment
operations (.34) .55 1.15 .49
---------- ------- ------ -------------
LESS DISTRIBUTIONS
Dividends from net investment
income (.65) (.65) (.68) (.45)
---------- ------- ------ -------------
Net asset value, end of period $ 10.21 $ 11.20 $11.30 $ 10.83
---------- ------- ------ -------------
---------- ------- ------ -------------
TOTAL RETURN(a): (3.07)% 5.11% 10.91% 4.36%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 7,802 $13,839 $9,919 $ 2,719
Average net assets (000) $ 10,493 $13,648 $6,064 $ 704
Ratios to average net assets:
Expenses, including
distribution fees .57% .51%(b) .52%(b) 0.54%(b)(d)
Expenses, excluding
distribution fees .57% .51%(b) .52%(b) 0.54%(b)(d)
Net investment income 6.07% 5.89%(b) 6.14%(b) 6.55%(b)(d)
</TABLE>

------------------------------
(a) 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 Z shares.
(d) Annualized.
See Notes to Financial Statements

B-102
<PAGE>

This page intentionally left blank

B-103
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND Insured Series
Financial Highlights
<TABLE>
<CAPTION>
CLASS A
--------------
YEAR ENDED
APRIL 30, 2000
----------------------------------------------------------------------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 11.18
--------------
Income from investment operations
Net investment income .51
Net realized and unrealized gain (loss) on investment
transactions (.78)
--------------
Total from investment operations (.27)
--------------
LESS DISTRIBUTIONS
Dividends from net investment income (.51)
Distributions in excess of net investment income --
Distributions from capital gains --
--------------
Total distributions (.51)
--------------
Net asset value, end of year $ 10.40
--------------
--------------
TOTAL RETURN(a): (2.38)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) $238,690
Average net assets (000) $243,756
Ratios to average net assets:
Expenses, including distribution fees .88%
Expenses, excluding distribution fees .63%
Net investment income 4.78%
For Class A, B, C and Z shares:
Portfolio turnover rate 26%
</TABLE>

See Notes to Financial Statements

B-104
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND Insured Series
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------------------------
YEAR ENDED APRIL 30,
-------------------------------------------------------------------------------------
1999 1998 1997 1996
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 11.05 $ 10.90 $ 10.94 $ 10.83
---------------- ---------------- ---------------- ----------------
.53 .53(b) .55(b) .58(b)
.23 .40 .08 .11
---------------- ---------------- ---------------- ----------------
.76 .93 .63 .69
---------------- ---------------- ---------------- ----------------
(.53) (.53) (.55) (.58)
(.01) --(c) (.01) --
(.09) (.25) (.11) --
---------------- ---------------- ---------------- ----------------
(.63) (.78) (.67) (.58)
---------------- ---------------- ---------------- ----------------
$ 11.18 $ 11.05 $ 10.90 $ 10.94
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
6.88% 8.67% 5.74% 6.47%
$251,300 $224,409 $208,411 $139,548
$240,652 $222,115 $187,371 $102,456
0.75% 0.69%(b) 0.68%(b) 0.68%(b)
0.60% 0.59%(b) 0.58%(b) 0.58%(b)
4.61% 4.75%(b) 4.95%(b) 5.20%(b)
15% 85% 110% 68%
</TABLE>
See Notes to Financial Statements

B-105
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND Insured Series
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
CLASS B
--------------
YEAR ENDED
APRIL 30, 2000
----------------------------------------------------------------------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF YEAR $ 11.19
--------------
Income from investment operations
Net investment income .48
Net realized and unrealized gain (loss) on investment
transactions (.78)
--------------
Total from investment operations (.30)
--------------
LESS DISTRIBUTIONS
Dividends from net investment income (.48)
Distributions in excess of net investment income --
Distributions from capital gains --
--------------
Total distributions (.48)
--------------
Net asset value, end of year $ 10.41
--------------
--------------
TOTAL RETURN(a): (2.62)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) $ 91,989
Average net assets (000) $131,052
Ratios to average net assets:
Expenses, including distribution fees 1.13%
Expenses, excluding distribution fees .63%
Net investment income 4.51%
</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

B-106
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND Insured Series
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------------------------------------------
YEAR ENDED APRIL 30,
-------------------------------------------------------------------------------------
1999 1998 1997 1996
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 11.06 $ 10.91 $ 10.95 $ 10.84
---------------- ---------------- ---------------- ----------------
.48 .49(b) .50(b) .54(b)
.23 .40 .08 .11
---------------- ---------------- ---------------- ----------------
.71 .89 .58 .65
---------------- ---------------- ---------------- ----------------
(.48) (.49) (.50) (.54)
(.01) --(c) (.01) --
(.09) (.25) (.11) --
---------------- ---------------- ---------------- ----------------
(.58) (.74) (.62) (.54)
---------------- ---------------- ---------------- ----------------
$ 11.19 $ 11.06 $ 10.91 $ 10.95
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
6.50% 8.23% 5.32% 6.04%
$175,520 $236,370 $298,005 $443,391
$208,775 $270,553 $365,891 $524,452
1.10% 1.09%(b) 1.08%(b) 1.08%(b)
0.60% 0.59%(b) 0.58%(b) 0.58%(b)
4.25% 4.35%(b) 4.54%(b) 4.80%(b)
</TABLE>
See Notes to Financial Statements

