ANNUAL REPORT December 31, 1994
Prudential
National
Municipals
Fund, Inc.
(ICON)
(LOGO)
<PAGE>
Letter to Shareholders
February 1, 1995
Dear Shareholder:
1994 was the best of times for the economy; the worst of times for the
bond market. The economy surged and interest rates rose, but tax-free
municipal bond prices fell sharply. (Bond prices move in the opposite
direction of interest rates.) We're pleased to report that the National
Municipals Fund performed better than the Lipper municipal bond fund
average, although unfortunately total return was negative. The good
news is that yields are substantially higher -- more than one and a
quarter percentage points from a year ago for Class A shares.
Our Objective.
The Prudential National Municipals Fund seeks a high level of current
income exempt from federal income taxes. Under normal circumstances,
the Fund intends to invest at least 80% of the portfolio's assets in
municipal bonds and notes. As of December 31, 1994, approximately 90%
of the portfolio's assets were so invested, and the remainder was in cash
and cash equivalents.
<TABLE>
CUMULATIVE TOTAL RETURNS1
As of 12/31/94
<CAPTION>
1 Year 5 Years 10 Years Since Inception2
<S> <C> <C> <C> <C>
Class A -6.0% N/A N/A 39.0%
Class B -6.4 35.7% 124.2% 239.6
Class C N/A N/A N/A -2.6
Lipper Gen Muni. Avg.3 -6.5 36.0 136.1 255.2
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS1
As of 12/31/94
1 Year 5 Years 10 Years Since Inception2
<S> <C> <C> <C> <C>
Class A -8.9% N/A N/A 6.3%
Class B -11.4 6.1% 8.4% 8.7
Class C N/A N/A N/A -3.6
</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 Mutual Fund Management Inc. and Lipper Analytical
Services, Inc. The cumulative total returns do not take into account
sales charges. The average annual returns do take into account applicable
sales charges. The Fund charges a maximum front-end sales load of 3% for
Class A shares and a contingent deferred sales charge of 5%, 4%, 3%, 2%,
1% and 1% for six years, for Class B shares. Class C shares have a 1%
CDSC for one year. Beginning in February 1995, Class B shares will
automatically convert to Class A shares on a quarterly basis, after
approximately seven years.
2 Inception dates: 1/22/90 Class A; 4/25/80, Class B; 8/1/94 Class C.
3 Lipper average returns are for 184 funds for one year, 88 funds for
five years, 31 funds for 10 years, and 31 funds since inception of the
Classs B shares on 4/25/80.
-1-
<PAGE>
The Fed Tightened.
In 1994, the U.S. economy grew at a robust annual rate approximating 4%, a
pace stronger than many had anticipated as the year began. As a result, the
Federal Reserve raised short-term interest rates six times during the year by
increasing the federal funds interest rate (the interbank overnight lending
rate) by 2.5 percentage points to 5.5%. The central bank moved because it
believed the economy was growing so fast it might re-ignite inflation.
But if you've studied the Fund's returns, you might suspect that much more
was afoot than the Federal Reserve's activity. Bond market investors were
also worried that inflation would increase, so long-term interest rates rose
as well. This fear sent the yield of The Bond Buyer's Revenue Bond Index up
to 6.97% at year-end, from 5.52% in December, 1993. That's an extraordinary
increase of nearly one and a half percentage points. Why? Because
municipal bonds are more difficult to trade than U.S. Treasury
securities -- there are more than 1.5 million issues outstanding sold
by 300,000 different issuers and there is no central place to report
transactions. Because the municipal bond market is less liquid and more
complex than the Treasury market, falling bond prices hurt municipals more
than Treasuries in 1994.
Despite rising interest rates, the economy continued to surge all year long.
December unemployment fell to 5.4%, its lowest in four years as the economy
finished its best year for job creation in a decade. Consumer confidence
was at a four-year high. Skeptics argued that the economy was so robust
that shortages must surely follow, driving up the cost of labor and materials.
Yet inflation in 1994 was 2.7%, the same low level as 1993. So, it was the
fear of rising inflation that scared the markets in 1994 -- the prospect,
rather than the reality -- of an increase.
On the Hill:
In 1995, Congress is set to consider an initiative that would restore full
income tax deductibility for individual retirement account contributions
for middle-income wage earners. In addition, Congress will also debate
creation of a new tax-deferred savings account, called "the American Dream
Savings Account." Prudential Mutual Funds supports both of these proposals,
and we urge you to share yourown opinion with your Congressional
representatives. We will keep you updated on the proposals as they
make their way through the legislative process.
Maintained Defensive Posture In A Most Difficult Market.
To defend against rising interest rates, we raised the portfolio's cash
and cash equivalents position. On December 31, 1993, we held only 2% of
assets in cash and cash equivalents, but by the end of the first
quarter, we had raised cash and cash equivalents to 11% of assets.
We ended 1994 with nearly 10% in cash and cash equivalents. By raising
our cash position we cushioned the Fund somewhat from falling bond prices
and also shortened our average maturity. In 1994, shorter maturities fared
better than longer maturities, which are more sensitive to interest rate
changes.
There were few opportunities for capital appreciation in the tax-free
municipal bond market this year. Prices sank in the first quarter,
changed little in the second and third quarters, and recovered only
slightly in December. We shortened maturities considerably by year end.
-2-
<PAGE>
We Emphasized Premium, Non-callable Bonds.
We believe that intermediate- and long-term interest rates could be near
their peak for this economic cycle. Interest rates should fall when
investors become convinced that the Federal Reserve has prospective
inflation under control. At that time, premium, non-callable bonds
should appreciate and may be in demand because they offer above-average
yields. We have invested about 25% of assets in premium, non-callable
bonds with coupons ranging from 6% to 7.5%.
We have also increased holdings in insured bonds, which now comprise 35%
of assets, up from 30% at the end of 1993. Of course, insurance does not
afford protection against price risk. The prices of these higher quality
insured bonds fell more than lower quality bonds in the first half of 1994,
making them more attractive investments in the fourth quarter. Conversely,
we will probably add more lower-quality securities to the Fund if yields
decline in the future.
