(ICON)
Prudential
National
Municipals
Fund, Inc.
SEMI
ANNUAL
REPORT
June 30, 1997
(LOGO)
<PAGE>
Prudential National Municipals Fund, Inc.
Performance At A Glance.
Over the six months ended June 30, tax-free interest rates were buffeted by
signs of a surprisingly robust U.S. economy and then by indications of a more
modest expansion. Interest rates rose at first, peaked at 6.14% in April and
then slid towards 5.70% in June, finishing the half year lower than where they
began. Bond prices rose when interest rates fell. As a result, your Fund
produced healthy returns for the period, which were competitive with the
average general municipal bond fund measured by Lipper Analytical Services,
because we bought long-term bonds that appreciated more as interest rates fell.
Cumulative Total Returns1 As of 6/30/97
<TABLE>
<CAPTION>
Six One Five Since
Months Year Years Inception2
<S> <C> <C> <C> <C>
Class A 3.2% 8.2% 36.4% 72.2%
Class B 3.0 7.8 33.9 316.6
Class C 2.8 7.6 N/A 18.7
Lipper Gen Muni Avg3 3.0 7.8 37.1 ***
</TABLE>
Average Annual Total Returns1 As of 6/30/97
<TABLE>
<CAPTION>
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A 5.0% 5.8% N/A 7.1%
Class B 2.8 5.9 7.0 8.7
Class C 6.6 N/A N/A 6.1
</TABLE>
Dividends & Yields As of 6/30/97
<TABLE>
<CAPTION>
Taxable Equivalent Yield
Total Dividends 30-Day At Tax Rates Of
Paid for 12 Mos. SEC Yield 36% 39.6%
<S> <C> <C> <C> <C>
Class A $0.41 4.77% (4.72)4 7.45% (7.38)4 7.90% (7.81)4
Class B $0.38 4.52 (4.47)4 7.06 (6.98)4 7.48 (7.40)4
Class C $0.36 4.27 (4.22)4 6.67 (6.59)4 7.07 (6.99)4
</TABLE>
Past performance is not indicative of future results. Principal and investment
return will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than original cost.
1Source: Prudential Investments Fund Management and Lipper Analytical Services.
The cumulative total returns do not take into account sales charges. The
average annual returns do take into account applicable sales charges. The Fund
charges a maximum front-end sales load of 3% for Class A shares and a declining
contingent deferred sales charge (CDSC) of 5%, 4%, 3%, 2%, 1% and 1% for six
years, for Class B shares. Class C shares have a 1% CDSC for one year. Class
B shares automatically convert to Class A shares on a quarterly basis, after
approximately seven years.
2Inception dates: 1/22/90 for Class A; 4/25/80 for Class B; and 8/1/94 for
Class C.
3Lipper General Muni Fund Average. Lipper average is based on the average of
all funds in this category for one-, five- and 10-year periods since inception
of the Class B shares on 4/25/80.
4The numbers in parentheses () show the Series' average annual returns, 30-day
SEC yield and taxable equivalent yields without waiver of management fees
and/or expense subsidization.
5Some investors may be subject to the federal alternative minimum tax and/or
state and local taxes. Taxable equivalent yields reflect federal taxes only.
*** Lipper Since Inception returns were Class A, 72.3%; Class B, 345.0%; and
Class C, 20.6% for all funds in each Lipper share class.
How Investments Compared.
(As of 6/30/97)
(CHART)
Source: Lipper Analytical Services. Financial markets change, so a mutual
fund's past performance should never be used to predict future results. The
risks to each of the investments listed above are different -- we provide
12-month total returns for several Lipper mutual fund categories to show you
that reaching for higher returns means tolerating more risk. The greater the
risk, the larger the potential reward or loss. In addition, we've included
historical 20-year average annual returns. These returns assume the
reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors have received higher
historical total returns from stocks than from most other investments. Smaller
capitalization stocks offer greater potential for long-term growth but may be
more volatile than larger capitalization stocks.
General Bond Funds provide more income than stock funds, which can help smooth
out their total returns year by year. But their prices still fluctuate
(sometimes significantly) and their returns have been historically lower than
those of stock funds.
General Municipal Debt Funds invest in bonds issued by state governments, state
agencies and/or municipalities. This investment provides income that is usually
exempt from federal and state income taxes.
Money Market Funds attempt to preserve a constant share value; they don't
fluctuate much in price but, historically, their returns have been generally
among the lowest of the major investment categories.
<PAGE>
Peter J. Allegrini, Fund Manager
(PHOTO)
Portfolio
Manager's Report
We invest in carefully selected, medium quality, long-term municipal bonds
that offer a high level of current income exempt from federal income taxes.
These bonds are varied among the states, maturities and types of activity they
support. There can be no assurance that the Fund will achieve its investment
objective.
A Wise Choice.
For the six months ended June 30, tax-free municipal bonds performed better
than U.S. government securities or corporate bonds, as measured by Lehman
Brothers Index. Why? Demand for tax-exempt bonds rose because many investors
had to reinvest the proceeds of some high coupon bonds issued during the
mid-1980s, which were retired in 1997 prior to their stated maturity.
Strategy Session.
- -------------------------------------------------------------------------------
Rates Rising?
After growing briskly in the final quarter of 1996, the economy sailed into the
new year with the wind at its back. A strong job market and solid retail sales
boosted growth further and investors began to anticipate that the Federal
Reserve would increase the Federal Funds rate (what banks pay each other to
borrow money overnight). They were right. The central bank raised the rate by
a quarter percentage point to 5.5% on March 25 to rein in the robust economic
growth that could fuel higher inflation. It was the first increase in two
years.
Not to Worry.
Some investors responded to this news by pushing bond prices lower and yields
higher because they believed the March interest rate increase would soon be
followed by another. In contrast, we welcomed the Federal Reserve action
because we believed it was necessary to ward off inflation. If the nation's
central bankers acted early, we believed, they would not have to raise interest
rates again when they met in May or July. We were pleased when economic growth,
which had accelerated rapidly during the first quarter, slowed to a more
moderate, sustainable pace in the second. Sensing this change, investors began
to push tax-exempt interest rates lower (and prices higher) later in the second
quarter.
We had anticipated as early as the end of March that tax-exempt rates would
decline. Thus, by extending duration (a measure of sensitivity to interest rate
changes), we enabled your Fund to gain in value more rapidly as interest rates
fell. We lengthened the Fund's duration to 8.3 years as of June 30, 1997 from
6.3 years as of December 31, 1996.
Portfolio Breakdown.
Expressed as a percentage of
total investments as of 6/30/97.
(CHART)
<PAGE>
What Went Well.
- -----------------------------------------------------------
Flexibility Was Key.
During the first quarter of 1997, we purchased bonds priced slightly above
face value (or par) that could be called or retired prior to maturity by the
issuer at par. These bonds offered attractive yields to compensate for the risk
that they might be redeemed before maturity by the issuer. Increasing your
Fund's yield in this way worked well in the first three months of the year,
when interest rates were rising and bonds were less likely to be retired early.
When it became clear in the second quarter that interest rates would fall,
we reversed strategy. When bond prices rise, those with longer maturities and
lower coupons appreciate fastest. So we sold callable bonds and bought
triple-A rated insured bonds that were non-callable. These transactions
lengthened your Fund's duration so its share price could rise as interest
rates declined later in the second quarter.
To maintain yield, we compensated for these purchases by buying higher
yielding triple-B rated bonds. We increased these to 22% of total investments
as of June 30, 1997 from 19% as of December 31, 1996.
And Not So Well.
- -----------------------------------------------------------
More Is Better.
As tax-free interest rates continued to edge lower, the difference in yields
on triple-B rated bonds and higher quality bonds narrowed. Thus, bargain
hunting among lesser quality bonds became difficult. We would have performed
better if we had purchased more triple-B rated bonds in the second quarter
when yields were much more attractive.
Five Largest
Holdings.
3.1% Tulsa Oklahoma
2.5% Colorado
Housing Authority
2.3% Ohio Water
Development Authority
2.2% Metro Pier &
Expo Authority
2.0% Anaheim (CA) Public
Finance Authority
Expressed as a percentage of total investments as of 6/30/97.
Looking Ahead.
- -----------------------------------------------------------
We expect the U.S. economy to cruise along at a moderate pace and inflation to
stay in check for the remainder of the year. A government report recently
showed that wholesale prices fell in June for the sixth consecutive month.