B-107
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND Insured Series
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
CLASS C
--------------
YEAR ENDED
APRIL 30, 2000
----------------------------------------------------------------------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF YEAR $11.19
-------
Income from investment operations
Net investment income .46
Net realized and unrealized gain (loss) on investment
transactions (.78)
-------
Total from investment operations (.32)
-------
LESS DISTRIBUTIONS
Dividends from net investment income (.46)
Distributions in excess of net investment income --
Distributions from capital gains --
-------
Total distributions (.46)
-------
Net asset value, end of year $10.41
-------
-------
TOTAL RETURN(a): (2.86)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) $2,949
Average net assets (000) $2,988
Ratios to average net assets:
Expenses, including distribution fees 1.38%
Expenses, excluding distribution fees .63%
Net investment income 4.29%
</TABLE>

B-108
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND Insured Series
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
CLASS C
-------------------------------------------------------------------------------------
YEAR ENDED APRIL 30,
-------------------------------------------------------------------------------------
1999 1998 1997 1996
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 11.06 $ 10.91 $10.95 $10.84
-------- -------- ------- -------
.45 .46(b) .48(b) .51(b)
.23 .40 .08 .11
-------- -------- ------- -------
.68 .86 .56 .62
-------- -------- ------- -------
(.45) (.46) (.48) (.51)
(.01) --(c) (.01) --
(.09) (.25) (.11) --
-------- -------- ------- -------
(.55) (.71) (.60) (.51)
-------- -------- ------- -------
$ 11.19 $ 11.06 $10.91 $10.95
-------- -------- ------- -------
-------- -------- ------- -------
6.24% 7.96% 5.06% 5.78%
$ 2,708 $ 1,509 $ 888 $1,137
$ 1,856 $ 1,142 $ 973 $ 827
1.35% 1.34%(b) 1.33%(b) 1.33%(b)
0.60% 0.59%(b) 0.58%(b) 0.58%(b)
4.03% 4.11%(b) 4.29%(b) 4.56%(b)
</TABLE>
See Notes to Financial Statements

B-109
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND Insured Series
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
CLASS Z
--------------------------------------------------
SEPTEMBER 16,
YEAR YEAR ENDED 1996(c)
ENDED APRIL 30, THROUGH
APRIL 30, ----------------- APRIL 30,
2000 1999 1998 1997
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF
PERIOD $11.18 $11.05 $10.91 $ 11.05
---------- ------ ------ -------------
Income from investment
operations
Net investment income .54 .54 .54(b) .36(b)
Net realized and unrealized gain
(loss) on investment
transactions (.78) .23 .39 (.02)
---------- ------ ------ -------------
Total from investment
operations (.24) .77 .93 .34
---------- ------ ------ -------------
LESS DISTRIBUTIONS
Dividends from net investment
income (.54) (.54) (.54) (.36)
Distributions in excess of net
investment income -- (.01) --(e) (.01)
Distributions from capital gains -- (.09) (.25) (.11)
---------- ------ ------ -------------
Total distributions (.54) (.64) (.79) (.48)
---------- ------ ------ -------------
Net asset value, end of period $10.40 $11.18 $11.05 $ 10.91
---------- ------ ------ -------------
---------- ------ ------ -------------
TOTAL RETURN(a): (2.13)% 7.04% 8.68% 2.86%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $1,429 $4,312 $ 418 $ 15
Average net assets (000) $1,960 $3,523 $ 173 $ 10
Ratios to average net assets:
Expenses, including
distribution fees .63% 0.60% 0.60%(b) 0.58%(b)(d)
Expenses, excluding
distribution fees .63% 0.60% 0.60%(b) 0.58%(b)(d)
Net investment income 4.94% 4.77% 4.92%(b) 4.18%(b)(d)
</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 Z shares.
(d) Annualized.
(e) Less than $.005 per share.
See Notes to Financial Statements

B-110
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND

Report of Independent Accountants

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, 2000, 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 four
years in the period then ended, in conformity with accounting principles
generally accepted in the United States. 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 auditing standards
generally accepted in the United States, 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,
2000 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above. The accompanying financial highlights for
the year 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 21, 2000

See Notes to Financial Statements

B-111
<PAGE>
PRUDENTIAL MUNICIPAL BOND FUND

Tax Information (Unaudited)

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, 2000.

During its fiscal year ended April 30, 2000, 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 $ .60 $ .57 $ .65
Insured Series $ .51 $ .48 $ .46 $ .54
</TABLE>

Shortly after the close of the calendar year ending December 31, 2000, you will
be advised again as to the federal tax status of the dividends and distributions
received in calendar 2000. 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.
See Notes to Financial Statements

B-112
<PAGE>
APPENDIX I--GENERAL INVESTMENT INFORMATION

The following terms are used in mutual fund investing.

ASSET ALLOCATION

Asset allocation is a technique for reducing risk and providing balance.
Asset allocation among different types of securities within an overall
investment portfolio helps to reduce risk and to potentially provide stable
returns, while enabling investors to work toward their financial goal(s). Asset
allocation is also a strategy to gain exposure to better performing asset
classes while maintaining investment in other asset classes.

DIVERSIFICATION

Diversification is a time-honored technique for reducing risk, providing
"balance" to an overall portfolio and potentially achieving more stable returns.
Owning a portfolio of securities mitigates the individual risks (and returns) of
any one security. Additionally, diversification among types of securities
reduces the risks (and general returns) of any one type of security.