Fund Update:
Beginning in February 1995, Class B shareholders should begin to notice
a change in their Fund holdings. That's when Class B shares will begin
to convert to Class A shares, on a quarterly basis, approximately seven
years after purchase. As you may know, Class A shares generally carry
lower annual distribution expenses than Class B shares. Accordingly,
after conversion, you will earn higher total returns on your investment
than you would have as a Class B shareholder. This conversion will be
processed automatically and won't require any further action on your part.
The Outlook: Rates Near Highs, Supply Is Falling.
For the first time in four years, cash was the investment of choice in
1994, performing better than stocks and bonds. We expect this year's
bond market performance to be much closer to the historic average. But
until the bond market becomes convinced that the Federal Reserve will
prevent inflation from accelerating, interest rates and bond prices will
remain volatile.
If the Federal Reserve's anti-inflationary campaign finally begins
to slow economic growth around mid-year, it could lead to stable to
slightly lower long-term yields by year-end.
It is important to emphasize here that the central bank directly controls
only short-term interest rates, not long-term rates. The market may
well take long-term interest rates higher, but we believe that the 30-year
U.S. Treasury yield at 8% may be closer to the top of the interest rate
cycle than the bottom. That's a five percentage point premium over the
present inflation rate, a very healthy premium by historic standards.
And it makes today's real, inflation-adjusted yields attractive.
At the same time, the supply of tax-free municipal bonds is contracting
sharply, and the zeal for austerity in government now sweeping the country
might further curtail borrowing. In 1994, issuance of municipal bonds fell
by 44%. A year from now, there should be far fewer bonds outstanding.
When interest rates stabilize and investors return to the market,
we might see better performance from the tax-exempt municipal bond market.
-3-
<PAGE>
As always, it is a pleasure to work for you. We appreciate the confidence
you have shown in us by choosing the Prudential National Municipals Fund.
Sincerely,
Lawrence C. McQuade
President
Patricia Dolan
Portfolio Manager
-4-
<PAGE>
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC. Portfolio of Investments
December 31, 1994
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
<C> <C> <S> <C>
LONG-TERM INVESTMENTS--88.6%
Alabama--0.9%
Courtland Ind. Dev. Brd.
Rev.,
Champion Int'l. Corp.,
Baa1 $ 6,000 7.20%, 12/1/13, Ser.
A..................... $ 5,890,260
------------
Alaska--0.8%
North Slope Boro.,
Capital Appre., Ser. B,
C.G.I.C.,
Aaa 11,000 Zero Coupon, 6/30/05.... 5,646,190
------------
Arizona--1.8%
Mesa Ind. Dev. Auth.,
Hlth. Care Facs. Rev.,
Aaa 3,540 7.50%, 1/1/04, B.I.G.... 3,782,242
Pima Cnty. Unified Sch.
Dist.,
No. 1, Tucson, F.G.I.C.,
Aaa 3,000 7.50%, 7/1/10........... 3,321,360
Salt River Proj., Elec.
Sys.
Rev., Agricultural
Imp. & Pwr. Dist.,
Aa 6,000 5.25%, 1/1/11, Ser. B... 5,169,720
------------
12,273,322
------------
California--5.5%
California St. Pub. Wks.
Brd.
Lease Rev., Dept. of
Corrections,
A.M.B.A.C.,
Aaa 6,500 5.25%, 12/1/13.......... 5,472,545
Culver City Redev. Fin.
Auth.
Tax Alloc. Rev.,
A.M.B.A.C.,
Aaa 9,225 5.50%, 11/1/14.......... 7,928,334
Riverside Elec. Rev.,
Aa 3,000 6.00%, 10/1/15.......... 2,728,590
San Jose Redev. Proj.,
Tax Alloc., M.B.I.A.,
Aaa $ 5,000 6.00%, 8/1/11........... $ 4,767,600
Santa Margarita/Dana
Point Auth. Rev.,
M.B.I.A.,
Aaa 2,000 7.25%, 8/1/09........... 2,167,380
Aaa 2,450 7.25%, 8/1/10........... 2,653,252
Aaa 1,750 7.25%, 8/1/11........... 1,893,027
Aaa 2,000 7.25%, 8/1/14........... 2,169,320
South Orange Cnty. Pub.
Fin. Auth.,
Foothill Area Proj.,
F.G.I.C.,
Aaa 2,000 6.50%, 8/15/10.......... 1,961,400
Special Tax Rev.,
F.G.I.C.,
Aaa 3,650 8.00%, 8/15/09.......... 4,080,335
West Contra Costa School
Dist., Cert. of Part.,
Ba 1,600 7.125%, 1/1/24.......... 1,478,288
------------
37,300,071
------------
Colorado--1.6%
Colorado Springs Arpt.
Rev.,
BBB* 3,700 6.90%, 1/1/12, Ser. A... 3,498,757
BBB* 7,960 7.00%, 1/1/22, Ser. A... 7,372,552
------------
10,871,309
------------
Connecticut--0.3%
Connecticut St. Spec.
Tax
Oblig. Rev.,
Trans. Infrastructure,
A1 2,000 7.125%, 6/1/10, Ser.
A..................... 2,130,540
------------
Florida--2.4%
Broward Cnty. Res. Rec.
Rev., Broward Waste
Energy, L.P. South,
A 13,645 7.95%, 12/1/08.......... 14,709,856
Florida St. Brd. Ed.
Cap. Outlay,
Aaa 195 9.125%, 6/1/14,
E.T.M................. 245,429
Aa 1,260 9.125%, 6/1/14.......... 1,605,366
------------
16,560,651
------------
</TABLE>
-5- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
<C> <C> <S> <C>
Georgia--3.6%
Atlanta Urban Res. Fin.
Auth., Clark Atlanta
Univ. Dorm. Proj.,
NR $ 4,755D 9.25%, 6/1/10........... $ 5,568,628
Atlanta Wtr. & Swr.
