<Page>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-4930
Prudential Municipal Bond Fund -- High Income Series and Insured Series
_______________________________________________________________________________
(Exact name of registrant as specified in charter)
Gateway Centre 3,
100 Mulberry Street,
Newark, New Jersey 07102
________________________________________________________________________________
(Address of principal executive offices) (Zip code)
Deborah Docs
Gateway Centre 3
100 Mulberry Street
Newark, New Jersey 07102
________________________________________________________________________________
(Name and address of agent for service)
Registrant's telephone number, including area code: 973-367-7521
Date of fiscal year end: 4/30/03
Date of reporting period: 4/30/03
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Item 1. Reports to Stockholders
<Page>
ANNUAL REPORT
APRIL 30, 2003
PRUDENTIAL
MUNICIPAL BOND FUND/
HIGH INCOME SERIES & INSURED SERIES
FUND TYPE
Municipal bond
OBJECTIVE
High Income Series: Maximum amount of income that is
eligible for exclusion from federal income taxes.
Insured Series: Maximum amount of income that is
eligible for exclusion from federal income taxes,
consistent with the preservation of capital.
This report is not authorized for distribution
to prospective investors unless preceded or
accompanied by a current prospectus.
The views expressed in this report and information
about the Series' portfolio holdings are for the
period covered by this report and are subject to
change thereafter.
Prudential Financial is a service mark of
The Prudential Insurance Company of America,
Newark, NJ, and its affiliates. PRUDENTIAL FINANCIAL (LOGO)
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Prudential Municipal Bond Fund High Income Series
Performance at a Glance
FUND OBJECTIVE
The Prudential Municipal Bond Fund/High Income Series
(the Series) seeks to provide the maximum amount of
income that is eligible for exclusion from federal
income taxes. There can be no assurance that the
Series will achieve its investment objective.
Cumulative Total Returns1 As of 4/30/03
<Table>
<Caption>
One Year Five Years Ten Years Since Inception2
Class A 6.15% 19.29% (19.18) 67.32% (66.82) 123.44% (122.11)
Class B 5.88 17.70 (17.58) 61.81 (61.33) 174.56 (169.40)
Class C 5.62 16.24 (16.13) N/A 51.23 (50.79)
Class Z 6.41 20.65 (20.53) N/A 39.64 (39.36)
LB Muni Bond Index3 8.49 35.77 86.11 ***
LB Non-Invst Grd MB Index4 -0.42 15.95 N/A5 ****
Lipper HY Muni Debt Funds Avg.6 4.45 16.96 64.23 *****
</Table>
Average Annual Total Returns1 As of 3/31/03
<Table>
<Caption>
One Year Five Years Ten Years Since Inception2
Class A 2.82% 2.66% (2.64) 4.94% (4.91) 5.95% (5.90)
Class B 0.74 2.85 (2.83) 4.91 (4.87) 6.64 (6.51)
Class C 3.43 2.54 (2.52) N/A 4.63 (4.60)
Class Z 6.26 3.50 (3.48) N/A 5.05 (5.02)
LB Muni Bond Index3 9.89 6.07 6.45 ***
LB Non-Invst Grd MB Index4 -1.72 2.59 N/A5 ****
Lipper HY Muni Debt Funds Avg.6 4.51 2.84 5.08 *****
</Table>
Distributions and Yields1 As of 4/30/03
Taxable Equivalent Yield7
Total Distributions 30-Day at Tax Rates of
Paid for 12 Months SEC Yield 35% 38.6%
Class A $0.55 4.54% 6.98% 7.39%
Class B $0.53 4.43 6.82 7.21
Class C $0.50 4.14 6.37 6.74
Class Z $0.58 4.93 7.58 8.03
Past performance is not indicative of future results.
Principal value and investment return will fluctuate
so that an investor's shares, when redeemed, may be
worth more or less than their original cost. 1Source:
Prudential Investments LLC, Lehman Brothers, and
Lipper Inc. The cumulative total returns do not take
into account applicable sales charges. The average
annual total returns do take into account applicable
sales charges. Without the distribution and service
(12b-1) fee waiver of 0.05% and 0.25% for Class A and
C shares respectively, the returns for these classes
would have been lower. The Distributor's 12b-1 fee
waiver of 0.25% for Class C shares continued through
April 30, 2003. Effective May 1, 2003, the
Distributor has agreed to a voluntary 12b-1 fee
waiver of 0.25% for Class C shares. This 12b-1 fee
waiver may be discontinued partially or completely at
any time. The Series charges a maximum front-end
sales charge of 3% for Class A shares, and a 12b-1
fee of up to 0.30% annually. In some circumstances,
Class A shares may not be subject to a front-end
sales charge, but may be subject to a 1% contingent
deferred sales charge (CDSC) for the first year.
Class B shares are subject to a declining CDSC of 5%,
4%, 3%, 2%, 1%, and 1% for the first six years
respectively after purchase, and a 12b-1 fee of 0.50%
annually. Approximately seven years after purchase,
Class B shares will automatically convert to
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www.prudential.com (800) 225-1852
Annual Report April 30, 2003
Class A shares on a quarterly basis. Class C shares
are subject to a front-end sales charge of 1%, a CDSC
of 1% for shares redeemed within 18 months of
purchase, and a 12b-1 fee of up to 1.00% annually.
Class Z shares are not subject to a sales charge or
12b-1 fee. Without waiver of fees and/or expense
subsidization, the Series' returns would have been
lower, as indicated in parentheses. The returns in
the tables do not reflect the deduction of taxes that
a shareholder would pay on fund distributions or
following the redemption of fund shares. 2Inception
dates: Class A, 1/22/90; Class B, 9/17/87; Class C,
8/1/94; and Class Z, 9/16/96. 3The Lehman Brothers
(LB) Municipal (Muni) Bond Index is an unmanaged
index of over 39,000 long-term investment-grade
municipal bonds. It gives a broad look at how investment-
grade municipal bonds have performed. 4The Lehman Brothers
(LB) Non-Investment Grade (Non-Invst Grd) Municipal Bond
(MB) Index is an unmanaged index of non-rated or Ba1
below-rated municipal bonds. It gives a broad look at
how non-investment-grade municipal bonds have
performed. The bonds in this index must have an
outstanding par value of at least $3 million and be
issued as part of a transaction of at least $20
million. The bonds must also have a dated-date after
December 31, 1990, and must be at least one year from
their maturity date. 5This information is not
available for other classes since the inception date
of the LB Non-Invst Grd MB Index is October 1995.
6The Lipper High Yield (HY) Municipal (Muni) Debt
Funds Average (Lipper Average) represents returns
based on an average return of all funds in the Lipper
High Yield Muni Debt Funds category for the periods
noted. Funds in the Lipper Average invest at least
50% of their assets in lower-rated municipal debt
issues. 7Some investors may be subject to the federal
alternative minimum tax and/or state and local taxes.
Taxable equivalent yields reflect federal taxes only.
Investors cannot invest directly in an index. The
returns for the Lehman Brothers Indexes and the
Lipper Average would be lower if they included the
effects of sales charges, operating expenses of a
mutual fund, or taxes. Returns for the Lipper Average
reflect the deduction of operating expenses, but not
sales charges or taxes. ***LB Muni Bond Index Since
Inception cumulative total returns as of 4/30/03 are
156.47% for Class A, 225.45% for Class B, 78.45% for
Class C, and 53.09% for Class Z. LB Muni Bond Index
Since Inception average annual total returns as of
3/31/03 are 7.36% for Class A, 7.86% for Class B,
6.83% for Class C, and 6.66% for Class Z. ****LB Non-
Invst Grd MB Index Since Inception cumulative total
return as of 4/30/03 is 35.88% for Class Z. LB Non-
Invst Grd MB Index Since Inception average annual
total return as of 3/31/03 is 4.45% for Class Z.
*****Lipper Average Since Inception cumulative total
returns as of 4/30/03 are 120.02% for Class A,
175.29% for Class B, 52.35% for Class C, and 32.58%
for Class Z. Lipper Average Since Inception average
annual total returns as of 3/31/03 are 6.07% for
Class A, 6.66% for Class B, 4.79% for Class C, and
4.19% for Class Z.
Credit Quality*
Expressed as a percentage of total investments as of
4/30/03.
9.0% AAA
18.9 AAA Insured
5.0 AA
7.8 A
14.2 BBB
4.0 BB
3.1 B
0.4 CCC and below
0.7 Cash Equivalents
36.9 Not Rated
Credit quality is subject to change.
*Source: Highest rating between Moody's Investor
Service (Moody's) or Standard and Poor's Ratings
Service (S&P).
Five Largest Issuers
Expressed as a percentage of total investments as of
4/30/03.
3.4% Memphis Center City Rev. Fin. Corp.
3.2 New Jersey Economic Dev. Authority
2.6 New Jersey Healthcare Facilities
2.5 New York St. Dorm. Authority Revenue
2.1 Minnesota Agricultural & Economic Dev.
Holdings are subject to change.
Portfolio Composition
Expressed as a percentage of total investments as of
4/30/03.
59.3% Revenue Bonds
20.9 General Obligation Bonds
13.4 Prerefunded
5.7 Miscellaneous
0.7 Cash Equivalents
Portfolio composition is subject to change.
1
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PRUDENTIAL FINANCIAL (LOGO) June 16, 2003
DEAR SHAREHOLDER,
After fighting in Iraq ended in April 2003, U.S.
consumer confidence rose significantly and a more
optimistic tone pervaded the financial markets. Major
stock market indexes have continued to improve, even
as the long-standing bond market rally persisted.
While we welcome these developments, it is important
to remember that a wise investor plans for tomorrow's
needs today regardless of the direction of financial
markets.
Whether you are investing for your retirement, your
children's education, or for a new home for your
family, Prudential mutual funds offer advantages that
may help you reach your financial goals. Experienced
asset managers, working closely with research
analysts, employ time-tested investment processes
that were honed under a variety of market conditions.
We recommend that you consult a financial
professional who can help you strike the right
balance between your desire to obtain a particular
return from an investment and your tolerance for risk.
I was named president of the Prudential Municipal
Bond Fund in March 2003. On behalf of the Prudential
Financial family, I would like to thank you for your
continued confidence in Prudential mutual funds. We
look forward to serving your future investment needs.
Sincerely,
Judy A. Rice, President
Prudential Municipal Bond Fund/High Income Series
Prudential Municipal Bond Fund/Insured Series
2
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Prudential Municipal Bond Fund High Income Series
Annual Report April 30, 2003
INVESTMENT ADVISER'S REPORT
PERFORMANCE SUMMARY AND MARKET OVERVIEW
In general, prices of municipal bonds climbed during
our fiscal year that began May 1, 2002 as investors
often preferred the relative safety of fixed income
securities to riskier investment alternatives. Within
the tax-exempt market, this flight-to-quality trend
enabled bonds of investment-grade quality to
generally perform better than bonds rated below
investment grade.
The Series holds bonds of investment-grade and below-
investment-grade quality. Consequently, for the
Series' fiscal year ended April 30, 2003, the Series'
performance trailed the Lehman Brothers Municipal
Bond Index, which is composed entirely of investment-
grade bonds. By contrast, the Series' returns
exceeded the Lehman Brothers Non-Investment Grade
Municipal Bond Index, which includes bonds that are
either non-rated or rated below investment grade. The
Series' returns also exceeded the Lipper High Yield
Municipal Debt Funds Average for the 12 months ended
April 30, 2003.
Several developments encouraged the cautious
investment environment that persisted for much of the
fiscal year. Corporate governance scandals at certain
U.S. firms battered stocks in the summer of 2002.
Stocks suffered renewed selling in early 2003 due to
deteriorating economic conditions and fear that the
United States might engage in a war with Iraq.
Another source of investor anxiety was North Korea's
recent effort to build up its nuclear weapons
program. The Federal Reserve cut short-term interest
rates by half a percentage point in November 2002
with a goal of stimulating growth. Several state and
local governments took advantage of low interest
rates by issuing bonds. Some borrowed money to close
budget gaps caused by shrinking revenues from taxes
on income and capital gains.
3
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Prudential Municipal Bond Fund High Income Series
Annual Report April 30, 2003
EFFORTS TO RETAIN INTEREST INCOME AS RATES FELL
During the fiscal year, we tried to retain interest
income in the declining interest-rate environment. To
that end we employed a credit-quality barbell
strategy in which one side focused on not-rated bonds
of below-investment-grade quality. Typically these
bonds have higher coupon rates relative to bonds of
investment-grade quality. Below-investment-grade
bonds helped the Series increase income exempt from
federal income taxes, but they failed to keep pace
with the prices of higher-quality municipal bonds
amid the flight-to-quality trend.
The Series holds not-rated bonds of the New York City
Industrial Development Agency whose proceeds were
used to refinance an earlier bond issue that funded
construction of the Crowne Plaza-LaGuardia Hotel in
New York City. A weak operating environment in the
travel and leisure sector, due partly to the
September 11 terrorist attacks in the United States
as well as the scheduled amortization of other debt,
left the limited partnership that leases the hotel
with inadequate cash to pay scheduled debt service on
the bonds. Shortly after our reporting period ended,
the bonds experienced a payment default.
SERIES AIDED BY EXPOSURE TO ZERO COUPON BONDS
The other side of our credit-quality barbell placed
emphasis on AAA-rated bonds for their potential price
appreciation. For example, we opportunistically
bought and sold insured, AAA-rated zero coupon bonds
over the course of the fiscal year. These bonds are
so named because they provide no periodic coupon
payments and are therefore sold at deeply discounted
prices. Because zero coupon bonds tend to be
interest-rate sensitive, they generally outperformed
the remainder of the municipal market during the
reporting period as falling rates pushed bond prices
higher.
4
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www.prudential.com (800) 225-1852
ADJUSTING MUNICIPAL BOND SECTOR ALLOCATION
From the perspective of municipal bond
industry/services sectors, we strove to decrease the
Series' exposure to lower-quality debt issues,
particularly airline-related municipal bonds. In
general, the proceeds were used to purchase
investment-grade bonds. The airline industry
continued to struggle in the wake of the September 11
terrorist attacks in the United States, the outbreak
of Severe Acute Respiratory Syndrome (SARS), and
other factors. We sold a portion of the Series'
airline-related bonds before continued deterioration
in the industry caused the bonds to tumble even
further in value. The Series benefited from having a
limited exposure to this volatile sector relative to
the Lehman Brothers Non-Investment Grade Municipal
Bond Index.
We also limited the Series' exposure to bonds backed
by tobacco company payments to state governments
under the Master Settlement Agreement reached in
1998. We participate in this sector on an
opportunistic basis, purchasing tobacco bonds when we
believe their yields adequately compensate us for the
risk of owning them--then frequently selling them. The
sector has been volatile because of the possibility
of further judgments against tobacco firms. During
our reporting period, some credit-rating agencies
downgraded their ratings of certain tobacco bonds,
which negatively affected those held by the Series.
In contrast, we maintained what we believed to be a
large exposure to hospital bonds relative to the
Series' peer group. Increased patient volume,
effective cost-cutting measures, and better managed-
care reimbursement, in general, helped hospital bonds
perform well during the fiscal year.
Prudential Municipal Bond Fund Management Team
- ---------------------------------------------------------
The Portfolio of Investments following this report shows
the size of the Series' positions at period-end.
5
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Prudential Municipal Bond Fund Insured Series
Performance at a Glance
FUND OBJECTIVE
The Prudential Municipal Bond Fund/Insured Series
(the Series) seeks 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 the Series will achieve its
investment objective.
Cumulative Total Returns1 As of 4/30/03
<Table>
<Caption>
One Year Five Years Ten Years Since Inception2
Class A 9.17% 33.19% 75.71% (75.25) 138.75% (136.90)
Class B 8.90 31.40 70.07 (69.63) 185.49 (173.92)
Class C 8.63 29.80 N/A 62.01 (61.59)
Class Z 9.45 34.59 N/A 50.46 (50.33)
LB Muni Bond Index3 8.49 35.77 86.11 ***
Lipper Insured Muni Debt Funds Avg.4 8.31 29.68 72.09 ****
</Table>
Average Annual Total Returns1 As of 3/31/03
<Table>
<Caption>
One Year Five Years Ten Years Since Inception2
Class A 6.86% 4.85% 5.50% (5.47) 6.51% (6.44)
Class B 4.89 5.02 5.47 (5.44) 6.93 (6.63)
Class C 7.53 4.72 N/A 5.50 (5.47)
Class Z 10.55 5.71 N/A 6.30 (6.29)
LB Muni Bond Index3 9.89 6.07 6.45 ***
Lipper Insured Muni Debt Funds Avg.4 9.34 4.97 5.61 ****
</Table>
Distributions and Yields1 As of 4/30/03
Taxable Equivalent Yield5
Total Distributions 30-Day at Tax Rates of
Paid for 12 Months SEC Yield 35% 38.6%
Class A $0.49 2.57% 3.95% 4.19%
Class B $0.46 2.40 3.69 3.91
Class C $0.43 2.13 3.28 3.47
Class Z $0.51 2.90 4.46 4.72
Past performance is not indicative of future results.
Principal value and investment return will fluctuate
so that an investor's shares, when redeemed, may be
worth more or less than their original cost. 1Source:
Prudential Investments LLC, Lehman Brothers, and
Lipper Inc. The cumulative total returns do not take
into account applicable sales charges. The average
annual total returns do take into account applicable
sales charges. Without the distribution and service
(12b-1) fee waiver of 0.05% and 0.25% for Class A and
C shares respectively, the returns for these classes
would have been lower. The Distributor's 12b-1 fee
waiver of 0.25% for Class C shares continued through
April 30, 2003. Effective May 1, 2003, the
Distributor has agreed to a voluntary 12b-1 fee
waiver of 0.25% for Class C shares. This 12b-1 fee
waiver may be discontinued partially or completely at
any time. The Series charges a maximum front-end
sales charge of 3% for Class A shares, and a 12b-1
fee of up to 0.30% annually. In some circumstances,
Class A shares may not be subject to a front-end
sales charge, but may be subject to a 1% contingent
deferred sales charge (CDSC) for the first year.
Class B shares are subject to a declining CDSC of 5%,
4%, 3%, 2%, 1%, and 1% for the first six years
respectively after purchase, and a 12b-1 fee of 0.50%
annually. Approximately seven years after purchase,
Class B shares will automatically convert to Class A
shares on a quarterly basis. Class C shares are
subject to a front-end
6
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www.prudential.com (800) 225-1852
Annual Report April 30, 2003
sales charge of 1%, a CDSC of 1% for shares redeemed
within 18 months of purchase, and a 12b-1 fee of up
to 1.00% annually. Class Z shares are not subject to
a sales charge or 12b-1 fee. Without waiver of fees
and/or expense subsidization, the Series' returns
would have been lower, as indicated in parentheses.
The returns in the tables do not reflect the
deduction of taxes that a shareholder would pay on
fund distributions or following the redemption of
fund shares. 2Inception dates: Class A, 1/22/90;
Class B, 9/17/87; Class C, 8/1/94; and Class Z,
9/16/96. 3The Lehman Brothers (LB) Municipal (Muni)
Bond Index is an unmanaged index of over 39,000 long-
term investment-grade municipal bonds. It gives a
broad look at how long-term investment-grade
municipal bonds have performed. 4The Lipper Insured
Municipal (Muni) Debt Funds Average (Lipper Average)
represents returns based on an average return of all
funds in the Lipper Insured Muni Debt Funds category
for the periods noted. Funds in the Lipper Average
invest primarily in municipal debt issues insured as
to timely payment. 5Some investors may be subject to
the federal alternative minimum tax and/or state and
local taxes. Taxable equivalent yields reflect
federal taxes only. Investors cannot invest directly
in an index. The returns for the LB Muni Bond Index
and the Lipper Average would be lower if they
included the effects of sales charges, operating
expenses of a mutual fund, or taxes. Returns for the
Lipper Average reflect the deduction of operating
expenses, but not sales charges or taxes. ***LB Muni
Bond Index Since Inception cumulative total returns
as of 4/30/03 are 156.47% for Class A, 225.45% for
Class B, 78.45% for Class C, and 53.09% for Class Z.
LB Muni Bond Index Since Inception average annual
total returns as of 3/31/03 are 7.36% for Class A,
7.86% for Class B, 6.83% for Class C, and 6.66% for
Class Z. ****Lipper Average Since Inception
cumulative total returns as of 4/30/03 are 133.95%
for Class A, 198.09% for Class B, 65.51% for Class C,
and 43.69% for Class Z. Lipper Average Since
Inception average annual total returns as of 3/31/03
are 6.58% for Class A, 7.22% for Class B, 5.86% for
Class C, and 5.58% for Class Z.
