<PAGE>
SEMIANNUAL REPORT JUNE 30, 2000
Prudential
National Municipals Fund, Inc.
Fund Type Tax-exempt bond
Objective High level of current income exempt from
federal income taxes
(GRAPHIC)
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.
(LOGO)
<PAGE>
Build on the Rock
Investment Goals and Style
The Prudential National Municipals Fund invests primarily
in long-term municipal bonds of medium quality, which
offer a high level of current income that is 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.
Portfolio Composition
Expressed as a percentage of total investments as of 6/30/00
21.7% General Obligation Bonds
21.0 Other Revenue
18.0 Utility
14.9 Industrial Development
13.4 Transportation
5.7 Miscellaneous
4.8 Prerefunded
0.5 Cash Equivalents
Credit Quality
Expressed as a percentage of total investments as of 6/30/00
47.8% AAA Insured
9.9 AAA
8.1 AA
9.0 A
21.2 BBB
4.0 Not Rated
Ten Largest Issuers
Expressed as a percentage of net assets as of 6/30/00
3.8% TX Harris Cnty. Toll Rd. Rev.
3.8 NY City
Mun. Water Fin. Authority
3.6 LA New Orleans,
General Obligation
2.9 CO Hsg. Fin. Authority
2.7 IL Metro Pier & Expo. Authority
2.4 OH State Water Dev. Authority
2.1 PR Tel. Authority
2.0 SC Piedmont Mun. Pwr. Agency
1.9 ND Mercer Cntr., Pollution Cntrl.
Rev., Antelope Valley Station
0.8 OK Tulsa Mun. Arpt. Trust
<PAGE>
www.prudential.com (800) 225-1852
Performance at a Glance
Cumulative Total Returns1 As of 6/30/00
Six One Five Ten Since
Months Year Years Years Inception2
Class A 3.49% 1.36% 27.58% (23.75) 87.57% (81.94) 92.52% (86.74)
Class B 3.43 1.19 25.42 (24.42) 80.87 (80.87) 361.34 (361.34)
Class C 3.30 0.94 23.88 (22.64) N/A 30.49 (29.18)
Class Z 3.69 1.68 N/A N/A -0.68
Lipper General
Muni Debt
Fund Avg.3 3.95 0.98 26.19 86.06 ***
Average Annual Total Returns1 As of 6/30/00
One Five Ten Since
Year Years Years Inception2
Class A -1.68% 4.35% (4.33) 6.17% (6.15) 6.17% (6.15)
Class B -3.81 4.47 (4.44) 6.11 (6.09) 7.87 (7.86)
Class C -1.07 4.17 (4.14) N/A 4.42 (4.40)
Class Z 1.68 N/A N/A -0.48
Distributions and Yields As of 6/30/00
<TABLE>
<CAPTION>
Total Distributions 30-Day Taxable Equivalent Yield4 at tax rates of
Paid for Six Months SEC Yield 36% 39.6%
<S> <C> <C> <C>
Class A 0.37 5.13 8.61% 9.12%
Class B 0.36 5.03 8.44 8.94
Class C 0.34 4.74 7.95 8.42
Class Z 0.39 5.53 9.28 9.83
</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 LLC 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 charge 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 charge of 1% and
a CDSC of 1% for 18 months. Class Z shares are not
subject to a sales charge or distribution and service
(12b-1) fees. 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; and Class Z 1/22/99.
3 Lipper average returns are for all funds in each share
class for the six-months, one-, five-, and ten-year
periods in the General Municipal Debt Fund category. The
Lipper average is unmanaged. General Municipal Debt funds
invest at least 65% of their assets in municipal debt
issues in the top four
credit ratings.
*** Lipper Since Inception returns are 92.19% for Class
A, 404.10% for Class B, 33.73% for Class C, and -1.94%
for Class Z, based on all funds in each share class.
1
<PAGE>
(LOGO) August 14, 2000
Dear Shareholder,
After producing poor results in 1999, municipal bonds
have generated solid returns thus far in 2000. During the
six months ended June 30, 2000, the Prudential National
Municipals Fund's Class A shares returned 3.49% without
considering the initial sales charge. The Lipper Average,
which does not consider sales charges, returned 3.95%.
Municipals and long-term U.S. Treasuries were among a
small handful of fixed-income securities that produced
positive results during the first half of the year.
Generally speaking, the bond market has been adversely
affected by rising short-term interest rates that have
led to declining bond prices in most sectors of the
market.
However, investors aggressively purchased 30-year
Treasury securities as the U.S. Treasury Department moved
to limit its supply through a buy-back program. The
Department is seeking to lower the government's borrowing
costs by repurchasing these bonds with higher relative
yields. The combination of Fed-implemented interest rate
hikes and the supply and demand imbalance that led to
lower yields for long-term Treasury securities created an
inverted yield curve (an anomaly that occurs when yields
of short-term debt securities are higher than yields of
longer-term debt securities). With regard to municipals,
investors were drawn to the relative valuations and
attractive after-tax yields offered by longer-term
municipals.
A discussion of the developments in the municipal market
and a detailed review of your Fund's investments follow.
As always, we appreciate your confidence and look forward
to serving your future investment needs.
Sincerely,
John R. Strangfeld, President
Prudential National Municipals Fund, Inc.
2
<PAGE>
Prudential National Municipals Fund, Inc.
www.prudential.com (800) 225-1852
Semiannual Report June 30, 2000
Investment Adviser's Report
An impressive rebound in the municipal market
In the wake of last year's disappointing results, the
municipal market staged a strong rally during the first
two quarters of 2000. In 1999, the overall municipal
market registered one of its worst years ever. An
accelerating economy and inflationary concerns caused the
Fed to increase its federal funds rate (the rate U.S.
banks charge each other for overnight loans) three times
during the second half of the year. Bond prices fell
across the board, and the municipal market was not
spared.
A turnaround came during the first quarter of 2000, when
yields fell sharply. As a result, bond prices rose (bond
yields and prices move in opposite directions). Investors
were drawn to the compelling values in many sectors of
the municipal market. In addition, they were eager to
purchase bonds with longer maturities as the Treasury
moved to lower the supply of longer-term debt.
Performance during the second quarter of 2000 was more
muted. A dramatic increase in equity market volatility
generated greater enthusiasm for municipal bonds, and
mutual fund outflows stabilized during this time.
Nonetheless, market volatility and uncertainty over
further Fed action caused municipal yields to trade in a
fairly narrow range. Despite this, the positive
underlying fundamentals in the municipal market have led
many investors to believe that further gains could soon
occur.
A defensive stance as the year began
We had positioned the Fund defensively in the fourth
quarter of 1999, and maintained this stance into 2000.
The Fund's duration (a measure of how much a portfolio's
bonds will fluctuate in price in response to a change in
interest rates) was lowered below that of its benchmark
in order to provide a degree of protection in the event
that yields continued to rise. In addition, we increased
the Fund's exposure to cash equivalents in order to
prepare for redemptions from expected "tax-loss swapping"
and a decline in dealer
liquidity as a result of potential Y2K-related computer
disruptions.
3
<PAGE>
Prudential National Municipals Fund, Inc.
Semiannual Report June 30, 2000
While our defensive stance was successful in 1999, it
faltered during the first quarter of 2000 when the market
rebounded more quickly than we expected. During this
period, municipal yields fell, and bonds with the longest
maturities generated the strongest results.
Repositioning for success
The Fund's relative performance improved substantially
during the second quarter of 2000. Several strategic
initiatives were instituted that helped the Fund make up
some of the ground it lost early in the year. First, we
raised the Fund's duration from 7.8 years to
approximately 10 years, bringing it in line with its
benchmark. We accomplished this by selling 10-year issues
in favor of securities with 20- to 30-year maturities.
This action proved beneficial, as we were able to
generate strong results as rates declined.
In addition, we selectively purchased securities at
depressed prices during periods of market weakness. For
example, we purchased several hospital issues that were
faring poorly due to concerns over reimbursement rates
and increased competition. Buying these issues at
discounted prices proved fortuitous, as their prices rose
later in the period.
Looking ahead
As we look toward the remainder of the year, we are
encouraged by the prospects for the municipal bond
market. The supply of new-issue bonds has dropped off due
to a decline in the refunding of existing bonds. Federal,
state, and local governments have also been less apt to
issue new debt, as the strong economy has led to
increased tax revenues. The lower supply, coupled with
what we believe will be an increase in demand for
municipals, are two very positive underlying fundamentals
for the municipal bond market.
