Prudential Municipal Bond Fund
(Intermediate Series)
(Intermediate Series)
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PROSPECTUS DATED JULY 2, 1997
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Prudential Municipal Bond Fund (the Fund) is an open-end, diversified,
management investment company, or mutual fund, consisting of three separate
portfolios--the High Yield Series, the Insured Series and the Intermediate
Series. Each Series operates as a separate fund with its own investment
objectives. Only shares of the Intermediate Series (the Series) are offered
through this Prospectus. The investment objective of the Intermediate Series is
to provide a high level of income that is eligible for exclusion from federal
income taxes consistent with the preservation of capital. Although the Series
will seek income that is eligible for exclusion from federal income taxes, a
portion of the dividends and distributions paid by the Series may be treated as
a preference item for purposes of the alternative minimum tax. The Series seeks
to achieve its objective through the investment policies described in this
Prospectus. There can be no assurance that the Series' investment objectives
will be achieved. See "How the Fund Invests--Investment Objectives and
Policies."
Subject to the limitations described herein, the Series may utilize derivatives,
including buying and selling futures contracts for the purpose of hedging its
portfolio securities. See "How the Fund Invests--Investment Objectives and
Policies."
The Fund's address is Gateway Center Three, 100 Mulberry Street, Newark, New
Jersey 07102-4077, and its telephone number is (800) 225-1852.
This Prospectus sets forth concisely the information about the Fund and the
Series that a prospective investor should know before investing. Additional
information about the Fund has been filed with the Securities and Exchange
Commission (SEC) in a Statement of Additional Information, dated July 2, 1997,
which information is incorporated herein by reference (is legally considered a
part of this Prospectus) and is available without charge upon request to the
Fund at the address or telephone number noted above.
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INVESTORS ARE ADVISED TO READ THIS PROSPECTUS AND RETAIN IT FOR FUTURE
REFERENCE.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FUND HIGHLIGHTS
The following summary is intended to highlight certain information contained
in this Prospectus and is qualified in its entirety by the more detailed
information appearing elsewhere herein.
WHAT IS PRUDENTIAL MUNICIPAL BOND FUND?
Prudential Municipal Bond Fund is a mutual fund. A mutual fund pools the
resources of investors by selling its shares to the public and investing the
proceeds of such sale in a portfolio of securities designed to achieve its
investment objective. Technically, the Fund is an open-end, diversified,
management investment company. The Fund is comprised of three separate
portfolios--the High Yield Series, the Insured Series and the Intermediate
Series. Only shares of the Intermediate Series are offered through this
Prospectus.
WHAT IS THE SERIES' INVESTMENT OBJECTIVE?
The investment objective of the Series is to provide a high level 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' objective
will be achieved. See "How the Fund Invests--Investment Objectives and Policies"
at page 9.
WHAT ARE THE SERIES' RISK FACTORS AND SPECIAL CHARACTERISTICS?
In seeking to achieve its objective, the Series will under normal
circumstances invest primarily in municipal obligations with maturities between
3 and 15 years and will have a dollar-weighted average portfolio maturity of
more than 3 and less than 10 years. Generally, the yield earned on longer-term
municipal obligations is greater than that earned on similar obligations with
shorter maturities. However, obligations with longer maturities are subject to
greater market risk due to larger fluctuations in value given specific changes
in the level of interest rates relative to the value of shorter-term
obligations. See "How the Fund Invests-- Investment Objectives and Policies" at
page 9. The Series may purchase and sell derivatives, including certain
financial futures contracts and options thereon, for hedging purposes. These
activities may be considered speculative and may result in higher risks and
costs to the Series. See "How the Fund Invests--Hedging Strategies--Risks of
Hedging Strategies" at page 12. As with an investment in any mutual fund, an
investment in this Series can decrease in value and you can lose money.
WHO MANAGES THE FUND?
Prudential Investments Fund Management LLC (PIFM or the Manager) is the
Manager of the Fund and is compensated for its services at an annual rate of .50
of 1% of the average daily net assets of the Series up to $1 billion and .45 of
1% of the average daily net assets of the Series in excess of $1 billion. As of
May 31, 1997, PIFM served as manager or administrator to 62 investment
companies, including 40 mutual funds, with aggregate assets of approximately $56
billion. The Prudential Investment Corporation, which does business under the
name Prudential Investments (PI, the Subadviser, or the investment adviser),
furnishes investment advisory services in connection with the management of the
Fund under a Subadvisory Agreement with PIFM. See "How the Fund is
Managed--Manager" at page 15.
WHO DISTRIBUTES THE SERIES' SHARES?
Prudential Securities Incorporated (Prudential Securities or PSI), a major
securities underwriter and securities and commodities broker, acts as the
Distributor of the Series' shares. PSI is paid an annual distribution and
service fee which is currently being charged at the rate of .10 of 1% of the
average daily net assets of the Class A shares of the Series, is paid an annual
distribution and service fee which is currently being charged at the rate of .50
of 1% of the average daily net assets of the Class B shares of the Series and is
paid an annual distribution and service fee which is currently being charged at
the rate of .75 of 1% of the average daily net assets of the Class C shares of
the Series. Prudential Securities incurs the expense of distributing the Series'
Class Z shares under a distribution agreement with the Fund, none of which is
reimbursed or paid for by the Fund. See "How the Fund is Managed--Distributor"
at page 16.
2
WHAT IS THE MINIMUM INVESTMENT?
The minimum initial investment for Class A and Class B shares is $1,000 per
class and $5,000 for Class C shares. The minimum subsequent investment is $100
for Class A, Class B and Class C shares. Class Z shares are not subject to any
minimum investment requirements. There is no minimum investment requirement for
certain employee savings plans. For purchases made through the Automatic Savings
Accumulation Plan, the minimum initial and subsequent investment is $50. See
"Shareholder Guide--How to Buy Shares of the Fund" at page 23 and "Shareholder
Guide--Shareholder Services" at page 33.
HOW DO I PURCHASE SHARES?
You may purchase shares of the Series through Prudential Securities, Pruco
Securities Corporation (Prusec) or directly from the Fund through its transfer
agent, Prudential Mutual Fund Services LLC (PMFS or the Transfer Agent), at the
net asset value per share (NAV) next determined after receipt of your purchase
order by the Transfer Agent or Prudential Securities plus a sales charge which
may be imposed either (i) at the time of purchase (Class A shares) or (ii) on a
deferred basis (Class B or Class C shares). Class Z shares are offered to a
limited group of investors at net asset value without any sales charge. See "How
the Fund Values its Shares" at page 19 and "Shareholder Guide--How to Buy Shares
of the Fund" at page 23.
WHAT ARE MY PURCHASE ALTERNATIVES?
The Series offers four classes of shares through this Prospectus:
- - Class A Shares: Sold with an initial sales charge of up to 3% of the
offering price.
- - Class B Shares: Sold without an initial sales charge but are subject to a
contingent deferred sales charge or CDSC (declining from 5%
to zero of the lower of the amount invested or the
redemption proceeds) which will be imposed on certain
redemptions made within six years of purchase. Although
Class B shares are subject to higher ongoing
distribution-related expenses than Class A shares, Class B
shares will automatically convert to Class A shares (which
are subject to lower ongoing distribution-related expenses)
approximately seven years after purchase.
- - Class C Shares: Sold without an initial sales charge and, for one year after
purchase, are subject to a 1% CDSC on redemptions. Like
Class B shares, Class C shares are subject to higher ongoing
distribution-related expenses than Class A shares but do not
convert to another class.
- - Class Z Shares: Sold without either an initial or contingent deferred sales
charge to a limited group of investors. Class Z shares are
not subject to any ongoing service or distribution expenses.
See "Shareholder Guide--Alternative Purchase Plan" at page 25.
HOW DO I SELL MY SHARES?
You may redeem your shares at any time at the NAV next determined after
Prudential Securities or the Transfer Agent receives your sell order. However,
the proceeds of redemptions of Class B and Class C shares may be subject to a
CDSC. See "Shareholder Guide--How to Sell Your Shares" at page 28.
HOW ARE DIVIDENDS AND DISTRIBUTIONS PAID?
The Series expects to declare daily and pay monthly dividends of net
investment income, if any, and make distributions of any net capital gains at
least annually. Dividends and distributions will be automatically reinvested in
additional shares of the Series at NAV without a sales charge unless you request
that they be paid to you in cash. See "Taxes, Dividends and Distributions" at
page 20.
3
FUND EXPENSES
(INTERMEDIATE SERIES)
SHAREHOLDER TRANSACTION EXPENSES
(a) CLASS A SHARES CLASS B SHARES (b) CLASS C SHARES CLASS Z SHARES (e)
-------------- ------------------------ ----------------------- -----------------------
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price)............... 3% None None None
Maximum Sales Load Imposed on
Reinvested Dividends.......... None None None None
Maximum Deferred Sales Load (as
a percentage of original
purchase price or redemption
proceeds, whichever is
lower)........................ None 5% during the first 1% on redemptions None
year, decreasing by 1% made within one year
annually to 1% in the of purchase
fifth and sixth years
and 0% the seventh year
Redemption Fees................ None None None None
Exchange Fee................... None None None None
ANNUAL FUND OPERATING EXPENSES (c)
(as a percentage of average net
assets) CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS Z SHARES (e)
-------------- ------------------------ ----------------------- -----------------------
Management Fees (Before
Waiver): .50 .50 .50 .50%
12b-1 Fees (After Reduction): .10(d) .50 .75(d) None
Other Expenses: .60 .60 .60 .60
Total Fund Operating Expenses
(Before Waiver and After
Reduction): 1.20 1.60 1.85 1.10
<FN>
- ------------------
(a) Pursuant to rules of the National Association of Securities Dealers, Inc.,
the aggregate initial sales charges, deferred sales charges and asset-based
sales charges on shares of the Series may not exceed 6.25% of total gross
sales, subject to certain exclusions. This 6.25% limitation is imposed on
each class of the Series rather than on a per shareholder basis. Therefore,
long-term shareholders of the Series may pay more in total sales charges
than the economic equivalent of 6.25% of such shareholders' investment in
such shares. See "How the Fund is Managed--Distributor."
(b) Class B shares will automatically convert to Class A shares approximately
seven years after purchase. See "Shareholder Guide--Conversion Feature--
Class B Shares."
(c) Based on expenses incurred during the fiscal year ended April 30, 1997,
without taking into account the management fee waiver. At the current level
of management fee waiver (10%), Management Fees would be .45% for all
classes for the Series and Total Fund Operating Expenses for Class A, B, C,
and Class Z shares would be 1.15%, 1.55%, 1.80% and 1.05%, respectively.
(d) Although the Class A and Class C Distribution and Service Plans provide
that the Series may pay a distribution fee of up to .30 of 1% and 1% of the
average daily net assets of the Class A and Class C shares, respectively,
the Distributor has agreed to limit its distribution fees with respect to
the Class A and Class C shares of the Series to no more than .10 of 1% and
.75 of 1% of the average daily net assets of the Class A and Class C
shares, respectively, for the fiscal year ending April 30, 1998. Total Fund
Operating Expenses of the Class A and Class C shares without such
limitation would be 1.40% and 2.10%, respectively. See "How the Fund is
Managed--Distributor."
(e) Estimated based on expenses expected to have been incurred if Class Z
shares had been in existence throughout the fiscal year ended April 30,
1997.
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------- --------- --------- ----------
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period:
Class A................................................ $42 $67 $94 $171
Class B................................................ $66 $80 $97 $174
Class C................................................ $29 $58 $100 $217
Class Z (a)............................................ $11 $35 $61 $134
You would pay the following expenses on the same investment,
assuming no redemption:
Class A................................................ $42 $67 $94 $171
Class B................................................ $16 $50 $87 $174
Class C................................................ $19 $58 $100 $217
Class Z (a)............................................ $11 $35 $61 $134
(a) Estimated based on expenses expected to have been incurred if Class Z shares had been in existence throughout
the fiscal year ended April 30, 1997.
The above example is based on data for the Fund's fiscal year ended April 30, 1997. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The purpose of this table is to assist investors in understanding the various costs and expenses that an investor
in the Series will bear, whether directly or indirectly. For more complete descriptions of the various costs and
expenses, see "How the Fund is Managed." "Other Expenses" includes operating expenses of the Series, such as
Trustees' and professional fees, registration fees, reports to shareholders and transfer agency and custodian fees.
4
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
(CLASS A SHARES)
The following financial highlights, with respect to the fiscal year ended
April 30, 1997 have been audited by Price Waterhouse LLP, independent
accountants, and by Deloitte & Touche LLP, independent auditors, for the four
years ended April 30, 1996. Each of the respective reports by Price Waterhouse
LLP and Deloitte & Touche LLP on such financial highlights were unqualified.
This information should be read in conjunction with the financial statements and
notes thereto, which appear in the Statement of Additional Information. The
financial highlights contain selected data for a Class A share of beneficial
interest outstanding, total return, ratios to average net assets and other
supplemental data for the periods indicated. The information is based on data
contained in the financial statements. Further performance information is
contained in the annual report, which may be obtained without charge. See
"Shareholder Guide--Shareholder Services--Reports to Shareholders."
INTERMEDIATE SERIES
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CLASS A SHARES
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JANUARY 22,
1990(a)
YEARS ENDED APRIL 30, THROUGH
---------------------------------------------------------------------------------- APRIL 30,
1997 1996 1995 1994 1993 1992 1991 1990
---------- ---------- ---------- ------- --------- --------- --------- ------------
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period..... $ 10.65 $ 10.45 $ 10.67 $11.08 $10.59 $10.48 $ 9.98 $10.21
---------- ---------- ---------- ------- --------- --------- --------- ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income.... .46(d) .47(d) .51(d) .53 .54(d) .57(d) .59(d) .18(d)
Net realized and
unrealized gain (loss)
on investment
transactions............ (.05) .20 (.03) (.19) .60 .26 .50 (.23)
---------- ---------- ---------- ------- --------- --------- --------- ------
Total from investment
operations............ .41 .67 .48 .34 1.14 .83 1.09 (.05)
---------- ---------- ---------- ------- --------- --------- --------- ------
LESS DISTRIBUTIONS
Dividends from net
investment income....... (.46) (.47) (.51) (.53) (.54) (.57) (.59) (.18)
Distributions in excess
of net investment
income.................. (.01) -- (.01) -- -- -- -- --
Distributions from
capital gains........... -- -- (.18) (.22) (.11) (.15) -- --
---------- ---------- ---------- ------- --------- --------- --------- ------
Total distributions.... (.47) (.47) (.70) (.75) (.65) (.72) (.59) (.18)
---------- ---------- ---------- ------- --------- --------- --------- ------
Net asset value, end of
period.................. $ 10.59 $10.65 $10.45 $10.67 $11.08 $10.59 $10.48 $ 9.98
---------- ---------- ---------- ------- --------- --------- --------- ------
---------- ---------- ---------- ------- --------- --------- --------- ------
TOTAL RETURN (b):........ 3.68% 6.48% 4.52% 2.83% 11.13% 8.14% 11.20% (2.49)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)................... $13,740 $12,552 $10,507 $5,810 $3,594 $1,424 $397 $164
Average net assets
(000)................... $13,487 $12,604 $7,742 $4,981 $1,883 $ 599 $305 $80
Ratios to average net
assets:
Expenses, including
distribution fees..... 1.15%(d) 1.16%(d) 1.05%(d) 1.00% 1.06%(d) 1.06%(d) 0.92%(d) 0.63%(c)(d)
Expenses, excluding
distribution fees..... 1.05%(d) 1.06%(d) 0.95%(d) 0.90% 0.96%(d) 0.96%(d) 0.82%(d) 0.53%(c)(d)
Net investment
income................ 4.30%(d) 4.36%(d) 4.75%(d) 4.63% 5.09%(d) 5.41%(d) 5.92%(d) 6.26%(c)(d)
Portfolio turnover
rate.................... 46% 35% 30% 55% 22% 78% 128% 91%
<FN>
- ---------------
(a) Commencement of offering of Class A shares.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(c) Annualized.
(d) Net of management fee waiver. See "Manager" in the Statement of Additional
Information.
5
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
(CLASS B SHARES)
The following financial highlights, with respect to the fiscal year ended
April 30, 1997 have been audited by Price Waterhouse LLP, independent
accountants, and by Deloitte & Touche LLP, independent auditors, for the four
years ended April 30, 1996. Each of the respective reports by Price Waterhouse
LLP and Deloitte & Touche LLP on such financial highlights were unqualified.
This information should be read in conjunction with the financial statements and
notes thereto, which appear in the Statement of Additional Information. The
financial highlights contain selected data for a Class B share of beneficial
interest outstanding, total return, ratios to average net assets and other
supplemental data for the periods indicated. The information is based on data
contained in the financial statements. Further performance information is
contained in the annual report, which may be obtained without charge. See
"Shareholder Guide--Shareholder Services--Reports to Shareholders."