Should moderate growth and subdued inflation continue, the yield on the
30-year U.S.Treasury bond could slide to 6% before year end.
Under these market conditions, we plan to keep your Fund's duration longer than
that of its competition in order to benefit from the continued decline in
interest rates -- and rise in bond prices that we expect. We plan to continue
to buy bonds that cannot be retired prior to maturity as well as bonds that
cannot be called for at least eight to 10 years. Although bargains will be
even more difficult to find should tax-exempt rates tumble further, we will
continue to search diligently for attractively priced triple-B rated bonds.
1
<PAGE>
President's Letter August 4, 1997
- -------------------------------------------------------------------------------
Dear Shareholder:
With the midpoint of 1997 behind us, I'm pleased to report that the recent
news from the financial markets has been decidedly upbeat. The Dow Jones
Industrial Average has gained more than 20% through the end of June, while
lower long-term interest rates have made bonds an attractive investment.
This stands in contrast to April when the Dow fell 10% from a record high on
fears of higher interest rates and surging inflation. Interest rates have
since fallen as the economy slowed and the Dow has reached several new highs.
The market swings we've seen this year illustrate the importance of "staying
the course" to your financial goal. We realize that maintaining investment
discipline when faced with market uncertainty isn't easy. Here are some
thoughts that may help:
- - Keep Your Expectations Realistic. The best investors know that financial
markets rise and fall -- and so too, will the value of their investments.
Over time, however, stocks have been shown to produce very attractive returns
that were well ahead of inflation. And where income is the primary goal,
bonds have also provided attractive returns.
- - Remember Your Time Horizon. If your investment goals are long term (several
years or more), so should your time horizon. During this period, it's not
unusual for stocks and bonds to experience several periods of market
uncertainty.
- - We're On Your Side. Your Prudential Securities Financial Advisor or Pruco
Securities Registered Representative can help you understand what's happening
in the financial markets. They can assist you in making informed decisions
based upon a thorough knowledge of your financial needs and long-term goals.
Call him or her today.
Thank you for your continued confidence in Prudential mutual funds. We'll do
everything we can to keep you informed and to earn your trust.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
2
<PAGE>
Portfolio of Investments as of
June 30, 1997 (Unaudited) PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description(a) Rating Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--97.8%
- ------------------------------------------------------------------------------------------------------------------------------
Alaska--1.6%
Anchorage Alaska Elec. Utility Rev.,
M.B.I.A. Aaa 6.50% 12/01/12 $ 3,400 $ 3,837,546
M.B.I.A. Aaa 6.50 12/01/13 2,500 2,820,200
M.B.I.A. Aaa 6.50 12/01/14 3,455 3,892,990
------------
10,550,736
- ------------------------------------------------------------------------------------------------------------------------------
Arizona--4.1%
Arizona St. Mun. Fin. Proj., Cert. of Part., Ser. 25,
B.I.G. Aaa 7.875 8/01/14 2,250 2,883,285
Maricopa Cnty. Sch. Dist., A.M.B.A.C.,
No. 3 Tempe Elem. Aaa Zero 7/01/09 1,500 800,595
No. 3 Tempe Elem. Aaa Zero 7/01/14 1,500 587,460
Maricopa Cnty. Unified Sch. Dist.,
No. 41 Gilbert, F.G.I.C. Aaa Zero 7/01/07 1,500 901,980
No. 80 Chandler, F.G.I.C. Aaa Zero 7/01/09 1,330 709,861
No. 80 Chandler, M.B.I.A. Aaa Zero 7/01/10 1,050 525,157
No. 80 Chandler, M.B.I.A. Aaa Zero 7/01/11 1,200 565,176
No. 80 Chandler, F.G.I.C. Aaa 6.25 7/01/11 1,000 1,114,090
Phoenix St. & Hwy. User Rev., Ser. A, F.G.I.C. Aaa Zero 7/01/12 3,000 1,329,240
Pima Cnty. Ind. Dev. Auth. Rev., F.S.A. Aaa 7.25 7/15/10 2,245 2,487,146
Pima Cnty. Unified Sch. Dist., Gen. Oblig., F.G.I.C.
No. 1, Tuscan Aaa 7.50 7/01/10 3,000 (g) 3,668,640
No. 16, Catalina Foothills Aaa Zero 7/01/09 3,455 1,844,037
Santa Cruz Cnty., Unified Sch. Dist., A.M.B.A.C.,
No. 1, Nogales Aaa Zero 1/01/06 770 503,880
No. 1, Nogales Aaa Zero 7/01/06 700 446,789
Tucson, Gen. Oblig.,
Ser. A A1 7.375 7/01/11 1,000 1,212,200
Ser. A A1 7.375 7/01/12 1,100 1,338,040
Ser. A A1 7.375 7/01/13 4,500 5,487,975
------------
26,405,551
- ------------------------------------------------------------------------------------------------------------------------------
California--9.3%
Anaheim Pub. Fin. Auth. Lease Rev., F.S.A.,
Sr. Pub. Impvts. Proj., Ser. A Aaa 6.00 9/01/24 5,500 5,909,420
Sub. Pub. Impvts. Proj., Ser. C Aaa 6.00 9/01/16 6,690 7,198,440
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3
<PAGE>
<PAGE>
Portfolio of Investments as of
June 30, 1997 (Unaudited) PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description(a) Rating Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
California (cont'd.)
Kern California High Sch. Dist., Ser. A, M.B.I.A. Aaa 6.30% 2/01/10 $ 2,490 $ 2,777,197
Long Beach Aquarium of the Pacific Rev. BBB(d) 6.125 7/01/15 1,000 1,001,850
Long Beach Aquarium of the Pacific Rev., Ser. A, A.M.T. BBB(d) 6.125 7/01/23 6,000 5,980,620
Los Angeles Met. Trans. Auth., Sales Tax Rev., A.M.B.A.C. BBB(d) 5.25 7/01/23 5,000 4,703,250
San Joaquin Hills Trans. Corridor Agcy. Toll Road Rev. BBB+(d) Zero 1/01/19 5,000 1,359,250
San Jose Redev. Proj., Agcy. Tax Alloc., M.B.I.A. Aaa 6.00 8/01/11 5,000 5,432,250
Santa Margarita/Dana Point Auth., M.B.I.A.,
Impvt. Dists. 3-3A-484A Aaa 7.25 8/01/10 2,450 2,943,111
Impvt. Dists. 3-3A-484A, Ser. B Aaa 7.25 8/01/09 2,000 2,400,360
Impvt. Dists. 3-3A-484A, Ser. B Aaa 7.25 8/01/14 2,000 2,414,900
So. California Pub. Pwr. Auth. Rev., F.G.I.C. Aaa 5.45 7/01/17 6,000 5,746,500
So. California Pub. Pwr. Auth., Transmission Proj. Rev.,
Ser. A, M.B.I.A. Aaa 5.00 7/01/22 4,000 3,639,160
So. Orange Cnty. Pub. Fin. Auth. Rev., F.G.I.C.
Foothill Area Proj. Aaa 8.00 8/15/09 3,650 4,605,716
Foothill Area Proj. Aaa 6.50 8/15/10 2,000 2,271,560
West Contra Costa Sch. Dist., Cert. of Part. Ba1 7.125 1/01/24 1,600 1,690,768
------------
60,074,352
- ------------------------------------------------------------------------------------------------------------------------------
Colorado--5.8%
Arapahoe Cnty., Cap. Imprvmt. Trust Fund,
Pub. Hwy. Rev., Ser. E-470 Baa Zero 8/31/15 29,800 9,170,056
Pub. Hwy. Rev., Ser. E-470 Baa 7.00 8/31/26 3,000 3,390,810
Colorado Hsg. Fin. Auth., A.M.T.,
Singl. Fam. Proj. Aa 8.00 6/01/25 4,420 4,889,006
Singl. Fam. Proj., Ser. A-2 Aa2 7.25 5/01/27 2,000 2,198,720
Singl. Fam. Proj., Ser. B-1 Aa 7.90 12/01/25 2,720 3,023,879
Singl. Fam. Proj., Ser. C-1, M.B.I.A. Aaa 7.65 12/01/25 5,650 6,303,705
Colorado Springs Arpt. Rev., Ser. A., A.M.T. BBB+(d) 7.00 1/01/22 7,960 8,489,738
------------
37,465,914
- ------------------------------------------------------------------------------------------------------------------------------
Connecticut--1.6%
Connecticut St. Hlth. & Edu. Facs. Auth. Rev.,
St. Mary's Hosp. Issue, Ser. E A3 5.50 7/01/20 2,000 1,919,420
St. Mary's Hosp. Issue, Ser. E A3 5.875 7/01/22 1,750 1,750,437
Univ. of Hartford Ba2 6.75 7/01/12 5,475 5,511,628
Connecticut St. Spec. Tax Oblig. Rev., Trans.