4
<PAGE>
www.prudential.com (800) 225-1852
Going forward, it's not clear what direction the U.S.
economy will ultimately take. However, it appears there
are three possible scenarios. First, economic growth
could reaccelerate, necessitating further interest rate
hikes by the Fed. Second, the economy could fall into a
recession. Third, we could experience a "soft landing,"
whereby growth falls to a more moderate and acceptable
level. The longer the uncertainty about the economy's
direction lingers, the more likely it is that volatility
in the equity market will persist. This could also make
municipal bonds appear more attractive in the eyes of
investors, spurring further demand.
Prudential National Municipals Fund Management Team
5
<PAGE>
Prudential National Municipals Fund, Inc.
Semiannual Report June 30, 2000
Financial
Statements
<PAGE>
Prudential National Municipals Fund, Inc.
Portfolio of Investments as of June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description (a) Rating Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS 98.9%
----------------------------------------------------------------------------------------
Alaska 0.1%
Alaska Ind. Dev. & Expt. Auth.
Rev., Revolving Fd. A2 5.40% 4/01/01 $ 775 $ 778,736
----------------------------------------------------------------------------------------
Arizona 1.9%
Arizona St. Mun. Fin. Proj.,
Cert. of Part., Ser. 25, B.I.G. Aaa 7.875 8/01/14 2,250(h) 2,796,773
Pima Cnty. Ind. Dev. Auth. Rev.,
F.S.A. Aaa 7.25 7/15/10 1,790 1,888,575
Pima Cnty. Uni. Sch. Dist., Gen.
Oblig., F.G.I.C., Aaa 7.50 7/01/10 3,000(f) 3,584,700
Tucson Cnty. Gen. Oblig.,
Ser. A Aa3 7.375 7/01/11 1,000 1,193,030
Ser. A Aa3 7.375 7/01/12 1,100 1,318,196
-------------
10,781,274
----------------------------------------------------------------------------------------
California 5.5%
Abag Fin. Auth. for Nonprofit
Corps., Cert. of Part., Amer.
Baptist Homes., Ser. A BBB+(d) 6.20 10/01/27 1,200 1,008,924
Anaheim Pub. Fin. Auth. Lease Rev.,
Ser. 641A, F.S.A., R.I.T.E.S. NR 8.908 9/01/16 2,210(c)(i) 2,789,882
Ser. 641B, F.S.A., R.I.T.E.S. NR 8.908 9/01/24 1,815(c)(i) 2,096,452
Encinitas Union Sch. Dist., Gen.
Oblig., M.B.I.A Aaa Zero 8/01/21 3,810 1,115,720
Foothill / Eastern Corridor
Agcy., Toll Rd. Rev., Ser. A Aaa Zero 1/01/23 5,000 1,348,250
Long Beach Aquarium of the
Pacific Rev., Ser. A, A.M.T. BBB(d) 6.125 7/01/23 6,000 5,558,520
Long Beach Harbor Rev., Ser. A,
F.G.I.C., A.M.T. Aaa 6.00 5/15/18 4,000 4,234,840
Los Angeles Uni. Sch. Distr.,
Ser. A,
F.G.I.C. Aaa 6.00 7/01/15 1,000 1,090,270
Pittsburg Redev. Agy., Tax
Alloc.,
Los Medanos Comm. Dev. Proj. Aaa(d) Zero 8/01/25 2,000 456,120
Los Medanos Comm. Dev. Proj. Aaa(d) Zero 8/01/30 5,000 844,350
</TABLE>
See Notes to Financial Statements 7
<PAGE>
Prudential National Municipals Fund, Inc.
Portfolio of Investments as of June 30, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description (a) Rating Rate Date (000) (Note 1)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
San Joaquin Hills Trans. Corr. Agcy.,
Toll Rd. Rev. Aaa Zero 1/01/25 $ 10,000 $ 2,405,700
Toll Rd. Rev. Aaa Zero 1/01/26 10,000 2,269,800
Santa Margarita Dana Point Auth.
Rev., M.B.I.A.,
Ser. 644C, R.I.T.E.S. NR 12.674% 8/01/09 665(i) 1,034,906
Ser. 644D, R.I.T.E.S. NR 12.674 8/01/10 810(i) 1,291,950
Ser. 644G, R.I.T.E.S. NR 12.674 8/01/14 660(i) 1,091,627
West Contra Costa Sch. Dist.,
Cert. of Part., Ref. Baa3 7.125 1/01/24 1,600 1,664,080
-------------
30,301,391
----------------------------------------------------------------------------------------
Colorado 5.6%
Arapahoe Cnty. Cap. Impvt. Trust
Fund, Hwy. Rev., Ser. E-470 Aaa 7.00 8/31/26 3,000(b) 3,364,590
Colorado Hsg. Fin. Auth., A.M.T.
Singl. Fam. Proj. Aa2 8.00 6/01/25 1,975 2,090,775
Singl. Fam. Proj., Ser. A-2 Aa2 7.25 5/01/27 1,710 1,823,801
Singl. Fam. Proj., Ser. B-1 Aa2 7.90 12/01/25 1,185 1,232,542
Singl. Fam. Proj., Ser. C-1,
M.B.I.A. Aaa 7.65 12/01/25 2,875 3,009,722
Singl. Fam. Proj., Ser. C-2 Aa2 6.875 11/01/28 3,500 3,660,545
Singl. Fam. Proj., Ser. C-2 Aa2 7.05 4/01/31 4,000 4,355,520
Colorado Springs Arpt. Rev., Ser.
A., A.M.T. BBB+(d) 7.00 1/01/22 7,960(f) 8,251,017
Denver Hlth. & Hosp. Auth.,
Healthcare Rev., Ser. A Baa2 5.375 12/01/28 4,000 3,107,840
-------------
30,896,352
----------------------------------------------------------------------------------------
Connecticut 1.3%
Connecticut St. Hlth. & Edu.
Facs. Auth. Rev., Univ. of
Hartford,
Ser. D Ba1 6.75 7/01/12 5,725(h) 5,833,088
Connecticut St. Spec. Tax Oblig.
Rev., Trans. Infrastructure,
Ser. A A1 7.125 6/01/10 1,000 1,144,490
-------------
6,977,578
</TABLE>
8 See Notes to Financial Statements
<PAGE>
Prudential National Municipals Fund, Inc.
Portfolio of Investments as of June 30, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description (a) Rating Rate Date (000) (Note 1)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
District of Columbia 0.2%
Dist. of Columbia, Gen. Oblig.,
Ser. B, M.B.I.A. Aaa 6.00% 6/01/13 $ 1,000 $ 1,057,150
----------------------------------------------------------------------------------------
Florida 2.7%
Broward Cnty. Res. Rec. Rev.,
Broward Co. L.P. South Proj. A3 7.95 12/01/08 7,445 7,683,166
Florida St. Brd. of Ed., Gen.
Oblig. Aa2 9.125 6/01/14 1,260(b)(h) 1,675,031
Hillsborough Cnty. Ind. Dev.
Auth.
Poll. Ctrl. Rev., Tampa Elec.
Proj. Aa3 8.00 5/01/22 5,000 5,409,450
-------------
14,767,647
----------------------------------------------------------------------------------------
Georgia 2.5%
Burke Cnty. Dev. Auth., Poll.
Cntrl. Rev., M.B.I.A.,
Georgia Pwr. Co. Aaa 6.625 10/01/24 500(h) 510,075
Oglethorpe Pwr. Co. Aaa 8.00 1/01/22 5,000(h) 5,513,850
Oglethorpe Pwr. Co., E.T.M. Aaa 7.50 1/01/03 557 577,247
Forsyth Cnty. Sch. Dist. Dev.
Rev. Aa3 6.75 7/01/16 500 568,595
Fulton Cnty. Sch. Dist. Rev. Aa2 6.375 5/01/17 750(h) 826,620
Georgia Mun. Elec. Auth. Pwr.
Rev., Ser. B, M.B.I.A. Aaa 6.375 1/01/16 5,000(h) 5,490,950
Green Cnty. Dev. Auth. Indl. Park
Rev. NR 6.875 2/01/04 325 333,379
-------------
13,820,716
----------------------------------------------------------------------------------------
Guam 0.2%
Guam Pwr. Auth. Rev., Ser. A BBB+(d) 6.625 10/01/14 1,000(b) 1,099,520
----------------------------------------------------------------------------------------
Hawaii 0.2%
Hawaii St. Dept. Budget & Fin.
Spl. Purp. Mtg. Rev., Hawaiian
Elec. Co., Ser. C, M.B.I.A.,
A.M.T. Aaa 7.375 12/01/20 500 514,955
Hawaii St. Harbor Cap. Impvt.
Rev., A.M.T. F.G.I.C. Aaa 6.25 7/01/15 500 515,350
-------------
1,030,305
</TABLE>
See Notes to Financial Statements 9
<PAGE>
Prudential National Municipals Fund, Inc.