Rev.,
Aa 4,410 6.00%, 1/1/11........... 4,230,689
Georgia St. Gen. Oblig.,
Aaa 8,000 6.50%, 12/1/09, Ser.
F..................... 8,278,160
Georgia St. Res. Fin.
Auth.,
Sngl. Fam. Insured
Mtge., Ser. C-C1,
Aa 6,550 8.00%, 12/1/16.......... 6,809,184
------------
24,886,661
------------
Illinois--0.7%
Illinois Dev. Fin.
Auth., Poll.
Ctrl. Rev.,
Commonwealth Edison
Co. Proj., Ser. D,
Aaa 5,000 6.75%, 3/1/15,
A.M.B.A.C............. 4,977,500
------------
Kentucky--3.1%
Kentucky St. Prpty. &
Bldgs. Comm. Rev.,
Aaa 19,100 6.25%, 9/1/07,
M.B.I.A............... 19,197,219
Perry Cnty., Solid Waste
Disp. Res.,
T.J. Int'l. Proj.,
NR 2,250 7.00%, 6/1/24........... 2,025,540
------------
21,222,759
------------
Louisiana--4.9%
Louisiana St. Offshore
Term. Auth.,
Deepwater Port Rev.,
A3 3,000 7.45%, 9/1/04, Ser. E... 3,202,590
New Orleans, Cap. Appr.,
A.M.B.A.C.,
Aaa 13,500 Zero Coupon, 9/1/09..... 5,208,570
Orleans Parish, Sch.
Brd.,
Aaa 5,780 8.90%, 2/1/07, M.B.I.A.,
E.T.M................. 7,065,125
Regl. Louisiana Trans.
Auth. Rev.,
Aaa 3,700 8.00%, 12/1/08,
F.G.I.C............... 4,003,844
St. Charles Parish,
Poll. Ctrl. Rev.,
Louisiana Pwr. & Lt.
Co.,
NR $ 4,000 8.25%, 6/1/14........... $ 4,222,080
Baa3 5,000 8.00%, 12/1/14, Ser.
1989.................. 5,225,250
West Feliciana Parish
Poll.
Ctrl. Rev.,Gulf States
Util.,
Baa3 5,000@ 7.00%, 11/1/15.......... 4,801,200
------------
33,728,659
------------
Maryland--1.1%
Maryland St. Hlth. &
Higher
Ed. Facs., Auth. Rev.,
Doctor's Comm. Hosp.,
Baa 4,000 5.50%, 7/1/24........... 2,961,920
Northeast Waste Disp.
Auth.,
Baltimore City Sludge
Proj.,
NR 4,591 7.25%, 7/1/07........... 4,453,775
------------
7,415,695
------------
Michigan--1.7%
Holland Sch. Dist.,
A.M.B.A.C.,
Aaa 4,000 Zero Coupon, 5/1/12..... 1,286,360
Michigan St. Hsg. Dev.
Auth.
Rev., Rental Hsg.,
A+* 1,000 7.55%, 4/1/23, Ser. B... 1,026,000
Sngl. Fam. Mtge.,
AA+* 5,185 7.50%, 6/1/15, Ser. A... 5,378,090
AA+* 3,130 7.75%, 12/1/19, Ser.
D..................... 3,262,837
Okemos Pub. Sch. Dist.,
Cnty. of Ingham,
M.B.I.A.,
Aaa 1,100 Zero Coupon, 5/1/12..... 353,749
Aaa 1,700 Zero Coupon, 5/1/13..... 506,039
------------
11,813,075
------------
Minnesota--0.5%
Southern Minnesota Mun.
Pwr. Agcy. Pwr. Supply
Sys. Rev.,
A 3,880 5.00%, 1/1/12, Ser. A... 3,199,448
------------
Mississippi--0.7%
Mississippi St., Highway
Bd.,
Aaa 5,000 6.20%, 2/1/08, E.T.M.... 4,964,250
------------
</TABLE>
-6- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
<C> <C> <S> <C>
New Jersey--9.3%
Bergen Cnty. Util.
Auth.,
Wtr. Poll. Ctrl. Rev.,
Ser. B, F.G.I.C.,
Aaa $ 7,640 Zero Coupon, 12/15/07... $ 3,442,049
Aaa 4,695 Zero Coupon, 12/15/09... 1,848,656
Camden Cnty. Poll. Ctrl.
Fin.
Auth., Solid Waste
Res. Rec. Rev.,
Baa1 1,180 7.125%, 12/1/01, Ser.
C..................... 1,156,329
Baa1 5,100 7.50%, 12/1/09, Ser.
B..................... 4,983,414
Hudson Cnty. Impvt.
Auth.,
Solid Waste Sys.,
BBB-* 12,000 7.10%, 1/1/20........... 11,396,760
New Jersey Econ. Dist.
Heating & Cool.,
Trigen Trenton Proj.,
BBB-* 1,400 6.20%, 12/1/10.......... 1,292,144
Mkt. Transition Fac.
Rev.,
Sr. Lien, M.B.I.A.,
Aaa 3,875 5.80%, 7/1/09........... 3,671,408
New Jersey Hlth. Care
Facs.
Fin. Auth. Rev.,
A.M.B.A.C.,
Jersey Shore Med.
Ctr.,
Aaa 2,585 6.10%, 7/1/10........... 2,482,505
Aaa 2,775 6.125%, 7/1/11.......... 2,670,604
Aaa 1,435 6.125%, 7/1/12.......... 1,367,713
Aaa 2,000 6.25%, 7/1/16........... 1,902,600
New Jersey Sports &
Exposition Auth.,
Convention Ctr. Luxury
Tax Rev.,
Aaa 5,500 6.00%, 7/1/13,
M.B.I.A............... 5,251,950
New Jersey St. Hsg. &
Mtge. Fin. Agcy.,
Aaa 3,435 7.70%, 10/1/29,
M.B.I.A............... 3,524,963
New Jersey St. Tpke.
