Letter to Shareholders
----------------------
February 1, 1994
Dear Shareholder:
Municipal bond markets performed well last year in an economy
dominated by low interest rates and influenced by the prospects of
higher federal income taxes and health care reform. Investor demand
for tax-free income helped push down municipal bond yields throughout
most of the year to some of the lowest levels in over 15 years.
As a result, Municipal bond prices climbed and provided an attractive
total return for 1993.
<TABLE>
<CAPTION>
Fund Performance as of December 31, 1993
NAV 30-day Tax Equivalent 30 day Yield 12-mo. Total
12/31/93 12/31/92 SEC Yield @28% @31% @39.6% Return(1)
<S> <C> <C> <C> <C> <C> <C> <C>
Class A $16.30 $15.94 4.62% 6.42% 6.70% 7.68% 12.60%
Class B $16.33 $15.97 4.46% 6.19% 6.46% 7.38% 12.15%
</TABLE>
<TABLE>
Average Annual Total Returns through December 31, 1993(2)
<CAPTION>
One Year Five Year Ten Year Since Inception(3)
<S> <C> <C> <C> <C>
Class A 7.54% N/A N/A 9.17%
Class B 7.15% 9.11% 10.32% 9.87%
</TABLE>
(1) Source: Lipper Analytical Services, Inc. These figures do not take into
account applicable sales charges. The Fund charges a maximum sales load
of 4.50% for Class A shares. Class B shares are subject to a declining
contingent deferred sales charge of 5%, 4%, 3%, 2%, 1% and 1% respectively.
Past performance is not indicative of future results and an investor's
shares, when redeemed, may be worth more or less than their original value.
(2) Source: Prudential Mutual Fund Management. These figures take into
account applicable sales charges.
(3) Inception of Class A 1/22/90, Class B 4/25/80
The Economy and the Municipal Bond Market
During the first three quarters of 1993, the economy was
plodding through a sluggish and fitful recovery. Fourth quarter
statistics, however, began to converge toward more positive economic
progress, with GDP growth increasing considerably compared to the rest
of 1993.
Interest rate movements (including municipal bond yield fluctuations)
were a product of the economy's uncertainty, with choppy declines
through October. In general, bonds tend to react negatively to an
improving economy, since sustained growth can ultimately lead to higher
inflation. However, this recovery is unique because low inflation along
with the Federal Reserve's anti-inflation stance has helped keep bond
prices higher and yields down. Municipal yields (as measured by the
Bond Buyer Revenue Bond Index)
-1-<PAGE>
<PAGE>
declined from 6.4% as of December 31, 1992, to a low of 5.4% at the end
of October, and finished the year with only a modest increase to 5.5%.
The municipal bond market, which has many of the same characteristics
as other taxable fixed income markets, tends to be more influenced
by changes in supply and demand for its own securities. In 1993,
low interest rates continued to prompt high supply as municipalities
refinanced, or "refunded" older, higher coupon bonds. With new issue
supply reaching an all-time high of over $290 billion last year,
approximately 67% comprised refunding issues. Such an increase
in new issues would normally drive prices down (and yields up) in
order to attract buyers. Instead, the remarkable demand for
tax-free investments, which soared in the wake of the recently
enacted federal income tax increases, absorbed the record supply.
As a result, municipal bond prices have remained firm and yields
have stayed low.
(CREDIT QUALITY PIE CHART)
Balancing Fund Yield and Credit Quality
To maximize the Fund's income while maintaining relatively high
quality investments, we emphasized both Aaa rated and Baa rated bonds
as recognized by Moody's Investor Services. As the accompanying chart
shows, Aaa rated and Baa rated securities comprised 65.3% of the Fund.
The Aaa bonds add to the portfolio's credit quality and tend to follow
the direction of the market more closely. The Baa bonds were carefully
selected with extensive credit analysis and help to enhance your Fund's
yield.
Strengthening control over sectors and securities
We took several measures to reduce volatility and improve overall
return. During the year, we looked for revenue bonds, but avoided
airport and health care issues. The unforeseen risks associated with the
impending health care legislation affected this sector. We kept
holdings of housing issues to a minimum, with holdings of approximately
3% as of December 31, 1993, because these securities have a high
potential for being called when rates fall. We also tried to buy bonds
that were either non--callableor with at least 10 years of call
protection. At year end, about 24% of the portfolio was non-callable.
This gave us greater control over the portfolio, while minimizing the
probability of higher-coupon bonds being called away, especially
if they were hard to replace.
Two important selling strategies
We took advantage of pricing opportunities to sell "par" bonds (those
with market prices equivalent to face value and having equal-to-market
yields) and replace them with "discount" bonds (those selling below face
value with lower-than-market yields). Discount issues have more upside
potential in rising markets, with about the same downside price risk as
other bonds. By adding discount bonds to the Fund's portfolio we
balanced out the majority that were invested in more defensive,
higher-coupon premium-priced securities.
2
<PAGE>
<PAGE>
We also continue to sell refunded bonds before their call dates.
When a bond is prerefunded, the municipality invests the proceeds
of a new bond issue in U.S. Treasury securities until the older bond's
call date. For a limited time, the old issue rises in price because it
is backed by Treasuries, which are viewed as virtually free from credit
risk. Although we lose the higher yield when we sell these bonds we
avoid the substantial price decline that usually occurs when the bond
approaches its call date and price call.
Municipal market outlook
Many industry forecasters believe 1994 will be another good year
for municipal securities. Although tax-free yields have declined, they
remain at attractive levels. We expect that demand for tax-free income
is likely to rise, but not quite as strongly as in 1993. Some
redemptions may occur as individuals cover their unexpectedly large
1993 federal income tax liabilities. But even if demand falls slightly,
supply could drop by as much as one third this year. In addition, as
refunded issues mature, market supply could fall even further.
As always, it is a pleasure to have you as a shareholder of
Prudential National Municipals Fund and to take this opportunity to
report our activities to you.
Sincerely,
Lawrence C. McQuade
President
Patricia Dolan
Portfolio Manager
3
<PAGE>
<PAGE>
<TABLE>
PRUDENTIAL NATIONAL MUNICIPALS FUND Portfolio of Investments
December 31, 1993
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
LONG-TERM INVESTMENTS--98.0%
<C> <C> <S> <C>
Alabama--1.0%
Courtland Ind. Dev.
Brd. Rev.,
Champion Int'l.
Corp.,
Baa1 $ 6,000 7.20%, 12/1/13, Ser.
A................... $ 6,640,500
Univ. So. Alabama
Hosp. &
Auxiliary Rev.,
A.M.B.A.C.,
Aaa 2,000+ 7.00%, 5/15/04........ 2,306,480
------------
8,946,980
------------
Alaska--0.5%
Anchorage Gen. Oblig.,
A.M.B.A.C.,
Aaa 1,755+ 7.00%, 8/1/04......... 1,993,750
Aaa 2,075 7.00%, 8/1/06......... 2,357,283
------------
4,351,033
------------
Arizona--1.4%
Mesa Ind. Dev. Auth.,
Hlth. Care Facs.