DURATION

Debt securities have varying levels of sensitivity to interest rates. As
interest rates fluctuate, the value of a bond (or a bond portfolio) will
increase or decrease. Longer term bonds are generally more sensitive to changes
in interest rates. When interest rates fall, bond prices generally rise.
Conversely, when interest rates rise, bond prices generally fall.

Duration is an approximation of the price sensitivity of a bond (or a bond
portfolio) to interest rate changes. It measures the weighted average maturity
of a bond's (or a bond portfolio's) cash flows, I.E., principal and interest
payments. Duration is expressed as a measure of time in years--the longer the
duration of a bond (or a bond portfolio), the greater the impact of interest
rate changes on the bond's (or the bond portfolio's) price. Duration differs
from effective maturity in that duration takes into account call provisions,
coupon rates and other factors. Duration measures interest rate risk only and
not other risks, such as credit risk and, in the case of non-U.S. dollar
denominated securities, currency risk. Effective maturity measures the final
maturity dates of a bond (or a bond portfolio).

MARKET TIMING

Market timing--buying securities when prices are low and selling them when
prices are relatively higher--may not work for many investors because it is
impossible to predict with certainty how the price of a security will fluctuate.
However, owning a security for a long period of time may help investors offset
short-term price volatility and realize positive returns.

POWER OF COMPOUNDING

Over time, the compounding of returns can significantly impact investment
returns. Compounding is the effect of continuous investment on long-term
investment results, by which the proceeds of capital appreciation (and income
distributions, if elected) are reinvested to contribute to the overall growth of
assets. The long-term investment results of compounding may be greater than that
of an equivalent initial investment in which the proceeds of capital
appreciation and income distributions are taken in cash.

STANDARD DEVIATION

Standard deviation is an absolute (non-relative) measure of volatility
which, for a mutual fund, depicts how widely the returns varied over a certain
period of time. When a fund has a high standard deviation, its range of
performance has been very wide, implying greater volatility potential. Standard
deviation is only one of several measures of a fund's volatility.

I-1
<PAGE>

APPENDIX II--HISTORICAL PERFORMANCE DATA

The historical performance data contained in this Appendix relies on data
obtained from statistical services, reports and other services believed by the
Manager to be reliable. The information has not been independently verified by
the Manager.

This chart shows the long-term performance of various asset classes and the
rate of inflation.

EACH INVESTMENT PROVIDES A DIFFERENT OPPORTUNITY.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

Value of $1.00 invested on
1/1/1926 through 12/31/1999

<TABLE>
<CAPTION>
SMALL STOCKS COMMON STOCKS LONG-TERM BONDS TREASURY BILLS INFLATION
<S> <C> <C> <C> <C> <C>
1926
1936
1946
1956
1966
1976
1986
1999 $6,640.79 $2,845.63 $40.22 $15.64 $9.40
</TABLE>

------------------------

Source: Ibbotson Associates. Used with permission. All rights reserved. This
chart is for illustrative purposes only and is not indicative of the past,
present, or future performance of any asset class of any Prudential mutual fund.

Generally, stock returns are due to capital appreciation and the reinvestment of
any gains. Bond returns are due to reinvesting interest. Also, stock prices are
usually more volatile than bond prices over the long-term. Small stock returns
for 1926-1989 are those of stocks comprising the 5th quintile of the New York
Stock Exchange. Thereafter, returns are those of the Dimensional Fund Advisors
(DFA) Small Company Fund. Common stock returns are based on the S&P Composite
Index, a market-weighted, unmanaged index of 500 stocks (currently) in a variety
of industries. It is often used as a broad measure of stock market performance.

Long-term government bond returns are measured using a constant one-bond
portfolio with a maturity of roughly 20 years. Treasury bill returns are for a
one-month bill. Treasuries are guaranteed by the government as to the timely
payment of principal and interest; equities are not. Inflation is measured by
the consumer price index (CPI).

IMPACT OF INFLATION. The "real" rate of investment return is that which exceeds
the rate of inflation, the percentage change in the value of consumer goods and
the general cost of living. A common goal of long-term investors is to outpace
the erosive impact of inflation on investment returns.

II-1
<PAGE>

Set forth below is historical performance data relating to various sectors
of the fixed-income securities markets. The chart shows the historical total
returns of U.S. Treasury bonds, U.S. mortgage securities, U.S. corporate bonds,
U.S. high yield bonds and world government bonds on an annual basis from 1989
through 1999. The total returns of the indices include accrued interest, plus
the price changes (gains or losses) of the underlying securities during the
period mentioned. The data is provided to illustrate the varying historical
total returns and investors should not consider this performance data as an
indication of the future performance of the Fund or of any sector in which the
Fund invests.

All information relies on data obtained from statistical services, reports
and other services believed by the Manager to be reliable. Such information has
not been verified. The figures do not reflect the operating expenses and fees of
a mutual fund. See "Risk/Return Summary--Fees and Expenses" in the prospectus.
The net effect of the deduction of the operating expenses of a mutual fund on
these historical total returns, including the compounded effect over time, could
be substantial.

