(ICON)
Prudential
National
Municipals
Fund, Inc.
ANNUAL
REPORT
Dec. 31, 1997
(LOGO)
<PAGE>
Prudential National Municipals Fund, Inc.
Performance At A Glance.
Long-term interest rates declined (and bond prices
rose) in the
U.S. as inflation remained mild in 1997.
Municipal bonds also
indirectly benefited when investors sought more
dependable
securities in the wake of an Asian economic
crisis. Your
Prudential National Municipals Fund beat the
Lipper Average
by investing in higher yielding bonds and non-
callable bonds
that gained sharply as interest rates fell.
<TABLE>
<CAPTION>
Cumulative Total Returns1 As
of 12/31/97
One Five
Ten Since
Year Years
Years Inception2
<S> <C> <C>
<C> <C>
Class A 9.80% (9.73%) 39.44% (39.26%)
N/A 83.23% (83.01%)
Class B 9.35 (9.28) 36.76 (36.59)
109.77% (109.51%) 342.44 (341.89)
Class C 9.08 (9.01) N/A
N/A 25.92 (25.77)
Lipper Gen.
Muni Avg3 9.11 39.28
121.06 ***
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns1
As of 12/31/97
One Five
Ten Since
Year Years
Years Inception2
<S> <C> <C>
<C> <C>
Class A 6.50% (6.44%) 6.23% (6.20%)
N/A 7.51% (7.50%)
Class B 4.35 (4.28) 6.31 (6.28)
7.69% (7.68%) 8.77
Class C 8.08 (8.01) N/A
N/A 6.98 (6.94)
</TABLE>
<TABLE>
<CAPTION>
Taxable Equivalent Yield4
Dividends Total Distributions
30-Day At Tax Rates Of
& Yields Paid for 12 Mos.
SEC Yield 36% 39.6%
As of
12/31/97
<C> <S> <C>
<C> <C> <C>
Class A $0.92
4.22% 6.59% 6.99%
Class B $0.86
3.95 6.17 6.54
Class C $0.82
3.70 5.78 6.13
</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.
1 Source: 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, six-year
contingent deferred sales charge (CDSC) of 5%, 4%,
3%, 2%, 1%
and 1% for Class B shares. Class C shares have a
1% CDSC for
one year. Without waiver of management fees and/or
expense
subsidization, the Fund's return would have been
lower as
indicated by the numbers in the () parentheses.
Class B
shares automatically convert to Class A shares on
a
quarterly basis, after approximately seven years.
2 Inception dates: Class A, 1/22/90; Class B,
4/25/80;
and Class C, 8/1/94.
3 Lipper General Muni Fund Average is based on the
average
of all funds in this category for one-, five- and
10-year periods.
4 Some 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 Inceptions returns were: Class A,
82.75%;
Class B, 373.53; and Class C, 27.95% for all funds
in each
Lipper share class.
How Investments Compared.
(As of 12/31/97)
(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.
U.S. Taxable Money 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.
Inflation Conquered?
Inflation inched up 1.7% in 1997 and will likely
remain
tame this year as U.S. companies face increased
competition
from cheaper Asian imports. This is good news for
bondholders
who fear that mounting inflationary pressures will
hurt the
value of their bond's fixed interest and principal
payments.
Strategy Session.
Economy On A Roll.
A robust U.S. economy expanded at its fastest pace
in nine
years in 1997, fueled by increased consumer
spending and
rising demand for U.S. exports. Not surprisingly,
investors
worried that such vigorous growth could push up
inflation so
they expected the Federal Reserve to raise the
federal funds
rate (what banks charge each other for overnight
loans) to
cool off the economy and prevent mounting
inflationary
pressures. On March 25, 1997, U.S. central bankers
voted
to raise the key short-term rate by a quarter
percentage
point to 5.50%.
Some investors thought a second interest rate
increase was
necessary so they continued to push bond yields
higher in
April until the Bond Buyer Revenue Bond Index, a
popular
gauge of municipal bond yields, stood at 6.14%,
its highest
level during the year. Then yields began to edge
lower (and
bond prices rose) as reports indicated there was
no need for
another federal funds rate increase since
inflation remained
in check. With this in mind, we stepped up our
purchases of
both non-callable and higher yielding municipal
bonds.
In the fourth quarter, investors fleeing Asian
economic turmoil
sought the relative safety of U.S. Treasuries, and
tax-exempt
bond prices climbed in tandem with the federal
government
securities. Bonds also gained as investors
realized the
Federal Reserve would be reluctant to raise short-
term
interest rates because that would attract even
more money
to Treasuries from chaotic Asian markets. By late
December,
the Bond Buyer Revenue Index tumbled to its lowest
level of
the year at 5.40% as the bond market rally headed
into the
new year.
Portfolio Composition.
Sectors expressed as a percentage of
total investments as of 12/31/97.
(PIE)
<PAGE>
What Went Well.
Surging Prices,
Ample Income.
We expected inflation in the U.S. to remain
unusually subdued
in 1997 as a strong dollar and competition among
manufac-turers
and retailers kept prices of goods in check.
Indeed inflation
as measured by the consumer price index inched up
just 1.7%
in 1997, the smallest increase in 11 years.
Investors welcomed
this news, which calmed fears that higher
inflation would erode
the value of a bond's fixed interest and principal
payments.
Realizing that mild inflation would stoke investor
appetite for
bonds, we invested heavily in non-callable and
higher yielding
municipal bonds during the first half of the year.
We increased
non-callable bonds during the reporting period to
45% from 35%
of your Fund's total investments, while higher
yielding bonds
rated triple-B rose to 23% from 20%. Our timing
was good
because these bonds were scarce and became more
expensive
in the third quarter as the market rallied.
Demand increased
because non-callable bonds gain when interest
rates fall since
they can not be retired prior to maturity. In a
similar vein,
triple-B rated bonds were sought for their hefty
interest
payments. So your Fund generated strong returns
because
its bonds provided solid price appreciation along
with
ample interest income.
Credit Quality.
Expressed as a percentage of
total investments as of 12/31/97.
(PIE)
And Not So Well.
Hard To Find.
While we increased the Fund's holdings of non-
callable and
triple-B rated tax-exempt bonds, we would have
performed even
better had we bought more aggressively during the
first six
months of the year when yields were higher.
Attractively
priced non-callable and lower investment grade
municipal
bonds were hard to find in the fourth quarter. Now
that
bond yields have fallen even further in the new
year,
bargain hunting will prove even more difficult.
Looking Ahead.
While the Asian crisis cast a shadow over the
global
economic scene, the cloud has a silver lining: An
influx
of cheaply priced Asian exports could help quell
inflationary
pressures in the U.S. Newspapers have already
reported a
broad slump in commodity prices stemming from
Asia's economic
difficulties. Should inflation remain subdued and
U.S. economic
growth slow, we believe the Federal Reserve could
lower the
federal funds rate in the second half of the year
to rev up
the economy. All of this bodes well for bonds, so
we expect
the rally to continue.
Top Five
Issuers.
3.3% Tulsa Oklahoma
Municipal Airport
Revenue Bond
2.9% Washington State Public
Power Supply
2.8% New York City Mun.
Water Fin. Auth.
2.8% Colorado Housing Finance
Authority
2.5% Metro Pier & Expo
Authority
Expressed as a percentage of net assetsas of
12/31/97.
1
<PAGE>
President's Letter
February 2, 1998
(PICTURE)
Investing Smart.
