(ICON)
Prudential
National
Municipals
Fund, Inc.
ANNUAL
REPORT
Dec. 31, 1996
(LOGO)
<PAGE>
Prudential National Municipals Fund, Inc.
Performance At A Glance.
After an exceptional year in 1995, the municipal bond market
disappointed
investors in 1996. During the year, the 30-day SEC yield on
your Fund
rose as much as a half of a percentage point, then ended on
December
31, 1996 slightly higher than it was at the beginning of the
year. But
at the same time, bond prices fell when interest rates rose.
As a
result, your Fund produced positive, although limited,
returns. In
addition, the Fund performed behind the average general
municipal
fund measured by Lipper Analytical Services because it had
been
positioned in anticipation of falling interest rates.
<TABLE>
Cumulative Total Returns1 As of 12/31/96
<CAPTION>
One Five Ten Since
Year Years Years
Inception2
<S> <C> <C> <C> <C>
Class A 2.7% 38.3% N/A 66.9%
Class B 2.3 35.7 85.8% 304.6
Class C 2.0 N/A N/A 15.4
Lipper Gen. Muni Avg3 3.3 38.9 100.3 **
<CAPTION>
Average Annual Total Returns1 As of
12/31/96
One Five Ten Since
Year Years Years
Inception2
<S> <C> <C> <C> <C>
Class A -0.4% 6.0% N/A 7.2%
Class B -2.7 6.1 6.4% 8.7
Class C 1.0 N/A N/A 6.1
</TABLE>
<TABLE>
Taxable Equivalent Yield5
Total Dividends 30-Day
At Tax Rates Of
Paid for 12 Mos. SEC Yield
36% 39.6%
<S> <C> <C> <C>
<C> <C> <C> <C>
Dividends
& Yields Class A $0.82 4.75% (4.70)4
7.42% (7.34)4 7.86% (7.78)4
As of Class B $0.76 4.49 (4.44)4
7.02 (6.94)4 7.43 (7.35)4
12/31/96 Class C $0.72 4.24 (4.19)4
6.63 (6.55)4 7.02 (6.94)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 their original
cost.
1Source: Prudential Mutual 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) 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;
8/1/94
for Class C.
3These are the cumulative total returns of 225 funds in the
Lipper General
Municipal Fund category for one year, 103 funds for five
years and
64 funds for 10 years.
4The numbers in parentheses ( ) show the Fund's average
annual
returns, 30-day SEC yield and taxable equivalent yields
without
waiver of management fees and/or expenses 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: 67.2% for 87
funds; Class B: 333.5% for 31 funds; and Class C: 16.8% for
182
funds. Lipper provides data on a monthly basis, so for
comparative
purposes, these returns reflect the Fund's first full
calendar
month of performance.
How Investments Compared.
(As of 12/31/96)
(GRAPH)
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
yields
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
(PICTURE)
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.
More
Insured Bonds.
As buyers become more quality conscious, more tax-free
municipal
bonds are being issued with insurance. For example, in 1996,
46% of all
new tax-free municipal bonds issued nationally were insured.
Insured
bonds in our Fund now total 54% of assets, up from 42% a
year ago.
This benefits you, because payment of both interest and
principal
of a bond are guaranteed by an insurance company. Of course,
no
insurance is available to prevent the price of bonds, and
bond
funds, from fluctuating from day to day.
Strategy Session.
We Were Conservative.
We followed a fairly conservative strategy in 1996. High
quality,
more conservative bonds were priced most attractively, so we
focused
on them. The tax-free municipal bond market did not reward
us enough
to accept the risks posed by bonds with lower credit quality
or longer
maturities. As a result, your Fund now has a higher credit
quality,
and a shorter average maturity, than it did a year
ago. At the same time, because interest rates in the bond
market
are higher than they were a year ago, your Fund has a higher
yield. Let us explain:
High On Quality.
As the supply of municipal bonds shrunk in 1996 to the
lowest
level since 1991, more investors competed for fewer and
fewer
bonds. The shrinkage was purely technical and won't persist
- -- a
large number of bonds were issued in 1986, before that
year's
sweeping tax reform law was adopted, and many were called by
their issuers this year.
This situation worked in favor of conservative, quality bond
funds
that buy investment grade bonds, including us. Other
investors
searching for high yields bid the prices of lower-quality
bonds
up so high that higher-quality bonds we like to
buy seemed inexpensive, particularly given that they carry
far
less credit risk. We took advantage of this discrepancy to
sell
some of our lower-rated bonds, bringing them down to 20% of
Fund
assets as of December 31, 1996 from 31% a year earlier.
This increased our AAA-rated and insured bonds to 60% of the
Fund's assets from 45%.
Portfolio Breakdown.
(PIE CHART)
Expressed as a percentage of
total investments as of 12/31/96.
<PAGE>
What Went Well.
Refunds, YES!
When interest rates fall, homeowners refinance their
mortgages.
Those who sell tax-free municipal bonds do something similar
- -- they
refund them, by purchasing U.S. Treasurys at lower interest
rates and
placing them in escrow to repay the debt as scheduled. This
makes the
bondholder almost as happy as the bond issuer, because the
bonds
become more valuable when their interest and principal is
guaranteed
by U.S. Treasurys (which carry a higher credit rating than
the
borrower). We were pleased that two bonds we owned this year
issued
by Harris County, TX, and Henrico County, VA., were
refunded. These
bonds represented 2% of the Fund.
We sold these bonds at a profit and then reinvested them in
longer-term
bonds maturing in 18 to 20 years. So not only did we make a
profit on
the sale, we added about 1.5 percentage points of higher
yield to those
positions because of the transaction.
Five Largest Issuers.
3.9% Washington St.
Public Power
Nuclear Projects
3.5% New York City Municipal
Water Finance Authority
3.4% New York City
General Obligations
3.0% Tulsa (OK) Municipal
Airport Trust Revenue
2.3% Ohio St. Water Dev. Auth.
Pollution Control
Facilities
Expressed as a percentage of total net assets as of
12/31/96.
And Not So Well.
Long Was Wrong.
Despite these positive moves, our returns early in 1996 were
constrained because we held long maturities when interest
rates
rose suddenly. At the time, the economy seemed to be on the
brink
of recession, hopes were high in Washington for a balanced
budget,
and interest rates were falling. Suddenly, though, the
tables
turned. The economy awoke from its winter slumber and
interest
rates surged. Investors were no longer interested in long-
term
bonds. The Fund wasn't positioned for this turnaround, and
its
performance suffered.
Looking Ahead.
As 1997 began, municipal bond investors had cause for
optimism.
Inflation has been quite subdued. In fact, if you exclude
the often
volatile food and energy prices, consumer prices were up
2.6% in 1996,
tying 1994's gain, which was the lowest since 1965. But
there are
some concerns on the horizon. Unemployment is just coming
off a
seven-year low, so we do have to watch the potential for
wage
inflation. But so far -- at least in 1996 -- it seemed to be
under
control.
Credit Quality.
Expressed as a percentage of
total investments as of 12/31/96.
(PIE CHART)
1
<PAGE>
President's Letter February
3, 1997
(PICTURE)
Dear Shareholder:
For many investors, 1996 was the second year of back-to-
back,
double-digit stock market returns. In late November, the
Dow
Jones Industrial Average passed 6500 -- only weeks after
breaking
the 6000 mark in mid-October -- and another record high was
reached
in January 1997. America's economic expansion is entering
its sixth
year and there seems little evidence of an end to the
continued
modest growth and low inflation we've enjoyed for the last
several
years.