HISTORICAL TOTAL RETURNS OF DIFFERENT BOND MARKET SECTORS

<TABLE>
'89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT
TREASURY
BONDS(1) 14.4% 8.5% 15.3% 7.2% 10.7% (3.4)% 18.4% 2.7% 9.6% 10.0% (2.56)%
-------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT
MORTGAGE
SECURITIES(2) 15.4% 10.7% 15.7% 7.0% 6.8% (1.6)% 16.8% 5.4% 9.5% 7.0% 1.86%
-------------------------------------------------------------------------------------------------------------------
U.S. INVESTMENT GRADE
CORPORATE
BONDS(3) 14.1% 7.1% 18.5% 8.7% 12.2% (3.9)% 22.3% 3.3% 10.2% 8.6% (1.96)%
-------------------------------------------------------------------------------------------------------------------
U.S.
HIGH YIELD
CORPORATE
BONDS(4) 0.8% (9.6)% 46.2% 15.8% 17.1% (1.0)% 19.2% 11.4% 12.8% 1.6% 2.39%
-------------------------------------------------------------------------------------------------------------------
WORLD
GOVERNMENT
BONDS(5) (3.4)% 15.3% 16.2% 4.8% 15.1% 6.0% 19.6% 4.1% (4.3)% 5.3% (5.07)%
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
DIFFERENCE BETWEEN HIGHEST
AND LOWEST RETURNS PERCENT 18.8 24.9 30.9 11.0 10.3 9.9 5.5 8.7% 17.1% 8.4% 7.46%
</TABLE>

(1) LEHMAN BROTHERS TREASURY BOND INDEX is an unmanaged index made up of over
150 public issues of the U.S. Treasury having maturities of at least one year.

(2) LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX is an unmanaged index that
includes over 600 15- and 30-year fixed-rate mortgage-backed securities of the
Government National Mortgage Association (GNMA), Federal National Mortgage
Association (FNMA), and the Federal Home Loan Mortgage Corporation (FHLMC).

(3) LEHMAN BROTHERS CORPORATE BOND INDEX includes over 3,000 public fixed-rate,
nonconvertible investment-grade bonds. All bonds are U.S. dollar-denominated
issues and include debt issued or guaranteed by foreign sovereign governments,
municipalities, governmental agencies or international agencies. All bonds in
the index have maturities of at least one year. Source: Lipper Inc.

(4) LEHMAN BROTHERS HIGH YIELD BOND INDEX is an unmanaged index comprising over
750 public, fixed-rate, nonconvertible bonds that are rated Ba1 or lower by
Moody's Investors Service (or rated BB+ or lower by Standard & Poor's or Fitch
Investors Service). All bonds in the index have maturities of at least one year.

(5) SALOMON SMITH BARNEY WORLD GOVERNMENT INDEX (NON U.S.) includes over 800
bonds issued by various foreign governments or agencies, excluding those in the
U.S., but including those in Japan, Germany, France, the U.K., Canada, Italy,
Australia, Belgium, Denmark, the Netherlands, Spain, Sweden, and Austria. All
bonds in the index have maturities of at least one year.

II-2
<PAGE>

The chart below shows the historical volatility of general interest rates as
measured by the long U.S. Treasury Bond.

[CHART]
------------------------

Source: Ibbotson Associates. Used with permission. All rights reserved. The
chart illustrates the historical yield of the long-term U.S. Treasury Bond from
1926-1999. Yields represent that of an annually renewed one-bond portfolio with
a remaining maturity of approximately 20 years. This chart is for illustrative
purposes and should not be construed to represent the yields of any Prudential
mutual fund.

WORLD STOCK MARKET CAPITALIZATION BY REGION
WORLD TOTAL: 20.7 TRILLION

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<S> <C>
CANADA 2.1%
PACIFIC BASIN 16.4%
EUROPE 32.5%
U.S. 49.0%
</TABLE>

------------------------

Source: Morgan Stanley Capital International, December 31, 1999. Used with
permission. This chart represents the cpaitalization of major world stock
markets as measured by the Morgan Stanley Capital International (MSCI) World
Index. The total market capitalization is based on the value of approximately
1,577 companies in 22 countries (representing approximately 60% of the aggregate
market value of the stock exchanges). This chart is for illustrative purposes
only and does not represent the allocation of any Prudential mutual fund.

II-3
<PAGE>

This chart illustrates the performance of major world stock markets for the
period from December 31, 1985 through December 31, 1999. It does not represent
the performance of any Prudential mutual fund.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<S> <C>
Sweden 22.70%
Hong Kong 20.37%
Spain 20.11%
Netherland 18.63%
Belgium 18.41%
France 17.69%
USA 17.39%
UK 16.41%
Europe 16.28%
Switzerland 15.58%
Sing/Mlysia 15.07%
Denmark 14.72%
Germany 13.29%
Australia 11.68%
Italy 11.39%
Canada 11.10%
Japan 9.59%
Norway 8.91%
Austria 7.09%
</TABLE>

------------------------

Source: Morgan Stanley Capital International (MSCI) and Lipper Inc. as of
12/31/99. Used with permission. Morgan Stanley Country indexes are unmanaged
indexes which include those stocks making up the largest two-thirds of each
country's total stock market capitalization. Returns reflect the reinvestment of
all distributions. This chart is for illustrative purposes only and is not
indicative of the past, present or future performance of any specific
investment. Investors cannot invest directly in stock indexes.