Credit Quality*
Expressed as a percentage of total investments as of
4/30/03.
2.5% AAA
91.0 AAA Insured
3.0 AA
2.3 Not Rated
1.2 Cash Equivalents
Credit quality is subject to change.
*Source: Highest rating between Moody's Investor
Service (Moody's) or Standard and Poor's Ratings
Service (S&P).
Five Largest Issuers
Expressed as a percentage of total investments as of
4/30/03.
4.3% Washington State Public
Power Supply
3.5 New York State Dorm.
Authority Revenue
2.6 California State Dept. Wtr. Res.
Power Supply Rev.
2.6 Hawaii St. Dept. of Budget &
Finance-Hawaiian Elec.
2.3 Port Authority of NY & NJ
Holdings are subject to change.
Portfolio Composition
Expressed as a percentage of total investments as of
4/30/03.
65.3% Revenue Bonds
25.9 General Obligation Bonds
6.0 Prerefunded
1.6 Miscellaneous
1.2 Cash Equivalents
Portfolio composition is subject to change.
7
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Prudential Municipal Bond Fund Insured Series
Annual Report April 30, 2003
Investment Adviser's Report
PERFORMANCE SUMMARY AND MARKET OVERVIEW
Corporate governance scandals at certain U.S.
companies, a sluggish U.S. economy, and heightened
geopolitical risks helped to foster a conservative
investment environment during the Series' fiscal year
that began May 1, 2002, and insured municipal bonds
rated AAA generally gained in value. For the 12-month
reporting period ended April 30, 2003, the Series'
returns exceeded those of the Lehman Brothers
Municipal Bond Index, because the Series had a larger
exposure to AAA-rated insured bonds than the Index.
The Series' returns exceeded the average comparable
fund as tracked by the Lipper Insured Municipal Debt
Funds Average.
News of accounting scandals at certain U.S. firms
roiled the stock market in the summer of 2002. Stocks
suffered renewed selling in early 2003 due to
deteriorating economic conditions and fear that the
United States might engage in a war with Iraq.
Another source of investor anxiety was North Korea's
recent effort to build up its nuclear weapons
program. The Federal Reserve cut short-term interest
rates by half a percentage point in November 2002
with a goal of stimulating growth. Several state and
local governments took advantage of low interest
rates by issuing bonds. Some borrowed money to close
budget gaps caused by declining revenues from income
and capital gains taxes.
SERIES AIDED BY EXPOSURE TO ZERO COUPON BONDS
We continued to employ a "barbell" strategy that
emphasized municipal bonds with different types of
coupons. One side emphasized zero coupon bonds that
are insured and AAA-rated. Zero coupon bonds are so
named because they provide no periodic coupon
payments and are therefore sold at deeply discounted
prices. Because zero coupon bonds tend to be
interest-rate sensitive, they generally outperformed
the remainder of the municipal market during the
fiscal year as falling rates pushed bond prices
higher.
8
<Page>
www.prudential.com (800) 225-1852
HELD HIGHER COUPON BONDS TO ENHANCE CASH FLOW
The other side of our coupon barbell focused on AAA-
rated, insured bonds with higher coupon rates in
order to provide interest income. Among the Series'
holdings were bonds that gained in value partly
because they were eligible to be paid off prior to
the bonds' final stated maturity.
From the perspective of maturity categories,
municipal bonds in the 10- to 20-year range comprised
a large component of the Series' holdings during the
fiscal year. We believe these bonds offer a good
balance between risk and current income relative to
bonds with longer maturities.
Prudential Municipal Bond Fund Management Team
- ------------------------------------------------------
The Portfolio of Investments following this report
shows the size of the Series' positions at period-end.
9
<Page>
Prudential Municipal Bond Fund High Income Series
Portfolio of Investments as of April 30, 2003
<Table>
<Caption>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS 98.4%
- ----------------------------------------------------------------------------------------
Alaska 0.4%
Northern Tobacco Secur. Corp.,
Asset Bkd. Bonds A3 6.50% 6/01/31 $ 3,500 $ 2,998,380
- ----------------------------------------------------------------------------------------
Arizona 2.5%
Coconino Cnty. Poll. Ctrl. Corp.
Rev.,
Tucson Elec. Pwr., Navajo,
Ser. A, A.M.T. Ba3 7.125 10/01/32 5,000 5,118,150
Tucson Elec. Pwr., Navajo, Ser.
B Ba3 7.00 10/01/32 1,700 1,751,544
Pima Cnty. Ind. Dev. Auth.
Multi-Fam. Mtge. Rev., La Cholla
Proj., A.M.T. NR 8.50 7/01/20 8,980 9,217,701
Surprise Arizona Mun. Prpty.
Corp. Excise Tax Rev., F.G.I.C. Aaa 5.50 7/01/15 3,225 3,634,220
------------
19,721,615
- ----------------------------------------------------------------------------------------
Arkansas 1.6%
Northwest Arkansas Reg. Arpt.
Auth. Rev.,
A.M.T. NR 7.00 2/01/10 3,000 3,149,610
A.M.T. NR 7.625 2/01/27 8,400 9,107,616
------------
12,257,226
- ----------------------------------------------------------------------------------------
California 8.2%
Abag Fin. Auth. Nonprofit Corps.,
C.O.P. Amer. Baptist Homes, Ser.
A BB+(b) 6.20 10/01/27 3,200 3,059,360
Central California Joint Pwr.
Hlth. Fin. Auth., C.O.P., Cmnty.
Hosps. of Central California Baa1 6.00 2/01/30 2,550 2,621,324
Corona C.O.P., Vista Hosp. Sys.
Inc., Ser. C NR 8.375 7/01/11 10,000(c) 3,500,000
Foothill/Eastern Trans. Corridor
Agcy. Toll Rd. Rev., C.A.B.S. Baa3 Zero 1/15/28 11,700 8,312,265
</Table>
10 See Notes to Financial Statements
<Page>
Prudential Municipal Bond Fund High Income Series
Portfolio of Investments as of April 30, 2003 Cont'd.
<Table>
<Caption>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------
Golden St. Securitization Corp.
Settlement Rev., Ser. 2003-A1 A3 6.75% 6/01/39 $ 750 $ 663,458
Lincoln Impvt. Bond Act 1915,
Pub. Fin. Auth., Twelve Bridges NR 6.20 9/02/25 3,730 3,866,108
Orange Cnty. Cmnty. Loc. Trans.
Auth., Reg. Linked S.A.V.R.S.,
R.I.B.S. Aa2 6.20 2/14/11 7,000 8,286,740
Perris California Cmnty. Facs.
Dist., Spec. Tax, No. 01-2,
Ser. A NR 6.25 9/01/23 3,000 3,034,410
Richmond Redev. Agcy. Rev.,
Multi-Fam. Bridge Affordable
Hsg., Ser. A NR 7.50 9/01/23 9,680 9,903,898
Roseville Joint Union H.S. Dist.,
Ser. B, F.G.I.C. Aaa Zero 8/01/11 1,440 1,044,417
Ser. B, F.G.I.C. Aaa Zero 8/01/14 2,220 1,369,385
San Joaquin Hills Trans. Corridor
Agcy., C.A.B.S., E.T.M., Toll
Rd. Rev. AAA Zero 1/01/14 8,420 5,466,432
San Luis Obispo C.O.P., Vista
Hosp. Sys. Inc. NR 8.375 7/01/29 4,000(c) 1,400,000
Vallejo C.O.P., Touro Univ. Ba3 7.375 6/01/29 3,500 3,566,745
Victor Valley Union H.S. Dist.,
G.O., M.B.I.A., E.T.M. Aaa Zero 9/01/12 3,605 2,520,508
G.O., M.B.I.A., E.T.M. Aaa Zero 9/01/14 4,740 2,995,348
G.O., M.B.I.A., E.T.M. Aaa Zero 9/01/16 3,990 2,262,370
------------
63,872,768
- ----------------------------------------------------------------------------------------
Colorado 5.1%
Black Hawk Bus. Impvt. Dist. NR 7.75 12/01/19 5,285(d) 6,844,445
Colorado Springs Hosp. Rev. A3 6.375 12/15/30 2,500 2,680,125
Denver Urban Ren. Auth. Tax,
Inc., Rev. Baa2 7.50 9/01/04 1,025 1,037,290
Inc., Rev. Baa2 7.75 9/01/16 4,000 4,332,280
Lake Creek Affordable Hsg. Corp.
Multi-Fam. Rev.,
Ser. A NR 6.25 12/01/23 12,270 11,463,002
Ser. B NR 7.00 12/01/23 980 923,072
</Table>
See Notes to Financial Statements 11
<Page>
Prudential Municipal Bond Fund High Income Series
Portfolio of Investments as of April 30, 2003 Cont'd.
<Table>
<Caption>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------
Silver Dollar Metro. Dist. NR 7.05% 12/01/30 $ 5,000 $ 5,113,500
Superior Metro. Dist. No. 1,
Wtr. & Swr. Rev. NR 8.50 12/01/13 6,335(d) 7,030,836
------------
39,424,550
- ----------------------------------------------------------------------------------------
Connecticut 0.7%
Connecticut St., 1060 R, G.O.,
R.I.T.E.S. AAA(b) 8.471(f) 11/15/09 5,000 5,613,300
- ----------------------------------------------------------------------------------------
Florida 6.5%
Arbor Greene Cmnty. Dev. Dist.,
Spec. Assmt. Rev. NR 6.50 5/01/07 880 889,451
Bayside Impvt. Comnty. Dev.
Dist., Ser. B NR 6.375 5/01/18 1,370 1,395,112
Broward Cnty. Res. Recov. Rev.,
Rfdg. Wheelabrator, Ser. A A3 5.50 12/01/08 4,000 4,458,400
Crossings at Fleming Island
Cmnty. Dev. Dist. AAA(b) 8.25 5/01/16 6,995(d) 7,912,184
Escambia Cnty. Hlth. Fac. Rev.,
Hlthcare. Fac., A.M.B.A.C. Aaa 5.95 7/01/20 3,000 3,283,080
Florida Hsg. Fin. Corp. Rev.,
Cypress Trace Apts., Ser. G,
A.M.T. NR 6.60 7/01/38 3,066 2,911,014
Westchase Apts., Ser. B, A.M.T. NR 6.61 7/01/38 3,895 3,680,814
North Springs Impvt. Dist. Wtr.
Mgmt.,
Ser. A NR 8.20 5/01/24 1,828(d) 1,964,095
Ser. B NR 8.30 5/01/24 1,610 1,678,264
Oakstead Cmnty. Dev. Dist., Cap.
Impvt., Ser. B NR 6.50 5/01/07 3,665 3,695,713
Orange Cnty. Hlth. Facs. Auth.
Rev., Adventist Hlth. Sys. A3 6.375 11/15/20 3,750 4,089,225
Orlando Util. Cmnty. Wtr. & Elec.
Rev., Ser. D, E.T.M. Aa2 6.75 10/01/17 2,000 2,547,880
Palm Beach Cnty. Hsg. Auth. Rev.,
Ser. A NR 7.75 3/01/23 4,110 4,236,423
</Table>
12 See Notes to Financial Statements
<Page>
Prudential Municipal Bond Fund High Income Series
Portfolio of Investments as of April 30, 2003 Cont'd.
<Table>
<Caption>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------
Palm Beach Cnty. Sld. Wste. Auth
Rev., Impvt., Ser. B, A.M.B.A.C. Aaa Zero 10/01/14 $ 8,000 $ 4,910,480
Stoneybrook West Cmnty. Dev.
Dist. Spec. Assmt. Rev., Ser. B NR 6.45% 5/01/10 1,700 1,727,693
Vista Lakes Cmnty. Dev. Dist.
Cap. Impvt. Rev., Ser. B NR 6.35 5/01/05 975 980,762
------------
50,360,590
- ----------------------------------------------------------------------------------------
Georgia 0.6%
Atlanta Arpt. Facs. Rev., Rfdg.
M.B.I.A., A.M.T., C.A.B.S. Aaa Zero 1/01/10 2,000 1,422,660
Henry Cnty. Wtr. & Swr. Auth.
Rev., A.M.B.A.C. Aaa 6.15 2/01/20 1,000 1,227,340
Mun. Elec. Auth., Combustion
Turbine Proj., Ser. A, M.B.I.A. Aaa 5.25 11/01/22 2,000 2,124,480
------------
4,774,480
- ----------------------------------------------------------------------------------------
Illinois 6.3%
Cary Illinois Spec. Tax,
Spec. Svcs. Area No. 1
Cambridge, Ser. A NR 7.625 3/01/30 4,000 4,342,560
Spec. Svcs. Area No. 2,
Foxford Hill NR 7.50 3/01/30 4,975(g) 5,270,515
Chicago Illinois Brd. of Ed.,
Sch. Reform, Ser. A, G.O. Aaa 5.25 12/01/30 4,250 4,447,115
Gilberts Illinois Spec. Svcs.
Area No. 9, Spec. Tax, Big
Timber Proj. NR 7.75 3/01/27 5,000 5,422,900
Illinois Edl. Facs. Auth. Student
Hsg. Rev., Edl. Advnmt. Fdg.
Univ. Ctr. Proj. Baa2 6.25 5/01/30 2,000 2,022,220
Illinois Hlth. Facs. Auth. Rev.,
Holy Cross Hosp. Proj. Ba3 6.75 3/01/24 1,000 700,630
Midwest Physician Grp. Ltd.
Proj. BBB-(b) 8.10 11/15/14 2,660(d) 2,940,045
Proj. BBB-(b) 8.125 11/15/19 3,285(d) 3,686,394
Reg. M.B.I.A. Aaa 10.10(f) 8/15/14 5,000 5,293,900
</Table>
See Notes to Financial Statements 13
<Page>
Prudential Municipal Bond Fund High Income Series
Portfolio of Investments as of April 30, 2003 Cont'd.
<Table>
<Caption>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------
Kane & De Kalb Cntys. Sch. Dist.,
No. 301, C.A.B.S.,
A.M.B.A.C. Aaa Zero 12/01/11 $ 3,360 $ 2,397,864
A.M.B.A.C. Aaa Zero 12/01/13 4,065 2,604,446
Metro. Pier & Exposition Auth.
Rev., Dedicated St. Tax.,
C.A.B.S., McCormick, Ser. A Aaa Zero 12/15/38 25,000 3,707,000
Robbins Illinois Res. Recov.
Rev.,
Restruct. Proj., Ser. A, A.M.T. NR 8.375% 10/15/16 5,031(c) 9,056
Restruct. Proj., Ser. B, A.M.T. NR 8.375 10/15/16 1,969(c) 3,544
Restruct. Proj., Ser. C, A.M.T. NR 7.25 10/15/09 600 331,397
Restruct. Proj., Ser. C, A.M.T. NR 7.25 10/15/24 3,376 1,481,014
Restruct. Proj., Ser. D, A.M.T. NR Zero 10/15/09 1,567 426,954
Round Lake Rev. NR 6.70 3/01/33 1,000 1,008,820
Winnebago Cnty. Hsg. Auth., Park
Tower Assoc., Sec. 8 NR 8.125 1/01/11 2,862 2,925,840
------------
49,022,214
- ----------------------------------------------------------------------------------------
Iowa 3.6%
City of Cedar Rapids Rev.,
First Mtge., Cottage Grove Place
Proj. AAA(b) 9.00 7/01/18 9,375(d) 11,053,688
First Mtge., Cottage Grove Place
Proj. AAA(b) 9.00 7/01/25 4,435(d) 5,229,131
Iowa St. Fin. Auth. Hlthcare.,
Facs. Rev., Mercy Hlth.
Initiatives Proj. NR 9.25 7/01/25 10,000 11,818,600
------------
28,101,419
- ----------------------------------------------------------------------------------------
Kansas 0.2%
Univ. of Kansas Hosp. Auth. Hlth.
Facs. Rev. A-(b) 5.625 9/01/32 1,500 1,547,685
- ----------------------------------------------------------------------------------------
Kentucky 0.3%
Kentucky Econ. Dev. Fin. Auth.
Hosp. Sys. Rev., Rfdg. & Impvt.
Appalachian Reg. BB-(b) 5.875 10/01/22 2,500 2,198,600
</Table>
14 See Notes to Financial Statements
<Page>
Prudential Municipal Bond Fund High Income Series
Portfolio of Investments as of April 30, 2003 Cont'd.
<Table>
<Caption>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------
Louisiana 1.6%
Calcasieu Parish Inc., Ind. Dev.
Brd. Rev., Rfdg. Olin Corp.
Proj. Baa3 6.625% 2/01/16 $ 3,500 $ 3,681,895
Hodge Util. Rev., Stone Container
Corp., A.M.T. NR 9.00 3/01/10 2,300 2,350,140
New Orleans Home Mtge. Auth.
Rev., Sngl. Fam. Mtge., Ser. A,
G.N.M.A., A.M.T. Aaa 8.60 12/01/19 1,280 1,280,000
West Feliciana Parish Poll. Ctrl.
Rev., Gulf St. Util. Ba1 7.70 12/01/14 5,000 5,108,100
------------
12,420,135
- ----------------------------------------------------------------------------------------
Maine 0.5%
Maine Hlth. & Higher Edl. Facs.
Auth. Rev.,
Piper Shores, Ser. A NR 7.50 1/01/19 1,000 1,030,920
Piper Shores, Ser. A NR 7.55 1/01/29 3,000 3,071,490
------------
4,102,410
- ----------------------------------------------------------------------------------------
Maryland 1.8%
Anne Arundel Cnty. Spec. Oblig.,
Arundel Mills Proj. NR 7.10 7/01/29 3,000 3,271,080
Maryland St. Hlth. & Higher Edl.
Facs. Auth. Rev. Baa1 6.75 7/01/30 5,000 5,543,650
Northeast Wste. Disp. Auth. Rev.,
Sludge Corp. Facs. NR 7.25 7/01/07 2,380 2,463,609
Sludge Corp. Facs., A.M.T. NR 8.50 7/01/07 2,435 2,582,269
------------
13,860,608
- ----------------------------------------------------------------------------------------
Massachusetts 1.3%
Massachusetts St. Coll. Bldg.
Proj. &, Rfdg. Bonds, Ser. A Aa2 7.50 5/01/14 1,750(g) 2,293,532
Massachusetts St. Hlth. & Edl.
Facs. Auth. Rev.,
Caritas Christi Oblig. Grp.
Rfdg., Ser. A Baa3 5.625 7/01/20 2,650 2,360,435
</Table>
See Notes to Financial Statements 15
<Page>
Prudential Municipal Bond Fund High Income Series
Portfolio of Investments as of April 30, 2003 Cont'd.
<Table>
<Caption>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------
Caritas Christi Oblig. Grp.
Rfdg., Ser. A Baa3 5.75% 7/01/28 $ 2,000 $ 1,725,620
Caritas Christi Oblig., Ser. B Baa3 6.75 7/01/16 3,595 3,772,521
------------
10,152,108
- ----------------------------------------------------------------------------------------
Michigan 1.9%
Detroit Sewage Disp. Rev.,
F.G.I.C. Aaa 5.70 7/01/23 5,200 5,331,040
Grand Rapids Downtown Dev. Auth.,
C.A.B.S., M.B.I.A. Aaa Zero 6/01/12 3,000 2,092,950
Kalamazoo Michigan Hosp. Fin.
Auth. Hosp. Fac. Rev., E.T.M. Aaa 9.108(f) 6/01/11 2,000 2,230,640
Michigan St. Hosp. Fin. Auth.
Rev., Pontiac Osteopathic, Ser.
A Baa3 6.00 2/01/14 3,045 2,967,109
Michigan St. Strategic Fd. Res.
Recov. Ltd. Oblig. Rev.,
Central Wayne Engy. Rec.,
Ser. A, A.M.T. NR 6.90 7/01/19 1,500(c) 405,000
Central Wayne Engy. Rec.,
Ser. A, A.M.T. NR 7.00 7/01/27 6,500(c) 1,755,000
------------
14,781,739
- ----------------------------------------------------------------------------------------
Minnesota 2.1%
Minnesota Agricultural & Econ.
Dev. Rev.,
Fairview Hlthcare. Sys., Ser. A A2 6.375 11/15/22 12,000 13,076,880
Fairview Hlthcare. Sys., Ser. A A2 6.375 11/15/29 3,000 3,251,550
------------
16,328,430
- ----------------------------------------------------------------------------------------
Nevada 0.9%
Clark Cnty. Impvt. Dist., No. 121
Southern Highlands Area NR 7.50 12/01/19 5,000 5,379,850
North Las Vegas Local Impvt.,
Spec. Impvt. Dist. No. 60
Aliante NR 6.40 12/01/22 1,250 1,255,125
------------
6,634,975
- ----------------------------------------------------------------------------------------
New Hampshire 0.7%
New Hampshire Higher Edl. & Hlth.
