(ICON)
Prudential
National
Municipals
Fund, Inc.
ANNUAL
REPORT
Dec. 31, 1998
(LOGO)
<PAGE>
Prudential National Municipals Fund, Inc.
Performance At A Glance.
Municipal bonds rallied in 1998 in an effort to keep pace
with even
stronger gains in the prices of U.S. Treasuries. Demand
soared for
"safe haven" securities such as Treasuries after a financial
crisis
in Asia spread around the globe. Because we expected bond
prices to
rise (and interest rates to fall), we heavily invested in
tax-exempt
securities such as noncallable bonds that performed well
during
the debt market rally. As a result, the Prudential National
Municipals Fund's Class A shares returned 5.41% compared
with
a 5.32% gain in the Lipper General Municipal Fund Average.
<TABLE>
CumulativeTotal Returns1 As of
12/31/98
<CAPTION>
One Five Ten
Since
Year Years Years
Inception2
<S> <C> <C> <C>
<C>
Class A 5.41% 30.53% (30.36) N/A
93.15% (92.91)
Class B 4.99 28.03 (27.87) 99.32%
(99.08) 364.52 (363.95)
Class C 4.73 N/A N/A
31.88 (31.72)
Lipper General
Muni Fund Avg.3 5.32 30.35 109.94
***
</TABLE>
<TABLE>
Average Annual Total Returns1 As of
12/31/98
<CAPTION>
One Five Ten
Since
Year Years Years
Inception2
<S> <C> <C> <C>
<C>
Class A 2.25% 4.83% (4.81) N/A
7.28% (7.26)
Class B -0.01 4.90 (4.88) 7.14%
(7.13) 8.57 (8.56)
Class C 2.68 N/A N/A
6.22 (6.19)
</TABLE>
<TABLE>
Distributions & Yields As of
12/31/98
<CAPTION>
Total Taxable
Equivalent Yield
Distributions 30-Day At Tax
Rates Of
Paid for 12 Mos. SEC Yield 36%
39.6%
<S> <C> <C> <C>
<C>
Class A $0.91 3.94% 6.16%
6.52%
Class B $0.85 3.66 5.72
6.06
Class C $0.81 3.38 5.28
5.60
</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,
Inc. The cumulative total returns do not take into account
sales charges. The average annual total returns do take into
account applicable sales charges. The Fund charges a maximum
front-end sales load of 3% for Class A shares. Class B
shares
are subject to a declining contingent deferred sales charge
(CDSC) of 5%, 4%, 3%, 2%, 1%, and 1% for six years. Class B
shares will automatically convert to Class A shares, on a
quarterly
basis, approximately seven years after purchase. Class C
shares
are subject to a front-end sales load of 1% and a CDSC of 1%
for 18 months. Class C shares bought before November 2, 1998
have a 1% CDSC if sold within one year. Without waiver of
management fees and/or expense subsidization, the Fund's
cumulative and average annual total returns would have been
lower, as indicated in parentheses ( ).
2 Inception dates: Class A, 1/22/90; Class B, 4/25/80; Class
C, 8/1/94.
3 Lipper average returns are for all funds in each share
class
for the one-, five-, and ten-year periods in the General
Muni
Fund category.
*** Lipper Since Inception returns are 93.48% for Class A;
405.01% for Class B; and 34.97% for Class C based on all
funds in
each share class.
How Investments Compared.
(As of 12/31/98)
(GRAPH)
Source: Lipper, Inc. 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. Some
shareholders
may be subject to state and/or local taxes and to the
Federal
Alternative Minimum Tax (AMT).
Nearly A Record Breaker.
State and local governments took advantage
of low borrowing costs by issuing approximately
$290 billion of long-term municipal bonds in 1998,
up from roughly $221 billion the previous year. The
1998 tally was just shy of the all-time record issuance
of $292.2 billion sold in 1993.
Strategy Session.
Ready for the Rally.
We expected municipal bond prices to rise in 1998 amid
slower economic growth and subdued inflation. Therefore,
a major focus of our strategy was to keep the Fund heavily
invested in tax-exempt noncallable bonds, which
were gradually increased to nearly 50% of its total
investments by year end.
Noncallable bonds tend to perform better than callable
bonds when debt markets rally. They are free to appreciate
in value without the risk of being retired early, and
they help preserve the yield of a portfolio. Some of our
noncallable bonds were also zero coupon bonds, which
typically
trade at deep discounts to their maturity value. Their
prices
therefore have plenty of room to rise when fixed-income
markets
rally.
As it turned out, after a global financial crisis spread
from
Asia to Russia and Latin America in August, investors fled
to
"safe haven" securities such as U.S. Treasuries. Municipal
bond
prices gained primarily in sympathy with Treasuries. Within
the
tax-exempt market, demand also soared for top-quality
securities.
This trend boosted prices of general obligation bonds backed
by
the unlimited taxing power of cities or states and insured
bonds,
whose principal and interest payments are backed by
commercial
insurance companies. These two sectors posted the highest
returns in 1998 within the tax-exempt market, based on the
Lehman Brothers Municipal Bond Index.
Should Have Held Fewer BBBs.
General obligation bonds comprised 22% of the Fund's total
investments at year end and insured bonds were 52%. In
hindsight, the Fund should have held more of these bonds
and even fewer lower-investment-grade securities such as
revenue bonds rated BBB. We had reduced BBB-rated bonds to
19% at year end from 22% as of July 31, 1998.
Portfolio Composition.
Expressed as a percentage of
total investments as of 12/31/98.
(PIE CHART)
<PAGE>
What Went Well.
The Flight to Quality Helped.
The Fund benefited from its large exposure to noncallable
bonds,
particularly from August through early October. The flight-
to-quality
trend in August fueled a sharp rally in U.S. Treasuries with
municipal bonds in tow. As expected, prices of noncallable
bonds
soared more rapidly than other tax-exempt securities.
The strength of the municipal bond rally was clearly
indicated by
the Bond Buyer Revenue Index, a weekly average of long-term
tax-exempt
yields. Since yields fall when prices rise, the Index
tumbled from
5.37% in early August to 5.09% in early October, its lowest
since
the Index began to be compiled in the late 1970s.
Prerefunded.
The Fund also benefited when some of its bonds increased in
value after being prerefunded. Bonds that are prerefunded
generally
become backed by direct obligations of the U.S. government,
which significantly improves their credit quality and
prices.
In fact, credit rating agencies such as Standard and Poor's
often award prerefunded bonds their top-notch AAA rating.
Prerefunded bonds accounted for nearly 9.0% of the Fund's
total investments as of December 31, 1998.
And Not So Well.
A Difficult Finish.
Although having a significant investment in noncallable
bonds
helped the Fund's performance earlier in the
year, it detracted from Fund returns during the final few
months of 1998. The Federal Reserve lowered the Federal
funds rate (the rate banks charge each other for overnight
loans) by a quarter percentage point on September 29,
October
15, and November 17, leaving the key rate at 4.75%. These
moves
helped calm global financial markets and restore confidence
in the U.S. economy. As a result, the flight-to-quality
trend
began to reverse. Money flowed out of Treasuries, causing
long-term
interest rates to rise and bond prices to fall. This sell-
off
hurt the Fund because prices of noncallable bonds fall more
rapidly than other municipal securities when rates climb.
Looking Ahead.
We expect long-term interest rates in the United State
to decline again in 1999 as economic growth moderates and
inflation remains in check. The Fund will therefore maintain
a sizable exposure to noncallable bonds whose prices gain
rapidly when interest rates fall. We also plan a greater
emphasis on higher-quality bonds since they generally would
tend to perform better than lower-rated bonds if the
economic
expansion slows.
Five Largest
Issuers.
3.8% New York City
General Obligation
3.1% Washington State
Public Power Supply
Systems
3.0% New York City
Municipal Water
Finance Authority
2.6% Metro Pier &
Expo Authority
2.5% Colorado Housing
Finance Authority
Expressed as a percentage of net assetsas of 12/31/98.
Credit Quality.
Expressed as a percentage of
total investments as of 12/31/98.