Rev.,
Aaa 3,805 7.50%, 1/1/04,
B.I.G............... 4,378,794
Salt River Proj.,
Elec. Sys. Rev.,
Agricultural Imp. &
Pwr. Dist.,
Aa 4,580 4.75%, 1/1/17, Ser.
C................... 4,282,025
Univ. Arizona Med.
Ctr. Corp.,
Hosp. Rev.,
M.B.I.A.,
Aaa 3,750 5.00%, 7/1/21......... 3,598,575
------------
12,259,394
------------
California--4.0%
California St. Pub.
Wks. Brd.
Lease Rev., Dept. of
Corrections,
A.M.B.A.C.,
Aaa 6,500 5.25%, 12/1/13........ 6,563,765
Aaa 12,000 5.00%, 12/1/19........ 11,511,480
Univ. of California
Projs. Rev., Ser. A,
A1 6,125 5.50%, 6/1/10......... 6,224,225
A1 4,500 5.50%, 6/1/14......... 4,554,990
Sacramento Mun. Util.
Dist.,
Elec. Util.,
M.B.I.A.,
Aaa $ 5,000 6.375%, 8/15/22....... $ 5,471,500
------------
34,325,960
------------
Colorado--5.2%
Colorado Springs Arpt.
Rev.,
BBB* 3,700 6.90%, 1/1/12, Ser.
A................... 4,026,488
BBB* 7,960 7.00%, 1/1/22, Ser.
A................... 8,688,101
Denver City & Cnty.
Arpt. Rev.,
Baa1 9,500 7.25%, 11/15/12, Ser.
B................... 10,419,125
Baa1 3,750 7.75%, 11/15/13, Ser.
D................... 4,530,225
Baa1 10,750 7.75%, 11/15/21, Ser.
D................... 12,050,535
Baa1 5,000 7.25%, 11/15/25, Ser.
A................... 5,520,200
------------
45,234,674
------------
Delaware--0.6%
Wilmington, Gen.
Oblig.,
Aaa 5,500 5.00%, 7/1/08,
F.G.I.C............. 5,511,165
------------
District Of Columbia--0.5%
Dist. of Columbia,
Cert. of Part.,
BBB* 4,000 7.30%, 1/1/13......... 4,500,000
------------
Florida--2.1%
Broward Cnty. Res.
Rec. Rev.,
Broward Cnty. L.P.
South,
A 14,045 7.95%, 12/1/08........ 16,028,997
Florida St. Brd. Ed.,
Cap. Outlay,
Aa 195 9.125%, 6/1/14........ 290,062
Aa 1,260+ 9.125%, 6/1/14........ 1,874,250
------------
18,193,309
------------
Georgia--6.0%
Atlanta Urban Res.
Fin. Auth.,
Clark Atlanta Univ.
Dorm. Proj.,
N.R. 4,890+ 9.25%, 6/1/10......... 6,302,330
</TABLE>
See Notes to Financial Statements.
-4-
<PAGE>
<PAGE>
<TABLE>
PRUDENTIAL NATIONAL MUNICIPALS FUND
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
<C> <C> <S> <C>
Georgia--(cont'd.)
Atlanta Wtr. & Swr.
Rev.,
Aa $ 4,410 6.00%, 1/1/11......... $ 4,868,243
Aa 15,850 4.75%, 1/1/23......... 14,402,737
Georgia Mun. Elec.
Auth. Pwr. Rev.,
A1 7,000 6.25%, 1/1/17, Ser.
B................... 7,817,880
Georgia St. Gen.
Oblig.,
Aaa 5,000 6.50%, 12/1/09........ 5,895,150
Aaa 5,620 4.00%, 7/1/12, Ser.
C................... 4,984,153
Georgia St. Res. Fin.
Auth.,
Sngl. Fam. Insured
Mtge.,
Ser. C-C1,
Aa 6,550 8.00%, 12/1/16........ 7,144,216
------------
51,414,709
------------
Illinois--2.3%
Chicago O'Hare Int'l.
Arpt.,
Spec. Fac. Rev.,
Ref. 2nd Lien,
Ser. C, M.B.I.A.,
Aaa 8,750 5.75%, 1/1/09......... 9,303,350
Aaa 4,250 5.00%, 1/1/18......... 4,022,795
Illinois Hlth. Facs.
Auth. Rev.,
Westlake Cmnty. Hosp.,
Baa1 5,450 7.75%, 1/1/04......... 6,052,716
------------
19,378,861
------------
Iowa--0.4%
Muscatine Elec. Rev.,
Aaa 3,000 6.70%, 1/1/13......... 3,499,410
------------
Kentucky--2.5%
Kentucky St. Prpty. &
Bldgs. Comm. Rev.,
A 19,100 6.25%, 9/1/07......... 21,401,550
------------
Louisiana--4.1%
Louisiana St. Offshore
Term.
Auth., Deepwater
Port Rev.,
A3 $ 3,000 7.45%, 9/1/04, Ser.
E................... $ 3,438,630
Orleans Parish, Sch.
Brd.,
Aaa 5,780 8.90%, 2/1/07,
M.B.I.A............. 8,131,998
Pointe Coupee Parish
Poll.
Ctrl. Rev., Gulf
States Utils.,
Baa3 2,850 6.70%, 3/1/13......... 3,051,609
Regl. Louisiana Trans.
Auth. Rev.,
Aaa 3,700 8.00%, 12/1/08,
F.G.I.C............. 4,352,865
St. Charles Parish,
Poll. Ctrl. Rev.,
Louisiana
Pwr. & Lt. Co.,
Baa3 4,000 8.25%, 6/1/14......... 4,687,160
Baa3 5,000 8.00%, 12/1/14,
Ser. 1989........... 5,863,300
West Feliciana Parish
Poll.
Ctrl. Rev., Gulf
States Util.,
Baa3 5,000 7.00%, 11/1/15........ 5,536,900
------------
35,062,462
------------
Maryland--2.7%
Maryland St. Hlth. &
Higher
Ed. Facs. Auth.
Rev.,
Greater Baltimore
Med. Ctr.,
Aaa 12,085 5.00%, 7/1/19,
F.G.I.C............. 11,500,086
Univ. of Maryland
Med.,
Aaa 7,000 5.00%, 7/1/20,
F.G.I.C............. 6,655,040
Northeast Waste Disp.
Auth.,
Baltimore City Sludge
Proj.,
N.R. 4,800 7.25%, 7/1/07......... 4,804,080
------------
22,959,206
------------
</TABLE>
See Notes to Financial Statements.
-5-
<PAGE>
<PAGE>
<TABLE>
PRUDENTIAL NATIONAL MUNICIPALS FUND
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
<C> <C> <S> <C>
Massachusetts--2.2%
Massachusetts St.
Gen. Oblig.,
A $ 4,000 5.50%, 11/1/08........ $ 4,160,520
Massachusetts St.
Hlth. &
Edl. Facs. Auth.
Rev.,
Valley Regl. Hlth.
Sys.,
Baa 4,500 8.00%, 7/1/18, Ser.