Dear Shareholder:
This is the season when many investors receive
income tax
refunds or have a CD or two maturing. What will
you do with
these assets? Investing smart can be a challenge
especially
given today's new investment choices.
The Federal Taxpayer Relief Act of 1997 is
changing the way
Americans invest and accumulate wealth, save for
college or
build a nest egg for retirement. While the law
offers
opportunity, it is also complex. You may need help
to
put things in perspective.
Now may be an excellent time for you and your
Prudential
Financial Professional to update your investment
strategy
and retirement plan. A wise investor does so
periodically.
You could find the tax law opening doors that may
benefit
you now or over the long term, such as --
- -- Revised Capital Gains Tax Rates &
Exclusions. Long-term
rates are down. Is your portfolio positioned to
benefit? Also,
new rules allow you to keep more of the profit
from the sale of
your home (perhaps up to $500,000 more).
- -- New Roth IRAs. The Roth IRA features tax-free
distributions
and does not require mandatory withdrawals, which
should be of
particular interest to retirees seeking to shelter
assets in a
tax-free account.
- -- New Education IRAs. Similar to a traditional
IRA, but
specifically designed for higher education. The
new law also
creates credits and deductions to help defray
college costs.
- -- Expanded IRAs. Rules governing traditional
IRAs have
been extensively revised. Deductibility and
contribution
limits have been broadened as has the list for
penalty-free
early withdrawals, including first-time home
buyers.
As you can see, what you don't know may cost you!
That's
why I recommend you call your Prudential Financial
Professional and get a free investment plan
checkup.
Let us give you the information and tools to
invest smart.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
2
<PAGE>
Portfolio of Investments as
of December 31, 1997 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--97.7%
- --------------------------------------------------
- --------------------------------------------------
- --------------------------
Alaska--1.7%
Anchorage Alaska Elec. Utility Rev.,
M.B.I.A.
Aaa 6.50% 12/01/12 $ 3,400
(h) $ 4,014,516
M.B.I.A.
Aaa 6.50 12/01/13 2,500
(h) 2,956,775
M.B.I.A.
Aaa 6.50 12/01/14 3,455
4,089,960
- ------------
11,061,251
- --------------------------------------------------
- --------------------------------------------------
- --------------------------
Arizona--4.0%
Arizona St. Mun. Fin. Proj., Cert. of Part., Ser.
25,
B.I.G.
Aaa 7.875 8/01/14 2,250
3,019,275
Maricopa Cnty. Sch. Dist., A.M.B.A.C.,
No. 3 Tempe Elem.
Aaa Zero 7/01/09 1,500
872,280
No. 3 Tempe Elem.
Aaa Zero 7/01/14 1,500
651,360
Maricopa Cnty. Unified Sch. Dist.,
No. 80 Chandler, F.G.I.C.
Aaa Zero 7/01/09 1,330
773,422
No. 80 Chandler, M.B.I.A.
Aaa Zero 7/01/10 1,050
575,410
No. 80 Chandler, M.B.I.A.
Aaa Zero 7/01/11 1,200
618,516
No. 80 Chandler, F.G.I.C.
Aaa 6.25 7/01/11 1,000
1,156,910
Phoenix St. & Hwy. User Rev., Ser. A, F.G.I.C.
Aaa Zero 7/01/12 3,000
1,461,840
Pima Cnty. Ind. Dev. Auth. Rev., F.S.A.
Aaa 7.25 7/15/10 2,095
2,345,625
Pima Cnty. Unified Sch. Dist., Gen. Oblig.,
F.G.I.C.
No. 1, Tuscan
Aaa 7.50 7/01/10 3,000
(f) 3,830,040
No. 16, Catalina Foothills
Aaa Zero 7/01/09 3,455
2,009,152
Tucson Gen. Oblig.,
Ser. A
Aa3 7.375 7/01/11 1,000
1,259,410
Ser. A
Aa3 7.375 7/01/12 1,100
1,392,138
Ser. A
Aa3 7.375 7/01/13 4,500
5,722,425
- ------------
25,687,803
- --------------------------------------------------
- --------------------------------------------------
- --------------------------
California--9.1%
Anaheim Pub. Fin. Auth. Lease Rev., F.S.A.,
Sr. Pub. Impvts. Proj., Ser. A
Aaa 6.00 9/01/24 5,500
6,334,240
Sub. Pub. Impvts. Proj., Ser. C
Aaa 6.00 9/01/16 6,690
7,565,253
Encinitas Union Cap. Sch. Dist., M.B.I.A.
Aaa Zero 8/01/21 3,810
1,121,626
Kern California High Sch. Dist., Ser. A, M.B.I.A.
Aaa 6.30 2/01/10 2,490
2,891,487
Long Beach Aquarium of the Pacific Rev., Ser. A,
A.M.T. BBB(d) 6.125
7/01/23 6,000 6,229,620
Long Beach Harbor Rev., F.G.I.C., A.M.T.
Aaa 6.00 5/15/18 4,000
(g) 4,419,320
Los Angeles Unified Sch. Dist., F.G.I.C.
Aaa 6.00 7/01/15 1,000
1,130,800
</TABLE>
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as
of December 31, 1997 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 (cont.d.)
Orange Cnty. Local Transp. Auth. Rev., A.M.B.A.C.
Aaa 5.70% 2/15/11 $ 4,000
$ 4,404,720
San Jose Redev. Proj., Agcy. Tax Alloc., M.B.I.A.
Aaa 6.00 8/01/11 5,000
5,668,500
Santa Cruz Cnty. Pub. Fin. Auth. Rev.,
A-(d) 6.20 9/01/23 2,000
2,122,740
Santa Margarita/Dana Point Auth., M.B.I.A.,
Impvt. Dists. 3-3A-484A
Aaa 7.25 8/01/10 2,450
3,078,327
Impvt. Dists. 3-3A-484A, Ser. B
Aaa 7.25 8/01/09 2,000
2,498,360
Impvt. Dists. 3-3A-484A, Ser. B
Aaa 7.25 8/01/14 2,000
2,547,820
So. California Pub. Pwr. Auth. Transmission Proj.
Rev.,
Ser. A, M.B.I.A.
Aaa 5.00 7/01/22 4,000
3,884,480
So. Orange Cnty. Pub. Fin. Auth. Rev., Foothill
Area
Proj., F.G.I.C.
Aaa 6.50 8/15/10 2,000
2,371,240
West Contra Costa Sch. Dist., Cert. of Part.
Baa3 7.125 1/01/24 1,600
1,749,184
- ------------
58,017,717
- --------------------------------------------------
- --------------------------------------------------
- --------------------------
Colorado--4.8%
Arapahoe Cnty. Cap. Impvt. Trust Fund,
Pub. Hwy. Rev., Ser. E-470
Aaa 7.00 8/31/26 3,000
3,583,080
Colorado Hsg. Fin. Auth.,
Singl. Fam. Proj., A.M.T.
Aa2 8.00 6/01/25 4,100
4,599,216
Singl. Fam. Proj., Ser. A-2, A.M.T.
Aa2 7.25 5/01/27 2,000
2,255,000
Singl. Fam. Proj., Ser. B-1, A.M.T.
Aa2 7.90 12/01/25 2,540
2,859,938
Singl. Fam. Proj., Ser. C-1, M.B.I.A., A.M.T.
Aaa 7.65 12/01/25 5,290
5,996,903
Singl. Fam. Proj., Ser. C-2, A.M.T.