(PIE CHART)
1
<PAGE>
President's Letter February 16, 1999
(PICTURE)
Dear Shareholder:
Many major equity market indexes ended 1998 on the upswing -
- - posting
an unprecedented fourth consecutive year of double-digit
returns --
as many stocks rebounded off their early October lows. Bond
investors were also cheered by healthy returns on U.S.
Treasuries
and investment-grade corporate debt, as well as certain
Western
European bonds.
Unfortunately, the equity market's advance was neither broad
nor
deep. It was limited primarily to stocks of larger companies
with
established records of growth. Investors ignored the stocks
of
both undervalued companies and smaller companies in a
"flight
to quality" stemming from financial turmoil in Asia and
fears
of a recession in the United States. Accordingly, growth-
style
investors in large-company stocks outperformed value-style
investors by the widest margins in nearly 24 years -- and
not since the Great Depression have large-company stocks
so outperformed stocks of small companies.
The rally in bonds was not universal either. While
government
bonds -- especially Treasuries -- enjoyed strong appeal,
investors
were cool toward lower-rated issues. High yield bonds,
therefore,
saw yields rise while prices fell.
What We Can Learn From '98
The volatility of 1998 underscores points all investors
should keep
in mind: Financial markets will rise and fall, sometimes
dramatically.
Because asset classes seldom move in lockstep, owning a mix
of
value- and growth-oriented mutual funds in addition to bond
and
money market funds can help lessen the effects of market
volatility.
Generally speaking, long-term success in investment
management
comes from remaining true to an investment discipline --
even
when it is out of favor. Investors who maintain a long-term
perspective and don't sell during market lows are more
likely
to regain lost ground, and while past events cannot foretell
future performance, stocks and bonds have
produced attractive returns ahead of inflation over time.
Thank you for your continued confidence in Prudential mutual
funds.
Sincerely,
Brian M. Storms
President
2
<PAGE>
Portfolio of Investments as of December 31, 1998 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--97.9%
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Alaska--1.9%
Anchorage Elec. Utility Rev.,
M.B.I.A.
Aaa 6.50% 12/01/12 $ 3,400 (h) $
4,093,940
M.B.I.A.
Aaa 6.50 12/01/13 2,500 (h)
3,011,825
M.B.I.A.
Aaa 6.50 12/01/14 3,455 (h)
4,168,492
- ------------
11,274,257
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Arizona--4.3%
Arizona St. Mun. Fin. Proj., Cert. of Part., Ser. 25,
B.I.G.
Aaa 7.875 8/01/14 2,250 (h)
2,977,852
Maricopa Cnty. Sch. Dist., A.M.B.A.C.,
No. 3 Tempe Elem.
Aaa Zero 7/01/09 1,500
948,810
No. 3 Tempe Elem.
Aaa Zero 7/01/14 1,500
710,445
Maricopa Cnty. Unified Sch. Dist.,
No. 80 Chandler, F.G.I.C.
Aaa Zero 7/01/09 1,330
841,278
No. 80 Chandler, M.B.I.A.
Aaa Zero 7/01/10 1,050
628,698
No. 80 Chandler, M.B.I.A.
Aaa Zero 7/01/11 1,200
678,828
No. 80 Chandler, F.G.I.C.
Aaa 6.25 7/01/11 1,000
1,174,590
Phoenix St. & Hwy. User Rev., Ser. A, F.G.I.C.
Aaa Zero 7/01/12 2,500
1,333,500
Pima Cnty. Ind. Dev. Auth. Rev., F.S.A.
Aaa 7.25 7/15/10 1,935 (h)
2,156,635
Pima Cnty. Unified Sch. Dist., Gen. Oblig., F.G.I.C.
No. 1, Tuscan
Aaa 7.50 7/01/10 3,000
3,855,900
No. 16, Catalina Foothills
Aaa Zero 7/01/09 3,455
2,185,426
Tucson Gen. Oblig.,
Ser. A
Aa3 7.375 7/01/11 1,000
1,280,130
Ser. A
Aa3 7.375 7/01/12 1,100
1,417,119
Ser. A
Aa3 7.375 7/01/13 4,500
5,816,970
- ------------
26,006,181
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
California--8.8%
Abag Fin. Auth. for Nonprofit Corps. Ref., Amer. Baptist
Homes., Ser. A
BBB(d) 6.20 10/01/27 2,200
2,343,748
Anaheim Pub. Fin. Auth. Lease Rev., F.S.A.,
Sr. Pub. Impvts. Proj., Ser. A
Aaa 6.00 9/01/24 5,500
6,362,785
Sub. Pub. Impvts. Proj., Ser. C
Aaa 6.00 9/01/16 6,690
7,675,771
Encinitas Union Cap. Sch. Dist., M.B.I.A.
Aaa Zero 8/01/21 3,810
1,205,217
Kern High Sch. Dist., Ser. A, M.B.I.A.
Aaa 6.30 2/01/10 2,490
2,932,274
Long Beach Aquarium of the Pacific Rev., Ser. A, A.M.T.
BBB(d) 6.125 7/01/23 6,000
6,339,420
Long Beach Harbor Rev., F.G.I.C., A.M.T.
Aaa 6.00 5/15/18 4,000
4,533,160
Los Angeles Unified Sch. Distr., Ser. A, F.G.I.C.
Aaa 6.00 7/01/15 1,000
1,144,970
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as of December 31, 1998 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.)
San Jose Redev. Proj., Agcy. Tax Alloc., M.B.I.A.
Aaa 6.00% 8/01/11 $ 5,000 $
5,794,900
Santa Cruz Cnty. Pub. Fin. Auth. Rev., Ser. A
A-(d) 6.20 9/01/23 2,000
2,129,540
Santa Margarita/Dana Point Auth., M.B.I.A.,
Impvt. Dists. 3-3A-4 & 4A, Ser. B
Aaa 7.25 8/01/09 2,000
2,508,400
Impvt. Dists. 3-3A-4 & 4A, Ser. B
Aaa 7.25 8/01/10 2,450
3,108,756
Impvt. Dists. 3-3A-4 & 4A, Ser. B
Aaa 7.25 8/01/14 2,000
2,577,560
So. Orange Cnty. Pub. Fin. Auth. Rev., Foothill Area
Proj., Ser. C, F.G.I.C.
Aaa 6.50 8/15/10 2,000
2,403,920
West Contra Costa Sch. Dist., Cert. of Part.
Baa3 7.125 1/01/24 1,600
1,805,936
- ------------
52,866,357
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Colorado--4.5%
Arapahoe Cnty. Cap. Impvt. Trust Fund, Pub. Hwy. Rev.,
Ser. E-470
Aaa 7.00 8/31/26 3,000 (b)
3,594,330
Colorado Hsg. Fin. Auth., A.M.T.
Singl. Fam. Proj.
Aa2 8.00 6/01/25 3,030
3,278,642
Singl. Fam. Proj., Ser. A-2
Aa2 7.25 5/01/27 2,000
2,271,400
Singl. Fam. Proj., Ser. B-1
Aa2 7.90 12/01/25 1,965
2,167,748
Singl. Fam. Proj., Ser. C-1, M.B.I.A.
Aaa 7.65 12/01/25 4,295
4,849,957
Singl. Fam. Proj., Ser. C-2
Aa2 6.875 11/01/28 2,000
2,252,100
Colorado Springs Arpt. Rev., Ser. A., A.M.T.
BBB(d) 7.00 1/01/22 5,000 (f)
5,496,050
Colorado Springs Arpt. Rev., Ser. A., A.M.T.
BBB(d) 7.00 1/01/22 2,960
3,253,662
- ------------
27,163,889
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Connecticut--2.5%
Connecticut St. Hlth. & Edu. Facs. Auth. Rev.,
St. Mary's Hosp. Issue, Ser. E
A3 5.50 7/01/20 5,650
5,790,402
St. Mary's Hosp. Issue, Ser. E
A3 5.875 7/01/22 1,750
1,822,800
Univ. of Hartford
Ba2 6.75 7/01/12 5,725
6,072,966
Connecticut St. Spec. Tax Oblig. Rev., Trans.