This is good news. For most investors it's meant an increase
in
their share values for college funds, retirement nest eggs
or other
long-term financial goals. However, as you read your year-
end
account statements and make plans for 1997, it's important
to
remember that there never is a Osure thingO when it comes to
investment returns. Stock and bond markets go down just as
they
go up. (Did you notice the brief period of decline this past
summer?) No one likes to see the value of their investments
fall
but such periods remind us we must keep our expectations
realistic.
Regardless of the market's direction, a wise investor plans
for
tomorrow's needs today. Your Financial Advisor or Registered
Representative can help you:
- -- Review your portfolio and suggest strategies for 1997,
such
as diversifying across different types of investments.
Financial
markets seldom move in lockstep. By investing
in a mix of stock and bond funds (foreign & domestic) and
money
market funds you may be in a better position to achieve your
long-term goals and to weather periods of uncertainty.
- -- See why annuities have become popular retirement
planning tools.
The choices are broader than ever. Our new Discovery
SelectSM
Variable Annuity offers you many of the keys to successful
retirement planning, including a personalized asset
allocation
program and a choice of 21 variable- or fixed-rate
investment
options offering a broad array of investment objectives and
styles.
- -- Explain new retirement savings developments. For
example,
Congress has expanded the contribution limit on spousal
IRAs.
And don't forget, it's not too late for you to make a
contribution to your IRA or open one for 1996. The IRS
deadline
is April 15, 1997, but it's best to act sooner.
Why not contact your Financial Advisor or Registered
Representative
today? If you are interested in Discovery SelectSM call for
a
prospectus, which contains more complete information. Read
it
carefully before you invest.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
P.S. Your 1997 Prudential IRA contribution may qualify you
for a
waiver of the annual custodial fee. Ask your financial
representative
for details.
2
<PAGE>
<PAGE>
Portfolio of Investments as of
December 31, 1996 PRUDENTIAL NATIONAL
MUNICIPALS FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description(a)
(Unaudited) Rate Date (000) (Note
1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
LONG-TERM INVESTMENTS--98.0%
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Alabama--0.5%
Jasper Wtrwks. & Swr. Brd., Wtr. & Swr. Rev., A.M.B.A.C.
Aaa 6.00% 6/01/18 $ 3,350 $
3,499,108
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Alaska--2.2%
Anchorage Alaska Gen. Oblig., A.M.B.A.C.
Aaa 6.25 6/01/23 4,000
4,076,760
Anchorage Alaska Elec. Utility Rev.,
M.B.I.A.
Aaa 6.50 12/01/12 3,400
3,799,670
M.B.I.A.
Aaa 6.50 12/01/13 2,500
2,790,500
M.B.I.A.
Aaa 6.50 12/01/14 3,455
3,870,671
- ------------
14,537,601
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Arizona--3.9%
Arizona St. Mun. Fin. Proj., Cert. of Part., Ser. 25,
B.I.G.
Aaa 7.875 8/01/14 2,250
2,869,515
Maricopa Cnty. Sch. Dist., A.M.B.A.C.,
No. 3 Tempe Elem.
Aaa Zero 7/01/09 1,500
765,930
No. 3 Tempe Elem.
Aaa Zero 7/01/14 1,500
560,025
Maricopa Cnty. Unified Sch. Dist.,
No. 80 Chandler, F.G.I.C.
Aaa Zero 7/01/09 1,330
679,124
No. 80 Chandler, M.B.I.A.
Aaa Zero 7/01/10 1,050
504,756
No. 80 Chandler, M.B.I.A.
Aaa Zero 7/01/11 1,200
542,556
No. 80 Chandler, F.G.I.C.
Aaa 6.25 7/01/11 1,000
1,102,770
No. 41 Gilbert, F.G.I.C.
Aaa Zero 7/01/07 1,500
870,510
Phoenix St. & Hwy. User Rev., Ser. A, F.G.I.C.
Aaa Zero 7/01/12 3,000
1,274,490
Pima Cnty. Ind. Dev. Auth. Rev., F.S.A.
Aaa 7.25 7/15/10 2,245
2,500,773
Pima Cnty. Unified Sch. Dist., Gen. Oblig., F.G.I.C.
No. 1, Tuscan
Aaa 7.50 7/01/10 3,000
3,647,010
No. 16, Catalina Foothills
Aaa Zero 7/01/09 3,455
1,764,192
Santa Cruz Cnty., Unified Sch. Dist., A.M.B.A.C.,
No. 1, Nogales
Aaa Zero 1/01/06 770
487,241
No. 1, Nogales
Aaa Zero 7/01/06 700
431,823
Tucson Gen. Oblig.,
Ser. A
A1 7.375 7/01/11 1,000
1,210,410
Ser. A
A1 7.375 7/01/12 1,100
1,335,290
Ser. A
A1 7.375 7/01/13 4,500
5,473,755
- ------------
26,020,170
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements.
3 -----
<PAGE>
Portfolio of Investments as of
December 31, 1996 PRUDENTIAL NATIONAL
MUNICIPALS FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description(a)
(Unaudited) Rate Date (000) (Note
1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
California--6.7%
California St Univ. & Hsg. Rev., F.G.I.C.
Aaa 5.75% 11/01/15 $ 7,485 $
7,574,595
Kern California High Sch. Dist., Ser. A, M.B.I.A.
Aaa 6.30 2/01/10 2,490
2,750,006
Long Beach Aquarium of the Pacific Rev., Ser. A, A.M.T.
BBB(d) 6.125 7/01/23 6,000
5,880,660
San Francisco City Swr. Rev., Cap Apprec., Ser. B,
F.G.I.C.
Aaa Zero 10/01/09 2,960
1,494,948
San Jose Redev. Proj., Agcy. Tax Alloc., M.B.I.A.
Aaa 6.00 8/01/11 5,000
5,389,150
Santa Margarita/Dana Point Auth., M.B.I.A.,
Impvt. Dists., 3-3A-484A
Aaa 7.25 8/01/09 2,000
2,384,900
Impvt. Dists., 3-3A-484A
Aaa 7.25 8/01/10 2,450
2,918,073
Impvt. Dists., 3-3A-484A
Aaa 7.25 8/01/14 2,000
2,413,500
So. California Pub. Pwr. Auth. Rev., F.G.I.C.
Aaa 5.45 7/01/17 6,000
5,722,440
So. Orange Cnty. Pub. Fin. Auth. Rev., F.G.I.C.,
Foothill Area. Proj.
Aaa 8.00 8/15/09 3,650
4,590,824
Foothill Area. Proj.
Aaa 6.50 8/15/10 2,000
2,255,560
West Contra Costa Sch. Dist., Cert. of Part.
Ba1 7.125 1/01/24 1,600
1,702,704
- ------------
45,077,360
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Colorado--5.8%
Arapahoe Cnty. Cap. Imprvmt. Trust Fund Hwy.,
Pub. Hwy. Rev., Ser. E-470
Baa Zero 8/31/15 29,800
8,428,036
Pub. Hwy. Rev., Ser. E-470
Baa 7.00 8/31/26 3,000
3,310,080
Colorado Hsg. Fin. Auth., A.M.T.,
Singl. Fam. Proj.,
Aa 8.00 6/01/25 4,585
5,070,964
Singl. Fam. Proj., Ser. B-1,
Aa 7.90 12/01/25 2,855
3,150,093
Singl. Fam. Proj., Ser. C-1, M.B.I.A.
Aaa 7.65 12/01/25 5,845
6,495,724
Colorado Springs Arpt. Rev., A.M.T.,
Ser. A.
BBB+(d) 6.90 1/01/12 3,700
3,916,376
Ser. A.