Aa2 6.875 11/01/28 2,000
2,213,140
Colorado Springs Arpt. Rev., Ser. A., A.M.T.
BBB+(d) 7.00 1/01/22 7,960
8,718,031
- ------------
30,225,308
- --------------------------------------------------
- --------------------------------------------------
- --------------------------
Connecticut--2.7%
Connecticut St. Hlth. & Edu. Facs. Auth. Rev.,
Hosp. for Special Care
Baa2 5.50 7/01/27 2,500
2,478,375
St. Mary's Hosp. Issue, Ser. E
A3 5.50 7/01/20 5,650
5,707,573
St. Mary's Hosp. Issue, Ser. E
A3 5.875 7/01/22 1,750
1,810,358
Univ. of Hartford
Ba2 6.75 7/01/12 5,475
5,852,994
Connecticut St. Spec. Tax Oblig. Rev., Trans.
Infrastructure, Ser. A
A1 7.125 6/01/10 1,000
1,220,800
- ------------
17,070,100
</TABLE>
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as
of December 31, 1997 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>
- --------------------------------------------------
- --------------------------------------------------
- --------------------------
Florida--2.7%
Broward Cnty. Res. Rec. Rev., Broward Co. L.P.
South Proj. A 7.95%
12/01/08 $ 8,300 $ 9,048,411
Florida St. Brd. of Ed.,
Admin. Cap. Outlay,
Aa2 9.125 6/01/14 1,260
1,819,289
Admin. Cap. Outlay, E.T.M.
Aaa 9.125 6/01/14 195
277,278
Hillsborough Cnty. Ind. Dev. Auth. Poll. Ctrl.
Rev., Tampa
Elec. Proj., Ser. 92 Ser. 9
Aa3 8.00 5/01/22 5,000
5,813,900
- ------------
16,958,878
- --------------------------------------------------
- --------------------------------------------------
- --------------------------
Georgia--4.1%
Atlanta Urban Res. Fin. Auth., Clark Atlanta Univ.
Dorm.
Fac. Rev.
NR 9.25 6/01/10 5,160
(b) 5,821,099
Burke Cnty. Dev. Auth., M.B.I.A.,
Georgia Pwr. Plant Co., Vogtle Proj., Ser. 7
Aaa 6.625 10/01/24 500
528,635
Oglethorpe Pwr. Corp.
Aaa 8.00 1/01/22 5,000
5,965,700
Forsyth Cnty. Sch. Dist. Dev. Rev., Ser. A
Aa3 6.75 7/01/16 500
607,550
Fulton Cnty. Sch. Dist. Rev., Lindbrook Square
Fndtn. AA 6.375
5/01/17 750 881,955
Georgia Mun. Elec. Auth. Pwr. Rev. Ref.,
Ser. B
A 6.25 1/01/17 475
534,751
Ser. B, M.B.I.A.
Aaa 6.375 1/01/16 5,000
5,859,550
Ser. Z, M.B.I.A.
Aaa 5.50 1/01/20 5,000
5,359,100
Green Cnty. Dev. Auth. Indl. Park Rev.
NR 6.875 2/01/04 525
568,055
- ------------
26,126,395
- --------------------------------------------------
- --------------------------------------------------
- --------------------------
Hawaii--1.4%
Hawaii St. Arpt. Sys. Rev.,
2nd Ser. 90, F.G.I.C., A.M.T.
Aaa 7.50 7/01/20 500
543,420
2nd Ser., A.M.T.
A 7.00 7/01/18 365
397,638
Hawaii St. Dept. Budget & Fin.,
Hawaiian Elec. Co., Ser. A, M.B.I.A., A.M.T.
Aaa 5.65 10/01/27 5,000
5,182,150
Hawaiian Elec. Co., Ser. C, M.B.I.A., A.M.T.
Aaa 7.375 12/01/20 500
546,920
Kapiolani Hlth. Care Sys.
A 6.30 7/01/08 500
541,560
Kapiolani Hosp.
A 6.00 7/01/11 250
267,070
Hawaii St. Gen. Oblig., Ser. CJ
Aaa 6.25 1/01/15 650
(b) 724,256
Hawaii St. Harbor Cap. Impvt. Rev.,
F.G.I.C., A.M.T.
Aaa 6.25 7/01/10 250
274,005
F.G.I.C., A.M.T.
Aaa 6.25 7/01/15 500
545,075
- ------------
9,022,094
</TABLE>
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 5
<PAGE>
Portfolio of Investments as
of December 31, 1997 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>
- --------------------------------------------------
- --------------------------------------------------
- --------------------------
Illinois--4.7%
Cook and Du Page Cntys. Cap. Apprec., High Sch.
Dist. No.
210, F.S.A.
Aaa Zero 12/01/11 $ 3,035
$ 1,512,007
Illinois Dev. Fin. Auth. Rev., Cmnty. Rehab.
Providers-A BBB(d) 6.00%
7/01/15 2,000 2,101,840
Illinois Hlth. Facs. Auth. Rev., M.B.I.A.,
Loyola Univ. Hlth. Sys., Ser. A
Aaa 6.00 7/01/13 1,500
1,670,790
Loyola Univ. Hlth. Sys., Ser. A
Aaa 6.00 7/01/14 3,500
3,894,310
Kane & De Kalb Cntys. Cmnty. United Sch. Dist.,
No. 301,
A.M.B.A.C.
Aaa Zero 12/01/10 3,055
1,620,403
Metropolitan Pier & Expo. Auth Hosp. Fac. Rev.,
McCormick
Place Convention
BBB-(d) 7.00 7/01/26 12,910
15,831,920
Regional Transp. Auth. Rev., F.G.I.C.
Aaa 6.00 6/01/15 2,750
3,091,165
- ------------
29,722,435
- --------------------------------------------------
- --------------------------------------------------
- --------------------------
Kentucky--2.0%
Henderson Cnty. Solid Waste Disp. Rev., Macmillan
Bloedel
Proj., A.M.T.
Baa2 7.00 3/01/25 6,000
6,672,120
Jefferson Cnty. Poll. Ctrl. Rev., Louisville Gas &
Elec.,
Ser. A, A.M.T.
Aa2 7.75 2/01/19 5,700
5,832,240
- ------------
12,504,360
- --------------------------------------------------
- --------------------------------------------------
- --------------------------
Louisiana--4.8%
New Orleans, Gen. Oblig., Cap. Apprec., A.M.B.A.C.
Aaa Zero 9/01/09 13,500
7,833,645
Orleans Parish Sch. Brd., E.T.M., M.B.I.A.
Aaa 8.90 2/01/07 5,780
7,664,338
St. Charles Parish, Environ. Impt. Rev., Louisiana
Pwr. &
Lt. Co., Ser. A, A.M.T.
Baa2 6.875 7/01/24 5,000
5,500,900
St. Charles Parish, Lousiana Poll. Ctrl. Rev.,
Lousiana Pwr. & Lt. Co.
Baa3 8.25 6/01/14 4,000
4,309,160
Lousiana Pwr. & Lt. Co., Ser. 1989
Baa3 8.00 12/01/14 5,000
5,445,000
- ------------
30,753,043
- --------------------------------------------------
- --------------------------------------------------
- --------------------------
Maryland--0.6%
Northeast Waste Disp. Auth., Baltimore City Sludge
Proj. NR 7.25 7/01/07
3,629 4,003,368
- --------------------------------------------------
- --------------------------------------------------
- --------------------------
Massachusetts--2.1%
Mass. St. Wtr. Res. Auth. Rev.,
Ser. B, M.B.I.A.