B................... 5,133,915
Massachusetts St.
Tpke.
Auth. Rev.,
F.G.I.C.,
Aaa 9,500 5.125%, 1/1/23, Ser.
A................... 9,200,465
------------
18,494,900
------------
Michigan--2.2%
Michigan St. Hsg. Dev.
Auth. Rev., Rental
Hsg.,
A* 1,000 7.55%, 4/1/23, Ser.
B................... 1,074,770
Sngl. Fam. Mtge.,
AA* 5,185 7.50%, 6/1/15, Ser.
A................... 5,584,193
AA* 3,130 7.75%, 12/1/19, Ser.
D................... 3,392,419
Monroe Cnty. Poll.
Ctrl.
Rev., Detroit Edison
Co.,
Proj. 1,
Aaa 5,000 7.65%, 9/1/20,
F.G.I.C............. 5,889,150
Okemos Pub. Sch.
Dist.,
Cnty. of Ingham,
M.B.I.A.,
Aaa 1,100 Zero Coupon, 5/1/12... 406,560
Aaa 1,700 Zero Coupon, 5/1/13... 595,136
Western Michigan Univ.
Rev.,
Aaa 2,300 5.00%, 7/15/21,
F.G.I.C............. 2,207,011
------------
19,149,239
------------
Missouri--2.2%
Missouri St. Hlth &
Ed. Fac.,
St. Lukes Hlth. Sys.,
M.B.I.A.,
Aaa 10,250 5.125%, 11/15/19...... 10,012,405
Sikeston Elec. Rev.,
M.B.I.A., Ser. 92,
Aaa $ 8,000 6.25%, 6/1/22......... $ 8,635,200
------------
18,647,605
------------
Nevada--0.8%
Clark Cnty.,
Southwest Gas Corp.,
Ba1 6,500 7.50%, 9/1/32, Ser.
B................... 7,270,770
------------
New Jersey--7.1%
Bergen Cnty. Util.
Auth.,
Wtr. Poll. Ctrl. Rev.,
Ser. B, F.G.I.C.,
Aaa 7,640 Zero Coupon,
12/15/07............ 3,855,984
Aaa 4,695 Zero Coupon,
12/15/09............ 2,065,565
Camden Cnty. Poll.
Ctrl. Fin.
Auth., Solid Waste
Res. Rec. Rev.,
Baa1 2,980 7.125%, 12/1/01, Ser.
C................... 3,219,771
Baa1 5,100 7.50%, 12/1/09, Ser.
B................... 5,512,335
Hudson Cnty. Impvt.
Auth.,
Solid Waste Sys.,
BBB-* 12,000 7.10%, 1/1/20......... 13,242,960
Mercer Cnty. Impvt.
Auth.
Rev., Solid Waste
Res.
Rec., Proj. B,
Baa1 3,450 6.80%, 4/1/05......... 3,804,902
Baa1 7,000 Zero Coupon, 4/1/15... 1,795,010
New Jersey Econ. Dist.
Heating & Cool.,
Trigen Trenton Proj.,
BBB-* 1,400 6.20%, 12/1/10........ 1,461,082
New Jersey Sports &
Exposition Auth.,
Convention Ctr. Luxury
Tax Rev., M.B.I.A.,
Aaa 5,500 6.00%, 7/1/13......... 5,959,085
</TABLE>
See Notes to Financial Statements.
-6-
<PAGE>
<PAGE>
<TABLE>
PRUDENTIAL NATIONAL MUNICIPALS FUND
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
<C> <C> <S> <C>
New Jersey--(cont'd.)
New Jersey Sports &
Exposition Auth.,
Convention Ctr. Luxury
Tax Rev., M.B.I.A.,
Aaa $ 2,250 6.25%, 7/1/20, Ser.
A................... $ 2,455,965
New Jersey St. Hsg. &
Mtge. Fin. Agcy.,
Aaa 5,405 7.70%, 10/1/29,
M.B.I.A............. 5,950,202
New Jersey St. Tpke.
Auth. Rev.,
A 3,000 6.75%, 1/1/08, Ser.
A................... 3,391,170
New Jersey Waste Wtr.
Treat., Trust Loan
Rev.,
Aa 2,000 6.875%, 6/15/09....... 2,257,420
Union Cnty. Utils.
Auth.,
Solid Waste Rev.,
A-* 5,500 7.10%, 6/15/06, Ser.
A................... 6,090,810
------------
61,062,261
------------
New York--13.5%
New York City, Gen.
Oblig.,
Baa1 5,000 8.25%, 11/15/02, Ser.
F................... 6,060,700
Baa1 3,500 8.00%, 8/1/03, Ser.
D................... 4,191,810
Baa1 1,500 8.00%, 8/1/04, Ser.
D................... 1,795,425
Baa1 2,000 7.75%, 8/15/04, Ser.
A................... 2,350,140
Baa1 1,500 8.25%, 6/1/06, Ser.
B................... 1,870,605
Baa1 2,900 5.75%, 8/15/09, Ser.
D................... 2,885,645
Baa1 2,295 5.75%, 8/15/10........ 2,281,643
Baa1 4,730 5.50%, 10/1/10........ 4,575,991
New York City, Mun.
Wtr.
Fin. Auth.,
Wtr. & Swr. Sys.
Rev.,
Aaa 21,250 6.75%, 6/15/16,
F.G.I.C............. 23,911,350
Aaa 4,510 6.20%, 6/15/21,
A.M.B.A.C........... 4,846,221
New York St. Dorm.
Auth.
Rev., Court Facs.,
Baa1 $ 3,250 5.25%, 5/15/21........ $ 3,035,500
New York St. Energy
Resh. & Dev. Auth.
Rev.,
Long Island Ltg. Co.,
Baa3 12,000 7.15%, 9/1/19, Ser.
A................... 13,041,480
New York St. Hsg. Fin.
Agcy.
Rev., Multifamily
Hsg.,
Aa 3,350 7.05%, 8/15/24, Ser.
A................... 3,683,560
New York St. Local
Gov't.
Assist. Corp.,
A 9,625 6.00%, 4/1/14......... 10,391,920
A 3,000 6.875%, 4/1/19, Ser.
A................... 3,416,070
A 10,000 6.50%, 4/1/20, Ser.
A................... 10,875,500
Port Auth. New York &
New Jersey,
Aaa 1,110 5.875%, 7/15/16,
Ser. 84, M.B.I.A.... 1,172,082
Aaa 3,900 5.875%, 7/15/17,
Ser. 84, M.B.I.A.... 4,121,013
A1 10,000 7.35%, 10/1/27, Ser.
72.................. 11,916,900
------------
116,423,555
------------
North Carolina--0.4%
No. Carolina Mun. Pwr.
Agcy.,
No. 1, Ser. A, Catawba
Elec. Rev.,
Aaa 3,500 5.00%, 1/1/18,
M.B.I.A............. 3,381,350
------------
Ohio--2.2%
Columbus Wtr. Sys.
Rev.,
Ctrl. Rev. Detroit
Ed.,
A1 2,000 6.375%, 11/1/10....... 2,196,560
</TABLE>
See Notes to Financial Statements.