This chart shows the growth of a hypothetical $10,000 investment made in the
stocks representing the S&P 500 Stock Index with and without reinvested
dividends.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
CAPITAL APPRECIATION CAPITAL APPRECIATION ONLY
AND REINVESTING DIVIDENDS
<S> <C> <C>
1969
1973
1977
1981
1985
1989
1993
1997
1999 $474,094 $159,957
</TABLE>

------------------------

Source: Lipper Inc. Used with permission. All rights reserved. This chart is for
illustrative purposes only and is not intended to represent the past, present or
future performance of any Prudential mutual fund. Common stock total return is
based on the Standard & Poor's 500 Composite Stock Price index, a market-value-
weighted index made up of 500 of the largest stocks in the U.S. based upon their
stock market value. Investors cannot invest directly in indexes.

II-4
<PAGE>
PART C
OTHER INFORMATION

ITEM 23. EXHIBITS.

(a) 1. Amended and Restated Declaration of Trust, incorporated by
reference to Exhibit No. 1(a) to Post-Effective Amendment No. 12 to
the Registration Statement on Form N-1A filed via EDGAR on May 5,
1995 (File No. 33-10649).

2. Amended and Restated Certificate of Designation, incorporated by
reference to Exhibit No. 1(b) to Post-Effective Amendment No. 12 to
the Registration Statement on Form N-1A filed via EDGAR on May 5,
1995 (File No. 33-10649).

3. Amended Certificate of Designation, incorporated by reference to
Exhibit No. 1(c) to Post-Effective Amendment No. 14 to the
Registration Statement on Form N-1A filed via EDGAR on June 27, 1996
(File No. 33-10649).

4. Amended and Restated Certificate of Designation, incorporated by
reference to Exhibit (a) 4 to Post-Effective Amendment No. 20 to the
Registration Statement on Form N-1A filed via EDGAR on June 29, 1999
(File No. 33-10649).

(b) Amended and Restated By-Laws of the Registrant.*

(c) Specimen receipt for shares of beneficial interest, incorporated by
reference to Exhibit No. 4 to Post-Effective Amendment No. 16 to the
Registration Statement on Form N-1A filed via EDGAR on July 1, 1998
(File No. 33-10649).

(d) 1. Amended and Restated Management Agreement between the Registrant
and Prudential Mutual Fund Management, Inc., incorporated by
reference to Exhibit No. 5(a) to Post-Effective Amendment No. 14 to
the Registration Statement on Form N-1A filed via EDGAR on June 27,
1996 (File No. 33-10649).

2. Subadvisory Agreement between Prudential Mutual Fund
Management, Inc. and The Prudential Investment Corporation,
incorporated by reference to Exhibit No. 5(b) to Post-Effective
Amendment No. 16 to the Registration Statement on Form N-1A filed
via EDGAR on July 1, 1997 (File No. 33-10649).

3. Amendment to Subadvisory Agreement dated as of November 18, 1999,
between Prudential Investments Fund Management LLC and The
Prudential Investment Corporation.*

(e) 1. Distribution Agreement between the Registrant and Prudential
Investments Management Services LLC, incorporated by reference to
Exhibit 6(b) to Post-Effective Amendment No. 18 to the Registration
Statement on Form N-1A filed via EDGAR on June 26, 1998
(File No. 33-10649).

2. Form of Selected Dealer Agreement, incorporated by reference to
Exhibit 6(c) to Post-Effective Amendment No. 18 to the Registration
Statement on Form N-1A filed via EDGAR on June 26, 1998
(File No. 33-10649).

(f) Not applicable.

(g) 1. Custodian Contract between the Registrant and State Street Bank
and Trust Company, incorporated by reference to Exhibit No. 8(a) to
Post-Effective Amendment No. 16 to the Registration Statement on
Form N-1A filed via EDGAR on July 1, 1997 (File No. 33-10649).
2. Subcustodian Agreement between State Street Bank and Trust
Company and Morgan Guaranty Trust Co, incorporated by reference to
Exhibit 8(b) to Post-Effective Amendment No. 18 to the Registration
Statement on Form N-1A filed via EDGAR on June 26, 1998
(File No. 33-10649).

3. Subcustodian Agreement between State Street Bank and Trust
Company and Bankers Trust Company, incorporated by reference to
Exhibit 8(c) to Post-Effective Amendment No. 18 to the Registration
Statement on Form N-1A filed via EDGAR on June 26, 1998
(File No. 33-10649).

4. Subcustodian Agreement between State Street Bank and Trust
Company and Bankers Trust Company, incorporated by reference to
Exhibit 8(d) to Post-Effective Amendment No. 18 to the Registration
Statement on Form N-1A filed via EDGAR on June 26, 1998
(File No. 33-10649).

C-1
<PAGE>
5. Subcustodian Agreement between State Street Bank and Trust
Company and Chemical Bank incorporated by reference to Exhibit 8(e)
to Post-Effective Amendment No. 18 to the Registration Statement on
Form N-1A filed via EDGAR on June 26, 1998 (File No. 33-10649).

6. Subcustodian Agreement between State Street Bank and Trust
Company and Irving Bank incorporated by reference to Exhibit 8(f) to
Post-Effective Amendment No. 18 to the Registration Statement on
Form N-1A filed via EDGAR on June 26, 1998 (File No. 33-10649).