Aaa 6.25 12/01/11 6,720
7,774,838
Ser. B, M.B.I.A.
Aaa 6.25 12/01/12 5,000
5,783,150
- ------------
13,557,988
</TABLE>
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 6
<PAGE>
Portfolio of Investments as
of December 31, 1997 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>
- --------------------------------------------------
- --------------------------------------------------
- --------------------------
Michigan--1.2%
Michigan St. Hsg. Dev. Auth. Rev.,
Rental Hsg. Rev., Ser. B
AA-(d) 7.55% 4/01/23 $ 1,000
$ 1,072,870
Sngl. Fam. Mtge., Ser. A
AA+(d) 7.50 6/01/15 5,185
5,437,250
Okemos Pub. Sch. Dist., M.B.I.A.,
Cnty. of Ingham
Aaa Zero 5/01/12 1,100
544,247
Cnty. of Ingham
Aaa Zero 5/01/13 1,000
467,560
- ------------
7,521,927
- --------------------------------------------------
- --------------------------------------------------
- --------------------------
Minnesota--0.7%
Anoka Hennepin Indpt. Sch. Dist., No. 11, Ser. C,
F.S.A. Aaa Zero
2/01/12 1,575 788,886
Minneapolis St. Paul Hsg. Fin. Brd. Rev., Sngl.
Fam.
Mtge., G.N.M.A., A.M.T.
AAA(d) 7.30 8/01/31 830
877,974
Minneapolis St. Paul Met. Arpts. Comm., Ser. 7,
A.M.T. Aaa 7.80
1/01/14 1,000 1,057,230
St. Paul Science Museum, Cert. of Part., E.T.M.
AAA(d) 7.50 12/15/01 769
832,316
Univ. of Minnesota, Ser. A, E.T.M.
Aa3 6.00 2/01/11 1,000
1,041,600
- ------------
4,598,006
- --------------------------------------------------
- --------------------------------------------------
- --------------------------
Mississippi--0.4%
Mississippi Hosp. Equip. & Facs, Auth. Rev.,
Rush Med. Fndtn. Proj., Ser. B
Baa3 6.00 1/01/16 1,480
1,540,473
Rush Med. Fndtn. Proj., Ser. B
Baa3 6.00 1/01/22 1,000
1,036,680
- ------------
2,577,153
- --------------------------------------------------
- --------------------------------------------------
- --------------------------
Missouri--1.4%
Missouri St. Hsg. Dev. Comn. Mtge Rev., Single
Family
Homeowner Loan, Ser. A, G.N.M.A., A.M.T.
AAA(d) 7.20 9/01/26 4,920
5,547,202
Sikeston Missouri Elec. Rev., M.B.I.A.
Aaa 6.00 6/01/16 3,175
3,574,637
- ------------
9,121,839
- --------------------------------------------------
- --------------------------------------------------
- --------------------------
Nevada--2.3%
Clark Cnty. Indl. Dev. Rev., Southwest Gas Corp.,
Ser. A,
A.M.T.
Baa2 6.50 12/01/33 10,000
10,716,100
Nevada Hsg. Div. Multi Unit Hsg., Arville Et
Cetera Proj.,
F.N.M.A., A.M.T.
AAA(d) 6.60 10/01/23 3,475
3,706,539
- ------------
14,422,639
</TABLE>
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 7
<PAGE>
Portfolio of Investments as
of December 31, 1997 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 Hampshire--0.3%
New Hampshire Higher Ed. & Hlth. Facs. Auth. Rev.,
New Hampshire College
BBB-(d) 6.30% 1/01/16 $ 500
$ 531,415
New Hampshire College
BBB-(d) 6.375 1/01/27 1,000
1,062,170
- ------------
1,593,585
- --------------------------------------------------
- --------------------------------------------------
- --------------------------
New Jersey--2.4%
New Jersey St. Hsg. & Mtge. Fin. Agcy., Ser. D,
M.B.I.A.,
A.M.T.
Aaa 7.70 10/01/29 2,090
2,193,434
New Jersey St. Tpke. Auth. Rev., Ser. C, M.B.I.A.
Aaa 6.50 1/01/16 11,000
13,052,490
- ------------
15,245,924
- --------------------------------------------------
- --------------------------------------------------
- --------------------------
New Mexico--0.8%
New Mexico Mtge. Fin. Auth., Singl. Fam. Mtge.,
A.M.T. AAA(d) 6.30
7/01/28 5,000 5,302,550
- --------------------------------------------------
- --------------------------------------------------
- --------------------------
New York--14.2%
Greece Central Sch. Dist.
F.G.I.C.
Aaa 6.00 6/15/16 950
1,074,716
F.G.I.C.
Aaa 6.00 6/15/17 950
1,077,509
F.G.I.C.
Aaa 6.00 6/15/18 950
1,078,697
Metropolitan Trans. Auth., Trans. Facs. Rev., Ser.
A,
F.S.A.
Aaa 6.00 7/01/16 2,500
2,735,275
New York City Ind. Dev. Agcy.,
Brooklyn Navy Yard Cogen Partners, A.M.T.
Baa3 5.65 10/01/28 7,000
7,073,570
Brooklyn Navy Yard Cogen Partners, A.M.T.
Baa3 5.75 10/01/36 5,000
5,060,850
Spec. Fac. Rev., Terminal One Group Assoc.
Proj.,
A.M.T.
A 6.00 1/01/19 2,500
2,621,200
New York City Mun. Wtr. Fin. Auth.
F.G.I.C.
Aaa 6.75 6/15/16 6,000
(b) 6,566,580
F.G.I.C.
Aaa 6.75 6/15/16 10,565
11,468,202
New York City, Gen. Oblig.,
Ser. A
Baa1 7.75 8/15/04 1,555
(b) 1,762,033
Ser. A
Baa1 7.75 8/15/04 445
495,645
Ser. B
Baa1 8.25 6/01/06 1,500
1,847,985
Ser. B
Baa1 7.25 8/15/07 3,500
4,133,605
Ser. D
Baa1 8.00 8/01/03 2,020
2,277,146
Ser. D
Aaa 8.00 8/01/04 1,005
(b) 1,148,454
Ser. D
Baa1 8.00 8/01/04 165
186,004
Ser. D
Aaa 7.65 2/01/07 4,605
(b) 5,269,041
Ser. D
Baa1 7.65 2/01/07 395
443,498
</TABLE>
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 8
<PAGE>
Portfolio of Investments as
of December 31, 1997 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 (cont'd.)
Ser. F
BBB+(d) 8.25% 11/15/02 $ 800
(b) $ 926,704
Ser. F
Baa1 8.25 11/15/02 4,200
(b) 4,809,084
New York St. Local Gov't. Assist. Corp., Ser. E
A3 6.00 4/01/14 10,000
11,245,800
New York St. Urban Dev. Corp. Rev. Ref., F.S.A.,
Correctional Facs.
Aaa 6.50 1/01/09 3,000
3,513,240
Correctional Facs., Ser. A
Aaa 5.50 1/01/14 3,000
3,215,280
Triborough Bridge & Tunl. Auth., Ser. X, M.B.I.A.