Infrastructure, Ser. A A1 7.125 6/01/10 1,000 1,182,530
------------
10,364,015
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 4
<PAGE>
<PAGE>
Portfolio of Investments as of
June 30, 1997 (Unaudited) PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description(a) Rating Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Florida--2.7%
Broward Cnty. Res. Rec. Rev., Broward Co. L.P. South Proj. A 7.95% 12/01/08 $ 8,665 $ 9,435,492
Florida St. Brd. of Ed.,
Admin. Cap. Outlay, Aa 9.125 6/01/14 1,260 1,739,770
Admin. Cap. Outlay, E.T.M. Aaa 9.125 6/01/14 195 271,569
Hillsborough Cnty. Ind. Dev. Auth., Poll. Ctrl. Rev.,
Tampa Elec. Proj., Ser. 9 Aa3 8.00 5/01/22 5,000 5,802,700
------------
17,249,531
- ------------------------------------------------------------------------------------------------------------------------------
Georgia--3.9%
Atlanta Urban Res. Fin. Auth., Clark Atlanta Univ. Dorm.
Fac. Rev. NR 9.25 6/01/10 5,160(b)(g) 5,905,981
Burke Cnty. Dev. Auth., M.B.I.A.,
Georgia Pwr. Plant Co., Vogtle Proj., Ser. 7 Aaa 6.625 10/01/24 500 532,080
Oglethorpe Pwr. Corp. Aaa 8.00 1/01/22 5,000 5,945,800
Forsyth Cnty. Sch. Dist. Dev. Rev., Ser. A A1 6.75 7/01/16 500 580,895
Fulton Cnty. Sch. Dist. Rev., Lindbrook Square Fndtn. Aa 6.375 5/01/17 750 843,203
Georgia Mun. Elec. Auth., Pwr. Rev. Ref.,
Ser. B A 6.25 1/01/17 475 511,356
Ser. B, M.B.I.A. Aaa 6.375 1/01/16 5,000 5,559,700
Ser. Z, M.B.I.A. Aaa 5.50 1/01/20 5,000 4,987,200
Green Cnty. Dev. Auth., Indl. Park Rev. NR 6.875 2/01/04 525 564,701
------------
25,430,916
- ------------------------------------------------------------------------------------------------------------------------------
Guam--0.1%
Guam Pwr. Auth. Rev.,
Ser. A BBB(d) 6.625 10/01/14 250 263,118
Ser. A BBB(d) 6.75 10/01/24 525 554,872
------------
817,990
- ------------------------------------------------------------------------------------------------------------------------------
Hawaii--1.2%
Hawaii St. Arpt. Sys. Rev., 2nd Ser. 90, F.G.I.C., A.M.T. Aaa 7.50 7/01/20 500 543,955
2nd Ser., A.M.T. A 7.00 7/01/18 365 391,397
Hawaii St. Dept. of Budget & Fin.,
Hawaiian Elec. Co., Ser. C, M.B.I.A., A.M.T. Aaa 7.375 12/01/20 500 546,310
Kapiolani Hlth. Care Sys. A2 6.30 7/01/08 500 529,260
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5
<PAGE>
<PAGE>
Portfolio of Investments as of
June 30, 1997 (Unaudited) PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description(a) Rating Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Hawaii (cont'd.)
Hawaii St. Dept. of Budget & Fin.,
Kapiolani Hosp. A 6.00% 7/01/11 $ 250 $ 258,133
Queens Med. Ctr. Proj., F.G.I.C. Aaa 5.90 7/01/07 230 (b) 248,071
Hawaii St., Gen. Oblig., Ser. CJ Aaa 6.25 1/01/15 650 (b) 710,938
Hawaii St. Harbor Cap. Impvt. Rev.,
F.G.I.C., A.M.T. Aaa 6.25 7/01/10 250 269,497
F.G.I.C., A.M.T. Aaa 6.25 7/01/15 500 526,345
Hawaii St. Hsg. Fin. & Dev. Corp. Rev.,
Affordable Rental Proj., Ser. A, A.M.T. A1 6.05 7/01/22 725 729,865
Sngl. Fam. Mtge. Rev., Ser. B, F.N.M.A. Aa 5.85 7/01/17 750 756,787
Honolulu City & Cnty.,
Ref. & Impvt., Ser. B, F.G.I.C. Aaa 5.50 10/01/11 900 926,865
Water Sys. Rev. Aa 5.80 7/01/16 500 511,430
Maui Cnty., Ser. A, M.B.I.A. Aaa 5.65 6/01/10 570 589,220
------------
7,538,073
- ------------------------------------------------------------------------------------------------------------------------------
Illinois--3.8%
Cook and Du Page Cntys. Cap. Apprec., High Sch. Dist. No.
210, F.S.A. Aaa Zero 12/01/11 3,035 1,376,342
Illinois Dev. Fin. Auth. Rev., Cmnty. Rehab. Providers-A BBB* 6.00 7/01/15 2,000 1,986,960
Illinois Hlth. Facs. Auth. Rev., M.B.I.A.
Loyola Univ. Hlth. Sys., Ser. A Aaa 6.00 7/01/13 1,500 (f) 1,593,960
Loyola Univ. Hlth. Sys., Ser. A Aaa 6.00 7/01/14 3,500 (f) 3,707,620
Kane & De Kalb Cntys. Cmnty. United Sch. Dist., No. 301,
A.M.B.A.C. Aaa Zero 12/01/10 3,055 1,473,090
Metropolitan Pier & Expo. Auth, Hosp. Fac. Rev., McCormick
Place Convention BBB-(d) 7.00 7/01/26 12,910 14,573,454
------------
24,711,426
- ------------------------------------------------------------------------------------------------------------------------------
Indiana--1.1%
Merrillville Ind. Multi. Sch. Bldg., M.B.I.A. Aaa 5.80 7/15/17 2,780 2,810,219
Monroe Cnty. Ind. Cmnty Sch. Corp., M.B.I.A. Aaa 5.25 7/01/16 4,330 4,168,794
------------
6,979,013
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 6
<PAGE>
<PAGE>
Portfolio of Investments as of
June 30, 1997 (Unaudited) PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description(a) Rating Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Kentucky--1.9%
Henderson Cnty. Solid Waste Disp. Rev., Macmillan Bloedel
Proj., A.M.T. Baa2 7.00% 3/01/25 $ 6,000 $ 6,488,280
Jefferson Cnty. Poll. Ctrl. Rev., Louisville Gas & Elec.,
Ser. A, A.M.T. Aa2 7.75 2/01/19 5,700 5,913,408
------------
12,401,688
- ------------------------------------------------------------------------------------------------------------------------------
Louisiana--4.6%
New Orleans, Gen. Oblig., Cap. Apprec., A.M.B.A.C. Aaa Zero 9/01/09 13,500 7,092,225
Orleans Parish Sch. Brd., E.T.M., M.B.I.A. Aaa 8.90 2/01/07 5,780 7,536,542
St. Charles Parish, Environ. Impt. Rev., Louisiana Pwr. &
Lt. Co., Ser. A, A.M.T. Baa2 6.875 7/01/24 5,000 5,305,550
St. Charles Parish, Lousiana Poll. Ctrl. Rev.,
Lousiana Pwr. & Lt. Co. Baa3 8.25 6/01/14 4,000 (g) 4,334,360
Lousiana Pwr. & Lt. Co., Ser. 1989 Baa3 8.00 12/01/14 5,000 5,457,150
------------
29,725,827
- ------------------------------------------------------------------------------------------------------------------------------
Maryland--0.6%
Northeast Waste Disp. Auth., Baltimore City Sludge Proj. NR 7.25 7/01/07 3,629 3,804,390
- ------------------------------------------------------------------------------------------------------------------------------
Massachusetts--2.0%
Mass. St. Wtr. Res. Auth. Rev.,
Ser. B, M.B.I.A. Aaa 6.25 12/01/11 6,720 7,414,915
Ser. B, M.B.I.A. Aaa 6.25 12/01/12 5,000 5,512,600
------------
12,927,515
- ------------------------------------------------------------------------------------------------------------------------------
Michigan--1.5%
Holland Sch. Dist., A.M.B.A.C. Aaa Zero 5/01/12 4,000 1,798,760
Michigan St. Hsg. Dev. Auth. Rev.,
Rental Hsg. Rev., Ser. B A+(d) 7.55 4/01/23 1,000 1,069,720
Sngl. Fam. Mtge., Ser. A. AA+(d) 7.50 6/01/15 5,185 5,440,361
Sngl. Fam. Mtge., Ser. D, A.M.T. AA+(d) 7.75 12/01/19 520 523,978
Okemos Pub. Sch. Dist., M.B.I.A.,
Cnty. of Ingham Aaa Zero 5/01/12 1,100 494,659
Cnty. of Ingham Aaa Zero 5/01/13 1,000 422,840
------------
9,750,318
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7
<PAGE>
<PAGE>
Portfolio of Investments as of
June 30, 1997 (Unaudited) PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description(a) Rating Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Minnesota--0.7%
Anoka Hennepin Indpt. Sch. Dist., No. 11, Ser. C, F.S.A. Aaa Zero 2/01/12 $ 1,575 $ 717,869
Minneapolis St. Paul Hsg. Fin. Brd. Rev., Sngl. Fam.