INTERMEDIATE SERIES
----------------------------------------------------------------------------------------
CLASS B SHARES
----------------------------------------------------------------------------------------
YEARS ENDED APRIL 30,
----------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991
---------- ---------- ---------- -------- ---------- ----------- -----------
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period............................ $ 10.65 $ 10.45 $ 10.68 $ 11.09 $ 10.60 $ 10.48 $ 9.98
---------- ---------- ---------- -------- ---------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.............. .42(e) .43(e) .45(e) .48 .50(e) .53(e) .56(e)
Net realized and unrealized gain
(loss) on investment
transactions...................... (.05) .20 (.04) (.19) .60 .27 .50
---------- ---------- ---------- -------- ---------- ----------- -----------
Total from investment
operations...................... .37 .63 .41 .29 1.10 .80 1.06
---------- ---------- ---------- -------- ---------- ----------- -----------
LESS DISTRIBUTIONS
Dividends from net investment
income............................ (.42) (.43) (.45) (.48) (.50) (.53) (.56)
Distributions in excess of net
investment income................. (.01) -- (.01) -- -- -- --
Distributions from capital gains... -- -- (.18) (.22) (.11) (.15) --
---------- ---------- ---------- -------- ---------- ----------- -----------
Total distributions.............. (.43) (.43) (.64) (.70) (.61) (.68) (.56)
---------- ---------- ---------- -------- ---------- ----------- -----------
Net asset value, end of period..... $ 10.59 $ 10.65 $ 10.45 $ 10.68 $ 11.09 $ 10.60 $ 10.48
---------- ---------- ---------- -------- ---------- ----------- -----------
---------- ---------- ---------- -------- ---------- ----------- -----------
TOTAL RETURN (c):.................. 3.44% 6.05% 3.99% 2.43% 10.62% 7.68% 10.82%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).... $29,980 $40,550 $51,039 $65,215 $57,049 $45,401 $45,401
Average net assets (000)........... $35,221 $46,127 $60,174 $59,811 $50,154 $44,439 $46,521
Ratios to average net assets:
Expenses, including distribution
fees............................ 1.55%(e) 1.56%(e) 1.45%(e) 1.40% 1.46%(e) 1.46%(e) 1.32%(e)
Expenses, excluding distribution
fees............................ 1.05%(e) 1.06%(e) 0.95%(e) 0.90% 0.96%(e) 0.96%(e) 0.82%(e)
Net investment income............ 3.89%(e) 3.96%(e) 4.35%(e) 4.23% 4.69%(e) 5.01%(e) 5.52%(e)
Portfolio turnover rate............ 46% 35% 30% 55% 22% 78% 128%
INTERMEDIATE SERIES
------------------------------------------
CLASS B
------------------------------------------
YEARS ENDED
APRIL 30,
SEPTEMBER 17,
1987(a)
------------------------- TO APRIL 30,
1990 1989 1988(b)
----------- ----------- --------------
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period............................ $ 10.17 $ 10.14 $ 10.00
----------- ----------- ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.............. .62(e) .70(e) .43(e)
Net realized and unrealized gain
(loss) on investment
transactions...................... (.16) .09 .14
----------- ----------- ------
Total from investment
operations...................... .46 .79 .57
----------- ----------- ------
LESS DISTRIBUTIONS
Dividends from net investment
income............................ (.62) (.70) (.43)
Distributions in excess of net
investment income................. -- -- --
Distributions from capital gains... (.03) (.06) --
----------- ----------- ------
Total distributions.............. (.65) (.76) (.43)
----------- ----------- ------
Net asset value, end of period..... $ 9.98 $ 10.17 $ 10.14
----------- ----------- ------
----------- ----------- ------
TOTAL RETURN (c):.................. 4.61% 8.21% 9.07%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).... $47,838 $45,362 $17,102
Average net assets (000)........... $46,246 $30,515 $6,298
Ratios to average net assets:
Expenses, including distribution
fees............................ 0.83%(e) 0.15%(e) 0%(e)
Expenses, excluding distribution
fees............................ 0.33%(e) 0.05%(e) 0%(e)
Net investment income............ 6.03%(e) 6.59%(e) 6.16%(d)(e)
Portfolio turnover rate............ 91% 135% 54%
<FN>
- -----------------
(a) Commencement of offering of Class B shares.
(b) On March 1, 1988, Prudential Mutual Fund Management, Inc. succeeded The
Prudential Insurance Company of America as Manager of the Fund.
(c) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(d) Annualized.
(e) Net of expense subsidy, fee waivers and distribution fee deferrals. See
"Manager" in the Statement of Additional Information.
6
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH OF THE INDICATED PERIODS)
(CLASS C SHARES)
The following financial highlights, with respect to the fiscal year ended
April 30, 1997 have been audited by Price Waterhouse LLP, independent
accountants, and by Deloitte & Touche LLP, independent auditors, for the year
ended April 30, 1996, and the period August 1, 1994 through April 30, 1995. Each
of the respective reports by Price Waterhouse LLP and Deloitte & Touche LLP on
such financial highlights were unqualified. This information should be read in
conjunction with the financial statements and notes thereto, which appear in the
Statement of Additional Information. The financial highlights contain selected
data for a Class C share of beneficial interest outstanding, total return,
ratios to average net assets and other supplemental data for the periods
indicated. The information is based on data contained in the financial
statements. Further performance information is contained in the annual report,
which may be obtained without charge. See "Shareholder Guide--Shareholder
Services--Reports to Shareholders."
INTERMEDIATE SERIES
------------------------------------------------
CLASS C SHARES
------------------------------------------------
YEAR ENDED APRIL 30, AUGUST 1,
1994(a)
----------------------------- THROUGH APRIL
1997 1996 30, 1995
------ ------ --------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period....................... $ 10.65 $10.45 $10.54
------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income (d)..... .39 .40 .35
Net realized and unrealized
gain (loss) on investment
transactions................. (.05) .20 (.08)
------ ------ ------
Total from investment
operations................. .34 .60 .27
------ ------ ------
LESS DISTRIBUTIONS
Dividends from net investment
income....................... (.39) (.40) (.35)
Distributions in excess of net
investment income............ (.01) -- (.01)
Distributions from capital
gains........................ -- -- --
------ ------ ------
Total distributions......... .40 (.40) (.36)
------ ------ ------
Net asset value, end of
period....................... $10.59 $10.65 $10.45
------ ------ ------
------ ------ ------
TOTAL RETURN (b):............. 3.17% 5.79% 2.14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)........................ $ 257 $ 225 $ 167
Average net assets (000)...... $ 149 $ 197 $ 28
Ratios to average net assets:
Expenses, including
distribution fees (d)...... 1.80% 1.81%(d) 1.81%(c)(d)
Expenses, excluding
distribution fees (d)...... 1.05% 1.06%(d) 1.06%(c)(d)
Net investment income (d)... 3.65% 3.71%(d) 4.34%(c)(d)
Portfolio turnover rate....... % 46 % 35 30%
<FN>
- -------------
(a) Commencement of offering of Class C shares.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(c) Annualized.
(d) Net of management fee waiver. See "Manager" in the Statement of Additional
Information.
7
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED)
(CLASS Z SHARES)
The following financial highlights for the Class Z shares have been audited by
Price Waterhouse LLP, independent accountants, whose report thereon was
unqualified. This information should be read in conjunction with the financial
statements and the notes thereto, which appear in the Statement of Additional
Information. The financial highlights contain selected data for a Class Z share
of common stock outstanding, total return, ratios to average net assets and
other supplemental data for the period indicated. This information has been
determined based on data contained in the financial statements. Further
performance information is contained in the annual report, which may be obtained
without charge. See "Shareholder Guide--Shareholder Services--Reports to
Shareholders."
INTERMEDIATE
SERIES
CLASS Z SHARES
SEPTEMBER 13,
1996(a)
THROUGH
APRIL 30, 1997
-----------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $ 10.63
-------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (d)................................... .31
Net realized and unrealized gain (loss) on investment
transactions............................................... (.03)
-------
Total from investment operations........................ .28
-------
LESS DISTRIBUTIONS
Dividends from net investment income........................ .31
Distributions in excess of net investment income............ (.01)
-------
Total distributions..................................... (.32)
-------
Net asset value, end of period.............................. $ 10.59
-------
-------
TOTAL RETURN(b):............................................ 2.50%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............................. $246
Average net assets (000).................................... $63
Ratios to average net assets:
Expenses (d)............................................ 1.05%(c)
Net investment income(d)................................ 4.65%(c)
Portfolio turnover rate..................................... 46%(c)
<FN>
- ------------
(a) Commencement of offering of Class Z shares.
(b) 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 the period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(c) Annualized.
(d) Net of management fee waiver. See "Manager" in the Statement of Additional
Information.
8
HOW THE FUND INVESTS
INVESTMENT OBJECTIVES AND POLICIES
THE INVESTMENT OBJECTIVE OF THE SERIES IS TO PROVIDE A HIGH LEVEL OF INCOME
THAT IS ELIGIBLE FOR EXCLUSION FROM FEDERAL INCOME TAXES CONSISTENT WITH THE
PRESERVATION OF CAPITAL. THERE CAN BE NO ASSURANCE THAT SUCH OBJECTIVE WILL BE
ACHIEVED. See "Investment Objectives and Policies" in the Statement of
Additional Information. Although the Series will seek income that is eligible
for exclusion from federal income taxes, a portion of the dividends and
distributions paid by the Series may be treated as a preference item for
purposes of the alternative minimum tax. See "Taxes, Dividends and
Distributions."
As with an investment in any mutual fund, an investment in this Series can
decrease in value and you can lose money.
THE SERIES' INVESTMENT OBJECTIVE IS A FUNDAMENTAL POLICY AND, THEREFORE, MAY
NOT BE CHANGED WITHOUT THE APPROVAL OF THE HOLDERS OF A MAJORITY OF THE
OUTSTANDING VOTING SECURITIES OF THE SERIES AS DEFINED IN THE INVESTMENT COMPANY
ACT OF 1940, AS AMENDED (THE INVESTMENT COMPANY ACT). POLICIES OF THE SERIES
THAT ARE NOT FUNDAMENTAL MAY BE MODIFIED BY THE TRUSTEES.
THE SERIES WILL SEEK TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING IN A
PORTFOLIO OF OBLIGATIONS ISSUED BY OR ON BEHALF OF STATES, TERRITORIES AND
POSSESSIONS OF THE UNITED STATES AND THE DISTRICT OF COLUMBIA AND THEIR
POLITICAL SUBDIVISIONS, AGENCIES AND INSTRUMENTALITIES, THE INTEREST ON WHICH IS
GENERALLY ELIGIBLE FOR EXCLUSION FROM FEDERAL INCOME TAXATION (MUNICIPAL
OBLIGATIONS OR MUNICIPAL SECURITIES). THE PORTFOLIO SECURITIES HELD BY THE
SERIES WILL VARY WITH RESPECT TO YIELD, MARKET PRICE VOLATILITY AND QUALITY.
Generally, municipal obligations with longer maturities produce higher yields
and are subject to greater price fluctuations as a result of changes in interest
rates (market risk) than municipal obligations with shorter maturities. The
prices of municipal obligations vary inversely with interest rates. In addition,
lower rated municipal obligations typically provide a higher yield than higher
rated municipal obligations of similar maturity. However, lower rated municipal
obligations are also subject to a greater degree of risk with respect to the
ability of the issuer to meet the principal and interest payments on the
obligations (credit risk) and may also be subject to greater price volatility
due to the market perceptions of the creditworthiness of the issuer. Insurance
policies may be obtained to insure against credit risk, but not against market
risk.
THE SERIES WILL INVEST PRIMARILY IN MUNICIPAL OBLIGATIONS WITH MATURITIES
BETWEEN 3 AND 15 YEARS AND WILL HAVE A DOLLAR-WEIGHTED AVERAGE PORTFOLIO
MATURITY OF MORE THAN 3 AND LESS THAN 10 YEARS. ALL OF THE MUNICIPAL OBLIGATIONS
HELD BY THE SERIES WILL BE RATED AT LEAST BAA BY MOODY'S INVESTORS SERVICE
(MOODY'S) OR BBB BY STANDARD & POOR'S RATINGS GROUP (S&P) OR A SIMILAR
NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO) AT THE TIME OF
PURCHASE OR BE NON-RATED OBLIGATIONS OF COMPARABLE QUALITY IN THE OPINION OF THE
FUND'S INVESTMENT ADVISER. Securities rated Baa by Moody's or BBB by S&P have
speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with high grade bonds. Subsequent to its
purchase by the Series, a municipal obligation may be assigned a lower rating or
cease to be rated. Such an event would not require the elimination of the issue
from the portfolio, but the investment adviser will consider such an event in
determining whether the Series should continue to hold the security in its
portfolio. Under normal circumstances, at least 60% of the municipal obligations
purchased by the Series will be rated A or better by Moody's or S&P or a similar
NRSRO.
For purposes of determining the dollar-weighted average portfolio maturity of
the Series' portfolio, the maturity of a municipal security will be its ultimate
maturity, unless it is probable that the issuer of the security will take
advantage of maturity-shortening devices such as a call, refunding or redemption
provision, in which case the maturity date will be the date on which it is
probable
9
that the security will be called, refunded or redeemed. If the municipal
security includes the right to demand payment, the maturity of the security for
purposes of determining the Series' dollar-weighted average portfolio maturity
will be the period remaining until the principal amount of the security can be
recovered by exercising the right to demand payment.
GENERALLY, THE YIELD EARNED ON LONGER-TERM MUNICIPAL OBLIGATIONS IS GREATER
THAN THAT EARNED ON SIMILAR OBLIGATIONS WITH SHORTER MATURITIES. HOWEVER,
OBLIGATIONS WITH LONGER MATURITIES ARE SUBJECT TO GREATER MARKET RISK. Given a
specific change in the level of interest rates, the value of longer-term
obligations will fluctuate relatively more than the value of shorter-term
obligations. For example, 30-year municipal obligations typically yield 60-90
basis points (.60%-.90%) more than 10-year obligations and have 60-70% more
price volatility (market risk) than 10-year obligations.
THE SERIES INTENDS TO INVEST IN LONGER-TERM, HIGHER YIELDING OBLIGATIONS AND
REDUCE THE GREATER MARKET RISK OF SUCH OBLIGATIONS THROUGH THE USE OF FINANCIAL
FUTURES CONTRACTS. SPECIFICALLY, THE SERIES WILL INVEST IN MUNICIPAL OBLIGATIONS
WITH MATURITIES OF BETWEEN 5 AND 30 YEARS AND SIMULTANEOUSLY HEDGE THE PRICE
VOLATILITY OF SUCH OBLIGATIONS THROUGH THE SALE OF FUTURES CONTRACTS. RATHER
THAN HEDGING THE MUNICIPAL OBLIGATION ENTIRELY, THE SERIES WILL SELL FUTURES
CONTRACTS IN SUFFICIENT AMOUNTS SO THAT THE DOLLAR-WEIGHTED AVERAGE MATURITY OF
THE COMBINED MUNICIPAL OBLIGATION/ FUTURES POSITION WILL BE MORE THAN 3 AND LESS
THAN 10 YEARS. IN THIS MANNER, THE INVESTMENT ADVISER WILL CREATE A "SYNTHETIC
OBLIGATION" THROUGH THE CONSTRUCTION OF A PARTIALLY HEDGED LONGER-TERM
OBLIGATION POSITION.
The Series' investment adviser intends to create such synthetic obligation
positions when, in its opinion, the Series will realize one or more of the
following benefits compared to buying municipal obligations with shorter
maturities: (a) greater market liquidity; (b) lower transaction costs; (c)
greater expected capital appreciation or enhanced preservation of capital; or
(d) higher yields.
In the municipal securities market, most new issues are structured with many
serial maturities that are relatively small in principal amount and one or
several longer-term maturities that are relatively large in principal amount.
Therefore, long-term municipal obligations typically have greater liquidity and
the associated transaction costs are relatively less than obligations with
maturities of 3 to 15 years.
It is expected that synthetic obligation positions will often provide greater
returns than actual intermediate maturity municipal obligations. This can occur
when interest rate futures contracts are relatively overpriced in relation to
the current prices of municipal obligations, so that the sale of the futures
contracts, as part of a synthetic position, would be advantageous to the Series.
Synthetic positions can also be more attractive to the Series when the
investment adviser expects yields on longer-term municipal obligations to
decrease more (or increase less) than yields on medium-term municipal
obligations. If such expectations are correct, the net capital appreciation of
the synthetic obligation position should exceed (or the price decline be less
than) that of an actual intermediate-term municipal obligation.
THERE IS NO ASSURANCE THAT THE SYNTHETIC OBLIGATION POSITION WILL TRADE LIKE
AN INTERMEDIATE-TERM MUNICIPAL OBLIGATION. ANY USE OF FUTURES CONTRACTS INVOLVES
THE RISK OF IMPERFECT CORRELATION IN MOVEMENTS IN THE PRICE OF THE FUTURES
CONTRACTS AND MOVEMENTS IN THE PRICE OF THE SECURITY BEING HEDGED. FURTHERMORE,
THE SERIES' ABILITY TO CREATE SYNTHETIC OBLIGATIONS IS SUBJECT TO VARIOUS OTHER
LIMITATIONS. See "Hedging Strategies--Futures Contracts and Options Thereon"
below.
THE SERIES ALSO MAY USE FUTURES CONTRACTS TO HEDGE AGAINST OVERALL MARKET RISK
OF THE ENTIRE PORTFOLIO, as described under "Hedging Strategies--Futures
Contracts and Options Thereon" below.
BORROWING
The Series may borrow an amount equal to no more than 33 1/3% of the value of
its total assets (computed at the time the loan is made) for temporary,
extraordinary or emergency purposes and to take advantage of investment
opportunities or for the clearance of transactions. The Series may pledge up to
33 1/3% of the value of its total assets to secure these borrowings. If the
Series' asset coverage for borrowings falls below 300%, the Series will take
prompt action to reduce its borrowings. If the Series borrows to
10
invest in securities, any investment gains made on the securities in excess of
interest paid on the borrowing will cause the net asset value of the shares to
rise faster than would otherwise be the case. On the other hand, if the
investment performance of the additional securities purchased fails to cover
their cost (including any interest paid on the money borrowed) to the Series,
the net asset value of the Series' shares will decrease faster than would
otherwise be the case. This is the speculative factor known as "leverage." Money
borrowed for leveraging will be subject to interest costs which may or may not
be recovered by appreciation of the securities purchased and may exceed the
income from the securities purchased. In addition, the Fund may be required to
maintain minimum average balances in connection with such borrowing or pay a
commitment fee to maintain a line of credit which would increase the cost of
borrowing over the stated interest rate.
HEDGING STRATEGIES
FUTURES CONTRACTS AND OPTIONS THEREON
THE SERIES IS AUTHORIZED TO PURCHASE AND SELL CERTAIN DERIVATIVES, INCLUDING
FINANCIAL FUTURES CONTRACTS (FUTURES CONTRACTS) AND OPTIONS THEREON FOR THE
PURPOSE OF ATTEMPTING TO HEDGE ITS INVESTMENT IN MUNICIPAL OBLIGATIONS AGAINST
FLUCTUATIONS IN VALUE CAUSED BY CHANGES IN PREVAILING MARKET INTEREST RATES AND
ATTEMPTING TO HEDGE AGAINST INCREASES IN THE COST OF SECURITIES THE SERIES
INTENDS TO PURCHASE. THE SERIES, AND THUS THE INVESTOR, MAY LOSE MONEY THROUGH
ANY UNSUCCESSFUL USE OF THESE STRATEGIES. In that regard, the Series may sell
futures contracts to create "synthetic positions" by partially hedging
longer-term obligation positions. See "Investment Objectives and Policies"
above. The successful use of futures contracts and options thereon by the Series
involves additional transaction costs, is subject to various risks and depends
upon the investment adviser's ability to predict the direction of the market and
interest rates.