Portfolio of Investments as of June 30, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description (a) Rating Rate Date (000) (Note 1)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Illinois 6.9%
Chicago Brd. of Ed.,
Gen. Oblig., F.G.I.C. Aaa Zero 12/01/19 $ 2,000 $ 628,560
Gen. Oblig., F.G.I.C., Ser. B-1 Aaa Zero 12/01/12 1,500 749,070
Chicago City Colleges,
Gen. Oblig., F.G.I.C. Aaa Zero 1/01/24 5,000 1,212,450
Gen. Oblig., F.G.I.C. Aaa Zero 1/01/25 10,000 2,277,600
Chicago Single Fam. Mtge Rev.,
Ser. A, F.N.M.A. AAA(d) 7.15% 9/01/31 3,500 3,838,555
Chicago, Gen. Oblig.,
Cap. Apprec. City Colleges,
F.G.I.C. Aaa Zero 1/01/16 13,500 5,513,940
Ser. A, F.G.I.C. Aaa 6.75 1/01/35 5,000 5,472,650
Cook and Du Page Cntys., High
Sch. Dist No. 210, Gen. Oblig.,
F.S.A. Aaa Zero 12/01/11 3,035 1,635,137
Illinois Dev. Fin. Auth. Rev.,
Cmnty. Rehab. Providers, Ser. A BBB(d) 6.00 7/01/15 2,000 1,764,480
Metropolitan Pier & Expo. Auth.,
Hosptlty. Fac. Rev., McCormick
Pl. Conv. BBB(d) 7.00 7/01/26 12,910 14,929,898
-------------
38,022,340
----------------------------------------------------------------------------------------
Indiana 0.3%
Gary Ind. Mtge. Rev., Lakeshore
Dunes Apts., Ser. A, G.N.M.A. AAA(d) 6.00 8/20/34 2,000 1,946,080
----------------------------------------------------------------------------------------
Kentucky 2.8%
Henderson Cnty. Solid Waste Disp.
Rev., Macmillan Bloedel Proj.,
A.M.T. Baa2 7.00 3/01/25 6,000 6,102,840
Kenton Cnty. Arpt. Brd. Rev.,
Ser. A, A.M.T., M.B.I.A. Aaa 6.30 3/01/15 6,250 6,561,500
Louisville & Jefferson Cnty. Met.
Swr. Dist. Rev., Ser. A,
F.G.I.C. Aaa 5.00 5/15/30 3,000 2,637,930
-------------
15,302,270
</TABLE>
10 See Notes to Financial Statements
<PAGE>
Prudential National Municipals Fund, Inc.
Portfolio of Investments as of June 30, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description (a) Rating Rate Date (000) (Note 1)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Louisiana 5.8%
New Orleans,
Gen. Oblig. Ref., F.G.I.C. Aaa 5.50% 12/01/21 $ 12,000 $ 11,675,760
Gen. Oblig., A.M.B.A.C. Aaa Zero 9/01/09 13,500 8,326,665
Orleans Parish Sch. Brd., E.T.M.,
M.B.I.A. Aaa 8.90 2/01/07 5,780(h) 7,060,732
St. Charles Parish, Env. Impt.
Rev., Louisiana Pwr. & Lt. Co.
Proj., Ser. A, A.M.T. Baa2 6.875 7/01/24 5,000 5,029,200
-------------
32,092,357
----------------------------------------------------------------------------------------
Maryland 2.8%
Baltimore, Econ. Dev. Lease Rev.,
Armistead Partnership, Ser. A BBB+(d) 7.00 8/01/11 1,000 1,028,590
Maryland St. Hlth. & Higher Edu.
Facs. Auth. Rev.,
Doctor's Cmnty. Hosp. Baa1 5.50 7/01/24 3,000 2,324,310
Univ. Maryland Med. Sys. Baa1 6.75 7/01/30 5,000(h) 5,034,700
Maryland St. Ind. Dev. Fin. Auth.
Rev., Amer. Ctr. Physics
Headqrtrs. BBB(d) 6.625 1/01/17 1,000 1,002,500
Montgomery Cnty., Gen. Oblig. Aaa 9.75 6/01/01 450 471,186
Northeast Waste Disp. Auth. Rev.,
Baltimore City Sludge Corp.
Proj. NR 7.25 7/01/07 3,446 3,544,659
Montgomery Cnty. Res. Rec.
Proj., Ser. A A2 6.00 7/01/07 1,000 1,024,070
Takoma Park Hosp. Facs. Rev.,
Washington Adventist Hosp.,
F.S.A. Aaa 6.50 9/01/12 1,000(h) 1,113,180
-------------
15,543,195
----------------------------------------------------------------------------------------
Massachusetts 1.6%
Mass. St. Hlth. & Edl. Facs.
Auth. Rev., Mass. Inst. of Tech.
Ser. I-1 Aaa 5.20 1/01/28 1,500(h) 1,394,505
</TABLE>
See Notes to Financial Statements 11
<PAGE>
Prudential National Municipals Fund, Inc.
Portfolio of Investments as of June 30, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description (a) Rating Rate Date (000) (Note 1)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mass. St. Tpke. Auth. Met. Hwy.
Sys. Rev., M.B.I.A. Aaa 5.00% 1/01/37 $ 9,000 $ 7,767,630
-------------
9,162,135
----------------------------------------------------------------------------------------
Michigan 6.3%
Detroit Econ. Dev. Corp., Res.
Rec. Rev., Ser. A, F.S.A.,
A.M.T. Aaa 6.875 5/01/09 920 952,504
Detroit Sewage. Disp. Rev.,
Prerefunded Inflos AAA(d) 6.655 7/01/23 800(b) 849,000
Unrefunded Balance Inflos Aaa 6.655 7/01/23 200 185,500
Detroit Wtr. Supply Sys. Rev.,
Ser. B, M.B.I.A. Aaa 5.55 7/01/12 1,000 1,031,860
Dexter Cmnty. Schs., Gen. Oblig.,
F.G.I.C. Aaa 5.10 5/01/28 10,000(h) 9,108,500
Dickinson Cnty. Mem. Hosp. Sys.
Rev. Ba1 8.00 11/01/14 1,000 1,128,770
Huron Valley Sch. Dist., Gen.
Oblig., F.G.I.C. Aaa Zero 5/01/10 3,500 2,072,280
Kalamazoo Econ. Dev. Corp. Rev.,
Friendship Vlg., Ser. A BBB(d) 6.125 5/15/17 1,000 887,380
Michigan Higher Ed. Rev., Ser.
XIII-A, M.B.I.A., A.M.T. Aaa 7.55 10/01/08 155 158,825
Michigan Mun. Bd. Auth. Rev.,
Wayne Cnty. Proj., M.B.I.A.,
E.TM. Aaa 7.40 12/01/02 500 518,555
Michigan St. Hosp. Fin. Auth.
Rev.,
Bay Med. Ctr., Ser. A A3 8.25 7/01/12 1,920 1,958,573
Genesys Hlth. Sys., Ser. A Baa2 8.125 10/01/21 1,000(b) 1,165,700
Genesys Hlth. Sys., Ser. A Baa2 7.50 10/01/27 500(b) 560,495
Presbyterian Vlg. Oblig. NR 6.375 1/01/25 800 711,560
Michigan St. Hsg. Dev. Auth.
Rev.,
Rental Hsg., Ser. B AA-(d) 7.55 4/01/23 1,000 1,032,030
Rental Hsg., Ser. A, A.M.T. AA-(d) 7.15 4/01/10 140 145,642
Rental Hsg., Ser. A, A.M.T. AA-(d) 7.70 4/01/23 500 516,485
Sngl. Fam. Mtge., Ser. A AA+(d) 7.50 6/01/15 2,905 2,966,354
</TABLE>
12 See Notes to Financial Statements
<PAGE>
Prudential National Municipals Fund, Inc.
Portfolio of Investments as of June 30, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description (a) Rating Rate Date (000) (Note 1)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Michigan St. Strategic Fd., Ltd.
Oblig. Rev., Waste Mgmt. Inc.
Proj., A.M.T. Ba1 6.625% 12/01/12 $ 1,500 $ 1,464,630
Monroe Cnty. Poll. Ctrl. Rev.,
Detroit Edison Co. Proj.,
F.G.I.C., A.M.T. Aaa 7.65 9/01/20 2,000(h) 2,048,700
Oak Park, A.M.B.A.C.,
Gen. Oblig. Aaa 7.00 5/01/12 400(b) 422,132
Gen. Oblig., Aaa 7.00 5/01/11 375(b) 395,749
Okemos Pub. Sch. Dist.,
M.B.I.A. Aaa Zero 5/01/12 1,100 576,092
M.B.I.A. Aaa Zero 5/01/13 1,000 490,320
Wayne Cnty. Bldg. Auth., Ser. A A3 8.00 3/01/17 1,250(b) 1,338,287
Wyandotte Elec. Rev., Gen.