Aaa 6.625 1/01/12 8,500
10,125,965
- ------------
90,156,083
- --------------------------------------------------
- --------------------------------------------------
- --------------------------
North Carolina--0.5%
North Carolina Eastern Mun. Pwr. Agcy., Pwr. Sys.
Rev.,
M.B.I.A.
Aaa 5.375 1/01/24 3,000
3,043,770
- --------------------------------------------------
- --------------------------------------------------
- --------------------------
North Dakota--1.7%
Mercer Cnty., Antelope Valley Station, A.M.B.A.C
Aaa 7.20 6/30/13 9,000
10,986,210
- --------------------------------------------------
- --------------------------------------------------
- --------------------------
Ohio--2.4%
Ohio St. Wtr. Dev. Auth. Poll. Ctrl. Facs. Rev.,
Buckeye
Pwr. Inc. Proj., A.M.B.A.C.
Aaa 7.80 11/01/14 12,585
15,049,269
- --------------------------------------------------
- --------------------------------------------------
- --------------------------
Oklahoma--5.1%
McGee Creek Auth. Wtr. Rev., M.B.I.A.
Aaa 6.00 1/01/23 7,000
7,981,750
Oklahoma St. Inds. Auth. Rev., Deaconess Hlth.
Care, Ser.
A
Baa2 5.75 10/01/17 3,770
3,821,083
Tulsa Mun. Arpt. Trust Rev., American Airlines,
Inc.,
A.M.T.
Baa2 7.375 12/01/20 19,000
20,733,750
- ------------
32,536,583
- --------------------------------------------------
- --------------------------------------------------
- --------------------------
Pennsylvania--1.0%
Delaware Cnty. Ind. Dev. Auth. Rev., Res. Rec.
Fac., Ser.
A
Baa1 6.20 7/01/19 3,000
3,209,940
Philadelphia Wtr. & Waste Auth. Rev., M.B.I.A.
Aaa 6.25 8/01/11 2,500
2,866,675
- ------------
6,076,615
- --------------------------------------------------
- --------------------------------------------------
- --------------------------
Puerto Rico--5.6%
Puerto Rico Comnwlth., Gen. Oblig. M.B.I.A.
Baa1 6.50 7/01/13 3,000
3,509,850
Puerto Rico Comnwlth., Hwy. & Trans. Auth., Hwy.
Rev.,
Ser. V
Baa1 6.625 7/01/12 4,000
4,402,200
Ser. W
Baa1 5.50 7/01/15 2,500
2,626,725
Ser. Z, F.S.A.
Aaa 6.00 7/01/18 5,000
5,667,900
</TABLE>
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 9
<PAGE>
Portfolio of Investments as
of December 31, 1997 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>
- --------------------------------------------------
- --------------------------------------------------
- --------------------------
Puerto Rico (cont'd.)
Puerto Rico Elec. Pwr. Auth. Rev., Ser. O
Baa1 5.00% 7/01/12 $ 600
$ 598,164
Puerto Rico Hwy. & Trans. Auth. Rev., Ser. V
Baa1 6.375 7/01/08 500
540,335
Puerto Rico Ind., Tourist Ed. Med. & Env. Ctrl.
Facs.,
Doctor Pila Hosp. Proj., F.H.A.
AAA(d) 6.125 8/01/25 500
547,240
Hosp. Auxilio Mutuo Oblig. Grp. Proj., M.B.I.A.
Aaa 6.25 7/01/16 500
551,735
Puerto Rico Mun. Fin. Agcy., Ser. A, F.S.A.
Aaa 6.00 7/01/14 250
270,575
Puerto Rico Public Bldgs. Auth. Rev., Ser. L,
F.S.A. Aaa 5.75
7/01/10 5,065 5,624,277
Puerto Rico Tel. Auth. Rev.,
Ser. I, M.B.I.A.
Aaa 6.424(c) 1/25/07 4,100
4,499,750
Ser. I, M.B.I.A.
Aaa 6.915(c) 1/16/15 6,150
6,457,500
- ------------
35,296,251
- --------------------------------------------------
- --------------------------------------------------
- --------------------------
South Carolina--1.6%
Charleston Wtrwks. & Swr. Rev., E.T.M.
Aaa 10.375 1/01/10 7,415
10,358,458
- --------------------------------------------------
- --------------------------------------------------
- --------------------------
Tennessee--1.8%
Bristol Hlth. & Edl. Fac. Rev., Bristol Memorial
Hosp.,
F.G.I.C.
Aaa 6.75 9/01/10 5,000
6,017,550
McMinn Cnty. Ind. Dev. Brd. Solid Waste Rev.,
Calhoun
Nwsprnt. Recycling Fac., A.M.T.
Baa1 7.40 12/01/22 5,000
5,599,000
- ------------
11,616,550
- --------------------------------------------------
- --------------------------------------------------
- --------------------------
Texas--4.6%
Bexar Cnty. Hlth. Facs. Dev. Corp. Rev., Baptist
Hlth.
Sys., Ser. A, M.B.I.A.
Aaa 6.00 11/15/14 5,695
6,401,180
Dallas Ft. Worth, Regl. Arpt. Rev., F.G.I.C.,
Ser. A
Aaa 7.375 11/01/08 3,500
4,115,930
Ser. A
Aaa 7.375 11/01/09 3,500
4,093,215
Keller Independent Sch. Dist. Rev.
Aaa 6.00 8/15/23 3,970
4,508,451
New Braunfels Indpt. Sch. Dist.,
Cap. Apprec.
Aaa Zero 2/01/10 2,335
1,297,840
Cap. Apprec.
Aaa Zero 2/01/11 2,365
1,236,280
Port Corpus Christi Auth. Rev.,
A2 7.50 8/01/12 2,000
2,203,260
San Antonio Elec. & Gas Rev., Ser. B, F.G.I.C.
Aaa Zero 2/01/09 5,000
2,949,250
Univ. Texas Univ. Rev., Fen. Sys., Ser. B
Aa1 6.75 8/15/13 2,035
2,235,346
- ------------
29,040,752
</TABLE>
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 10
<PAGE>
Portfolio of Investments as
of December 31, 1997 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>
- --------------------------------------------------
- --------------------------------------------------
- --------------------------
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
$ 337,116
Matching Loan Notes, Ser. A
NR 7.25 10/01/18 250
280,500
- ------------
617,616
- --------------------------------------------------
- --------------------------------------------------
- --------------------------
Washington--4.5%
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
6,113,850
Pierce Cnty. Washington Sch. Dist. No. 1, F.G.I.C.
Aaa 6.00 12/01/10 1,000
1,133,070
Washington St. Pub. Pwr. Supply Sys. Rev.,
Nuclear Proj. No. 1, Ser. A, F.S.A.
Aaa 7.00 7/01/08 4,000
4,764,760
Nuclear Proj. No. 1, Ser. B, F.S.A.
Aaa 7.25 7/01/09 5,000
6,080,450
Nuclear Proj. No. 2, F.S.A.
Aaa 5.40 7/01/12 5,400
5,604,552
Nuclear Proj. No. 3, Ser. B, F.G.I.C.
Aaa Zero 7/01/06 3,000
2,019,600
Washington St. Rev., Ser. R-97A
Aa1 Zero 7/01/16 8,000
3,034,080
- ------------
28,750,362
- --------------------------------------------------
- --------------------------------------------------
- --------------------------
Wisconsin--0.4%
Wisconsin Hsg. & Econ. Dev. Auth. Home Ownership
Rev.,
A.M.T.