A FUTURES CONTRACT OBLIGATES THE SELLER OF A CONTRACT TO DELIVER TO THE
PURCHASER OF A CONTRACT CASH EQUAL TO A SPECIFIC DOLLAR AMOUNT TIMES THE
DIFFERENCE BETWEEN THE VALUE OF A SPECIFIC FIXED-INCOME SECURITY OR INDEX AT THE
CLOSE OF THE LAST TRADING DAY OF THE CONTRACT AND THE PRICE AT WHICH THE
AGREEMENT IS MADE. No physical delivery of the underlying securities is made.
The Series will engage in transactions in only those futures contracts and
options thereon that are traded on a commodities exchange or a board of trade.
THE SERIES INTENDS TO ENGAGE IN FUTURES CONTRACTS AND OPTIONS THEREON AS A
HEDGE AGAINST CHANGES, RESULTING FROM MARKET CONDITIONS, IN THE VALUE OF
SECURITIES WHICH ARE HELD IN THE SERIES' PORTFOLIO OR WHICH THE SERIES INTENDS
TO PURCHASE, IN ACCORDANCE WITH THE RULES AND REGULATIONS OF THE COMMODITY
FUTURES TRADING COMMISSION (THE CFTC). The Series also intend to engage in such
transactions when they are economically appropriate for the reduction of risks
inherent in the ongoing management of the Series. The Series may purchase and
sell futures contracts and options thereon for bona fide hedging transactions,
except that the Series may purchase and sell futures contracts and options
thereon for any other purpose to the extent that the aggregate initial margin
and option premiums do not exceed 5% of the liquidation value of the Fund's
total assets. In addition, the Series may not purchase or sell futures contracts
or purchase options thereon if, immediately thereafter, the sum of initial and
net cumulative variation margin on outstanding futures contracts, together with
premiums paid on options thereon, would exceed 20% of the total assets of the
Series. There are no limitations on the percentage of a portfolio which may be
hedged and no limitations on the use of the Series' assets to cover futures
contracts and options thereon, except that the aggregate value of the
obligations underlying put options will not exceed 50% of the Series' assets.
Currently, futures contracts are available on several types of fixed-income
securities, including U.S. Treasury Bonds and Notes, Government National
Mortgage Association modified pass-through mortgage-backed securities,
three-month U.S. Treasury Bills and bank certificates of deposit. Futures
contracts are also available on a municipal bond index, based on THE BOND BUYER
Municipal Bond Index, an index of 40 actively traded municipal bonds. The Series
may also engage in transactions in other futures contracts that become
available, from time to time, in other fixed-income securities or municipal bond
indices and in other options on such contracts if the investment adviser
believes such contracts and options would be appropriate for hedging investments
in municipal obligations.
11
THERE CAN BE NO ASSURANCE THAT VIABLE MARKETS WILL CONTINUE OR THAT A LIQUID
SECONDARY MARKET WILL EXIST TO TERMINATE ANY PARTICULAR FUTURES CONTRACT AT ANY
SPECIFIC TIME. If it is not possible to close a futures position entered into by
the Series, the Series will continue to be required to make daily cash payments
of variation margin in the event of adverse price movements. In such a
situation, if the Series had insufficient cash, it might have to sell portfolio
securities to meet daily variation margin requirements at a time when it might
be disadvantageous to do so. The inability to close futures positions also could
have an adverse impact on the ability of the Series to hedge effectively. There
is also a risk of loss by the Series of margin deposits in the event of
bankruptcy of a broker with whom the Series has an open position in a futures
contract.
THE SUCCESSFUL USE OF FUTURES CONTRACTS AND OPTIONS THEREON BY THE SERIES IS
SUBJECT TO VARIOUS ADDITIONAL RISKS. Any use of futures transactions involves
the risk of imperfect correlation in movements in the price of futures contracts
and movements in interest rates and, in turn, the prices of the securities that
are the subject of the hedge. If the price of the futures contract moves more or
less than the price of the security that is the subject of the hedge, the Series
will experience a gain or loss that will not be completely offset by movements
in the price of the security. The risk of imperfect correlation is greater where
the securities underlying futures contracts are taxable securities (rather than
municipal securities), are issued by companies in different market sectors or
have different maturities, ratings or geographic mixes than the security being
hedged. In addition, the correlation may be affected by additions to or
deletions from the index which serves as the basis for a futures contract.
Finally, if the price of the security that is subject to the hedge were to move
in a favorable direction, the advantage to the Series would be partially offset
by the loss incurred on the futures contract.
THE SERIES' ABILITY TO ENTER INTO AND CLOSE OUT FUTURES CONTRACTS AND OPTIONS
THEREON IS LIMITED BY THE REQUIREMENTS OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED (THE INTERNAL REVENUE CODE), FOR QUALIFICATION AS A REGULATED INVESTMENT
COMPANY. See "Taxes, Dividends and Distributions" in the Statement of Additional
Information.
RISKS OF HEDGING STRATEGIES
PARTICIPATION IN THE OPTIONS OR FUTURES MARKETS INVOLVES INVESTMENT RISKS AND
TRANSACTION COSTS TO WHICH THE SERIES WOULD NOT BE SUBJECT ABSENT THE USE OF
THESE STRATEGIES. THE SERIES, AND THUS THE INVESTOR, MAY LOSE MONEY THROUGH ANY
UNSUCCESSFUL USE OF THESE STRATEGIES. If the investment adviser's prediction of
movements in the direction of the securities and interest rate markets is
inaccurate, the adverse consequences to the Series may leave the Series in a
worse position than if such strategies were not used. Risks inherent in the use
of futures contracts and options thereon include (1) dependence on the
investment adviser's ability to predict correctly movements in the direction of
interest rates and securities prices or the movement in indicies; (2) imperfect
correlation between the price of futures contracts and options thereon and
movements in the prices of the securities being hedged; (3) the fact that skills
needed to use these strategies are different from those needed to select
portfolio securities; (4) the possible absence of a liquid secondary market for
any particular instrument at any time; (5) the possible need to defer closing
out certain hedged positions to avoid adverse tax consequences; and (6) the
possible inability of the Series to purchase or sell a portfolio security at a
time that otherwise would be favorable for it to do so, or the possible need for
the Series to sell a portfolio security at a disadvantageous time, due to the
need for the Series to maintain "cover" or to segregate securities in connection
with hedging transactions. See "Investment Objectives and Policies" and "Taxes,
Dividends and Distributions" in the Statement of Additional Information.
OTHER INVESTMENTS AND POLICIES
GENERAL
MUNICIPAL SECURITIES INCLUDE BONDS AND NOTES ISSUED BY OR ON BEHALF OF STATES,
TERRITORIES AND POSSESSIONS OF THE UNITED STATES AND THEIR POLITICAL
SUBDIVISIONS, AGENCIES AND INSTRUMENTALITIES, THE INTEREST ON WHICH IS GENERALLY
ELIGIBLE FOR EXCLUSION FROM FEDERAL INCOME TAX. MUNICIPAL BONDS ARE TYPICALLY
ISSUED TO OBTAIN FUNDS FOR VARIOUS PUBLIC
12
PURPOSES, INCLUDING THE CONSTRUCTION OF A WIDE RANGE OF PUBLIC FACILITIES SUCH
AS AIRPORTS, BRIDGES, HIGHWAYS, HOUSING, HOSPITALS, MASS TRANSPORTATION,
SCHOOLS, STREETS, WATER AND SEWER WORKS AND GAS AND ELECTRIC UTILITIES.
MUNICIPAL NOTES GENERALLY ARE USED TO FINANCE SHORT-TERM CAPITAL NEEDS AND
TYPICALLY HAVE MATURITIES OF ONE YEAR OR LESS.
THE SERIES MAY INVEST MORE THAN 5% OF ITS NET ASSETS IN FLOATING RATE AND
VARIABLE RATE SECURITIES, INCLUDING PARTICIPATION INTERESTS THEREIN. Floating
and variable rate securities normally have a rate of interest which is set as a
specific percentage of a designated base rate, such as the rate on Treasury
Bonds or Bills or the prime rate at a major commercial bank. These securities
also allow the holder to demand payment of the obligation on short notice at par
plus accrued interest, which amount may be more or less than the amount the
Series paid for them. Variable rate securities provide for a specified periodic
adjustment in the interest rate. The interest rate on floating rate securities
changes whenever there is a change in the designated base interest rate.
The Series may also invest in inverse floaters. An inverse floater is a debt
instrument with a floating or variable interest rate that moves in the opposite
direction of the interest rate on another security or the value of an index.
Changes in the interest rate on the other security or index inversely affect the
residual interest rate paid on the inverse floater, with the result that the
inverse floater's price will be considerably more volatile than that of a fixed
rate bond. The market for inverse floaters is relatively new.
The Series may purchase a rating from an NRSRO for non-rated securities. The
purchase of a rating is expected to enhance the value of the security for which
the rating is purchased. The cost of purchasing a rating is an expense of the
Series.
DURING NORMAL MARKET CONDITIONS, THE ASSETS OF THE SERIES WILL BE INVESTED SO
THAT IT WILL HAVE AT LEAST 80% OF ITS NET ASSETS INVESTED IN MUNICIPAL
OBLIGATIONS. However, when the Series' investment adviser believes that market
conditions warrant a temporary defensive investment posture or when necessary to
meet large redemptions, the Series may hold more than 20% of its net assets in
cash, cash equivalents or investment grade taxable obligations, including
obligations that are generally exempt from state, but not federal, taxation. The
Series may invest in municipal cash equivalents, such as floating rate demand
notes, municipal commercial paper and general obligation and revenue notes, or
in taxable cash equivalents, such as certificates of deposit, bankers'
acceptances and time deposits or other short-term taxable investments, such as
repurchase agreements. The Series will treat an investment in a municipal bond
refunded with escrowed U.S. Government securities as U.S. Government securities
for purposes of the Investment Company Act's diversification requirements
provided certain conditions are met. See "Investment Objectives and
Policies--Other Investments and Policies" in the Statement of Additional
Information.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Series may purchase municipal obligations on a "when-issued" or "delayed
delivery" basis and may from time to time sell obligations on a delayed delivery
basis, in each case without limit. When municipal obligations are offered on a
when-issued or delayed delivery basis, the price and coupon rate are fixed at
the time the commitment to purchase is made, but delivery and payment for the
when-issued securities take place at a later date. Normally, the settlement date
occurs within one month of purchase. During the period between purchase and
settlement, no interest accrues to the purchaser. In the case of purchases by
the Series, the price that the Series is required to pay on the settlement date
may be in excess of the market value of the municipal obligations on that date.
While securities may be sold prior to the settlement date, the Series intends to
purchase these securities with the purpose of actually acquiring them unless a
sale would be desirable for investment reasons. At the time the Series makes the
commitment to purchase a municipal obligation on a when-issued basis, it will
record the transaction and reflect the value of the obligation, each day, in
determining its net asset value. This value may fluctuate from day to day in the
same manner as values of municipal obligations otherwise held by the Series. If
the seller defaults in the sale, the Series could fail to realize the
appreciation, if any, that had occurred. The Series will establish a segregated
account with its Custodian in which it will maintain cash, U.S. Government
securities, equity securities or other liquid, unencumbered assets,
marked-to-market daily, having a value equal to or greater than the Series'
purchase commitments.
As in the case of purchases, the price of the municipal obligations sold on a
delayed delivery basis is determined at the time of the commitment. The price
that the Series may be required to accept on the settlement date may be less
than the market value of the obligation on that date.
13
The Series may also purchase municipal forward contracts. A municipal forward
contract is a municipal security which is purchased on a when-issued basis with
delivery taking place up to five years from the date of purchase. The investment
adviser will monitor the liquidity, value, credit quality and delivery of the
security under the supervision of the Trustees.
MUNICIPAL LEASE OBLIGATIONS
The Series may invest in municipal lease obligations. A municipal lease
obligation is a municipal security the interest on and principal of which is
payable out of lease payments made by the party leasing the facilities financed
by the issue. Typically, municipal lease obligations are issued by a state or
municipal financing authority to provide funds for the construction of
facilities (E.G., schools, dormitories, office buildings or prisons) or the
acquisition of equipment. The facilities are typically used by the state or
municipality pursuant to a lease with a financing authority. Certain municipal
lease obligations may trade infrequently. Accordingly, the investment adviser
will monitor the liquidity of municipal lease obligations under the supervision
of the Trustees. See "Illiquid Securities" below.
LIQUIDITY PUTS
The Series may purchase and exercise puts on municipal bonds and notes without
limit. Puts give the Series the right to sell the securities at a specified
exercise price on a specified date. Puts may be acquired to reduce the
volatility of the market value of the securities subject to the puts, but the
acquisition of the puts may involve an additional cost to the Series. See
"Investment Objectives and Policies" in the Statement of Additional Information.
REPURCHASE AGREEMENTS
The Series may on occasion enter into repurchase agreements, whereby the
seller of a security agrees to repurchase that security from the Series at a
mutually agreed-upon time and price. The period of maturity is usually quite
short, possibly overnight or a few days, although it may extend over a number of
months. The resale price is in excess of the purchase price, reflecting an
agreed-upon rate of return effective for the period of time the Series' money is
invested in the security. The Series' repurchase agreements will at all times be
fully collateralized in an amount at least equal to the resale price. The
instruments held as collateral are valued daily, and if the value of the
instruments declines, the Series will require additional collateral. If the
seller defaults and the value of the collateral securing the repurchase
agreement declines, the Series may incur a loss. The Series participates in a
joint repurchase account with other investment companies managed by PIFM
pursuant to an order of the Securities and Exchange Commission (SEC).
ILLIQUID SECURITIES
The Series may hold up to 15% of its net assets in illiquid securities,
including repurchase agreements which have a maturity of longer than seven days,
securities with legal or contractual restrictions on resale (restricted
securities) and securities that are not readily marketable. Securities,
including municipal lease obligations, that have a readily available market are
not considered illiquid for purposes of this limitation. The investment adviser
will monitor the liquidity of such restricted securities under the supervision
of the Trustees. The Series' investment in Rule 144A securities could have the
effect of increasing illiquidity to the extent that qualified institutional
buyers become, for a limited time, uninterested in purchasing Rule 144A
securities. See "Investment Restrictions" in the Statement of Additional
Information. Repurchase agreements subject to demand are deemed to have a
maturity equal to the applicable notice period.
Municipal lease obligations will not be considered illiquid for purposes of
the Series' 15% limitation on illiquid securities provided the investment
adviser determines that there is a readily available market for such securities.
In reaching liquidity decisions, the investment adviser will consider, INTER
ALIA, the following factors: (1) the frequency of trades and quotes for the
security; (2) the number of dealers wishing to purchase or sell the security and
the number of other potential purchasers; (3) dealer undertakings to make a
market in the security; and (4) the nature of the security and the nature of the
marketplace trades (E.G., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of the transfer). With respect to
14
municipal lease obligations, the investment adviser also considers: (1) the
willingness of the municipality to continue, annually or biannually, to
appropriate funds for payment of the lease; (2) the general credit quality of
the municipality and the essentiality to the municipality of the property
covered by the lease; (3) in the case of unrated municipal lease obligations, an
analysis of factors similar to that performed by nationally recognized
statistical rating organizations in evaluating the credit quality of a municipal
lease obligation, including (i) whether the lease can be cancelled; (ii) if
applicable, what assurance there is that the assets represented by the lease can
be sold; (iii) the strength of the lessee's general credit (E.G., its debt,
administrative, economic and financial characteristics); (iv) the likelihood
that the municipality will discontinue appropriating funding for the leased
property because the property is no longer deemed essential to the operations of
the municipality (E.G., the potential for an event of nonappropriation); (v) the
legal recourse in the event of failure to appropriate; and (4) any other factors
unique to municipal lease obligations as determined by the investment adviser.
SECURITIES LENDING
The Series is permitted to lend its portfolio securities. See "Investment
Objectives and Policies--Municipal Securities-- Lending of Securities" in the
Statement of Additional Information.
PORTFOLIO TURNOVER
The Series does not expect to trade in securities for short-term gain. It is
anticipated that the annual portfolio turnover rate will not exceed 150%. The
portfolio turnover rate is calculated by dividing the lesser of sales or
purchases of portfolio securities by the average monthly value of the Series'
portfolio securities, excluding securities having a maturity at the date of
purchase of one year or less.
INVESTMENT RESTRICTIONS
The Series is subject to certain investment restrictions which, like its
investment objective, constitute fundamental policies. Fundamental policies
cannot be changed without the approval of the holders of a majority of the
Series' outstanding voting securities, as defined in the Investment Company Act.
See "Investment Restrictions" in the Statement of Additional Information.
HOW THE FUND IS MANAGED
THE FUND HAS TRUSTEES WHO, IN ADDITION TO OVERSEEING THE ACTIONS OF THE FUND'S
MANAGER, SUBADVISER AND DISTRIBUTOR, AS SET FORTH BELOW, DECIDE UPON MATTERS OF
GENERAL POLICY. THE FUND'S MANAGER CONDUCTS AND SUPERVISES THE DAILY BUSINESS
OPERATIONS OF THE FUND. THE FUND'S SUBADVISER FURNISHES DAILY INVESTMENT
ADVISORY SERVICES.
For the fiscal year ended April 30, 1997, the total expenses as a percentage
of average net assets were 1.15%, 1.55%, 1.80% and 1.05% of the Class A, Class
B, Class C and Class Z shares, respectively, of the Series. See "Financial
Highlights."