Oblig., M.B.I.A. Aaa 6.25 10/01/08 2,000(h) 2,132,660
-------------
34,818,583
----------------------------------------------------------------------------------------
Minnesota 2.9%
Minneapolis & St. Paul Met.
Arpts., Comm. Arpt. Rev., Ser.
A, A.M.B.A.C. Aaa 5.00 1/01/22 9,085 8,188,038
Minneapolis St. Paul Hsg. Fin.
Brd. Rev., Single Fam. Mtge.,
G.N.M.A., A.M.T. AAA(d) 7.30 8/01/31 570 581,565
Minnesota Agric. & Econ. Dev.
Brd. Rev., Fairview Hlth. Care
Sys., Ser. A A2 6.375 11/15/22 7,000 6,945,820
St. Paul Science Museum, Cert. of
Part., E.T.M. AAA(d) 7.50 12/15/01 315(h) 323,971
-------------
16,039,394
----------------------------------------------------------------------------------------
Missouri 0.7%
Missouri St. Hsg. Dev. Comn. Mtge
Rev., Single Fam. Homeowner Ln.,
Ser. A, G.N.M.A., A.M.T. AAA(d) 7.20 9/01/26 3,610 3,772,992
</TABLE>
See Notes to Financial Statements 13
<PAGE>
Prudential National Municipals Fund, Inc.
Portfolio of Investments as of June 30, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description (a) Rating Rate Date (000) (Note 1)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nevada 1.7%
Clark Cnty. Indl. Dev. Rev.,
Southwest Gas Corp., Ser. A,
A.M.T. Baa2 6.50% 12/01/33 $ 10,000 $ 9,479,600
----------------------------------------------------------------------------------------
New Hampshire 2.0%
Manchester Hsg. & Redev. Auth.
Rev.,
Cap. Apprec., Ser. B, A.C.A. Baa3 Zero 1/01/24 4,740 951,555
Cap. Apprec., Ser. B, A.C.A. Baa3 Zero 1/01/27 4,140 673,619
Cap. Apprec., Ser. B, A.C.A. Baa3 Zero 1/01/30 4,640 611,227
New Hampshire Higher Ed. & Hlth.
Facs. Auth. Rev.,
New Hampshire College BBB-(d) 6.30 1/01/16 500 476,365
New Hampshire College BBB-(d) 6.375 1/01/27 2,000 1,840,140
New Hampshire Hlth. & Ed. Facs.
Auth. Rev., College Issue BBB-(d) 7.50 1/01/31 3,000 3,007,230
New Hampshire St. Ind. Dev.
Auth., Poll. Ctrl. Rev., Proj. A Ba3 7.65 5/01/21 3,420 3,500,165
-------------
11,060,301
----------------------------------------------------------------------------------------
New Jersey 1.4%
New Jersey Hlth. Care Facs. Fin.
Auth. Rev., Hackensack Univ.
Med. Ctr. A3 6.00 1/01/34 8,000 7,863,920
----------------------------------------------------------------------------------------
New York 9.3%
Metropolitan Trans. Auth., Trans.
Facs. Rev., Ser. A, F.S.A. Aaa 6.00 7/01/16 2,500 2,581,675
New York City Ind. Dev. Agcy.,
Rev., Brooklyn Navy Yard Cogen
Partners, A.M.T. Baa3 5.65 10/01/28 2,000 1,730,520
New York City Mun. Wtr. Fin. Auth.,
Wtr.& Swr. Sys. Rev., F.G.I.C. Aaa 6.75 6/15/16 10,565(f) 10,861,454
Wtr.& Swr. Sys. Rev., Ser. B Aa3 6.00 6/15/33 10,000 10,152,100
New York City, Gen. Oblig.,
Ser. F A3 8.25 11/15/02 815 862,996
Ser. D A3 8.00 8/01/03 70(h) 73,401
</TABLE>
14 See Notes to Financial Statements
<PAGE>
Prudential National Municipals Fund, Inc.
Portfolio of Investments as of June 30, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description (a) Rating Rate Date (000) (Note 1)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ser. D A3 8.00 8/01/04 $ 30(h) $ 31,457
Ser. A A3 7.75 8/15/04 15 15,664
Ser. B A3 8.25 6/01/06 1,500 1,743,540
Ser. D A3 7.65 2/01/07 45 47,439
Ser. B A3 7.25 8/15/07 3,500 3,947,895
New York St. Dorm. Auth. Rev.,
City Univ., F.S.A. Aaa 5.00 7/01/28 5,000 4,407,450
Mem. Sloan Kettering Cancer
Ctr., M.B.I.A. Aaa 5.50 7/01/23 4,000 3,893,160
New York St. Env. Facs. Corp.,
Poll. Ctrl. Rev. Aaa 5.80 1/15/14 1,280 1,318,848
New York St. Urban Dev. Corp.
Rev. Ref., F.S.A., Correctional
Facs. Aaa 6.50 1/01/09 3,000 3,289,020
New York, Gen. Oblig., Ser. A,
F.S.A. Aaa 6.00 5/15/30 6,430 6,566,444
-------------
51,523,063
----------------------------------------------------------------------------------------
North Dakota 1.9%
Mercer Cnty. Poll. Ctrl. Rev.,
Antelope Valley Station,
A.M.B.A.C. Aaa 7.20 6/30/13 9,000(h) 10,447,920
----------------------------------------------------------------------------------------
Ohio 3.0%
Franklin Cnty. Hosp. Rev.,
Doctors Ohio Hlth. Corp., Ser. A Baa3 5.60 12/01/28 5,000(h) 3,592,550
Ohio St. Wtr. Dev. Auth. Poll.
Ctrl. Facs. Rev., Buckeye Pwr.
Inc. Proj., A.M.B.A.C. Aaa 7.80 11/01/14 11,825 13,207,579
-------------
16,800,129
----------------------------------------------------------------------------------------
Oklahoma 3.2%
McGee Creek Auth. Wtr. Rev.,
M.B.I.A. Aaa 6.00 1/01/23 7,000 7,311,500
Tulsa Mun. Arpt. Trust Rev.,
A.M.T. Baa1 7.375 12/01/20 10,000 10,165,000
-------------
17,476,500
</TABLE>
See Notes to Financial Statements 15
<PAGE>
Prudential National Municipals Fund, Inc.
Portfolio of Investments as of June 30, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description (a) Rating Rate Date (000) (Note 1)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Pennsylvania 4.7%
Beaver Cnty. Ind. Dev. Auth.,
Poll. Cntrl. Rev., Ohio Edison
Co. Proj., Ser. A Baa3 4.65% 6/01/33 $ 5,000 $ 4,770,450
Clarion Cnty. Hosp. Auth. Rev.,
Clarion Hosp. Proj. BBB-(d) 5.60 7/01/10 685 628,885
Delaware Cnty. Ind. Dev. Auth.
Rev., Res. Rec. Fac., Ser. A B2 6.20 7/01/19 3,000 2,616,540
Montgomery Cnty. Ind. Dev. Auth.,
Retirement Cmnty. Rev. A-(d) 5.25 11/15/28 2,000 1,562,900
Philadelphia Hosp. & Higher Edl.
Facs. Auth. Rev., Children's
Seashore House, Ser. A A-(d) 7.00 8/15/03 1,000 1,033,180
Philadelphia, Gen. Oblig.,
F.S.A. Aaa 5.00 3/15/28 7,500 6,567,075
M.B.I.A. Aaa 5.00 5/15/25 3,000 2,653,470
Westmoreland Cnty., Pennsylvania
Ind. Dev. Auth. Rev., Valley
Landfill Proj. BBB(d) 5.10 5/01/18 7,000 6,096,090
-------------
25,928,590
----------------------------------------------------------------------------------------
Puerto Rico 2.9%
Puerto Rico Comnwlth., Gen.
Oblig. Baa1 6.50 7/01/13 3,000 3,368,280
Hwy. & Trans. Auth. Rev., Ser.
A, A.M.B.A.C. Aaa Zero 7/01/18 2,500 910,500
Puerto Rico Tel. Auth. Rev.,
M.B.I.A. Aaa 6.16 1/25/07 4,100(b)(c) 4,264,000
M.B.I.A. Aaa 6.715 1/16/15 7,150(c)(h) 7,570,063
-------------
16,112,843
----------------------------------------------------------------------------------------
South Carolina 3.7%
Charleston Wtrwks. & Swr. Rev.,
E.T.M. Aaa 10.375 1/01/10 7,415(h) 9,476,518
Piedmont Mun. Pwr. Agcy. Elec.