-7-
<PAGE>
<PAGE>
<TABLE>
PRUDENTIAL NATIONAL MUNICIPALS FUND
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
<C> <C> <S> <C>
Ohio--(cont'd.)
Franklin Cnty. Hosp.
Rev.,
Holy Cross Hlth.
Sys.,
A.M.B.A.C., Ser. B,
Aaa $ 3,000+ 7.65%, 6/1/10......... $ 3,615,120
Hamilton Cnty. Wtr.
Sys. Rev.,
Aaa 3,000 5.00%, 12/1/14,
F.G.I.C............. 2,938,860
Ohio St. Pub. Facs.,
Comm. of Higher Ed.,
A 5,000 7.25%, 5/1/04......... 5,726,550
Ohio St. Wtr. Dev.
Auth.,
Poll. Ctrl. Facs.
Rev., Ohio Edison,
Baa3 4,500 7.625%, 7/1/23........ 4,848,435
------------
19,325,525
------------
Oklahoma--2.4%
Tulsa Mun. Arpt. Trust
Rev.,
American Airlines,
Inc.,
Baa2 19,000 7.375%, 12/1/20....... 20,487,700
------------
Pennsylvania--1.8%
Beaver Cnty. Ind. Dev.
Auth., Poll. Ctrl.
Rev.,
Ohio Edison Proj.,
Baa3 4,000 7.75%, 9/1/24, Ser.
A................... 4,419,280
Philadelphia Gas Wks.
Rev.,
Baa1 3,950 6.375%, 7/1/26........ 4,155,598
Pittsburgh Wtr. & Swr.
Sys.
Rev., Ser. A,
F.G.I.C.,
Aaa 7,320 4.75%, 9/1/16......... 6,801,012
------------
15,375,890
------------
Puerto Rico--8.2%
Puerto Rico Comnwlth.,
Baa 10,400 5.25%, 7/1/18......... 10,052,328
Puerto Rico Hsg. Fin.
Corp.,
Sngl. Fam. Mtge. Rev.,
Baa 5,975 5.10%, 12/1/03........ 6,091,214
Puerto Rico Hwy. &
Trans. Auth. Rev.,
Baa1 $ 8,405 6.375%, 7/1/08........ $ 9,218,772
Baa1 4,000 6.625%, 7/1/12, Ser.
V................... 4,426,320
Baa1 4,460 6.625%, 7/1/12, Ser.
T................... 4,935,347
Baa1 2,500 5.50%, 7/1/13, Ser.
X................... 2,554,175
Baa1 14,000 5.50%, 7/1/15, Ser.
1993................ 14,221,480
Baa1 2,000 5.50%, 7/1/15......... 2,031,640
Baa1 8,855 5.00%, 7/1/22......... 8,306,079
Puerto Rico Tel. Auth.
Rev.,
Ser. I, M.B.I.A.,
Aaa 4,100 7.632%, 1/25/07....... 4,417,750
Aaa 3,800 8.162%, 1/16/15....... 4,023,250
------------
70,278,355
------------
South Carolina--2.7%
Charleston Waterworks
& Swr. Rev.,
Aaa 7,415 10.375%, 1/1/10....... 11,908,490
Aaa 7,265 5.00%, 1/1/22,
M.B.I.A............. 6,969,242
So. Carolina St. Pub.
Svc. Auth. Rev.,
Santee Cooper,
F.G.I.C.,
Aaa 5,000 5.00%, 1/1/25, Ser.
C................... 4,736,550
------------
23,614,282
------------
Tennessee--0.8%
Metropolitan Gov't.
Nashville & Davidson
Cnty., Wtr. & Swr.
Rev.,
A1 6,575 7.30%, 1/1/08......... 7,109,548
------------
Texas--9.6%
Alliance Arpt. Auth.
Inc., Spec. Facs.
Rev.,
American Airlines,
Inc.,
Baa1 4,500 7.50%, 12/1/29........ 4,883,670
</TABLE>
See Notes to Financial Statements.
-8-
<PAGE>
<PAGE>
<TABLE>
PRUDENTIAL NATIONAL MUNICIPALS FUND
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
<C> <C> <S> <C>
Texas--(cont'd.)
Austin Combined Util. Sys. Rev.,
A $ 5,400 7.75%, 11/15/08, Ser.
B................... $ 6,233,760
Aaa 8,625 Zero Coupon, 11/15/09,
A.M.B.A.C........... 3,748,253
Brownsville Util. Sys.
Rev.,
Baa 5,000 11.625%, 9/1/14....... 5,445,400
Dallas Ft. Worth,
Regl. Arpt.
Rev., Ser. A,
F.G.I.C.,
Aaa 3,500 7.375%, 11/1/08....... 4,208,995
Aaa 3,500 7.375%, 11/1/09....... 4,208,995
Harris Cnty. Hlth.
Facs. Dev.
Corp., Spec. Facs.
Rev.,
Texas Med. Ctr. Hosp.,
Aaa 4,100 7.25%, 5/15/07,
M.B.I.A............. 4,742,511
Houston Wtr. & Swr.
Sys. Rev.,
A 4,000 6.375%, 12/1/14, Ser.
B................... 4,345,800
Katy Indpt. Sch.
Dist.,
Aaa 5,000 Zero Coupon,
2/15/09............. 2,230,700
Plano Indpt. Sch.
Dist.,
Aaa 2,000 8.625%, 2/15/02,
Ser. B, F.G.I.C..... 2,488,140
San Antonio Elec. &
Gas Rev.,
Aa1 8,500 5.00%, 2/1/17......... 8,140,450
Tarrant Cnty. Wtr.
Ctrl. & Imp. Dist.,
A.M.B.A.C.,
Aaa 1,500 4.75%, 3/1/12......... 1,422,840
Aaa 5,000 4.75%, 3/1/13......... 4,734,500
Texas Mun. Pwr. Agcy.
Rev.,
M.B.I.A.,
Aaa 13,980 Zero Coupon, 9/1/14... 4,582,924
Texas St. Higher Ed.
Coordinating Brd.,
Coll. Student Loan
Rev.,
A 1,810 7.45%, 10/1/06........ 1,978,059
Texas Wtr. Res. Fin.
Auth. Rev.,
A $ 12,000 7.625%, 8/15/08....... $ 13,420,440
Univ. Texas Univ.
Rev.,
Fin. Sys.,
Aa 2,500 7.00%, 8/15/07, Ser.
A................... 2,856,375
Aa 3,000 6.75%, 8/15/13........ 3,370,320
------------
83,042,132
------------
U. S. Virgin Islands--1.1%
Virgin Islands Pub.
Fin.
Auth. Rev., Matching
Fund Loan Notes,
N.R. 3,900 7.25%, 10/1/18, Ser.
A................... 4,393,740
Virgin Islands Wtr. &
Pwr.
Auth., Wtr. Sys.
Rev.,
N.R. 4,600 8.50%, 1/1/10, Ser.
A................... 5,219,712
------------
9,613,452
------------
Utah--1.1%
Intermountain Pwr.