MANAGER
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC (PIFM OR THE MANAGER), GATEWAY
CENTER THREE, NEWARK, NEW JERSEY 07102, IS THE MANAGER OF THE FUND AND IS
COMPENSATED FOR ITS SERVICES AT AN ANNUAL RATE OF .50 OF 1% OF THE AVERAGE DAILY
NET ASSETS OF THE SERIES UP TO $1 BILLION AND .45 OF 1% OF THE AVERAGE DAILY NET
ASSETS OF THE SERIES IN EXCESS OF $1 BILLION. PIFM, which changed its name from
Prudential Mutual Fund Management LLC, effective May 1, 1997, is organized as a
New York limited liability company. It is the successor to Prudential Mutual
Fund Management, Inc., which transferred its assets to PIFM in September 1996.
For the fiscal year ended April 30, 1997, PIFM received a management fee of .45%
of average daily net assets on behalf of the Series. See "Manager" in the
Statement of Additional Information.
15
PIFM may from time to time waive its management fee and subsidize operating
expenses of the Series. PIFM has agreed to waive 10% of its management fee (.05
of 1% of average net assets, as annualized). See "Fund Expenses." The Fund is
not required to reimburse PIFM for such fee waiver. Fee waivers and expense
subsidies will increase the Series' yield and total return. See "How the Fund
Calculates Performance."
As of May 31, 1997, PIFM served as the manager to 40 open-end investment
companies, constituting all of the Prudential Mutual Funds, and as manager or
administrator to 22 closed-end investment companies with aggregate assets of
approximately $56 billion.
UNDER THE MANAGEMENT AGREEMENT WITH THE FUND, PIFM MANAGES THE INVESTMENT
OPERATIONS OF EACH SERIES OF THE FUND AND ALSO ADMINISTERS THE FUND'S BUSINESS
AFFAIRS. See "Manager" in the Statement of Additional Information.
UNDER A SUBADVISORY AGREEMENT BETWEEN PIFM AND THE PRUDENTIAL INVESTMENT
CORPORATION (PIC), DOING BUSINESS AS PRUDENTIAL INVESTMENTS (PI, THE SUBADVISER
OR THE INVESTMENT ADVISER), PI FURNISHES INVESTMENT ADVISORY SERVICES IN
CONNECTION WITH THE MANAGEMENT OF THE FUND AND IS REIMBURSED BY PIFM FOR ITS
REASONABLE COSTS AND EXPENSES INCURRED IN PROVIDING SUCH SERVICES. Under the
Management Agreement, PIFM continues to have responsibility for all investment
advisory services pursuant to the Management Agreement and supervises PI's
performance of such services.
The current portfolio manager of the Series is Marie Conti, a Vice President
of PIFM, who has responsibility for the day-to-day management of the Series'
portfolio. Ms. Conti has managed the Series' portfolio since 1990 and has been
employed by PIC as a portfolio manager since September 1989 and prior thereto
was employed in an administrative capacity at PIC since August 1988.
PIFM and PIC are wholly-owned subsidiaries of The Prudential Insurance Company
of America (Prudential), a major diversified insurance and financial services
company.
DISTRIBUTOR
PRUDENTIAL SECURITIES INCORPORATED (PRUDENTIAL SECURITIES, PSI OR THE
DISTRIBUTOR), ONE SEAPORT PLAZA, NEW YORK, NEW YORK 10292, IS A CORPORATION
ORGANIZED UNDER THE LAWS OF THE STATE OF DELAWARE AND SERVES AS THE DISTRIBUTOR
OF THE SHARES OF EACH SERIES OF THE FUND. IT IS AN INDIRECT, WHOLLY-OWNED
SUBSIDIARY OF PRUDENTIAL.
UNDER SEPARATE DISTRIBUTION AND SERVICE PLANS (THE CLASS A PLAN, THE CLASS B
PLAN AND THE CLASS C PLAN, COLLECTIVELY, THE PLANS) ADOPTED BY THE FUND UNDER
RULE 12B-1 UNDER THE INVESTMENT COMPANY ACT AND A DISTRIBUTION AGREEMENT (THE
DISTRIBUTION AGREEMENT), PRUDENTIAL SECURITIES (THE DISTRIBUTOR) INCURS THE
EXPENSES OF DISTRIBUTING THE CLASS A, CLASS B AND CLASS C SHARES. Prudential
Securities incurs the expenses of distributing the Series' Class Z shares under
the Distribution Agreement, none of which is reimbursed by or paid for by the
Fund. These expenses include commissions and account servicing fees paid to, or
on account of, financial advisers of Prudential Securities and representatives
of Pruco Securities Corporation (Prusec), an affiliated broker-dealer,
commissions and account servicing fees paid to, or on account of, other
broker-dealers or financial institutions (other than national banks) which have
entered into agreements with the Distributor, advertising expenses, the cost of
printing and mailing prospectuses to potential investors and indirect and
overhead costs of Prudential Securities and Prusec associated with the sale of
Fund shares, including lease, utility, communications and sales promotion
expenses.
Under the Plans, the Series is obligated to pay distribution and/or service
fees to the Distributor as compensation for its distribution and service
activities, not as reimbursement for specific expenses incurred. If the
Distributor's expenses exceed its distribution and service fees, the Fund will
not be obligated to pay any additional expenses. If the Distributor's expenses
are less than such distribution and service fees, it will retain its full fees
and realize a profit.
UNDER THE CLASS A PLAN, THE SERIES MAY PAY PRUDENTIAL SECURITIES FOR ITS
DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS A SHARES AT AN ANNUAL RATE
OF UP TO .30 OF 1% OF THE AVERAGE DAILY NET ASSETS OF THE CLASS A SHARES. The
Class A
16
Plan provides that (i) up to .25 of 1% of the average daily net assets of the
Class A shares may be used to pay for personal service and/or the maintenance of
shareholder accounts (service fee) and (ii) total distribution fees (including
the service fee of up to .25 of 1%) may not exceed .30 of 1% of the average
daily net assets of the Class A shares. Prudential Securities has agreed to
limit its distribution-related fees payable under the Class A Plan to .10 of 1%
of the average daily net assets of the Class A shares for the fiscal year ending
April 30, 1998.
UNDER THE CLASS B AND CLASS C PLANS, THE SERIES MAY PAY PRUDENTIAL SECURITIES
FOR ITS DISTRIBUTION-RELATED ACTIVITIES WITH RESPECT TO CLASS B AND CLASS C
SHARES AT AN ANNUAL RATE OF UP TO .50 OF 1% AND UP TO 1% OF THE AVERAGE DAILY
NET ASSETS OF THE CLASS B AND CLASS C SHARES, RESPECTIVELY. The Class B Plan
provides for the payment to Prudential Securities of (i) an asset-based sales
charge of up to .50 of 1% of the average daily net assets of the Class B shares,
and (ii) a service fee of up to .25 of 1% of the average daily net assets of the
Class B shares; provided that the total distribution-related fee does not exceed
.50 of 1%. The Class C Plan provides for the payment to Prudential Securities of
(i) an asset-based sales charge of up to .75 of 1% of the average daily net
assets of the Class C shares, and (ii) a service fee of up to .25 of 1% of the
average daily net assets of the Class C shares. The service fee is used to pay
for personal service and/or the maintenance of shareholders accounts. Prudential
Securities has agreed to limit its distribution-related fees payable under the
Class C Plan to .75 of 1% of the average daily net assets of the Class C shares
for the fiscal year ending April 30, 1998. Prudential Securities also receives
contingent deferred sales charges from certain redeeming shareholders. See
"Shareholder Guide--How to Sell Your Shares--Contingent Deferred Sales Charges."
For the fiscal year ended April 30, 1997, the Series paid distribution
expenses of .10%, .50% and .75% of the average daily net assets of the Class A,
Class B and Class C shares, respectively. The Series records all payments made
under the Plans as expenses in the calculation of net investment income. See
"Distributor" in the Statement of Additional Information.
Distribution expenses attributable to the sale of Class A, Class B and Class C
shares of the Series will be allocated to each such class based upon the ratio
of sales of each such class to the sales of Class A, Class B and Class C shares
of the Series other than expenses allocable to a particular class. The
distribution fee and sales charge of one class will not be used to subsidize the
sale of another class.
Each Plan provides that it shall continue in effect from year to year provided
that a majority of the Trustees of the Fund, including a majority of the
Trustees who are not "interested persons" of the Fund (as defined in the
Investment Company Act) and who have no direct or indirect financial interest in
the operation of the Plan or any agreement related to the Plan (the Rule 12b-1
Trustees), vote annually to continue the Plan. Each Plan may be terminated at
any time by vote of a majority of the Rule 12b-1 Trustees or of a majority of
the outstanding shares of the applicable class of the Series. The Series will
not be obligated to pay distribution and service fees incurred under any Plan if
it is terminated or not continued.
In addition to distribution and service fees paid by the Series under the
Class A, Class B and Class C Plans, the Manager (or one of its affiliates) may
make payments out of its own resources to dealers (including Prudential
Securities) and other persons who distribute shares of the Series (including
Class Z shares). Such payments may be calculated by reference to the net asset
value of shares sold by such persons or otherwise.
The Distributor is subject to the rules of the National Association of
Securities Dealers, Inc. (the NASD) governing maximum sales charges. See
"Distributor" in the Statement of Additional Information.
On October 21, 1993, PSI entered into an omnibus settlement with the SEC,
state securities regulators (with the exception of the Texas Securities
Commissioner who joined the settlement on January 18, 1994) and the NASD to
resolve allegations that from 1980 through 1990 PSI sold certain limited
partnership interests in violation of securities laws to persons for whom such
securities were not suitable and misrepresented the safety, potential returns
and liquidity of these investments. Without admitting
17
or denying the allegations asserted against it, PSI consented to the entry of an
SEC Administrative Order which stated that PSI's conduct violated the federal
securities laws, directed PSI to cease and desist from violating the federal
securities laws, pay civil penalties, and adopt certain remedial measures to
address the violations.
Pursuant to the terms of the SEC settlement, PSI agreed to the imposition of a
$10,000,000 civil penalty, established a settlement fund in the amount of
$330,000,000 and procedures to resolve legitimate claims for compensatory
damages by purchasers of the partnership interests. PSI has agreed to provide
additional funds, if necessary, for the purpose of the settlement fund. PSI's
settlement with the state securities regulators included an agreement to pay a
penalty of $500,000 per jurisdiction. PSI consented to a censure and to the
payment of a $5,000,000 fine in settling the NASD action.
In October 1994, a criminal complaint was filed with the United States
Magistrate for the Southern District of New York alleging that PSI committed
fraud in connection with the sale of certain limited partnership interests in
violation of federal securities laws. An agreement was simultaneously filed to
defer prosecution of these charges for a period of three years from the signing
of the agreement, provided that PSI complies with the terms of the agreement.
If, upon completion of the three year period, PSI has complied with the terms of
the agreement, no prosecution will be instituted by the United States for the
offenses charged in the complaint. If on the other hand, during the course of
the three year period, PSI violates the terms of the agreement, the U.S.
Attorney can elect to pursue these charges. Under the terms of the agreement,
PSI agreed, among other things, to pay an additional $330,000,000 into the fund
established by the SEC to pay restitution to investors who purchased certain PSI
limited partnership interests.
For more detailed information concerning the foregoing matters, see
"Distributor" in the Statement of Additional Information, a copy of which may be
obtained at no cost by calling (800) 225-1852.
The Fund is not affected by PSI's financial condition and is an entirely
separate legal entity from PSI, which has no beneficial ownership therein and
the Fund's assets which are held by State Street Bank and Trust Company, an
independent custodian, are separate and distinct from PSI.
PORTFOLIO TRANSACTIONS
Prudential Securities may act as a broker or futures commission merchant for
the Fund, provided that the commissions, fees or other remuneration it receives
are fair and reasonable. See "Portfolio Transactions and Brokerage" in the
Statement of Additional Information.
CUSTODIAN AND TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company, One Heritage Drive, North Quincy,
Massachusetts 02171, serves as Custodian for the portfolio securities and cash
of the Series and, in that capacity, maintains certain financial and accounting
books and records pursuant to an agreement with the Fund. Its mailing address is
P.O. Box 1713, Boston, Massachusetts 02105.
Prudential Mutual Fund Services LLC (PMFS), Raritan Plaza One, Edison, New
Jersey 08837, serves as Transfer Agent and Dividend Disbursing Agent and in
those capacities maintains certain books and records for the Fund. PMFS is a
wholly-owned subsidiary of PIFM. Its mailing address is P.O. Box 15005, New
Brunswick, New Jersey 08906-5005.
18
HOW THE FUND VALUES ITS SHARES
THE SERIES' NET ASSET VALUE PER SHARE OR NAV IS DETERMINED BY SUBTRACTING ITS
LIABILITIES FROM THE VALUE OF ITS ASSETS AND DIVIDING THE REMAINDER BY THE
NUMBER OF OUTSTANDING SHARES. NAV IS CALCULATED SEPARATELY FOR EACH CLASS. THE
TRUSTEES HAVE FIXED THE SPECIFIC TIME OF DAY FOR THE COMPUTATION OF THE SERIES'
NET ASSET VALUE TO BE AS OF 4:15 P.M., NEW YORK TIME.
Portfolio securities are valued based on market quotations or, if not readily
available, at fair value as determined in good faith under procedures
established by the Fund's Trustees. Securities may also be valued based on
values provided by a pricing service. See "Net Asset Value" in the Statement of
Additional Information.
The Series will compute its NAV once daily on days that the New York Stock
Exchange is open for trading except on days on which no orders to purchase, sell
or redeem shares have been received by the Series or days on which changes in
the value of the Series' portfolio securities do not materially affect the NAV.
Although the legal rights of each class of shares are substantially identical,
the different expenses borne by each class will result in different dividends.
As long as the Series declares dividends daily, the NAV of the Class A, Class B,
Class C and Class Z shares will generally be the same. It is expected, however,
that the Series' dividends will differ by approximately the amount of any
distribution and or service fee expense accrual differential among the classes.
HOW THE FUND CALCULATES PERFORMANCE
FROM TIME TO TIME THE FUND MAY ADVERTISE THE "YIELD," "TAX EQUIVALENT YIELD"
AND "TOTAL RETURN" (INCLUDING "AVERAGE ANNUAL" TOTAL RETURN AND "AGGREGATE"
TOTAL RETURN) OF THE SERIES IN ADVERTISEMENTS OR SALES LITERATURE. YIELD, TAX
EQUIVALENT YIELD AND TOTAL RETURN ARE CALCULATED SEPARATELY FOR CLASS A, CLASS
B, CLASS C AND CLASS Z SHARES. THESE FIGURES ARE BASED ON HISTORICAL EARNINGS
AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "yield" refers to the
income generated by an investment in the Series over a one-month or 30-day
period. This income is then "annualized"; that is, the amount of income
generated by the investment during that 30-day period is assumed to be generated
each 30-day period for twelve periods and is shown as a percentage of the
investment. The income earned on the investment is also assumed to be reinvested
at the end of the sixth 30-day period. The "tax equivalent yield" is calculated
similarly to the "yield," except that the yield is increased using a stated
income tax rate to demonstrate the taxable yield necessary to produce an
after-tax yield equivalent to the Series. The "total return" shows how much an
investment in the Series would have increased (decreased) over a specified
period of time (I.E., one, five or ten years or since inception of the Series)
assuming that all distributions and dividends by the Series were reinvested on
the reinvestment dates during the period and less all recurring fees. The
"aggregate" total return reflects actual performance over a stated period of
time. "Average annual" total return is a hypothetical rate of return that, if
achieved annually, would have produced the same aggregate total return if
performance had been constant over the entire period. "Average annual" total
return smooths out variations in performance and takes into account any
applicable initial or contingent deferred sales charges. Neither "average
annual" total return nor "aggregate" total return takes into account any federal
or state income taxes which may be payable upon redemption. The Series also may
include comparative performance information in advertising or marketing its
shares. Such performance information may include data from Lipper Analytical
Services, Inc.,
19
Morningstar Publications, Inc., other industry publications, business
periodicals and market indices. See "Performance Information" in the Statement
of Additional Information. Further performance information is contained in the
Series' annual and semi-annual reports to shareholders, which may be obtained
without charge. See "Shareholder Guide--Shareholder Services-- Reports to
Shareholders."
TAXES, DIVIDENDS AND DISTRIBUTIONS
TAXATION OF THE FUND
THE SERIES HAS ELECTED TO QUALIFY AND INTENDS TO REMAIN QUALIFIED AS A
REGULATED INVESTMENT COMPANY UNDER THE INTERNAL REVENUE CODE. ACCORDINGLY, THE
SERIES WILL NOT BE SUBJECT TO FEDERAL INCOME TAXES ON ITS NET TAXABLE INVESTMENT
INCOME AND NET CAPITAL GAINS, IF ANY, THAT IT DISTRIBUTES TO ITS SHAREHOLDERS.
TO THE EXTENT NOT DISTRIBUTED BY THE SERIES, NET TAXABLE INVESTMENT INCOME AND
CAPITAL GAINS ARE TAXABLE. See "Taxes, Dividends and Distributions" in the
Statement of Additional Information.
To the extent the Series invests in taxable obligations, it will earn taxable
investment income. Also, to the extent the Series sells securities or engages in
hedging transactions in futures contracts and options thereon, it may earn both
short-term and long-term capital gain or loss. Capital gain or loss may also
arise upon the sale of municipal securities, as well as taxable obligations.
Under the Internal Revenue Code, special rules apply to the treatment of certain
options and futures contracts (Section 1256 contracts). At the end of each year,
such investments held by the Series will be required to be "marked to market"
for federal income tax purposes; that is, treated as having been sold at market
value. Sixty percent of any gain or loss recognized on these "deemed sales" and
on actual dispositions will be treated as long-term capital gain or loss, and
the remainder will be treated as short-term capital gain or loss. See "Taxes,
Dividends and Distributions" in the Statement of Additional Information.
Gain or loss realized by the Series from the sale of securities generally will
be treated as capital gain or loss; however, gain from the sale of certain
securities (including municipal obligations) will be treated as ordinary income
to the extent of any "market discount." Market discount generally is the
difference, if any, between the price paid by the Series for the security and
the principal amount of the security (or, in the case of a security issued at an
original issue discount, the revised issue price of the security). The market
discount rule does not apply to any security that was acquired by the Series at
its original issue.