Auth. Rev.,
A 3,000 6.75%, 1/1/08, Ser. A... 3,074,310
A 8,000 6.50%, 1/1/16, Ser. C... 7,887,440
New Jersey Waste
Wtr.Treat.,
Trust Loan Rev.,
Aa 2,000 6.875%, 6/15/09......... 2,064,880
Union Cnty. Utils.
Auth.,
Solid Waste Rev.,
A-* 5,500 7.10%, 6/15/06, Ser.
A..................... 5,499,670
------------
63,517,395
------------
New York--13.4%
New York City, Gen.
Oblig.,
Baa1 $ 5,000 8.25%, 11/15/02, Ser.
F..................... $ 5,467,500
Baa1 3,500 8.00%, 8/1/03, Ser. D... 3,794,070
Baa1 1,500 8.00%, 8/1/04, Ser. D... 1,602,000
Baa1 2,000 7.75%, 8/15/04, Ser.
A..................... 2,110,220
Baa1 1,500 8.25%, 6/1/06, Ser. B... 1,664,325
Baa1 5,000 7.65%, 2/1/07, Ser. D... 5,266,750
New York City, Mun. Wtr.
Fin. Auth.,
Wtr. & Swr. Sys. Rev.,
Aaa 21,250 6.75%, 6/15/16,
F.G.I.C............... 21,397,263
New York St. Dorm. Auth.
Rev., Court Facs.,
Baa1 6,070 5.20%, 5/15/05, Ser.
A..................... 5,338,565
Baa1 5,000 5.625%, 5/15/13, Ser.
A..................... 4,258,100
New York St.
Environmental
Facs. Corp., Poll.
Ctrl. Rev.,
Aa 5,000 5.75%, 6/15/12.......... 4,534,300
New York St. Med. Care
Facs. Fin. Auth. Rev.,
Mental Hlth. Svcs.,
Ser. F, F.S.A.,
Aaa 5,000 5.25%, 8/15/08.......... 4,419,650
Aaa 13,350 5.25%, 2/15/19.......... 11,048,861
New York Hosp., Ser. A,
Aaa 4,000# 6.50%, 8/15/29,
A.M.B.A.C............. 3,840,520
New York St. Urban Dev.
Corp. Rev. Corr.
Facs., F.S.A.,
Aaa 2,955 5.45%, 1/1/07........... 2,710,710
Aaa 3,000 6.50%, 1/1/09........... 3,044,100
Aaa 3,000 5.50%, 1/1/14........... 2,616,300
Triborough Bridge &
Tunl. Auth.,
Aa 8,500 6.625%, 1/1/12, Ser.
X..................... 8,608,290
------------
91,721,524
------------
Ohio--1.2%
Cleveland Pub. Pwr.
Sys.,
Rev. First Mgte., Ser.
A,
M.B.I.A.,
Aaa 2,685 Zero Coupon, 11/15/10... 957,417
Columbus Wtr. Sys. Rev.,
Ctrl. Rev. Detroit
Ed.,
A1 2,000 6.375%, 11/1/10......... 1,985,020
</TABLE>
-7- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
<C> <C> <S> <C>
Ohio (cont'd.)
Ohio St. Pub. Facs.,
Comm. of Higher Ed.,
A1 $ 5,000 7.25%, 5/1/04........... $ 5,425,900
------------
8,368,337
------------
Oklahoma--2.6%
Tulsa Mun. Arpt. Trust
Rev.,
American Airlines, Inc.,
Baa2 19,000 7.375%, 12/1/20......... 17,708,000
------------
Pennsylvania--2.7%
Allegheny Cnty. Arpt.
Rev.,
Greater Pittsburgh
Int'l. Arpt.,
M.B.I.A.,
Aaa 8,535 8.25%, 1/1/16, Ser. C... 9,171,284
Pennsylvania St Univ., Gen. Oblig.,
A1 6,000 5.50%, 8/15/16.......... 5,189,400
Philadelphia Wtr. &
Waste
Auth. Rev., C.G.I.C.,
Aaa 4,500 5.50%, 6/15/15.......... 3,845,295
------------
18,205,979
------------
Puerto Rico--9.3%
Puerto Rico Comnwlth.,
Aaa 6,000 7.50%, 7/1/04,
M.B.I.A............... 6,741,660
Aaa 5,000 5.50%, 7/1/13,
M.B.I.A............... 4,481,150
Aaa 5,000 5.25%, 7/1/18,
M.B.I.A............... 4,204,850
Puerto Rico Elec. Pwr.
Auth., Pwr. Rev.,
Baa1 2,500 7.00%, 7/1/07, Ser. S... 2,605,825
Baa1 2,550 6.125%, 7/1/08, Ser.
S..................... 2,475,999
Puerto Rico Hwy. & Trans. Auth. Rev.,
Baa1 8,405 6.375%, 7/1/08, Ser.
V..................... 8,326,245
Baa1 4,000 6.625%, 7/1/12, Ser.
V..................... 3,961,200
Baa1 4,460 6.625%, 7/1/12, Ser.
T..................... 4,394,260
Baa1 4,000 5.25%, 7/1/21, Ser. X... 3,212,160
Puerto Rico Public Bldgs. Auth. Rev.,
Baa1 5,000 5.60%, 7/1/08........... 4,470,450
Aaa 5,065 5.75%, 7/1/10, F.S.A.... 4,767,988
Puerto Rico Tel. Auth.
Rev.,
Ser. I, M.B.I.A.,
Aaa 8,200 5.25%, 1/25/07.......... 7,531,946
Aaa 7,600 5.449%, 1/16/15......... 6,651,444
------------
63,825,177
------------
South Carolina--1.4%
Charleston Waterworks &
Swr. Rev.,
Aaa $ 7,415 10.375%, 1/1/10,
E.T.M................. $ 9,520,786
------------
Tennessee--1.0%
Metropolitan Gov't.
Nashville & Davidson
Cnty., Wtr. & Swr.