Mtge., G.N.M.A., A.M.T. AAA(d) 7.30% 8/01/31 845 887,537
Minneapolis St. Paul Met. Arpts. Comm., Ser. 7, A.M.T. Aaa 7.80 1/01/14 1,000 1,067,960
St. Paul Science Museum, Cert. of Part., E.T.M. AAA(d) 7.50 12/15/01 851 900,082
Univ. of Minnesota, Ser. A, E.T.M. Aa3 6.00 2/01/11 1,000 1,076,190
------------
4,649,638
- ------------------------------------------------------------------------------------------------------------------------------
Missouri--1.4%
Missouri St. Hsg. Dev. Comm. Mtge Rev., Single Family Loan
Ser. A, G.N.M.A., A.M.T. AAA(d) 7.20 9/01/26 4,920 5,361,816
Sikeston Missouri Elec. Rev., M.B.I.A. Aaa 6.00 6/01/16 3,175 3,426,396
------------
8,788,212
- ------------------------------------------------------------------------------------------------------------------------------
Nebraska--0.4%
Nebraska Edl. Fin. Auth. Rev., Creighton Univ. Proj.,
A.M.B.A.C. Aaa 5.80 1/01/10 2,500 2,602,600
- ------------------------------------------------------------------------------------------------------------------------------
Nevada--2.1%
Clark Cnty. Indl. Dev. Rev., Southwest Gas Corp., Ser. A,
A.M.T. Baa3 6.50 12/01/33 10,000 10,183,300
Nevada Hsg. Div. Multi Unit Hsg., Arville Et Cetera Proj.,
F.N.M.A. Baa3 6.60 10/01/23 3,475 3,615,703
------------
13,799,003
- ------------------------------------------------------------------------------------------------------------------------------
New Hampshire--0.2%
New Hampshire Higher Ed. & Hlth. Facs. Auth. Rev.,
New Hampshire College BBB-(d) 6.30 1/01/16 500 495,155
New Hampshire College BBB-(d) 6.375 1/01/27 1,000 1,000,000
------------
1,495,155
- ------------------------------------------------------------------------------------------------------------------------------
New Jersey--2.3%
New Jersey St. Hsg. & Mtge. Fin. Agcy., Ser. D, A.M.T.,
M.B.I.A. Aaa 7.70 10/01/29 2,335 2,444,932
New Jersey St. Tpke. Auth. Rev., Ser. C, M.B.I.A. Aaa 6.50 1/01/16 11,000 12,418,560
------------
14,863,492
- ------------------------------------------------------------------------------------------------------------------------------
New Mexico--0.8%
New Mexico Mtge. Fin. Auth., Singl. Fam. Mtge., A.M.T. AAA(d) 6.30 7/01/28 5,000 5,148,600
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 8
<PAGE>
<PAGE>
Portfolio of Investments as of
June 30, 1997 (Unaudited) PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description(a) Rating Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
New York--15.7%
Metropolitan Trans. Auth., Trans. Facs. Rev.
Ser. A, F.S.A. Aaa 6.00% 7/01/16 $ 2,500 $ 2,602,150
Ser. O Baa1 5.75 7/01/13 5,820 5,886,872
New York City Ind. Dev. Agcy., Spec. Fac. Rev., Terminal
One Group Assoc. Proj., A.M.T. A 6.00 1/01/19 2,500 2,523,175
New York City Mun. Wtr. Fin. Auth.
F.G.I.C. Aaa 6.75 6/15/16 10,685 (b) 11,702,212
F.G.I.C. Aaa 6.75 6/15/16 10,565 11,359,277
New York City, Gen. Oblig.,
Ser. A BBB+(d) 7.75 8/15/04 60 (b) 68,255
Ser. A Baa1 7.75 8/15/04 1,940 2,145,077
Ser. B Baa1 8.25 6/01/06 1,500 1,801,125
Ser. B Baa1 7.25 8/15/07 3,500 3,996,125
Ser. D Baa1 8.00 8/01/03 2,020 2,262,905
Ser. D BBB+(d) 8.00 8/01/04 455 (b) 521,889
Ser. D Baa1 8.00 8/01/04 715 800,979
Ser. D Aaa 7.65 2/01/07 4,605 (b)(h) 5,274,705
Ser. D Baa1 7.65 2/01/07 395 440,062
Ser. F Baa1 8.25 11/15/02 5,000 5,683,000
Ser. H Baa1 6.00 8/01/17 2,500 2,519,075
Ser. I Baa1 6.25 4/15/27 5,000 5,155,200
New York St. Dorm. Auth. Rev., Ideal Sr. Living Ctr. Hsg.
Corp., F.H.A. AAA(d) 5.90 8/01/26 5,545 5,576,052
New York St. Local Gov't. Assist. Corp., Ser. E A3 6.00 4/01/14 10,000 10,620,900
New York St. Urban Dev. Corp. Aaa 5.50 7/01/16 5,000 4,930,450
New York St. Urban Dev. Corp. Rev. Ref., F.S.A.,
Correctional Facs. Aaa 6.50 1/01/09 3,000 3,390,030
Correctional Facs., Ser. A Aaa 5.50 1/01/14 3,000 3,058,830
Triborough Bridge & Tunl. Auth., Ser. X, M.B.I.A. Aaa 6.625 1/01/12 8,500 9,741,680
------------
102,060,025
- ------------------------------------------------------------------------------------------------------------------------------
North Dakota--1.7%
Mercer Cnty., Antelope Valley Station, A.M.B.A.C Aaa 7.20 6/30/13 9,000 10,726,380
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 9
<PAGE>
<PAGE>
Portfolio of Investments as of
June 30, 1997 (Unaudited) PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description(a) Rating Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Ohio--2.3%
Ohio St. Wtr. Dev. Auth., Poll. Ctrl. Facs. Rev., Buckeye
Pwr. Inc. Proj., A.M.B.A.C. Aaa 7.80% 11/01/14 $ 12,920 $ 15,175,186
- ------------------------------------------------------------------------------------------------------------------------------
Oklahoma--4.3%
McGee Creek Auth. Wtr. Rev., M.B.I.A. Aaa 6.00 1/01/23 7,000 7,506,940
Tulsa Mun. Arpt. Trust Rev., American Airlines, Inc.,
A.M.T. Baa2 7.375 12/01/20 19,000 20,422,340
------------
27,929,280
- ------------------------------------------------------------------------------------------------------------------------------
Oregon--0.2%
Oregon St. Vet. Welfare, Ser. 76A Aa2 6.05 10/01/28 1,500 1,558,710
- ------------------------------------------------------------------------------------------------------------------------------
Pennsylvania--2.0%
Delaware Cnty. Ind. Dev. Auth. Rev., Res. Rec. Fac., Ser.