BBB+(d) 7.00 1/01/22 7,960
8,454,714
- ------------
38,825,987
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Florida--3.3%
Broward Cnty. Res. Rec. Rev., Broward Co. L.P. South
Proj.,
A 7.95 12/01/08 8,665
9,517,982
Florida St. Brd. of Ed.,
Admin. Cap. Outlay,
Aa 9.125 6/01/14 1,260
1,774,685
Admin. Cap. Outlay, E.T.M.
Aaa 9.125 6/01/14 195
276,432
Hillsborough Cnty. Ind. Dev. Auth. Poll. Ctrl. Rev.,
Tampa Elec. Proj., Ser. 9
Aa3 8.00 5/01/22 5,000
5,814,500
Jacksonville Elec. Auth., St Johns Riv. Pwr., Ser. 7
Aa1 5.50 10/01/14 5,000
4,943,750
- ------------
22,327,349
</TABLE>
- ------------------------------------------------------------
- --------------------
4 See Notes to
Financial Statements.
<PAGE>
Portfolio of Investments as of
December 31, 1996 PRUDENTIAL NATIONAL
MUNICIPALS FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description(a)
(Unaudited) Rate Date (000) (Note
1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Georgia--2.6%
Atlanta Urban Res. Fin. Auth., Clark Atlanta Univ. Dorm.
Fac. Rev.
NR 9.25% 6/01/10 $ 5,375 (b) $
6,253,329
Burke Cnty. Dev. Auth., M.B.I.A.,
Georgia Pwr. Plant Co., Vogtle Proj., Ser. 7
Aaa 6.625 10/01/24 500
535,460
Oglethorpe Pwr. Corp.
Aaa 8.00 1/01/22 5,000
5,892,350
Cobb Cnty. Kennestone Hosp. Auth. Rev., Ser. A, M.B.I.A.
Aaa 5.00 4/01/24 750
679,665
DeKalb Cnty. Wtr. & Swr. Rev.,
Aa 5.25 10/01/23 250
233,333
DeKalb Private Hosp. Auth. Rev., Wesley Svcs. Inc. Proj.
Aa3 8.25 9/01/15 500
516,555
Forsyth Cnty. Sch. Dist. Dev. Rev., Ser. A
A1 6.75 7/01/16 500
576,155
Fulton Cnty. Sch. Dist. Rev., Lindbrook Square Fndtn.
Aa 6.375 5/01/17 750
837,532
Georgia Mun. Elec. Auth. Pwr. Rev. Ref., Ser. B
A 6.25 1/01/17 475
507,115
Green Cnty. Dev. Auth. Indl. Park Rev.
NR 6.875 2/01/04 585
636,275
Metropolitan Atlanta Rapid Tran. Auth. Rev., Sales Tax
Rev.,
Ser. A, M.B.I.A.
Aaa 6.90 7/01/20 500
578,670
- ------------
17,246,439
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Illinois--3.0%
Central Lake Cnty. Jt. Actn. Agcy. Rev., F.G.I.C.
Aaa 5.375 5/01/13 4,315
4,225,162
Kane & De Kalb Cntys. Cmnty. United Sch. Dist., No. 301,
A.M.B.A.C.
Aaa Zero 12/01/10 3,055
1,416,451
Metropolitan Pier & Expo. Auth Hosp. Fac. Rev., McCormick
Place Convention
BBB-(d) 7.00 7/01/26 12,910
14,332,811
- ------------
19,974,424
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Indiana--2.7%
Concord Ind. Cmnty. Schs. Bldg. Corp., Ser. A., A.M.B.A.C.
Aaa 5.90 7/01/13 3,915
4,020,431
Hamilton S.E. Ind. North Del. Schl. Bldg., A.M.B.A.C.
Aaa 5.40 1/15/14 4,275
4,223,358
Merrillville Ind. Multi. Sch. Bldg., M.B.I.A.
Aaa 5.80 7/15/17 2,780
2,794,762
Mill Creek Indl. Cmnty., East Elem. Sch. Bldg. Corp.,
F.S.A.
AAA(d) 5.80 7/15/15 3,235
3,284,463
Monroe Cnty. Ind. Cmnty. Sch. Corp., M.B.I.A.
Aaa 5.25 7/01/16 4,330
4,121,987
- ------------
18,445,001
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Kentucky--1.8%
Henderson Cnty. Solid Waste Disp. Rev., Macmillan Bloedel
Proj., A.M.T.
Baa2 7.00 3/01/25 6,000
6,348,960
Jefferson Cnty. Poll. Ctrl. Rev., Louisville Gas & Elec.,
Ser. A, A.M.T.
Aa2 7.75 2/01/19 5,700
5,984,658
- ------------
12,333,618
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements.
5 -----
<PAGE>
Portfolio of Investments as of
December 31, 1996 PRUDENTIAL NATIONAL
MUNICIPALS FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description(a)
(Unaudited) Rate Date (000) (Note
1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Louisiana--4.4%
New Orleans, Gen. Oblig., A.M.B.A.C.
Aaa Zero 9/01/09 $13,500 $
6,831,810
Orleans Parish Sch. Brd., E.T.M., M.B.I.A.
Aaa 8.90% 2/01/07 5,780
7,564,055
St. Charles Parish, Environ. Impt. Rev. Louisiana Pwr. &
Lt. Co., Ser. A, A.M.T.
Baa2 6.875 7/01/24 5,000
5,280,000
St. Charles Parish, Lousiana Poll. Ctrl. Rev.,
Lousiana Pwr. & Lt. Co.
Baa3 8.25 6/01/14 4,000
4,372,240
Lousiana Pwr. & Lt. Co., Ser. 1989
Baa3 8.00 12/01/14 5,000
5,495,300
- ------------
29,543,405
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Maryland--1.7%
Baltimore Wtr. Rev., Ser A, F.G.I.C.
Aaa 5.80 7/01/15 3,600
3,694,248
Maryland St. Hlth. & Higher Ed. Facs., Auth. Rev.,
Doctor's Cmnty. Hosp. Proj.
Baa 5.50 7/01/24 4,000
3,597,280
Northeast Waste Disp. Auth. Rev., Baltimore City Sludge
Corp.
NR 7.25 7/01/07 3,871
4,024,950
- ------------
11,316,478
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Massachusetts--4.0%
Mass. St., Gen. Oblig., Ser. C, M.B.I.A.
Aaa 5.625 8/01/13 5,000
5,065,400
Mass. St. Hlth. & Ed. Facs. Auth. Rev., Wellesey College
Aa1 5.375 7/01/19 5,000
4,801,550
Mass. St. Wtr. Poll. Abatement, New Bedford Project
Aa 5.70 2/01/15 5,000
5,038,950
Mass. St. Special Oblig. Rev., Ser. A
A1 5.80 6/01/14 4,850
4,923,526
Mass. St. Wtr. Res. Auth., Ser. B, M.B.I.A.
Aaa 6.25 12/01/11 6,720
7,408,733
- ------------
27,238,159
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Michigan--4.4%
Cheboygan Sch. Dist., M.B.I.A.
Aaa 5.70 5/01/16 5,930
5,975,542
Detroit Sew. Disp. Rev., F.G.I.C.
Aaa 5.70 7/01/13 4,500
4,545,270
Fowlerville Cmnty. Schools, M.B.I.A.
Aaa 5.60 5/01/16 3,125
3,102,875
Holland Sch. Dist., A.M.B.A.C.
Aaa Zero 5/01/12 4,000
1,715,040
Huron Valley Sch. Dist., F.G.I.C.