Facs. Auth. Rev., Antioch Coll. NR 7.875 12/01/22 4,900 5,101,929
</Table>
16 See Notes to Financial Statements
<Page>
Prudential Municipal Bond Fund High Income Series
Portfolio of Investments as of April 30, 2003 Cont'd.
<Table>
<Caption>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------
New Jersey 7.4%
Camden Cnty. Auth. Rev.,
Hlthcare. Redev. Cooper Proj. Ba3 6.00% 2/15/27 $ 2,250 $ 1,967,400
New Jersey Econ. Dev. Auth. Rev.,
Continental Airlines, Inc. Proj. Caa2 7.00(f) 11/15/30 3,000 2,049,780
Kapkowski Rd., Ser. A AAA 6.375 4/01/31 7,000(d) 8,677,410
Kapkowski Rd., Ser. A, C.A.B.S.,
E.T.M. AAA Zero 4/01/12 1,115 797,348
Rfdg. First Mtge. Franciscan
Oaks Proj. NR 5.70 10/01/17 165 151,168
New Jersey Hlthcare. Facs.
Fin. Auth. Rev.,
Cherry Hill Proj. NR 8.00 7/01/27 5,000 4,904,900
Pascack Valley Hosp. Assoc. BB+(b) 6.625 7/01/36 2,000 1,976,480
Raritan Bay Med. Ctr. NR 7.25 7/01/14 4,300 4,459,229
Raritan Bay Med. Ctr. NR 7.25 7/01/27 4,000 4,175,560
Somerset Med. Ctr. Baa2 5.50 7/01/33 2,750 2,651,825
St. Peters Univ. Hosp., Ser. A Baa1 6.875 7/01/30 2,000 2,160,300
New Jersey St. Econ. Dev. Auth.
Rev., First Mtge. Fellowship
Vlge. Proj., Ser. A AAA 9.25 1/01/25 11,500(d) 13,203,495
New Jersey St. Edl. Facs. Auth.
Rev., Felician Coll. of Lodi,
Ser. D NR 7.375 11/01/22 3,800 3,480,230
Tobacco Settlement Fin. Rev.
Corp. A3 6.75 6/01/39 3,000 2,653,830
Tobacco Settlement Fin. Rev.
Corp. A3 6.25 6/01/43 5,250 4,308,727
------------
57,617,682
- ----------------------------------------------------------------------------------------
New Mexico 0.7%
New Mexico St. Hosp. Equip. Ln.
Council Rev., Mem. Med. Ctr.,
Inc. Proj. Baa3 5.375 6/01/18 1,000 890,950
New Mexico St. Hosp. Rev., Mem.
Med. Ctr., Inc. Proj. Baa3 5.50 6/01/28 5,370 4,538,241
------------
5,429,191
</Table>
See Notes to Financial Statements 17
<Page>
Prudential Municipal Bond Fund High Income Series
Portfolio of Investments as of April 30, 2003 Cont'd.
<Table>
<Caption>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------
New York 9.0%
Brookhaven New York Ind. Dev.
Agcy. Civic Facs. Rev., Mem.
Hosp. Med. Ctr., Inc., Ser. A NR 8.25% 11/15/30 $ 4,000(e) $ 4,119,320
New York City Ind. Dev. Agcy.
Rev., Rfdg. Laguardia Assoc.
L.P. Proj. NR 6.00 11/01/28 4,000 2,447,280
New York City Mun. Wtr. Fin.
Auth. Wtr. & Swr. Sys. Rev. Aaa 9.14(f) 6/15/09 10,000(e) 11,053,400
New York City Transitional Fin.
Auth. Rev.,
Future Tax Secured, Ser. D Aaa 5.25 2/01/18 4,650 5,095,609
Ser. C Aa2 5.50 2/15/16 2,500 2,793,175
New York St. Dorm. Auth. Rev.,
C.A.B.S., Mem. Sloan Ctr.
Ser. 1, M.B.I.A. Aaa Zero 7/01/26 4,400 1,401,268
C.A.B.S., Mem. Sloan Ctr.
Ser. 1, M.B.I.A. Aaa Zero 7/01/27 8,700 2,624,790
Mem. Sloan-Kettering Ctr.,
Ser. 1, M.B.I.A. Aaa 5.00 7/01/20 6,560 6,962,456
Mem. Sloan-Kettering Ctr.,
Ser. 1, M.B.I.A. Aaa 5.00 7/01/21 3,280 3,459,022
Mem. Sloan-Kettering Ctr.,
Ser. 1, M.B.I.A. Aaa 5.00 7/01/22 1,300 1,362,231
Mem. Sloan-Kettering Ctr.,
Ser. 1, M.B.I.A. Aaa 5.00 7/01/23 2,200 2,292,488
Mem. Sloan-Kettering Ctr.,
Ser. 1, M.B.I.A. Aaa 5.00 7/01/24 1,310 1,358,562
New York St. Environ. Facs. Rev.
Corp., Revolving Funds, Ser. K Aaa 5.25 6/15/22 5,000 5,347,350
New York St. Pwr. Auth. Rev.,
Ser. A Aa2 5.25 11/15/16 7,500 8,287,575
Port Auth., Rfdg. Cons. Ser. 127,
A.M.T., A.M.B.A.C. Aaa 5.50 12/15/14 5,000 5,640,100
Triborough Bridge & Tunnel Auth.
Rev., Ser. A, M.B.I.A. AAA(b) 5.25 11/15/30 5,000 5,277,550
------------
69,522,176
</Table>
18 See Notes to Financial Statements
<Page>
Prudential Municipal Bond Fund High Income Series
Portfolio of Investments as of April 30, 2003 Cont'd.
<Table>
<Caption>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------
North Carolina 1.2%
North Carolina Mun. Pwr. Agcy.
No. 1 Catawba Rev., Ser. A Aaa 5.25% 1/01/16 $ 8,540 $ 9,431,832
- ----------------------------------------------------------------------------------------
North Dakota 0.8%
Ward Cnty. Hlthcare. Facs. Rev.,
Rfdg. Trinity Oblig.,
Group A BBB+(b) 6.25 7/01/26 4,110 4,195,858
Group B BBB+(b) 6.25 7/01/21 2,000 2,053,220
------------
6,249,078
- ----------------------------------------------------------------------------------------
Ohio 3.5%
Bellefontaine Ohio Hosp. Rev.,
Rfdg. Facs. Mary Rutan Hlth.
Assoc. Baa 6.00 12/01/13 3,830 3,936,014
Cleveland Arpt. Spec. Rev.,
Continental Airlines, Inc. Caa2 5.70 12/01/19 2,000 1,000,860
Cleveland Pub. Pwr. Sys. Rev.,
First Mtge., Ser. A, M.B.I.A. Aaa Zero 11/15/12 1,000 695,250
First Mtge., Ser. A, M.B.I.A. Aaa Zero 11/15/13 1,500 995,205
Cuyahoga Cnty. Hosp. Facs. Rev.,
Canton, Inc. Proj. Baa2 7.50 1/01/30 2,000 2,215,760
Cuyahoga Cnty. Rev., Rfdg., Ser.
A A1 6.00 1/01/32 2,500 2,654,175
Mahoning Valley Santn. Dist. Wtr.
Rev. NR 7.75 5/15/19 8,000(d) 8,698,000
Ohio St. Solid Wste. Rev.,
CSC Ltd. Proj., A.M.T. NR 8.50 8/01/22 7,000(c) 0
Rep. Eng. Steels, Inc., A.M.T. NR 9.00 6/01/21 2,250(c) 225
Ohio St. Wtr. Dev. Auth. Poll.
Ctrl. Facs., First Mtge. Toledo
Edison, Ser. A, A.M.T. Baa2 8.00 10/01/23 5,500 5,850,625
Richland Cnty. Hosp. Facs. Rev.,
Rfdg. Medcentral Hlth. Sys.,
Ser. A A-(b) 6.125 11/15/16 1,000 1,083,050
------------
27,129,164
</Table>
See Notes to Financial Statements 19
<Page>
Prudential Municipal Bond Fund High Income Series
Portfolio of Investments as of April 30, 2003 Cont'd.
<Table>
<Caption>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------
Oregon 1.8%
Portland Swr. Sys. Rev.,
Rfdg. Second Lien, Ser. A,
F.S.A. Aaa 5.25% 6/01/13 $ 2,305 $ 2,614,193
Rfdg. Second Lien, Ser. A,
F.S.A. Aaa 5.25 6/01/14 2,425 2,735,012
Rfdg. Second Lien, Ser. A,
F.S.A. Aaa 5.25 6/01/16 2,690 2,992,706
Rfdg. Second Lien, Ser. A,
F.S.A. Aaa 5.25 6/01/17 2,830 3,126,074
Rfdg. Second Lien, Ser. A,
F.S.A. Aaa 5.25 6/01/18 1,975 2,167,859
------------
13,635,844
- ----------------------------------------------------------------------------------------
Pennsylvania 6.4%
Allegheny Cnty. Hosp. Dev. Auth.
Rev.,
Hlth. Sys., Ser. B B1 9.25 11/15/15 1,000 1,133,140
Hlth. Sys., Ser. B B1 9.25 11/15/22 2,500 2,823,450
Hlth. Sys., Ser. B B1 9.25 11/15/30 5,000 5,591,050
Carbon Cnty. Ind. Dev. Auth.,
Rfdg. Panther Creek Partners
Proj., A.M.T. BBB-(b) 6.65 5/01/10 2,500 2,611,525
Columbia Cnty. Hosp. Auth.
Hlthcare. Rev., Bloomsburg Hosp.
Proj. BBB-(b) 5.80 6/01/19 4,730 4,103,890
Cumberland Cnty. Mun. Auth. Ret.
Cmnty. Rev., Wesley Affiliated
Svcs., Ser. A NR 7.25 1/01/35 4,000 3,979,760
Dauphin Cnty. Gen. Auth. Hosp.
Rev., NW Med. Ctr. Proj. AAA(b) 8.625 10/15/13 5,345(d) 6,227,780
Delaware Cnty. Ind. Dev. Auth.
Rev., Rfdg. Res. Recov. Facs.,
Ser. A Baa3 6.00 1/01/09 6,500 7,036,705
Langhorne Manor Boro. Higher Ed.
& Hlth. Auth. Rev.,
Hosp. Lower Bucks Hosp. B3 7.30 7/01/12 1,800 1,723,428
Hosp. Lower Bucks Hosp. B3 7.35 7/01/22 2,000 1,878,880
Philadelphia Hosps. & Higher Ed.
Facs. Auth. Rev.,
Chestnut Hill Hosp. Rev. Baa2 6.50 11/15/22 2,300 2,303,726
Grad. Hlth. Sys. Ca 7.00 7/01/05 1,663(c) 33
</Table>
20 See Notes to Financial Statements
<Page>
Prudential Municipal Bond Fund High Income Series
Portfolio of Investments as of April 30, 2003 Cont'd.
<Table>
<Caption>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------
Grad. Hlth. Sys. Ca 7.25% 7/01/18 $ 2,285(c) $ 46
Grad. Hlth. Sys., Ser. A Ca 6.25 7/01/13 2,029(c) 41
Somerset Cnty. Hosp. Auth. Rev.,
Hlthcare. First Mtge. NR 8.40 6/01/09 1,600 1,618,304
Hlthcare. First Mtge. NR 8.50 6/01/24 8,805 8,905,553
------------
49,937,311
- ----------------------------------------------------------------------------------------
Rhode Island 1.3%
Providence Redev. Agcy., C.O.P.,
Ser. A NR 8.00 9/01/24 9,465(d) 10,346,665
- ----------------------------------------------------------------------------------------
South Carolina 0.9%
Greenville Cnty. Sch. Dist.
Installment, Bldg. Equity Sooner
Tomorrow A1 5.875 12/01/16 6,500 7,329,335
- ----------------------------------------------------------------------------------------
South Dakota 0.6%
South Dakota Econ. Dev. Fin.
Auth., Dakota Park, A.M.T. NR 10.25 1/01/19 4,475 4,491,020
- ----------------------------------------------------------------------------------------
Tennessee 5.6%
Bradley Cnty. Ind. Dev. Brd.,
Rfdg. Olin Corp. Proj., Ser. C Baa3 6.625 11/01/17 2,000 2,127,260
Johnson City Hlth. & Edl. Facs.
Brd. Hosp. Rev., Rfdg. First
Mtge., Ser. A, M.B.I.A. Aaa 6.75 7/01/17 2,000 2,513,320
Memphis Ctr. City Rev., Fin.
Corp., Ser. B NR 6.50 9/01/28 26,000 26,114,660
Rutherford Cnty. Hlth. & Edl.
Facs. Brd., First Mtge. Rev. NR 9.50 12/01/19 6,300 6,601,329
Shelby Cnty. Hlth. Edl. & Hsg.
Fac. Brd. Hosp. Rev., Methodist
Hlthcare. Baa1 6.50 9/01/26 6,000 6,460,200
------------
43,816,769
</Table>
See Notes to Financial Statements 21
<Page>
Prudential Municipal Bond Fund High Income Series
Portfolio of Investments as of April 30, 2003 Cont'd.
<Table>
<Caption>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------
Texas 5.6%
Abilene Texas Hlth. Facs. Dev.
Corp. Ret. Facs. Rev., Sears
Methodist Ret., Ser. A NR 7.00% 11/15/33 $ 1,500 $ 1,473,240
Alliance Arpt. Auth., Inc. Spec.
Facs. Rev., American Airlines,
Inc. Proj. Caa2 7.50 12/01/29 6,000 2,100,240
Austin Hsg. Fin. Corp. Multi-Fam.
Hsg. Rev., Stony Creek, Ser. A Baa3 7.75 11/01/29 9,360 10,001,722
Dallas-Fort Worth Int'l Arpt.
Fac. Impvt. Corp. Rev., American
Airlines, Ser. C Caa2 6.15(f) 5/01/29 2,600 912,418
Houston Arpt. Sys. Rev.,
Spec. Facs. Continental Airline,
Ser. B Caa2 6.125 7/15/27 3,000 1,606,350
Spec. Facs. Continental Airline,
Ser. E Caa2 6.75 7/01/21 3,000 1,786,410
Spec. Facs. Continental Airline,
Ser. E Caa2 6.75 7/01/29 2,000 1,181,020
Spec. Facs. Continental Airline,
Ser. E Caa2 7.00 7/01/29 5,000 2,902,350
Katy Texas Dev. Auth. Rev., Tax
Increment Contract, Ser. B NR 6.00 6/01/18 4,000 3,949,040
Keller Ind. Sch. Dist., Rfdg.,
Ser. A, C.A.B.S., P.S.F.G. Aaa Zero 8/15/17 4,075 2,089,130
Meadow Park Dev. Inc. Multi-Fam.
Rev., Hsg. Meadow Proj. NR 6.50 12/01/30 1,650 1,559,266
New Braunfels Ind. Sch. Dist.,
C.A.B.S., P.S.F.G. Aaa Zero 2/01/12 2,365 1,661,720
North Central Texas Hlth. Fac.
Dev. Corp. Rev., Ret. Fac. Sr.
Hsg., Ser. A NR 7.50 11/15/29 5,000 5,113,400
San Patricio Mun. Wtr. Dist.,
Rev. Aaa 5.20 7/10/28 5,095 5,229,355
</Table>
22 See Notes to Financial Statements
<Page>
Prudential Municipal Bond Fund High Income Series
Portfolio of Investments as of April 30, 2003 Cont'd.
<Table>
<Caption>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------
Texas Mun. Pwr. Agcy. Rev.,
M.B.I.A. Aaa Zero 9/01/15 $ 3,265 $ 1,885,668
M.B.I.A., E.T.M. Aaa Zero 9/01/15 35 20,534
------------
43,471,863
- ----------------------------------------------------------------------------------------
Utah 0.1%
Carbon Cnty. Solid Wste. Disp.
Rev., Rfdg. Laidlaw Environ.,
Ser. A, A.M.T. NR 7.45% 7/01/17 1,000 952,900
Tooele Cnty. Poll. Ctrl. Rev.,
Rfdg. Laidlaw Environ., Ser. A,
A.M.T. NR 7.55 7/01/27 4,000(c) 400
------------
953,300
- ----------------------------------------------------------------------------------------
Virginia 2.0%
Chesterfield Cnty. Ind. Dev.
Auth. Poll. Ctrl. Rev., Virginia
Elec. & Pwr., Ser. A A3 5.875 6/01/17 2,000 2,120,600
Loudoun Cnty. Ind. Dev. Auth.
Rev. Ba3 7.125 9/01/15 2,000 2,032,220
Norfolk Redev. & Hsg. Auth.,
Multi-Fam. Rental Hsg. Facs.
Rev., A.M.T. NR 8.00 9/01/26 5,880 5,812,321
Pittsylvania Cnty. Ind. Dev.
Auth. Rev., Multitrade, Ser. A,
A.M.T. NR 7.55 1/01/19 2,500 2,497,550
Pocahontas Pkwy. Assoc. Toll Rd.
Rev., C.A.B.S.,
Ser. B BB(b) Zero 8/15/16 7,000 2,172,310
Ser. C Ba1 Zero 8/15/16 3,300 631,950
------------
15,266,951
- ----------------------------------------------------------------------------------------
Washington 0.9%
Bellevue Conv. Ctr. Auth.,
King City, Oblig. Rev., M.B.I.A. Aaa Zero 2/01/10 870 681,593
King City, Oblig. Rev., M.B.I.A. Aaa Zero 2/01/11 1,200 887,916
King City, Oblig. Rev., M.B.I.A. Aaa Zero 2/01/12 1,300 913,419
King City, Oblig. Rev., M.B.I.A. Aaa Zero 2/01/14 1,385 871,941
Tobacco Settlement Auth. Tobacco
Settlement Rev., Asset Bkd. A3 6.625 6/01/32 3,000 2,611,950
</Table>
See Notes to Financial Statements 23
<Page>
Prudential Municipal Bond Fund High Income Series
Portfolio of Investments as of April 30, 2003 Cont'd.
<Table>
<Caption>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------
Washington St. Pub. Pwr. Sup.
Sys. Rev., Nuclear Proj. No.1,
Ser. B, E.T.M. Aa1 7.25% 7/01/09 $ 920 $ 1,151,030
------------
7,117,849
- ----------------------------------------------------------------------------------------
West Virginia 1.6%
West Virginia St. Hosp. Fin.
Auth. Hosp. Rev., Oak Hill
Hosp.,
Ser. B A2 6.75 9/01/30 7,000(d) 8,704,850
West Virginia St. Pkwys. Econ.
Dev. & Tourism Auth.,
Rfdg. Reg. R.I.B.S., F.G.I.C. Aaa 10.212(f) 5/16/19 1,145(d) 1,195,059
Rfdg. Reg. R.I.B.S., F.G.I.C. Aaa 10.212(f) 5/16/19 2,105 2,197,410
------------
12,097,319
- ----------------------------------------------------------------------------------------
Wisconsin 2.0%
Oconto Falls Cmnty. Dev. Auth.
Dev. Rev.,
A.M.T. NR 8.125 12/01/22 1,425 1,250,993
Oconto Falls Tissue, Inc. Proj.,
A.M.T. NR 7.75 12/01/22 8,200 6,925,884
Wisconsin St. Hlth. & Edl. Facs.
Auth. Rev.,
Agnesian Hlthcare., Inc. A3 6.00 7/01/30 3,000 3,117,360
Mercy Hosp. of Janesville, Inc. A2 6.60 8/15/22 4,040 4,123,265
------------
15,417,502
- ----------------------------------------------------------------------------------------
Wyoming 0.2%
Wyoming Cmnty. Dev. Auth. Hsg.
Rev., Ser. 4, A.M.T. Aa2 5.85 6/01/28 1,240 1,286,190
------------
Total long-term investments
(cost $769,338,620) 763,822,202
------------
SHORT-TERM INVESTMENTS 2.4%
- ----------------------------------------------------------------------------------------
Delaware 1.1%
Delaware St. Econ. Dev. Auth.
Rev.,
Delmarva Pwr. & Lt. Co. Proj.,
F.R.D.D. VMIG1 1.37 5/01/03 2,600 2,600,000
</Table>
24 See Notes to Financial Statements
<Page>
Prudential Municipal Bond Fund High Income Series
Portfolio of Investments as of April 30, 2003 Cont'd.