Infrastructure, Ser. A
A1 7.125 6/01/10 1,000
1,246,550
- ------------
14,932,718
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
District of Columbia--0.9%
Dist. of Columbia, Gen. Oblig. Ref., Ser. B, M.B.I.A.
Aaa 6.00 6/01/21 5,000
5,653,150
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Florida--2.6%
Broward Cnty. Res. Rec. Rev., Broward Co. L.P. South Proj.
A 7.95 12/01/08 7,895
8,396,096
Florida St. Brd. of Ed., Admin. Cap. Outlay
Aa2 9.125 6/01/14 1,260 (h)
1,824,291
Hillsborough Cnty. Ind. Dev. Auth. Poll. Ctrl. Rev., Tampa
Elec. Proj., Ser. 92, Ser. 9
Aa3 8.00 5/01/22 5,000
5,735,750
- ------------
15,956,137
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as of December 31, 1998 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--2.5%
Burke Cnty. Dev. Auth., M.B.I.A.,
Georgia Pwr. Plant Co., Vogtle Proj., Ser. 7
Aaa 6.625% 10/01/24 $ 500(h) $
520,940
Oglethorpe Pwr. Corp.
Aaa 8.00 1/01/22 5,000(b)(h)
5,909,750
Forsyth Cnty. Sch. Dist. Dev. Rev., Ser. A
Aa3 6.75 7/01/16 500
616,045
Fulton Cnty. Sch. Dist. Rev., Lindbrook Square Fndtn.
AA 6.375 5/01/17 750(h)
891,870
Georgia Mun. Elec. Auth. Pwr. Rev. Ref.,
Ser. B
A 6.25 1/01/17 475
541,267
Ser. B, M.B.I.A.
Aaa 6.375 1/01/16 5,000
5,895,250
Green Cnty. Dev. Auth. Indl. Park Rev.
NR 6.875 2/01/04 460
496,773
- ------------
14,871,895
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Hawaii--1.5%
Hawaii St. Arpt. Sys. Rev., A.M.T.
2nd Ser.
A- 7.00 7/01/18 365
393,875
2nd Ser. 90, F.G.I.C.
Aaa 7.50 7/01/20 500
535,720
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
5,292,900
Hawaiian Elec. Co., Ser. C, M.B.I.A., A.M.T.
Aaa 7.375 12/01/20 500
540,550
Kapiolani Hlth. Care Sys.
A 6.30 7/01/08 500
549,645
Kapiolani Hosp.
A 6.00 7/01/11 250
274,373
Hawaii St. Gen. Oblig., Ser. CJ
Aaa 6.25 1/01/15 650(b)
728,065
Hawaii St. Harbor Cap. Impvt. Rev., A.M.T.
F.G.I.C.
Aaa 6.25 7/01/10 250
275,665
F.G.I.C.
Aaa 6.25 7/01/15 500
547,735
- ------------
9,138,528
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Illinois--5.7%
Chicago Brd. Ed., Cap. Apprec. Sch. Reform, Ser. A,
F.G.I.C.
Aaa Zero 12/01/17 20,400 (f)
7,767,708
Cook and Du Page Cntys., Cap. Apprec., High Sch. Dist. No.
210, F.S.A.
Aaa Zero 12/01/11 3,035
1,661,359
Illinois Dev. Fin. Auth. Rev., Cmnty. Rehab. Providers-A
BBB(d) 6.00 7/01/15 2,000
2,083,820
Illinois Hlth. Facs. Auth. Rev., Loyola Univ. Hlth. Sys.,
Ser. A, M.B.I.A.
Aaa 6.00 7/01/14 3,500
3,982,370
Metropolitan Pier & Expo. Auth Hosp. Fac. Rev., McCormick
Place Conv.
BBB-(d) 7.00 7/01/26 12,910
15,872,974
Metropolitan Pier & Expo. Auth., McCormick Place Expansion
Proj., F.G.I.C.
Aaa 5.50 6/15/29 3,000
3,240,660
- ------------
34,608,891
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Kentucky--1.1%
Henderson Cnty. Solid Waste Disp. Rev., Macmillan Bloedel
Proj., A.M.T.
Baa2 7.00 3/01/25 6,000
6,445,380
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 5
<PAGE>
Portfolio of Investments as of December 31, 1998 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--5.1%
New Orleans, Gen. Oblig., Cap. Apprec., A.M.B.A.C.
Aaa Zero 9/01/09 $13,500 $
8,442,090
Orleans Parish Sch. Brd., E.T.M., M.B.I.A.
Aaa 8.90% 2/01/07 5,780 (h)
7,653,471
St. Charles Parish, Environ. Impt. Rev., Louisiana Pwr. &
Lt. Co., Ser. A, A.M.T.
Baa2 6.875 7/01/24 5,000
5,489,250
St. Charles Parish, Louisiana Poll. Ctrl. Rev.,
Louisiana Pwr. & Lt. Co.
Baa3 8.25 6/01/14 4,000
4,173,320
Louisiana Pwr. & Lt. Co., Ser. 1989
Baa3 8.00 12/01/14 5,000
5,297,200
- ------------
31,055,331
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Maryland--1.3%
Maryland St. Hlth. & Higher Edu. Facs. Auth. Rev.,
Doctor's Cmnty. Hosp.
Baa2 5.50 7/01/24 4,000
4,015,640
Northeast Waste Disp. Auth., Baltimore City Sludge Proj.
NR 7.25 7/01/07 3,370
3,733,286
- ------------
7,748,926
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Massachusetts--2.6%
Mass. St. Hlth. & Edl. Facs. Auth. Rev., Mass. Inst. of
Tech. Ser. I-1
Aaa 5.20 1/01/28 1,500
1,581,285
Mass. St. Wtr. Res. Auth. Rev.,
Ser. B, M.B.I.A.
Aaa 6.25 12/01/11 6,720
7,935,446
Ser. B, M.B.I.A.
Aaa 6.25 12/01/12 5,000
5,903,750
- ------------
15,420,481
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Michigan--2.5%
Dexter Cmnty. Schs. F.G.I.C.
Aaa 5.10 5/01/28 8,000
8,192,880
Michigan St. Hsg. Dev. Auth. Rev.,
Rental Hsg. Rev., Ser. B
AA-(d) 7.55 4/01/23 1,000
1,071,190
Sngl. Fam. Mtge., Ser. A
AA(d) 7.50 6/01/15 3,660
3,806,620
Okemos Pub. Sch. Dist., M.B.I.A.,
Cnty. of Ingham
Aaa Zero 5/01/12 1,100
591,316
Cnty. of Ingham
Aaa Zero 5/01/13 1,000
505,970
St. Johns Public Schs. Ref., F.G.I.C.
Aaa 5.10 5/01/25 1,000
1,018,460
- ------------
15,186,436
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Minnesota--0.5%
Anoka Hennepin Indpt. Sch. Dist., No. 11, Ser. C, F.S.A.
Aaa Zero 2/01/12 1,575 (h)
860,958
Minneapolis St. Paul Hsg. Fin. Brd. Rev., Sngl. Fam.
Mtge., G.N.M.A., A.M.T.
AAA(d) 7.30 8/01/31 745
784,440
Minneapolis St. Paul Met. Arpts. Comm., Ser. 7, A.M.T.
Aaa 7.80 1/01/14 1,000 (h)
1,020,000
St. Paul Science Museum, Cert. of Part., E.T.M.
AAA(d) 7.50 12/15/01 598 (h)
627,572
- ------------
3,292,970
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 6
<PAGE>
Portfolio of Investments as of December 31, 1998 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>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Mississippi--0.3%
Mississippi Hosp. Equip. & Facs, Auth. Rev., Rush Med.
Fndtn. Proj.,
Ser. B
Baa3 6.00% 1/01/16 $ 1,480 $
1,527,153
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Missouri--0.9%
Missouri St. Hsg. Dev. Comn. Mtge. Rev., Sngl. Fam.
Homeowner Ln.,
Ser. A, G.N.M.A., A.M.T.
AAA(d) 7.20 9/01/26 4,590
5,195,880
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Nevada--2.4%
Clark Cnty. Indl. Dev. Rev., Southwest Gas Corp., Ser. A,
A.M.T.