Aa 6.20 3/01/27 2,100
2,205,126
- ------------
Total long-term investments (cost $569,621,190)
620,828,008
- ------------
SHORT-TERM INVESTMENTS--1.5%
- --------------------------------------------------
- --------------------------------------------------
- --------------------------
North Carolina--0.7%
North Carolina Med. Care Comm. Hlth. Care Fac.
Rev., Ser.
97, F.R.D.D.
VMIG1 5.00 1/02/98 2,500
2,500,000
North Carolina Med. Care Comm. Hosp. Rev., Ser.
96A,
F.R.D.D.
VMIG1 5.00 1/02/98 1,900
1,900,000
- ------------
4,400,000
- --------------------------------------------------
- --------------------------------------------------
- --------------------------
Texas--0.4%
Southwest Higher Ed. Auth. Inc. Rev., Ser. 85,
F.R.D.D. VMIG1 5.00
1/02/98 600 600,000
Trinity River Auth. Poll. Coll. Util., Texas Elec.
Util.
Co., Ser. 96A F.R.D.D.
VMIG1 5.10 1/02/98 2,000
2,000,000
- ------------
2,600,000
</TABLE>
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 11
<PAGE>
Portfolio of Investments as
of December 31, 1997 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>
- --------------------------------------------------
- --------------------------------------------------
- --------------------------
Virginia--0.4%
Campbell Cnty. Ind. Dev. Auth. Rev., Ser. 90A,
F.R.D.D. Aa2 5.30%
1/02/98 $ 2,900 $ 2,900,000
- ------------
Total short-term investments (cost $9,900,000)
9,900,000
- ------------
Total Investments--99.2%
(cost $579,521,190)
630,728,008
Other assets in excess of liabilities--0.8%
4,803,231
- ------------
Net Assets--100%
$635,531,239
- ------------
- ------------
</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.H.A.--Federal Housing Authority
F.N.M.A.--Federal National Mortgage
Association
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
(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) Pledged as initial margin on financial futures
contracts.
(g) Represents when-issued or extended settlement
security.
(h) Pledged as collateral for when-issued or
extended settlement security.
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. 12
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL
NATIONAL MUNICIPALS FUND, INC.
- --------------------------------------------------
- ------------------------------
<TABLE>
<CAPTION>
Assets
December 31, 1997
<S>
<C>
Investments, at value (cost
$579,521,190).....................................
.......................... $ 630,728,008
Cash..............................................
..................................................
.... 116,854
Interest
receivable........................................
.............................................
10,666,603
Receivable for investments
sold..............................................
........................... 321,781
Receivable for Fund shares
sold..............................................
........................... 164,434
Prepaid expenses and other
assets............................................
........................... 16,268
- -----------------
Total
assets............................................
.............................................
642,013,948
- -----------------
Liabilities
Payable for investments
purchased.........................................
..............................
4,339,707
Payable for Fund shares
reacquired........................................
..............................
914,698
Dividends
payable...........................................
............................................
655,765
Management fee
payable...........................................
.......................................
242,634
Accrued
expenses..........................................
..............................................
214,733
Distribution fee
payable...........................................
.....................................
102,672
Due to broker - variation
margin............................................
............................ 12,500
- -----------------
Total
liabilities.......................................
.............................................
6,482,709
- -----------------
Net
Assets............................................
..................................................
$ 635,531,239
- -----------------
- -----------------
Net assets were comprised of:
Common stock, at
par...............................................
.................................. $
393,965
Paid-in capital in excess of
par...............................................
...................... 583,000,111
- -----------------
583,394,076
Accumulated net realized gain on
investments.......................................
.................. 1,042,845
Net unrealized appreciation on
investments.......................................
.................... 51,094,318
- -----------------
Net assets, December 31,
1997..............................................
............................. $ 635,531,239
- -----------------
- -----------------
Class A:
Net asset value and redemption price per share
($493,177,888 / 30,588,012 shares of common
stock issued and
outstanding).........................
$16.12
Maximum sales charge (3% of offering
price)............................................
.............. .50
- -----------------
Maximum offering price to
public............................................
......................... $16.62
- -----------------
- -----------------
Class B:
Net asset value, offering price and redemption
price per share
($141,527,978 / 8,757,460 shares of common
stock issued and
outstanding)..........................
$16.16
- -----------------
Class C:
Net asset value, offering price and redemption
price per share
($825,373 / 51,073 shares of common stock
issued and
outstanding).................................
$16.16
- -----------------
- -----------------
</TABLE>
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 13
<PAGE>
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
Statement of Operations
- --------------------------------------------------
- ----------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income
December 31, 1997
<S> <C>
Income
Interest..............................
$37,659,685
------
- -----------
Expenses
Management fee........................
3,085,389
Distribution fee--Class A.............
491,279
Distribution fee--Class B.............
759,692
Distribution fee--Class C.............
5,686
Transfer agent's fees and expense.....
544,000
Custodian's fees and expenses.........
123,000
Reports to shareholders...............
128,000
Legal fees and expenses...............
73,000
Registration fees.....................
50,000
Audit fees and expenses...............
39,000
Directors' fees and expenses..........
28,000
Insurance expense.....................
11,700
Miscellaneous.........................
2,119
------
- -----------
Total expenses.....................
5,340,865
Less: Management fee waiver...........
(215,979)
Custodian fee credit...............
(14,132)
------
- -----------
Net expenses.......................
5,110,754
------
- -----------
Net investment income....................
32,548,931
------
- -----------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions...............
9,597,743
Financial futures contracts...........
(1,286,578)
Written options.......................
18,260
------
- -----------
8,329,425
------
- -----------
Net change in unrealized appreciation
(depreciation) of:
Investments...........................
19,425,487
Futures...............................
(112,500)
------
- -----------
19,312,987
------
- -----------
Net gain on investment transactions......
27,642,412
------
- -----------
Net Increase in Net Assets
Resulting from Operations................
$60,191,343
------
- -----------
------
- -----------
</TABLE>
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
Statement of Changes in Net Assets
- --------------------------------------------------
- ----------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended
December 31,
in Net Assets 1997
1996
<S> <C>
<C>
Operations
Net investment income........ $ 32,548,931
$ 36,516,570
Net realized gain on
investment transactions... 8,329,425
6,573,149
Net change in unrealized
appreciation of
investments............... 19,312,987
(26,789,525)
-------------
- -------------
Net increase in net assets
resulting from
operations................ 60,191,343
16,300,194
-------------
- -------------
Dividends and distributions
(Note 1)
Dividends from net investment
income
Class A................... (25,293,360)
(26,993,477)
Class B................... (7,221,480)
(9,491,599)
Class C................... (34,091)
(31,494)
-------------
- -------------
(32,548,931)
(36,516,570)
-------------
- -------------
Distributions in excess of
net investment income
Class A................... (152,363)
(129,414)
Class B................... (43,542)
(43,154)
Class C................... (256)
(196)
-------------
- -------------
(196,161)
(172,764)
-------------
- -------------
Distributions paid from
capital gains
Class A................... (3,169,156)
- --
Class B................... (905,674)
- --
Class C................... (5,317)
- --
-------------
- -------------
(4,080,147)
- --
-------------
- -------------
Fund share transactions (net of
share conversions) (Note 5 &
6):
Net proceeds from shares
sold...................... 143,282,681
132,494,761
Net asset value of shares
issued in reinvestment of
dividends and
distributions............. 22,849,312
22,304,782
Cost of shares reacquired.... (225,662,512)
(224,127,599)
-------------
- -------------
Net decrease in net assets
from Fund share
transactions.............. (59,530,519)
(69,328,056)
-------------
- -------------
Total decrease.................. (36,164,415)
(89,717,196)
Net Assets
Beginning of year............... 671,695,654
761,412,850
-------------
- -------------
End of year..................... $ 635,531,239
$ 671,695,654
-------------
- -------------
-------------
- -------------
</TABLE>
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 14
<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 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.