Aaa 5.875 5/01/16 1,000
1,025,210
Michigan St. Hsg. Dev. Auth. Rev.,
Rental Hsg. Rev., Ser. B
A+(d) 7.55 4/01/23 1,000
1,074,370
Sngl. Fam. Mtge., Ser. A.
AA+(d) 7.50 6/01/15 5,185
5,460,375
Sngl. Fam. Mtge., Ser. D, A.M.T.
AA+(d) 7.75 12/01/19 1,380
1,391,468
Okemos Pub. Sch. Dist., M.B.I.A.,
Cnty. of Ingham
Aaa Zero 5/01/12 1,100
471,636
Cnty. of Ingham
Aaa Zero 5/01/13 1,700
683,179
Royal Oak Hosp. Fin. Auth. Hosp. Rev.,
William Beaumont Hosp.
Aa 5.75 1/01/13 4,000
4,055,360
- ------------
29,500,325
</TABLE>
- ------------------------------------------------------------
- --------------------
6 See Notes to
Financial Statements.
<PAGE>
Portfolio of Investments as of
December 31, 1996 PRUDENTIAL NATIONAL
MUNICIPALS FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description(a)
(Unaudited) Rate Date (000) (Note
1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Minnesota--0.9%
Anoka Hennepin Indpt. Sch. Dist., No. 11, Ser. C, F.S.A.
Aaa Zero 2/01/12 $ 1,575 $
691,756
Metropolitan Council, St. Paul Area Sports Fac. Rev.,
Hubert H. Humphrey Metrodome
A 6.00% 10/01/09 500
515,235
Minneapolis St. Paul Hsg. Fin. Brd. Rev., Sngl. Fam.
Mtge., G.N.M.A., A.M.T.
AAA(d) 7.30 8/01/31 870
912,413
Minneapolis St. Paul Met. Arpts. Comm., Ser. 7, A.M.T.
Aaa 7.80 1/01/14 1,000
1,086,780
So. Minn. Mun. Pwr. Agcy. Supply Sys., Ser. A, M.B.I.A.
Aaa Zero 1/01/20 3,250
886,275
St. Paul Science Museum, Cert. of Part., E.T.M.
AAA(d) 7.50 12/15/01 929
985,286
Univ. of Minnesota, Ser. A, E.T.M.
Aa3 6.00 2/01/11 1,000
1,064,700
- ------------
6,142,445
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Missouri--1.3%
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 4,985
5,427,319
Sikeston Missouri Elec. Rev., M.B.I.A.
Aaa 6.00 6/01/16 3,175
3,406,204
- ------------
8,833,523
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Nebraska--0.7%
Nebraska Edl. Fin. Auth. Rev., Creighton Univ. Proj.,
A.M.B.A.C.
Aaa 5.80 1/01/10 4,500
4,667,265
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Nevada--0.9%
Clark Cnty. Passenger Fac. Charge Rev., Las Vegas McCarran
Int'l. Airport, A.M.B.A.C.
Aaa 6.00 7/01/22 6,000
6,171,240
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
New Hampshire--0.6%
New Hampshire Municipal Bond Bank, Ser. C, M.B.I.A.
Aaa 5.75 8/15/16 4,260
4,317,382
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
New Jersey--3.2%
New Jersey Hlth. Care Facs. Fin. Auth. Rev.,
St. Josephs Hosp. & Med. Ctr., Ser. A
AAA(d) 5.75 7/01/16 1,250
1,263,625
New Jersey St. Hsg. & Mtge. Fin. Agcy., Ser. D, A.M.T.,
M.B.I.A.
Aaa 7.70 10/01/29 2,755
2,871,206
New Jersey St. Hwy. Auth. Garden St. Pkwy. Gen. Rev.
A1 6.25 1/01/14 5,900
6,185,619
New Jersey St. Tpke. Auth. Rev., Ser. C, M.B.I.A.
Aaa 6.50 1/01/16 10,000
11,284,100
- ------------
21,604,550
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
New Mexico--0.9%
Farmington Utility Sys. Rev., F.G.I.C.
Aaa 5.75 5/15/13 5,650
5,744,524
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements.
7 -----
<PAGE>
Portfolio of Investments as of
December 31, 1996 PRUDENTIAL NATIONAL
MUNICIPALS FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description(a)
(Unaudited) Rate Date (000) (Note
1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
New York--14.3%
Metropolitan Trans. Auth., Trans. Facs. Rev.,
Ser. A, F.S.A.
Aaa 6.00% 7/01/16 $ 2,500 $
2,612,000
Ser. O
Baa1 5.75 7/01/13 5,820
5,838,508
New York City Ind. Dev. Agcy., Spec. Fac. Rev., A.M.T.,
Terminal One Group Assoc. Proj.
A 6.00 1/01/19 4,500
4,445,910
Terminal One Group Assoc. Proj.
A 6.125 1/01/24 5,715
5,711,228
New York City Mun. Wtr. Fin. Auth., Wtr. & Swr. Sys. Rev.,
Ser. A, F.G.I.C.
Aaa 6.75 6/15/16 21,250
23,128,287
New York St. Dev. Corp.
Aaa 5.50 7/01/16 5,000
4,964,550
New York St. Local Gov't. Assist. Corp., Ser. E
A 6.00 4/01/14 10,000
10,643,700
New York St. Urban Dev. Corp. Rev., F.S.A.,
Correctional Facs.
Aaa 6.50 1/01/09 3,000
3,367,770
Correctional Facs., Ser. A
Aaa 5.50 1/01/14 3,000
3,026,430
New York, Gen. Oblig.,
Ser. A
Baa1 7.75 8/15/04 2,000
2,221,940
Ser. B
Baa1 8.25 6/01/06 1,500
1,787,490
Ser. B
Baa1 7.25 8/15/07 3,500
3,933,475
Ser. D
Aaa 7.65 2/01/07 4,600 (b)
5,301,684
Ser. D
Baa1 7.65 2/01/07 400
449,408
Ser. D
Baa1 8.00 8/01/03 2,020
2,278,903
Ser. D
Baa1 8.00 8/01/04 1,170
1,320,977
Ser. F
Baa1 8.25 11/15/02 5,000
5,663,000
Triborough Bridge & Tunl. Auth., Ser. X, M.B.I.A.
Aaa 6.625 1/01/12 8,500
9,683,880
- ------------
96,379,140
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
North Dakota--1.6%
Mercer Cnty. Poll Ctrl. Rev., Antelope Valley Station,
A.M.B.A.C
Aaa 7.20 6/30/13 9,000
10,743,660
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
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
15,378,030
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Oklahoma--4.7%
Central Okla. Trans. & Pkg. Auth., F.S.A.
Aaa 5.30 7/01/12 3,500
3,449,110
Mcgee Creek Auth. Wtr. Rev., M.B.I.A.
Aaa 6.00 1/01/23 7,000
7,562,590
Tulsa Mun. Arpt. Trust Rev., American Airlines, Inc.,
A.M.T.
Baa2 7.375 12/01/20 19,000
20,278,320
- ------------
31,290,020
</TABLE>
- ------------------------------------------------------------
- --------------------
8 See Notes to
Financial Statements.
<PAGE>
Portfolio of Investments as of
December 31, 1996 PRUDENTIAL NATIONAL
MUNICIPALS FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description(a)
(Unaudited) Rate Date (000) (Note
1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Pennsylvania--2.8%
Bensalem Twp. Sch. Dist., F.G.I.C.
Aaa 5.875% 7/15/16 $ 2,900 $
2,968,991
Penn. St. Higher Edl. Facs. Auth. Rev., Drexel Univ.