Rev.,
A1 6,575 7.30%, 1/1/08........... 6,839,907
------------
Texas--9.5%
Alliance Arpt. Auth.
Inc.,
Spec. Facs. Rev.,
American Airlines
Proj.,
Baa2 4,500 7.50%, 12/1/29.......... 4,246,425
Austin Combined Util.
Sys.
Rev., Ser. B88,
A 5,400 7.75%, 11/15/08......... 5,759,208
Dallas Ft. Worth, Regl.
Arpt.
Rev., Ser. A, F.G.I.C.,
Aaa 3,500 7.375%, 11/1/08......... 3,778,950
Aaa 3,500 7.375%, 11/1/09......... 3,762,815
Harris Cnty. Hlth. Facs.
Dev. Corp., Spec. Facs.
Rev., Texas Med. Ctr.
Hosp.,
Aaa 4,100 7.25%, 5/15/07,
M.B.I.A............... 4,328,862
Harris Cnty., Toll Rd.,
Aaa 3,000 5.00%, 8/15/16,
F.G.I.C............... 2,407,020
Keller Cnty. Indep. Sch.
Dist.,
Aaa 7,000 5.50%, 8/15/13.......... 6,215,090
Northwest Indpt. Sch.
Dist.,
Cap. Apprec.,
A.M.B.A.C.,
Aaa 4,890 Zero Coupon, 8/15/12.... 1,530,863
San. Antonio Texas Elec.
& Gas Rev., Ser. A,
Aa1 4,055 5.00%, 2/1/16........... 3,247,325
Texas Mun. Pwr. Agcy.
Rev.,
Aaa 9,980 Zero Coupon, 9/1/14,
M.B.I.A............... 2,709,770
Texas Pub. Fin. Auth.,
Aa 10,000 5.50%, 10/1/13, Ser.
A..................... 8,776,700
Texas Wtr. Res. Fin.
Auth. Rev.,
A 11,970@ 7.625%, 8/15/08......... 12,586,335
</TABLE>
-8- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
<C> <C> <S> <C>
Texas (cont'd.)
Univ. Texas Univ. Rev.,
Fin. Sys.,
Aa1 $ 2,500 7.00%, 8/15/07, Ser.
A..................... $ 2,624,950
Aa1 3,000 6.75%, 8/15/13, Ser.
B..................... 3,021,090
------------
64,995,403
------------
U. S. Virgin Islands--0.6%
Virgin Islands Pub. Fin.
Auth. Rev.,
Matching Fund Loan
Notes,
NR 3,900 7.25%, 10/1/18, Ser.
A..................... 3,800,355
------------
Virginia--4.9%
Henrico Cnty. Ind. Dev.
Auth. Rev., Secours
Hlth. Sys., St. Mary's
Proj.,
A1 10,100 7.50%, 9/1/07, Ser. B... 10,688,426
Prince William County
Va. Park Auth. Rev.,
A 4,570 7.50%, 7/15/20.......... 4,715,280
Roanoke Cnty., Gen.
Oblig.,
Aa 3,000 5.50%, 6/1/13........... 2,607,810
Virginia St. Pub. Sch.
Auth.,
Aa 5,640 6.125%, 8/1/11, Ser.
A..................... 5,410,283
Aa 5,635 6.125%, 8/1/12, Ser.
A..................... 5,369,704
West Point Ind. Dev.,
Chesapeake Corp.,
Baa3 5,750 6.25%, 3/1/19........... 4,986,918
------------
33,778,421
------------
Washington--3.1%
Tacoma Dept. Pub. Util.
&
Lt. Div., Lt. & Pwr.
Rev.,
A 4,450 9.375%, 1/1/15.......... 4,715,576
Washington St. Pub. Pwr.
Supply Sys. Rev.,
Nuclear Proj. No. 1,
Aa 4,000 7.00%, 7/1/08, Ser. A... 4,105,520
Aa 5,000 7.25%, 7/1/09, Ser. B... 5,181,950
Nuclear Proj. No. 2,
Aa 2,000 7.25%, 7/1/06, Ser. A... 2,120,180
Zero Coupon, 7/1/06,
M.B.I.A., Ser. A...... 2,880,120
Aaa 6,000
Washington St. Pub. Pwr.
Supply Sys. Rev.,
Nuclear Proj. No. 3,
Zero Coupon, 7/1/06,
Aaa $ 5,000 F.G.I.C., Ser. B...... $ 2,400,100
------------
21,403,446
------------
Total long-term
investments
(cost $611,914,906)..... 606,565,120
------------
SHORT-TERM INVESTMENTS--10.2%
California--5.7%
State of California,
R.A.W.,
F.R.W.D.S.,
5.73%, 1/5/95, Ser.
SP-1* 10,157 94C-10................ 10,157,426
Los Angeles Int'l.
Arpt.,
LAX Two Proj., F.R.D.D.,
VMIG-2 28,900 6.00%, 1/3/95........... 28,900,000
------------
39,057,426
------------
Florida--0.6%
Manatee Cnty. Hsg. Fin.
Auth.,
Sngl. Fam. Mtge. Rev.,
A.M.T.,
VMIG1 4,100 4.11%, 1/16/95,
F.R.M.D., Ser. 94..... 4,100,000
------------
Georgia--0.7%
Burke Cnty. Dev. Auth.,
Poll.
Adj. Ctrl. Rev., Pwr.
Co. Vogtle, Ser. 94A,
VMIG1 5,100 6.25%, 1/3/95,
F.R.D.D............... 5,100,000
------------
Illinois--0.1%
Chicago O'Hare Int'l.
Arpt.,
American Airlines Inc.,
F.R.D.D.,
P-2 700 6.00%, 1/3/95, Ser.
83B................... 700,000
------------
Louisiana--0.7%
Louisiana St, Gen.