7. Amendment to Custodian Contract/Agreement dated as of
February 22, 1999 by and between the Registrant and State Street
Bank and Trust Company.*

(h) 1. Transfer Agency and Service Agreement between the Registrant and
Prudential Mutual Fund Services, LLC, incorporated by reference
to Exhibit No. 9 to Post-Effective Amendment No. 16 to the
Registration Statement on Form N-1A filed via EDGAR on July 1,
1997 (File No. 33-10649).

2. Amendment to Transfer Agency and Service Agreement dated as of
August 24, 1999 by and between the Registrant and Prudential
Mutual Fund Services LLC (successor to Prudential Mutual Fund
Services, Inc.)*

(i) 1. Opinion of Swidler Berlin Shereff Friedman, LLP., incorporated
by reference to Exhibit (i) 1 to Post-Effective Amendment No. 20 to
the Registration Statement on Form N-1A filed via EDGAR on
June 29, 1999 (File No. 33-10649).

2. Opinion of Sullivan & Worcester LLP., incorporated by reference
to Exhibit (i) 2 to Post-Effective Amendment No. 20 to the
Registration Statement on Form N-1A filed via EDGAR on June 29,
1999 (File No. 33-10649).

3. Consent of Swidler Berlin Shereff Friedman, LLP.*

4. Consent of Sullivan & Worcester LLP.*

(j) Consent of Independent Accountants.*

(k) Not applicable.

(l) Not applicable.

(m) Amended and Restated Distribution and Service Plans for Class A, B
and C shares, each incorporated by reference to Exhibit 15(d) to
Post-Effective Amendment No. 18 to the Registration Statement on
Form N-1A filed via EDGAR on June 26, 1998 (File No. 33-10649).

(n) Rule 18f-3 Plan, incorporated by reference to Exhibit (o) to
Post-Effective Amendment No. 19 to the Registration Statement on
Form N-1A filed via EDGAR on April 30, 1999 (File No. 33-10649).

(p) 1. Code of Ethics of the Registrant.*

2. Code of Ethics of The Prudential Investment Corporation,
Prudential Investments Fund Management LLC and Prudential Investment
Management Services LLC.*

-------------------------
*Filed herewith.

ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

None.

ITEM 25. INDEMNIFICATION.

As permitted by Sections 17(h) and (i) of the Investment Company Act of 1940,
as amended (the 1940 Act) and pursuant to Article XI of the Fund's By-Laws
(Exhibit (b) to the Registration Statement), in certain cases, any individual
who is a present or former officer, Trustee, employee or agent of the Registrant
or who serves or has served another trust, corporation, partnership, joint
venture or other enterprise in one of such capacities at the request of the
Registrant (a representative of the Trust), may be indemnified by the Registrant
against certain liabilities in connection with the Registrant provided that such
representative acted in good faith and in a manner he or she reasonably believed
to be in or not opposed to the best interests of the Registrant, subject to
certain qualifications and exceptions including liabilities to the Registrant or
to its shareholders to which such representative

C-2
<PAGE>

would otherwise be subject by reason of misfeasance, bad faith, gross negligence
or reckless disregard of duties. As permitted by Section 17(i) of the 1940 Act,
and pursuant to Section 10 of the Distribution Agreement (Exhibit (e)1 to the
Registration Statement), in certain cases the Distributor of the Registrant may
be indemnified against liabilities which it may incur, except liabilities
arising from bad faith, gross negligence in the performance of its duties,
willful misfeasance or reckless disregard of duties.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (Securities Act) may be permitted to Trustees, officers and
controlling persons of the Registrant pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the 1940 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a Trustee, officer, or
controlling person of the Registrant in connection with the successful defense
of any action, suit or proceeding) is asserted against the Registrant by such
Trustee, officer or controlling person in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1940 Act and will be governed by the final
adjudication of such issue.

The Registrant maintains an insurance policy insuring its officers and
Trustees against liabilities, and certain costs of defending claims against such
officers and Trustees, to the extent such officers and Trustees are not found to
have committed conduct constituting willful misfeasance, bad faith, gross
negligence or reckless disregard in the performance of their duties. The
insurance policy also insures the Registrant against the cost of indemnification
payments to officers and Trustees under certain circumstances. Pursuant and
subject to the provisions of Article XI of the Registrant's By-Laws, the
Registrant shall indemnify each representative of the Trust against, or advance
the expenses of a representative of the Trust for, the amount of any deductible
provided in any liability insurance policy maintained by the Registrant.

Section 9 of the Management Agreement (Exhibit (d)1 to the Registration
Statement) and Section 4 of the Subadvisory Agreement (Exhibit (d)2 to the
Registration Statement) limit the liability of Prudential Investments Fund
Management LLC (PIFM) (formerly known as Prudential Mutual Fund
Management Inc.) and The Prudential Investment Corporation (PIC), respectively,
to liabilities arising from willful misfeasance, bad faith or gross negligence
in the performance of their respective duties or from reckless disregard by them
of their respective obligations and duties under the agreements. Section 9 of
the Management Agreement also holds PIFM liable for losses resulting from a
breach of fiduciary duty with respect to the receipt of compensation for
services.

The Registrant hereby undertakes that it will apply the indemnification
provisions of its By-Laws and the Distribution Agreement in a manner consistent
with Release No. 11330 of the Securities and Exchange Commission under the
1940 Act so long as the interpretation of Sections 17(h) and 17(i) of such Act
remain in effect and are consistently applied.

ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

(a) Prudential Investments Fund Management LLC (PIFM)

See "How the Fund is Managed--Manager" in the Prospectus constituting
Part A of this Registration Statement and "Investment Advisory and Other
Services" in the Statement of Additional Information constituting Part B of this
Registration Statement.

The business and other connections of the officers of PIFM are listed in
Schedules A and D of Form ADV of PIFM as currently on file with the Securities
and Exchange Commission, the text of which is hereby incorporated by reference
(File No. 801-31104).

C-3
<PAGE>
The business and other connections of PIFM's directors and principal
executive officers are set forth below. Except as otherwise indicated, the
address of each person is Gateway Center Three, Newark, New Jersey 07102.

<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIFM PRINCIPAL OCCUPATIONS
---------------- ------------------ ---------------------
<S> <C> <C>
David R. Odenath, Jr. Officer in Charge, Officer in Charge, President, Chief Executive Officer and Chief
President, Chief Operating Officer, PIFM; Senior Vice President, The Prudential
Executive Officer Insurance Company of America (Prudential)
and Chief Operating
Officer

Robert F. Gunia Executive Vice Executive Vice President and Chief Administrative Officer, PIFM;
President and Chief Vice President, Prudential; President, Prudential Investment
Administrative Management Services LLC (PIMS)
Officer

William V. Healey Executive Vice Executive Vice President, Chief Legal Officer and Secretary, PIFM;
President, Chief Vice President and Associate General Counsel, Prudential; Senior
Legal Officer and Vice President, Chief Legal Officer and Secretary, PIMS
Secretary

Stephen Pelletier Executive Vice Executive Vice President, PIFM
President

Judy A. Rice Executive Vice Executive Vice President, PIFM
President

Lynn M. Waldvogel Executive Vice Executive Vice President, PIFM
President
</TABLE>

(b) The Prudential Investment Corporation (PIC)

See "How the Fund is Managed--Investment Adviser" in the Prospectus
constituting Part A of this Registration Statement and "Investment Advisory and
Other Services--Manager and Investment Adviser" in the Statement of Additional
Information constituting Part B of this Registration Statement.

The business and other connections of PIC's directors and executive officers
are as set forth below. Except as otherwise indicated, the address of each
person is Prudential Plaza, Newark, New Jersey 07101.

<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH PIC PRINCIPAL OCCUPATIONS
---------------- ----------------- ---------------------
<S> <C> <C>
John R. Strangfeld, President, Chief President, Chief Executive Officer, Chairman of the Board, and
Jr. Executive Officer, Director of PIC; President of Prudential Global Asset Management
Chairman of the Group of Prudential; Senior Vice President, Prudential
Board and Director

Bernard Winograd Senior Vice Chief Executive Officer, Prudential Real Estate Investors; Senior
President and Vice President and Director, PIC
Director
</TABLE>

ITEM 27. PRINCIPAL UNDERWRITERS

(a) Prudential Investment Management Services LLC (PIMS)

PIMS is distributor for the following open-end management companies: Cash
Accumulation Trust, COMMAND Money Fund, COMMAND Government Fund, COMMAND
Tax-Free Fund, Global Utility Fund, Inc., Nicholas-Applegate Fund, Inc.
(Nicholas-Applegate Growth Equity Fund), Prudential Balanced Fund, Prudential
California Municipal Fund, Prudential Diversified Funds, Prudential Emerging
Growth Fund, Inc., Prudential Equity Fund, Inc., Prudential Equity Income Fund,
Prudential Europe Growth Fund, Inc., Prudential Global Genesis Fund, Inc.,
Prudential Global Total Return Fund, Inc., Prudential Government Income Fund,

C-4
<PAGE>

Inc., Prudential Government Securities Trust, Prudential High Yield Fund, Inc.,
Prudential High Yield Total Return Fund, Inc., Prudential Index Series Fund,
Prudential Institutional Liquidity Portfolio, Inc., Prudential International
Bond Fund, Inc., Prudential Mid-Cap Value Fund, Prudential MoneyMart Assets,
Inc., Prudential Municipal Bond Fund, Prudential Municipal Series Fund,
Prudential National Municipals Fund, Inc., Prudential Natural Resources Fund,
Inc., Prudential Pacific Growth Fund, Inc., Prudential Real Estate Securities
Fund, Prudential Sector Funds, Inc., Prudential Short-Term Corporate Bond
Fund, Inc., Prudential Small Company Fund, Inc., Prudential Special Money Market
Fund, Inc., Prudential 20/20 Focus Fund, Prudential Tax-Free Money Fund, Inc.,
Prudential Tax-Managed Funds, Prudential Tax-Managed Small-Cap Fund, Inc.,
Prudential Total Return Bond Fund, Inc., Prudential World Fund, Inc., The
Prudential Investment Portfolios, Inc., Strategic Partners Series Target Funds
and The Target Portfolio Trust.

PIMS is also distributor of the following unit investment trusts: Separate
Accounts: Prudential's Gibraltar Fund, Inc., The Prudential Variable Contract
Account-2, The Prudential Variable Contract Account-10, The Prudential Variable
Contract Account-11, The Prudential Variable Contract Account-24, The Prudential
Variable Contract G1-2, The Prudential Discovery Select Group Variable Contract
Account, The Pruco Life Flexible Premium Variable Annuity Account, The Pruco
Life of New Jersey Flexible Premium Variable Annuity Account, The Prudential
Individual Variable Contract Account and the Prudential Qualified Individual
Variable Contract Account.