Agcy.,
Pwr. Sup. Rev.,
Aa 10,000 5.00%, 7/1/23......... 9,371,000
------------
Virginia--2.8%
Fairfax Cnty. Ind.
Dev. Auth.,
Inova Hlth. Sys.
Proj.,
Aa 8,000 5.00%, 8/15/23........ 7,517,840
Henrico Cnty. Ind.
Dev. Auth.
Rev., Secours Hlth.
Sys.,
St. Mary's Proj.,
A1 10,500 7.50%, 9/1/07, Ser.
B................... 12,227,565
Roanoke Cnty. Wtr.
Sys. Rev., F.G.I.C.,
Aaa 4,500 5.00%, 7/1/26, Ser.
B................... 4,305,195
------------
24,050,600
------------
</TABLE>
See Notes to Financial Statements.
-9-
<PAGE>
<PAGE>
<TABLE>
PRUDENTIAL NATIONAL MUNICIPALS FUND
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
<C> <C> <S> <C>
Washington--3.6%
Seattle Mun. Met. Swr.
Sys. Rev.,
Aaa $ 7,085 6.30%, 1/1/33,
M.B.I.A............. $ 7,623,885
Tacoma Dept. Pub.
Util. &
Lt. Div., Lt. & Pwr.
Rev.,
A1 4,450 9.375%, 1/1/15........ 5,005,045
Washington St. Pub.
Pwr. Supply Sys.
Rev.,
Nuclear Proj. No. 1,
Aa 5,000 7.25%, 7/1/09, Ser.
B................... 5,992,250
Nuclear Proj. No. 2,
Aaa 6,000 Zero Coupon, 7/1/06,
M.B.I.A., Ser. A.... 3,131,580
Aa 2,000 7.25%, 7/1/06, Ser.
A................... 2,377,460
Aa 4,000 7.00%, 7/1/12, Ser.
B................... 4,487,800
Nuclear Proj. No. 3,
Aaa 5,000 Zero Coupon, 7/1/06,
F.G.I.C., Ser. B.... 2,609,650
------------
31,227,670
------------
Total long-term
investments
(cost $782,202,036)... 844,964,547
------------
SHORT-TERM INVESTMENTS--1.8%
Florida--0.5%
Sarasota Cnty. Pub.
Hosp.
Dist. Rev., Sarasota
Memorial Hosp.,
T.E.C.P.,
P-1 4,850 2.70%, 1/4/94, Ser.
85B................. 4,850,000
------------
Illinois--0.2%
Chicago O'Hare Int'l.
Arpt.,
American Airlines
Inc.,
F.R.D.D., Ser. 84B,
P-2 $ 2,000 4.00%, 1/3/94......... $ 2,000,000
------------
Louisiana--0.7%
Louisiana Offshore
Term. Auth.,
Loop Inc. Proj.,
T.E.C.P.,
P-1 5,000 2.65%, 1/6/94, Ser.
86.................. 5,000,000
St. Charles Parish,
Poll. Ctrl. Rev.,
Shell Oil Co. Proj.,
F.R.D.D.,
VMIG1 900 4.25%, 1/3/94, Ser.
92A................. 900,000
------------
5,900,000
------------
New York
New York City, Gen.
Oblig.,
F.R.D.D., Ser.
94A-4,
VMIG1 300 4.00%, 1/3/94......... 300,000
------------
Pennsylvania--0.1%
Schuylkill Cnty. Ind.
Dev.
Auth., Westwood
Energy,
F.R.D.D., Ser. 85,
P-1 625 3.80%, 1/3/94......... 625,000
------------
South Carolina--0.3%
So. Carolina Jobs
Econ. Dev.
Auth. Rev., Wellman
Inc. Proj.,
F.R.D.D.,
Aa2 1,900 4.65%, 1/3/94, Ser.
90.................. 1,900,000
Aa2 500 4.65%, 1/3/94, Ser.
92.................. 500,000
------------
2,400,000
------------
Total short-term
investments
(cost $16,075,000).... 16,075,000
------------
</TABLE>
See Notes to Financial Statements.
-10-
<PAGE>
<PAGE>
<TABLE>
PRUDENTIAL NATIONAL MUNICIPALS FUND
<CAPTION>
Value
Description (a) (Note 1)
<C> <C> <S> <C>
Total Investments--99.8%
(cost $798,277,036; Note
4).................... $861,039,547
Other assets in excess
of
liabilities--0.2%..... 1,427,136
------------
Net Assets--100%........ $862,466,683
------------
------------
- ---------------
(a) The following abbreviations are used in portfolio
descriptions:
A.M.B.A.C.--American Municipal Bond Assurance
Corporation
B.I.G.--Bond Investors Guaranty Insurance Company
F.G.I.C.--Financial Guaranty Insurance Company
F.R.D.D.--Floating Rate Daily Demand Note
M.B.I.A.--Municipal Bond Insurance Association
T.E.C.P.--Tax Exempt Commercial Paper
+ Prerefunded issues are secured by escrowed cash and
direct U.S. guaranteed obligations.
N.R.--Not Rated by Moody's or Standard & Poor's.
* Standard and Poor's Rating.
The Fund's current Statement of Additional Information
contains a description of Moody's and Standard & Poor's
ratings.
</TABLE>
See Notes to Financial Statements.
-11-
<PAGE>
<PAGE>
PRUDENTIAL NATIONAL MUNICIPALS FUND
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
Assets December 31, 1993
-----------------
<S> <C>
Investments, at value (cost $798,277,036)............................................ $ 861,039,547
Interest receivable.................................................................. 14,437,080
Receivable for Fund shares sold...................................................... 459,775
Receivable for investments sold...................................................... 450,000
Deferred expenses and other assets................................................... 208,236
-----------------
Total assets..................................................................... 876,594,638
-----------------
Liabilities
Bank overdraft....................................................................... 2,079
Payable for Fund shares reacquired................................................... 8,504,574
Payable for investments purchased.................................................... 4,154,882
Dividends payable.................................................................... 594,965
Distribution fee payable............................................................. 363,299
Management fee payable............................................................... 347,198
Accrued expenses..................................................................... 160,958
-----------------
Total liabilities................................................................ 14,127,955
-----------------
Net Assets........................................................................... $ 862,466,683
-----------------
-----------------
Net assets were comprised of:
Common stock, at par............................................................... $ 528,169
Paid-in capital in excess of par................................................... 793,939,362
-----------------
794,467,531
Accumulated undistributed net realized gain on investments......................... 5,236,641
Net unrealized appreciation on investments......................................... 62,762,511
-----------------
Net assets, December 31, 1993........................................................ $ 862,466,683
-----------------
-----------------
Class A:
Net asset value and redemption price per share ($14,167,379 divided by 869,114
shares of common stock issued and outstanding)................................... $16.30
Maximum sales charge (4.5% of offering price)...................................... .77
-----------------
Maximum offering price to public................................................... $17.07
-----------------
-----------------
Class B:
Net asset value, offering price and redemption price per share ($848,299,304
divided by 51,947,815 shares of common stock issued and outstanding)............. $16.33
-----------------
-----------------
</TABLE>
See Notes to Financial Statements.