Baa2 6.50 12/01/33 10,000
10,603,700
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
3,769,298
- ------------
14,372,998
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
New Hampshire--0.3%
New Hampshire Higher Ed. & Hlth. Facs. Auth. Rev.,
New Hampshire College
BBB-(d) 6.30 1/01/16 500
526,135
New Hampshire College
BBB-(d) 6.375 1/01/27 1,000
1,053,250
- ------------
1,579,385
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
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 1,505
1,556,697
New Jersey St. Tpke. Auth. Rev., Ser. C, M.B.I.A.
Aaa 6.50 1/01/16 11,000
13,213,750
- ------------
14,770,447
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
New Mexico--0.9%
New Mexico Mtge. Fin. Auth., Sngl. Fam. Mtge., A.M.T.
AAA(d) 6.30 7/01/28 5,000
5,352,950
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
New York--14.1%
Greece Central Sch. Dist.
F.G.I.C.
Aaa 6.00 6/15/16 950
1,090,419
F.G.I.C.
Aaa 6.00 6/15/17 950
1,089,137
F.G.I.C.
Aaa 6.00 6/15/18 950
1,087,209
Metropolitan Trans. Auth., Trans. Facs. Rev., Ser. A,
F.S.A.
Aaa 6.00 7/01/16 2,500
2,756,275
New York City, Gen. Oblig.,
Ser. A
A-(d) 7.75 8/15/04 1,950 (b)
2,177,292
Ser. A
A3 7.75 8/15/04 50
55,208
Ser. B
A3 8.25 6/01/06 1,500
1,881,345
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 7
<PAGE>
Portfolio of Investments as of December 31, 1998 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.)
New York City, Gen. Oblig., (cont'd.)
Ser. B
A3 7.25% 8/15/07 $ 3,500 $
4,246,375
Ser. D
Aaa 8.00 8/01/03 1,870 (b)
2,097,729
Ser. D
A3 8.00 8/01/03 150
166,995
Ser. D
Aaa 8.00 8/01/04 1,110 (b)
1,245,176
Ser. D
A3 8.00 8/01/04 60
66,798
Ser. D
Aaa 7.65 2/01/07 4,955 (b)
5,591,668
Ser. D
A3 7.65 2/01/07 45
50,337
Ser. F
A3 8.25 11/15/02 4,185 (b)
4,767,635
Ser. F
A3 8.25 11/15/02 815
921,260
New York City Ind. Dev. Agcy.,
Brooklyn Navy Yard Cogen Partners, A.M.T.
Baa3 5.65 10/01/28 3,000
3,061,980
Brooklyn Navy Yard Cogen Partners, A.M.T.
Baa3 5.75 10/01/36 5,000
5,128,450
Spec. Fac. Rev., Terminal One Group Assoc. Proj.,
A.M.T.
A 6.00 1/01/19 2,500
2,657,600
New York City Mun. Wtr. Fin. Auth.
F.G.I.C.
Aaa 6.75 6/15/16 6,000 (b)
6,499,920
F.G.I.C.
Aaa 6.75 6/15/16 10,565
11,356,107
New York St. Dorm. Auth. Rev., Mem. Sloan Kettering Cancer
Ctr. M.B.I.A.
Aaa 5.75 7/01/20 4,000
4,457,360
New York St. Local Gov't. Assist. Corp. Ref., Ser. E
A3 6.00 4/01/14 5,000
5,741,750
New York St. Urban Dev. Corp. Rev. Ref., F.S.A.,
Correctional Facs.
Aaa 6.50 1/01/09 3,000
3,531,870
Correctional Facs., Ser. A
Aaa 5.50 1/01/14 3,000
3,279,990
Triborough Bridge & Tunl. Auth., Ser. X, M.B.I.A.
Aaa 6.625 1/01/12 8,500 (h)
10,291,290
- ------------
85,297,175
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
North Dakota--1.9%
Mercer Cnty., Antelope Valley Station, A.M.B.A.C.
Aaa 7.20 6/30/13 9,000
11,283,300
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Ohio--3.2%
Franklin Cnty. Hosp. Rev., Doctors Ohio Health Corp., Ser.
A
Baa3 5.60 12/01/28 5,000 (g)
4,886,250
Ohio St. Wtr. Dev. Auth. Poll. Ctrl. Facs. Rev., Buckeye
Pwr. Inc. Proj., A.M.B.A.C.
Aaa 7.80 11/01/14 12,220
14,632,839
- ------------
19,519,089
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Oklahoma--3.1%
McGee Creek Auth. Wtr. Rev., M.B.I.A.
Aaa 6.00 1/01/23 7,000
8,036,420
Tulsa Mun. Arpt. Trust Rev., A.M.T.
Baa2 7.375 12/01/20 10,000
10,718,800
- ------------
18,755,220
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 8
<PAGE>
Portfolio of Investments as of December 31, 1998 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--1.3%
Delaware Cnty. Ind. Dev. Auth. Rev., Res. Rec. Fac., Ser.
A
Baa1 6.20% 7/01/19 $ 3,000 $
3,195,840
Montgomery Cnty. Ind. Dev. Auth., Retirement Cmnty. Rev.
A-(d) 5.25 11/15/28 2,000
1,938,340
Philadelphia Wtr. & Waste Auth. Rev., M.B.I.A.
Aaa 6.25 8/01/11 2,500
2,915,175
- ------------
8,049,355
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Puerto Rico--3.5%
Puerto Rico Comnwlth., Gen. Oblig., M.B.I.A.
Baa1 6.50 7/01/13 3,000
3,589,500
Puerto Rico Comnwlth., Hwy. & Trans. Auth., Hwy. Rev.,
Ser. V
Baa1 6.625 7/01/12 4,000
4,368,680
Ser. V
Baa1 6.375 7/01/08 500
543,075
Puerto Rico Ind., Tourist Ed. Med. & Env. Ctrl. Facs.,
Doctor Pila Hosp. Proj., F.H.A.
AAA(d) 6.125 8/01/25 500
551,725
Hosp. Auxilio Mutuo Oblig. Grp. Proj., M.B.I.A.
Aaa 6.25 7/01/16 500
559,960
Puerto Rico Mun. Fin. Agcy., Ser. A, F.S.A.
Aaa 6.00 7/01/14 250
275,010
Puerto Rico Tel. Auth. Rev.,
Ser. I, M.B.I.A.
Aaa 7.083(c) 1/25/07 4,100
4,540,750
Ser. I, M.B.I.A.
Aaa 7.32 (c) 1/16/15 6,150
6,626,625
- ------------
21,055,325
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
South Carolina--1.7%
Charleston Wtrwks. & Swr. Rev., E.T.M.
Aaa 10.375 1/01/10 7,415 (h)
10,339,921
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Tennessee--1.9%
Bristol Hlth. & Edl. Fac. Rev., Bristol Memorial Hosp.,
F.G.I.C.
Aaa 6.75 9/01/10 5,000 (f)
6,074,650
McMinn Cnty. Ind. Dev. Brd. Solid Waste Rev., Calhoun
Nwsprnt. Recycling Fac., A.M.T.
Baa1 7.40 12/01/22 5,000
5,519,250
- ------------
11,593,900
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Texas--4.9%
Bexar Cnty. Hlth. Facs. Dev. Corp. Rev., Baptist Hlth.
Sys., Ser. A, M.B.I.A.
Aaa 6.00 11/15/14 5,695
6,489,452
Dallas Ft. Worth, Regl. Arpt. Rev., F.G.I.C.,
Ser. A
Aaa 7.375 11/01/08 3,500
4,110,015
Ser. A
Aaa 7.375 11/01/09 3,500
4,110,015
Keller Indpt. Sch. Dist. Rev.
Aaa 6.00 8/15/23 3,970
4,567,922
New Braunfels Indpt. Sch. Dist.,
Cap. Apprec.
Aaa Zero 2/01/10 2,335
1,418,186
Cap. Apprec.
Aaa Zero 2/01/11 2,365
1,357,084
Port Corpus Christi Auth. Rev.,
A2 7.50 8/01/12 2,000
2,147,800
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 9
<PAGE>
Portfolio of Investments as of December 31, 1998 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.)