Aaa 5.625 5/01/14 5,000
5,030,950
Penn. St. Higher Edl. Facs. Auth., College & Univ. Rev.,
Ser. B
Aa 5.90 9/01/15 4,205
4,300,159
Philadelphia Wtr. & Waste Auth. Rev.,
M.B.I.A.
Aaa 6.25 8/01/09 3,400
3,746,358
M.B.I.A.
Aaa 6.25 8/01/11 2,500
2,741,675
- ------------
18,788,133
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Puerto Rico--3.8%
Puerto Rico Comnwlth.,
Gen. Oblig., M.B.I.A.
Aaa 7.612(c) 7/01/08 1,000
1,082,500
Gen. Oblig.
Baa1 6.50 7/01/13 3,000
3,333,030
Gen. Oblig., F.S.A.
Aaa 7.71 (c) 7/01/20 450
463,500
Puerto Rico Comnwlth., Hwy. & Trans. Auth., Hwy. Rev.,
Ser. V
Baa1 6.625 7/01/12 4,000
4,310,880
Ser. W
Baa1 5.50 7/01/13 3,000
2,993,550
Ser. W
Baa1 5.50 7/01/15 2,500
2,482,800
Puerto Rico Elec. Pwr. Auth., Pwr. Rev., Ser. S
Baa1 6.125 7/01/08 1,050
1,137,066
Puerto Rico Public Bldgs. Auth. Rev., Ser. L, F.S.A.
Aaa 5.75 7/01/10 5,065
5,358,061
Puerto Rico Tel. Auth. Rev., Ser. I, M.B.I.A.
Aaa 6.769(c) 1/25/07 4,100
4,212,750
- ------------
25,374,137
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
South Carolina--1.5%
Charleston Wtrwks. & Swr. Rev., E.T.M.
Aaa 10.375 1/01/10 7,415
10,076,243
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Tennessee--1.6%
Bristol Hlth. & Edl. Fac. Rev., Bristol Memorial Hosp.,
F.G.I.C.
Aaa 6.75 9/01/10 5,000
5,708,700
Mcminn Cnty. Ind. Dev. Brd. Solid Waste Rev., Calhoun
Nwsprnt. Recycling Fac., A.M.T.
Baa1 7.40 12/01/22 5,000
5,399,400
- ------------
11,108,100
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Texas--4.2%
Dallas Ft. Worth, Regl. Arpt. Rev., F.G.I.C.,
Ser. A
Aaa 7.375 11/01/08 3,500
4,067,595
Ser. A
Aaa 7.375 11/01/09 3,500
4,067,595
Houston Texas Wtr. & Swr. Sys. Rev., Ser. C, M.B.I.A.
Aaa 5.75 12/01/15 3,315
3,346,260
New Braunfels Indpt. Sch. Dist.,
Cap. Apprec.
Aaa Zero 2/01/10 2,335
1,140,858
Cap. Apprec.
Aaa Zero 2/01/11 2,365
1,086,481
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements.
9 -----
<PAGE>
Portfolio of Investments as of
December 31, 1996 PRUDENTIAL NATIONAL
MUNICIPALS FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description(a)
(Unaudited) Rate Date (000) (Note
1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Texas (cont'd.)
Port Corpus Christi Auth. Rev.,
A2 7.50% 8/01/12 $ 2,000 $
2,216,880
San Antonio Texas Elec. & Gas Rev.,
M.B.I.A.
Aaa 5.375 2/01/16 3,000
2,941,980
Ser. B, F.G.I.C.
Aaa Zero 2/01/09 5,000
2,595,650
So. Texas Cmnty. College District Texas, A.M.B.A.C.
Aaa 5.75 8/15/15 4,310
4,357,281
Univ. Texas Univ. Rev., Fen. Sys., Ser. B
Aa1 6.75 8/15/13 2,035
2,201,178
- ------------
28,021,758
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Vermont--1.1%
Vermont Edl. & Hlth. Bldgs. Fin. Agcy. Rev.,
Middlebury College Proj.
AA(d) 5.50 11/01/16 4,000
3,963,480
Vermont Muni. Bond Bank, Ser. 1, A.M.B.A.C.
Aaa 5.75 12/01/16 3,200
3,263,488
- ------------
7,226,968
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Virginia--0.7%
Fairfax Cnty. Economic Dev. Auth.
Aa 5.50 5/15/18 3,500
3,388,700
Virginia Polytechnic Inst. & St. Univ. Rev., Ser. A
A1 5.50 6/01/16 1,300
1,295,320
- ------------
4,684,020
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Washington--3.9%
Washington St. Pub. Pwr. Supply Sys. Rev.,
Nuclear Proj. No. 1, Ser. A, F.S.A.
Aaa 7.00 7/01/08 4,000
4,587,440
Nuclear Proj. No. 1, Ser. B, F.S.A.
Aaa 7.25 7/01/09 5,000
5,831,450
Nuclear Proj. No. 2, F.S.A.
Aaa 5.40 7/01/12 10,400
10,108,072
Nuclear Proj. No. 2, Ser. A, M.B.I.A.
Aaa Zero 7/01/06 6,000
3,636,840
Nuclear Proj. No. 3, Ser. B, F.G.I.C.
Aaa Zero 7/01/06 3,000
1,818,420
- ------------
25,982,222
- ------------
Total long-term investments (cost $626,637,453)
658,418,784
- ------------
SHORT-TERM INVESTMENTS--1.1%
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
District Of Columbia--0.1%
Dist. of Columbia Rev., Gen. Oblig., Ser. 92A-5, F.R.D.D.
VMIG1 5.00 1/02/97 700
700,000
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Nevada--0.4%
Washoe Cnty. Wtr. Fac. Rev., Sierra Pacific Power Co.
Proj., Ser. 90, F.R.D.D.
P-1 5.05 1/02/97 2,200
2,200,000
</TABLE>
- ------------------------------------------------------------
- --------------------
10 See Notes to
Financial Statements.
<PAGE>
Portfolio of Investments as of
December 31, 1996 PRUDENTIAL NATIONAL
MUNICIPALS FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Moody's Principal
Rating Interest Maturity Amount Value
Description(a)
(Unaudited) Rate Date (000) (Note
1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Texas--0.6%
Gulf Coast Ind. Dev. Auth., CITGO Petroleum., Ser. 95,
F.R.D.D.
VMIG1 5.10% 1/02/97 $ 4,200 $
4,200,000
- ------------
Total short-term investments (cost $7,100,000)
7,100,000
- ------------
Total Investments--99.1%
(cost $633,737,453; Note 4)
665,518,784
Other assets in excess of liabilities--0.9%
6,176,870
- ------------
Net Assets--100%
$671,695,654
- ------------
- ------------
</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.R.D.D.--Floating Rate Daily 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
<TABLE>
<C> <S>
(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.
</TABLE>
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.
11 -----
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL NATIONAL
MUNICIPALS FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
Assets
December 31, 1996
<S>
<C>
Investments, at value (cost
$633,737,453)...............................................
................ $ 665,518,784
Interest
receivable..................................................
................................... 11,905,872
Receivable for Fund shares
sold........................................................
................. 88,492
Receivable for investments
sold........................................................
................. 65,355
Deferred expenses and other
assets......................................................
................ 18,524
- -----------------
Total
assets......................................................
................................... 677,597,027
- -----------------
Liabilities
Bank
overdraft...................................................
....................................... 12,105
Payable for investments
purchased...................................................
.................... 4,055,215
Dividends
payable.....................................................
.................................. 746,560
Payable for Fund shares
reacquired..................................................