A Baa1 6.20 7/01/19 6,000 6,132,060
Philadelphia Wtr. & Waste Auth. Rev.,
M.B.I.A. Aaa 6.25 8/01/09 3,400 3,781,854
M.B.I.A. Aaa 6.25 8/01/11 2,500 2,772,950
------------
12,686,864
- ------------------------------------------------------------------------------------------------------------------------------
Puerto Rico--5.4%
Puerto Rico Comnwlth.,
Gen. Oblig. M.B.I.A. Aaa 7.79 (c) 7/01/08 1,000 1,088,750
Gen. Oblig. M.B.I.A. Baa1 6.50 7/01/13 3,000 3,360,930
Gen. Oblig. Baa1 6.45 7/01/17 500 534,535
Puerto Rico Comnwlth., Hwy. & Trans. Auth., Hwy. Rev.,
Ser. V Baa1 6.375 7/01/08 500 531,390
Ser. V Baa1 6.625 7/01/12 4,000 4,300,160
Ser. W Baa1 5.50 7/01/15 2,500 2,502,825
Ser. Z, F.S.A. Aaa 6.00 7/01/18 5,000 5,407,050
Puerto Rico Elec. Pwr. Auth. Rev., Ser. O Baa1 5.00 7/01/12 600 566,694
Puerto Rico Ind., Tourist Ed. Med. & Env. Ctrl. Facs.,
Doctor Pila Hosp. Proj., F.H.A. AAA(d) 6.125 8/01/25 500 523,390
Hosp. Auxilio Mutuo Oblig. Grp. Proj., M.B.I.A. Aaa 6.25 7/01/16 500 527,845
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 10
<PAGE>
<PAGE>
Portfolio of Investments as of
June 30, 1997 (Unaudited) PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description(a) Rating Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Puerto Rico (cont'd.)
Puerto Rico Mun. Fin. Agcy., Ser. A, F.S.A. Aaa 6.00% 7/01/14 $ 250 $ 261,128
Puerto Rico Public Bldgs. Auth. Rev., Ser. L, F.S.A. Aaa 5.75 7/01/10 5,065 5,385,057
Puerto Rico Tel. Auth. Rev.,
Ser. I, M.B.I.A. Aaa 6.667(c) 1/25/07 4,100 4,274,250
Ser. I, M.B.I.A. Aaa 6.459(c) 1/16/15 6,150 6,065,437
------------
35,329,441
- ------------------------------------------------------------------------------------------------------------------------------
South Carolina--1.6%
Charleston Wtrwks. & Swr. Rev., E.T.M. Aaa 10.375 1/01/10 7,415 10,092,705
- ------------------------------------------------------------------------------------------------------------------------------
Tennessee--1.7%
Bristol Hlth. & Edl. Fac. Rev., Bristol Memorial Hosp.,
F.G.I.C. Aaa 6.75 9/01/10 5,000 5,731,850
McMinn Cnty. Ind. Dev. Brd. Solid Waste Rev., Calhoun
Nwsprnt. Recycling Fac., A.M.T. Baa1 7.40 12/01/22 5,000 5,461,300
------------
11,193,150
- ------------------------------------------------------------------------------------------------------------------------------
Texas--3.6%
Bexar Cnty. Hlth. Facs. Dev. Corp. Rev., Baptist Hlth.
Sys., Ser. A, M.B.I.A. Aaa 6.00 11/15/14 5,695 (f) 6,043,477
Dallas Ft. Worth, Regl. Arpt. Rev., F.G.I.C.,
Ser. A Aaa 7.375 11/01/08 3,500 4,054,680
Ser. A Aaa 7.375 11/01/09 3,500 4,036,970
New Braunfels Indpt. Sch. Dist.,
Cap. Apprec. Aaa Zero 2/01/10 2,335 1,195,543
Cap. Apprec. Aaa Zero 2/01/11 2,365 1,140,616
Port Corpus Christi Auth. Rev., A2 7.50 8/01/12 2,000 2,196,560
San Antonio Elec. & Gas Rev., Ser. B, F.G.I.C. Aaa Zero 2/01/09 5,000 2,724,400
Univ. of Texas Rev., Fen. Sys., Ser. B Aa1 6.75 8/15/13 2,035 2,210,438
------------
23,602,684
- ------------------------------------------------------------------------------------------------------------------------------
U.S. Virgin Islands--0.1%
Virgin Islands Pub. Fin. Auth. Rev.,
Gov't. Dev. Proj., Ser. B, A.M.T. BBB-(d) 7.375 10/01/10 300 328,770
Matching Loan Notes, Ser. A NR 7.25 10/01/18 250 271,830
------------
600,600
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 11
<PAGE>
<PAGE>
Portfolio of Investments as of
June 30, 1997 (Unaudited) PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description(a) Rating Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Vermont--0.5%
Vermont Edl. & Hlth. Bldgs. Fin. Agcy. Rev., Middlebury
College Proj. Aa3 5.50% 11/01/16 $ 3,000 $ 2,992,680
- ------------------------------------------------------------------------------------------------------------------------------
Washington--4.7%
Chelan Cnty. Pub. Util., Dist. No. 1, Columbia River Rock
Hydro Elec. Sys. Rev., Ser. A, M.B.I.A. Aaa Zero 6/01/15 15,000 5,479,050
Washington St. Pub. Pwr. Supply Sys. Rev.,
Nuclear Proj. No. 1, Ser. A, F.S.A. Aaa 7.00 7/01/08 4,000 4,604,760
Nuclear Proj. No. 1, Ser. B, F.S.A. Aaa 7.25 7/01/09 5,000 5,856,300
Nuclear Proj. No. 2, F.S.A. Aaa 5.40 7/01/12 10,400 10,134,800
Nuclear Proj. No. 3, Ser. B, F.G.I.C. Aaa Zero 7/01/06 3,000 1,896,420
Washington St. Rev., Ser. R-97A Aa Zero 7/01/16 8,000 2,699,200
------------
30,670,530
- ------------------------------------------------------------------------------------------------------------------------------
Wisconsin--0.3%
Wisconsin Hsg. & Econ. Dev. Auth., Home Ownership Rev.,
A.M.T. Aa 6.20 3/01/27 2,100 2,133,621
------------
Total long-term investments (cost $601,297,754) 634,295,811
------------
SHORT-TERM INVESTMENTS--2.7%
- ------------------------------------------------------------------------------------------------------------------------------
Alaska--0.2%
Valdez Marine Term. Rev., Exxon Pipeline Co. Proj., Ser.
85, F.R.D.D. P-1 4.00 7/01/97 1,000 1,000,000
- ------------------------------------------------------------------------------------------------------------------------------
Illinois--0.7%
Southwestern Illinois Dev. Auth., Shell Oil Co., Wood
River Proj., Ser. 95, F.R.D.D. VMIG1 4.25 7/01/97 4,875 4,875,000
- ------------------------------------------------------------------------------------------------------------------------------
Louisiana--0.8%
West Baton Rouge Parish Ind. Dist. D Rev., Dow Chemical
Co., Ser. 94B, F.R.D.D. P-1 4.15 7/01/97 5,000 5,000,000
- ------------------------------------------------------------------------------------------------------------------------------
Puerto Rico
Puerto Rico Comnwlth. Hwy. & Trans. Auth. Rev., F.R.W.D. VMIG1 3.85 7/02/97 200 200,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 12
<PAGE>
<PAGE>
Portfolio of Investments as of
June 30, 1997 (Unaudited) PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description(a) Rating Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Texas--0.9%
Harris Cnty. Hlth. Fac. Dev. Corp., Methodist Hosp. Rev.,
Ser. 94, F.R.D.D. A-1+(d) 4.15% 7/01/97 $ 6,000 $ 6,000,000
------------
CALL OPTIONS PURCHASED--0.1%
Contracts
---------
United States Treasury Bond, 5.85%, 7/1/06, expiring
11/15/97
@ $118 350 333,594
------------
Total short-term investments (cost $17,435,875) 17,408,594
------------
Total Investments--100.5%
(cost $618,733,629) 651,704,405
Liabilities in excess of other assets--(0.5)% (3,410,794)
------------
Net Assets--100% $648,293,611
------------
------------
</TABLE>
- ---------------
(a) The following abbreviations are used in portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance Corporation
A.M.T.--Alternative Minimum Tax
B.I.G.--Bond Investors Guaranty Insurance Company
E.T.M.--Escrowed to Maturity
F.G.I.C.--Financial Guaranty Insurance Company
F.N.M.A.--Federal National Mortgage Association
F.R.D.D.--Floating Rate Daily Demand Note(e)
F.R.W.D.--Floating Rate Weekly Demand Note(e)
F.S.A.--Financial Security Assurance
G.N.M.A.--Government National Mortgage Association
M.B.I.A.--Municipal Bond Insurance Association
(b) Prerefunded issues are secured by escrowed cash and direct U.S. guaranteed
obligations.