San Antonio Elec. & Gas Rev., Ser. B, F.G.I.C.
Aaa Zero 2/01/09 $ 5,000 $
3,195,350
Univ. Texas Univ. Rev., Fen. Sys., Ser. B
Aa1 6.75% 8/15/13 2,035
2,216,441
- ------------
29,612,265
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
U. S. Virgin Islands--0.1%
Virgin Islands Pub. Fin. Auth. Rev.,
Gov't. Dev. Prog., Ser. B, A.M.T.
BBB-(d) 7.375 10/01/10 300
358,443
Matching Loan Notes, Ser. A
NR 7.25 10/01/18 250 (b)
285,242
- ------------
643,685
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Washington--5.0%
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 (f)
6,625,350
Pierce Cnty. Sch. Dist. No.1, F.G.I.C.
Aaa 6.00 12/01/10 1,000
1,149,220
Washington St. Pub. Pwr. Supply Sys. Rev.,
Nuclear Proj. No. 1, Ser. A, F.S.A.
Aaa 7.00 7/01/08 4,000
4,797,000
Nuclear Proj. No. 1, Ser. B, F.S.A.
Aaa 7.25 7/01/09 5,000
6,138,250
Nuclear Proj. No. 2, F.S.A.
Aaa 5.40 7/01/12 5,400
5,731,776
Nuclear Proj. No. 3, Ser. B, F.G.I.C.
Aaa Zero 7/01/06 3,000
2,180,460
Washington St. Rev., Ser. R-97A
Aa1 Zero 7/01/16 8,000
3,342,320
- ------------
29,964,376
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Wisconsin--1.7%
Southeast Wisconsin Professional Baseball Park Dist. Sales
Tax Rev., M.B.I.A.
Aaa 5.50 12/15/26 2,500
2,702,925
Wisconsin Hsg. & Econ. Dev. Auth., Home Ownership Rev.,
A.M.T.
Aa 6.20 3/01/27 2,100
2,228,289
Wisconsin St. Hlth. & Edu. Facs. Auth. Rev., Howard Young
Med. Ctr. Inc. Proj.
A-(d) 5.125 8/15/28 5,710
5,569,477
- ------------
10,500,691
- ------------
Total long-term investments (cost $540,448,966)
591,034,642
- ------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
SHORT-TERM INVESTMENTS--2.1%
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
District of Columbia--0.0%
Dist. of Columbia., Var. Rate Ref., Ser. 92A-1, F.R.D.D
VMIG1 5.20 1/04/99 200 (e)
200,000
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Indiana--0.0%
Whiting Ind. Sewage & Solid Waste Disp. Rev., Ser. 96,
F.R.D.D.
VMIG1 5.20 1/04/99 200 (e)
200,000
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 10
<PAGE>
Portfolio of Investments as of December 31, 1998 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>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
SHORT-TERM INVESTMENTS (cont'd.)
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Michigan--1.0%
Wayne Charter Cnty. Arpt. Rev., Secs. Trust, Ser. SSP 25A,
M.B.I.A., F.R.D.D.
VMIG1 5.30% 1/04/99 $ 6,000 (e) $
6,000,000
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
North Carolina--0.3%
Halifax Cnty. Ind. Facs. & Poll. Ctrl. Fin. Auth., Ser.
91, F.R.D.D.
CPS1 5.30 1/04/99 1,800 (e)
1,800,000
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Texas--0.8%
Brazos Rvr. Auth. Poll. Ctrl. Rev., Ser. 96A, A.M.B.A.C.,
F.R.D.D.
VMIG1 5.20 1/04/99 3,500 (e)
3,500,000
Gulf Coast Solid Waste Disp. Auth. Rev., Citgo Petroleum
Proj.,
Ser. 95, F.R.D.D.
VMIG1 5.25 1/04/99 300 (e)
300,000
Gulf Coast Solid Waste Disp. Auth. Rev., Amoco Oil Co.
Proj.,
Ser. 94, F.R.D.D.
VMIG1 5.20 1/04/99 1,000 (e)
1,000,000
- ------------
4,800,000
- ------------
Total short-term investments (cost $13,000,000)
13,000,000
- ------------
Total Investments--100.0%
(cost $553,448,966; Note 4)
604,034,642
Liabilities in excess of other assets
(114,211)
- ------------
Net Assets--100%
$603,920,431
- ------------
- ------------
</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 Administration
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) Segregated 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. 11
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL NATIONAL
MUNICIPALS FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
Assets
December 31, 1998
<S>
<C>
Investments, at value (cost
$553,448,966)...............................................
................ $ 604,034,642
Cash........................................................
............................................
34,012
Interest
receivable..................................................
................................... 10,065,701
Receivable for Fund shares
sold........................................................
................. 1,121,809
Receivable for investments
sold........................................................
................. 463,352
Prepaid expenses and other
assets......................................................
................. 12,724
- -----------------
Total
assets......................................................
................................... 615,732,240
- -----------------
Liabilities
Payable for Fund shares
reacquired..................................................
.................... 5,623,138
Payable for investments
purchased...................................................
.................... 4,968,744
Dividends
payable.....................................................
.................................. 616,118
Accrued
expenses....................................................
.................................... 250,331
Management fee
payable.....................................................
............................. 232,977
Distribution fee
payable.....................................................
........................... 94,449
Due to broker - variation
margin......................................................
.................. 18,750
Deferred director's
fee.........................................................
........................ 7,302
- -----------------
Total
liabilities.................................................
................................... 11,811,809
- -----------------
Net
Assets......................................................
........................................ $
603,920,431
- -----------------
- -----------------
Net assets were comprised of:
Common stock, at
par.........................................................
........................ $ 375,870
Paid-in capital in excess of
par.........................................................
............ 553,799,008
- -----------------
554,174,878
Accumulated net realized loss on
investments.................................................
........ (729,186)
Net unrealized appreciation on
investments.................................................
.......... 50,474,739
- -----------------
Net assets, December 31,
1998........................................................
................... $ 603,920,431
- -----------------
- -----------------
Class A:
Net asset value and redemption price per share
($481,926,191 3 30,008,546 shares of common stock
issued and outstanding).........................
$16.06
Maximum sales charge (3% of offering
price)......................................................
.... .50
- -----------------
Maximum offering price to
public......................................................
............... $16.56
- -----------------
- -----------------
Class B:
Net asset value, offering price and redemption price per
share
($119,698,540 3 7,435,863 shares of common stock
issued and outstanding)..........................
$16.10
- -----------------
- -----------------
Class C:
Net asset value and redemption price per share
($2,295,700 3 142,614 shares of common stock issued
and outstanding)..............................
$16.10
Sales charge (1% of offering
price)......................................................
............ .16
- -----------------
Offering price to
public......................................................