Rev., M.B.I.A. Aaa 5.375 1/01/25 11,415(g) 10,827,470
-------------
20,303,988
</TABLE>
16 See Notes to Financial Statements
<PAGE>
Prudential National Municipals Fund, Inc.
Portfolio of Investments as of June 30, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description (a) Rating Rate Date (000) (Note 1)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tennessee 2.7%
Bristol Hlth. & Edl. Fac. Rev.,
Bristol Memorial Hosp., F.G.I.C. Aaa 6.75% 9/01/10 $ 5,000(f) $ 5,593,050
McMinn Cnty. Ind. Dev. Brd. Solid
Waste Rev., Recycling Fac.,
A.M.T. Ba1 7.40 12/01/22 5,000 5,143,100
Shelby Cnty. Hlth. Edu. & Hsg.
Facs. Brd. Rev., St. Judes
Childrens Research Aaa 5.375 7/01/29 5,000 4,516,000
-------------
15,252,150
----------------------------------------------------------------------------------------
Texas 9.3%
Bexar Cnty. Hlth. Facs. Dev.
Corp. Rev., Baptist Hlth. Sys.,
Ser. A, M.B.I.A. Aaa 6.00 11/15/14 5,695 5,992,336
Dallas Ft. Worth, Regl. Arpt.
Rev., F.G.I.C.,
Ser. A Aaa 7.375 11/01/08 3,500 3,853,535
Ser. A Aaa 7.375 11/01/09 3,500 3,853,535
Harris Cnty., Toll Rd. Rev.,
Ref., F.G.I.C. Aaa 6.00 8/01/13 20,000(g) 21,078,200
Keller Indpt. Sch. Dist. Rev. Aaa 6.00 8/15/23 3,970 4,132,095
Lakeway Mun. Util. Dist., Gen.
Oblig., Ser. A, F.G.I.C. Aaa Zero 9/01/11 1,425 778,207
Matagorda Cnty. Nav. Dist. No. 1
Rev., Houston Ltg. Pwr. Co.,
A.M.B.A.C. Aaa 5.125 11/01/28 2,340 2,080,470
New Braunfels Indpt.,
Sch. Dist. Rev. Aaa Zero 2/01/10 2,335 1,397,147
Sch. Dist. Rev. Aaa Zero 2/01/11 2,365 1,333,009
Panhandle Regl. Hsg. Fin. Corp.
Rev.,
Mult. Fam. Hsg., Ser. A A3 6.625 3/01/20 1,000 973,660
Mult. Fam. Hsg., Ser. A A3 6.75 3/01/31 4,000 3,898,520
Port Corpus Christi Auth. Rev. A2 7.50 8/01/12 2,000 2,061,580
-------------
51,432,294
</TABLE>
See Notes to Financial Statements 17
<PAGE>
Prudential National Municipals Fund, Inc.
Portfolio of Investments as of June 30, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description (a) Rating Rate Date (000) (Note 1)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Utah 0.2%
Utah St. Brd. of Regents, Student
Ln. Rev., Ser. F, A.M.B.A.C.,
A.M.T. Aaa 7.00% 11/01/01 $ 1,000(h) $ 1,027,740
----------------------------------------------------------------------------------------
Washington 2.2%
Washington St. Pub. Pwr. Supply
Sys. Rev.,
Nuclear Proj. No. 1, Ser. A,
F.S.A. Aaa 7.00 7/01/08 4,000 4,485,920
Nuclear Proj. No. 2, F.S.A. Aaa 5.40 7/01/12 5,400(h) 5,376,456
Nuclear Proj. No. 3, Ser. B,
F.G.I.C. Aaa Zero 7/01/06 3,000 2,200,530
-------------
12,062,906
----------------------------------------------------------------------------------------
West Virginia 0.4%
West Virginia St. Hosp. Fin.
Auth., Oak Hill Hosp. Rev., Ser.
B NR 6.75 9/01/30 2,000 1,992,080
-------------
Total long-term investments (cost
$535,862,530) 546,974,039
-------------
SHORT-TERM INVESTMENTS 4.8%
----------------------------------------------------------------------------------------
Georgia 0.9%
Bartow Cnty. Dev. Auth., Poll.
Ctrl. Rev., Georgia Pwr. Co.,
Ser. 98-2, F.R.D.D., A.M.T. VMIG1 4.80 7/03/00 5,000(e) 5,000,000
----------------------------------------------------------------------------------------
Illinois
Madison Cnty. Env. Impvt. Rev.
Shell Wood Riv. Refng., Ser. 97,
F.R.D.D., A.M.T. VMIG1 4.70 7/03/00 200(e) 200,000
----------------------------------------------------------------------------------------
Kansas 0.1%
Butler Cnty. Solid Wst. Disp. &
Congregation Rev., Ser. 96B,
F.R.D.D., A.M.T. VMIG1 4.75 7/03/00 800(e) 800,000
</TABLE>
18 See Notes to Financial Statements
<PAGE>
Prudential National Municipals Fund, Inc.
Portfolio of Investments as of June 30, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description (a) Rating Rate Date (000) (Note 1)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maryland
Maryland St. Energy Fin. Adm.
Solid Wst. Disp. Rev., Ser.
2000, F.R.D.D., A.M.T. VMIG1 4.70% 7/03/00 $ 200(e) $ 200,000
----------------------------------------------------------------------------------------
Michigan 0.2%
Michigan St. Strategic Fd. Ltd.
Oblig. Rev., Dow Chem. Corp.
Proj., Ser. 99, F.R.D.D., A.M.T. P1 4.75 7/03/00 1,100(e) 1,100,000
----------------------------------------------------------------------------------------
New Mexico 0.5%
Farmington Poll. Ctrl. Rev.,
Merlots, Ser. DD, F.R.D.D. VMIG1 4.89 7/05/00 2,500(e) 2,500,000
----------------------------------------------------------------------------------------
Pennsylvania 1.4%
Emmaus Gen. Auth. Rev., Variable
Rate Ln. Prog., Ser. 2000A,
F.R.W.D. A-1(d) 4.85 7/06/00 7,500(e) 7,500,000
----------------------------------------------------------------------------------------
South Carolina 0.1%
Berkeley Cnty. Sch. Exmp. Fac.,
Amoco Chem. Co. Proj., Ser. 97,
F.R.D.D., A.M.T. VMIG1 4.70 7/03/00 600(e) 600,000
----------------------------------------------------------------------------------------
Texas 1.3%
Brazos River Auth. Poll. Ctrl.
Rev., Texas Util. Elec. Co.,
Ser. 95A, F.R.D.D., A.M.T. VMIG1 4.70 7/03/00 500(e) 500,000
Ser. 96C, F.R.D.D., A.M.T. VMIG1 4.70 7/03/00 600(e) 600,000
Brazos River Harbor Nav. Dist.
Rev., Dow Chem. Co. Proj.,
Ser. 93, F.R.D.D., A.M.T. P1 4.75 7/03/00 900(e) 900,000
Ser. 97, F.R.D.D., A.M.T. P1 4.75 7/03/00 4,600(e) 4,600,000
Gulf Coast Ind. Dev. Auth., Env.
Facs. Rev., Ser. 1999, F.R.D.D.,
A.M.T. VMIG1 4.75 7/03/00 500(e) 500,000
-------------
7,100,000
</TABLE>
See Notes to Financial Statements 19
<PAGE>
Prudential National Municipals Fund, Inc.
Portfolio of Investments as of June 30, 2000 (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description (a) Rating Rate Date (000) (Note 1)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Virginia 0.3%
Campbell Cnty. Ind. Dev. Auth.
Rev., Hadson Pwr., Ser. 90A,
F.R.D.D., A.M.T. CPS1 4.70% 7/03/00 $ 1,800(e) $ 1,800,000
-------------
Total short-term investments
(cost $26,800,000) 26,800,000
-------------
Total Investments 103.7% (cost
$562,662,530) 573,774,039
-------------
Liabilities in excess of other
assets (3.7)% (20,692,224)
-------------
Net Assets 100% $ 553,081,815
-------------
-------------
</TABLE>
20 See Notes to Financial Statements
<PAGE>
Prudential National Municipals Fund, Inc.
Portfolio of Investments as of June 30, 2000 (Unaudited) Cont'd.
------------------------------
(a) The following abbreviations are used in portfolio descriptions:
A.C.A.--American Capital Access
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.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
R.I.T.E.S.--Residual Interest Tax Exempt Securities Receipts
(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.