.................... 467,062
Accrued
expenses....................................................
.................................... 259,949
Management fee
payable.....................................................
............................. 244,590
Distribution fee
payable.....................................................
........................... 115,892
- -----------------
Total
liabilities.................................................
................................... 5,901,373
- -----------------
Net
Assets......................................................
........................................ $
671,695,654
- -----------------
- -----------------
Net assets were comprised of:
Common stock, at
par.........................................................
........................ $ 431,386
Paid-in capital in excess of
par.........................................................
............ 642,493,209
- -----------------
642,924,595
Accumulated net realized loss on
investments.................................................
........ (3,010,272)
Net unrealized appreciation on
investments.................................................
.......... 31,781,331
- -----------------
Net assets, December 31,
1996........................................................
................... $ 671,695,654
- -----------------
- -----------------
Class A:
Net asset value and redemption price per share
($502,739,143 / 32,306,432 shares of common stock
issued and outstanding).........................
$15.56
Maximum sales charge (3% of offering
price)......................................................
.... .48
- -----------------
Maximum offering price to
public......................................................
............... $16.04
- -----------------
- -----------------
Class B:
Net asset value, offering price and redemption price per
share
($168,184,783 / 10,782,675 shares of common stock
issued and outstanding).........................
$15.60
- -----------------
Class C:
Net asset value, offering price and redemption price per
share
($771,728 / 49,477 shares of common stock issued and
outstanding).................................
$15.60
- -----------------
- -----------------
</TABLE>
- ------------------------------------------------------------
- --------------------
12 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
Statement of Operations
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income December 31,
1996
<S> <C>
Income
Interest.............................. $ 42,028,983
----------------
- -
Expenses
Management fee........................ 3,347,154
Distribution fee--Class A............. 508,159
Distribution fee--Class B............. 966,562
Distribution fee--Class C............. 5,057
Transfer agent's fees and expense..... 522,000
Reports to shareholders............... 203,000
Custodian's fees and expenses......... 102,000
Registration fees..................... 70,000
Audit fees and expenses............... 51,000
Legal fees and expenses............... 40,000
Directors' fees and expenses.......... 31,000
Insurance expense..................... 13,000
Miscellaneous......................... 12,292
----------------
- -
Total expenses..................... 5,871,224
Less: Management fee waiver........... (351,073)
Custodian fee credit............... (7,738)
----------------
- -
Net expenses....................... 5,512,413
----------------
- -
Net investment income.................... 36,516,570
----------------
- -
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions............... 7,253,686
Financial futures contracts........... (680,537)
----------------
- -
6,573,149
Net change in unrealized depreciation of
Investments........................... (26,789,525)
----------------
- -
Net loss on investment transactions...... (20,216,376)
----------------
- -
Net Increase in Net Assets
Resulting from Operations................ $ 16,300,194
----------------
- -
----------------
- -
</TABLE>
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
Statement of Changes in Net Assets
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended December
31,
in Net Assets 1996 1995
<S> <C> <C>
Operations
Net investment income.......... $ 36,516,570 $
36,359,209
Net realized gain on investment
transactions................ 6,573,149
15,052,304
Net change in unrealized
appreciation (depreciation)
of investments.............. (26,789,525)
63,875,111
------------ --------
- ----
Net increase in net assets
resulting from operations... 16,300,194
115,286,624
------------ --------
- ----
Dividends and distributions (Note
1)
Dividends from net investment
income
Class A..................... (26,993,477)
(23,828,407)
Class B..................... (9,491,599)
(12,519,283)
Class C..................... (31,494)
(11,519)
------------ --------
- ----
(36,516,570)
(36,359,209)
------------ --------
- ----
Distributions in excess of net
investment income
Class A..................... (129,414)
(202,311)
Class B..................... (43,154)
(83,632)
Class C..................... (196)
(148)
------------ --------
- ----
(172,764)
(286,091)
------------ --------
- ----
Fund share transactions (net of
share conversions) (Note 5):
Net proceeds from shares
sold........................ 132,494,761
179,852,628
Net asset value of shares
issued in reinvestment of
dividends and
distributions............... 22,304,782
22,078,855
Cost of shares reacquired...... (224,127,599)
(204,293,852)
------------ --------
- ----
Decrease in net assets from
Fund share transactions..... (69,328,056)
(2,362,369)
------------ --------
- ----
Total increase (decrease)......... (89,717,196)
76,278,955
Net Assets
Beginning of year................. 761,412,850
685,133,895
------------ --------
- ----
End of year....................... $671,695,654
$761,412,850
------------ --------
- ----
------------ --------
- ----
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements.
13 -----
<PAGE>
Notes to Financial Statements 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 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
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.
Reclassification of Capital Accounts: The Fund accounts and
reports for
distributions to shareholders in accordance with Statement
of Position 93-2:
Determination, Disclosure, and Financial Statement
Presentation of Income,
Capital Gain, and Return of Capital Distributions by
Investment Companies. The
effect of applying this statement was to increase
undistributed net investment
income $172,764, increase accumulated realized losses by
$669,358 and increase
paid-in capital in excess of par by $496,594. The current
year effect of
applying the Statement of Position was due to the sale of
securities purchased
with market discount. Net investment income, net realized
gains and net assets
were not affected by this change.
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.
- ------------------------------------------------------------
- --------------------
14
<PAGE>
Notes to Financial Statements PRUDENTIAL NATIONAL
MUNICIPALS FUND, INC.
- ------------------------------------------------------------
- --------------------
Note 2. Agreements
The Fund has a management agreement with Prudential Mutual
Fund Management LLC
(``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. PMF has
agreed to waive a
portion (.05 of 1% of the Fund's average daily net assets)
of its management fee
which amounted to $351,073 ($0.008 per share for Class A, B
and C shares). The
Fund is not required to reimburse PMF 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 year ended December 31,
1996.
PSI has advised the Fund that it received approximately
$33,100 in front-end
sales charges resulting from sales of Class A shares during
the year ended
December 31, 1996. 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 year ended December
31, 1996, it received
approximately $393,600 and $1,200 in contingent deferred
sales charges imposed
upon certain redemptions by Class B and Class C
shareholders, respectively.
PSI, PMF 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 December 31,
1996. 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
PMF, serves as the Fund's transfer agent and during the year
ended December 31,
1996, the Fund incurred fees of approximately $459,400 for
the services of PMFS.
As of December 31, 1996, $36,300 of such fees were due to
PMFS. Transfer agent
fees and expenses in the Statement 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 year ended December 31, 1996, were $317,162,651 and
$389,621,965,
respectively.
The federal income tax basis of the Portfolio's investments
at December 31, 1996
was $633,737,453 and, accordingly, net unrealized
appreciation for federal
income tax purposes was $31,781,331 (gross unrealized
appreciation--$33,314,954;
gross unrealized depreciation--$1,533,623).
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. Such carryforward is
after utilization of
approximately $6,366,600 of net taxable gains realized and
recognized during the
year ended December 31, 1996. Accordingly, no capital gains
distribution is
expected to be paid until net gains have been realized in
excess of the
carryforward.
- ------------------------------------------------------------
- --------------------
15 -----
<PAGE>
Notes to Financial Statements PRUDENTIAL NATIONAL
MUNICIPALS FUND, INC.