....................... $16.26
- -----------------
- -----------------
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 12
<PAGE>
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income December 31,
1998
<S> <C>
Income
Interest.............................. $34,633,923
----------------
- -
Expenses
Management fee........................ 2,961,791
Distribution fee--Class A............. 483,759
Distribution fee--Class B............. 655,977
Distribution fee--Class C............. 11,662
Transfer agent's fees and expenses.... 540,000
Custodian's fees and expenses......... 144,000
Reports to shareholders............... 90,000
Registration fees..................... 50,000
Audit fee and expenses................ 39,000
Legal fees and expenses............... 32,000
Directors' fees....................... 28,000
Insurance expense..................... 8,000
Miscellaneous......................... 3,835
----------------
- -
Total expenses..................... 5,048,024
Custodian fee credit.................. (4,351)
----------------
- -
Net expenses....................... 5,043,673
----------------
- -
Net investment income.................... 29,590,250
----------------
- -
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions............... 4,888,153
Financial futures contracts........... (2,079,102)
----------------
- -
2,809,051
----------------
- -
Net change in unrealized appreciation (depreciation) on:
Investments........................... (621,142)
Financial futures..................... 1,563
----------------
- -
(619,579)
----------------
- -
Net gain on investment transactions...... 2,189,472
----------------
- -
Net Increase in Net Assets
Resulting from Operations................ $31,779,722
----------------
- -
----------------
- -
</TABLE>
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended December
31,
in Net Assets 1998
1997
<S> <C> <C>
Operations
Net investment income....... $ 29,590,250 $
32,548,931
Net realized gain on
investment
transactions............. 2,809,051
8,329,425
Net change in unrealized
appreciation
(depreciation) on
investments.............. (619,579)
19,312,987
----------------- ------
- -------
Net increase in net assets
resulting from
operations............... 31,779,722
60,191,343
----------------- ------
- -------
Dividends and distributions
(Note 1)
Dividends from net
investment income
Class A.................. (23,636,186)
(25,293,360)
Class B.................. (5,888,290)
(7,221,480)
Class C.................. (65,774)
(34,091)
----------------- ------
- -------
(29,590,250)
(32,548,931)
----------------- ------
- -------
Distributions in excess of
net investment income
Class A.................. (17,881)
(152,363)
Class B.................. (4,429)
(43,542)
Class C.................. (86)
(256)
----------------- ------
- -------
(22,396)
(196,161)
----------------- ------
- -------
Distributions from net
realized capital gains
Class A.................. (3,635,575)
(3,169,156)
Class B.................. (906,642)
(905,674)
Class C.................. (16,469)
(5,317)
----------------- ------
- -------
(4,558,686)
(4,080,147)
----------------- ------
- -------
Fund share transactions (net of share
conversions) (Note 5):
Net proceeds from shares
sold..................... 76,423,080
143,282,681
Net asset value of shares
issued in reinvestment of
dividends and
distributions............ 21,262,728
22,849,312
Cost of shares reacquired... (126,905,006)
(225,662,512)
----------------- ------
- -------
Decrease in net assets from
Fund share
transactions............. (29,219,198)
(59,530,519)
----------------- ------
- -------
Total decrease................. (31,610,808)
(36,164,415)
Net Assets
Beginning of year.............. 635,531,239
671,695,654
----------------- ------
- -------
End of year.................... $ 603,920,431 $
635,531,239
----------------- ------
- -------
----------------- ------
- -------
</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 Board of Directors. All
Securities are valued as
of 4:15 p.m., New York time.
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.
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
- ------------------------------------------------------------
- --------------------
14
<PAGE>
Notes to Financial Statements PRUDENTIAL NATIONAL
MUNICIPALS FUND, INC.
- ------------------------------------------------------------
- --------------------
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
$22,396 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.
The Fund had a distribution agreement with Prudential
Securities Incorporated
('PSI'), which acted as the distributor of the Class A, B
and C shares of the
Fund through May 31, 1998. Effective June 1, 1998,
Prudential Investment
Management Services LLC ('PIMS') became the distributor of
the Fund and is
serving the Fund under the same terms and conditions as
under the arrangment
with PSI. The Fund compensated PSI and PIMS 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 were accrued daily and payable
monthly.
Pursuant to the Class A, B and C Plans, the Fund compensated
PSI and PIMS 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, 1998.
Effective January 1, 1999, the expense under the Class A
Plan is .25 of 1% of
the average daily net assets.
PSI and PIMS have advised the Fund that they received
approximately $96,500 and
$600 in front-end sales charges resulting from sales of
Class A and Class C
shares, respectively, during the year ended December 31,
1998. From these fees,
PSI and PIMS paid such sales charges to dealers, which in
turn paid commissions
to salespersons and incurred other distribution costs.
PSI and PIMS have advised the Fund that for the year ended
December 31, 1998,
they received approximately $143,200 and $900 in contingent
deferred sales
charges imposed upon certain redemptions by Class B and
Class C shareholders,
respectively.
PSI, PIFM, PIC and PIMS 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, 1998. 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. The
Agreement expired on
December 29, 1998 and has been extended through February 28,
1999 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, 1998,
the Fund incurred fees of approximately $370,500 for the
services of PMFS. As of
December 31, 1998, $28,800 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 nonaffiliates.
- ------------------------------------------------------------
- --------------------
15
<PAGE>
Notes to Financial Statements PRUDENTIAL NATIONAL
MUNICIPALS FUND, INC.
- ------------------------------------------------------------
- --------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than
short-term investments,
for the year ended December 31, 1998, were $139,016,041 and
$173,089,189,
respectively.
The federal income tax basis of the Fund's investments at
December 31, 1998 was
substantially the same as for financial reporting purposes
and, accordingly, net
unrealized appreciation for federal income tax purposes was
$50,585,676 (gross
unrealized appreciation--$50,743,893; gross unrealized
depreciation--$158,217).
In addition, the Fund will elect to treat net capital losses
of approximately
$860,000 incurred in the two month period ended December 31,
1998 as having been
incurred in the following fiscal year. Accordingly, no
capital gains
distribution is expected to be paid to shareholders until
net gains have been
realized in excess of the aggregate of such amounts.
During the year ended December 31, 1998, the Fund entered
into financial futures
contracts. Details of open contracts at December 31, 1998
are as follows:
<TABLE>
<CAPTION>
Value at
Value at
Number of Expiration Trade
December 31, Unrealized
Contracts Type Date Date
1998 Depreciation
- --------- ----------- ----------- -----------
- ------------ ------------
<S> <C> <C> <C>
<C> <C>
Long
Position:
U.S.
Treasury
150 Index Mar. 1999 $19,278,125
$ 19,167,188 $ (110,937)
- ------------
- ------------
</TABLE>
- ------------------------------------------------------------
Note 5. Capital
The Fund offers Class A, Class B, Class C and Class Z
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. Effective November 2,
1998 Class C shares
are sold with a front-end sales charge of 1% and a
contingent deferred sales
charge of 1% during the first 18 months. 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. Class
Z shares are not
subject to any sales or redemption change and are offered
exclusively for sale
to a limited group of investors. As of December 31, 1998,
there are no Class Z
shares outstanding.
There are 1 billion shares of common stock, $.01 par value
per share, authorized
divided into four classes, designated Class A, Class B,
Class C and Class Z
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, 1998:
Shares sold...................... 3,824,658 $
61,874,353
Shares issued in reinvestment of
dividends and distributions.... 1,059,215
17,057,270
Shares reacquired................ (6,037,193)
(97,515,280)
----------- ---------
- ----
Net decrease in shares
outstanding before
conversion..................... (1,153,320)
(18,583,657)
Shares issued upon conversion
from Class B................... 573,854
9,271,697
----------- ---------
- ----
Net decrease in shares
outstanding.................... (579,466) $
(9,311,960)
----------- ---------
- ----
----------- ---------
- ----
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.................. 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)
----------- ---------
- ----
----------- ---------
- ----
<CAPTION>
Class B
- ---------------------------------
Year ended December 31, 1998:
Shares sold...................... 797,807 $
12,909,659
Shares issued in reinvestment of
dividends and distributions.... 256,538
4,140,932
Shares reacquired................ (1,803,505)
(29,167,324)
----------- ---------
- ----
Net decrease in shares
outstanding before
conversion..................... (749,160)
(12,116,733)
Shares reacquired upon conversion
into Class A................... (572,437)
(9,271,697)
----------- ---------
- ----
Net decrease in shares
outstanding.................... (1,321,597) $
(21,388,430)
----------- ---------
- ----
----------- ---------
- ----
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 issued upon conversion
into Class A................... (1,025,835)
(16,211,378)
----------- ---------
- ----
Net decrease in shares
outstanding.................... (2,025,215) $
(31,841,953)
----------- ---------
- ----
----------- ---------
- ----
</TABLE>
- ------------------------------------------------------------
- --------------------
16
<PAGE>
Notes to Financial Statements PRUDENTIAL NATIONAL
MUNICIPALS FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class C Shares Amount
- --------------------------------- ----------- ---------
- ----
<S> <C> <C>
Year ended December 31, 1998:
Shares sold...................... 101,316 $
1,639,068
Shares issued in reinvestment of
dividends and distributions.... 3,998
64,526
Shares reacquired................ (13,773)
(222,402)
----------- ---------
- ----
Net increase in shares
outstanding.................... 91,541 $
1,481,192
----------- ---------
- ----
----------- ---------
- ----
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
----------- ---------
- ----
----------- ---------
- ----
</TABLE>
- ------------------------------------------------------------
Note 6. Reorganization
On August 26, 1998, the Board of Directors of the Fund
approved an Agreement and
Plan of Reorganization (the 'Plan') which provides for the
transfer of all of
the assets of the Prudential Municipal Series Fund Maryland
Series ('Maryland
Series') and the Prudential Municipal Series Fund Michigan
Series ('Michigan
Series') in exchange for Class A shares of the Fund and the
Fund's assumption of
the liabilities of the Maryland and Michigan Series. The
Plan also provides for
the transfer of all of the assets of the Class A, B, C and Z
shares of the
Prudential Municipal Bond Fund--Intermediate Series
('Intermediate Series') in
exchange for like shares of the Fund and the Fund's
assumption of the
liabilities of the Intermediate Series.