<Table>
<Caption>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------
Delmarva Pwr. & Lt. Co., Ser. A,
F.R.D.D. VMIG1 1.37% 5/01/03 $ 3,600 $ 3,600,000
Gas Facs. Delmarva Pwr. & Lt.,
F.R.D.D. VMIG1 1.37 5/01/03 2,300 2,300,000
------------
8,500,000
- ----------------------------------------------------------------------------------------
Indiana 0.1%
Indiana St. Dev. Fin. Auth. Ind.
Dev. Rev., Republic Svcs., Inc.
Proj., F.R.D.D., A.M.T. VMIG1 1.40 5/01/03 600 600,000
- ----------------------------------------------------------------------------------------
Louisiana 0.1%
Ascension Parish Rev., Basf Corp.
Proj., F.R.D.D., A.M.T. P-1 1.55 5/01/03 1,200 1,200,000
- ----------------------------------------------------------------------------------------
Nevada 0.2%
Clark Cnty. Ind. Dev. Rev.,
Southwest Gas Corp. Proj.,
Ser. A, F.R.W.D. Aaa 1.45 5/07/03 1,250 1,250,000
- ----------------------------------------------------------------------------------------
New York 0.3%
New York City Trust Cult. Res.
Rev., Mun. Secs. Trust Rcpts.,
Ser. SGA 91, F.R.D.D. A-1+(b) 1.45 5/01/03 985 985,000
New York St. Local Govt. Assist.
Corp., Mun. Secs. Trust Rcpts.,
Ser. SGA 59, F.R.D.D. A-1+(b) 1.45 5/01/03 1,000 1,000,000
------------
1,985,000
- ----------------------------------------------------------------------------------------
North Carolina 0.3%
Halifax Cnty. Ind. Facs. & Poll.
Ctrl. Fin. Auth. Rev.,
Westmoreland, F.R.D.D. Aa2 1.45 5/01/03 2,400 2,400,000
</Table>
See Notes to Financial Statements 25
<Page>
Prudential Municipal Bond Fund High Income Series
Portfolio of Investments as of April 30, 2003 Cont'd.
<Table>
<Caption>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------
Texas 0.3%
Calhoun Cnty. Nav. Ind. Dev.
Auth. Rev., British Petroleum
Co., F.R.D.D. Aa2 1.55% 5/01/03 $ 2,300 $ 2,300,000
------------
Total short-term investments
(cost $18,235,000) 18,235,000
------------
OUTSTANDING OPTION PURCHASED(h)
<Caption>
Contracts
- ------------------------------------------------------------------------------------------------------------
United States Treasury Bonds
Futures May 03 @ 112
(cost $182,831) 5/23/03 274 111,313
------------
Total Investments 100.8%
(cost $787,756,451; Note 5) 782,168,515
Liabilities in excess of other
assets (0.8%) (5,965,150)
------------
Net Assets 100.0% $776,203,365
------------
------------
</Table>
26 See Notes to Financial Statements
<Page>
Prudential Municipal Bond Fund High Income Series
Portfolio of Investments as of April 30, 2003 Cont'd.
(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.
C.A.B.S.--Capital Appreciation Bonds.
C.O.P.--Certificates of Participation.
E.T.M.--Escrowed to Maturity.
F.G.I.C.--Financial Guaranty Insurance Company.
F.R.D.D.--Floating Rate Daily Demand Note(i).
F.R.W.D.--Floating Rate Weekly Demand Note(i).
F.S.A.--Financial Security Assurance.
G.N.M.A.--Government National Mortgage Association.
G.O.--General Obligation.
L.P.--Limited Partnership.
M.B.I.A.--Municipal Bond Insurance Corporation.
P.S.F.G.--Public School Fund Guaranty.
R.I.B.S.--Residential Interest Bonds.
R.I.T.E.S.--Residual Interest Tax Exempt Securities Receipts.
S.A.V.R.S.--Select Auction Variable Rate Securities.
(b) Standard & Poor's rating.
(c) Issuer in default of interest payment. Non-income producing security.
(d) Prerefunded issues are secured by escrowed cash or direct U.S. government
guaranteed obligations.
(e) All or partial principal amount segregated as initial margin on financial
futures contracts.
(f) Inverse floating rate bond. The coupon is inversely indexed to a floating
rate. The rate shown is the rate at year end.
(g) Represents a when-issued security.
(h) Non-income producing security.
(i) The maturity date shown is the later of the next date on which the security
can be redeemed at par or the next date on which the rate of interest is
adjusted.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current prospectus contains a description of Moody's and Standard &
Poor's ratings.
See Notes to Financial Statements 27
<Page>
Prudential Municipal Bond Fund High Income Series
Statement of Assets and Liabilities
<Table>
<Caption>
April 30, 2003
- ----------------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $787,756,451) $ 782,168,515
Cash 48,805
Interest receivable 14,714,662
Receivable for investments sold 5,915,420
Receivable for Series shares sold 497,533
Prepaid expenses 16,736
--------------
Total assets 803,361,671
--------------
LIABILITIES
Payable for investments purchased 24,185,974
Dividends payable 1,138,826
Payable for Series shares reacquired 1,057,809
Management fee payable 318,008
Distribution fee payable 216,780
Accrued expenses 136,836
Due to broker--variation margin 87,023
Deferred trustees' fees 17,050
--------------
Total liabilities 27,158,306
--------------
NET ASSETS $ 776,203,365
--------------
--------------
Net assets were comprised of:
Shares of beneficial interest, at par $ 767,882
Paid-in capital in excess of par 836,981,335
--------------
837,749,217
Undistributed net investment income 1,534,048
Accumulated net realized loss on investments (57,423,274)
Net unrealized depreciation on investments (5,656,626)
--------------
Net assets, April 30, 2003 $ 776,203,365
--------------
--------------
</Table>
28 See Notes to Financial Statements
<Page>
Prudential Municipal Bond Fund High Income Series
Statement of Assets and Liabilities Cont'd.
<Table>
<Caption>
April 30, 2003
- ----------------------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share ($491,218,341 /
48,597,340 shares of beneficial interest issued and
outstanding) $10.11
Maximum sales charge (3% of offering price) .31
--------------
Maximum offering price to public $10.42
--------------
--------------
Class B:
Net asset value, offering price and redemption price per share
($241,310,654 / 23,869,221 shares of beneficial interest
issued and outstanding) $10.11
--------------
--------------
Class C:
Net asset value and redemption price per share ($28,313,142 /
2,800,486 shares of beneficial interest issued and
outstanding) $10.11
Sales charge (1% of offering price) .10
--------------
Offering price to public $10.21
--------------
--------------
Class Z:
Net asset value, offering price and redemption price per share
($15,361,228 / 1,521,160 shares of beneficial interest
issued and outstanding) $10.10
--------------
--------------
</Table>
See Notes to Financial Statements 29
<Page>
Prudential Municipal Bond Fund High Income Series
Statement of Operations
<Table>
<Caption>
Year
Ended
April 30, 2003
- ----------------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Interest $ 51,018,099
--------------
Expenses
Management fee 3,992,990
Distribution fee--Class A 1,241,494
Distribution fee--Class B 1,320,334
Distribution fee--Class C 203,408
Transfer agent's fees and expenses 347,000
Custodian's fees and expenses 140,000
Reports to shareholders 105,000
Registration fees 65,000
Audit fee 25,000
Legal fees and expenses 25,000
Trustees' fees 22,000
Miscellaneous 31,816
--------------
Total expenses 7,519,042
Less: Custodian fee credit (1,308)
--------------
Net expenses 7,517,734
--------------
Net investment income 43,500,365
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on:
Financial futures transactions (1,502,194)
Investment transactions (893,511)
Interest rate swap (324,250)
--------------
(2,719,955)
--------------
Net change in unrealized depreciation on:
Investments 5,560,708
Financial futures contracts 636,444
--------------
6,197,152
--------------
Net gain on investments 3,477,197
--------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 46,977,562
--------------
--------------
</Table>
30 See Notes to Financial Statements
<Page>
Prudential Municipal Bond Fund High Income Series
Statement of Changes in Net Assets
<Table>
<Caption>
Year Ended April 30,
-----------------------------
2003 2002
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income $ 43,500,365 $ 49,563,126
Net realized loss on investment transactions (2,719,955) (6,436,520)
Net change in unrealized depreciation of
investments 6,197,152 2,352,022
------------ -------------
Net increase in net assets resulting from
operations 46,977,562 45,478,628
------------ -------------
Dividends from net investment income
Class A (27,212,576) (30,334,339)
Class B (13,811,235) (17,211,736)
Class C (1,351,027) (1,491,292)
Class Z (621,063) (390,117)
------------ -------------
(42,995,901) (49,427,484)
------------ -------------
Series share transactions (net of share
conversions)
(Note 6):
Net proceeds from shares sold 72,704,604 60,350,611
Net asset value of shares issued in
reinvestment of dividends 19,333,005 22,227,581
Cost of shares reacquired (140,516,971) (138,012,314)
------------ -------------
Net decrease in net assets from Series share
transactions (48,479,362) (55,434,122)
------------ -------------
Total decrease (44,497,701) (59,382,978)
NET ASSETS
Beginning of year 820,701,066 880,084,044
------------ -------------
End of year(a) $776,203,365 $ 820,701,066
------------ -------------
------------ -------------
- ---------------
(a) Includes undistributed net investment income
of $ 1,534,048 $ 1,307,929
------------ -------------
------------ -------------
</Table>
See Notes to Financial Statements 31
<Page>
Prudential Municipal Bond Fund Insured Series
Portfolio of Investments as of April 30, 2003
<Table>
<Caption>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS 97.8%
- ----------------------------------------------------------------------------------------
Alaska 1.4%
Anchorage Hosp. Rev., Sisters of
Providence, A.M.B.A.C., T.C.R.S. Aaa 7.125% 10/01/05 $ 5,000 $ 5,074,500
- ----------------------------------------------------------------------------------------
Arizona 1.3%
Maricopa Cnty. Sch. Dist. No. 69,
Ser. E, F.G.I.C. Aaa 6.80 7/01/12 3,700 4,633,917
- ----------------------------------------------------------------------------------------
California 7.9%
California Hsg. Fin. Agcy. Rev.,
Home Mtge., Ser. B, M.B.I.A.,
A.M.T. Aaa Zero 2/01/30 6,075 1,426,531
California St. Dept. Wtr. Res.
Pwr. Sup. Rev.,
Ser. A, A.M.B.A.C. Aaa 5.50 5/01/14 6,000 6,834,000
Ser. A, A.M.B.A.C. Aaa 5.375 5/01/18 2,250(e) 2,485,125
Inland Empire Solid Wste.
Landfill Impvt., Proj. B,
F.S.A., A.M.T. Aaa 6.00 8/01/16 2,000(d) 2,301,420
Modesto H.S. Dist., Stanislaus
Cnty., C.A.B.S., Ser. A, G.O.,
F.G.I.C. Aaa Zero 8/01/24 3,225 1,080,956
Roseville Joint Union H.S.,
C.A.B.S., Ser. B, F.G.I.C. Aaa Zero 8/01/13 1,765 1,150,251
San Bernardino City Uni. Sch.
Dist., C.A.B.S., Ser. C., G.O.,
F.G.I.C. Aaa Zero 8/01/26 5,035 1,495,294
San Diego Cnty. Wtr. Rev.,
C.O.P., F.G.I.C. Aaa 9.83(c) 4/26/06 5,800 7,058,600
South Orange Cnty. Pub. Fin.,
Foothill Area Proj., Ser. C,
F.G.I.C. Aaa 8.00 8/15/08 2,000 2,539,660
Victor Elementary Sch. Dist.,
C.A.B.S., Ser. A, M.B.I.A. Aaa Zero 6/01/18 3,700 1,814,850
------------
28,186,687
</Table>
32 See Notes to Financial Statements
<Page>
Prudential Municipal Bond Fund Insured Series
Portfolio of Investments as of April 30, 2003 Cont'd.
<Table>
<Caption>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------
Colorado 2.3%
Denver City & Cnty. Arpt. Rev.,
Ser. C, M.B.I.A., A.M.T. Aaa 5.60% 11/15/11 $ 5,000 $ 5,505,500
E-470 Pub. Hwy. Auth. Rev.,
C.A.B.S., Ser. B, M.B.I.A. Aaa Zero 9/01/28 12,700 2,717,546
------------
8,223,046
- ----------------------------------------------------------------------------------------
District of Columbia 4.0%
Dist. of Columbia Hosp. Rev.,
Medlantic Hlthcare. Grp. A,
M.B.I.A., E.T.M. Aaa 5.875 8/15/19 3,500(f) 3,930,500
M.B.I.A., E.T.M. Aaa 5.75 8/15/26 3,000(f) 3,327,900
Dist. of Columbia, G.O.,
Ser. A, M.B.I.A. Aaa 6.50 6/01/10 3,095(e) 3,722,201
Ser. A, M.B.I.A., E.T.M. Aaa 6.50 6/01/10 2,905(f) 3,534,107
------------
14,514,708
- ----------------------------------------------------------------------------------------
Florida 5.6%
Brevard Cnty. Hlth. Facs. Auth.,
Holmes Reg. Med. Ctr. Proj.,
M.B.I.A. Aaa 5.60 10/01/10 6,000(f) 6,764,280
Hillsborough Cnty. Aviation Auth.
Rev., Tampa Intl. Arpt., Ser. A,
M.B.I.A. Aaa 5.50 10/01/15 4,185 4,636,436
Indian River Cnty. Wtr. & Swr.
Rev., Ser. A, F.G.I.C. Aaa 5.25 9/01/18 2,600 2,826,226
Orange Cnty. Tourist Dev. Tax
Rev. Aaa 5.00 10/01/17 4,000 4,271,760
Palm Beach Cnty. Sld. Wste. Auth.
Rev., Ser. B, A.M.B.A.C. Aaa Zero 10/01/16 3,000 1,646,760
------------
20,145,462
- ----------------------------------------------------------------------------------------
Georgia 2.8%
Atlanta Arpt. Facs. Rev., Ser. A,
A.M.B.A.C. Aaa 6.50 1/01/10 2,000 2,381,540
Georgia Mun. Elec. Auth., Pwr.
Rev., Ser. B, M.B.I.A. Aaa 6.20 1/01/10 3,495 4,123,715
Newnan Hosp. Auth. Rev. Aaa 5.50 1/01/21 3,185 3,481,938
------------
9,987,193
</Table>
See Notes to Financial Statements 33
<Page>
Prudential Municipal Bond Fund Insured Series
Portfolio of Investments as of April 30, 2003 Cont'd.
<Table>
<Caption>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------
Hawaii 2.6%
Hawaii Dept. Budget & Fin.,
Hawaiian Elec. Co. Projs., Ser.
C, A.M.B.A.C., A.M.T. Aaa 6.20% 11/01/29 $ 8,000 $ 9,194,480
- ----------------------------------------------------------------------------------------
Idaho 0.5%
Idaho Hsg. & Fin. Assoc., Sngl.
Fam. Mtge., Ser. E, A.M.T. Aaa 5.55 7/01/31 1,835 1,935,173
- ----------------------------------------------------------------------------------------
Illinois 9.4%
Chicago Gas Sup. Rev., People's
Gas, A.M.B.A.C., T.C.R.S. Aaa 6.10 6/01/25 7,400 8,137,780
Chicago Midway Arpt. Rev., Ser.
B, M.B.I.A., A.M.T. Aaa 5.75 1/01/22 5,000 5,356,650
Chicago O'Hare Int'l. Arpt. Pass.
Facs. Chrg., Ser. A, A.M.B.A.C. Aaa 5.625 1/01/15 2,000 2,199,980
Illinois St.,
G.O. Aaa 5.625 4/01/15 3,250 3,683,940
G.O., F.S.A. Aaa 5.25 4/01/22 2,500 2,653,375
Illinois St. Civic Ctr., Spec.
St. Oblig., F.S.A. Aaa 5.50 12/15/15 2,710 3,055,172
Metro. Pier & Expo. Auth.,
McCormick, Ser. A, C.A.B.S. Aaa Zero 12/15/38 10,000 1,482,800
Onterie Ctr. Hsg. Fin. Corp.,
Mtge. Rev.,
Ser. A, M.B.I.A. Aaa 7.00 7/01/12 1,520 1,553,273
Ser. A, M.B.I.A. Aaa 7.05 7/01/27 5,400 5,548,608
------------
33,671,578
- ----------------------------------------------------------------------------------------
Kansas 0.6%
Saline Cnty. Unif. Sch. Dist.,
G.O., F.S.A. Aaa 5.50 9/01/17 2,000 2,228,780
- ----------------------------------------------------------------------------------------
Louisiana 1.2%
New Orleans Fin. Auth., Sngl.
Fam. Mtge., Ser. B-2,
G.N.M.A./F.N.M.A., A.M.T. Aaa 6.00 12/01/21 1,105 1,171,388
</Table>
34 See Notes to Financial Statements
<Page>
Prudential Municipal Bond Fund Insured Series
Portfolio of Investments as of April 30, 2003 Cont'd.
<Table>
<Caption>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------
New Orleans, G.O., C.A.B.S.,
A.M.B.A.C. Aaa Zero 9/01/09 $ 4,000 $ 3,262,400
------------
4,433,788
- ----------------------------------------------------------------------------------------
Maryland 1.7%
Maryland St. Cmnty. Dev. Admin.,
Ser. D, F.H.A., A.M.T. Aa2 6.20% 9/01/20 5,000 5,403,450
Prince Georges Cnty. Hsg., Sngl.
Fam. Mtge., Ser. A,
G.N.M.A./F.N.M.A., A.M.T. AAA(b) 6.15 8/01/19 520 561,205
------------
5,964,655
- ----------------------------------------------------------------------------------------
Massachusetts 1.3%
Massachusetts St., Cons. Ln.,
Ser. C, G.O. Aaa 5.50 11/01/10 4,000 4,605,600
- ----------------------------------------------------------------------------------------
Michigan 3.0%
Detroit Swge. Disp.,
Rev., F.G.I.C. Aaa 10.052(c) 7/01/23 5,000(d) 5,294,400
Rev., F.G.I.C. Aaa 10.052(c) 7/01/23 1,500 1,588,320
Saginaw Hosp. Fin. Auth., Hosp.
Rev., Ser. C, M.B.I.A. Aaa 6.50 7/01/11 4,000 4,029,280
------------
10,912,000
- ----------------------------------------------------------------------------------------
Minnesota 3.8%
Bass Brook Poll. Ctrl. Rev.,
M.B.I.A. Aaa 6.00 7/01/22 1,600 1,637,776
Becker Indpt. Sch. Dist. No.
726.,
Ser. A, F.S.A. Aaa 6.00 2/01/15 1,610 1,875,360
Ser. A, F.S.A. Aaa 6.00 2/01/16 1,750 2,038,435
Minneapolis & St. Paul Metro.
Arpts.,
Ser. A, F.G.I.C. Aaa 5.75 1/01/32 4,285 4,778,418
Ser. C, F.G.I.C. Aaa 5.50 1/01/19 3,000 3,282,090
------------
13,612,079
- ----------------------------------------------------------------------------------------
Mississippi 0.3%
Mississippi Hsg. Fin. Corp.,
Sngl. Fam. Mtge., C.A.B.S.,
E.T.M. Aaa Zero 9/15/16 1,990 1,101,704
</Table>
See Notes to Financial Statements 35
<Page>
Prudential Municipal Bond Fund Insured Series
Portfolio of Investments as of April 30, 2003 Cont'd.
<Table>
<Caption>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------
Missouri 0.9%
St. Louis Arpt. Rev., Arpt. Dev.
Proj., Ser. A, M.B.I.A. Aaa 5.625% 7/01/19 $ 3,000 $ 3,319,080
- ----------------------------------------------------------------------------------------
New Jersey 4.5%
Jersey City, Rfdg. & Sch. Impvt.,
Ser. B, G.O., A.M.B.A.C. Aaa 5.25 3/01/13 4,225 4,768,039
Jersey City Swr. Auth.,
Rev., A.M.B.A.C. Aaa 6.00 1/01/10 2,585 3,021,555
Rev., A.M.B.A.C. Aaa 6.25 1/01/14 4,255 5,157,996
New Jersey Econ. Dev. Auth. Rev.,
Sch. Facs. Cons., Ser. A Aaa 5.125 6/15/14 3,000 3,295,290
------------
16,242,880
- ----------------------------------------------------------------------------------------
New York 14.5%
Islip Res. Rec. Facs., Ser. B,
A.M.B.A.C., A.M.T. Aaa 7.20 7/01/10 1,750 2,160,428
Metro. Trans. Auth., N.Y. Svc.
Contract Rfdg., Ser. A, M.B.I.A. Aaa 5.50 7/01/20 3,000 3,308,490
Metro. Trans. Auth., N.Y. Trans.