TAXATION OF SHAREHOLDERS
In general, the character of tax-exempt interest distributed by the Series
will flow through as tax-exempt interest to its shareholders provided that 50%
or more of the value of its assets at the end of each quarter of its taxable
year is invested in state, municipal and other obligations, the interest on
which is excluded from gross income for federal income tax purposes. During
normal market conditions, at least 80% of the Series' net assets will be
invested in such obligations. See "How the Fund Invests--Other Investments and
Policies."
Any dividends out of net taxable investment income, together with
distributions of net short-term gains (I.E., the excess of net short-term
capital gains over net long-term capital losses) distributed to shareholders,
will be taxable as ordinary income to the shareholder whether or not reinvested.
Any net capital gains (I.E., the excess of net long-term capital gains over net
short-term capital losses) distributed to shareholders will be taxable as
long-term capital gains to the shareholders, whether or not reinvested and
regardless of the length of time a shareholder has owned his or her shares. The
maximum long-term capital gains rate for individuals currently is 28%. The
maximum long-term capital gains rate for corporate shareholders is currently the
same as the maximum tax rate for ordinary income.
20
Any gain or loss realized upon a sale, exchange or redemption of the Series'
shares by a shareholder who is not a dealer in securities will be treated as
long-term capital gain or loss if the shares have been held more than one year
and otherwise as short-term capital gain or loss. Any loss, however, with
respect to the sale, exchange or redemption of shares that are held for six
months or less will be disallowed to the extent of any exempt interest dividends
received by the shareholder with respect to such shares, and otherwise will be
treated as long-term capital loss to the extent of any capital gain
distributions received by the shareholder with respect to such shares.
Any loss realized on a sale, redemption or exchange of shares of the Series by
a shareholder will be disallowed to the extent the shares are replaced within a
61-day period (beginning 30 days before the disposition of shares). Shares
purchased pursuant to the reinvestment of a dividend will constitute a
replacement of shares.
A shareholder who acquires shares of the Series and sells or otherwise
disposes of such shares within 90 days of acquisition may not be allowed to
include certain sales charges incurred in acquiring such shares for purposes of
calculating gain or loss realized upon a sale or exchange of shares of the
Series.
CERTAIN INVESTORS MAY INCUR FEDERAL ALTERNATIVE MINIMUM TAX LIABILITY AS A
RESULT OF THEIR INVESTMENT IN THE SERIES. Tax-exempt interest from certain
municipal obligations (I.E., certain private activity bonds issued after August
7, 1986) will be treated as an item of tax preference for purposes of the
alternative minimum tax. The Series anticipates that, under regulations to be
promulgated, items of tax preference incurred by a Series which has invested in
such municipal obligations will be attributed to the Series' shareholders,
although some portion of such items could be allocated to the Series itself.
Depending upon each shareholder's individual circumstances, the attribution of
items of tax preference incurred by a Series could result in liability for the
shareholder for the alternative minimum tax. Similarly, the Series could be
liable for the alternative minimum tax for items of tax preference attributed to
it.
The Series intends to minimize its investment in municipal obligations of the
type that will produce items of tax preference.
Distributions relating to interest on all municipal obligations will be
included in a corporate shareholder's current earnings for purposes of the
adjustment for current earnings for alternative minimum tax purposes. Corporate
shareholders should consult with their tax advisers with respect to this
potential adjustment.
The Fund has obtained opinions of counsel to the effect that neither (i) the
conversion of Class B shares into Class A shares nor (ii) the exchange of any
class of the Fund's shares for any other class of its shares constitutes a
taxable event for federal income tax purposes. However, such opinions are not
binding on the Internal Revenue Service.
Shareholders are advised to consult their own tax advisers regarding specific
questions as to federal, state, local or foreign taxes. See "Taxes, Dividends
and Distributions" in the Statement of Additional Information.
WITHHOLDING TAXES
Under the Internal Revenue Code, the Series is required to withhold and remit
to the U.S. Treasury 31% of redemption proceeds on the accounts of those
shareholders who fail to furnish their tax identification numbers on IRS Form
W-9 (or IRS Form W-8 in the case of certain foreign shareholders) with the
required certifications regarding the shareholders' status under the federal
income tax law. Withholding generally is also required on taxable dividends and
capital gains distributions made by the Series.
Dividends of net investment income and distributions of net short-term capital
gains paid to a shareholder (including a shareholder acting as a nominee or
fiduciary) who is a nonresident alien individual, a foreign corporation or a
foreign partnership (foreign shareholder) are subject to a 30% (or lower treaty
rate) witholding tax upon the gross amount of the dividends unless the dividends
are effectively connected with a U.S. trade or business conducted by the foreign
shareholder. Capital gain dividends
21
paid to a foreign shareholder are generally not subject to withholding tax. A
foreign shareholder will, however, be required to pay U.S. income tax on any
dividends and capital gain distributions which are effectively connected with a
U.S. trade or business of the foreign shareholder.
DIVIDENDS AND DISTRIBUTIONS
THE SERIES EXPECTS TO DECLARE DAILY AND PAY MONTHLY DIVIDENDS OF NET
INVESTMENT INCOME, IF ANY, AND MAKE DISTRIBUTIONS AT LEAST ANNUALLY OF ANY NET
CAPITAL GAINS. Dividends paid by the Series with respect to each class of
shares, to the extent dividends are paid, will be calculated in the same manner,
at the same time, on the same day and will be in the same amount except that
each class (other than Class Z) will bear its own distribution charges,
generally resulting in lower dividends for Class B and Class C shares in
relation to Class A shares and lower dividends for Class A shares in relation to
Class Z shares. Distributions of net capital gains, if any, will be paid in the
same amount for each class of shares. See "How the Fund Values its Shares."
DIVIDENDS AND DISTRIBUTIONS WILL BE PAID IN ADDITIONAL SHARES OF THE SERIES
BASED ON THE NAV OF EACH CLASS ON THE PAYMENT DATE, OR SUCH OTHER DATE AS THE
TRUSTEES MAY DETERMINE, UNLESS THE SHAREHOLDER ELECTS IN WRITING NOT LESS THAN
FIVE BUSINESS DAYS PRIOR TO THE RECORD DATE TO RECEIVE SUCH DIVIDENDS AND
DISTRIBUTIONS IN CASH. Such election should be submitted to Prudential Mutual
Fund Services LLC, Attention: Account Maintenance, P.O. Box 15015, New
Brunswick, New Jersey 08906-5015. If you hold shares through Prudential
Securities, you should contact your financial adviser to elect to receive
dividends and distributions in cash. The Fund will notify each shareholder after
the close of the Fund's taxable year both of the dollar amount and the taxable
status of that year's dividends and distributions on a per share basis.
Any taxable dividends or distributions of net capital gains paid shortly after
a purchase by an investor will have the effect of reducing the per share net
asset value of the investor's shares by the per share amount of the dividends or
distributions. Such dividends or distributions, although in effect a return of
invested principal, are subject to federal income taxes. Accordingly, prior to
purchasing shares of the Series, an investor should carefully consider the
impact of taxable dividends and capital gains distributions which are expected
to be or have been announced.
GENERAL INFORMATION
DESCRIPTION OF SHARES
THE FUND IS AN OPEN-END, MANAGEMENT INVESTMENT COMPANY COMPRISED OF THREE
SERIES WHICH WAS ORGANIZED UNDER THE LAWS OF MASSACHUSETTS ON NOVEMBER 3, 1986
AS AN UNINCORPORATED BUSINESS TRUST, A FORM OF ORGANIZATION THAT IS COMMONLY
CALLED A MASSACHUSETTS BUSINESS TRUST. THE FUND IS AUTHORIZED TO ISSUE AN
UNLIMITED NUMBER OF SHARES, DIVIDED INTO FOUR CLASSES, DESIGNATED CLASS A, CLASS
B, CLASS C AND CLASS Z. Each class of shares represents an interest in the same
assets of each Series and is identical in all respects except that (i) each
class is subject to different sales charges and distribution and/or service fees
(except for Class Z shares, which are not subject to any sales charges or
distribution and/or service fees), which may affect performance, (ii) each class
has exclusive voting rights on any matter submitted to shareholders that relates
solely to its arrangement and has separate voting rights on any matter submitted
to shareholders in which the interests of one class differ from the interests of
any other class, (iii) each class has a different exchange privilege, (iv) only
Class B shares have a conversion feature and (v) Class Z shares are offered
exclusively to a limited group of investors. See "How the Fund is
Managed--Distributor." In accordance with the Fund's Declaration of Trust, the
Trustees may authorize the creation of additional series and classes of shares
within such series, with such preferences, privileges, limitations and voting
and dividend rights as the Trustees may determine.
22
Shares of the Series, when issued, are fully paid, nonassessable, fully
transferable and redeemable at the option of the holder. Shares are also
redeemable at the option of the Series under certain circumstances as described
under "Shareholder Guide-- How to Sell Your Shares." Each share of each class of
each Series is equal as to earnings, assets and voting privileges, except as
noted above, and each class of shares (with the exception of Class Z shares,
which are not subject to any distribution or service fees) bears the expenses
related to the distribution of its shares. Except for the conversion feature
applicable to the Class B shares, there are no conversion, preemptive or other
subscription rights. In the event of liquidation, each share of beneficial
interest in the Series is entitled to its portion of all of the Series' assets
after all debt and expenses of the Series have been paid. Since Class B and
Class C shares generally bear higher distribution expenses than Class A shares,
the liquidation proceeds to shareholders of those classes are likely to be lower
than to Class A shareholders and to Class Z shareholders, whose shares are not
subject to any distribution and/or service fees. The Series' shares do not have
cumulative voting rights for the election of Trustees.
THE FUND DOES NOT INTEND TO HOLD ANNUAL MEETINGS OF SHAREHOLDERS UNLESS
OTHERWISE REQUIRED BY LAW. THE FUND WILL NOT BE REQUIRED TO HOLD MEETINGS OF
SHAREHOLDERS UNLESS, FOR EXAMPLE, THE ELECTION OF TRUSTEES IS REQUIRED TO BE
ACTED ON BY SHAREHOLDERS UNDER THE INVESTMENT COMPANY ACT. SHAREHOLDERS HAVE
CERTAIN RIGHTS, INCLUDING THE RIGHT TO CALL A MEETING UPON A VOTE OF 10% OF THE
FUND'S OUTSTANDING SHARES FOR THE PURPOSE OF VOTING ON THE REMOVAL OF ONE OR
MORE TRUSTEES OR TO TRANSACT ANY OTHER BUSINESS.
The Declaration of Trust and the By-Laws of the Fund are designed to make the
Fund similar in certain respects to a Massachusetts business corporation. The
principal distinction between a Massachusetts business corporation and a
Massachusetts business trust relates to shareholder liability. Under
Massachusetts law, shareholders of a business trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
Fund, which is not the case with a corporation. The Declaration of Trust of the
Fund provides that shareholders shall not be subject to any personal liability
for the acts or obligations of the Fund and that every written obligation,
contract, instrument or undertaking made by the Fund shall contain a provision
to the effect that the shareholders are not individually bound thereunder.
ADDITIONAL INFORMATION
This Prospectus, including the Statement of Additional Information which has
been incorporated by reference herein, does not contain all the information set
forth in the Registration Statement filed by the Fund with the SEC under the
Securities Act of 1933. Copies of the Registration Statement may be obtained at
a reasonable charge from the SEC or may be examined, without charge, at the
office of the SEC in Washington, D.C.
SHAREHOLDER GUIDE
HOW TO BUY SHARES OF THE FUND
YOU MAY PURCHASE SHARES OF THE SERIES THROUGH PRUDENTIAL SECURITIES, PRUSEC OR
DIRECTLY FROM THE FUND, THROUGH ITS TRANSFER AGENT, PRUDENTIAL MUTUAL FUND
SERVICES LLC (PMFS OR THE TRANSFER AGENT) ATTENTION: INVESTMENT SERVICES, P.O.
BOX 15020, NEW BRUNSWICK, NEW JERSEY 08906-5020. Participants in programs
sponsored by Prudential Retirement Services should contact their client
representative for more information about Class Z shares. The purchase price is
the NAV per share next determined following receipt of an order in proper forms
by the Transfer Agent or Prudential Securities plus a sales charge which, at
your option, may be imposed either (i) at the time of purchase (Class A shares)
or (ii) on a deferred basis (Class B or Class C shares). Class Z shares are
offered to a limited group of investors at net asset value without any sales
charge. Payment may be made by wire, check or through your brokerage account.
See "Alternative Purchase Plan" below. See also "How the Fund Values its
Shares."
23
An investment in the Series may not be appropriate for tax-exempt or
tax-deferred investors. Such investors should consult their own tax advisers.
The minimum initial investment is $1,000 for Class A and Class B shares and
$5,000 for Class C shares except that the minimum initial investment for Class C
shares may be waived from time to time. There is no minimum investment
requirement for Class Z shares. The minimum subsequent investment is $100 for
all classes, except for Class Z shares, for which there is no minimum. All
minimum investment requirements are waived for certain employee savings plans.
For purchases made through the Automatic Savings Accumulation Plan, the minimum
initial and subsequent investment is $50. See "Shareholder Services" below.
Application forms can be obtained from PMFS, Prudential Securities or Prusec
or a selected dealer (Class A only). If a share certificate is desired, it must
be requested in writing for each transaction. Certificates are issued only for
full shares. Shareholders who hold their shares through Prudential Securities
will not receive share certificates.
The Fund reserves the right to reject any purchase order (including an
exchange into the Series) or to suspend or modify the continuous offering of its
shares. See "How to Sell Your Shares" below.
Your dealer is responsible for forwarding payment promptly to the Fund. The
Distributor reserves the right to cancel any purchase order for which payment
has not been received by the third business day following the investment.
Transactions in Fund shares may be subject to postage and handling charges
imposed by your dealer.
PURCHASE BY WIRE. For an initial purchase of shares of the Series by wire, you
must first telephone PMFS at (800) 225-1852 (toll-free) to receive an account
number. The following information will be requested: your name, address, tax
identification number, class election, dividend distribution election, amount
being wired and wiring bank. Instructions should then be given by you to your
bank to transfer funds by wire to State Street Bank and Trust Company, Boston,
Massachusetts, Custody and Shareholder Services Division, Attention: Prudential
Municipal Bond Fund (Intermediate Series), specifying on the wire the account
number assigned by PMFS and your name and identifying the class in which you are
eligible to invest (Class A, Class B, Class C or Class Z shares).
If you arrange for receipt by State Street of Federal Funds prior to the
calculation of NAV (4:15 P.M., New York time), on a business day, you may
purchase shares of the Series as of that day. See "Net Asset Value" in the
Statement of Additional Information.
In making a subsequent purchase order by wire, you should wire State Street
directly and should be sure that the wire specifies Prudential Municipal Bond
Fund (Intermediate Series), Class A, Class B, Class C or Class Z shares and your
name and individual account number. It is not necessary to call PMFS to make
subsequent purchase orders utilizing Federal Funds. The minimum amount which may
be invested by wire is $1,000.
24
ALTERNATIVE PURCHASE PLAN
THE SERIES OFFERS THROUGH THIS PROSPECTUS FOUR CLASSES OF SHARES (CLASS A,
CLASS B, CLASS C AND CLASS Z SHARES) WHICH ALLOWS YOU TO CHOOSE THE MOST
BENEFICIAL SALES CHARGE STRUCTURE FOR YOUR INDIVIDUAL CIRCUMSTANCES, GIVEN THE
AMOUNT OF THE PURCHASE AND THE LENGTH OF TIME YOU EXPECT TO HOLD THE SHARES AND
OTHER RELEVANT CIRCUMSTANCES (ALTERNATIVE PURCHASE PLAN).
ANNUAL 12B-1 FEES
(AS A % OF AVERAGE
DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
-------------------------------------- ----------------------- --------------------------------------
CLASS A Maximum initial sales charge of 3% of .30 of 1% (Currently Initial sales charge waived or reduced
the public offering price being charged at a rate for certain purchases
of .10 of 1%)
CLASS B Maximum contingent deferred sales .50 of 1% Shares convert to Class A shares
charge or CDSC of 5% of the lesser of approximately seven years after
the amount invested or the redemption purchase
proceeds; declines to zero after six
years
CLASS C Maximum CDSC of 1% of the lesser of 1% (Currently being Shares do not convert to another class
the amount invested or the redemption charged at a rate of
proceeds on redemptions made within .75 of 1%)
one year of purchase
CLASS Z None None Sold to a limited group of investors
The four classes of shares represent an interest in the same portfolio of
investments of the Series and have the same rights, except that (i) each class
is subject to different sales charges and distribution and/or service fees (with
the exception of Class Z shares, which are not subject to any distribution or
service fees), which may affect performance, (ii) each class has exclusive
voting rights on any matter submitted to shareholders that relates solely to its
arrangement and has separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the interests of
any other class, and (iii) only Class B shares have a conversion feature. The
four classes also have separate exchange privileges. See "How to Exchange Your
Shares" below. The income attributable to each class and the dividends payable
on the shares of each class will be reduced by the amount of the distribution
fee (if any) of each class. Class B and Class C shares bear the expenses of a
higher distribution fee which will generally cause them to have higher expense
ratios and to pay lower dividends than the Class A and Class Z shares.
Financial advisers and other sales agents who sell shares of the Series will
receive different compensation for selling Class A, Class B, Class C and Class Z
shares and will generally receive more compensation initially for selling Class
A and Class B shares than for selling Class C or Class Z shares.
IN SELECTING A PURCHASE ALTERNATIVE, YOU SHOULD CONSIDER, AMONG OTHER THINGS,
(1) the length of time you expect to hold your investment, (2) the amount of any
applicable sales charge (whether imposed at the time of purchase or redemption)
and distribution-related fees, as noted above, (3) whether you qualify for any
reduction or waiver of any applicable sales charge, (4) the various exchange
privileges among the different classes of shares (see "How to Exchange Your
Shares" below) and (5) the fact that Class B shares automatically convert to
Class A shares approximately seven years after purchase (see "Conversion
Feature--Class B Shares" below).