The Plan was approved by the shareholders of the Maryland,
Michigan and
Intermediate Series at a shareholder meeting held on January
14, 1999. The
reorganization took place on January 22, 1999. The Maryland,
Michigan and
Intermediate Series and the Fund incurred their pro rata
share of the costs of
the reorganization, including the cost of proxy
solicitation.
The acquisition was accomplished by a tax-free exchange of
the following shares:
<TABLE>
<CAPTION>
National Municipals
Maryland Series: Fund
Value
<S> <C> <C> <C> <C>
Class A 1,545,436 Class A 1,074,419
$17,304,069
B 930,543 A 647,510
10,432,984
C 11,019 A 7,667
123,541
Michigan Series:
Class A 2,459,122 A 1,845,487
29,729,243
B 1,640,985 A 1,230,484
19,826,554
C 43,799 A 32,842
529,193
Intermediate Series:
Class A 1,302,336 A 881,159
14,193,853
B 1,830,315 B 1,236,086
19,953,535
C 43,467 C 29,355
473,862
Z 201,141 Z 136,091
2,192,167
</TABLE>
The aggregate net assets and unrealized appreciation of the
funds immediately
before the acquisition were:
<TABLE>
<CAPTION>
Unrealized
Net Assets
Appreciation
----------- ---------
- ----
<S> <C> <C>
Maryland Series $27,860,594 $
2,342,040
Michigan Series 50,084,990
4,856,230
Intermediate Series 36,813,417
1,858,582
</TABLE>
The aggregate net assets of the National Municipals Fund
immediately before the
acquisition was $607,552,044.
- ------------------------------------------------------------
- --------------------
17
<PAGE>
Financial Highlights PRUDENTIAL NATIONAL
MUNICIPALS FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class A
----
- -------------------------------------------------------
Year Ended December 31,
----
- -------------------------------------------------------
1998 1997 1996 1995 1994
----
- ---- -------- -------- -------- -------
<S> <C>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year.................. $
16.12 $ 15.56 $ 15.98 $ 14.42 $ 16.30
----
- ---- -------- -------- -------- -------
Income from investment operations
Net investment income...............................
.79 .81(b) .82(b) .81(b) .81
Net realized and unrealized gain (loss) on
investment transactions..........................
.06 .67 (.42) 1.57 (1.78)
----
- ---- -------- -------- -------- -------
Total from investment operations.................
.85 1.48 .40 2.38 (.97)
----
- ---- -------- -------- -------- -------
Less distributions
Dividends from net investment income................
(.79) (.81) (.82) (.81) (.81)
Distributions in excess of net investment income....
- --(c) (.01) --(c) (.01) --
Distributions from net realized gains...............
(.12) (.10) -- -- (.10)
----
- ---- -------- -------- -------- -------
Total distributions..............................
(.91) (.92) (.82) (.82) (.91)
----
- ---- -------- -------- -------- -------
Net asset value, end of year........................ $
16.06 $ 16.12 $ 15.56 $ 15.98 $ 14.42
----
- ---- -------- -------- -------- -------
----
- ---- -------- -------- -------- -------
TOTAL RETURN(a):....................................
5.41% 9.80% 2.66% 16.91% (6.04)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000).......................
$481,926 $493,178 $502,739 $538,145 $12,721
Average net assets (000)............................
$483,759 $491,279 $508,159 $446,350 $14,116
Ratios to average net assets:
Expenses, including distribution fees............
.73% .70%(b) .68%(b) .75%(b) .77%
Expenses, excluding distribution fees............
.63% .60%(b) .58%(b) .65%(b) .67%
Net investment income............................
4.89% 5.15%(b) 5.31%(b) 5.34%(b) 5.38%
For Class A, B and C shares:
Portfolio turnover rate..........................
23% 38% 46% 98% 120%
</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. 18
<PAGE>
Financial Highlights PRUDENTIAL NATIONAL
MUNICIPALS FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class B
----
- --------------------------------------------------------
Year Ended December 31,
----
- --------------------------------------------------------
1998 1997 1996 1995 1994
----
- ---- -------- -------- -------- --------
<S> <C>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year.................. $
16.16 $ 15.60 $ 16.02 $ 14.45 $ 16.33
----
- ---- -------- -------- -------- --------
Income from investment operations
Net investment income...............................
.73 .75(b) .76(b) .76(b) .75
Net realized and unrealized gain (loss) on
investment transactions..........................
.06 .67 (.42) 1.58 (1.78)
----
- ---- -------- -------- -------- --------
Total from investment operations.................
.79 1.42 .34 2.34 (1.03)
----
- ---- -------- -------- -------- --------
Less distributions
Dividends from net investment income................
(.73) (.75) (.76) (.76) (.75)
Distributions in excess of net investment income....
- --(c) (.01) --(c) (.01) --
Distributions from net realized gains...............
(.12) (.10) -- -- (.10)
----
- ---- -------- -------- -------- --------
Total distributions..............................
(.85) (.86) (.76) (.77) (.85)
----
- ---- -------- -------- -------- --------
Net asset value, end of year........................ $
16.10 $ 16.16 $ 15.60 $ 16.02 $ 14.45
----
- ---- -------- -------- -------- --------
----
- ---- -------- -------- -------- --------
TOTAL RETURN(a):....................................
4.99% 9.35% 2.26% 16.49% (6.39)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000).......................
$119,698 $141,528 $168,185 $222,865 $672,272
Average net assets (000)............................
$131,195 $151,938 $193,312 $252,313 $751,623
Ratios to average net assets:
Expenses, including distribution fees............
1.13% 1.10%(b) 1.08%(b) 1.15%(b) 1.17%
Expenses, excluding distribution fees............
.63% .60%(b) .58%(b) .65%(b) .67%
Net investment income............................
4.49% 4.75%(b) 4.91%(b) 4.96%(b) 4.96%
</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 C
----
- ------------------------------------------------------------
- -
August 1,
1994(e)
Year Ended December 31, through
----
- ----------------------------------- December 31,
1998 1997 1996 1995 1994
----
- -- ------ ------ ------ ------------
<S> <C>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................
$16.16 $15.60 $16.02 $14.44 $15.13
----
- -- ------ ------ ------ -----
Income from investment operations
Net investment income...............................
.69 .71(b) .72(b) .72(b) .29
Net realized and unrealized gain (loss) on
investment transactions..........................
.06 .67 (.42) 1.59 (.69)
----
- -- ------ ------ ------ -----
Total from investment operations.................
.75 1.38 .30 2.31 (.40)
----
- -- ------ ------ ------ -----
Less distributions
Dividends from net investment income................
(.69) (.71) (.72) (.72) (.29)
Distributions in excess of net investment income....
- --(c) (.01) --(c) (.01) --
Distributions from net realized gains...............
(.12) (.10) -- -- --
----
- -- ------ ------ ------ -----
Total distributions..............................
(.81) (.82) (.72) (.73) (.29)
----
- -- ------ ------ ------ -----
Net asset value, end of period......................
$16.10 $16.16 $15.60 $16.02 $14.44
----
- -- ------ ------ ------ -----
----
- -- ------ ------ ------ -----
TOTAL RETURN(a):....................................
4.73% 9.08% 2.01% 16.22% (2.63)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).....................
$2,296 $825 $772 $403 $141
Average net assets (000)............................
$1,555 $758 $674 $247 $103
Ratios to average net assets:
Expenses, including distribution fees............