(i) Private placement.
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 21
<PAGE>
Prudential National Municipals Fund, Inc.
Statement of Assets and Liabilities (Unaudited)
<TABLE>
<CAPTION>
June 30,
2000
---------------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments, at value (cost $562,662,530) $ 573,774,039
Receivable for investments sold 8,982,790
Interest receivable 8,725,082
Receivable for Fund shares sold 1,151,093
Deferred expenses and other assets 12,012
Unrealized appreciation on interest rate swaps (Notes 1 and 4) 10,063
Due from broker-variation margin 4,376
-------------
Total assets 592,659,455
-------------
LIABILITIES
Bank overdraft 3,904,120
Payable for investments purchased 32,847,074
Payable for Fund shares reacquired 1,839,271
Dividends payable 380,127
Accrued expenses 273,839
Management fee payable 203,993
Distribution fee payable 129,216
-------------
Total liabilities 39,577,640
-------------
NET ASSETS $ 553,081,815
-------------
-------------
Net assets were comprised of:
Common stock, at par $ 372,232
Paid-in capital in excess of par 545,803,556
-------------
546,175,788
Accumulated net realized loss on investments (4,191,920)
Net unrealized appreciation on investments 11,097,947
-------------
Net assets, June 30, 2000 $ 553,081,815
-------------
-------------
</TABLE>
22 See Notes to Financial Statements
<PAGE>
Prudential National Municipals Fund, Inc.
Statement of Assets and Liabilities (Unaudited) Cont'd.
<TABLE>
<CAPTION>
June 30, 2000
<S> <C>
---------------------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share ($480,871,402 /
32,373,177 shares of common stock issued and outstanding) $14.85
Maximum sales charge (3% of offering price) .46
-------------
Maximum offering price to public $15.31
-------------
-------------
Class B:
Net asset value, offering price and redemption price per share
($69,185,928 / 4,646,776 shares of common stock issued and
outstanding) $14.89
-------------
-------------
Class C:
Net asset value and redemption price per share ($2,261,519 /
151,895 shares of common stock issued and outstanding) $14.89
Sales charge (1% of offering price) .15
-------------
Offering price to public $15.04
-------------
-------------
Class Z:
Net asset value, offering price and redemption price per share
($762,966 / 51,385 shares of common stock issued and
outstanding) $14.85
-------------
-------------
</TABLE>
See Notes to Financial Statements 23
<PAGE>
Prudential National Municipals Fund, Inc.
Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
June 30, 2000
<S> <C>
---------------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Interest $17,081,337
-------------
Expenses
Management fee 1,364,035
Distribution fee--Class A 599,559
Distribution fee--Class B 204,857
Distribution fee--Class C 9,257
Transfer agent's fees and expenses 226,000
Custodian's fees and expenses 74,000
Reports to shareholders 72,000
Registration fees 24,000
Audit fee 19,000
Directors' fees and expenses 19,000
Legal fees and expenses 12,000
Insurance expense 6,000
Miscellaneous 16,714
-------------
Total expenses 2,646,422
Less: Custodian fee credit (2,862)
-------------
Net expenses 2,643,560
-------------
Net investment income 14,437,777
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on:
Investment transactions (2,188,253)
Financial futures contracts (751,498)
-------------
(2,939,751)
-------------
Net change in unrealized appreciation (depreciation) on:
Investments 8,036,084
Financial futures (83,000)
Interest rate swaps 10,063
-------------
7,963,147
-------------
Net gain on investment transactions 5,023,396
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $19,461,173
-------------
-------------
</TABLE>
24 See Notes to Financial Statements
<PAGE>
Prudential National Municipals Fund, Inc.
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
2000 1999
<S> <C> <C>
------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income $ 14,437,777 $ 31,601,128
Net realized loss on investment
transactions (2,939,751) (373,416)
Net change in unrealized appreciation
(depreciation) on investments 7,963,147 (47,339,939)
---------------- -----------------
Net increase (decrease) in net assets
resulting from operations 19,461,173 (16,112,227)
---------------- -----------------
Dividends and distributions (Note 1)
Dividends from net investment income
Class A (12,355,388) (25,956,731)
Class B (2,005,145) (5,456,913)
Class C (57,241) (116,079)
Class Z (20,003) (71,405)
---------------- -----------------
(14,437,777) (31,601,128)
---------------- -----------------
Distributions in excess of net investment
income
Class A -- (100,946)
Class B -- (18,963)
Class C -- (619)
Class Z -- (176)
---------------- -----------------
-- (120,704)
---------------- -----------------
Fund share transactions (net of share
conversions)
(Note 5 & 6):
Net proceeds from shares sold 39,758,276 280,554,937
Net asset value of shares issued in
reinvestment of dividends and
distributions 8,792,012 19,573,958
Cost of shares reacquired (95,041,926) (261,665,210)
---------------- -----------------
Increase (decrease) in net assets from
Fund share transactions (46,491,638) 38,463,685
---------------- -----------------
Total decrease (41,468,242) (9,370,374)
NET ASSETS
Beginning of period 594,550,057 603,920,431
---------------- -----------------
End of period $553,081,815 $ 594,550,057
---------------- -----------------
---------------- -----------------
</TABLE>
See Notes to Financial Statements 25
<PAGE>
Prudential National Municipals Fund, Inc.
Notes to Financial Statements (Unaudited)
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
26
<PAGE>
Prudential National Municipals Fund, Inc.
Notes to Financial Statements (Unaudited) Cont'd.
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.
Interest Rate Swaps: In a simple interest rate swap, one investor pays
a floating rate of interest on a notional principal amount and receives a fixed
rate of interest on the same notional principal amount for a specified period of
time. Alternatively, an investor may pay a fixed rate and receive a floating
rate. Interest rate swaps were conceived as asset/liability management tools. In
more complex swaps, the notional principal amount may decline (or amortize) over
time.
During the term of the swap, changes in the value of the swap are
recognized as unrealized gains or losses by 'marking-to-market' to reflect the
market value of the swap. When the swap is terminated, the Fund will record a
realized gain or loss equal to the difference between the proceeds from (or cost
of) the closing transaction and the Fund's basis in the contract, if any.
The Fund is exposed to credit loss in the event of non-performance by the
other party to the interest rate swap. However, the Fund does not anticipate
non-performance by any counterparty.
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
27
<PAGE>
Prudential National Municipals Fund, Inc.
Notes to Financial Statements (Unaudited) Cont'd.
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 the 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.
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.
28
<PAGE>
Prudential National Municipals Fund, Inc.
Notes to Financial Statements (Unaudited) Cont'd.
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'). The Subadvisory Agreement provides that the
subadviser will furnish investment advisory services in connection with the
management of the Fund. In connection therewith, the Subadviser is obligated to
keep certain books and records of the Fund. PIFM continues to have
responsibility for all investment advisory services pursuant to the Management
Agreement and supervises the Subadviser's performance of such services. PIFM
pays for the services of PIC, the cost of 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.
Effective January 1, 2000, the subadvisory fee paid to PIC by PIFM is
computed daily and payable monthly at an annual rate of .250 of 1% of the
average daily net assets of the Fund up to and including $250 million, .226% of
1% of the next $250 million, .203 of 1% of the next $500 million, .181% of the
next $250 million, .160% of 1% of the next $250 million and .141% of 1% over 1.5
billion. Prior to January 1, 2000, PIC was reimbursed by PIFM for reasonable
costs and expenses incurred in furnishing investment advisory services.
The Fund has a distribution agreement with Prudential Investment
Management Services LLC ('PIMS'), which acts as the distributor of the Class A,
B, C and Z shares of the Fund. The Fund compensates 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.
No distribution or service fees are paid to PIMS as distributor of the Class Z
shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensates 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 .25 of 1%, .50 of
29
<PAGE>
Prudential National Municipals Fund, Inc.
Notes to Financial Statements (Unaudited) Cont'd.
1% and .75 of 1% of the average daily net assets of the Class A, B and C shares,
respectively, for the six months ended June 30, 2000.
PIMS has advised the Fund that it received approximately $17,000 and $100
in front-end sales charges resulting from sales of Class A and Class C shares,
respectively, during the six months ended June 30, 2000. From these fees, PIMS
paid such sales charges to dealers, which in turn paid commissions to
salespersons and incurred other distribution costs.
PIMS has advised the Fund that for the six months ended June 30, 2000, it
received approximately $72,500 and $700 in contingent deferred sales charges
imposed upon certain redemptions by Class B and Class C shareholders,
respectively.
PIFM, PIC and PIMS are wholly owned subsidiaries of The Prudential
Insurance Company of America.