25
The following is provided to assist you in determining which method of
purchase best suits your individual circumstances and is based on current fees
and expenses being charged to the Series:
If you intend to hold your investment in the Series for less than 5 years and
do not qualify for a reduced sales charge on Class A shares, since Class A
shares are subject to a maximum initial sales charge of 3% and Class B shares
are subject to a CDSC of 5% which declines to zero over a 6 year period, you
should consider purchasing Class C shares over either Class A or Class B shares.
If you intend to hold your investment for more than 5 years and do not qualify
for a reduced sales charge on Class A shares, since Class B shares convert to
Class A shares approximately 7 years after purchase and because all of your
money would be invested initially in the case of Class B shares, you should
consider purchasing Class B shares over either Class A or Class C shares.
If you qualify for a reduced sales charge on Class A shares, it may be more
advantageous for you to purchase Class A shares over either Class B or Class C
shares regardless of how long you intend to hold your investment. However,
unlike Class B and Class C shares, you would not have all of your money invested
initially because the sales charge on Class A shares is deducted at the time of
purchase.
If you do not qualify for a reduced sales charge on Class A shares and you
purchase Class C shares, you would have to hold your investment for more than 4
years in the case of Class C shares for the higher cumulative annual
distribution-related fee on those shares to exceed the initial sales charge plus
cumulative annual distribution-related fee on Class A shares. This does not take
into account the time value of money, which further reduces the impact of the
higher Class C distribution-related fee on the investment, fluctuations in net
asset value, the effect of the return on the investment over this period of time
or redemptions when the CDSC is applicable.
ALL PURCHASES OF $1 MILLION OR MORE, EITHER AS PART OF A SINGLE INVESTMENT OR
UNDER RIGHTS OF ACCUMULATION OR LETTERS OF INTENT, MUST BE FOR CLASS A SHARES
UNLESS THE PURCHASER IS ELIGIBLE TO PURCHASE CLASS Z SHARES. See "Reduction and
Waiver of Initial Sales Charges" and "Class Z Shares" below.
CLASS A SHARES
The offering price of Class A shares for investors choosing the initial sales
charge alternative is the next determined NAV plus a sales charge (expressed as
a percentage of the offering price and of the amount invested) as shown in the
following table:
SALES CHARGE AS SALES CHARGE AS DEALER CONCESSION
PERCENTAGE OF PERCENTAGE OF AS PERCENTAGE OF
AMOUNT OF PURCHASE OFFERING PRICE AMOUNT INVESTED OFFERING PRICE
- ------------------------- ---------------- ---------------- -------------------
Less than $99,999 3.00% 3.09% 3.00%
$100,000 to $249,999 2.50 2.56 2.50
$250,000 to $499,999 1.50 1.52 1.50
$500,000 to $999,999 1.00 1.01 1.00
$1,000,000 and above None None None
The Distributor may reallow the entire initial sales charge to dealers.
Selling dealers may be deemed to be underwriters, as that term is defined in the
Securities Act of 1933.
In connection with the sale of Class A shares at NAV (without payment of an
initial sales charge), the Manager, the Distributor or one of their affiliates
will pay dealers, financial advisers and other persons which distribute shares a
finders' fee based on a percentage of the net asset value of shares sold by such
persons.
REDUCTION AND WAIVER OF INITIAL SALES CHARGES. Reduced sales charges are
available through Rights of Accumulation and Letters of Intent. Shares of the
Fund and shares of other Prudential Mutual Funds (excluding money market funds
other than those
26
acquired pursuant to the exchange privilege) may be aggregated to determine the
applicable reduction. See "Purchase and Redemption of Fund Shares--Reduction and
Waiver of Initial Sales Charges--Class A Shares" in the Statement of Additional
Information.
OTHER WAIVERS. Class A shares may be purchased at NAV, through Prudential
Securities or the Transfer Agent, by the following persons: (a) officers and
current and former Directors/Trustees of the Prudential Mutual Funds (including
the Fund), (b) employees of Prudential Securities and PIFM and their
subsidiaries and members of the families of such persons who maintain an
"employee related" account at Prudential Securities or the Transfer Agent, (c)
employees of Subadvisers of the Prudential Mutual Funds provided that the
purchases at NAV are permitted by such person's employer, (d) Prudential
employees and special agents of Prudential and its subsidiaries and all persons
who have retired directly from active service with Prudential or one of its
subsidiaries, (e) registered representatives and employees of dealers who have
entered into a selected dealer agreement with Prudential Securities provided
that purchases at NAV are permitted by such person's employer and (f) investors
who have a business relationship with a financial adviser who joined Prudential
Securities from another investment firm, provided that (i) the purchase is made
within 180 days of the commencement of the financial adviser's employment at
Prudential Securities or within one year in the case of benefit plans, (ii) the
purchase is made with proceeds of a redemption of shares of any open-end
non-money market fund sponsored by the financial adviser's previous employer
(other than a fund which imposes a distribution or service fee of .25 of 1% or
less) and (iii) the financial adviser served as the client's broker on the
previous purchase.
You must notify the Transfer Agent either directly or through Prudential
Securities or Prusec that you are entitled to the reduction or waiver of the
sales charge. The reduction or waiver will be granted subject to confirmation of
your entitlement. No initial sales charges are imposed upon Class A shares
acquired upon the reinvestment of dividends and distributions. See "Purchase and
Redemption of Fund Shares--Reduction and Waiver of Initial Sales Charges--Class
A Shares" in the Statement of Additional Information.
CLASS B AND CLASS C SHARES
The offering price of Class B and Class C shares for investors choosing one of
the deferred sales charge alternatives is the NAV next determined following
receipt of an order by the Transfer Agent or Prudential Securities. Although
there is no sales charge imposed at the time of purchase, redemptions of Class B
and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares--Contingent Deferred Sales Charges." The Distributor will pay sales
commissions of up to 4% of the purchase price of Class B shares to dealers,
financial advisers and other persons who sell Class B shares at the time of sale
from its own resources. This facilitates the ability of the Fund to sell the
Class B shares without an initial sales charge being deducted at the time of
purchase. The Distributor anticipates that it will recoup its advancement of
sales commissions from the combination of the CDSC and the distribution fee. See
"Distributor." In connection with the sale of Class C shares, the Distributor
will pay dealers, financial advisers and other persons which distribute Class C
shares a sales commission of up to 1% of the purchase price at the time of the
sale.
CLASS Z SHARES
Class Z shares of the Series are available for purchase by the following
categories of investors:
(i) pension, profit-sharing or other employee benefit plans qualified under
Section 401 of the Internal Revenue Code, deferred compensation plans and
annuity plans under Sections 457 and 403(b)(7) of the Internal Revenue Code, and
non-qualified plans for which the Series is an available option (collectively,
Benefit Plans), provided that such Benefit Plans (in combination with other
plans sponsored by the same employer or group of related employers) have at
least $50 million in defined contribution assets; (ii) participants in any
fee-based program or trust program sponsored by Prudential Securities, The
Prudential Savings Bank, F.S.B. (or any affiliate) which includes mutual funds
as investment options and for which the Series is an available option; (iii)
certain participants in the MEDLEY Program (group variable annuity contracts)
sponsored by Prudential for whom Class Z
27
shares are an available investment option; (iv) Benefit Plans for which
Prudential Retirement Services serves as record keeper and, as of September 20,
1996, (a) were Class Z shareholders of the Prudential Mutual Funds, or (b)
executed a letter of intent to purchase Class Z shares of the Prudential Mutual
Funds; (v) current and former Directors/Trustees of the Prudential Mutual Funds
(including the Fund); and (vi) employees of Prudential and/or Prudential
Securities who participate in a Prudential-sponsored employee saving plan.
In connection with the sale of Class Z shares, the Manager, the Distributor or
one of their affiliates may pay dealers, financial advisers and other persons
which distribute shares a finders' fee based on a percentage of the net asset
value of shares sold by such persons.
HOW TO SELL YOUR SHARES
YOU CAN REDEEM YOUR SHARES OF THE SERIES AT ANY TIME FOR CASH AT THE NAV NEXT
DETERMINED AFTER THE REDEMPTION REQUEST IS RECEIVED IN PROPER FORM BY THE
TRANSFER AGENT OR PRUDENTIAL SECURITIES. SEE "HOW THE FUND VALUES ITS SHARES."
In certain cases, however, redemption proceeds will be reduced by the amount of
any applicable contingent deferred sales charge, as described below. See
"Contingent Deferred Sales Charges" below.
IF YOU HOLD SHARES OF THE SERIES THROUGH PRUDENTIAL SECURITIES, YOU MUST
REDEEM YOUR SHARES THROUGH PRUDENTIAL SECURITIES. PLEASE CONTACT YOUR PRUDENTIAL
SECURITIES FINANCIAL ADVISER. IF YOU HOLD SHARES IN NON-CERTIFICATE FORM, A
WRITTEN REQUEST FOR REDEMPTION SIGNED BY YOU EXACTLY AS THE ACCOUNT IS
REGISTERED IS REQUIRED. IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN
THE NAME(S) SHOWN ON THE FACE OF THE CERTIFICATES, MUST BE RECEIVED BY THE
TRANSFER AGENT IN ORDER FOR THE REDEMPTION REQUEST TO BE PROCESSED. IF
REDEMPTION IS REQUESTED BY A CORPORATION, PARTNERSHIP, TRUST OR FIDUCIARY,
WRITTEN EVIDENCE OF AUTHORITY ACCEPTABLE TO THE TRANSFER AGENT MUST BE SUBMITTED
BEFORE SUCH REQUEST WILL BE ACCEPTED. All correspondence and documents
concerning redemptions should be sent to the Fund in care of its Transfer Agent,
Prudential Mutual Fund Services LLC, Attention: Redemption Services, P.O. Box
15010, New Brunswick, New Jersey 08906-5010.
If the proceeds of the redemption (a) exceed $50,000, (b) are to be paid to a
person other than the record owner, (c) are to be sent to an address other than
the address on the Transfer Agent's records, or (d) are to be paid to a
corporation, partnership, trust or fiduciary, the signature(s) on the redemption
request and on the certificates, if any, or stock power must be guaranteed by an
"eligible guarantor institution." An "eligible guarantor institution" includes
any bank, broker, dealer or credit union. The Transfer Agent reserves the right
to request additional information from, and make reasonable inquiries of, any
eligible guarantor institution. For clients of Prusec, a signature guarantee may
be obtained from the agency or office manager of most Prudential Insurance and
Financial Services or Preferred Services offices.
PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE MADE BY CHECK WITHIN SEVEN
DAYS AFTER RECEIPT BY THE TRANSFER AGENT OF THE CERTIFICATE AND/OR WRITTEN
REQUEST, EXCEPT AS INDICATED BELOW. IF YOU HOLD SHARES THROUGH PRUDENTIAL
SECURITIES, PAYMENT FOR SHARES PRESENTED FOR REDEMPTION WILL BE CREDITED TO YOUR
PRUDENTIAL SECURITIES ACCOUNT, UNLESS YOU INDICATE OTHERWISE. Such payment may
be postponed or the right of redemption suspended at times (a) when the New York
Stock Exchange is closed for other than customary weekends and holidays, (b)
when trading on such Exchange is restricted, (c) when an emergency exists as a
result of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or (d) during any other period when the SEC, by
order, so permits, provided that applicable rules and regulations of the SEC
shall govern as to whether the conditions prescribed in (b), (c) or (d) exist.
PAYMENT FOR REDEMPTION OF RECENTLY PURCHASED SHARES WILL BE DELAYED UNTIL THE
FUND OR ITS TRANSFER AGENT HAS BEEN ADVISED THAT THE PURCHASE CHECK HAS BEEN
HONORED, UP TO 10 CALENDAR DAYS FROM THE TIME OF RECEIPT OF THE PURCHASE CHECK
BY THE TRANSFER AGENT. SUCH DELAY MAY BE AVOIDED BY PURCHASING SHARES BY WIRE OR
BY CERTIFIED OR CASHIER'S CHECK.
28
REDEMPTION IN KIND. If the Trustees determine that it would be detrimental to
the best interests of the remaining shareholders of the Series to make payment
wholly or partly in cash, the Fund may pay the redemption price in whole or in
part by a distribution in kind of securities from the investment portfolio of
the Series, in lieu of cash, in conformity with applicable rules of the SEC.
Securities will be readily marketable and will be valued in the same manner as a
regular redemption. See "How the Fund Values its Shares." If your shares are
redeemed in kind, you would incur transaction costs in converting the assets
into cash. The Fund, however, has elected to be governed by Rule 18f-1 under the
Investment Company Act, under which the Fund is obligated to redeem shares
solely in cash up to the lesser of $250,000 or 1% of the net asset value of the
Series during any 90-day period for any one shareholder.
INVOLUNTARY REDEMPTION. In order to reduce expenses of the Fund, the Trustees
may redeem all of the shares of any shareholder, other than a shareholder which
is an IRA or other tax-deferred retirement plan, whose account has a net asset
value of less than $500 due to a redemption. The Fund will give such
shareholders 60 days' prior written notice in which to purchase sufficient
additional shares to avoid such redemption. No contingent deferred sales charge
will be imposed on any such involuntary redemption.
90-DAY REPURCHASE PRIVILEGE. If you redeem your shares and have not previously
exercised the repurchase privilege, you may reinvest any portion or all of the
proceeds of such redemption in shares of the Series at the NAV next determined
after the order is received, which must be within 90 days after the date of the
redemption. Any CDSC paid in connection with such redemption will be credited
(in shares) to your account. If less than a full repurchase is made, the credit
will be on a PRO RATA basis. You must notify the Fund's Transfer Agent, either
directly or through Prudential Securities, at the time the repurchase privilege
is exercised to adjust your account for the CDSC you previously paid.
Thereafter, any redemptions will be subject to the CDSC applicable at the time
of the redemption. See "Contingent Deferred Sales Charges" below. Exercise of
the repurchase privilege may affect the federal tax treatment of any gain or
loss realized upon redemption. See "Taxes, Dividends and Distributions" in the
Statement of Additional Information.
CONTINGENT DEFERRED SALES CHARGES
Redemptions of Class B shares will be subject to a contingent deferred sales
charge or CDSC declining from 5% to zero over a six-year period. Class C shares
redeemed within one year of purchase will be subject to a 1% CDSC. The CDSC will
be deducted from the redemption proceeds and reduce the amount paid to you. The
CDSC will be imposed on any redemption by you which reduces the current value of
your Class B or Class C shares of the Series to an amount which is lower than
the amount of all payments by you for shares of the Series during the preceding
six years, in the case of Class B shares, and one year, in the case of Class C
shares. A CDSC will be applied on the lesser of the original purchase price or
the current value of the shares being redeemed. Increases in the value of your
shares or shares acquired through reinvestment of dividends or distributions are
not subject to a CDSC. The amount of any contingent deferred sales charge will
be paid to and retained by the Distributor. See "How the Fund is
Managed--Distributor" and "Waiver of the Contingent Deferred Sales
Charges--Class B Shares" below.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of shares until the time of redemption
of such shares. Solely for purposes of determining the number of years from the
time of any payment for the purchase of shares, all payments during a month will
be aggregated and deemed to have been made on the last day of the month. The
CDSC will be calculated from the first day of the month after the initial
purchase, excluding the time shares were held in a money market fund. See "How
to Exchange Your Shares" below.
29
The following table sets forth the rates of the CDSC applicable to redemptions
of Class B shares:
CONTINGENT DEFERRED SALES
CHARGE AS A PERCENTAGE
YEAR SINCE PURCHASE OF DOLLARS INVESTED OR
PAYMENT MADE REDEMPTION PROCEEDS
------------------------------- -------------------------
First.......................... 5.0%
Second......................... 4.0%
Third.......................... 3.0%
Fourth......................... 2.0%
Fifth.......................... 1.0%
Sixth.......................... 1.0%
Seventh........................ None
In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results in the lowest possible rate. It will be
assumed that the redemption is made first of amounts representing shares
acquired pursuant to the reinvestment of dividends and distributions; then of
amounts representing the increase in net asset value above the total amount of
payments for the purchase of Series shares made during the preceding six years
(five years for Class B shares purchased prior to January 22, 1990); then of
amounts representing the cost of shares held beyond the applicable CDSC period;
and finally, of amounts representing the cost of shares held for the longest
period of time within the applicable CDSC period.
For example, assume you purchased 100 Class B shares at $10 per share for a
cost of $1,000. Subsequently, you acquired 5 additional Class B shares through
dividend reinvestment. During the second year after the purchase you decided to
redeem $500 of your investment. Assuming at the time of the redemption the net
asset value had appreciated to $12 per share, the value of your Class B shares
would be $1,260 (105 shares at $12 per share). The CDSC would not be applied to
the value of the reinvested dividend shares and the amount which represents
appreciation ($260). Therefore, $240 of the $500 redemption proceeds ($500 minus
$260) would be charged at a rate of 4% (the applicable rate in the second year
after purchase) for a total CDSC of $9.60.
For federal income tax purposes, the amount of the CDSC will reduce the gain
or increase the loss, as the case may be, on the amount recognized on the
redemption of shares.
WAIVER OF THE CONTINGENT DEFERRED SALES CHARGES--CLASS B SHARES. The CDSC will
be waived in the case of a redemption following the death or disability of a
shareholder or, in the case of a trust account, following the death or
disability of the grantor. The waiver is available for total or partial
redemptions of shares owned by a person, either individually or in joint tenancy
(with rights of survivorship), or a trust at the time of death or initial
determination of disability, provided that the shares were purchased prior to
death or disability. In addition, the CDSC will be waived on redemptions of
shares held by a Trustee of the Fund.
You must notify the Transfer Agent either directly or through Prudential
Securities or Prusec, at the time of redemption, that you are entitled to waiver
of the CDSC and provide the Transfer Agent with such supporting documentation as
it may deem appropriate. The waiver will be granted subject to confirmation of
your entitlement. See "Purchase and Redemption of Fund Shares--Waiver of the
Contingent Deferred Sales Charge--Class B Shares" in the Statement of Additional
Information.
A quantity discount may apply to redemptions of Class B shares purchased prior
to August 1, 1994. See "Purchase and Redemption of Fund Shares--Quantity
Discount--Class B Shares Purchased Prior to August 1, 1994" in the Statement of
Additional Information.