(c) Inverse floating rate bond. The coupon is inversely indexed to a floating
interest rate. The rate shown is the rate at year end.
(d) Standard and Poor's Rating.
(e) For purposes of amortized cost valuation, the maturity date of Floating
Rate Demand Notes is considered to be the later of the next date on which
the security can be redeemed at par or the next date on which the rate of
interest is adjusted.
(f) Represents when-issued or extended settlement security.
(g) Pledged as initial margin on financial futures contracts.
(h) Partially pledged as initial margin on financial futures contracts.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains a description of
Moody's and Standard & Poor's ratings.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 13
<PAGE>
<PAGE>
Statement of Assets and Liabilities
(Unaudited) PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
- -------------------------------------------------------------------------------
<TABLE>
Assets June 30, 1997
<S> <C>
Investments, at value (cost $618,733,629)................................................................... $651,704,405
Cash........................................................................................................ 861,336
Interest receivable......................................................................................... 11,233,912
Receivable for investments sold............................................................................. 642,839
Receivable for Fund shares sold............................................................................. 223,922
Deferred expenses and other assets.......................................................................... 21,295
-------------
Total assets............................................................................................. 664,687,709
-------------
Liabilities
Payable for investments purchased........................................................................... 14,826,599
Payable for Fund shares reacquired.......................................................................... 545,773
Dividends payable........................................................................................... 461,199
Accrued expenses............................................................................................ 224,659
Management fee payable...................................................................................... 144,513
Distribution fee payable.................................................................................... 102,961
Due to broker - variation margin............................................................................ 84,375
Deferred director's fee..................................................................................... 4,019
-------------
Total liabilities........................................................................................ 16,394,098
-------------
Net Assets.................................................................................................. $648,293,611
-------------
-------------
Net assets were comprised of:
Common stock, at par..................................................................................... $ 414,505
Paid-in capital in excess of par......................................................................... 615,702,994
-------------
616,117,499
Accumulated net realized loss on investments............................................................. (654,039)
Net unrealized appreciation on investments............................................................... 32,830,151
-------------
Net assets, June 30, 1997................................................................................... $648,293,611
-------------
-------------
Class A:
Net asset value and redemption price per share
($499,504,535 / 31,954,372 shares of common stock issued and outstanding)............................. $15.63
Maximum sales charge (3% of offering price).............................................................. .48
-------------
Maximum offering price to public......................................................................... $16.11
-------------
-------------
Class B:
Net asset value, offering price and redemption price per share
($147,996,788 / 9,445,545 shares of common stock issued and outstanding).............................. $15.67
-------------
Class C:
Net asset value, offering price and redemption price per share
($792,288 / 50,566 shares of common stock issued and outstanding)..................................... $15.67
-------------
-------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 14
<PAGE>
<PAGE>
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income June 30, 1997
<S> <C>
Income
Interest................................... $ 19,217,326
-------------
Expenses
Management fee............................. 1,540,188
Distribution fee--Class A.................. 242,634
Distribution fee--Class B.................. 393,001
Distribution fee--Class C.................. 2,754
Transfer agent's fees and expense.......... 254,000
Custodian's fees and expenses.............. 60,000
Reports to shareholders.................... 50,000
Registration fees.......................... 34,000
Legal fees and expenses.................... 19,000
Audit fees and expenses.................... 17,000
Directors' fees and expenses............... 14,000
Insurance expense.......................... 6,000
Miscellaneous.............................. 8,287
-------------
Total expenses.......................... 2,640,864
Less: Management fee waiver................ (160,801)
Custodian fee credit.................... (5,090)
-------------
Net expenses............................ 2,474,973
-------------
Net investment income......................... 16,742,353
-------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions.................... 3,136,264
Financial futures contracts................ (780,031)
-------------
2,356,233
-------------
Net change in unrealized appreciation
(depreciation) of:
Investments................................ 1,189,445
Financial futures contracts................ (140,625)
-------------
1,048,820
-------------
Net gain on investment transactions........... 3,405,053
-------------
Net Increase in Net Assets
Resulting from Operations..................... $ 20,147,406
-------------
-------------
</TABLE>
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
Statement of Changes in Net Assets (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) June 30, December 31,
in Net Assets 1997 1996
<S> <C> <C>
Operations
Net investment income........ $ 16,742,353 $ 36,516,570
Net realized gain on
investment transactions... 2,356,233 6,573,149
Net change in unrealized
appreciation
(depreciation) of
investments............... 1,048,820 (26,789,525)
------------- -------------
Net increase in net assets
resulting from
operations................ 20,147,406 16,300,194
------------- -------------
Dividends and distributions
(Note 1)
Dividends from net investment
income
Class A................... (12,872,161) (26,993,477)
Class B................... (3,853,078) (9,491,599)
Class C................... (17,114) (31,494)
------------- -------------
(16,742,353) (36,516,570)
------------- -------------
Distributions in excess of
net investment income
Class A................... -- (129,414)
Class B................... -- (43,154)
Class C................... -- (196)
------------- -------------
-- (172,764)
------------- -------------
Fund share transactions (net of
share conversions) (Note 5 &
6):
Net proceeds from shares
sold...................... 65,885,869 132,494,761
Net asset value of shares
issued in reinvestment of
dividends and
distributions............. 10,400,547 22,304,782
Cost of shares reacquired.... (103,093,512) (224,127,599)
------------- -------------
Net decrease in net assets
from Fund share
transactions.............. (26,807,096) (69,328,056)
------------- -------------
Total decrease.................. (23,402,043) (89,717,196)
Net Assets
Beginning of period............. 671,695,654 761,412,850
------------- -------------
End of period................... $ 648,293,611 $ 671,695,654
------------- -------------
------------- -------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 15
<PAGE>
<PAGE>
Notes to Financial Statements
(Unaudited) PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
- -------------------------------------------------------------------------------
Prudential National Municipals Fund, Inc. (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 Policies
The following is a summary of significant accounting policies 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 Board of 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.
Options: The Fund may either purchase or write options in order to hedge against
adverse market movements or fluctuations in value caused by changes in
prevailing interest rates with respect to securities which the Fund currently
owns or intends to purchase. The Fund's principal reason for writing options is
to realize, through receipt of premiums, a greater current return than would be
realized on the underlying security alone. When the Fund purchases an option, it
pays a premium and an amount equal to that premium is recorded as an investment.
When the Fund writes an option, it receives a premium and an amount equal to
that premium is recorded as a liability. The investment or liability is adjusted
daily to reflect the current market value of the option. If an option expires
unexercised, the Fund realizes a gain or loss to the extent of the premium
received or paid. If an option is exercised, the premium received or paid is an
adjustment to the proceeds from the sale or the cost of the purchase in
determining whether the Fund has realized a gain or loss. The difference between
the premium and the amount received or paid on effecting a closing purchase or
sale transaction is also treated as a realized gain or loss. Gain or loss on
purchased options is included in net realized gain (loss) on investment
transactions. Gain or loss on written options is presented separately as net
realized gain (loss) on written option transactions.
The Fund, as writer of an option, may have no control over whether the
underlying securities may be sold (called) or purchased (put). As a result, the
Fund bears the market risk of an unfavorable change in the price of the security
underlying the written option. The Fund, as purchaser of an option, bears the
risk of the potential inability of the counterparties to meet the terms of their
contracts.
Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Fund is required to pledge to the broker an amount of cash and/or other
assets equal to a certain percentage of the contract amount. This amount is
known as the 'initial margin'. Subsequent payments, known as 'variation margin',
are made or received by the Fund each day, depending on the daily fluctuations
in the value of the underlying security. Such variation margin is recorded for
financial statement purposes on a daily basis as unrealized gain or loss. When
the contract expires or is closed, the gain or loss is realized and is presented
in the statement of operations as net realized gain(loss) on financial futures
contracts.
The Fund invests in financial futures contracts in order to hedge its existing
portfolio securities, or securities the Fund intends to purchase, against
fluctuations in value caused by changes in prevailing interest rates. Should
interest rates move unexpectedly, the Fund may not achieve the anticipated
benefits of the financial futures contracts and may realize a loss. The use of
futures transactions involves the risk of imperfect correlation in movements in
the price of futures contracts, interest rates and the underlying hedged assets.