- ------------------------------------------------------------
- --------------------
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>
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)
----------- ---------
- ----
----------- ---------
- ----
Year ended December 31, 1995:
Shares sold...................... 5,840,738 $
88,549,457
Shares issued*................... 2,456,167
38,217,954
Shares issued in reinvestment of
dividends and distributions.... 946,405
14,567,998
Shares reacquired................ (9,950,451)
(152,370,817)
----------- ---------
- ----
Net decrease in shares
outstanding before
conversion..................... (707,141)
(11,035,408)
Shares issued upon conversion
from Class B................... 33,503,346
499,611,384
----------- ---------
- ----
Net increase in shares
outstanding.................... 32,796,205 $
488,575,976
----------- ---------
- ----
----------- ---------
- ----
<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)
----------- ---------
- ----
----------- ---------
- ----
Year ended December 31, 1995:
Shares sold...................... 1,092,500 $
11,070,341
Shares issued*................... 2,674,096
41,715,890
Shares issued in reinvestment of
dividends and distributions.... 493,046
7,503,598
Shares reacquired................ (3,427,668)
(51,852,878)
----------- ---------
- ----
Net increase in shares
outstanding before
conversion..................... 831,974
8,436,951
Shares reacquired upon conversion
into Class A................... (33,457,015)
(499,611,384)
----------- ---------
- ----
Net decrease in shares
outstanding.................... (32,625,041)
$(491,174,433)
----------- ---------
- ----
----------- ---------
- ----
<CAPTION>
Class C
- ---------------------------------
<S> <C> <C>
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
----------- ---------
- ----
----------- ---------
- ----
Year ended December 31, 1995:
Shares sold...................... 18,625 $
287,124
Shares issued*................... 760
11,862
Shares issued in reinvestment of
dividends and distributions.... 469
7,259
Shares reacquired................ (4,510)
(70,157)
----------- ---------
- ----
Net increase in shares
outstanding.................... 15,344 $
236,088
----------- ---------
- ----
----------- ---------
- ----
</TABLE>
- ---------------
* Represents amounts issued in connection with the
acquisition of the Prudential
Municipal Series Fund--Arizona Series, Georgia Series, and
Minnesota Series.
- ------------------------------------------------------------
- --------------------
16
<PAGE>
Financial Highlights PRUDENTIAL NATIONAL
MUNICIPALS FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class A
---------------
- -----------------------------------------
Year Ended December 31,
---------------
- -----------------------------------------
1996
1995 1994 1993 1992
-------- --
- ------ ------- ------- ------
<S> <C>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year........ $ 15.98 $
14.42 $ 16.30 $ 15.94 $16.00
-------- --
- ------ ------- -------
Income from investment operations
Net investment income..................... .82(b)
.81(b) .81 .90 .94
Net realized and unrealized gain (loss) on
investment transactions................ (.42)
1.57 (1.78) 1.05 .43
-------- --
- ------ ------- ------- ------
Total from investment operations....... .40
2.38 (.97) 1.95 1.37
-------- --
- ------ ------- ------- ------
Less distributions
Dividends from net investment income...... (.82)
(.81) (.81) (.90) (.94)
Distributions in excess of net investment
income................................. -- (c)
(.01) -- -- --
Distributions from net realized gains..... --
- -- (.10) (.69) (.49)
-------- --
- ------ ------- ------- ------
Total distributions.................... (.82)
(.82) (.91) (1.59) (1.43)
-------- --
- ------ ------- ------- ------
Net asset value, end of year.............. $ 15.56 $
15.98 $ 14.42 $ 16.30 $15.94
-------- --
- ------ ------- ------- ------
-------- --
- ------ ------- ------- ------
TOTAL RETURN(a):.......................... 2.66%
16.91% (6.04)% 12.60% 8.88%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)............. $502,739
$538,145 $12,721 $14,167 $7,700
Average net assets (000).................. $508,159
$446,350 $14,116 $11,786 $5,401
Ratios to average net assets:
Expenses, including distribution
fees................................ .68%(b)
.75%(b) .77% .69% .72%
Expenses, excluding distribution
fees................................ .58%(b)
.65%(b) .67% .59% .62%
Net investment income.................. 5.31%(b)
5.34%(b) 5.38% 5.49% 5.79%
For Class A, B and C shares:
Portfolio turnover rate................ 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 year reported and includes reinvestment
of dividends and
distributions.
(b) Net of management fee waiver.
(c) Less than $.005 per share.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements.
17 -----
<PAGE>
Financial Highlights PRUDENTIAL NATIONAL
MUNICIPALS FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class B Class C
----------------
- ------------------------------------------------ -------
- ---
Year Ended
December
Year Ended December 31, 31,
----------------
- ------------------------------------------------ -------
- ---
1996
1995 1994 1993 1992 1996
-------- -
- ------- -------- -------- -------- -------
- ---
<S> <C>
<C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...... $ 16.02 $
14.45 $ 16.33 $ 15.97 $ 16.02 $ 16.02
-------- -
- ------- -------- -------- -------- -------
- ---
Income from investment operations
Net investment income..................... .76(b)
.76(b) .75 .84 .88
.72(b)
Net realized and unrealized gain (loss) on
investment transactions................ (.42)
1.58 (1.78) 1.05 .44 (.42)
-------- -
- ------- -------- -------- -------- -------
- ---
Total from investment operations....... .34
2.34 (1.03) 1.89 1.32 .30
-------- -
- ------- -------- -------- -------- -------
- ---
Less distributions
Dividends from net investment income...... (.76)
(.76) (.75) (.84) (.88) (.72)
Distributions in excess of net investment
income................................. -- (c)
(.01) -- -- -- --
(c)
Distributions from net realized gains..... --
- -- (.10) (.69) (.49) --
-------- -
- ------- -------- -------- -------- -------
- ---
Total distributions.................... (.76)
(.77) (.85) (1.53) (1.37) (.72)
-------- -
- ------- -------- -------- -------- -------
- ---
Net asset value, end of period............ $ 15.60 $
16.02 $ 14.45 $ 16.33 $ 15.97 $ 15.60
-------- -
- ------- -------- -------- -------- -------
- ---
-------- -
- ------- -------- -------- -------- -------
- ---
TOTAL RETURN(a):.......................... 2.26%
16.49% (6.39)% 12.15% 8.50%
2.01%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........... $168,185
$222,865 $672,272 $848,299 $828,702
$772
Average net assets (000).................. $193,312
$252,313 $751,623 $854,919 $829,830
$674
Ratios to average net assets:
Expenses, including distribution
fees................................ 1.08%(b)
1.15%(b) 1.17% 1.09% 1.12%
1.33%(b)
Expenses, excluding distribution
fees................................ .58%(b)
.65%(b) .67% .59% .62%
.58%(b)
Net investment income.................. 4.91%(b)
4.96%(b) 4.96% 5.09% 5.39%
4.67%(b)
<CAPTION>
August 1,
1994(e)
through
December 31,
1995
1994
------------
- ------------
<S> <C>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...... $14.44
$15.13
-----
- -----
Income from investment operations
Net investment income..................... .72(b)
.29
Net realized and unrealized gain (loss) on
investment transactions................ 1.59
(.69)
-----
- -----
Total from investment operations....... 2.31
(.40)
-----
- -----
Less distributions
Dividends from net investment income...... (.72)
(.29)
Distributions in excess of net investment
income................................. (.01)
- --
Distributions from net realized gains..... --
- --
-----
- -----
Total distributions.................... (.73)
(.29)
-----
- -----
Net asset value, end of period............ $16.02
$14.44
-----
- -----
-----
- -----
TOTAL RETURN(a):.......................... 16.22%
(2.63)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........... $403
$141
Average net assets (000).................. $247
$103
Ratios to average net assets:
Expenses, including distribution
fees................................ 1.40%(b)
1.51%(d)
Expenses, excluding distribution
fees................................ .65%(b)
.76%(d)
Net investment income.................. 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.