-12-
<PAGE>
<PAGE>
PRUDENTIAL NATIONAL MUNICIPALS FUND
Statement of Operations
<TABLE>
<CAPTION>
Year Ended
December 31,
Net Investment Income 1993
------------
<S> <C>
Income
Interest............................. $ 53,526,003
------------
Expenses
Distribution fee--Class A............ 11,786
Distribution fee--Class B............ 4,274,596
Management fee....................... 4,087,672
Transfer agent's fees and expenses... 650,000
Custodian's fees and expenses........ 133,000
Registration fees.................... 51,000
Audit fee............................ 51,000
Trustees' fees....................... 37,700
Insurance expense.................... 26,000
Reports to shareholders.............. 25,000
Legal fees........................... 20,000
Miscellaneous........................ 5,844
------------
Total expenses..................... 9,373,598
------------
Net investment income.................. 44,152,405
------------
Net Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss):
Investment transactions.............. 39,745,284
Financial futures contracts.......... (1,232,530)
------------
38,512,754
------------
Net change in unrealized
appreciation......................... 16,778,159
------------
Net gain on investments................ 55,290,913
------------
Net Increase in Net Assets
Resulting from Operations.............. $ 99,443,318
------------
------------
</TABLE>
PRUDENTIAL NATIONAL MUNICIPALS FUND
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Years Ended December 31,
Increase (Decrease) ------------------------------
in Net Assets 1993 1992
------------- -------------
<S> <C> <C>
Operations
Net investment
income................ $ 44,152,405 $ 45,067,045
Net realized gain on
investment
transactions........ 38,512,754 26,180,331
Net change in
unrealized
appreciation of
investments......... 16,778,159 (2,514,851)
------------- -------------
Net increase in net
assets
resulting from
operations.......... 99,443,318 68,732,525
------------- -------------
Dividends and distributions (Note 1)
Dividends to
shareholders from
net investment
income
Class A............. (645,048) (312,545)
Class B............. (43,507,357) (44,754,500)
------------- -------------
(44,152,405) (45,067,045)
------------- -------------
Distributions to
shareholders from
net realized gains
on
investment
transactions
Class A............. (563,957) (217,185)
Class B............. (34,572,412) (25,206,090)
------------- -------------
(35,136,369) (25,423,275)
------------- -------------
Fund share transactions (Note 5)
Net proceeds from
shares
subscribed.......... 201,764,486 227,588,260
Net asset value of
shares
issued in
reinvestment of
dividends and
distributions....... 50,661,082 43,097,188
Cost of shares
reacquired............ (246,514,570) (310,683,037)
------------- -------------
Net increase
(decrease) in net
assets from Fund
share
transactions........ 5,910,998 (39,997,589)
------------- -------------
Total increase
(decrease)............ 26,065,542 (41,755,384)
Net Assets
Beginning of year....... 836,401,141 878,156,525
------------- -------------
End of year............. $ 862,466,683 $ 836,401,141
------------- -------------
------------- -------------
</TABLE>
See Notes to Financial Statements.
-13-
<PAGE>
<PAGE>
PRUDENTIAL NATIONAL MUNICIPALS FUND
Notes to Financial Statements
Prudential-Bache National Municipals Fund, Inc., doing business as
Prudential National Municipals Fund (the "Fund"), is registered under the
Investment Company Act of 1940 as a diversified, open-end management
investment company. The investment objective of the Fund is to seek a high
level of current income exempt from federal income taxes by investing
substantially all of its total assets in carefully selected long-term
municipal bonds of medium quality. The ability of the issuers of debt
securities held by the Fund to meet their obligations may be affected by
economic or political developments in a specific state, industry or region.
Note 1. Accounting The following is a summary
Policies of significant accounting poli
cies followed by the Fund in the preparation of
its financial statements.
Securities Valuations: The Fund values municipal securities (including
commitments to purchase such securities on a "when-issued" basis) on the basis
of prices provided by a pricing service which uses information with respect to
transactions in bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities in
determining values. If market quotations are not readily available from such
pricing service, a security is valued at its fair value as determined under
procedures established by the Directors.
Short-term securities which mature in more than 60 days are valued at
current market quotations. Short-term securities which mature in 60 days or
less are valued at amortized cost, which approximates market value.
Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of debt securities at a set
price for delivery on a future date. Upon entering into a financial futures
contract, the Fund is required to pledge to the broker an amount of cash
and/or other assets equal to a certain percentage of the contract amount. This
amount is known as the "initial margin". Subsequent payments, known as
"variation margin", are made or received by the Fund each day, depending on
the daily fluctuations in the value of the underlying security. Such variation
margin is recorded for financial statement purposes on a daily basis as
unrealized gain or loss.
The Fund invests in financial futures contracts solely for the purpose of
hedging its existing portfolio securities or securities the Fund intends to
purchase against fluctuations in value caused by changes in prevailing market
interest rates. Should market conditions move unexpectedly, the Fund may not
achieve the anticipated benefits of the financial futures contracts and may
realize a loss. The use of futures transactions involves the risk of imperfect
correlation in movements in the price of futures contracts, interest rates and
the underlying hedged assets. As of December 31, 1993, there were no open
financial futures contracts.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of portfolio
securities are calculated on an identified cost basis. Interest income is
recorded on an accrual basis. The Fund amortizes premiums and accretes
original issue discount on portfolio securities as adjustments to interest
income.
Net investment income (other than distribution fees) and unrealized and
realized gains or losses are allocated daily to each class of shares based
upon the relative proportion of net assets of each class at the beginning of
the day.
Federal Income Taxes: It is the intent of the Fund to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its net income to its shareholders. For
this reason and because substantially all of the Fund's gross income consists
of tax-exempt interest, no federal income tax provision is required.
Dividends and Distributions: Dividends from net investment income are declared
daily and paid monthly. The Fund will distribute at least annually any net
capital gains. Dividends and distributions are recorded on the ex-dividend
date.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted
accounting principles.
Reclassification of Capital Accounts: Effective January 1, 1993, the Fund
began accounting and reporting for distributions to shareholders in accordance
with Statement of Position 93-2: Determination, Disclosure, and Financial
Statement Presentation of Income, Capital Gain, and Return of Capital
Distributions by Investment Companies. As a result of this statement, the Fund
changed the classification of distributions to shareholders to better disclose
the differences between financial statement amounts and distributions
determined in accordance with income tax regulations. The effect caused by
adopting this statement was to increase paid-in capital and decrease
accumulated undistributed net realized gains on investments by $10,952
compared to amounts previously reported through December 31, 1992.
-14-
<PAGE>
<PAGE>
Net investment income, net realized gains, and net assets were not affected by
this change.