The Fund, along with other affiliated registered investment companies (the
'Funds'), entered into a syndicated credit agreement ('SCA') with an
unaffiliated lender. The maximum commitment under the SCA is $1 billion.
Interest on any such borrowings will be at market rates. The purpose of the
agreement is to serve as an alternative source of funding for capital share
redemptions. The Funds pay a commitment fee of .080 of 1% of the unused portion
of the credit facility. The commitment fee is accrued and paid quarterly on a
pro rata basis by the Funds. The expiration date of the SCA is March 9, 2001.
Prior to March 9, 2000, the commitment fee was .065 of 1% of the unused portion
of the credit facility. The Fund did not borrow any amounts pursuant to the SCA
during the six months ended June 30, 2000.
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. During the six months ended June 30, 2000,
the Fund incurred fees of approximately $189,300 for the services of PMFS. As of
June 30, 2000, approximately $30,800 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.
30
<PAGE>
Prudential National Municipals Fund, Inc.
Notes to Financial Statements (Unaudited) Cont'd.
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the six months ended June 30, 2000, were $328,551,014 and $353,313,814,
respectively.
The federal income tax basis of the Fund's investments at June 30, 2000
was substantially the same as for financial reporting purposes and, accordingly,
net unrealized appreciation for federal income tax purposes was $11,111,509
(gross unrealized appreciation--$17,978,787; gross unrealized
depreciation--$6,867,278).
For federal income tax purposes, the Fund has a capital loss carryforward
as of December 31, 1999 of approximately $922,000 which expires in 2007.
Accordingly, no capital gains distribution is expected to be paid until net
gains have been realized in excess of the carryforward.
During the six months ended June 30, 2000, the Fund entered into financial
futures contracts. Details of open contracts at June 30, 2000 are as follows:
<TABLE>
<CAPTION>
Value at Value at
Number of Expiration Trade June 30, Unrealized
Contracts Type Date Date 2000 Depreciation
--------- ---------------- ----------- ---------- ---------- --------------
<C> <C> <S> <C> <C> <C>
Short Position:
U.S. Treasury
28 Index Sept. 2000 $2,702,000 $2,725,625 $(23,625)
--------------
--------------
</TABLE>
The Fund entered into a swap agreement with Morgan Stanley Capital
Services, Inc. The Fund receives the fixed rate each June 29 and December 29 up
to and including December 29, 2010 (the 'Termination Date') and the Fund pays
the Bond Market AssociationE Municipal Swap Index announced by Municipal Market
Data each Wednesday, or if such day is not a New York Business Day, then the
next New York Business Day during the Calculation Period (the 'Determination
Date').
Details of open interest rate swaps at June 30, 2000 are as follows:
<TABLE>
<CAPTION>
Notional
Amount Fixed Floating Termination Unrealized
(000) Type Rate Rate Date Appreciation
-------- ----------------- -------------- ------------ ------------- -------------
<C> <S> <C> <C> <C> <C>
$ 16,000 Forward Rate 5.2525% B.M.A. 12/29/10 $10,063
</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. 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
31
<PAGE>
Prudential National Municipals Fund, Inc.
Notes to Financial Statements (Unaudited) Cont'd.
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 charge and are offered
exclusively for sale to a limited group of investors.
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>
Six months ended June 30, 2000:
Shares sold 2,547,061 $ 37,339,021
Shares issued in reinvestment of dividends and
distributions 517,475 7,589,385
Shares reacquired (5,556,324) (81,592,432)
---------------- --------------
Net decrease in shares outstanding before conversion (2,491,788) (36,664,026)
Shares issued upon conversion from Class B 999,722 14,699,358
---------------- --------------
Net decrease in shares outstanding (1,492,066) $ (21,964,668)
---------------- --------------
---------------- --------------
Year ended December 31, 1999:
Shares sold 10,154,359 $ 150,151,142
Shares issued in connection with reorganization
(Note 6) 5,719,568 92,139,437
Shares issued in reinvestment of dividends and
distributions 1,049,415 16,182,668
Shares reacquired (13,662,479) (212,057,236)
---------------- --------------
Net increase in shares outstanding before conversion 3,260,863 46,416,011
Shares issued upon conversion from Class B 595,834 9,168,416
---------------- --------------
Net increase in shares outstanding 3,856,697 $ 55,584,427
---------------- --------------
---------------- --------------
<CAPTION>
Class B
----------------------------------------------------
<S> <C> <C>
Six months ended June 30, 2000:
Shares sold 141,393 $ 2,073,895
Shares issued in reinvestment of dividends and
distributions 78,217 1,149,576
Shares reacquired (829,602) (12,193,597)
---------------- --------------
Net decrease in shares outstanding before conversion (609,992) (8,970,126)
Shares reacquired upon conversion into Class A (997,290) (14,699,358)
---------------- --------------
Net decrease in shares outstanding (1,607,282) $ (23,669,484)
---------------- --------------
---------------- --------------
Year ended December 31, 1999:
Shares sold 826,622 $ 10,991,293
Shares issued in connection with reorganization
(Note 6) 1,236,086 19,953,535
Shares issued in reinvestment of dividends and
distributions 209,350 3,243,633
Shares reacquired (2,859,392) (44,047,247)
---------------- --------------
Net decrease in shares outstanding before conversion (587,334) (9,858,786)
Shares reacquired upon conversion into Class A (594,471) (9,168,416)
---------------- --------------
Net decrease in shares outstanding (1,181,805) $ (19,027,202)
---------------- --------------
---------------- --------------
</TABLE>
32
<PAGE>
Prudential National Municipals Fund, Inc.
Notes to Financial Statements (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class C Shares Amount
---------------------------------------------------- ---------------- --------------
Six months ended June 30, 2000:
<S> <C> <C>
Shares sold 766 $ 11,222
Shares issued in reinvestment of dividends and
distributions 2,419 35,541
Shares reacquired (58,661) (861,390)
---------------- --------------
Net decrease in shares outstanding (55,476) $ (814,627)
---------------- --------------
---------------- --------------
Year ended December 31, 1999:
Shares sold 91,530 $ 1,390,702
Shares issued in connection with reorganization
(Note 6) 29,355 473,862
Shares issued in reinvestment of dividends and
distributions 5,874 90,815
Shares reacquired (62,002) (958,956)
---------------- --------------
Net increase in shares outstanding 64,757 $ 996,423
---------------- --------------
---------------- --------------
<CAPTION>
Class Z
----------------------------------------------------
<S> <C> <C>
Six months ended June 30, 2000:
Shares sold 22,851 $ 334,138
Shares issued in reinvestment of dividends and
distributions 1,194 17,510
Shares reacquired (26,869) (394,507)
---------------- --------------
Net decrease in shares outstanding (2,824) $ (42,859)
---------------- --------------
---------------- --------------
January 22, 1999(a) through
December 31, 1999:
Shares sold 210,908 $ 3,262,799
Shares issued in connection with reorganization
(Note 6) 136,091 2,192,167
Shares issued in reinvestment of dividends and
distributions 3,661 56,842
Shares reacquired (296,451) (4,601,771)
---------------- --------------
Net increase in shares outstanding 54,209 $ 910,037
---------------- --------------
---------------- --------------
</TABLE>
---------------
(a) Commencement of offering of Class Z shares.
Note 6. Reorganization
On August 26, 1998, the Board of Directors of the Fund approved an Agreement and
Plan of Reorganization (the 'Plan') which provided 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 provided 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
33
<PAGE>
Prudential National Municipals Fund, Inc.
Notes to Financial Statements (Unaudited) Cont'd.
('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.
34
<PAGE>
Prudential National Municipals Fund, Inc.
Financial
Highlights
<PAGE>
Prudential National Municipals Fund, Inc.
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
Class A
----------------
Six Months Ended
June 30, 2000
----------------------------------------------------------------------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 14.72
----------------
Income from investment operations
Net investment income .37
Net realized and unrealized gain (loss) on investment
transactions .13
----------------
Total from investment operations .50
----------------
Less distributions
Dividends from net investment income (.37)
Distributions in excess of net investment income --
Distributions from net realized gains --
----------------
Total distributions (.37)
----------------
Net asset value, end of period $ 14.85
----------------
----------------
TOTAL RETURN(a): 3.49%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $480,871
Average net assets (000) $482,282
Ratios to average net assets:
Expenses, including distribution fees .90%(d)
Expenses, excluding distribution fees .65%(d)
Net investment income 5.15%(d)
For Class A, B, C and Z shares:
Portfolio turnover rate 59%
</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.
36 See Notes to Financial Statements
<PAGE>
Prudential National Municipals Fund, Inc.