Facs. Rev., Ser. A, F.S.A. Aaa 5.75 7/01/11 5,000(d) 5,809,600
New York City Mun. Wtr. Fin.
Auth., Wtr. & Swr. Rev., Ser. B Aa2 6.00 6/15/33 3,025 3,534,864
New York NY, Ser. G, M.B.I.A. Aaa 5.75 2/01/14 3,000(f) 3,303,090
New York St. Dorm. Auth. Rev.,
Mem. Sloan Ctr., Ser. 1,
M.B.I.A., C.A.B.S. Aaa Zero 7/01/26 2,000 636,940
Mem. Sloan Ctr., Ser. 1,
M.B.I.A., C.A.B.S. Aaa Zero 7/01/27 4,100 1,236,970
Mem. Sloan-Kettering Ctr.,
Ser. 1, M.B.I.A. Aaa 5.00 7/01/20 3,040 3,226,504
Mem. Sloan-Kettering Ctr.,
Ser. 1, M.B.I.A. Aaa 5.00 7/01/21 1,520 1,602,962
Mem. Sloan-Kettering Ctr.,
Ser. 1, M.B.I.A. Aaa 5.00 7/01/22 600 628,722
</Table>
36 See Notes to Financial Statements
<Page>
Prudential Municipal Bond Fund Insured Series
Portfolio of Investments as of April 30, 2003 Cont'd.
<Table>
<Caption>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------
Mem. Sloan-Kettering Ctr.,
Ser. 1, M.B.I.A. Aaa 5.00% 7/01/23 $ 1,000 $ 1,042,040
Mem. Sloan-Kettering Ctr.,
Ser. 1, M.B.I.A. Aaa 5.00 7/01/24 600 622,242
Sch. Dist. Fin. Proj., Ser. A,
M.B.I.A. Aaa 5.75 10/01/17 3,000 3,449,220
New York St. Environ. Facs. Poll.
Ctrl. Rev.,
Ser. C Aaa 5.70 7/15/12 2,350(d) 2,653,032
Ser. C Aaa 5.70 7/15/12 25 27,682
Ser. C Aaa 5.75 7/15/13 1,050(d) 1,186,783
Ser. C Aaa 5.75 7/15/13 10 11,072
Ser. C Aaa 5.80 7/15/14 3,720(d) 4,209,515
Ser. C Aaa 5.80 7/15/14 35 38,796
New York St. Urban Dev. Corp.,
Corr. & Youth Facs. Svcs., Ser.
A AA-(b) 5.50 1/01/17 1,500 1,668,195
Port Auth. of New York & New
Jersey, Ser. 99, F.G.I.C.,
A.M.T. Aaa 5.90 11/01/11 7,665 8,253,365
Suffolk Cnty. Judicial Facs.,
John P. Cohalan Complex,
A.M.B.A.C. Aaa 5.75 10/15/12 3,000 3,440,550
------------
52,051,062
- ----------------------------------------------------------------------------------------
North Carolina 0.8%
North Carolina Mun. Pwr. Agcy.
No. 1, Catawba Elec. Rev.,
Ser. A, M.B.I.A. Aaa 5.25 1/01/19 2,500 2,704,625
- ----------------------------------------------------------------------------------------
Ohio 0.9%
Bowling Green St. Univ., F.G.I.C. Aaa 5.75 6/01/16 2,815 3,232,324
- ----------------------------------------------------------------------------------------
Oklahoma 3.4%
Edmond Pub. Wks. Auth. Util.
Rev., A.M.B.A.C. Aaa 5.625 7/01/24 4,440 4,860,823
Norman Reg. Hosp. Auth., Rev.,
Ser. A, M.B.I.A. Aaa 5.50 9/01/11 4,110 4,412,702
</Table>
See Notes to Financial Statements 37
<Page>
Prudential Municipal Bond Fund Insured Series
Portfolio of Investments as of April 30, 2003 Cont'd.
<Table>
<Caption>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------
Oklahoma City Arpt. Trust, Jr.
Lien, Ser. 24, A.M.B.A.C.,
A.M.T. Aaa 5.75% 2/01/18 $ 2,620 $ 2,845,975
------------
12,119,500
- ----------------------------------------------------------------------------------------
Oregon 0.8%
Portland Swr. Sys. Rev., Rfdg.
Second Lien Ser. A, F.S.A. Aaa 5.25 6/01/15 2,555 2,862,903
- ----------------------------------------------------------------------------------------
Pennsylvania 2.4%
Pennsylvania St. Ind. Dev. Auth.
Rev., Econ. Dev. Aaa 5.50 7/01/17 5,000 5,646,550
Philadelphia Mun. Auth. Rev.,
Justice Lease, Ser. A, M.B.I.A. Aaa 6.90 11/15/03 3,000 3,044,280
------------
8,690,830
- ----------------------------------------------------------------------------------------
South Carolina 1.8%
Lexington Wtr. & Swr., Rev.,
Ser. A, M.B.I.A. Aaa 5.75 4/01/20 4,180 4,724,863
Univ. of South Carolina, Rev.,
Ser. A, F.G.I.C. Aaa 5.75 6/01/30 1,615 1,809,107
------------
6,533,970
- ----------------------------------------------------------------------------------------
Texas 7.8%
Austin Util. Sys. Rev., C.A.B.S.,
Ser. A, E.T.M. Aaa Zero 5/15/03 725 724,667
Ser. A, M.B.I.A. Aaa Zero 5/15/03 3,275 3,273,362
Corpus Christi Util. Sys. Rev.,
Ser. A, F.S.A. Aaa 6.00 7/15/19 3,255 3,763,268
Ser. A, F.S.A. Aaa 6.00 7/15/20 3,450 3,970,502
Houston Arpt. Sys. Rev., E.T.M. Aaa 7.20 7/01/13 3,425 4,189,323
Keller Indpt. Sch. Dist.,
C.A.B.S., Ser. A, P.S.F.G. Aaa Zero 8/15/15 4,945 2,858,160
Mission Cons. Indpt. Sch. Dist.,
G.O., P.S.F.G. Aaa 5.75 2/15/19 1,360 1,534,094
Northwest Indpt. Sch. Dist.,
Sch. Bldg. & Rfdg., G.O.,
P.S.F.G. Aaa 5.50 8/15/17 1,080 1,211,047
</Table>
38 See Notes to Financial Statements
<Page>
Prudential Municipal Bond Fund Insured Series
Portfolio of Investments as of April 30, 2003 Cont'd.
<Table>
<Caption>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------
Sch. Bldg. & Rfdg., G.O.,
P.S.F.G. Aaa 5.50% 8/15/18 $ 1,000 $ 1,113,620
Texas St. Tpke. Auth. Rev.,
C.A.B.S., First Tier, Ser. A,
A.M.B.A.C. Aaa Zero 8/15/21 7,990 3,174,747
Univ. of Texas Univ. Rev., Fin.
Sys., Ser. B Aaa 5.25 8/15/20 1,000 1,081,730
Van Alstyne Indpt. Sch. Dist.
Rfdg., G.O., P.S.F.G. Aaa 5.95 8/15/29 1,105 1,244,307
------------
28,138,827
- ----------------------------------------------------------------------------------------
Vermont 1.1%
Vermont Hsg. Fin. Agcy., Sngl.
Fam. Mtge., Ser. 13A, F.S.A.,
A.M.T. Aaa 5.45 5/01/26 3,610 3,858,187
- ----------------------------------------------------------------------------------------
Virginia 0.9%
Virginia Beach Hosp. Facs. Rev.,
Gen. Hosp. Proj.,
A.M.B.A.C. Aaa 6.00 2/15/10 1,220 1,416,957
A.M.B.A.C. Aaa 6.00 2/15/13 1,455 1,709,392
------------
3,126,349
- ----------------------------------------------------------------------------------------
Washington 7.2%
Clark Cnty. Sch. Dist. No. 114,
G.O., F.S.A. Aaa 5.25 12/01/18 3,800 4,122,582
King Cnty. Sch. Dist. No. 411,
G.O., F.S.A. Aaa 6.25 12/01/15 1,900 2,247,567
Ocean Shores, G.O., F.G.I.C. Aaa 5.50 12/01/20 1,570 1,714,110
Port. Seattle Rev., Rfdg., Ser. A Aaa 5.375 6/01/13 2,000 2,233,380
Washington St. Pub. Pwr. Supply,
C.A.B.S., Ref., Ser. B,
F.G.I.C., T.C.R.S. Aaa Zero 7/01/08 4,500 3,854,070
C.A.B.S., Ser. A, M.B.I.A.,
E.T.M. Aaa Zero 7/01/11 5,210 3,823,046
Ser. A, M.B.I.A. Aaa 5.75 7/01/10 7,000 7,954,450
------------
25,949,205
</Table>
See Notes to Financial Statements 39
<Page>
Prudential Municipal Bond Fund Insured Series
Portfolio of Investments as of April 30, 2003 Cont'd.
<Table>
<Caption>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------
West Virginia 1.1%
Clarksburg Wtr. Rev., F.G.I.C. Aaa 5.25% 9/01/19 $ 2,750 $ 2,989,607
West Virginia St. Wtr. Dev.
Auth., Ser. B, A.M.B.A.C.,
A.M.T. Aaa 5.875 7/01/20 1,015 1,111,466
------------
4,101,073
------------
Total long-term investments
(cost $322,414,973) 351,356,165
------------
SHORT-TERM INVESTMENTS 3.8%
- ----------------------------------------------------------------------------------------
Georgia 0.8%
Burke Cnty. Dev. Auth. Poll.
Ctrl. Rev., Oglethorpe Pwr.
Corp. Proj. C, F.R.D.D.,
M.B.I.A. A-1+(b) 1.35 5/01/03 2,800 2,800,000
- ----------------------------------------------------------------------------------------
Illinois 1.2%
Illinois Dev. Fin. Auth. Solid
Wste., Rep. Svcs. Inc. Proj.,
F.R.W.D., A.M.T. A-1+(b) 1.45 5/01/03 3,500 3,500,000
Mun. Secs. Trust Cert.,
Ser. 2000-93, Cl. A, F.R.D.D.,
A.M.B.A.C. A-1(b) 1.48 5/01/03 1,000 1,000,000
------------
4,500,000
- ----------------------------------------------------------------------------------------
Indiana 0.1%
Indiana St. Dev. Fin. Auth. Indl.
Dev. Rev., Republic Svcs., Inc.
Proj., F.R.D.D. Aaa 1.40 5/01/03 400 400,000
- ----------------------------------------------------------------------------------------
Louisiana 0.4%
Ascension Parish Rev., BASF Corp.
Proj., F.R.D.D., A.M.T. P-1 1.55 5/01/03 1,500 1,500,000
- ----------------------------------------------------------------------------------------
Pennsylvania 0.6%
Beaver Cnty. Ind. Dev. Auth.,
Environ. Impvt. Rec., BASF Corp.
Proj., F.R.D.D., A.M.T. P-1 1.55 5/01/03 2,000 2,000,000
</Table>
40 See Notes to Financial Statements
<Page>
Prudential Municipal Bond Fund Insured Series
Portfolio of Investments as of April 30, 2003 Cont'd.
<Table>
<Caption>
Moody's Principal
Rating Interest Maturity Amount Value
Description (a) (Unaudited) Rate Date (000) (Note 1)
- ------------------------------------------------------------------------------------------------------------
Tennessee 0.3%
Clarksville Pub. Bldg. Auth.
Rev., Mun. Bond Fd., F.R.D.D. Aa1 1.40% 5/01/03 $ 1,000 $ 1,000,000
- ----------------------------------------------------------------------------------------
Texas 0.4%
Brazos Riv. Hbr. Nav. Dist.,
BASF Corp. Proj., F.R.D.D.,
A.M.T. P-1 1.55 5/01/03 400 400,000
Brazoria Cnty. Multi-Mode, Rev.,
BASF Corp., F.R.D.D., A.M.T. P-1 1.55 5/01/03 1,100 1,100,000
------------
1,500,000
------------
Total short-term investments
(cost $13,700,000) 13,700,000
------------
OUTSTANDING OPTION PURCHASED(h)
<Caption>
Contracts
- ------------------------------------------------------------------------------------------------------------
United States Treasury Bonds
Futures May 03 @ 112
(cost $85,410) 5/23/03 128 52,000
------------
Total Investments 101.6%
(cost $336,200,383; Note 5) 365,108,165
Liabilities in excess of other
assets (1.6%) (5,671,560)
------------
Net Assets 100.0% $359,436,605
------------
------------
</Table>
See Notes to Financial Statements 41
<Page>
Prudential Municipal Bond Fund Insured Series
Portfolio of Investments as of April 30, 2003 Cont'd.
(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.
C.A.B.S.--Capital Appreciation Bonds.
C.O.P.--Certificates of Participation.
E.T.M.--Escrowed to Maturity.
F.G.I.C.--Financial Guaranty Insurance Company.
F.H.A.--Federal Housing Administration.
F.N.M.A.--Federal National Mortgage Association.
F.R.D.D.--Floating Rate Daily Demand Note(g).
F.R.W.D.--Floating Rate Weekly Demand Note(g).
F.S.A.--Financial Security Assurance.
G.N.M.A.--Government National Mortgage Association.
G.O.--General Obligation.
M.B.I.A.--Municipal Bond Insurance Corporation.
P.S.F.G.--Public School Fund Guaranty.
T.C.R.S.--Transferable Custodial Receipts.
(b) Standard & Poor's rating.
(c) Inverse floating rate bond. The coupon is inversely indexed to a floating
rate. The rate shown is the rate at year end.
(d) Prerefunded issues are secured by escrowed cash or direct U.S. government
guaranteed obligations.
(e) Pledged as initial margin for financial futures contracts.
(f) Represents a when-issued security.
(g) The maturity date shown is the later of the next date on which the security
can be redeemed at par or the next date on which the rate of interest is
adjusted.
(h) Non-income producing security.
The Fund's current prospectus contains a description of Moody's and Standard &
Poor's ratings.
42 See Notes to Financial Statements
<Page>
This page intentionally left blank
<Page>
Prudential Municipal Bond Fund Insured Series
Statement of Assets and Liabilities
<Table>
<Caption>
April 30, 2003
- ----------------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $336,200,383) $ 365,108,165
Interest receivable 4,876,792
Receivable for investments sold 3,309,970
Receivable for Series shares sold 344,160
Prepaid expenses 8,855
--------------
Total assets 373,647,942
--------------
LIABILITIES
Payable for investments purchased 13,260,264
Dividends payable 397,112
Management fee payable 146,428
Payable for Series shares reacquired 137,596
Distribution fee payable 87,115
Accrued expenses 85,891
Payable to custodian 44,760
Due to broker--variation margin 38,289
Deferred trustees' fees 13,882
--------------
Total liabilities 14,211,337
--------------
NET ASSETS $ 359,436,605
--------------
--------------
Net assets were comprised of:
Shares of beneficial interest, at par $ 310,075
Paid-in capital in excess of par 323,798,075
--------------
324,108,150
Undistributed net investment income 313,244
Accumulated net realized gain on investments 6,138,366
Net unrealized appreciation on investments 28,876,845
--------------
Net assets, April 30, 2003 $ 359,436,605
--------------
--------------
</Table>
44 See Notes to Financial Statements
<Page>
Prudential Municipal Bond Fund Insured Series
Statement of Assets and Liabilities Cont'd.
<Table>
<Caption>
April 30, 2003
- ----------------------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share ($281,076,519 /
24,251,495 shares of beneficial interest issued and
outstanding) $11.59
Maximum sales charge (3% of offering price) .36
--------------
Maximum offering price to public $11.95
--------------
--------------
Class B:
Net asset value, offering price and redemption price per share
($60,723,839 / 5,234,468 shares of beneficial interest
issued and outstanding) $11.60
--------------
--------------
Class C:
Net asset value and redemption price per share ($8,457,019 /
729,014 shares of beneficial interest issued and
outstanding) $11.60
Sales charge (1% of offering price) .12
--------------
Offering price to public $11.72
--------------
--------------
Class Z:
Net asset value, offering price and redemption price per share
($9,179,228 / 792,519 shares of beneficial interest issued
and outstanding) $11.58
--------------
--------------
</Table>
See Notes to Financial Statements 45
<Page>
Prudential Municipal Bond Fund Insured Series
Statement of Operations
<Table>
<Caption>
Year
Ended
April 30, 2003
- ----------------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Interest $ 18,035,389
--------------
Expenses
Management fee 1,723,876
Distribution fee--Class A 681,521
Distribution fee--Class B 290,014
Distribution fee--Class C 56,695
Transfer agent's fees and expenses 170,000
Custodian's fees and expenses 107,000
Registration fees 59,000
Reports to shareholders 32,000
Legal fees and expenses 29,000
Audit fee 16,000
Trustees' fees 13,000
Miscellaneous 14,253
--------------
Total expenses 3,192,359
Less: Custodian fee credit (411)
--------------
Net expenses 3,191,948
--------------
Net investment income 14,843,441
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on:
Investment transactions 7,432,411
Financial futures transactions 128,823
Interest rate swap (110,366)
--------------
7,450,868
--------------
Net change in unrealized appreciation on:
Investments 7,393,560
Financial futures contracts 117,273
--------------
7,510,833
--------------
Net gain on investments 14,961,701
--------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 29,805,142
--------------
--------------
</Table>
46 See Notes to Financial Statements
<Page>
Prudential Municipal Bond Fund Insured Series
Statement of Changes in Net Assets
<Table>
<Caption>
Year Ended April 30,
----------------------------
2003 2002
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income $ 14,843,441 $ 15,256,792
Net realized gain on investment transactions 7,450,868 1,130,134
Net change in unrealized appreciation of
investments 7,510,833 3,829,494
------------ ------------
Net increase in net assets resulting from
operations 29,805,142 20,216,420
------------ ------------
Dividends
Dividends from net investment income
Class A (11,672,945) (12,440,770)
Class B (2,338,618) (2,370,950)
Class C (285,559) (220,711)
Class Z (298,062) (153,937)
------------ ------------
(14,595,184) (15,186,368)
------------ ------------
Series share transactions (net of share
conversions)
Net proceeds from shares sold 64,183,997 35,479,859
Net asset value of shares issued in
reinvestment of dividends 8,444,955 8,576,821
Cost of shares reacquired (55,468,023) (49,464,065)
------------ ------------
Net increase (decrease) in net assets from
Series share transactions 17,160,929 (5,407,385)
------------ ------------
Total increase (decrease) 32,370,887 (377,333)
NET ASSETS
Beginning of year 327,065,718 327,443,051
------------ ------------
End of year(a) $359,436,605 $327,065,718
------------ ------------
------------ ------------
- ---------------
(a) Includes undistributed net investment income
of $ 313,244 $ 252,724
------------ ------------
------------ ------------
</Table>
See Notes to Financial Statements 47
<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
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
Securities Valuation: The Fund values municipal securities (including
commitments to purchase such securities on a 'when-issued' basis) on the basis
of prices provided by a pricing service which uses information with respect to
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.
Securities, including options, futures contracts and options thereon, for
which the primary market is on a national securities exchange, commodities
exchange or board of trade are valued at the last sale price on such exchange or
board of trade, on the date of valuation or, if there was no sale on such day,
at the average of readily available closing bid and asked prices on such day or
at the bid price in the absence of an asked price.
Securities, including options, that are actively traded in the
over-the-counter market, including listed securities for which the primary
market is believed to be over-the-counter, are valued at the average of the most
recently quoted bid and asked prices provided by a principal maker or dealer.
Short-term securities which mature in sixty days or less are valued at
amortized cost, which approximates market value. The amortized cost method
involves valuing a security at its cost on the date of purchase and thereafter
assuming a constant
48
<Page>
Prudential Municipal Bond Fund
Notes to Financial Statements Cont'd.
amortization to maturity of the difference between the principal amount due at
maturity and cost. Short-term securities which mature in more than sixty days
are valued at current market quotations.
Financial Futures Contracts: A financial futures contract is an
agreement to purchase (long) or sell (short) an agreed amount of 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
(loss). When the contract expires or is closed, the gain (loss) is realized and
is presented in the Statement of Operations as net realized gain (loss) on
financial futures transactions.
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. The Fund's principal reason for writing
options is to realize, through receipt of premiums, a greater current return
than would be realized on the underlying security alone. When the Fund purchases
an option, it pays a premium and an amount equal to that premium is recorded as
an asset. When the Fund writes an option, it receives a premium and an amount
equal to that premium is recorded as a liability. The asset or liability is
adjusted daily to reflect the current market value of the option.