Note 2. The Fund has a management
Agreements agreement with Prudential
Mutual Fund Management, Inc. ("PMF"). Pursuant
to this agreement, PMF has responsibility for all investment advisory services
and supervises the subadviser's performance of such services. PMF has entered
into a subadvisory agreement with The Prudential Investment Corporation
("PIC"); PIC furnishes investment advisory services in connection with the
management of the Fund. PMF pays for the cost of the subadviser's services,
the compensation of officers of the Fund, occupancy and certain clerical and
bookkeeping costs of the Fund. The Fund bears all other costs and expenses.
The management fee paid PMF is computed daily and payable monthly at an
annual rate of .50% of the Fund's average daily net assets up to and including
$250 million, .475% of the next $250 million, .45% of the next $500 million,
.425% of the next $250 million, .40% of the next $250 million and .375% of the
Fund's average daily net assets in excess of $1.5 billion.
The Fund has distribution agreements with Prudential Mutual Fund
Distributors, Inc. ("PMFD"), which acts as the distributor of the Class A
shares of the Fund, and with Prudential Securities Incorporated ("PSI"), which
acts as distributor of the Class B shares of the Fund (collectively the
"Distributors"). To reimburse the Distributors for their expenses incurred in
distributing and servicing the Fund's Class A and B shares, the Fund, pursuant
to plans of distribution, pays the Distributors a reimbursement, accrued daily
and payable monthly.
Pursuant to the Class A Plan, the Fund reimburses PMFD for its expenses
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. Such expenses under the Class
A Plan were .10 of 1% of the average daily net assets of the Class A shares
for the fiscal year ended December 31, 1993. PMFD pays various broker-dealers,
including PSI and Pruco Securities Corporation ("Prusec"), affiliated
broker-dealers, for account servicing fees and other expenses incurred by such
broker-dealers.
Pursuant to the Class B Plan, the Fund reimburses PSI for its
distribution-related expenses with respect to Class B shares at an annual rate
of up to .50 of 1% of the average daily net assets of the Class B Shares.
The Class B distribution expenses include commission credits for payment of
commissions and account servicing fees to financial advisers and an allocation
for overhead and other distribution-related expenses, interest and/or carrying
charges, the cost of printing and mailing prospectuses to potential investors
and of advertising incurred in connection with the distribution of shares.
The Distributors recover the distribution expenses and account servicing
fees incurred through the receipt of reimbursement payments from the Fund
under the plans and the receipt of initial sales charges (Class A only) and
contingent deferred sales charges (Class B only) from shareholders.
PMFD has advised the Fund that it has received approximately $251,600 in
front-end sales charges resulting from sales of Class A shares during the
fiscal year ended December 31, 1993. From these fees, PMFD paid such sales
charges to dealers (PSI and Prusec) which in turn paid commissions to
salespersons and incurred other distribution costs.
With respect to the Class B Plan, at any given time the amount of expenses
incurred by PSI in distributing the Fund's shares and not recovered through
the imposition of contingent deferred sales charges in connection with certain
redemptions of shares may exceed the total payments made by the Fund pursuant
to the Class B Plan. PSI has advised the Fund that for the fiscal year ended
December 31, 1993, it received approximately $510,600 in contingent deferred
sales charges imposed upon certain redemptions by shareholders. PSI, as
distributor, has also advised the Fund that at December 31, 1993, the amount
of distribution expenses incurred by PSI and not yet reimbursed by the Fund or
recovered through contingent deferred sales charges approximated $18,588,600.
This amount may be recovered through future payments under the Class B Plan or
contingent deferred sales charges.
In the event of termination or noncontinuation of the Class B Plan, the
Fund would not be contractually obligated to pay PSI, as distributor, for any
expenses not previously reimbursed or recovered through contingent deferred
sales charges.
PMFD is a wholly-owned sudsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
Note 3. Other Prudential Mutual Fund Ser
Transactions vices, Inc. ("PMFS"), a
with Affiliates wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent and
during the fiscal year ended December 31, 1993, the Fund incurred fees of
approximately $483,900 for the services of PMFS. As of December 31, 1993,
$40,000 of such fees were due to PMFS. Transfer
-15-
<PAGE>
<PAGE>
agent fees and expenses in the Statement of Operations include certain
out-of-pocket expenses paid to non-affiliates.
Note 4. Portfolio Purchases and sales of invest
Securities ment securities, other than
short-term investments, for the fiscal year
ended December 31, 1993, were $693,356,139 and $733,397,281, respectively.
The federal income tax basis of the Portfolio's investments at December 31,
1993 was $798,349,186 and, accordingly, net unrealized appreciation for
federal income tax purposes was $62,690,361 (gross unrealized
appreciation--$64,026,490; gross unrealized depreciation-- $1,336,129).
Note 5. Capital The Fund offers both Class A
and Class B shares. Class A shares are sold with
a front-end sales charge of up to 4.5%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on
the period of time the shares are held. Both classes of shares have equal
rights as to earnings, assets and voting priviledges except that each class
bears different distribution expenses and has exclusive voting rights with
respect to its distribution plan.
There are 500 million shares of common stock, $.01 par value, per share,
divided into two classes, designated Class A and Class B common stock, each of
which consists of 250 million authorized shares.
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------- ----------- -------------
<S> <C> <C>
Year ended December 31,
1993:
Shares sold.................... 801,949 $ 13,267,418
Shares issued in reinvestment
of dividends and
distributions................ 52,588 854,996
Shares reacquired.............. (468,357) (7,812,061)
----------- -------------
Net increase in shares
outstanding.................. 386,180 $ 6,310,353
----------- -------------
----------- -------------
Year ended December 31,
1992:
Shares sold.................... 279,113 $ 4,503,147
Shares issued in reinvestment
of dividends and
distributions................ 24,236 387,787
Shares reacquired.............. (59,083) (954,955)
----------- -------------
Net increase in shares
outstanding.................. 244,266 $ 3,935,979
----------- -------------
----------- -------------
<CAPTION>
Class B Shares Amount
- ------------------------------- ----------- -------------
<S> <C> <C>
Year ended December 31,
1993:
Shares sold.................... 11,392,790 $ 188,497,068
Shares issued in reinvestment
of dividends and
distributions................ 3,054,242 49,806,086
Shares reacquired.............. (14,390,713) (238,702,509)
----------- -------------
Net increase in shares
outstanding.................. 56,319 $ (399,355)
----------- -------------
----------- -------------
Year ended December 31,
1992:
Shares sold.................... 13,941,355 $ 223,085,113
Shares issued in reinvestment
of dividends and
distributions................ 2,664,473 42,709,401
Shares reacquired.............. (19,285,550) (309,728,082)
----------- -------------
Net decrease in shares
outstanding.................. (2,679,722) $ (43,933,568)
----------- -------------
----------- -------------
</TABLE>
Note 6. Capital On February 7, 1994 the
Gain Distribution Board of Directors of the
Fund declared a distribution of long-term
capital gains of $0.10 per share payable February 25, 1994 to shareholders of
record on February 18, 1994.