Financial Highlights (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------------------------------------------------
Year Ended December 31,
---------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 16.06 $ 16.12 $ 15.56 $ 15.98 $ 14.42
---------------- ---------------- ---------------- ---------------- ----------------
.76 .79 .81(b) .82(b) .81(b)
(1.34) .06 .67 (.42) 1.57
---------------- ---------------- ---------------- ---------------- ----------------
(.58) .85 1.48 .40 2.38
---------------- ---------------- ---------------- ---------------- ----------------
(.76) (.79) (.81) (.82) (.81)
--(c) --(c) (.01) --(c) (.01)
-- (.12) (.10) -- --
---------------- ---------------- ---------------- ---------------- ----------------
(.76) (.91) (.92) (.82) (.82)
---------------- ---------------- ---------------- ---------------- ----------------
$ 14.72 $ 16.06 $ 16.12 $ 15.56 $ 15.98
---------------- ---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ---------------- ----------------
(3.69)% 5.41% 9.80% 2.66% 16.91%
$498,428 $481,926 $493,178 $502,739 $538,145
$531,603 $483,759 $491,279 $508,159 $446,350
.86% .73% .70%(b) .68%(b) .75%(b)
.61% .63% .60%(b) .58%(b) .65%(b)
4.88%(d) 4.89% 5.15%(b) 5.31%(b) 5.34%(b)
30% 23% 38% 46% 98%
</TABLE>
See Notes to Financial Statements 37
<PAGE>
Prudential National Municipals Fund, Inc.
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
Class B
-----------------
Six Months Ended
June 30, 2000
----------------------------------------------------------------------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 14.75
--------
Income from investment operations
Net investment income .36
Net realized and unrealized gain (loss) on investment
transactions .14
--------
Total from investment operations .50
--------
Less distributions
Dividends from net investment income (.36)
Distributions in excess of net investment income --
Distributions from net realized gains --
--------
Total distributions (.36)
--------
Net asset value, end of period $ 14.89
--------
--------
TOTAL RETURN(a): 3.43%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $69,186
Average net assets (000) $82,393
Ratios to average net assets:
Expenses, including distribution fees 1.15%(d)
Expenses, excluding distribution fees .65%(d)
Net investment income 4.89%(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.
38 See Notes to Financial Statements
<PAGE>
Prudential National Municipals Fund, Inc.
Financial Highlights (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class B
----------------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 16.10 $ 16.16 $ 15.60 $ 16.02 $ 14.45
---------------- ---------------- ---------------- ---------------- ----------------
.73 .73 .75(b) .76(b) .76(b)
(1.35) .06 .67 (.42) 1.58
---------------- ---------------- ---------------- ---------------- ----------------
(.62) .79 1.42 .34 2.34
---------------- ---------------- ---------------- ---------------- ----------------
(.73) (.73) (.75) (.76) (.76)
--(c) --(c) (.01) --(c) (.01)
-- (.12) (.10) -- --
---------------- ---------------- ---------------- ---------------- ----------------
(.73) (.85) (.86) (.76) (.77)
---------------- ---------------- ---------------- ---------------- ----------------
$ 14.75 $ 16.10 $ 16.16 $ 15.60 $ 16.02
---------------- ---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ---------------- ----------------
(3.98)% 4.99% 9.35% 2.26% 16.49%
$ 92,265 $119,698 $141,528 $168,185 $222,865
$118,044 $131,195 $151,938 $193,312 $252,313
1.11% 1.13% 1.10%(b) 1.08%(b) 1.15%(b)
.61% .63% .60%(b) .58%(b) .65%(b)
4.62% 4.49% 4.75%(b) 4.91%(b) 4.96%(b)
</TABLE>
See Notes to Financial Statements 39
<PAGE>
Prudential National Municipals Fund, Inc.
Financial Highlights (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class C
-----------------
Six Months Ended
June 30, 2000
----------------------------------------------------------------------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 14.75
-------
Income from investment operations
Net investment income .34
Net realized and unrealized gain (loss) on investment
transactions .14
-------
Total from investment operations .48
-------
Less distributions
Dividends from net investment income (.34)
Distributions in excess of net investment income --
Distributions from net realized gains --
-------
Total distributions (.34)
-------
Net asset value, end of period $ 14.89
-------
-------
TOTAL RETURN(a): 3.30%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 2,262
Average net assets (000) $ 2,482
Ratios to average net assets:
Expenses, including distribution fees 1.40%(d)
Expenses, excluding distribution fees .65%(d)
Net investment income 4.64%(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.
40 See Notes to Financial Statements
<PAGE>
Prudential National Municipals Fund, Inc.
Financial Highlights (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class C
----------------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$16.10 $16.16 $15.60 $16.02 $14.44
------- ------- ------- ------- -------
.69 .69 .71(b) .72(b) .72(b)
(1.35) .06 .67 (.42) 1.59
------- ------- ------- ------- -------
(.66) .75 1.38 .30 2.31
------- ------- ------- ------- -------
(.69) (.69) (.71) (.72) (.72)
--(c) --(c) (.01) --(c) (.01)
-- (.12) (.10) -- --
------- ------- ------- ------- -------
(.69) (.81) (.82) (.72) (.73)
------- ------- ------- ------- -------
$14.75 $16.10 $16.16 $15.60 $16.02
------- ------- ------- ------- -------
------- ------- ------- ------- -------
(4.22)% 4.73% 9.08% 2.01% 16.22%
$3,060 $2,296 $ 825 $ 772 $ 403
$2,643 $1,555 $ 758 $ 674 $ 247
1.36% 1.38% 1.35%(b) 1.33%(b) 1.40%(b)
.61% .63% .60%(b) .58%(b) .65%(b)
4.39% 4.23% 4.50%(b) 4.67%(b) 4.66%(b)
</TABLE>
See Notes to Financial Statements 41
<PAGE>
Prudential National Municipals Fund, Inc.
Financial Highlights (Unaudited) Cont'd.
<TABLE>
<CAPTION>
Class Z
------------------------------------
January 22,
1999(d)
Six Months Through
Ended December 31,
June 30, 2000 1999
------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 14.71 $ 16.11
------------- -------
Income from investment operations
Net investment income .39 .73
Net realized and unrealized gain (loss) on
investment transactions .14 (1.40)
------------- -------
Total from investment operations .53 (.67)
------------- -------
Less distributions
Dividends from net investment income (.39) (.73)
Distributions in excess of net investment
income -- --(c)
Distributions from net realized gains -- --
------------- -------
Total distributions (.39) (.73)
------------- -------
Net asset value, end of period $ 14.85 $ 14.71
------------- -------
------------- -------
TOTAL RETURN(a): 3.69% (4.22)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 763 $ 797
Average net assets (000) $ 745 $ 1,391
Ratios to average net assets:
Expenses, including distribution fees .65%(e) .64%(e)
Expenses, excluding distribution fees .65%(e) .64%(e)
Net investment income 5.40%(e) 5.45%(e)
</TABLE>
------------------------------
(a) 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) Commencement of offering of Class Z shares.
(e) Annualized.
42 See Notes to Financial Statements
<PAGE>
Prudential National Municipals Fund, Inc.
Getting the Most From Your Prudential Mutual Fund
How many times have you read these reports-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.
<PAGE>
Prudential National Municipals Fund, Inc.
Getting the Most From Your Prudential Mutual Fund
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 on the U.S. market and denominated in U.S.
dollars.
<PAGE>
www.prudential.com (800) 225-1852
For More Information
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
Directors
Eugene C. Dorsey
Delayne Dedrick Gold
Robert F. Gunia
Thomas T. Mooney
Stephen P. Munn
David R. Odenath, Jr.
Richard A. Redeker
John R. Strangfeld
Nancy H. Teeters
Louis A. Weil, III
Officers
John R. Strangfeld, President
Robert F. Gunia, Vice President
David R. Odenath, Jr., Vice President
Grace C. Torres, Treasurer
Deborah A. Docs, Secretary
William V. Healey, 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 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
194 Wood Avenue South
Iselin, NJ 08830
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Swidler Berlin Shereff Friedman, LLP
The Chrysler Building
405 Lexington Avenue
New York, NY 10174
Fund Symbols NASDAQ CUSIP
Class A PRNMX 743918203
Class B PBHMX 743918104
Class C PNMCX 743918302
Class Z N/A 743918401
The views expressed in this report and information about
the Fund's portfolio holdings are for the period covered
by this report and are subject to change thereafter.
The accompanying financial statements as
of June 30, 2000, were not audited and, accordingly, no
opinion is expressed on them.
<PAGE>
(LOGO)
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
MF104E2 743918203 743918104 743918302 743918401