Oblig.,
J.P.M. Putters, Ser. 29,
F.R.W.D.S.,
VMIG1 5,000 5.75%, 1/5/95........... 5,000,000
------------
North Carolina--0.7%
North Carolina Eastern
Mun. Pwr. Agcy.,
NR 5,000 3.85%, 1/30/95,
T.E.C.P............... 5,000,000
------------
</TABLE>
-9- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
<TABLE>
<CAPTION>
Moody's Principal
Rating Amount Value
(Unaudited) (000) Description (a) (Note 1)
<C> <C> <S> <C>
Tennessee--0.5%
Shelby Cnty. Hlth. Ed. &
Hsg. Fac., Brd. Hosp.
Rev.,
Meth. Hlth., F.R.S.D.,
VMIG1 $ 3,240 4.20%, 8/1/95, Ser.
85C................... $ 3,240,000
------------
Texas--0.5%
Brazos River Harbor
Nav. Dist., Dow
Chemical
Co. Proj., T.E.C.P.,
P-1 3,400 4.95%, 3/15/95, Ser.
91.................... 3,400,000
------------
Virginia--0.7%
York Cnty. Ind. Dev.
Auth.,
Mun. Elec. & Pwr. Co.,
VMIG1 4,500 5.15%, 1/5/95,
T.E.C.P............... 4,500,000
------------
Total short-term
investments
(cost $70,097,426)...... 70,097,426
------------
Total Investments--98.8%
(cost $682,012,332; Note
4).................... 676,662,546
Other assets in excess
of
liabilities--1.2%..... 8,471,349
------------
Net Assets--100%........ $685,133,895
------------
------------
</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
C.G.I.C.--Capital Guaranty Insurance Corporation
E.T.M.--Escrowed to Maturity
F.G.I.C.--Financial Guaranty Insurance Company
F.R.D.D.--Floating Rate Daily Demand Note
F.R.M.D.--Floating Rate Monthly Demand Note
F.R.S.D.--Floating Rate Semi-Annual Demand Note
F.R.W.D.--Floating Rate Weekly Demand Note
F.R.W.D.S.--Floating Rate Weekly Demand Note Synthetic
F.S.A.--Financial Security Assurance
M.B.I.A.--Municipal Bond Insurance Association
R.A.W.--Revenue Anticipation Warrants
T.E.C.P.--Tax Exempt Commercial Paper
# Represents when-issued security.
D Prerefunded issues are secured by escrowed cash
and
direct U.S. guaranteed obligations.
* Standard and Poor's Rating.
@ Pledged as initial margin on financial futures
contract.
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.
-10- See Notes to Financial Statements.
<PAGE>
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
Assets December
31, 1994
- -----------------
<S> <C>
Investments, at value (cost $682,012,332).................................................. $
676,662,546
Cash.......................................................................................
3,342
Interest receivable........................................................................
12,558,652
Receivable for Fund shares sold............................................................
2,378,893
Receivable for investments sold............................................................
363,069
Due from broker - variation margin.........................................................
24,374
Other assets...............................................................................
19,910
- -----------------
Total assets...........................................................................
692,010,786
- -----------------
Liabilities
Payable for investments purchased..........................................................
3,789,611
Payable for Fund shares reacquired.........................................................
1,995,201
Dividends payable..........................................................................
419,733
Management fee payable.....................................................................
243,777
Distribution fee payable...................................................................
286,275
Accrued expenses...........................................................................
142,294
- -----------------
Total liabilities......................................................................
6,876,891
- -----------------
Net Assets................................................................................. $
685,133,895
- -----------------
- -----------------
Net assets were comprised of:
Common stock, at par..................................................................... $
474,315
Paid-in capital in excess of par.........................................................
713,644,111
- -----------------
714,118,426
Accumulated net realized loss on investments.............................................
(23,680,276)
Net unrealized depreciation on investments...............................................
(5,304,255)
- -----------------
Net assets, December 31, 1994............................................................ $
685,133,895
- -----------------
- -----------------
Class A:
Net asset value and redemption price per share ($12,720,790 / 881,875 shares of common
stock issued and outstanding)..........................................................
$14.42
Maximum sales charge (3.0% of offering price)............................................
.45
- -----------------
Maximum offering price to public.........................................................
$14.87
- -----------------
- -----------------
Class B:
Net asset value, offering price and redemption price per share ($672,271,575 / 46,539,855
shares of common stock issued and outstanding).........................................
$14.45
- -----------------
- -----------------
Class C:
Net asset value, offer price and redemption price per share ($141,530 / 9,798 shares of
common stock issued and outstanding)...................................................
$14.44
- -----------------
- -----------------
</TABLE>
See Notes to Financial Statements.