Securities Transactions and Net 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.
Expenses are recorded on the accrual basis which may require the use of certain
estimates by management.
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.
- --------------------------------------------------------------------------------
16
<PAGE>
<PAGE>
Notes to Financial Statements
(Unaudited) PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
- -------------------------------------------------------------------------------
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, 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.
Custody Fee Credits: The Fund has an arrangement with its custodian bank,
whereby uninvested monies earn credits which reduce the fees charged by the
custodian.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential Investments Fund Management
LLC ('PIFM'). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PIFM has entered into a subadvisory agreement with The Prudential
Investment Corporation ('PIC'); PIC furnishes investment advisory services in
connection with the management of the Fund. PIFM pays for the cost of the
subadviser's services, the compensation of officers of the Fund, occupancy and
certain clerical and bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.
The management fee paid PIFM is computed daily and payable monthly at an annual
rate of .50% of 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. PIFM has agreed to waive a
portion (.05 of 1% of the Fund's average daily net assets) of its management fee
which amounted to $160,801 ($0.004 per share for Class A, B and C shares). The
Fund is not required to reimburse PIFM for such waiver.
The Fund has a distribution agreement with Prudential Securities Incorporated
('PSI'), which acts as the distributor of the Class A, Class B and Class C
shares of the Fund. The Fund compensates PSI for distributing and servicing the
Fund's Class A, Class B and Class C shares, pursuant to plans of distribution
(the 'Class A, B and C Plans'), regardless of expenses actually incurred by
them. The distribution fees are accrued daily and payable monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates PSI with respect to
Class A, B and C shares, for distribution-related activities at an annual rate
of up to .30 of 1%, .50 of 1% and 1%, of the average daily net assets of the
Class A, B and C shares, respectively. Such expenses under the Plans were .10 of
1%, .50 of 1% and .75 of 1% of the average daily net assets of the Class A, B
and C shares, respectively, for the six months ended June 30, 1997.
PSI has advised the Fund that it received approximately $14,800 in front-end
sales charges resulting from sales of Class A shares during the six months ended
June 30, 1997. From these fees, PSI paid such sales charges to Pruco Securities
Corporation, an affiliated broker-dealer, which in turn paid commissions to
salespersons and incurred other distribution costs.
PSI has advised the Fund that for the six months ended June 30, 1997, it
received approximately $179,800 and $100 in contingent deferred sales charges
imposed upon certain redemptions by Class B and Class C shareholders,
respectively.
PSI, PIFM and PIC are indirect, wholly-owned subsidiaries of The Prudential
Insurance Company of America.
The Fund, along with other affiliated registered investment companies (the
'Funds'), entered into a credit agreement (the 'Agreement') on December 31, 1996
with an unaffiliated lender. The maximum commitment under the Agreement is
$200,000,000. The Agreement expires on December 30, 1997. Interest on any such
borrowings outstanding will be at market rates. The purpose of the Agreement is
to serve as an alternative source of funding for capital share redemptions. The
Fund has not borrowed any amounts pursuant to the Agreement as of June 30, 1997.
The Funds pay a commitment fee at an annual rate of .055 of 1% on the unused
portion of the credit facility. The commitment fee is accrued and paid quarterly
on a pro-rata basis by the Funds.
- ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly-owned subsidiary of PIFM,
serves as the Fund's transfer agent and during the six months ended June 30,
1997, the Fund incurred fees of approximately $213,000 for the services of PMFS.
As of June 30, 1997, $36,500 of such fees were due to PMFS. Transfer agent fees
and expenses in the Statement
- --------------------------------------------------------------------------------
17
<PAGE>
<PAGE>
Notes to Financial Statements
(Unaudited) PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
- -------------------------------------------------------------------------------
of Operations include certain out-of-pocket expenses paid to non-affiliates.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the six months ended June 30, 1997, were $134,658,864 and $174,738,907,
respectively.
At June 30, 1997 the Fund bought 150 financial futures contracts on the U.S.
Treasury Index which expire in September 1997. The value at disposition of such
contracts is $16,800,000. The value of such contracts on June 30, 1997 was
$16,659,375, thereby resulting in an unrealized loss of $140,625.
The federal income tax basis of the Fund's investments at June 30, 1997 was
substantially the same as for financial reporting purposes and, accordingly, net
unrealized appreciation for federal income tax purposes was $32,970,776 (gross
unrealized appreciation--$33,721,985; gross unrealized depreciation--$751,209).
For federal income tax purposes, the Fund has a capital loss carryforward as of
December 31, 1996 of approximately $3,010,300 of which $2,657,800 expires in
2002 and $352,500 expires in 2003. Accordingly, no capital gains distribution is
expected to be paid until net gains have been realized in excess of such amount.
- ------------------------------------------------------------
Note 5. Capital
The Fund offers Class A, Class B and Class C shares. Class A shares are sold
with a front-end sales charge of up to 3.0%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Class C shares are sold with a contingent
deferred sales charge of 1% during the first year. Class B shares will
automatically convert to Class A shares on a quarterly basis approximately seven
years after purchase. A special exchange privilege is also available for
shareholders who qualify to purchase Class A shares at net asset value.
There are 750 million shares of common stock, $.01 par value, per share, divided
into three classes, designated Class A, Class B and Class C 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>
Six months ended June 30, 1997:
Shares sold...................... 3,138,611 $ 47,772,294
Shares issued in connection with
the acquisition of Prudential
Municipal Series Fund-Hawaii
Income Series (Note 6)......... 896,395 14,045,247
Shares issued in reinvestment of
dividends...................... 518,343 8,022,513
Shares reacquired................ (5,517,976) (85,403,939)
----------- -------------
Net decrease in shares
outstanding before
conversion..................... (964,627) (15,563,885)
Shares issued upon conversion
from Class B................... 612,567 9,555,308
----------- -------------
Net decrease in shares
outstanding.................... (352,060) $ (6,008,577)
----------- -------------
----------- -------------
<CAPTION>
Class A
- ---------------------------------
<S> <C> <C>
Year ended December 31, 1996:
Shares sold...................... 7,874,132 $ 121,137,131
Shares issued in reinvestment of
dividends and distributions.... 1,069,965 16,527,402
Shares reacquired................ (12,415,345) (191,331,476)
----------- -------------
Net decrease in shares
outstanding before
conversion..................... (3,471,248) (53,666,943)
Shares issued upon conversion
from Class B................... 2,099,600 32,135,995
----------- -------------
Net decrease in shares
outstanding.................... (1,371,648) $ (21,530,948)
----------- -------------
----------- -------------
<CAPTION>
Class B
- ---------------------------------
<S> <C> <C>
Six months ended June 30, 1997:
Shares sold...................... 255,028 $ 3,953,978
Shares issued in reinvestment of
dividends...................... 152,591 2,367,255
Shares reacquired................ (1,133,557) (17,581,424)
----------- -------------
Net decrease in shares
outstanding before
conversion..................... (725,938) (11,260,191)
Shares reacquired upon conversion
into Class A................... (611,192) (9,555,308)
----------- -------------
Net decrease in shares
outstanding.................... (1,337,130) $ (20,815,499)
----------- -------------
----------- -------------
</TABLE>
- --------------------------------------------------------------------------------
18
<PAGE>
<PAGE>
Notes to Financial Statements
(Unaudited) PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Shares Amount
- --------------------------------- ----------- -------------
<S> <C> <C>
Year ended December 31, 1996:
Shares sold...................... 698,535 $ 10,812,210
Shares issued in reinvestment of
dividends and distributions.... 371,613 5,754,354
Shares reacquired................ (2,107,215) (32,615,599)
----------- -------------
Net decrease in shares
outstanding before
conversion..................... (1,037,067) (16,049,035)
Shares reacquired upon conversion
into Class A................... (2,095,072) (32,135,995)
----------- -------------
Net decrease in shares
outstanding.................... (3,132,139) $ (48,185,030)
----------- -------------
----------- -------------
<CAPTION>
Class C
- ---------------------------------
<S> <C> <C>
Six months ended June 30, 1997:
Shares sold...................... 7,373 $ 114,350
Shares issued in reinvestment of
dividends...................... 695 10,779
Shares reacquired................ (6,979) (108,144)
----------- -------------
Net increase in shares
outstanding.................... 1,089 $ 16,985
----------- -------------
----------- -------------
Year ended December 31, 1996:
Shares sold...................... 34,623 $ 545,420
Shares issued in reinvestment of
dividends and distributions.... 1,490 23,026
Shares reacquired................ (11,778) (180,524)
----------- -------------
Net increase in shares
outstanding.................... 24,335 $ 387,922
----------- -------------
----------- -------------
</TABLE>
- ------------------------------------------------------------
Note 6. Acquisition of Prudential Municipal Series Fund--Hawaii Income Series
On June 27, 1997, the Fund acquired all the net assets of Prudential Municipal
Series Fund--Hawaii Income Series ('Hawaii') pursuant to a plan of
reorganization approved by Hawaii shareholders on June 16, 1997. The acquisition
was accomplished by a tax-free exchange of 896,395 Class A shares of the Fund
(valued at $14,045,247 in the aggregate) for the Class A, B and C shares of
Hawaii outstanding on June 27, 1997. Hawaii net assets at that date
($14,045,247), including $731,983 of unrealized appreciation, were combined with
those of the Fund. The aggregate net assets of the Fund and Hawaii immediately
before the acquisition were $635,872,295 and $14,045,247, respectively.