(b) Information concerning the directors and officers of PIMS is set forth
below.

<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME(1) UNDERWRITER REGISTRANT
------- ----------- ----------
<S> <C> <C>
Margaret Deverell.......... Vice President and Chief Financial Officer None
Robert F. Gunia............ President Vice President
and Trustee
Kevin Frawley ............. Senior Vice President and Compliance Officer None
213 Washington St.
Newark, NJ 07102
William V. Healey.......... Senior Vice President, Secretary and Chief Legal None
Officer
John R. Strangfeld, Jr..... Advisory Board Member Trustee and
President
</TABLE>

------------------------

(1) The address of each person named is Prudential Plaza, 751 Broad Street,
Newark, New Jersey 07102-4077, unless otherwise indicated.

ITEM 28. LOCATION OF ACCOUNTS AND RECORDS

All accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the Rules thereunder are maintained at the
offices of State Street Bank and Trust Company, One Heritage Drive, North
Quincy, Massachusetts 02171; The Prudential Investment Corporation, Prudential
Plaza, 751 Broad Street, Newark, New Jersey 07102; the Registrant, Gateway
Center Three, 100 Mulberry St, Newark, New Jersey 07102; and Prudential Mutual
Fund Services LLC, 194 Wood Avenue South, Iselin, New Jersey 08830. Documents
required by Rules 31a-1(b)(5),(6),(7),(9),(10) and (11) and 31a-1(f) will be
kept at Gateway Center Three, 100 Mulberry Street, Newark, New Jersey
07102-4077, documents required by Rules 31a-1(b)(4) and (11) and 31a-1(d) at
Gateway Center Three, 100 Mulberry Street, Newark, New Jersey 07102-4077 and the
remaining accounts, books and other documents required by such other pertinent
provisions of Section 31(a) and the Rules promulgated thereunder will be kept by
State Street Bank and Trust Company and Prudential Mutual Fund Services LLC.

C-5
<PAGE>
ITEM 29. MANAGEMENT SERVICES

Other than as set forth under the captions "How the Fund is Managed--Manager"
and "--Distributor" in the Prospectus and the caption "Investment Advisory and
Other Services--Manager and Investment Adviser" and "--Principal Underwriter,
Distributor and Rule 12b-1 Plans" in the Statement of Additional Information,
constituting Parts A and B, respectively, of this Post-Effective Amendment to
the Registration Statement, Registrant is not a party to any management-related
service contract.

ITEM 30. UNDERTAKINGS

The Registrant hereby undertakes to furnish each person to whom a Prospectus
is delivered with a copy of the Registrant's latest annual report to
shareholders upon request and without charge.

C-6
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to the Registration Statement
to be signed on its behalf by the undersigned thereunto duly authorized, in the
City of Newark, and State of New Jersey, on the 28th day of June, 2000.

PRUDENTIAL MUNICIPAL BOND FUND

/s/ John R. Strangfeld
-------------------------------------------------
JOHN R. STRANGFELD, PRESIDENT

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Eugene C. Dorsey Trustee June 28, 2000
------------------------------------
EUGENE C. DORSEY

/s/ Delayne D. Gold Trustee June 28, 2000
------------------------------------
DELAYNE D. GOLD

/s/ Robert F. Gunia Vice President and Trustee June 28, 2000
------------------------------------
ROBERT F. GUNIA

/s/ Thomas T. Mooney Trustee June 28, 2000
------------------------------------
THOMAS T. MOONEY

/s/ Stephen R. Munn Trustee June 28, 2000
------------------------------------
STEPHEN R. MUNN

/s/ David R. Odenath Vice President and Trustee June 28, 2000
------------------------------------
DAVID R. ODENATH

/s/ Richard A. Redeker Trustee June 28, 2000
------------------------------------
RICHARD A. REDEKER

/s/ John R. Strangfeld President and Trustee June 28, 2000
------------------------------------
JOHN R. STRANGFELD

/s/ Nancy Hays Teeters Trustee June 28, 2000
------------------------------------
NANCY HAYS TEETERS

/s/ Louis A. Weil, III Trustee June 28, 2000
------------------------------------
LOUIS A. WEIL, III

/s/ Grace C. Torres Principal Financial and Accounting June 28, 2000
------------------------------------ Officer
GRACE C. TORRES
</TABLE>

<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<C> <S>
(b) Amended and Restated By-Laws of the Registrant.
(d) 3. Amendment to Subadvisory Agreement dated as November 18,
1999, between Prudential Investments Fund Management LLC and
The Prudential Investment Corporation.
(g) 7. Amendment to Custodian Contract/Agreement dated as of
February 22, 1999 by and between the Registrant and State
Street Bank and Trust Company.
(h) 2. Amendment to Transfer Agency and Service Agreement dated
as of August 24, 1999 by and between the Registrant and
Prudential Mutual Fund Services LLC (successor to
Prudential Mutual Fund Services, Inc.).
(i) 3. Consent of Swidler Berlin Shereff Friedman, LLP.
(i) 4. Consent of Sullivan & Worcester LLP.
(j) Consent of Independent Accountants.
(p) 1. Code of Ethics of the Registrant.
2. Code of Ethics of The Prudential Investment Corporation,
Prudential Investments Fund Management LLC and Prudential
Investment Management Services LLC.
</TABLE>