- ------------------------------------------------------------
- --------------------
18 See Notes to
Financial Statements.
<PAGE>
Report of Independent Accountants PRUDENTIAL NATIONAL
MUNICIPALS FUND, INC.
- ------------------------------------------------------------
- --------------------
To the Board of Directors and Shareholders of
Prudential National Municipals Fund, Inc.
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 the financial highlights present
fairly, in all
material respects, the financial position of Prudential
National Municipals
Fund, Inc. (the ``Fund'') at December 31, 1996, 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, 1996 by
correspondence with the
custodian and brokers, provide a reasonable basis for the
opinion expressed
above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 24, 1997
Tax Information PRUDENTIAL NATIONAL
MUNICIPALS FUND, INC.
- ------------------------------------------------------------
- --------------------
We are required by the Internal Revenue Code to advise you
within 60 days of the
Fund's fiscal year end (December 31, 1996) as to the federal
tax status of
dividends paid by the Fund during such fiscal year.
Accordingly, we are advising
you that in the fiscal year ended December 31, 1996,
dividends paid from net
investment income totalling $.82 per Class A share, $.76 per
Class B share and
$.72 per Class C shares were all federally tax-exempt
interest dividends. In
addition, the Fund paid an ordinary distribution of $.004
per share (taxable as
ordinary income) to Class A, B and C shareholders.
The portion of your dividends which may be subject to the
Alternative Minimum
Tax (AMT) as well as information with respect to the state
taxability of your
investment in the Fund was sent to you under separate cover.
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.
- ------------------------------------------------------------
- --------------------
19 -----
<PAGE>
Supplemental Proxy Information PRUDENTIAL NATIONAL
MUNICIPALS FUND, INC.
- ------------------------------------------------------------
- --------------------
The Annual Meeting of Shareholders of the Prudential
National Municipals
Fund, Inc. was held on Wednesday, October 30, 1996 at the
offices of Prudential
Securities Incorporated, One Seaport Plaza, New York, New
York. The meeting was
held for the following purposes:
(1) To elect Directors as follows: 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 and Louis A. Weil, III.
(2a) To approve the proposed elimination of the Fund's
fundamental investment
restriction relating to investment in shares of other
investment companies.
(2b) Approval of amendment to the Fund's investment
restrictions to permit an
increase in the borrowing capabilities of the Fund.
(2c) Approval of amendment of the Fund's investment
restriction to permit the
Fund to use futures contracts and options thereon.
(2d) Approval of elimination of the Fund's investment
restriction relating to
the purchase and sale of puts and calls.
(2e) Approval of elimination of the Fund's investment
restriction limiting
investment to only those securities described in the
investment objectives
and policies section of the Prospectus and Statement of
Additional
Information.
(2f) Approval of an amendment to the Fund's investment
restriction regarding the
making of loans.
(3) To ratify the selection of Price Waterhouse LLP as
independent public
accountants for the fiscal year ending December 31,
1996.
The results of the proxy solicitation on the above
matters were as follows:
<TABLE>
<CAPTION>
Director/Matter
Votes for Votes against Abstentions
- ---------------
- ---------- ------------- -----------
<C> <S>
<C> <C> <C>
(1) Edward D. Beach
21,669,909 0 800,261
Eugene C. Dorsey
21,695,978 0 774,192
Delayne Dedrick Gold
21,693,106 0 777,064
Robert F. Gunia
21,719,174 0 750,996
Harry A. Jacobs, Jr.
21,621,774 0 848,396
Donald D. Lennox
21,695,643 0 774,527
Mendel A. Melzer
21,657,505 0 812,665
Thomas T. Mooney
21,725,894 0 744,276
Thomas H. O'Brien
21,722,761 0 747,409
Richard A. Redeker
21,688,529 0 781,641
Nancy H. Teeters
21,722,662 0 747,508
Louis A. Weil, III
21,677,273 0 792,897
(2a) Amending of Investment Restriction of Shares in Other
Investment Companies 19,832,903 1,251,969
1,321,190
(2b) Amendment Relating to Borrowing Capabilities
19,066,451 1,978,982 1,360,629
(2c) Amendment to Permit Futures and Options Use
18,914,088 2,036,911 1,455,063
(2d) Elimination of Restriction of Puts and Calls
18,857,883 1,991,110 1,557,069
(2e) Elimination of Restrictions Described in Investment
19,652,582 1,404,919 1,348,561
(2f) Amendment Regarding the Making of Loans
19,140,722 1,832,406 1,432,934
(3) Price Waterhouse LLP
21,052,350 367,446 1,050,374
</TABLE>
- ------------------------------------------------------------
- --------------------
20
<PAGE>
Comparing A $10,000 Investment.
Prudential National Municipals Fund, Inc. vs. the
Lehman Bros. General Municipal Bond Index.
- --Prudential National Municipals Fund, Inc.
//Lehman Bros. General Municipal Bond Index
Average Annual
Total Returns
- ------------------
With Sales Load
7.2% Since Inception Class A
6.0% for 5 Years (GRAPH)
- -0.4% for 1 Year
Without Sales Load
7.7% Since Inception
6.7% for 5 Years
2.7% for 1 Year
Average Annual
Total Returns
- ----------------
With Sales Load
8.7% Since Inception
6.4% for 10 Years
6.1% for 5 Years Class B
- -2.7% for 1 Year (GRAPH)
Without Sales Load
8.7% Since Inception
6.4% for 10 Years
6.3% for 5 Years
2.3% for 1 Year
Average Annual
Total Returns
- -----------------------
With Sales Load
6.1% Since Inception
1.0% for 1 Year Class C
(GRAPH)
Without Sales Load
6.1% Since Inception
2.0% for 1 Year
Past performance is not indicative of future results.
Investment return
and principal value will fluctuate so an investor's shares,
when
redeemed, may be worth more or less than their
original cost. The charts on the right are designed to give
you
an idea how much the Fund's returns can fluctuate from year
to
year by measuring the best and worst years in terms of total
annual return since inception of each share class.
These graphs are furnished to you in accordance with SEC
regulations. They compare a $10,000 investment in the
Prudential
National Municipals Fund (Class A, Class B and Class C) with
a
similar investment in the Lehman Brothers General Municipal
Bond Index
by portraying the initial account values at the commencement
of
operations of Class A and C shares and for 10 years for the
Class
B shares, and subsequent account values at the end of this
reporting
period (December 31, 1996), as measured on a quarterly
basis,
beginning in 1990 for Class A shares, in 1986 for Class B
shares
and in 1994 for Class C shares. For purposes of the graphs,
and
unless otherwise indicated, in the accompanying tables it
has
been assumed (a) that the maximum applicable front-end 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
and Class C shares, assuming full redemption on December 31,
1996; (c) all recurring fees (including management fees)
were
deducted; and (d) all dividends and distributions were
reinvested.
Class B shares will automatically convert to Class A shares,
on a
quarterly basis, beginning approximately seven years after
purchase. This conversion feature is not reflected in the
graph.
The Index is a weighted index 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 Index is
unmanaged
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 in
the Index may differ substantially from the securities in
the
Fund. The Index is not the only one that may be used to
characterize performance of municipal bond funds and other
indexes may portray different comparative performance.
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
(LOGO)
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
David W. Drasnin, Vice President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Manager
Prudential Mutual Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
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 Auditors
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
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.
This report is not authorized for distribution to
prospective
investors unless preceded or accompanied by a current
prospectus.
743918203 MF104E
743918104 Cat. #4303159
743918302