-11-
<PAGE>
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
Statement of Operations
<TABLE>
<CAPTION>
Year Ended
December 31,
Net Investment Income 1994
------------
<S> <C>
Income
Interest.............................. $ 47,004,859
------------
Expenses
Distribution fee--Class A............. 14,116
Distribution fee--Class B............. 3,758,114
Distribution fee--Class C............. 321
Management fee........................ 3,633,518
Transfer agent's fees and expenses.... 649,000
Tax expense........................... 251,000
Reports to shareholders............... 237,000
Custodian's fees and expenses......... 127,000
Registration fees..................... 93,500
Legal fees............................ 61,000
Audit fee............................. 51,000
Trustees' fees........................ 37,700
Insurance expense..................... 19,200
Miscellaneous......................... 618
------------
Total expenses...................... 8,933,087
------------
Net investment income................... 38,071,772
------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions............... (27,537,466)
Financial futures contracts........... 3,847,102
------------
(23,690,364)
------------
Net change in unrealized appreciation
/depreciation of:
Investments........................... (68,112,297)
Financial futures contracts........... 45,531
------------
(68,066,766)
------------
Net loss on investments................. (91,757,130)
------------
Net Decrease in Net Assets
Resulting from Operations............... $(53,685,358)
------------
------------
</TABLE>
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended December 31,
Increase (Decrease) ------------------------------
in Net Assets 1994 1993
------------- -------------
<S> <C> <C>
Operations
Net investment income.... $ 38,071,772 $ 44,152,405
Net realized gain (loss)
on investment
transactions........... (23,690,364) 38,512,754
Net change in unrealized
appreciation
(depreciation) of
investments............ (68,066,766) 16,778,159
------------- -------------
Net increase (decrease)
in net assets resulting
from operations........ (53,685,358) 99,443,318
------------- -------------
Dividends and distributions
(Note 1)
Dividends from net
investment income
Class A................ (758,853) (645,048)
Class B................ (37,310,847) (43,507,357)
Class C................ (2,072) --
------------- -------------
(38,071,772) (44,152,405)
------------- -------------
Distributions from net
realized gains
Class A................ (95,056) (563,957)
Class B................ (5,131,497) (34,572,412)
------------- -------------
(5,226,553) (35,136,369)
------------- -------------
Fund share transactions
(Note 5)
Net proceeds from shares
issued................. 86,309,362 201,764,486
Net asset value of shares
issued in reinvestment
of dividends and
distributions.......... 27,093,049 50,661,082
Cost of shares
reacquired............. (193,751,516) (246,514,570)
------------- -------------
Increase (decrease) in
net assets from Fund
share transactions..... (80,349,105) 5,910,998
------------- -------------
Total increase
(decrease)............... (177,332,788) 26,065,542
------------- -------------
Net Assets
Beginning of year.......... 862,466,683 836,401,141
------------- -------------
End of year................ $ 685,133,895 $ 862,466,683
------------- -------------
------------- -------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
-12-
<PAGE>
<PAGE>
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
Notes to Financial Statements
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 The following is a summary
Policies of significant accounting poli-
cies followed by the Fund in the preparation of
its financial statements.
Securities Valuations: The Fund values municipal securities (including
commitments to purchase such securities on a ``when-issued'' basis) on the basis
of prices provided by a pricing service which uses information with respect to
transactions in bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities in
determining values. If market quotations are not readily available from such
pricing service, a security is valued at its fair value as determined under
procedures established by the Directors.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost which approximates market value.
Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Fund is required to pledge to the broker an amount of cash and/or other
assets equal to a certain percentage of the contract amount. This amount is
known as the ``initial margin''. Subsequent payments, known as ``variation
margin'', are made or received by the Fund each day, depending on the daily
fluctuations in the value of the underlying security. Such variation margin is
recorded for financial statement purposes on a daily basis as unrealized gain or
loss. When the contract expires or is closed, the gain or loss is realized and
is presented in the statement of operations as net realized gain(loss) on
financial futures contracts.
The Fund invests in financial futures contracts in order to hedge its
existing portfolio securities, or securities the Fund intends to purchase,
against fluctuations in value caused by changes in prevailing interest rates.
Should interest rates move unexpectedly, the Fund may not achieve the
anticipated benefits of the financial futures contracts and may realize a loss.
The use of futures transactions involves the risk of imperfect correlation in
movements in the price of futures contracts, interest rates and the underlying
hedged assets.
Securities Transactions and 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.
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 and because substantially all of the Fund's gross income consists of
tax-exempt interest, 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.
Note 2. Agreements The Fund has a management
agreement with Prudential Mutual Fund Management,
Inc. (``PMF''). Pursuant to this agreement, PMF has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PMF has entered into a subadvisory agreement with The Prudential
Investment Corporation (``PIC''); PIC furnishes investment advisory services in
connection with the management of the Fund. PMF pays for the cost of the
subadviser's services, the compensation of officers of the Fund, occupancy and
certain clerical and bookkeeping costs of the Fund. The Fund bears all other
costs and expenses.
The management fee paid PMF is computed daily and payable monthly at an
annual rate of .50% of the Fund's
-13-
<PAGE>
<PAGE>
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, 1995, PMF has agreed to waive a
portion (.05 of 1% of the Fund's average daily net assets) of its management
fee. The Fund is not required to reimburse PMF for such waiver.
The Fund has distribution agreements with Prudential Mutual Fund
Distributors, Inc. (``PMFD''), which acts as the distributor of the Class A
shares of the Fund, and with Prudential Securities Incorporated (``PSI''), which
acts as distributor of the Class B and Class C shares of the Fund (collectively
the ``Distributors''). The Fund compensates the Distributors for distributing
and servicing the Fund's Class A, Class B and Class C shares, pursuant to plans
of distribution (the ``Class A, B and C Plans''), regardless of expenses
actually incurred by them. The distribution fees are accrued daily and payable
monthly.
On July 19, 1994, shareholders of the Fund approved amendments to the Class A
and Class B distribution plans under which the distribution plans became
compensation plans, effective August 1, 1994. Prior thereto, the distribution
plans were reimbursement plans, under which PMFD and PSI were reimbursed for
expenses actually incurred by them up to the amount permitted under the Class A
and Class B Plans, respectively. The Fund is not obligated to pay prior or
future excess distribution costs (costs incurred by the Distributors in excess
of distribution fees paid by the Fund or contingent deferred sales charges
received by the Distributors). The rate of the distribution fees charged to
Class A and Class B shares of the Fund did not change under the amended plans of
distribution. The Fund began offering Class C shares on August 1, 1994.
Pursuant to the Class A, B and C Plans, the Fund compensates the Distributors
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 fiscal year ended December 31, 1994.
PMFD has advised the Fund that it has received approximately $92,500 in
front-end sales charges resulting from sales of Class A shares during the fiscal
year ended December 31, 1994. From these fees, PMFD paid such sales charges to
PSI and Pruco Securities Corporation, affiliated broker-dealers, which in turn
paid commissions to salespersons and incurred other distribution costs.
PSI has advised the Fund that for the fiscal year ended December 31, 1994, it
received approximately $976,100 in contingent deferred sales charges imposed
upon certain redemptions by Class B shareholders.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
Note 3. Other Prudential Mutual Fund Ser-
Transactions vices, Inc. (``PMFS''), a
with Affiliates wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent and
during the fiscal year ended December 31, 1994, the Fund incurred fees of
approximately $457,600 for the services of PMFS. As of December 31, 1994,
$36,000 of such fees were due to PMFS. Transfer agent fees and expenses in the
Statement of Operations include certain out-of-pocket expenses paid to
non-affiliates.