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.
- --------------------------------------------------
- ------------------------------
15
<PAGE>
Notes to Financial Statements PRUDENTIAL
NATIONAL MUNICIPALS FUND, INC.
- --------------------------------------------------
- ------------------------------
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 and decrease accumulated realized gain on
investment by $196,161. 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.
- --------------------------------------------------
- ----------
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. Prior to September 1, 1997,
PIFM had agreed to waive a portion (.05 of 1% of
the Fund's average daily net
assets) of its management fee which amounted to
$215,979 ($.005 per share for
Class A, B and C shares). The Fund is not required
to reimburse PIFM for such
waiver. Effective September 1, 1997, PIFM
eliminated its management fee 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, 1997.
PSI has advised the Fund that it received
approximately $52,100 in front-end
sales charges resulting from sales of Class A
shares during the year ended
December 31, 1997. From these fees, PSI paid such
sales charges to dealers,
which in turn paid commissions to salespersons and
incurred other distribution
costs.
PSI has advised the Fund that for the year ended
December 31, 1997, it received
approximately $274,100 and $200 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'), has a credit agreement (the 'Agreement')
with an unaffiliated lender.
The maximum commitment under the Agreement is
$200,000,000. 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 did not borrow any amounts pursuant to the
Agreement during the year ended
December 31, 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
- --------------------------------------------------
- ------------------------------
16
<PAGE>
Notes to Financial Statements PRUDENTIAL
NATIONAL MUNICIPALS FUND, INC.
- --------------------------------------------------
- ------------------------------
accrued and paid quarterly on a pro rata basis by
the Funds. The Agreement
expired on December 30, 1997 and has been extended
through December 29, 1998
under the same terms.
- --------------------------------------------------
- ----------
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
year ended December 31, 1997,
the Fund incurred fees of approximately $413,100
for the services of PMFS. As of
December 31, 1997, $33,200 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, 1997, were
$237,337,219 and $315,859,062,
respectively.
The federal income tax basis of the Fund's
investments at December 31, 1997 was
substantially the same as for financial reporting
purposes and, accordingly, net
and gross unrealized appreciation for federal
income tax purposes was
$51,206,818.
The Fund utilized its capital loss carryforward of
approximately $3,010,300 to
offset net taxable gains recognized during the
year ended December 31, 1997.
During the year ended December 31, 1997, the Fund
entered into financial futures
contracts. Details of open contracts at December
31, 1997 are as follows:
<TABLE>
<CAPTION>
Value at
Value
at December Unrealized
Number of Expiration
Trade 31, Appreciation
Contracts Type Date
Date 1997 (Depreciation)
- --------- ----------- ----------- ------
- ----- ----------- --------------
<S> <C> <C> <C>
<C> <C>
Short
Position:
U.S.
Treasury
100 Index Mar. 1998
$11,825,000 $12,046,875 $ (221,875)
Long
Position:
U.S.
Treasury
100 Index Mar. 1998
12,203,125 12,312,500 109,375
- --------------
$ (112,500)
- --------------
- --------------
</TABLE>
Transactions in written options during the year
ended December 31, 1997 were as
follows:
<TABLE>
<CAPTION>
Number of
Premiums
Contracts
Received
-----------
- ----------
<S> <C>
<C>
Options written................... 200
$ 92,000
Options terminated in closing
purchase transactions........... (200)
(92,000)
---
- ----------
Options outstanding at December
31, 1997........................ 0
$ 0
---
- ----------
---
- ----------
</TABLE>
- --------------------------------------------------
- ----------
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%. 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,
authorized 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, 1997:
Shares sold...................... 7,770,406
$ 121,265,504
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 and distributions.... 1,127,948
17,779,927
Shares reacquired................ (12,541,415)
(197,015,549)
-----------
- -------------
Net decrease in shares
outstanding before
conversion..................... (2,746,666)
(43,924,871)
Shares issued upon conversion
from Class B................... 1,028,246
16,211,378
-----------
- -------------
Net decrease in shares
outstanding.................... (1,718,420)
$ (27,713,493)
-----------
- -------------
-----------
- -------------
</TABLE>
- --------------------------------------------------
- ------------------------------
17
<PAGE>
Notes to Financial Statements PRUDENTIAL
NATIONAL MUNICIPALS FUND, INC.
- --------------------------------------------------
- ------------------------------
<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)
-----------
- -------------
-----------
- -------------
<CAPTION>
Class B
- ---------------------------------
<S> <C>
<C>
Year ended December 31, 1997:
Shares sold...................... 493,868
$ 7,772,752
Shares issued in reinvestment of
dividends and distributions.... 319,319
5,042,204
Shares reacquired................ (1,812,567)
(28,445,531)
-----------
- -------------
Net decrease in shares
outstanding before
conversion..................... (999,380)
(15,630,575)
Shares reacquired upon conversion
into Class A................... (1,025,835)
(16,211,378)
-----------
- -------------
Net decrease in shares
outstanding.................... (2,025,215)
$ (31,841,953)
-----------
- -------------
-----------
- -------------
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 Shares
Amount
- --------------------------------- -----------
- -------------
<S> <C>
<C>
Year ended December 31, 1997:
Shares sold...................... 12,662
$ 199,178
Shares issued in reinvestment of
dividends and distributions.... 1,717
27,181
Shares reacquired................ (12,783)
(201,432)
-----------
- -------------
Net increase in shares
outstanding.................... 1,596
$ 24,927
-----------
- -------------
-----------
- -------------
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.
- --------------------------------------------------
- ------------------------------
18
<PAGE>
Financial Highlights PRUDENTIAL
NATIONAL MUNICIPALS FUND, INC.
- --------------------------------------------------
- ------------------------------
<TABLE>
<CAPTION>
Class A
- --------------------------------------------------
- --------
Year Ended December 31,
- --------------------------------------------------
- --------
1997 1996 1995 1994
1993
- -------- -------- -------- -------
- -------
<S>
<C> <C> <C> <C>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
year.................... $ 15.56 $ 15.98
$ 14.42 $ 16.30 $ 15.94
- -------- -------- -------- -------
- -------
Income from investment operations
Net investment
income.................................
.81(b) .82(b) .81(b) .81
.90
Net realized and unrealized gain (loss) on
investment
transactions......................................
. .67 (.42) 1.57
(1.78) 1.05
- -------- -------- -------- -------
- -------
Total from investment
operations................... 1.48
.40 2.38 (.97) 1.95
- -------- -------- -------- -------
- -------
Less distributions
Dividends from net investment
income.................. (.81) (.82)
(.81) (.81) (.90)
Distributions in excess of net investment
income...... (.01) -- (c) (.01)
- -- --
Distributions from net realized
gains................. (.10) --
- -- (.10) (.69)
- -------- -------- -------- -------
- -------
Total
distributions................................