30
SYSTEMATIC WITHDRAWAL PLAN. The CDSC will be waived (or reduced) on certain
redemptions from a Systematic Withdrawal Plan. On an annual basis, up to 12% of
the total dollar amount subject to the CDSC may be redeemed without charge. The
Transfer Agent will calculate the total amount available for this waiver
annually, on the earlier of March 1, 1997 or the anniversary date of your
purchase. The CDSC will be waived (or reduced) on redemptions until this
threshold 12% amount is reached.
CONVERSION FEATURE--CLASS B SHARES
Class B shares will automatically convert to Class A shares on a quarterly
basis approximately seven years after purchase. Conversions will be effected at
relative net asset value without the imposition of any additional sales charge.
The first conversion of Class B shares occurred in February 1995, when the
conversion feature was first implemented.
Since the Fund tracks amounts paid rather than the number of shares bought on
each purchase of Class B shares, the number of Class B shares eligible to
convert to Class A shares (excluding shares acquired through the automatic
reinvestment of dividends and other distributions) (the Eligible Shares) will be
determined on each conversion date in accordance with the following formula: (i)
the ratio of (a) the amounts paid for Class B shares purchased at least seven
years prior to the conversion date to (b) the total amount paid for all Class B
shares purchased and then held in your account (ii) multiplied by the total
number of Class B shares purchased and then held in your account. Each time any
Eligible Shares in your account convert to Class A shares, all shares or amounts
representing Class B shares then in your account that were acquired through the
automatic reinvestment of dividends and other distributions will convert to
Class A shares.
For purposes of determining the number of Eligible Shares, if the Class B
shares in your account on any conversion date are the result of multiple
purchases at different net asset values per share, the number of Eligible Shares
calculated as described above will generally be either more or less than the
number of shares actually purchased approximately seven years before such
conversion date. For example, if 100 shares were initially purchased at $10 per
share (for a total of $1,000) and a second purchase of 100 shares was
subsequently made at $11 per share (for a total of $1,100), 95.24 shares would
convert approximately seven years from the initial purchase (I.E., $1,000
divided by $2,100 (47.62%), multiplied by 200 shares equals 95.24 shares). The
Manager reserves the right to modify the formula for determining the number of
Eligible Shares in the future as it deems appropriate on notice to shareholders.
Since annual distribution-related fees are lower for Class A shares than Class
B shares, the per share net asset value of the Class A shares may be higher than
that of the Class B shares at the time of conversion. Thus, although the
aggregate dollar value will be the same, you may receive fewer Class A shares
than Class B shares converted. See "How the Fund Values its Shares."
For purposes of calculating the applicable holding period for conversions, all
payments for Class B shares during a month will be deemed to have been made on
the last day of the month, or for Class B shares acquired through exchange, or a
series of exchanges, on the last day of the month in which the original payment
for purchases of such Class B shares was made. For Class B shares previously
exchanged for shares of a money market fund, the time period during which such
shares were held in the money market fund will be excluded. For example, Class B
shares held in a money market fund for one year will not convert to Class A
shares until approximately eight years from purchase. For purposes of measuring
the time period during which shares are held in a money market fund, exchanges
will be deemed to have been made on the last day of the month. Class B shares
acquired through exchange will convert to Class A shares after expiration of the
conversion period applicable to the original purchase of such shares.
The conversion feature may be subject to the continuing availability of
opinions of counsel or rulings of the Internal Revenue Service (i) that the
dividends and other distributions paid on Class A, Class B, Class C and Class Z
shares will not constitute "preferential dividends" under the Internal Revenue
Code and (ii) that the conversion of shares does not constitute a taxable event.
The conversion of Class B shares into Class A shares may be suspended if such
opinions or rulings are no longer available. If conversions are suspended, Class
B shares of the Series will continue to be subject, possibly indefinitely, to
their higher annual distribution and service fee.
31
HOW TO EXCHANGE YOUR SHARES
AS A SHAREHOLDER OF THE SERIES, YOU HAVE AN EXCHANGE PRIVILEGE WITH THE OTHER
SERIES OF THE FUND AND CERTAIN OTHER PRUDENTIAL MUTUAL FUNDS (THE EXCHANGE
PRIVILEGE), INCLUDING ONE OR MORE SPECIFIED MONEY MARKET FUNDS, SUBJECT TO THE
MINIMUM INVESTMENT REQUIREMENTS OF SUCH FUNDS. CLASS A, CLASS B, CLASS C AND
CLASS Z SHARES MAY BE EXCHANGED FOR CLASS A, CLASS B, CLASS C AND CLASS Z
SHARES, RESPECTIVELY, OF THE OTHER SERIES OF THE FUND AND OF ANOTHER FUND ON THE
BASIS OF THE RELATIVE NAV. No sales charge will be imposed at the time of the
exchange. Any applicable CDSC payable upon the redemption of shares exchanged
will be calculated from the first day of the month after the initial purchase,
excluding the time shares were held in a money market fund. Class B and Class C
shares may not be exchanged into money market funds other than Prudential
Special Money Market Fund, Inc. For purposes of calculating the holding period
applicable to the Class B conversion feature, the time period during which Class
B shares were held in a money market fund will be excluded. See "Conversion
Feature--Class B Shares" above. An exchange will be treated as a redemption and
purchase for tax purposes. See "Shareholder Investment Account--Exchange
Privilege" in the Statement of Additional Information.
IN ORDER TO EXCHANGE SHARES BY TELEPHONE, YOU MUST AUTHORIZE TELEPHONE
EXCHANGES ON YOUR INITIAL APPLICATION FORM OR BY WRITTEN NOTICE TO THE TRANSFER
AGENT AND HOLD SHARES IN NON-CERTIFICATE FORM. Thereafter, you may call the Fund
at (800) 225-1852 to execute a telephone exchange of shares, weekdays, except
holidays, between the hours of 8:00 A.M. and 6:00 P.M., New York time. For your
protection and to prevent fraudulent exchanges, your telephone call will be
recorded and you will be asked to provide your personal identification number. A
written confirmation of the exchange transaction will be sent to you. NEITHER
THE FUND NOR ITS AGENTS WILL BE LIABLE FOR ANY LOSS, LIABILITY OR COST WHICH
RESULTS FROM ACTING UPON INSTRUCTIONS REASONABLY BELIEVED TO BE GENUINE UNDER
THE FOREGOING PROCEDURES. All exchanges will be made on the basis of the
relative NAV of the two funds or two Series next determined after the request is
received in good order. The Exchange Privilege is available only in states where
the exchange may legally be made.
IF YOU HOLD SHARES THROUGH PRUDENTIAL SECURITIES, YOU MUST EXCHANGE YOUR
SHARES BY CONTACTING YOUR PRUDENTIAL SECURITIES FINANCIAL ADVISER.
IF YOU HOLD CERTIFICATES, THE CERTIFICATES, SIGNED IN THE NAME(S) SHOWN ON THE
FACE OF THE CERTIFICATES, MUST BE RETURNED IN ORDER FOR THE SHARES TO BE
EXCHANGED. SEE "HOW TO SELL YOUR SHARES" ABOVE.
You may also exchange shares by mail by writing to Prudential Mutual Fund
Services LLC, Attention: Exchange Processing, P.O. Box 15010, New Brunswick, New
Jersey 08906-5010.
IN PERIODS OF SEVERE MARKET OR ECONOMIC CONDITIONS THE TELEPHONE EXCHANGE OF
SHARES MAY BE DIFFICULT TO IMPLEMENT AND YOU SHOULD MAKE EXCHANGES BY MAIL BY
WRITING TO PRUDENTIAL MUTUAL FUND SERVICES LLC AT THE ADDRESS NOTED ABOVE.
SPECIAL EXCHANGE PRIVILEGES. A special exchange privilege is available for
shareholders who qualify to purchase Class A shares at NAV (see "Alternative
Purchase Plan--Class A Shares--Reduction and Waiver of Initial Sales Charges"
above) and for shareholders who qualify to purchase Class Z shares (see
"Alternative Purchase Plan--Class Z Shares" above). Under this exchange
privilege, amounts representing any Class B and Class C shares (which are not
subject to a CDSC) held in such a shareholder's account will be automatically
exchanged for Class A shares for shareholders who qualify to purchase Class A
shares at NAV, on a quarterly basis, unless the shareholder elects otherwise.
Similarly, shareholders who qualify to purchase Class Z shares will have their
Class B and Class C shares which are not subject to a CDSC and their Class A
shares exchanged for Class Z shares on a quarterly basis. Eligibility for this
exchange privilege will be calculated on the business day prior to the date of
the exchange. Amounts representing Class B or Class C shares which are not
subject to a CDSC include the following: (1) amounts representing Class B or
Class C shares acquired pursuant to the automatic reinvestment of dividends and
distributions, (2) amounts representing the increase in the net asset value
above the total amount of payments for the purchase of Class B or
32
Class C shares and (3) amounts representing Class B or Class C shares held
beyond the applicable CDSC period. Class B and Class C shareholders must notify
the Transfer Agent either directly or through Prudential Securities or Prusec
that they are eligible for this special exchange privilege.
Participants in any fee-based program for which the Series is an available
option will have their Class A shares, if any, exchanged for Class Z shares when
they elect to have those assets become a part of the fee-based program. Upon
leaving the program (whether voluntarily or not), such Class Z shares (and, to
the extent provided for in the program, Class Z shares acquired through
participation in the program) will be exchanged for Class A shares at net asset
value. Similarly, participants in PSI's 401(k) Plan for which the Series' Class
Z shares is an available option and who wish to transfer their Class Z shares
out of the PSI 401(k) Plan following separation from service (I.E., voluntary or
involuntary termination of employment or retirement) will have their Class Z
shares exchanged for Class A shares at NAV.
The Fund reserves the right to reject any exchange order including exchanges
(and market timing transactions) which are of the size and/or frequency engaged
in by one or more accounts acting in concert or otherwise, that have or may have
an adverse effect on the ability of the Subadviser to manage the portfolio. The
determination that such exchanges or activity may have an adverse effect and the
determination to reject any exchange order shall be in the discretion of the
Manager and the Subadviser.
The Exchange Privilege is not a right and may be suspended, modified or
terminated on 60 days' notice to shareholders.
SHAREHOLDER SERVICES
In addition to the Exchange Privilege, as a shareholder of the Fund, you can
take advantage of the following services and privileges:
-AUTOMATIC REINVESTMENTS OF DIVIDENDS AND/OR DISTRIBUTIONS WITHOUT A SALES
CHARGE. For your convenience, all dividends and distributions are automatically
reinvested in full and fractional shares of the Series at NAV without a sales
charge. You may direct the Transfer Agent in writing not less than 5 full
business days prior to the record date to have subsequent dividends and/or
distributions sent in cash rather than reinvested. If you hold shares through
Prudential Securities, you should contact your financial adviser.
-AUTOMATIC SAVINGS ACCUMULATION PLAN (ASAP). Under ASAP, you may make regular
purchases of the Series' shares in amounts as little as $50 via an automatic
debit to a bank account or Prudential Securities account (including a Command
Account). For additional information about this service, you may contact your
Prudential Securities financial adviser, Prusec representative or the Transfer
Agent directly.
-SYSTEMATIC WITHDRAWAL PLAN. A systematic withdrawal plan is available to
shareholders which provides for monthly or quarterly checks. Withdrawals of
Class B and Class C shares may be subject to a CDSC. See "How to Sell Your
Shares-- Contingent Deferred Sales Charges" above.
-REPORTS TO SHAREHOLDERS. The Fund will send you annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses, the Fund will provide one annual and semi-annual shareholder report
and annual prospectus per household. You may request additional copies of such
reports by calling (800) 225-1852 or by writing to the Fund at Gateway Center
Three, Newark, New Jersey 07102. In addition, monthly unaudited financial data
is available upon request from the Fund.
-SHAREHOLDER INQUIRIES. Inquiries should be addressed to the Fund at Gateway
Center Three, Newark, New Jersey 07102, or by telephone, at (800) 225-1852
(toll-free) or, from outside the U.S.A., at (908) 417-7555 (collect).
For additional information regarding the services and privileges described
above, see "Shareholder Investment Account" in the Statement of Additional
Information.
33
(THIS PAGE INTENTIONALLY LEFT BLANK)
THE PRUDENTIAL MUTUAL FUND FAMILY
Prudential Investments Fund Management offers a broad range of mutual funds
designed to meet your individual needs. We welcome you to review the investment
options available through our family of funds. For more information on the
Prudential Mutual Funds, including charges and expenses, contact your Prudential
Securities financial adviser or Prusec representative or telephone the Funds at
(800) 225-1852 for a free prospectus. Read the prospectus carefully before you
invest or send money.
TAXABLE BOND FUNDS
-------------------------
Prudential Diversified Bond Fund, Inc.
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Mortgage Income Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
The BlackRock Government Income Trust
TAX-EXEMPT BOND FUNDS
-----------------------------
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Intermediate Series
Prudential Municipal Series Fund
Florida Series
Maryland Series
Massachusetts Series
Michigan Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
GLOBAL FUNDS
---------------------
Prudential Europe Growth Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Limited Maturity Fund, Inc.
Limited Maturity Portfolio
Prudential Intermediate Global Income Fund, Inc.
Prudential Natural Resources Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Global Series
International Stock Series
The Global Government Plus Fund, Inc.
The Global Total Return Fund, Inc.
Global Utility Fund, Inc.
EQUITY FUNDS
-------------------
Prudential Allocation Fund
Balanced Portfolio
Strategy Portfolio
Prudential Distressed Securities Fund, Inc.
Prudential Dryden Fund
Prudential Active Balance Fund
Prudential Stock Index Fund
Prudential Emerging Growth Fund
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Jennison Series Fund, Inc.
Prudential Jennison Growth Fund
Prudential Jennison Growth & Income Fund
Prudential Multi-Sector Fund, Inc.
Prudential Small Company Value Fund, Inc.
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
MONEY MARKET FUNDS
--------------------------
- -TAXABLE MONEY MARKET FUNDS
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund, Inc.
Money Market Series
Prudential MoneyMart Assets, Inc.
- -TAX-FREE MONEY MARKET FUNDS
Prudential Tax-Free Money Fund, Inc.
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
- -COMMAND FUNDS
Command Money Fund
Command Government Fund
Command Tax-Free Fund
- -INSTITUTIONAL MONEY MARKET FUNDS
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
Liquid Assets Series
A-1
No dealer, sales representative or any other person has been authorized to give
any information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained herein, and, if given or
made, such other information or representations must not be relied upon as
having been authorized by the Fund or the Distributor. This Prospectus does not
constitute an offer by the Fund or by the Distributor to sell or a solicitation
of any offer to buy any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make such offer in such jurisdiction.
-------------------------------------------
TABLE OF CONTENTS
PAGE
----
FUND HIGHLIGHTS...................................................... 2
What are the Series' Risk Factors and Special Characteristics?..... 2
FUND EXPENSES........................................................ 4
FINANCIAL HIGHLIGHTS................................................. 5
HOW THE FUND INVESTS................................................. 9
Investment Objectives and Policies................................. 9
Hedging Strategies................................................. 11
Other Investments and Policies..................................... 12
Investment Restrictions............................................ 15
HOW THE FUND IS MANAGED.............................................. 15
Manager............................................................ 15
Distributor........................................................ 16
Portfolio Transactions............................................. 18
Custodian and Transfer and Dividend Disbursing Agent............... 18
HOW THE FUND VALUES ITS SHARES....................................... 19
HOW THE FUND CALCULATES PERFORMANCE.................................. 19
TAXES, DIVIDENDS AND DISTRIBUTIONS................................... 20
GENERAL INFORMATION.................................................. 22
Description of Shares.............................................. 22
Additional Information............................................. 23
SHAREHOLDER GUIDE.................................................... 23
How to Buy Shares of the Fund...................................... 23
Alternative Purchase Plan.......................................... 25
How to Sell Your Shares............................................ 28
Conversion Feature--Class B Shares................................. 31
How to Exchange Your Shares........................................ 32
Shareholder Services............................................... 33
THE PRUDENTIAL MUTUAL FUND FAMILY.................................... A-1
------------------------------------------------
MF133A 4441470
CUSIP Nos.:
Class A: 74435L509; Class B: 74435L608
Class C: 74435L889 Class Z: 74435L855
PRUDENTIAL
MUNICIPAL BOND
FUND
- -------------------
[PROSPECTUS]
JULY 2, 1997
INTERMEDIATE SERIES
[LOGO]
PRUDENTIAL MUNICIPAL BOND FUND
(INTERMEDIATE SERIES)
Supplement Dated August 27, 1998
to Prospectus Dated July 1, 1998
The Trustees of Prudential Municipal Bond Fund (the Fund) have recently
approved a proposal to exchange the assets and liabilities of the
Intermediate Series (the Series) of the Fund for shares of Prudential
National Municipals Fund, Inc. (National Municipals Fund). Class A and Class
Z shares of the Series would be exchanged at relative net asset value for
Class A shares of National Municipals Fund and Class B and Class C shares of
the Series would be exchanged at relative net asset value for Class B and C
shares, respectively, of National Municipals Fund.
The transfer has been approved by the Trustees of the Fund and by the
Board of Directors of National Municipals Fund and is subject to approval by
the shareholders of the Series. It is anticipated that a proxy
statement/prospectus relating to the transaction will be mailed to the
Series' shareholders in late October 1998.
Under the terms of the proposal, shareholders of the Series would become
shareholders of National Municipals Fund. No shales charge would be imposed
on the proposed transfer. The Fund anticipates obtaining an opinion of its
counsel that the transaction would be a tax-free reorganization under the
Internal Revenue Code and therefore no gain or loss for Federal income tax
purposes would be recognized by shareholders of the Series.
EFFECTIVE IMMEDIATELY, THE FUND WILL NO LONGER ACCEPT ORDERS TO PURCHASE
OR EXCHANGE INTO SHARES OF THE SERIES, EXCEPT FOR PURCHASES BY CERTAIN
RETIREMENT AND EMPLOYEE PLANS (EXCLUDING IRA ACCOUNTS). Existing
shareholders may continue to acquire shares through dividend reinvestment.