-16-
<PAGE>
<PAGE>
PRUDENTIAL NATIONAL MUNICIPALS FUND
Financial Highlights
<TABLE>
<CAPTION>
Class A
---------------------------------------------- Class B
January 22, -----------------------------------------------------------
Years Ended 1990+
December 31, through Years Ended December 31,
PER SHARE OPERATING ------------------------------- December 31, -----------------------------------------------------------
PERFORMANCE: 1993 1992 1991 1990 1993 1992 1991 1990 1989
------------ ------ ------ ------------ ------------ -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period........... $ 15.94 $16.00 $15.09 $14.98 $ 15.97 $ 16.02 $ 15.11 $ 15.15 $ 15.04
------------ ------ ------ ------ ------------ -------- -------- -------- ----------
Income from
investment
operations
Net investment
income........... .90 .94 .97 .90 .84 .88 .91 .90 .96
Net realized and
unrealized gain
(loss) on
investment
transactions..... 1.05 .43 .91 .11 1.05 .44 .91 (.04) .11
------------ ------ ------ ------ ------------ -------- -------- -------- ----------
Total from
investment
operations..... 1.95 1.37 1.88 1.01 1.89 1.32 1.82 .86 1.07
------------ ------ ------ ------ ------------ -------- -------- -------- ----------
Less distributions
Dividends from net
investment
income........... (.90) (.94) (.97) (.90) (.84) (.88) (.91) (.90) (.96)
Distributions from
net realized
gains............ (.69) (.49) -- -- (.69) (.49) -- -- --
------------ ------ ------ ------ ------------ -------- -------- -------- ----------
Total
distributions... (1.59) (1.43) (.97) (.90) (1.53) (1.37) (.91) (.90) (.96)
------------ ------ ------ ------ ------------ -------- -------- -------- ----------
Net asset value,
end of period.... $ 16.30 $15.94 $16.00 $15.09 $ 16.33 $ 15.97 $ 16.02 $ 15.11 $ 15.15
------------ ------ ------ ------ ------------ -------- -------- -------- ----------
------------ ------ ------ ------ ------------ -------- -------- -------- ----------
TOTAL RETURN#: 12.60% 8.88% 12.94% 6.88% 12.15% 8.50% 12.42% 5.96% 7.43%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period (000)..... $ 14,167 $7,700 $3,819 $1,846 $848,299 $828,702 $874,338 $882,212 $1,033,173
Average net assets
(000)............ $ 11,786 $5,401 $2,697 $1,161 $854,919 $829,830 $862,249 $940,215 $1,027,726
Ratios to average
net assets:
Expenses,
including
distribution
fees........... .69% .72% .75% .75%* 1.09% 1.12% 1.15% 1.13% 1.01%
Expenses,
excluding
distribution
fees........... .59% .62% .65% .65%* .59% .62% .65% .64% .66%
Net investment
income......... 5.49% 5.79% 6.27% 6.43%* 5.09% 5.39% 5.87% 6.03% 6.45%
Portfolio turnover
rate............. 82% 114% 59% 110% 82% 114% 59% 110% 198%
- ---------------
* Annualized.
+ Commencement of offering of Class A shares.
# 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.
</TABLE>
See Notes to Financial Statements.
-17-
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Prudential National Municipals Fund
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of
operations and of changes in net assets and financial highlights present
fairly, in all material respects, the financial position of Prudential
National Municipals Fund (the "Fund") at December 31, 1993, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each
of the five years in the period then ended, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at December 31, 1993 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE
1177 Avenue of the Americas
New York, New York
February 17, 1994
TAX INFORMATION (UNAUDITED)
We are required by the Internal Revenue Code to advise you within 60 days
of the Fund's fiscal year end (December 31, 1993) as to the federally-exempt
interest dividends received by you during such fiscal year. Accordingly, we
are advising you that in the fiscal year ended December 31, 1993, dividends
paid from net investment income totalling $0.90 per Class A share and $0.84
per Class B share were all federally tax-exempt interest dividends. In
addition, the Fund paid a short-term capital gain distribution of $.323 per
share (Class A and Class B) which are taxable as ordinary income and a
long-term capital gain distribution of $.362 per share (Class A and Class B)
which is taxable as such.
Information with respect to the state taxability of your investment in the
Fund was sent to you under separate cover.
We wish to advise you that the corporate dividends received deduction for
the Fund is zero. Only funds that invest in U.S. equity securities are
entitled to pass-through a corporate dividends received deduction.
For the purpose of preparing your annual federal income tax return,
however, you should report the amounts as reflected on the appropriate Form
1099-DIV or substitute 1099-DIV.
-18-
<PAGE>
<PAGE>
Past performance is no guarantee of future performance, and an investor's
shares when redeemed, may be worth more or less than their original value.
These graphs are furnished to you in accordance with SEC regulations. They
compare a $10,000 investment in Prudential National Municipals Fund (Class A
and Class B) with a similar investment in the Lehman Brothers Municipal Bond
Index (LMB) by portraying the initial account values on January 22, 1990 for
Class A shares and January 1, 1984 for Class B shares and subsequent account
values at the end of each fiscal year (December 31), as measured on a
quarterly basis, beginning in 1990 for Class A shares and in 1984 for Class B
shares. For purposes of the graphs and, unless otherwise indicated, the
accompanying tables, it has been assumed that (a) the maximum sales charge was
deducted from the initial $10,000 investment in Class A shares; (b) the
maximum applicable contingent deferred sales charge was deducted from the
value of the investment in Class B shares assuming full redemption on December
31, 1993; (c) all recurring fees (including management fees) were deducted;
and (d) all dividends and distributions were reinvested.
The LMB is a weighted index comprised of 21,000 municipal bonds (general
obligation bonds, revenue bonds, insured bonds and prerefunded bonds) selected
by Lehman Brothers as representative of the long-term investment grade
municipal bond market. The LMB is an unmanaged index and includes the
reinvestment of all dividends, but does not reflect the payment of transaction
costs and advisory fees associated with an investment in the Fund. The
securities which comprise the LMB may differ substantially from the securities
in the Fund's portfolio. The LMB is not the only index that may be used to
characterize performance of long-term, investment-grade tax-exempt bond funds
and other indexes may portray different comparative performance.
-19-
<PAGE>
<PAGE>
Directors
Delayne Dedrick Gold
Arthur Hauspurg
Harry A. Jacobs, Jr.
Thomas J. McCormack
Lawrence C. McQuade
Stephen P. Munn
Louis A. Weil, III
Officers
Lawrence C. McQuade, President
David W. Drasnin, Vice President
Robert F. Gunia, Vice President
Susan C. Cote, Treasurer
S. Jane Rose, Secretary
Ronald Amblard, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributors
Prudential Mutual Fund Distributors, Inc.
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Price Waterhouse
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
One Seaport Plaza
New York, NY 10292
Toll free (800) 225-1852
Collect (908) 417-7555
This report is not authorized for distribution
to prospective investors unless preceded or
accompanied by a current prospectus.
743918203 MF104E
743918104 Cat. #4303159
<PAGE>
<PAGE>
SEC Required Charts
The following two charts compare a $10,000 investment in Classa Shares
and Class B shares, with a similar investment in the Lehman Brothers General
Municipal Bond Index. Included in the charts are the average annual total
returns for each Class for the one-year, five-year and since inception periods
with and without sales charges.