If an option expires unexercised, the Fund realizes a gain (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 of
the purchase in determining whether the Fund has realized a gain (loss). The
difference between the premium and the amount received or paid on effecting a
closing purchase or sale transaction is treated as a realized gain or loss. Gain
(loss) on purchased options is included in
49
<Page>
Prudential Municipal Bond Fund
Notes to Financial Statements Cont'd.
net realized gain (loss) on investment transactions. Gain (loss) on written
options is presented separately as net realized gain (loss) on written options.
The Fund, as writer of an option, may have no control over whether the
underlying securities may be sold (call) 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.
Interest Rate Swaps: The Fund may enter into swap agreements. An
interest rate swap agreement is an agreement between two parties to exchange a
series of cash flows at specified intervals. Based on a notional amount, each
party pays an interest rate. Interest on the securities in the swap are included
in the value of the exchange. The swaps are valued daily at current market value
and any unrealized gain (loss) is included in the net unrealized appreciation or
depreciation on investments. Gain (loss) is realized on the termination date of
the swap and is equal to the difference between the Fund's basis in the swap and
the proceeds of the closing transaction, including fees. During the period that
the swap agreement is open, the Fund may be subject to risk from the potential
inability of the counterparty to meet the terms of the agreement. The use of
derivative transactions, such as written options, financial futures contracts
and interest rate swaps, may involve elements of both market and credit risk in
excess of the amounts reflected in the Statement of Assets and Liabilities.
Inverse Floaters: The Series invests in variable rate securities
commonly called 'inverse floaters'. The interest rates on these securities have
an inverse relationship to market interest rates of other securities or the
value of an index. Changes in interest rates on the other security or index
inversely affect the rate paid on the inverse floater, and the inverse floater's
price will be more volatile than that of a fixed-rate bond. Additionally, some
of these securities contain a 'leverage factor' whereby the interest rate moves
inversely by a 'factor' to the benchmark rate. Certain interest rate movements
and other market factors can substantially affect the liquidity of inverse
floating rate notes.
Securities Transactions and Net Investment Income: Securities
transactions are recorded on the trade date. Realized gains (losses) on sales of
investments are calculated on the identified cost basis. Interest income,
including amortization of premium and accretion of discount on debt securities,
as required is recorded on the accrual basis. Expenses are recorded on the
accrual basis which may require the use of certain estimates by management.
50
<Page>
Prudential Municipal Bond Fund
Notes to Financial Statements Cont'd.
Net investment income (loss) (other than distribution fees, which are
charged directly to the respective Class) and realized and unrealized gains
(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.
Dividends and Distributions: The Series declares daily dividends from
the net investment income. Payment of dividends is made monthly. Distributions
of net capital gains, if any, are made annually. Dividends and distributions to
shareholders, which are determined in accordance with federal income tax
regulation and which may differ from generally accepted accounting principles,
are recorded on the ex-dividend date. Permanent book/tax differences relating to
income and gains are reclassified to paid in capital when they arise.
Federal Income Taxes: It is the Fund's policy to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable net income and capital gains, if
any, to its shareholders. Therefore, no federal income tax provision is
required.
Custody Fee Credits: The Fund has an arrangement with its custodian
bank, whereby uninvested assets earn credits which reduce the fees charged by
the custodian. The Fund could have invested a portion of the assets utilized in
connection with the expense offset arrangements in an income producing asset if
they had not entered into such arrangements.
Note 2. Agreements
The Fund has a management agreement with Prudential Investments LLC ('PI').
Pursuant to this agreement, PI has responsibility for all investment advisory
services and supervises the subadviser's performance of such services. PI has
entered into a subadvisory agreement with Prudential Investment Management
('PIM'). The Subadvisory Agreement provides that PIM will furnish investment
advisory services in connection with the management of the Fund. PI pays for the
services of PIM, the cost of 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 PI 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.
The Fund has a distribution agreement with Prudential Investment
Management Services LLC ('PIMS') which acts as the distributor of the Class A,
Class B, Class C and Class Z shares of the Fund. 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
51
<Page>
Prudential Municipal Bond Fund
Notes to Financial Statements Cont'd.
it. The distribution fees are accrued daily and payable monthly. No distribution
or service fees were earned by 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, 2003, 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 $187,400 ($148,900-Class A; $38,500-Class C) and $136,100
($109,400-Class A; $26,700-Class C), respectively, in front-end sales charges
during the year ended April 30, 2003. 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, 2003, it received approximately $355,600 ($345,300-Class B;
$10,300-Class C) and $82,800 ($76,800-Class B; $6,000-Class C), respectively, in
contingent deferred sales charges imposed upon certain redemptions by Class B
and C shareholders.
PI, PIMS and PIM are indirect wholly owned subsidiaries of Prudential
Financial, Inc. ('Prudential').
The Fund, along with other affiliated registered investment companies (the
'Funds'), is a party to a syndicated credit agreement ('SCA') with a group of
banks. For the year ended April 30, 2003, the amounts of the commitment were
$500 million from May 1, 2002 through May 2, 2002. On May 3, 2002, the Funds
renewed and amended the SCA, which increased the banks' commitment to $800
million and allows the Funds to increase the commitment to $1 billion. Interest
on any borrowings will be at market rates. The Funds pay a commitment fee of .08
of 1% of the unused portion of the SCA. The commitment fee is accrued and paid
quarterly and is allocated to the Funds pro rata, based on net assets. The
purpose of the SCA is to serve as an alternative source of funding for capital
share redemptions. The expiration date of the SCA is May 2, 2003. The Fund did
not borrow any amounts pursuant to the SCA during the year ended April 30, 2003.
On May 2, 2003, the SCA was renewed under the same terms and conditions ('May
2003 renewal'). The expiration date of the May 2003 renewal is April 30, 2004.
52
<Page>
Prudential Municipal Bond Fund
Notes to Financial Statements Cont'd.
Note 3. Other Transactions With Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), an affiliate of PI and an
indirect, wholly owned subsidiary of Prudential, serves as the Fund's transfer
agent. During the year ended April 30, 2003, the Fund incurred fees of
approximately $251,000 and $128,100 for the High Income Series and Insured
Series, respectively, for the services of PMFS. As of April 30, 2003,
approximately $20,300 and $10,800 for the High Income Series and Insured Series,
respectively, 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.
The Fund pays networking fees to affiliated and unaffiliated
broker/dealers. These networking fees are payments made to broker/dealers that
clear mutual fund transactions through a national clearing system. The Fund
incurred fees of approximately $57,700 ($47,000-High Income Series;
$10,700-Insured Series) in total networking fees, of which the amount relating
to the services of Prudential Securities, Inc. ('PSI'), an affiliate of PI and
an indirect, wholly-owned subsidiary of Prudential was approximately $55,600
($45,300-High Income Series; $10,300-Insured Series) for the year ended April
30, 2003. As of April 30, 2003, approximately $4,170 ($3,300-High Income Series;
$870-Insured Series) of such fees were due to PSI. These amounts are included in
transfer agent's fees in the Statements of Operations.
Note 4. Portfolio Securities
Purchases and sales of portfolio securities, excluding short-term investments,
for the year ended April 30, 2003, were as follows:
<Table>
<Caption>
Series Purchases Sales
------------- ------------ ------------
High Income $684,318,233 $727,603,104
Insured 214,185,226 192,402,620
</Table>
During the year ended April 30, 2003, the High Income Series entered into
financial futures contracts. Details of open contracts at April 30, 2003 are as
follows:
<Table>
<Caption>
Value at Value at
Number of Expiration April 30, Trade Unrealized
Series Contracts Type Date 2003 Date Depreciation
- -------------- --------- ------------------- ---------- -------------- -------------- --------------
High Income Short Positions:
U.S. Treasury
59 10yr. Notes Futures Jun-03 $ 6,792,375 $ 6,776,515 $(15,860)
U.S. Treasury Bond
108 Futures Jun-03 12,315,381 12,262,490 (52,891)
--------------
$(68,751)
--------------
--------------
</Table>
53
<Page>
Prudential Municipal Bond Fund
Notes to Financial Statements Cont'd.
<Table>
<Caption>
Value at Value at
Number of Expiration April 30, Trade Unrealized
Series Contracts Type Date 2003 Date Depreciation
- -------------- --------- ------------------- ---------- -------------- -------------- --------------
Insured Short Positions:
U.S. Treasury
24 10yr. Notes Futures Jun-03 $ 2,763,000 $ 2,756,548 $ (6,452)
U.S. Treasury Bond
50 Futures Jun-03 5,701,564 5,677,079 (24,485)
--------------
$(30,937)
--------------
--------------
</Table>
Note 5. Tax Information
In order to present undistributed net investment income (loss) and accumulated
net realized gains (losses) on the Statement of Assets and Liabilities that more
closely represent their tax character, certain adjustments have been made to
paid-in-capital in excess of par, undistributed net investment income (loss) and
accumulated net realized gain (loss) on investments.
For the year ended April 30, 2003, the adjustments were as follows:
<Table>
<Caption>
Paid-in-Capital Undistributed Accumulated
in Excess Net Investment Net Realized
Series of Par Income Gain (Loss)
- ----------- --------------- -------------- ------------
High Income $(5,361,471) $ (278,345) $ 5,639,816
Insured -- (187,737) 187,737
</Table>
These adjustments were primarily due to the sale of securities purchased
with market discount, expired capital loss carryforward, net operating losses
and certain other differences between financial and tax reporting. Net
investment income, net realized losses and net assets were not affected by this
change.
The tax character of total dividends paid for the years ended are as
follows:
<Table>
<Caption>
High Income Series Insured Series
------------------ --------------
April 30, 2003
Tax-Exempt $ 42,995,901 $ 14,595,184
April 30, 2002
Tax-Exempt $ 49,321,613 $ 15,174,552
Ordinary Income 105,871 11,816
------------------ --------------
Total Dividends $ 49,427,484 $ 15,186,368
------------------ --------------
------------------ --------------
</Table>
For federal income tax purposes the High Income Series has a net capital
loss carryforward as of April 30, 2003 of approximately $57,268,000, of which
$6,383,000 expires in 2004, $3,225,000 expires in 2005, $554,000 expires in
54
<Page>
Prudential Municipal Bond Fund
Notes to Financial Statements Cont'd.
2006, $3,137,000 expires in 2007, $5,906,000 expires in 2008, $20,095,000
expires in 2009, $13,512,000 expires in 2010 and $4,456,000 expires in 2011. As
of April 30, 2003, $5,361,000 of capital loss carryforward expired. Accordingly,
no capital gains distributions are expected to be paid to shareholders until net
gains have been realized in excess of such carryforwards. The tax basis differs
from the amount on the Statement of Assets and Liabilities primarily due to
differences in the treatment of discount and premium amortization for book and
tax purposes.
The Insured Series utilized approximately $1,938,000 of its capital loss
carryforward to offset net taxable gains realized in the fiscal year ended April
30, 2003. The Insured Series had no remaining capital loss carryforward as of
April 30, 2003.
As of April 30, 2003, the components of distributable earnings on a tax
basis were as follows:
<Table>
<Caption>
Long-Term
Ordinary Capital
Series Tax-Exempt Income Gains
- ----------- --------------- ---------- ----------
High Income $ 2,568,991 $103,883 --
Insured 655,948 54,408 $5,631,914
</Table>
These amounts include a dividends payable timing difference of $1,138,826
and $397,112 as of April 30, 2003 for the High Income Series and Insured Series,
respectively.
The United States federal income tax basis of the Series' investments and
the net unrealized appreciation as of April 30, 2003 were as follows:
<Table>
<Caption>
Total Net
Unrealized
Appreciation/
Series Tax Basis Appreciation Depreciation (Depreciation)
- ------------- ------------ ------------ ------------ ---------------
High Income $787,980,294 $ 47,580,002 $ 53,391,781 $(5,811,779)
Insured 335,724,869 29,383,296 -- 29,383,296
</Table>
The difference between book basis and tax basis was primarily attributable
to deferred losses on wash sales, mark to market of options and differences in
the treatment of discount amortization for book and tax purposes.
Note 6. Capital
The High Income Series and Insured Series offer 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%. 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
55
<Page>
Prudential Municipal Bond Fund
Notes to Financial Statements Cont'd.
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.
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, 2003 Shares Amount Shares Amount
- ---------------------------------- ---------- ------------ ---------- ------------
Shares sold 3,121,105 $ 31,490,883 2,622,924 $ 29,810,727
Shares issued in reinvestment of
dividends and distributions 1,257,285 12,663,001 588,736 6,681,027
Shares reacquired (9,031,671) (91,022,647) (3,309,260) (37,601,848)
---------- ------------ ---------- ------------
Net increase (decrease) in shares
outstanding before conversion (4,653,281) (46,868,763) (97,600) (1,110,094)
Shares issued upon conversion from
Class B 3,385,726 34,236,561 782,413 8,923,247
---------- ------------ ---------- ------------
Net increase (decrease) in shares
outstanding (1,267,555) $(12,632,202) 684,813 $ 7,813,153
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
<Caption>
High Income Series Insured Series
Class A Class A
--------------------------- ---------------------------
Year Ended April 30, 2002 Shares Amount Shares Amount
- ---------------------------------- ---------- ------------ ---------- ------------
Shares sold 2,043,107 $ 20,711,066 1,249,471 $ 13,998,538
Shares issued in reinvestment of
dividends and distributions 1,398,401 14,208,487 622,247 6,916,282
Shares reacquired (8,524,854) (86,613,508) (3,652,804) (40,561,751)
---------- ------------ ---------- ------------
Net increase (decrease) in shares
outstanding before conversion (5,083,346) (51,693,955) (1,781,086) (19,646,931)
Shares issued upon conversion from
Class B 3,255,919 33,049,248 996,517 11,033,934
---------- ------------ ---------- ------------
Net increase (decrease) in shares
outstanding (1,827,427) $(18,644,707) (784,569) $ (8,612,997)
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
</Table>
56
<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, 2003 Shares Amount Shares Amount
- ---------------------------------- ---------- ------------ ---------- ------------
Shares sold 2,018,009 $ 20,355,002 1,694,767 $ 19,296,613
Shares issued in reinvestment of
dividends and distributions 549,975 5,540,680 122,602 1,392,373
Shares reacquired (3,707,260) (37,355,609) (771,419) (8,779,499)
---------- ------------ ---------- ------------
Net increase (decrease) in shares
outstanding before conversion (1,139,276) (11,459,927) 1,045,950 11,909,487
Shares issued upon conversion into
Class A (3,384,862) (34,236,561) (781,727) (8,923,247)
---------- ------------ ---------- ------------
Net increase (decrease) in shares
outstanding (4,524,138) $(45,696,488) 264,223 $ 2,986,240
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
<Caption>
High Income Series Insured Series
Class B Class B
--------------------------- ---------------------------
Year Ended April 30, 2002 Shares Amount Shares Amount
- ---------------------------------- ---------- ------------ ---------- ------------
Shares sold 3,065,444 $ 31,195,480 1,396,967 $ 15,562,302
Shares issued in reinvestment of
dividends and distributions 684,472 6,956,262 127,824 1,421,861
Shares reacquired (4,181,106) (42,487,169) (636,669) (7,107,705)
---------- ------------ ---------- ------------
Net increase (decrease) in shares
outstanding before conversion (431,190) (4,335,427) 888,122 9,876,458
Shares issued upon conversion into
Class A (3,255,919) (33,049,248) (995,245) (11,033,934)
---------- ------------ ---------- ------------
Net increase (decrease) in shares
outstanding (3,687,109) $(37,384,675) (107,123) $ (1,157,476)
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
<Caption>
High Income Series Insured Series
Class C Class C
--------------------------- ---------------------------
Year Ended April 30, 2003 Shares Amount Shares Amount
- ---------------------------------- ---------- ------------ ---------- ------------
Shares sold 692,038 $ 6,980,526 296,896 $ 3,370,356
Shares issued in reinvestment of
dividends and distributions 71,983 725,088 16,363 185,966
Shares reacquired (610,122) (6,161,288) (166,089) (1,884,519)
---------- ------------ ---------- ------------
Net increase (decrease) in shares
outstanding 153,899 $ 1,544,326 147,170 $ 1,671,803
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
</Table>
57
<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, 2002 Shares Amount Shares Amount
- ---------------------------------- ---------- ------------ ---------- ------------
Shares sold 449,637 $ 4,581,221 260,649 $ 2,920,264
Shares issued in reinvestment of
dividends and distributions 80,287 815,922 12,166 135,283
Shares reacquired (580,268) (5,881,209) (64,970) (727,036)
---------- ------------ ---------- ------------
Net increase (decrease) in shares
outstanding (50,344) $ (484,066) 207,845 $ 2,328,511
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
<Caption>
High Income Series Insured Series
Class Z Class Z
--------------------------- ---------------------------
Year Ended April 30, 2003 Shares Amount Shares Amount
- ---------------------------------- ---------- ------------ ---------- ------------
Shares sold 1,376,787 $ 13,878,193 1,029,651 $ 11,706,301
Shares issued in reinvestment of
dividends and distributions 40,192 404,236 16,341 185,589
Shares reacquired (592,571) (5,977,427) (636,436) (7,202,157)
---------- ------------ ---------- ------------
Net increase (decrease) in shares
outstanding 824,408 $ 8,305,002 409,556 $ 4,689,733
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
<Caption>
High Income Series Insured Series
Class Z Class Z
--------------------------- ---------------------------
Year Ended April 30, 2002 Shares Amount Shares Amount
- ---------------------------------- ---------- ------------ ---------- ------------
Shares sold 380,529 $ 3,862,844 270,134 $ 2,998,755
Shares issued in reinvestment of
dividends and distributions 24,333 246,910 9,310 103,395
Shares reacquired (298,796) (3,030,428) (96,527) (1,067,573)
---------- ------------ ---------- ------------
Net increase (decrease) in shares
outstanding 106,066 $ 1,079,326 182,917 $ 2,034,577
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
</Table>
58
<Page>
ANNUAL REPORT
APRIL 30, 2003
PRUDENTIAL
MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<Page>
Prudential Municipal Bond Fund High Income Series
Financial Highlights
<Table>
<Caption>
Class A
--------------
Year Ended
April 30, 2003
- ----------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 10.06
--------------
Income from investment operations
Net investment income .56
Net realized and unrealized gain (loss) on investment
transactions .04
--------------
Total from investment operations .60
--------------
Less dividends
Dividends from net investment income (.55)
--------------
Net asset value, end of year $ 10.11
--------------
--------------
TOTAL RETURN(a): 6.15%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) $491,218
Average net assets (000) $496,597
Ratios to average net assets:
Expenses, including distribution and service (12b-1) fees .85%
Expenses, excluding distribution and service (12b-1) fees .60%
Net investment income 5.53%
For Class A, B, C and Z shares:
Portfolio turnover rate 88%
</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.
*Effective May 1, 2001, the Prudential Municipal Bond Fund/High Income Series
has adopted the provisions of the AICPA Audit and Accounting Guide for
Investment Companies and began accreting market discount on debt securities. The
effect of this change for the year ended April 30, 2002 was to increase net
investment income per share by $.01 and decrease net realized and unrealized
gain (loss) per share by $.01 and increase the ratio of net investment income
from 5.84% to 5.87%. Per share amounts and ratios for the years ended prior to
April 30, 2002 have not been restated to reflect this change in presentation.
60 See Notes to Financial Statements
<Page>
Prudential Municipal Bond Fund High Income Series
Financial Highlights Cont'd.
<Table>
<Caption>
Class A
- -------------------------------------------------------------------------------------
Year Ended April 30,
- -------------------------------------------------------------------------------------
2002* 2001 2000 1999
- -------------------------------------------------------------------------------------
$ 10.11 $ 10.22 $ 11.21 $ 11.31
- ---------------- ---------------- ---------------- ----------------
.61 .61 .63 .63(b)
(.06) (.12) (.99) (.10)
- ---------------- ---------------- ---------------- ----------------
.55 .49 (.36) .53
- ---------------- ---------------- ---------------- ----------------
(.60) (.60) (.63) (.63)
- ---------------- ---------------- ---------------- ----------------
$ 10.06 $ 10.11 $ 10.22 $ 11.21
- ---------------- ---------------- ---------------- ----------------
- ---------------- ---------------- ---------------- ----------------
5.53% 4.94% (3.31)% 4.96%
$501,501 $522,556 $503,874 $514,952
$517,930 $527,117 $506,888 $474,901
.84% .84% .82% .66%(b)
.59% .59% .57% .51%(b)
5.87% 6.05% 5.86% 5.73%(b)
58% 46% 27% 16%
</Table>
See Notes to Financial Statements 61
<Page>
Prudential Municipal Bond Fund High Income Series
Financial Highlights Cont'd.