The current exchange privilege of obtaining shares of other Prudential Mutual
Funds and the current redemption privilege will remain in effect until the
transaction is consummated.
National Municipals Funds' investment objective is to seek a high level
of current income exempt from federal income taxes.
PRUDENTIAL MUTUAL FUNDS
Supplement dated September 1, 1998
The following information should be added to the cover page of the
Prospectus.
AN INVESTMENT IN THE FUND IS NOT A DEPOSIT OF ANY BANK AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENT AGENCY.
The following information should be added under the heading "Shareholder
Guide--Shareholder Services".
SHAREHOLDER GUIDE
SHAREHOLDER SERVICES
THE PROTECTOR PROGRAM-OPTIONAL GROUP TERM LIFE INSURANCE. Prudential
makes available optional group term life insurance coverage to purchasers of
shares of certain Prudential Mutual Funds which are held in an eligible
brokerage account. This insurance protects the value of your mutual fund
investment for your beneficiaries against market downturns. The insurance
benefit is based on the difference at the time of the insured's death between
the "protected value" and the then current market value of the shares. This
coverage is not available in all states and is subject to various
restrictions and limitations. For more complete information about this
program, including charges and expenses, please contact your Prudential
representative.
Listed below are the names of the Prudential Mutual Funds and the dates
of the Prospectuses to which the supplement relates.
NAME OF FUND PROSPECTUS DATE
- ------------ ---------------
Cash Accumulation Trust
National Money Market Fund December 22, 1997
Liquid Assets Fund December 22, 1997
Global Utility Fund, Inc. December 2, 1997
Nicholas-Applegate Fund, Inc. March 4, 1998
Prudential 20/20 Focus Fund May 22, 1998
Prudential Balanced Fund November 25, 1997
Prudential California Municipal Fund October 30, 1997
Prudential Developing Markets Fund June 26, 1998
Prudential Distressed Securities Fund, Inc. January 29, 1998
Prudential Diversified Bond Fund, Inc. March 4, 1998
Prudential Index Series Fund January 23, 1998
Prudential Emerging Growth Fund, Inc. December 30, 1997
Prudential Equity Fund, Inc. February 27, 1998
Prudential Equity Income Fund December 30, 1997
Prudential Europe Growth Fund, Inc. July 1, 1998
Prudential Global Genesis Fund, Inc. July 31, 1998
Prudential Global Limited Maturity Fund, Inc. December 30, 1997
Prudential Government Income Fund, Inc. April 30, 1998
Prudential Government Securities Trust February 2, 1998
PRUDENTIAL MUTUAL FUNDS
Supplement dated October 21, 1998
NEW PRICING STRUCTURE FOR CLASS C SHARES
Effective on November 2, 1998, Class C shares of the Prudential Mutual
Funds will be sold with a 1% initial sales charge and will be subject to a
contingent deferred sales charge of 1% of the lesser of the amount invested
or the redemption proceeds if redeemed within 18 months of purchase. In
connection with the sale of Class C shares, the Distributor will pay dealers,
financial advisers and other persons who sell Class C shares a sales
commission of up to 2% of the purchase price at the time of sale.
Class C shares issued before November 2, 1998 will no be affected by the
new pricing structure described above and will continue to be subject to a
contingent deferred sales charge of 1% on redemptions within one year of
purchase.
WAIVER OF INITIAL SALES CHARGE - CLASS A SHARES
The paragraph under "Alternative Purchase Plan - Class A Shares -
Reduction and Waiver of Initial Sales Charges - Benefit Plans" is amended to
read in its entirety as follows:
BENEFIT PLANS. Class A shares may be purchased at NAV, without payment
of an initial shales charge, by pension, profit-sharing or other employee
benefit plans qualified under Section 401 of the Internal Revenue Code,
deferred compensation and annuity plans under Sections 457 and 403(b)(7) of
the Internal Revenue Code and non-qualified deferred compensation plans that
are sponsored by any employer that has a tax qualified benefit plan with
Prudential (collectively, Benefit Plans), provided that the Benefit Plan has
existing assets of at least $1 million invested in shares of Prudential
Mutual Funds (excluding money market funds other than those acquired pursuant
to the exchange privilege) or 250 eligible employees or participants. In the
case of Benefit Plans whose accounts are held directly with the Transfer
Agent or Prudential Securities and for which the Transfer Agent or Prudential
Securities does individual account recordkeeping (Direct Account Benefit
Plans) and Benefit Plans sponsored by Prudential, Prudential Securities or
its subsidiaries (Prudential Securities or Subsidiary Prototype Benefit
Plans), Class A shares may be purchased at NAV by participants who are
repaying loans made from such plans to the participant.
WAIVER OF INITIAL SALES CHARGE - CLASS C SHARES
BENEFIT PLANS. Class C shares may be purchased at NAV, without payment
of an initial sales charge, by Benefit Plans (as defined above). In the case
of Benefit Plans whose accounts are held directly with the Transfer Agent or
Prudential Securities and for which the Transfer Agent or Prudential
Securities does individual account recordkeeping (Direct Account Benefit
Plans) and Benefit Plans sponsored by Prudential, Prudential Securities or
its subsidiaries (Prudential Securities or Subsidiary Prototype Benefit
Plans), Class C shares may be purchased at NAV by participants who are
repaying the loans made from such plans to the participants.
PRUDENTIAL RETIREMENT PLANS. The initial sales charge will be waived
with respect to purchase of Class C shares by qualified and non-qualified
retirement and deferred compensation plans participating in the PruArray Plan
and other plans for which Prudential provides administrative or recordkeeping
services.
INVESTMENTS OF REDEMPTION PROCEEDS FROM OTHER INVESTMENT COMPANIES.
Investors may purchase Class C shares at NAV, without the initial sales
charge, with the proceeds from the redemption of shares of any unaffiliated
registered investment company which were not held through an account with any
Prudential affiliate. Such purchases must be made within 60 days of the
redemption. Investors eligible for this waiver
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Prudential Global Series (No Redemption) $31 $76 $124 $255
Prudential Latin America Equity Fund (Redemption) 48 94 154 315
Prudential Latin America Equity Fund (No Redemption) 38 94 154 315
Prudential Distressed Securities Fund, Inc. (Redemption) 40 72 117 240
Prudential Distressed Securities Fund, Inc. (No Redemption) 30 72 117 240
Prudential Diversified Bond Fund, Inc. (Redemption) 34 54 87 178
Prudential Diversified Bond Fund, Inc. (No Redemption) 24 54 87 178
Prudential Emerging Growth Fund, Inc. (Redemption) 42 78 127 262
Prudential Emerging Growth Fund, Inc. (No Redemption) 32 78 127 262
Prudential Equity Fund, Inc. (Redemption) 36 61 98 201
Prudential Equity Fund, Inc. (No Redemption) 26 61 98 201
Prudential Equity Income Fund (Redemption) 37 63 101 208
Prudential Equity Income Fund (No Redemption) 27 63 101 208
Prudential Europe Growth Fund. Inc. (Redemption) 41 76 124 255
Prudential Europe Growth Fund. Inc. (No Redemption) 31 76 124 255
Prudential Florida Series (Redemption) 34 54 87 178
Prudential Florida Series (No Redemption) 24 54 87 178
Prudential Global Genesis Fund, Inc. (Redemption) 46 91 148 303
Prudential Global Genesis Fund, Inc. (No Redemption) 36 91 148 303
Prudential Global Limited Maturity Portfolio (Redemption) 40 71 114 235
Prudential Global Limited Maturity Portfolio (No Redemption) 30 71 114 235
Prudential Government Income Fund, Inc. (Redemption) 35 56 89 183
Prudential Government Income Fund, Inc. (No Redemption) 25 56 89 183
Prudential High Yield Fund, Inc. (Redemption) 33 50 80 164
Prudential High Yield Fund, Inc. (No Redemption) 23 50 80 164
Prudential High Income Series (Redemption) 33 51 82 167
Prudential High Income Series (No Redemption) 23 51 82 167
Prudential High Yield Total Return Fund, Inc. (Redemption) 35 57 91 187
Prudential High Yield Total Return Fund, Inc. (No Redemption) 25 57 91 187
Prudential Insured Series (Redemption) 34 53 84 172
Prudential Insured Series (No Redemption) 24 53 84 172
Prudential Intermediate Global Income Fund, Inc. (Redemption) 40 72 117 241
Prudential Intermediate Global Income Fund, Inc. (No Redemption) 30 72 117 241
Prudential Intermediate Series (Redemption) 40 72 116 238
Prudential Intermediate Series (No Redemption) 30 72 116 238
Prudential International Bond Fund, Inc. (Redemption) 42 79 129 265
Prudential International Bond Fund, Inc. (No Redemption) 32 79 129 265
Prudential International Stock Series (Redemption) 45 87 142 291
Prudential International Stock Series (No Redemption) 35 87 142 291
Prudential Jennison Growth Fund (Redemption) 39 67 109 224
Prudential Jennison Growth Fund (No Redemption) 29 67 109 224
Prudential Jennison Growth & Income Fund (Redemption) 43 82 133 274
Prudential Jennison Growth & Income Fund (No Redemption) 43 82 133 274
SHAREHOLDER GUIDE
The following replaces information under "Shareholder Guide -- Alternative
Purchase Plan":
The following is provided to assist you in determining which method of
purchase best suits your individual circumstances and is based on current
fees and expenses being charged to the Funds.
EQUITY FUNDS
If you intend to hold your investment in a Fund for less than 4 years
and do not qualify for a reduced sales charge on class A shares, since Class
A shares are subject to an initial sales charge of 5% and Class B shares are
subject to a CDSC of 5% which declines to zero over a 6-year period, you
should consider purchasing Class C shares over either Class A or Class B
shares.
If you intend to hold your investment for longer than 4 years, but less
than 5 years, and do not qualify a reduced sales charge on Class A shares,
you should consider purchasing Class B or Class shares over Class A shares.
This is because the sales charge plus the cumulative annual
distribution-related fee on Class A shares would exceed those of the Class B
and Class C shares if you redeem your investment during this time period. In
addition, more of your money would be invested initially in the case of Class
C shares, because of the relatively low initial sales charge, and all of your
money would be invested initially in the case of Class B shares, which are
sold at NAV.
If you intend to hold your investment for longer than 5 years, you
should consider purchasing Class A shares over either Class B or C shares.
This is because the maximum sales charge plus the cumulative annual
distribution-related fee on Class A shares would be less than those of Class
B and C shares.
If you qualify for a reduced sales charge on Class A shares, it may be
more advantageous for you to purchase Class A shares over either Class B or
Class C shares regardless of how long you intend to hold your investment.
However, unlike Class B shares, you would not have all of your money invested
initially because the sales charge on Class A shares is deducted at the time
of purchase.
If you do not qualify for a reduced sales charge on Class A shares and
you purchase Class B or Class C Shares, you would have to hold your
investment for more than 6 years in the case of Class B shares and for more
than 5 years in the case of Class C shares for the higher cumulative annual
distribution-related fee on those shares plus, in the case of Class C shares,
the 1% initial sales charge to exceed the intitial sales charge plus the
cumulative annual distribution-related fees on Class A shares. This does not
take into account the fee value of money, which further reduces the impact of
the higher Class B or Class C distribution-related fee of the investment,
fluctuations in NAV, the effect of the return on the investment over this
period of time or exemptions when the CDSC is applicable.
TAX-EXEMPT BOND FUNDS
If you intend to hold your investment in a Fund for less than 3 years
and do not qualify for a reduced sales charge on Class A shares, since Class
A shares are subject to a maximum initial sales charge of 3% and Class B
shares are subject to a CDSC of 5% which declines to zero over a 6 year
period, you should consider purchasing Class C shares over either Class A or
Class B shares.
If you intend to hold your investment for more than 3 years, but less
than 4 years, or for more than 5 years, but less than 6 years, you should
consider purchasing Class A shares, because the maximum 3% initial sales
charge plus the cumulative annual distribution-related fee on Class A shares
would be lower than: (i) the contingent-deferred sales charge plus the
cumulative annual distribution-related fee on Class B shares; and (ii) the 3%
initial sales charge plus the cumulative annual distribution-related fee on
Class C shares.
value of money, which further reduces the impact of the higher Class B or
Class C distribution-related fee on the investment, fluctuation in NAV, the
effect of the return on the investment over this period of time or
redemptions when the CDSC is applicable.
GOVERNMENT INCOME FUND
If you intend to hold your investment in the Fund for less than 4 years
and do not qualify for a reduced sales charge on Class A shares, since Class
A shares are subject to a maximum initial sales charge of 4% and Class B
shares are subject to a CDSC of 5% which declines to zero over a 6 year
period, you should consider purchasing Class C shares over either Class A or
Class B shares.
If you intend to hold your investment for more than 4 years, but less
than 5 years, you may consider purchasing Class A shares or Class C share
because: (i) the maximum 4% initial sales charge plus the cumulative annual
distribution-related fee on Class A shares; and (ii) the maximum 1% initial
sales charge plus the cumulative annual distribution-related fee on Class C
shares would be lower than the contingent-deferred sales charge plus the
cumulative annual distribution-related fee on Class B shares.
If you intend to hold your investment for longer than 5 years, you
should consider purchasing Class A shares over either Class B or Class C
shares. This is because the maximum sales charge plus the cumulative annual
distribution-related fee on Class A shares would be less than those of the
Class B and Class C shares.
If you qualify for a reduced sales charge on Class A shares, it may be
more advantageous for you to purchase Class A shares over either Class B or
Class C shares regardless of how long you intend to hold your investment.
However, unlike Class B shares, you would not have all of your money invested
initially because be sales charge on Class A shares is deducted at the time
of purchase.
If you do not qualify for a reduced sales charge on Class A shares and
you purchase Class B or Class C shares, you would have to hold your
investment for more than 5 years for the higher cumulative annual
bisolution-related fee on those shares plus, in the case of Class C shares,
the 1% initial sales charge to exceed the initial sales charge plus
cumulative annual distribution-related fee on Class A shares. This does not
take into account the time value of money, which further reduces the impact
of the higher Class B or Class C distribution-related fee on the investment,
fluctuations in NAV, the effect of the return on the investment over this
period of time or redemptions when the CDSC is applicable.
STRUCTURED MATURITY FUND
If you intend to hold your investment in the Fund for less than 2 years
and do not qualify for a reduced sales charge on Class A shares, since Class
A shares are subject to a maximum initial sales charge of 3.25% and Class B
shares are subject to a CDSC of 3% which declines to zero over a 4 year
period, you should consider purchasing Class C shares over either Class A or
Class B shares.
If you intend to hold your investment for more than 2 years, but less
than 3 years, you may consider purchasing Class B or Class C shares because:
(i) the contingent-deferred shales load plus the cumulative annual
distribution-related fee on Class B shares: and (ii) the maximum 1% initial
sales charge plus the cumulative annual distribution-related fee on Class C
shares would be lower than the maximum 3.25% initial sales charge plus the
cumulative annual distribution-related fee on Class A shares. In addition,
more of your money would be invested initially in the case of Class C shares,
because of the relatively low initial sales charge, and all of your money
would be invested initially in the case of Class B shares, which are sold at
NAV.
If you intend to hold your investment for more than 3 years, but less
than 4 years, you may consider purchasing Class A shares because the maximum
3.25% initial sales charge plus the cumulative annual distribution-related
fee on Class A shares would be lower than: (i) the contingent-deferred sales
charge plus
would be less than the maximum 1% initial sales charge plus the cumulative
annual distribution-related fee on Class C shares.
If you intend to hold your investment for longer than 5 years, you
should consider purchasing Class A shares over either Class B or Class C
shares. This is because the maximum sales charge plus the cumulative annual
distribution-related fee on Class A shares would be less than the cumulative
annual distribution-related fee on Class B shares and less than the initial
sales charge plus the cumulative annual distribution-related fee on Class C
shares.
If you qualify for a reduced sales charge on Class A shares, it may be
more advantageous for you to purchase Class A shares over either Class B or
Class C shares regardless of how long you intend to hold you investment.
However, unlike Class B shares, you would not have all of your money invested
initially because the sales charge on Class A shares is deducted at the time
of purchase.
If you do not qualify for a reduced sales charge on Class A shares and
you purchase Class C shares, you would have to hold your investment for more
than 3 years for the higher cumulative annual distribution-related fee on the
Class C shares plus the 1% initial sales charge to exceed the initial sales
charge plus cumulative annual distribution-related fee on Class A shares.
This does not take into account the time value of money, which further
reduces the impact of the higher Class C distribution-related fee on the
investment, fluctuations in NAV, the effect of the return on the investment
over this period of time or redemptions when the CDSC is applicable.
NAME OF FUND PROSPECTUS DATE
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Prudential National Municipals Fund, Inc. March 4, 1998
Prudential Natural Resources Fund, Inc. July 31, 1998
Prudential Pacific Growth Fund, Inc. December 31, 1997
Prudential Real Estate Securities Fund March 20, 1998
Prudential Real Estate Securities Fund March 20, 1998 (Revised as of June 1, 1998)
Prudential Small-Cap Quantum Fund, Inc. June 26, 1998
Prudential Small Company Value Fund, Inc. December 2, 1997
Prudential Small Company Value Fund, Inc. December 2, 1997 (Revised as of October 14, 1998)
Prudential Structured Maturity Fund, Inc. March 4, 1998
Prudential Utility Fund, Inc. March 3, 1998
Prudential Utility Fund, Inc. March 3, 1998 (Revised as of June 1, 1998)
Prudential World Fund, Inc.
Global Series January 7, 1998
Global Series January 7, 1998 (Revised as of June 1, 1998)
International Stock Series January 7, 1998
International Stock Series January 7, 1998 (Revised as of June 1, 1998)
Prudential 20/20 Focus Fund May 22, 1998
Prudential 20/20 Focus Fund May 22, 1998 (Revised as of October 14, 1998)
The Global Total Return Fund, Inc. March 4, 1998
The Global Total Return Fund, Inc. March 4, 1998 (Revised as of June 1, 1998)
The Prudential Investment Portfolios, Inc.
Prudential Active Balanced Fund August 6, 1998
Prudential Jennison Growth Fund August 6, 1998
Prudential Jennison Growth & Income Fund August 6, 1998