1.38% 1.35%(b) 1.33%(b) 1.40%(b) 1.51%(d)
Expenses, excluding distribution fees............
.63% .60%(b) .58%(b) .65%(b) .76%(d)
Net investment income............................
4.23% 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. 20
<PAGE>
Report of Independent Accountants PRUDENTIAL NATIONAL
MUNICIPALS FUND, INC.
- ------------------------------------------------------------
- --------------------
To the Shareholders and Board of Directors 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, 1998, 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, 1998 by correspondence with the custodian and
brokers, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 19, 1999
- ------------------------------------------------------------
- --------------------
21
<PAGE>
Tax Information (Unaudited) 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, 1998) 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, 1998,
dividends paid from net
investment income totalling $.79 per Class A share, $.73 per
Class B share and
$.69 per Class C shares were all federally tax-exempt
interest dividends. In
addition, the Fund paid distributions of $.0176 per share
(ordinary and
short-term capital gains) which is taxable as ordinary and a
long-term capital
gain distribution of $.105 which is taxable as such.
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.
- ------------------------------------------------------------
- --------------------
22
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
How many times have you read these letters -- or other
financial
materials -- and stumbled across a word that you don't
understand?
Many shareholders have run into the same problem. We'd like
to help.
So we'll use this space from time to time to explain some of
the words you might have read, but not understood. And if
you
have a favorite word that no one can explain to your
satisfaction,
please write to us.
Basis Point: 1/100th of 1%. For example, one-half of one
percent
is 50 basis points.
Collateralized Mortgage Obligations (CMOs): Mortgage-backed
bonds
that separate mortgage pools into different maturity
classes,
called tranches. These instruments are sensitive to changes
in
interest rates and homeowner refinancing
activity. They are subject to prepayment and maturity
extension risk.
Derivatives: Securities that derive their value from other
securities. The rate of return of these financial
instruments
rises and falls -- sometimes very suddenly -- in response
to changes in some specific interest rate, currency, stock,
or other variable.
Discount Rate: The interest rate charged by the Federal
Reserve
on loans to member banks.
Federal Funds Rate: The interest rate charged by one bank to
another on
overnight loans.
Futures Contract: An agreement to purchase or sell a
specific
amount of a commodity or financial instrument at a set price
at a specified date in the future.
Leverage: The use of borrowed assets to enhance return. The
expectation is that the interest rate charged on borrowed
funds will be lower than the return on the investment. While
leverage can increase profits, it can also magnify losses.
Liquidity: The ease with which a financial instrument (or
product)
can be bought or sold (converted into cash) in the financial
markets.
Price/Earnings Ratio: The price of a share of stock divided
by
the earnings per share for a 12-month period.
Option: An agreement to purchase or sell something, such as
shares
of stock, by a certain time for a specified price. An option
need not be exercised.
Spread: The difference between two values; often used to
describe
the difference between "bid" and "asked" prices of a
security,
or between the yields of two similar maturity bonds.
Yankee Bond: A bond sold by a foreign company or government
in
the U.S. market and denominated in U.S. dollars.
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
When you invest through Prudential Mutual Funds, you receive
financial advice through a Prudential Securities financial
advisor or Prudential/Pruco Securities registered
representative.
Your advisor or representative can provide you with the
following
services:
There's No Reward Without Risk; But Is This
Risk Worth It?
Your financial advisor or registered representative can help
you
match the reward you seek with the risk you can tolerate.
And
risk can be difficult to gauge --sometimes even the simplest
investments bear surprising risks. The educated investor
knows
that markets seldom move in just one direction -- there are
times
when a market sector or asset class will lose value or
provide
little in the way of total return. Managing your own
expectations
is easier with help from someone who understands the markets
and
who knows you!
Keeping Up With The Joneses.
A financial advisor or registered representative can help
you
wade through the numerous mutual funds available to find the
ones that fit your own individual investment profile and
risk
tolerance. While the newspapers and popular magazines are
full
of advice about investing, they are aimed at generic groups
of
people or representative individuals, not at you personally.
Your financial advisor or registered representative will
review
your investment objectives with you. This means you can make
financial decisions based on the assets and liabilities in
your current portfolio and your risk tolerance -- not just
based on the current investment fad.
Buy Low, Sell High.
Buying at the top of a market cycle and selling at the
bottom
are among the most common investor mistakes. But sometimes
it's
difficult to hold on to an investment when it's losing value
every month. Your financial advisor or registered
representative
can answer questions when you're confused or worried about
your
investment, and remind you that you're investing for the
long haul.
<PAGE>
Comparing A $10,000 Investment.
- --------------------------------------------------
Prudential National Municipals Fund, Inc. vs. the
Lehman Brothers General Municipal Bond Index.
/ / Prudential National
Municipals Fund, Inc.
- --- Lehman Brothers General
Municipal Bond Index
Average Annual Total Returns
- ------------------------------
With Sales Load
7.28% Since Inception (7.26%)
4.83% for 5 Years (4.81%) Class A (GRAPH)
2.25% for 1 Year
Without Sales Load
7.64% Since Inception (7.63%)
5.47% for 5 Years (5.45%)
5.41% for 1 Year
Average Annual Total Returns
- -------------------------------
With Sales Load
8.57% Since Inception (8.56%)
7.14% for 10 Years (7.13%) Class B (GRAPH)
4.90% for 5 Years (4.88%)
- -0.01% for 1 Year
Without Sales Load
8.57% Since Inception (8.56%)
7.14% for 10 Years (7.13%)
5.07% for 5 Years (5.04%)
4.99% for 1 Year
Average Annual Total Returns
- -----------------------------
With Sales Load
6.22% Since Inception (6.19%)
2.68% for 1 Year Class C
(GRAPH)
Without Sales Load
6.47% Since Inception (6.44%)
4.73% for 1 Year
Past performance is not indicative of future results.
Principal and
investment return 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 graphs are designed to give you an idea
of how
much the Fund's returns can fluctuate from year to year by
measuring
the best and worst calendar years in terms of total annual
returns
since the 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, Inc. (Class A, B, and C shares)
with
a similar investment in the Lehman Brothers General
Municipal
Bond Index (the Index) by portraying the initial account
values
at the commencement of operations of Class A and Class C
shares
and for 10 years for Class B shares, and subsequent account
values at the end of each fiscal year (December 31), as
measured
on a quarterly basis, beginning in 1990 for Class A, 1988
for
Class B, and 1994 for Class C shares. For purposes of the
graphs,
and unless otherwise indicated in the accompanying tables,
it has
been assumed that (a) the maximum applicable front-end sales
load
was deducted from the initial $10,000 investment in Class A
shares;
(b) the maximum applicable contingent deferred sales charges
were
deducted from the value of the investment in Class B and
Class C
shares, assuming full redemption on December 31, 1998; (c)
beginning
November 2, 1998, Class C shares are subject to a front-end
sales
load of 1% and a CDSC of 1% for 18 months; (d) all recurring
fees
(including management fees) were deducted; and (e) all
dividends
and distributions were reinvested. Class B shares will
automatically
convert to Class A shares, on a quarterly basis,
approximately seven
years after purchase. This conversion feature is not
reflected in
the graphs. Without waiver of management fees and/or expense
subsidization, the Fund's average annual total returns would
have been lower, as indicated in parentheses ( ).
The Index is a market value-weighted index comprised of
approximately
40,000 bonds (state and local general obligation bonds,
revenue
bonds, insured bonds, and prerefunded bonds) to accurately
reflect
the municipal bond marketplace. The bonds must have a credit
rating of at least Baa, an outstanding par value of at least
$3 million, and be issued after December 31, 1990 with a
remaining maturity of at least one year. The Index is
unmanaged
and the total return 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
held in the Index may differ substantially from those held
by
the Fund. The Index is not the only one that may be used to
characterize performance of bond funds, and other indexes
may
portray different comparative performance. Investors cannot
invest directly in an index.
<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
Mendel A. Melzer, CFA
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Brian M. Storms
Nancy H. Teeters
Louis A. Weil, III
Officers
Brian M. Storms, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
Deborah A. Docs, 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 Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
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
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Swidler Berlin Shereff Friedman, 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
743918302