<Table>
<Caption>
Class B
--------------
Year Ended
April 30, 2003
- ----------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 10.06
--------------
Income from investment operations
Net investment income .54
Net realized and unrealized gain (loss) on investment
transactions .04
--------------
Total from investment operations .58
--------------
Less dividends
Dividends from net investment income (.53)
--------------
Net asset value, end of year $ 10.11
--------------
--------------
TOTAL RETURN(a): 5.88%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) $241,311
Average net assets (000) $264,067
Ratios to average net assets:
Expenses, including distribution and service (12b-1) fees 1.10%
Expenses, excluding distribution and service (12b-1) fees .60%
Net investment income 5.31%
</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.
*Effective May 1, 2001, the Prudential Municipal Bond Fund/High Income Series
has adopted the provisions of the AICPA Audit and Accounting Guide for
Investment Companies and began accreting market discount on debt securities. The
effect of this change for the year ended April 30, 2002 was to increase net
investment income and decrease net realized and unrealized gains per share by
less than $.005 and increase the ratio of net investment income from 5.59% to
5.62%. Per share amounts and ratios for the years ended prior to April 30, 2002
have not been restated to reflect this change in presentation.
62 See Notes to Financial Statements
<Page>
Prudential Municipal Bond Fund High Income Series
Financial Highlights Cont'd.
<Table>
<Caption>
Class B
- -------------------------------------------------------------------------------------
Year Ended April 30,
- -------------------------------------------------------------------------------------
2002* 2001 2000 1999
- -------------------------------------------------------------------------------------
$ 10.11 $ 10.22 $ 11.21 $ 11.31
- ---------------- ---------------- ---------------- ----------------
.58 .59 .60 .59(b)
(.06) (.13) (.99) (.10)
- ---------------- ---------------- ---------------- ----------------
.52 .46 (.39) .49
- ---------------- ---------------- ---------------- ----------------
(.57) (.57) (.60) (.59)
- ---------------- ---------------- ---------------- ----------------
$ 10.06 $ 10.11 $ 10.22 $ 11.21
- ---------------- ---------------- ---------------- ----------------
- ---------------- ---------------- ---------------- ----------------
5.27% 4.68% (3.55)% 4.59%
$285,581 $324,299 $457,841 $649,706
$307,192 $375,632 $559,879 $666,885
1.09% 1.09% 1.07% 1.01%(b)
.59% .59% .57% .51%(b)
5.62% 5.78% 5.59% 5.38%(b)
</Table>
See Notes to Financial Statements 63
<Page>
Prudential Municipal Bond Fund High Income Series
Financial Highlights Cont'd.
<Table>
<Caption>
Class C
--------------
Year Ended
April 30, 2003
- ----------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 10.06
--------------
Income from investment operations
Net investment income .51
Net realized and unrealized gain (loss) on investment
transactions .04
--------------
Total from investment operations .55
--------------
Less dividends
Dividends from net investment income (.50)
--------------
Net asset value, end of year $ 10.11
--------------
--------------
TOTAL RETURN(a): 5.62%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) $ 28,313
Average net assets (000) $ 27,121
Ratios to average net assets:
Expenses, including distribution and service (12b-1) fees 1.35%
Expenses, excluding distribution and service (12b-1) fees .60%
Net investment income 5.04%
</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.
*Effective May 1, 2001, the Prudential Municipal Bond Fund/High Income Series
has adopted the provisions of the AICPA Audit and Accounting Guide for
Investment Companies and began accreting market discount on debt securities. The
effect of this change for the year ended April 30, 2002 was to increase net
investment income and decrease net realized and unrealized gains per share by
less than $.005 and increase the ratio of net investment income from 5.35% to
5.38%. Per share amounts and ratios for the years ended prior to April 30, 2002
have not been restated to reflect this change in presentation.
64 See Notes to Financial Statements
<Page>
Prudential Municipal Bond Fund High Income Series
Financial Highlights Cont'd.
<Table>
<Caption>
Class C
- -------------------------------------------------------------------------------------
Year Ended April 30,
- -------------------------------------------------------------------------------------
2002* 2001 2000 1999
- -------------------------------------------------------------------------------------
$ 10.11 $ 10.22 $ 11.21 $ 11.31
-------- -------- -------- --------
.55 .56 .57 .57(b)
(.05) (.12) (.99) (.10)
-------- -------- -------- --------
.50 .44 (.42) .47
-------- -------- -------- --------
(.55) (.55) (.57) (.57)
-------- -------- -------- --------
$ 10.06 $ 10.11 $ 10.22 $ 11.21
-------- -------- -------- --------
-------- -------- -------- --------
5.00% 4.42% (3.79)% 4.33%
$ 26,619 $ 27,263 $ 30,061 $ 32,939
$ 27,814 $ 28,028 $ 32,762 $ 26,114
1.34% 1.34% 1.32% 1.26%(b)
.59% .59% .57% .51%(b)
5.38% 5.55% 5.36% 5.15%(b)
</Table>
See Notes to Financial Statements 65
<Page>
Prudential Municipal Bond Fund High Income Series
Financial Highlights Cont'd.
<Table>
<Caption>
Class Z
--------------
Year Ended
April 30, 2003
- ----------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 10.05
--------------
Income from investment operations
Net investment income .59
Net realized and unrealized gain (loss) on investment
transactions .04
--------------
Total from investment operations .63
--------------
Less dividends
Dividends from net investment income (.58)
--------------
Net asset value, end of year $ 10.10
--------------
--------------
TOTAL RETURN(a): 6.41%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) $ 15,361
Average net assets (000) $ 10,813
Ratios to average net assets:
Expenses, including distribution and service (12b-1) fees .60%
Expenses, excluding distribution and service (12b-1) fees .60%
Net investment income 5.78%
</Table>
- ------------------------------
(a) 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.
*Effective May 1, 2001, the Prudential Municipal Bond Fund/High Income Series
has adopted the provisions of the AICPA Audit and Accounting Guide for
Investment Companies and began accreting market discount on debt securities. The
effect of this change for the year ended April 30, 2002 was to increase net
investment income per share by $.01 and decrease net realized and unrealized
gain (loss) per share by $.01 and increase the ratio of net investment income
from 6.11% to 6.14%. Per share amounts and ratios for the years ended prior to
April 30, 2002 have not been restated to reflect this change in presentation.
66 See Notes to Financial Statements
<Page>
Prudential Municipal Bond Fund High Income Series
Financial Highlights Cont'd.
<Table>
<Caption>
Class Z
- -------------------------------------------------------------------------------------
Year Ended April 30,
- -------------------------------------------------------------------------------------
2002* 2001 2000 1999
- -------------------------------------------------------------------------------------
$ 10.10 $10.21 $ 11.20 $ 11.30
-------- ------- -------- --------
.63 .64 .65 .65(b)
(.06) (.13) (.99) (.10)
-------- ------- -------- --------
.57 .51 (.34) .55
-------- ------- -------- --------
(.62) (.62) (.65) (.65)
-------- ------- -------- --------
$ 10.05 $10.10 $ 10.21 $ 11.20
-------- ------- -------- --------
-------- ------- -------- --------
5.79% 5.19% (3.07)% 5.11%
$ 7,000 $5,966 $ 7,802 $ 13,839
$ 6,368 $7,182 $ 10,493 $ 13,648
.59% .59% .57% .51%(b)
.59% .59% .57% .51%(b)
6.14% 6.32% 6.07% 5.89%(b)
</Table>
See Notes to Financial Statements 67
<Page>
Prudential Municipal Bond Fund Insured Series
Financial Highlights
<Table>
<Caption>
Class A
--------------
Year Ended
April 30, 2003
- ----------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 11.08
--------------
Income from investment operations
Net investment income .49
Net realized and unrealized gain (loss) on investment
transactions .51
-------------- ---
Total from investment operations 1.00
--------------
Less dividends and distributions
Dividends from net investment income (.49)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
--------------
Total distributions (.49)
--------------
Net asset value, end of year $ 11.59
--------------
--------------
TOTAL RETURN(a): 9.17%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) $281,077
Average net assets (000) $272,608
Ratios to average net assets:
Expenses, including distribution and service (12b-1) fees .88%
Expenses, excluding distribution and service (12b-1) fees .63%
Net investment income 4.35%
For Class A, B, C and Z shares:
Portfolio turnover rate 59%
</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.
*Effective May 1, 2001, the Prudential Municipal Bond Fund/Insured Series has
adopted the provisions of the AICPA Audit and Accounting Guide for Investment
Companies and began accreting market discount on debt securities. The effect of
this change for the year ended April 30, 2002 was to increase net investment
income and decrease net realized and unrealized gains per share by less than
$.005 and increase the ratio of net investment income from 4.62% to 4.64%. Per
share amounts and ratios for the years ended prior to April 30, 2002 have not
been restated to reflect this change in presentation.
68 See Notes to Financial Statements
<Page>
Prudential Municipal Bond Fund Insured Series
Financial Highlights Cont'd.
<Table>
<Caption>
Class A
- -------------------------------------------------------------------------------------
Year Ended April 30,
- -------------------------------------------------------------------------------------
2002* 2001 2000 1999
- -------------------------------------------------------------------------------------
$ 10.91 $ 10.40 $ 11.18 $ 11.05
- ---------------- ---------------- ---------------- ----------------
.52 .51 .51 .53
.17 .51 (.78) .23
- ---------------- ---------------- ---------------- ----------------
.69 1.02 (.27) .76
- ---------------- ---------------- ---------------- ----------------
(.52) (.51) (.51) (.53)
-- -- -- (.01)
-- -- -- (.09)
- ---------------- ---------------- ---------------- ----------------
(.52) (.51) (.51) (.63)
- ---------------- ---------------- ---------------- ----------------
$ 11.08 $ 10.91 $ 10.40 $ 11.18
- ---------------- ---------------- ---------------- ----------------
- ---------------- ---------------- ---------------- ----------------
6.38% 9.90% (2.38)% 6.88%
$261,227 $265,718 $238,690 $251,300
$269,146 $254,718 $243,756 $240,652
.87% .89% .88% .75%
.62% .64% .63% .60%
4.64% 4.72% 4.78% 4.61%
22% 38% 26% 15%
</Table>
See Notes to Financial Statements 69
<Page>
Prudential Municipal Bond Fund Insured Series
Financial Highlights Cont'd.
<Table>
<Caption>
Class B
--------------
Year Ended
April 30, 2003
- ----------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 11.09
--------------
Income from investment operations
Net investment income .47
Net realized and unrealized gain (loss) on investment
transactions .50
--------------
Total from investment operations .97
--------------
Less dividends and distributions
Dividends from net investment income (.46)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
--------------
Total distributions (.46)
--------------
Net asset value, end of year $ 11.60
--------------
--------------
TOTAL RETURN(a): 8.90%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) $ 60,724
Average net assets (000) $ 58,003
Ratios to average net assets:
Expenses, including distribution and service (12b-1) fees 1.13%
Expenses, excluding distribution and service (12b-1) fees .63%
Net investment income 4.10%
</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.
*Effective May 1, 2001, the Prudential Municipal Bond Fund/Insured Series has
adopted the provisions of the AICPA Audit and Accounting Guide for Investment
Companies and began accreting market discount on debt securities. The effect of
this change for the year ended April 30, 2002 was to increase net investment
income and decrease net realized and unrealized gains per share by less than
$.005 and increase the ratio of net investment income from 4.38% to 4.40%. Per
share amounts and ratios for the years ended prior to April 30, 2002 have not
been restated to reflect this change in presentation.
70 See Notes to Financial Statements
<Page>
Prudential Municipal Bond Fund Insured Series
Financial Highlights Cont'd.
<Table>
<Caption>
Class B
- -------------------------------------------------------------------------------------
Year Ended April 30,
- -------------------------------------------------------------------------------------
2002* 2001 2000 1999
- -------------------------------------------------------------------------------------
$ 10.92 $ 10.41 $ 11.19 $ 11.06
-------- ---------------- ---------------- ----------------
.49 .48 .48 .48
.17 .51 (.78) .23
-------- ---------------- ---------------- ----------------
.66 .99 (.30) .71
-------- ---------------- ---------------- ----------------
(.49) (.48) (.48) (.48)
-- -- -- (.01)
-- -- -- (.09)
-------- ---------------- ---------------- ----------------
(.49) (.48) (.48) (.58)
-------- ---------------- ---------------- ----------------
$ 11.09 $ 10.92 $ 10.41 $ 11.19
-------- ---------------- ---------------- ----------------
-------- ---------------- ---------------- ----------------
6.12% 9.63% (2.62)% 6.50%
$ 55,145 $ 55,459 $ 91,989 $175,520
$ 54,136 $ 70,084 $131,052 $208,775
1.12% 1.14% 1.13% 1.10%
.62% .64% .63% .60%
4.40% 4.48% 4.51% 4.25%
</Table>
See Notes to Financial Statements 71
<Page>
Prudential Municipal Bond Fund Insured Series
Financial Highlights Cont'd.
<Table>
<Caption>
Class C
--------------
Year Ended
April 30, 2003
- ----------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $11.09
-------
Income from investment operations
Net investment income .44
Net realized and unrealized gain (loss) on investment
transactions .50
-------
Total from investment operations .94
-------
Less dividends and distributions
Dividends from net investment income (.43)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
-------
Total distributions (.43)
-------
Net asset value, end of year $11.60
-------
-------
TOTAL RETURN(a): 8.63%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) $8,457
Average net assets (000) $7,559
Ratios to average net assets:
Expenses, including distribution and service (12b-1) fees 1.38%
Expenses, excluding distribution and service (12b-1) fees .63%
Net investment income 3.85%
</Table>
- ------------------------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each year reported and includes reinvestment of dividends and
distributions.
*Effective May 1, 2001, the Prudential Municipal Bond Fund/Insured Series has
adopted the provisions of the AICPA Audit and Accounting Guide for Investment
Companies and began accreting market discount on debt securities. The effect of
this change for the year ended April 30, 2002 was to increase net investment
income per share by $.01, decrease net realized and unrealized gains per share
by $.01 and increase the ratio of net investment income from 4.14% to 4.17%. Per
share amounts and ratios for the years ended prior to April 30, 2002 have not
been restated to reflect this change in presentation.
72 See Notes to Financial Statements
<Page>
Prudential Municipal Bond Fund Insured Series
Financial Highlights Cont'd.
<Table>
<Caption>
Class C
- -------------------------------------------------------------------------------------
Year Ended April 30,
- -------------------------------------------------------------------------------------
2002* 2001 2000 1999
- -------------------------------------------------------------------------------------
$10.92 $10.41 $11.19 $11.06
------- ------- ------- -------
.47 .45 .46 .45
.16 .51 (.78) .23
------- ------- ------- -------
.63 .96 (.32) .68
------- ------- ------- -------
(.46) (.45) (.46) (.45)
-- -- -- (.01)
-- -- -- (.09)
------- ------- ------- -------
(.46) (.45) (.46) (.55)
------- ------- ------- -------
$11.09 $10.92 $10.41 $11.19
------- ------- ------- -------
------- ------- ------- -------
5.86% 9.37% (2.86)% 6.24%
$6,456 $4,085 $2,949 $2,708
$5,320 $3,413 $2,988 $1,856
1.37% 1.39% 1.38% 1.35%
.62% .64% .63% .60%
4.17% 4.23% 4.29% 4.03%
</Table>
See Notes to Financial Statements 73
<Page>
Prudential Municipal Bond Fund Insured Series
Financial Highlights Cont'd.
<Table>
<Caption>
Class Z
--------------
Year Ended
April 30, 2003
- ----------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $11.07
-------
Income from investment operations
Net investment income .52
Net realized and unrealized gain (loss) on investment
transactions .50
-------
Total from investment operations 1.02
-------
Less dividends and distributions
Dividends from net investment income (.51)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
-------
Total distributions (.51)
-------
Net asset value, end of year $11.58
-------
-------
TOTAL RETURN(a): 9.45%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000) $9,179
Average net assets (000) $6,605
Ratios to average net assets:
Expenses, including distribution and service (12b-1) fees .63%
Expenses, excluding distribution and service (12b-1) fees .63%
Net investment income 4.61%
</Table>
- ------------------------------
(a) 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.
*Effective May 1, 2001, the Prudential Municipal Bond Fund/Insured Series has
adopted the provisions of the AICPA Audit and Accounting Guide for Investment
Companies and began accreting market discount on debt securities. The effect of
this change for the year ended April 30, 2002 was to increase net investment
income per share by $.01, decrease net realized and unrealized gains per share
by $.01 and increase the ratio of net investment income from 4.88% to 4.91%. Per
share amounts and ratios for the years ended prior to April 30, 2002 have not
been restated to reflect this change in presentation.
74 See Notes to Financial Statements
<Page>
Prudential Municipal Bond Fund Insured Series
Financial Highlights Cont'd.
<Table>
<Caption>
Class Z
- -------------------------------------------------------------------------------------
Year Ended April 30,
- -------------------------------------------------------------------------------------
2002* 2001 2000 1999
- -------------------------------------------------------------------------------------
$10.91 $10.40 $11.18 $11.05
------- ------- ------- -------
.55 .53 .54 .54
.15 .51 (.78) .23
------- ------- ------- -------
.70 1.04 (.24) .77
------- ------- ------- -------
(.54) (.53) (.54) (.54)
-- -- -- (.01)
-- -- -- (.09)
------- ------- ------- -------
(.54) (.53) (.54) (.64)
------- ------- ------- -------
$11.07 $10.91 $10.40 $11.18
------- ------- ------- -------
------- ------- ------- -------
6.55% 10.17% (2.13)% 7.04%
$4,238 $2,182 $1,429 $4,312
$3,152 $1,993 $1,960 $3,523
.62% .64% .63% .60%
.62% .64% .63% .60%
4.91% 4.99% 4.94% 4.77%
</Table>
See Notes to Financial Statements 75
<Page>
Prudential Municipal Bond Fund
Report of Independent Auditors
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, 2003, 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 five
years in the period then ended, in conformity with accounting principles
generally accepted in the United States of America. 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 of America, 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, 2003 by correspondence with the custodian and brokers, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
June 23, 2003
76
<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, 2003.
During its fiscal year ended April 30, 2003, 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
- ----------------------------------------------- ------- ------- ------- -------
High Income Series $ .55 $ .53 $ .50 $ .58
Insured Series $ .49 $ .46 $ .43 $ .51
</Table>
Shortly after the close of the calendar year ending December 31, 2003, you will
be advised again as to the federal tax status of the dividends and distributions
received in calendar 2003. 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.
77
<Page>
Prudential Municipal Bond Fund
www.prudential.com (800) 225-1852
Management of the Fund (Unaudited)
Information pertaining to the Trustees of the Fund is set forth below.
Trustees who are not deemed to be 'interested persons' of the Fund, as
defined in the 1940 Act, are referred to as 'Independent Trustees.'
Trustees who are deemed to be 'interested persons' of the Fund are
referred to as 'Interested Trustees.' 'Fund Complex' consists of the Fund
and any other investment companies managed by Prudential Investments LLC
(PI).
Independent Trustees
--------------------
<Table>
<Caption>
Number of
Term of Office Portfolios in
and Length Fund Complex Other
Position of Time Principal Occupations Overseen by Directorships Held
Name, Address** and Age With Fund Served*** During Past 5 Years TrusteeDD by the Trustee****
- ------------------------------------------------------------------------------------------------------------------------------------
Delayne Dedrick Gold (64) Trustee Since 1996 Marketing Consultant 129
(1982-present); formerly
Senior Vice President and
Member of the Board of
Directors, Prudential-Bache
Securities, Inc.
Thomas T. Mooney (61) Trustee Since 1986 Chief Executive Officer, the 138 Director, President and
Rochester Business Alliance; Treasurer (since 1986)
formerly President of the of First Financial
Greater Rochester Metro Fund, Inc. and Director
Chamber of Commerce; Rochester (since 1988) of The
City Manager; formerly Deputy High Yield Plus Fund,
Monroe County Executive; Inc.
Trustee of Center for
Governmental Research, Inc.;
Director of Blue Cross of
Rochester and Executive
Service Corps of Rochester;
Director of the Rochester
Individual Practice
Association.
Stephen P. Munn (60) Trustee Since 1999 Chairman of the Board (since 103 Chairman of the Board
1994) and formerly Chief (since January 1994)
Executive Officer (1988-2001) and Director (since
and President of Carlisle 1988) of Carlisle
Companies Incorporated. Companies Incorporated
(manufacturer of
industrial products);
Director of Gannett Co.
Inc. (publishing and
media).
Richard A. Redeker (59) Trustee Since 1993 Formerly Management Consultant 103
of Invesmart, Inc. (August
2001-October 2001); formerly
employee of Prudential
Investments (October
1996-January 1998)
</Table>
78 79
<Page>
Prudential Municipal Bond Fund
www.prudential.com (800) 225-1852
Management of the Fund (Unaudited) Cont'd.