(.92) (.82) (.82) (.91)
(1.59)
- -------- -------- -------- -------
- -------
Net asset value, end of
year.......................... $ 16.12 $
15.56 $ 15.98 $ 14.42 $ 16.30
- -------- -------- -------- -------
- -------
- -------- -------- -------- -------
- -------
TOTAL
RETURN(a):......................................
9.80% 2.66% 16.91% (6.04)%
12.60%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000)......................... $493,178
$502,739 $538,145 $12,721 $14,167
Average net assets
(000).............................. $491,279
$508,159 $446,350 $14,116 $11,786
Ratios to average net assets:
Expenses, including distribution
fees.............. .70%(b) .68%(b)
.75%(b) .77% .69%
Expenses, excluding distribution
fees.............. .60%(b) .58%(b)
.65%(b) .67% .59%
Net investment
income..............................
5.15%(b) 5.31%(b) 5.34%(b) 5.38%
5.49%
For Class A, B and C shares:
Portfolio turnover
rate............................ 38%
46% 98% 120% 82%
</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. 19
<PAGE>
Financial Highlights PRUDENTIAL
NATIONAL MUNICIPALS FUND, INC.
- --------------------------------------------------
- ------------------------------
<TABLE>
<CAPTION>
Class B
- --------------------------------------------------
- ----------
Year Ended December 31,
- --------------------------------------------------
- ----------
1997 1996 1995 1994
1993
- -------- -------- -------- --------
- --------
<S>
<C> <C> <C> <C>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
year.................... $ 15.60 $ 16.02
$ 14.45 $ 16.33 $ 15.97
- -------- -------- -------- --------
- --------
Income from investment operations
Net investment
income.................................
.75(b) .76(b) .76(b) .75
.84
Net realized and unrealized gain (loss) on
investment
transactions......................................
. .67 (.42) 1.58
(1.78) 1.05
- -------- -------- -------- --------
- --------
Total from investment
operations................... 1.42
.34 2.34 (1.03) 1.89
- -------- -------- -------- --------
- --------
Less distributions
Dividends from net investment
income.................. (.75) (.76)
(.76) (.75) (.84)
Distributions in excess of net investment
income...... (.01) -- (c) (.01)
- -- --
Distributions from net realized
gains................. (.10) --
- -- (.10) (.69)
- -------- -------- -------- --------
- --------
Total
distributions................................
(.86) (.76) (.77) (.85)
(1.53)
- -------- -------- -------- --------
- --------
Net asset value, end of
year.......................... $ 16.16 $
15.60 $ 16.02 $ 14.45 $ 16.33
- -------- -------- -------- --------
- --------
- -------- -------- -------- --------
- --------
TOTAL
RETURN(a):......................................
9.35% 2.26% 16.49% (6.39)%
12.15%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000)......................... $141,528
$168,185 $222,865 $672,272 $848,299
Average net assets
(000).............................. $151,938
$193,312 $252,313 $751,623 $854,919
Ratios to average net assets:
Expenses, including distribution
fees.............. 1.10%(b) 1.08%(b)
1.15%(b) 1.17% 1.09%
Expenses, excluding distribution
fees.............. .60%(b) .58%(b)
.65%(b) .67% .59%
Net investment
income..............................
4.75%(b) 4.91%(b) 4.96%(b) 4.96%
5.09%
</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. 20
<PAGE>
Financial Highlights PRUDENTIAL
NATIONAL MUNICIPALS FUND, INC.
- --------------------------------------------------
- ------------------------------
<TABLE>
<CAPTION>
Class C
- --------------------------------------------------
- --
August 1,
1994(e)
Year Ended December 31, through
- ----------------------------------- 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.................................
.71(b) .72(b) .72(b) .29
Net realized and unrealized gain (loss) on
investment
transactions......................................
. .67 (.42) 1.59
(.69)
- ------- ------ ----- -----
Total from investment
operations................... 1.38 .30
2.31 (.40)
- ------- ------ ----- -----
Less distributions
Dividends from net investment
income.................. (.71) (.72)
(.72) (.29)
Distributions in excess of net investment
income...... (.01) -- (c) (.01)
- --
Distributions from net realized
gains................. (.10) --
- -- --
- ------- ------ ----- -----
Total
distributions................................
(.82) (.72) (.73) (.29)
- ------- ------ ----- -----
Net asset value, end of
period........................ $ 16.16
$15.60 $16.02 $14.44
- ------- ------ ----- -----
- ------- ------ ----- -----
TOTAL
RETURN(a):......................................
9.08% 2.01% 16.22% (2.63)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)....................... $825 $772
$403 $141
Average net assets
(000).............................. $758
$674 $247 $103
Ratios to average net assets:
Expenses, including distribution
fees.............. 1.35%(b) 1.33%(b)
1.40%(b) 1.51%(d)
Expenses, excluding distribution
fees.............. .60%(b) .58%(b)
.65%(b) .76%(d)
Net investment
income.............................. 4.50%(b)
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. 21
<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, 1997, 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 periods
presented, 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, 1997 by correspondence with the
custodian and brokers and the
application of alternative auditing procedures
where confirmations from brokers
were not received, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 13, 1998
- --------------------------------------------------
- ------------------------------
22
<PAGE>
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, 1997) 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,
1997, dividends paid from net
investment income totalling $.81 per Class A
share, $.75 per Class B share and
$.71 per Class C shares were all federally tax-
exempt interest dividends. In
addition, the Fund paid an ordinary distribution
of $.005 per share (taxable as
ordinary income) and a long-term capital gain
distribution of $.104 of which
$.063 is taxable at 28% and $.041 is taxable at
20%.
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.
- --------------------------------------------------
- ------------------------------
23
<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
7.51% Since Inception (7.50%)
6.23% for 5 Years (6.20%)
6.50% for 1 Year (6.44%)
Class A
(GRAPH)
Without Sales Load
7.93% Since Inception (7.91%)
6.88% for 5 Years (6.85%)
9.80% for 1 Year (9.73%)
Average Annual
Total Returns
- -------------------
With Sales Load
8.77% Since Inception
7.69% for 10 Years (7.68%)
6.31% for 5 Years (6.28%)
4.35% for 1 Year (4.28%)
Class B
(GRAPH)
Without Sales Load
8.77% Since Inception
7.69% for 10 Years (7.68%)
6.46% for 5 Years (6.44%)
9.35% for 1 Year (9.28%)
Average Annual
Total Returns
- ------------------
With Sales Load
6.98% Since Inception (6.94%)
8.08% for 1 Year (8.01%)
Class C
(GRAPH)
Without Sales Load
6.98% Since Inception (6.94%)
9.08% for 1 Year (9.01%)
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
boxes on top of the charts 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 Class A and Class C shares, and 10
years for Class
B shares.
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 Class C shares and for
10 years for the
Class B shares, and subsequent account values at
the end of this
reporting period (December 31, 1997), as measured
on a quarterly
basis, beginning in 1990 for Class A shares, in
1987 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,
1997; (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. Without
waiver of management
fees and/or expense subsidization, the Fund's
return would have been
lower as indicated by the numbers in the ()
parentheses.
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
Directors
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Robert F. Gunia
Harry A. Jacobs, Jr.
Mendel A. Melzer, CFA
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Louis A. Weil, III
Officers
Richard A. Redeker, President
Robert F. Gunia, 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.
This report is not authorized for distribution to
prospective
investors unless preceded or accompanied by a
current prospectus.
743918203 MF104E
743918104 Cat. #4303159
743918302