- --------------------------------------------------------------------------------
19
<PAGE>
<PAGE>
Financial Highlights (Unaudited) PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------------------------
Six Months
Ended Year Ended December 31,
June 30, --------------------------------------------------------
1997 1996 1995 1994 1993 1992
---------- -------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................. $ 15.56 $ 15.98 $ 14.42 $ 16.30 $ 15.94 $16.00
---------- -------- -------- ------- ------- ------
Income from investment operations
Net investment income................................. .41(b) .82(b) .81(b) .81 .90 .94
Net realized and unrealized gain (loss) on investment
transactions....................................... .07 (.42) 1.57 (1.78) 1.05 .43
---------- -------- -------- ------- ------- ------
Total from investment operations................... .48 .40 2.38 (.97) 1.95 1.37
---------- -------- -------- ------- ------- ------
Less distributions
Dividends from net investment income.................. (.41) (.82) (.81) (.81) (.90) (.94)
Distributions in excess of net investment income...... -- -- (c) (.01) -- -- --
Distributions from net realized gains................. -- -- -- (.10) (.69) (.49)
---------- -------- -------- ------- ------- ------
Total distributions................................ (.41) (.82) (.82) (.91) (1.59) (1.43)
---------- -------- -------- ------- ------- ------
Net asset value, end of period........................ $ 15.63 $ 15.56 $ 15.98 $ 14.42 $ 16.30 $15.94
---------- -------- -------- ------- ------- ------
---------- -------- -------- ------- ------- ------
TOTAL RETURN(a):...................................... 3.16% 2.66% 16.91% (6.04)% 12.60% 8.88%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)....................... $499,505 $502,739 $538,145 $12,721 $14,167 $7,700
Average net assets (000).............................. $489,290 $508,159 $446,350 $14,116 $11,786 $5,401
Ratios to average net assets:
Expenses, including distribution fees.............. .67%(b)(d) .68%(b) .75%(b) .77% .69% .72%
Expenses, excluding distribution fees.............. .57%(b)(d) .58%(b) .65%(b) .67% .59% .62%
Net investment income.............................. 5.30%(b)(d) 5.31%(b) 5.34%(b) 5.38% 5.49% 5.79%
For Class A, B and C shares:
Portfolio turnover rate............................ 21% 46% 98% 120% 82% 114%
</TABLE>
- ---------------
(a) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(b) Net of management fee waiver.
(c) Less than $.005 per share.
(d) Annualized.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 20
<PAGE>
<PAGE>
Financial Highlights (Unaudited) PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
---------------------------------------------------------------------------
Six Months
Ended Year Ended December 31,
June 30, ------------------------------------------------------------
1997 1996 1995 1994 1993 1992
---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................. $ 15.60 $ 16.02 $ 14.45 $ 16.33 $ 15.97 $ 16.02
---------- -------- -------- -------- -------- --------
Income from investment operations
Net investment income................................. .38(b) .76(b) .76(b) .75 .84 .88
Net realized and unrealized gain (loss) on investment
transactions....................................... .07 (.42) 1.58 (1.78) 1.05 .44
---------- -------- -------- -------- -------- --------
Total from investment operations................... .45 .34 2.34 (1.03) 1.89 1.32
---------- -------- -------- -------- -------- --------
Less distributions
Dividends from net investment income.................. (.38) (.76) (.76) (.75) (.84) (.88)
Distributions in excess of net investment income...... -- -- (c) (.01) -- -- --
Distributions from net realized gains................. -- -- -- (.10) (.69) (.49)
---------- -------- -------- -------- -------- --------
Total distributions................................ (.38) (.76) (.77) (.85) (1.53) (1.37)
---------- -------- -------- -------- -------- --------
Net asset value, end of period........................ $ 15.67 $ 15.60 $ 16.02 $ 14.45 $ 16.33 $ 15.97
---------- -------- -------- -------- -------- --------
---------- -------- -------- -------- -------- --------
TOTAL RETURN(a):...................................... 2.95% 2.26% 16.49% (6.39)% 12.15% 8.50%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)....................... $147,997 $168,185 $222,865 $672,272 $848,299 $828,702
Average net assets (000).............................. $158,503 $193,312 $252,313 $751,623 $854,919 $829,830
Ratios to average net assets:
Expenses, including distribution fees.............. 1.07%(b)(d) 1.08%(b) 1.15%(b) 1.17% 1.09% 1.12%
Expenses, excluding distribution fees.............. .57%(b)(d) .58%(b) .65%(b) .67% .59% .62%
Net investment income.............................. 4.90%(b)(d) 4.91%(b) 4.96%(b) 4.96% 5.09% 5.39%
</TABLE>
- ---------------
(a)Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(b) Net of management fee waiver.
(c) Less than $.005 per share.
(d) Annualized.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 21
<PAGE>
<PAGE>
Financial Highlights (Unaudited) PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
-----------------------------------------------------------
August 1,
Six Months 1994(e)
Ended Year Ended December 31, through
June 30, --------------------------- December 31,
1997 1996 1995 1994
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.................. $ 15.60 $16.02 $14.44 $15.13
---------- ----- ----- -----
Income from investment operations
Net investment income................................. .36(b) .72(b) .72(b) .29
Net realized and unrealized gain (loss) on investment
transactions....................................... .07 (.42) 1.59 (.69)
---------- ----- ----- -----
Total from investment operations................... .43 .30 2.31 (.40)
---------- ----- ----- -----
Less distributions
Dividends from net investment income.................. (.36) (.72) (.72) (.29)
Distributions in excess of net investment income...... -- -- (c) (.01) --
---------- ----- ----- -----
Total distributions................................ (.36) (.72) (.73) (.29)
---------- ----- ----- -----
Net asset value, end of period........................ $ 15.67 $15.60 $16.02 $14.44
---------- ----- ----- -----
---------- ----- ----- -----
TOTAL RETURN(a):...................................... 2.83% 2.01% 16.22% (2.63)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)....................... $792 $772 $403 $141
Average net assets (000).............................. $741 $674 $247 $103
Ratios to average net assets:
Expenses, including distribution fees.............. 1.32%(b)(d) 1.33%(b) 1.40%(b) 1.51%(d)
Expenses, excluding distribution fees.............. .57%(b)(d) .58%(b) .65%(b) .76%(d)
Net investment income.............................. 4.65%(b)(d) 4.67%(b) 4.66%(b) 4.84%(d)
</TABLE>
- ---------------
(a)Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(b) Net of management fee waiver.
(c) Less than $.005 per share.
(d) Annualized.
(e) Commencement of offering of Class C shares.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 22
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Directors
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Robert F. Gunia
Harry A. Jacobs, Jr.
Donald D. Lennox
Mendel A. Melzer
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Louis A. Weil, III
Officers
Richard A. Redeker, President
Thomas A. Early, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07102-3777
Distributor
Prudential 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 LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Shereff, Friedman, Hoffman & Goodman LLP
919 Third Avenue
New York, NY 10022
The views expressed in this report and information about the Fund's portfolio
holdings are for the period covered by this report and are subject to change
thereafter.
The accompanying financial statements as of June 30, 1997 were not audited and,
accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
BULK RATE
U.S. POSTAGE
PAID
Permit 6807
New York, NY
743918203 MF104E2
743918104 Cat#4303167
743918302