<Table>
<Caption>
Number of
Term of Office Portfolios in
and Length Fund Complex Other
Position of Time Principal Occupations Overseen by Directorships Held
Name, Address** and Age With Fund Served*** During Past 5 Years TrusteeDD by the Trustee****
- ------------------------------------------------------------------------------------------------------------------------------------
Louis A. Weil, III (62) Trustee Since 1986 Formerly Chairman (January 113
1999-July 2000), President and
Chief Executive Officer
(January 1996-July 2000) and
Director (since September
1991) of Central Newspapers,
Inc.; formerly Chairman of the
Board (January 1996-July
2000), Publisher and Chief
Executive Officer (August
1991-December 1995) of Phoenix
Newspapers, Inc.
</Table>
Interested Directors
--------------------
<Table>
<Caption>
Number of
Term of Office Portfolios in
and Length Fund Complex Other
Position of Time Principal Occupations Overseen by Directorships Held
Name, Address** and Age With Fund Served*** During Past 5 Years TrusteeDD by the Trustee****
- ------------------------------------------------------------------------------------------------------------------------------------
Robert F. Gunia (56)* Vice Since 1996 Executive Vice President and 188 Vice President and
President Chief Administrative Officer Director (since May
and Trustee (since June 1999) of PI; 1989) and Treasurer
Executive Vice President and (since 1999) of The
Treasurer (since January 1996) Asia Pacific Fund, Inc.
of PI; President (since April
1999) of Prudential Investment
Management Services LLC
(PIMS); Corporate Vice
President (since September
1997) of The Prudential
Insurance Company of America
(Prudential); Director,
Executive Vice President and
Chief Administrative Officer
(since May 2003) of American
Skandia Investment Services,
Inc.; Director, Executive Vice
President and Chief
Administrative Officer (since
May 2003) of American Skandia
Advisory Services, Inc.;
Director and Executive Vice
President (since May 2003) of
American Skandia Fund
Services, Inc.; formerly
Senior Vice President (March
1987-May 1999) of Prudential
Securities Incorporated
(Prudential Securities).
</Table>
80 81
<Page>
Prudential Municipal Bond Fund
www.prudential.com (800) 225-1852
Management of the Fund (Unaudited) Cont'd.
<Table>
<Caption>
Number of
Term of Office Portfolios in
and Length Fund Complex Other
Position of Time Principal Occupations Overseen by Directorships Held
Name, Address** and Age With Fund Served*** During Past 5 Years TrusteeDD by the Trustee****
- ------------------------------------------------------------------------------------------------------------------------------------
David R. Odenath, Jr. (46)*D President Since 1999 Formerly President, Chief 156
and Trustee Executive Officer, Chief
Operating Officer and
Officer-in-Charge (1999-2003)
of PI; Executive Vice
President (since May 2003) of
American Skandia Investment
Services, Inc.; Chief
Executive Officer and Director
(since May 2003) of American
Skandia Life Assurance
Corporation; Chief Executive
Officer and Director (since
May 2003) of American Skandia
Information Services and
Technology Corporation;
President, Chief Executive
Officer and Director (since
May 2003) of American Skandia
Marketing, Inc.; Chief
Executive Officer and Director
(since May 2003) of Skandia
U.S. Inc.; Senior Vice
President (since June 1999) of
Prudential; formerly Senior
Vice President (August
1993-May 1999) of PaineWebber
Group, Inc.
Judy A. Rice (55)*D President Since 2000 President, Chief Executive 129
and Trustee (Director) and Officer, Chief Operating
since 2003 Officer and Officer-in-Charge
(President) (since 2003) of PI; Director,
Officer-in-Charge, President,
Chief Executive Officer and
Chief Operating Officer (since
May 2003) of American Skandia
Advisory Services, Inc.;
Director, Officer-in-Charge,
President, Chief Executive
Officer and Chief Operating
Officer (since May 2003) of
American Skandia Investment
Services, Inc.; Director,
Officer-in-Charge, President,
Chief Executive Officer (since
May 2003) of American Skandia
Fund Services, Inc.; formerly
various positions to Senior
Vice President (1992-1999) of
Prudential Securities; and
various positions to Managing
Director (1975-1992) of
Salomon Smith Barney; Member
of Board of Governors of the
Money Management Institute.
</Table>
82 83
<Page>
Prudential Municipal Bond Fund
www.prudential.com (800) 225-1852
Management of the Fund (Unaudited) Cont'd.
Information pertaining to the Officers of the Fund who are not also
Trustees is set forth below.
Officers
--------
<Table>
<Caption>
Term of Office
and Length
Position of Time Principal Occupations
Name, Address** and Age With Fund Served*** During Past 5 Years
- --------------------------------------------------------------------------------------------
Marguerite E.H. Morrison (47) Chief Legal Since 2003 Vice President and Chief Legal
Officer and (Chief Legal Officer - Mutual Funds and
Assistant Officer) and Unit Investment Trusts (since
Secretary since 2002 August 2000) of Prudential;
(Assistant Senior Vice President and
Secretary) Secretary (since April 2003)
of PI; Senior Vice President
and Secretary (since May 2003)
of American Skandia Investment
Services, Inc.; Senior Vice
President and Secretary (since
May 2003) of American Skandia
Advisory Services, Inc.;
Senior Vice President and
Secretary (since May 2003) of
American Skandia Fund
Services, Inc.; Vice President
and Assistant Secretary of
PIMS (since October 2001),
previously Senior Vice
President and Assistant
Secretary (February 2001-April
2003) of PI; Vice President
and Associate General Counsel
(December 1996 - February
2001) of PI and Vice President
and Associate General Counsel
(September 1987 - September
1996) of Prudential
Securities.
Grace C. Torres (43) Treasurer Since 1996 Senior Vice President (since
and January 2000) of PI; Senior
Principal Vice President and Assistant
Financial Treasurer (since May 2003) of
and American Skandia Investment
Accounting Services, Inc. and American
Officer Skandia Advisory Services,
Inc.; formerly First Vice
President (December
1996-January 2000) of PI and
First Vice President (March
1993-May 1999) of Prudential
Securities.
Deborah A. Docs (45) Secretary Since 1996 Vice President and Corporate
Counsel (since January 2001)
of Prudential; Vice President
and Assistant Secretary (since
December 1996) of PI; Vice
President and Assistant
Secretary (since May 2003) of
American Skandia Investment
Services, Inc.
</Table>
84 85
<Page>
Prudential Municipal Bond Fund
www.prudential.com (800) 225-1852
Management of the Fund (Unaudited) Cont'd.
<Table>
<Caption>
Term of Office
and Length
Position of Time Principal Occupations
Name, Address** and Age With Fund Served*** During Past 5 Years
- --------------------------------------------------------------------------------------------
Maryanne Ryan (38) Anti-Money Since 2002 Vice President, Prudential
Laundering (since November 1998); First
Compliance Vice President, Prudential
Officer Securities (March 1997-May
1998) Anti-Money Laundering
Officer of American Skandia
Investment Services, Inc.,
American Skandia Advisory
Services, Inc. and American
Skandia Marketing, Inc.
</Table>
- ------------------
<Table>
* 'Interested' Trustee, as defined in the 1940 Act, by reason of employment with the
Manager (Prudential Investments LLC), the Subadviser (Prudential Investment Management,
Inc.) or the Distributor (Prudential Investment Management Services LLC).
D On March 4, 2003, Ms. Rice was elected to serve as the President of the Fund. Mr.
Odenath continues to serve as a Trustee.
** Unless otherwise noted, the address of the Trustees and Officers is c/o: Prudential
Investments LLC, Gateway Center Three, 100 Mulberry Street, Newark, NJ 07102.
*** There is no set term of office for Trustees and Officers. The Independent 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. The table shows the number of years for
which they have served as Trustee and/or Officer.
**** This column includes only directorships of companies required to register, or file
reports with the SEC under the Securities and Exchange Act of 1934 (i.e., 'public
companies') or other investment companies registered under the 1940 Act.
DD The Fund Complex consists of all investment companies managed by PI. Effective May 1,
2003, the Funds for which PI serves as manager include The Prudential Mutual Funds,
Strategic Partners Funds, American Skandia Advisory Funds, Inc., The Prudential
Variable Contract Accounts 2, 10, 11, The Target Portfolio Trust, The Prudential Series
Fund, Inc., American Skandia Trust and Prudential's Gibraltar Fund.
</Table>
Additional information about the Fund's Trustees is included in the Fund's
Statement of Additional Information which is available without charge, upon
request, by calling (800) 225-1852 or (732) 482-7555 (Calling from outside the
U.S.)
86 87
<Page>
Prudential Municipal Bond Fund High Income Series
Class A Growth of a $10,000 Investment
(CHART)
Average Annual Total Returns (With Sales Charge) As of 4/30/03
One Year Five Years Ten Years Since Inception
Class A 2.96% 2.96% (2.94) 4.96% (4.93) 6.00% (5.95)
Class B 0.88 3.15 (3.13) 4.93 (4.90) 6.68 (6.55)
Class C 3.57 2.85 (2.83) N/A 4.72 (4.69)
Class Z 6.41 3.83 (3.80) N/A 5.17 (5.14)
Average Annual Total Returns (Without Sales Charge) As of 4/30/03
One Year Five Years Ten Years Since Inception
Class A 6.15% 3.59% (3.57) 5.28% (5.25) 6.25% (6.20)
Class B 5.88 3.31 (3.29) 4.93 (4.90) 6.68 (6.55)
Class C 5.62 3.06 (3.04) N/A 4.84 (4.81)
Class Z 6.41 3.83 (3.80) N/A 5.17 (5.14)
Past performance is not indicative of future results.
Principal value and investment return will fluctuate
so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source:
Prudential Investments LLC and Lipper Inc. Inception
dates: Class A, 1/22/90; Class B, 9/17/87; Class C,
8/1/94; and Class Z, 9/16/96.
The graph compares a $10,000 investment in the
Prudential Municipal Bond Fund/High Income Series
(Class A shares) with a similar investment in the
Lehman Brothers Municipal Bond Index by portraying
the initial account values at the beginning of the
10-year period (April 30, 1993) and the account
values at the end of the current fiscal year (April
30, 2003), as measured on a quarterly basis. For
purposes of the graph, and unless otherwise
indicated, it has been assumed that (a) the maximum
applicable front-end sales charge was deducted from
the initial $10,000 investment in Class A shares; (b)
all recurring fees (including management fees) were
deducted; and (c) all dividends and distributions
were reinvested. The line graph provides
<Page>
www.prudential.com (800) 225-1852
information for Class A shares only. As indicated in
the tables, performance for Class B, Class C, and
Class Z shares will vary due to the differing charges
and expenses applicable to each class (as indicated
below). Without the distribution and service (12b-1)
fee waiver of 0.05% for Class A shares, the returns
on investment in the graph and returns for Class A
shares in the tables would have been lower.
The Lehman Brothers Municipal Bond Index is an
unmanaged index of over 39,000 long-term investment-
grade municipal bonds. It gives a broad look at how
long-term investment-grade municipal bonds have
performed. The Index's total returns include the
reinvestment of all dividends, but do not include the
effects of sales charges, operating expenses of a
mutual fund, or taxes. These returns would be lower
if they included the effect of sales charges,
operating expenses, or taxes. The securities that
comprise the Index may differ substantially from the
securities in the Series. The Index is not the only
one that may be used to characterize performance of
municipal bond funds. Other indexes may portray
different comparative performance. Investors cannot
invest directly in an index. This graph is furnished
to you in accordance with Securities and Exchange
Commission regulations.
Without the 12b-1 fee waiver of 0.25% for C shares,
the returns in the tables would have been lower. The
Distributor's 12b-1 fee waiver of 0.25% for Class C
shares continued through April 30, 2003. Effective
May 1, 2003, the Distributor has agreed to a
voluntary 12b-1 fee waiver of 0.25% for Class C
shares. This 12b-1 fee waiver may be discontinued
partially or completely at any time. The Series
charges a maximum front-end sales charge of 3% for
Class A shares, and a 12b-1 fee of up to 0.30%
annually. In some circumstances, Class A shares may
not be subject to a front-end sales charge, but may
be subject to a 1% contingent deferred sales charge
(CDSC) for the first year. Class B shares are subject
to a declining CDSC of 5%, 4%, 3%, 2%, 1%, and 1% for
the first six years respectively after purchase, and
a 12b-1 fee of 0.50% annually. Approximately seven
years after purchase, Class B shares will
automatically convert to Class A shares on a
quarterly basis. Class C shares are subject to a
front-end sales charge of 1%, a CDSC of 1% for shares
redeemed within 18 months of purchase, and a 12b-1
fee of up to 1.00% annually. Class Z shares are not
subject to a sales charge or 12b-1 fee. Without
waiver of fees and/or expense subsidization, the
Series' returns in the graph and the tables would
have been lower, as indicated in parentheses. The
returns in the graph and the tables do not reflect
the deduction of taxes that a shareholder would pay
on fund distributions or following the redemption of
fund shares.
<Page>
Prudential Municipal Bond Fund Insured Series
Class A Growth of a $10,000 Investment
(CHART)
Average Annual Total Returns (With Sales Charge) As of 4/30/03
One Year Five Years Ten Years Since Inception
Class A 5.90% 5.26% 5.48 (5.45) 6.53% (6.47)
Class B 3.90 5.45 5.45 (5.43) 6.95 (6.66)
Class C 6.55 5.14 N/A 5.55 (5.52)
Class Z 9.45 6.12 N/A 6.37 (6.35)
Average Annual Total Returns (Without Sales Charge) As of 4/30/03
One Year Five Years Ten Years Since Inception
Class A 9.17% 5.90% 5.80% (5.77) 6.78% (6.71)
Class B 8.90 5.61 5.45 (5.43) 6.95 (6.66)
Class C 8.63 5.35 N/A 5.67 (5.64)
Class Z 9.45 6.12 N/A 6.37 (6.35)
Past performance is not indicative of future results.
Principal value and investment return will fluctuate
so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Source:
Prudential Investments LLC and Lipper Inc. Inception
dates: Class A, 1/22/90; Class B, 9/17/87; Class C,
8/1/94; and Class Z, 9/16/96.
The graph compares a $10,000 investment in the
Prudential Municipal Bond Fund/Insured Series (Class
A shares) with a similar investment in the Lehman
Brothers Municipal Bond Index by portraying the
initial account values at the beginning of the 10-
year period (April 30, 1993) and the account values
at the end of the current fiscal year (April 30,
2003), as measured on a quarterly basis. For purposes
of the graph, and unless otherwise indicated, it has
been assumed that (a) the maximum applicable front-
end sales charge was deducted from the initial
$10,000 investment in Class A shares; (b) all
recurring fees (including management fees) were
deducted; and (c) all dividends and distributions
were reinvested. The line graph provides information
for Class A shares only. As indicated in the tables,
performance for Class B, Class C, and Class Z shares
will vary due to the differing charges and expenses
applicable to each class (as indicated below).
<Page>
www.prudential.com (800) 225-1852
Without the distribution and service (12b-1) fee
waiver of 0.05% for Class A shares, the returns on
investment in the graph would have been lower.
The Lehman Brothers Municipal Bond Index is an
unmanaged index of over 39,000 long-term investment-
grade municipal bonds. It gives a broad look at how
long-term investment-grade municipal bonds have
performed. The Index's total returns include the
reinvestment of all dividends, but do not include the
effects of sales charges, operating expenses of a
mutual fund, or taxes. These returns would be lower
if they included the effect of sales charges,
operating expenses, or taxes. The securities that
comprise the Index may differ substantially from the
securities in the Series. The Index is not the only
one that may be used to characterize performance of
municipal bond funds. Other indexes may portray
different comparative performance. Investors cannot
invest directly in an index. This graph is furnished
to you in accordance with Securities and Exchange
Commission regulations.
Without the 12b-1 fee waiver of 0.25% for C shares,
the returns in the tables would have been lower. The
Distributor's 12b-1 fee waiver of 0.25% for Class C
shares continued through April 30, 2003. Effective
May 1, 2003, the Distributor has agreed to a
voluntary 12b-1 fee waiver of 0.25% for Class C
shares. This 12b-1 fee waiver may be discontinued
partially or completely at any time. The Series
charges a maximum front-end sales charge of 3% for
Class A shares, and a 12b-1 fee of up to 0.30%
annually. In some circumstances, Class A shares may
not be subject to a front-end sales charge, but may
be subject to a 1% contingent deferred sales charge
(CDSC) for the first year. Class B shares are subject
to a declining CDSC of 5%, 4%, 3%, 2%, 1%, and 1% for
the first six years respectively after purchase, and
a 12b-1 fee of 0.50% annually. Approximately seven
years after purchase, Class B shares will
automatically convert to Class A shares on a
quarterly basis. Class C shares are subject to a
front-end sales charge of 1%, a CDSC of 1% for shares
redeemed within 18 months of purchase, and a 12b-1
fee of up to 1.00% annually. Class Z shares are not
subject to a sales charge or 12b-1 fee. Without
waiver of fees and/or expense subsidization, the
Series' returns in the graph and the tables would
have been lower, as indicated in parentheses. The
returns in the tables do not reflect the deduction of
taxes that a shareholder would pay on fund
distributions or following the redemption of fund
shares.
<Page>
FOR MORE INFORMATION
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
Visit Prudential's website at:
www.prudential.com
TRUSTEES
Delayne Dedrick Gold
Robert F. Gunia
Thomas T. Mooney
Stephen P. Munn
David R. Odenath, Jr.
Richard A. Redeker
Judy A. Rice
Louis A. Weil, III
OFFICERS
Judy A. Rice, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Marguerite E.H. Morrison, Chief Legal Officer
and Assistant Secretary
Deborah A. Docs, Secretary
Maryanne Ryan, Anti-Money Laundering
Compliance Officer
MANAGER
Prudential Investments LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
INVESTMENT ADVISER
Prudential Investment Management, Inc.
Gateway Center Two
Newark, NJ 07102
DISTRIBUTOR
Prudential Investment Management
Services LLC
Gateway Center Three, 14th Floor
100 Mulberry Street
Newark, NJ 07102-4077
CUSTODIAN
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
TRANSFER AGENT
Prudential Mutual Fund Services LLC
PO Box 8098
Philadelphia, PA 19101
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
LEGAL COUNSEL
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
Mutual funds are not insured by the FDIC or any
federal government agency, are not a deposit of or
guaranteed by any bank or any bank affiliate, and may
lose value.
Fund Symbols High Income Series Insured Series
- ------------ ------------------ --------------
Nasdaq CUSIP Nasdaq CUSIP
------ ---- ------ -----
Class A PRHAX 74435L103 PMIAX 74435L301
Class B PMHYX 74435L202 PMINX 74435L400
Class C PHICX 74435L707 PMICX 74435L806
Class Z PHIZX 74435L871 PMIZX 74435L863
MF133E IFS-A081100
<Page>
Item 2. Code of Ethics -- Not required in this filing
Item 3. Audit Committee Financial Expert -- Not required in this filing
Item 4. Principal Accountant Fees and Services -- Not required in this filing
Item 5. Reserved
Item 6. Reserved
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies -- Not required in this filing
Item 8. Reserved
Item 9. Controls and Procedures
(a) It is the conclusion of the registrant's principal executive
officer that the effectiveness of the registrant's current
disclosure controls and procedures (such disclosure controls and
procedures having been evaluated within 90 days of the date of
this filing) provide reasonable assurance that the information
required to be disclosed by the registrant has been recorded,
processed, summarized and reported within the time period
speicified in the Commission's rules and forms and that the
information required to be disclosed by the registrant has
been accumulated and communicated to the registrant's
principal executive officer and principal financila officer
in order to allow timely decisions regarding required disclosure.
(b) There have been no significant changes in the registrant's
internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Item 10. Exhibits
(a) Code of Ethics. -- Not required in this filing
(b) Certifications prusuant to Section 302 of the
Sarbanes-Oxley Act -- Attached hereto
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Prudential Municipal Bond Fund
/s/ Deborah Docs
- --------------------------------
Deborah Docs
Secretary of the Fund
Prudential Municipal Bond Fund --
High Income Series and Insured Series
Date: June 30, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
/s/ Judy A. Rice
- --------------------------------
Judy A. Rice
President of
Prudential Municipal Bond Fund --
High Income Series and Insured Series
Date: June 30, 2003
/s/ Grace C. Torres
- --------------------------------
Grace C. Torres
Treasurer of
Prudential Municipal Bond Fund --
High Income Series and Insured Series
Date: June 30, 2003