Note 4. Portfolio Purchases and sales of invest-
Securities ment securities, other than
short-term investments, for the fiscal year ended
December 31, 1994, were $852,772,280 and $995,815,438, respectively.
At December 31, 1994, the Fund sold 78 financial futures contracts on the
Municipal Bond Index which expire in March 1995. The value at disposition of
such contracts is $7,779,719. The value of such contracts on December 31, 1994
was $7,734,188, thereby resulting in an unrealized gain of $45,531. The Fund has
pledged $11,970,000 principal amount of Texas Wtr. Res. Fin. Auth. Rev. Bonds
and $5,000,000 principal amount of West Feliciana Parish Poll. Ctrl. Rev. Bonds
as initial margin on such contracts.
The federal income tax basis of the Portfolio's investments at December 31,
1994 was $682,417,893 and, accordingly, net unrealized depreciation for federal
income tax purposes was $5,755,347 (gross unrealized appreciation--$11,820,207
gross unrealized depreciation--$17,575,554).
For federal income tax purposes, the Fund has a capital loss carryforward as
of December 31, 1994 of approximately $19,372,500 which expires in 2002.
Accordingly, no capital gains distribution is expected to be paid until net
gains have been realized in excess of such amount.
The Fund will elect to treat net capital losses of approximately $3,999,200
incurred in the two month period ended December 31, 1994 as having been incurred
in the following fiscal year.
Note 5. Capital The Fund offers Class A,
Class B and Class C shares. Class A shares are
sold with a front-end sales charge of up to
-14-
<PAGE>
<PAGE>
3.0%. Class B shares are sold with a contingent deferred sales charge which
declines from 5% to zero depending on the period of time the shares are held.
Class C shares are sold with a contingent deferred sales charge of 1% during the
first year. Class B shares will automatically convert to Class A shares on a
quarterly basis approximately seven years after purchase commencing in or about
February 1995.
There are 750 million shares of common stock, $.01 par value, per share,
divided into three classes, designated Class A, Class B and Class C common
stock, each of which consists of 250 million authorized shares.
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ---------------------------- ----------- -------------
<S> <C> <C>
Year ended December 31,
1994:
Shares sold................. 2,875,693 $ 42,583,262
Shares issued in
reinvestment of dividends
and distributions......... 37,934 573,468
Shares reacquired........... (2,900,866) (42,851,546)
----------- -------------
Net increase in shares
outstanding............... 12,761 $ 305,184
----------- -------------
----------- -------------
Year ended December 31,
1993:
Shares sold................. 801,949 $ 13,267,418
Shares issued in
reinvestment of dividends
and distributions......... 52,588 854,996
Shares reacquired........... (468,357) (7,812,061)
----------- -------------
Net increase in shares
outstanding............... 386,180 $ 6,310,353
----------- -------------
----------- -------------
<CAPTION>
Class B Shares Amount
- ---------------------------- ----------- -------------
<S> <C> <C>
Year ended December 31,
1994:
Shares sold................. 2,885,324 $ 43,581,881
Shares issued in
reinvestment of dividends
and distributions......... 1,749,682 26,518,677
Shares reacquired........... (10,042,966) (150,899,970)
----------- -------------
Net decrease in shares
outstanding............... (5,407,960) $ (80,799,412)
----------- -------------
----------- -------------
Year ended December 31,
1993:
Shares sold................. 11,392,790 $ 188,497,068
Shares issued in
reinvestment of dividends
and distributions......... 3,054,242 49,806,086
Shares reacquired........... (14,390,713) (238,702,509)
----------- -------------
Net increase in shares
outstanding............... 56,319 $ (399,355)
----------- -------------
----------- -------------
<CAPTION>
Class C
- ----------------------------
<S> <C> <C>
August 1, 1994* through
December 31, 1994:
Shares sold................. 9,735 $ 144,219
Shares issued in
reinvestment of
dividends................. 63 904
----------- -------------
Net increase in shares
outstanding............... 9,798 $ 145,123
----------- -------------
----------- -------------
</TABLE>
- ---------------
* Commencement of offering of Class C shares.
-15-
<PAGE>
<PAGE>
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC.
Financial Highlights
<TABLE>
<CAPTION>
Class A Class B
Class C
PER --------------------------------------------------
- ---------------------------------------------------- ------------
SHARE January 22,
August 1,
OPERATING 1990D
1994DD
PERFOR- Year Ended December 31, through Year Ended December 31,
through
MANCE: ----------------------------------- December 31,
- ---------------------------------------------------- December 31,
1994 1993 1992 1991 1990 1994 1993 1992 1991
1990 1994
------- ------- ------ ------ ------------ -------- -------- -------- --------
-------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<C> <C>
Net
asset
value,
beginning
of
period $ 16.30 $ 15.94 $16.00 $15.09 $14.98 $ 16.33 $ 15.97 $ 16.02 $ 15.11
$ 15.15 $15.13
------- ------- ------ ------ ------ -------- -------- -------- --------
-------- ------
Income
from
investment
operations
Net
investment
income... .81 .90 .94 .97 .90 .75 .84 .88 .91
.90 .29
Net
realized
and
unrealized
gain
(loss)
on
investment
trans-
actions..(1.78) 1.05 .43 .91 .11 (1.78) 1.05 .44 .91
(.04) (.69)
------- ------- ------ ------ ------ -------- -------- -------- --------
-------- ------
Total
from
investment
opera-
tions.. (.97) 1.95 1.37 1.88 1.01 (1.03) 1.89 1.32 1.82
.86 (.40)
------- ------- ------ ------ ------ -------- -------- -------- --------
-------- ------
Less
distributions
Dividends
from
net
investment
income... (.81) (.90) (.94) (.97) (.90) (.75) (.84) (.88) (.91)
(.90) (.29)
Distributions
from net
realized
gains.. (.10) (.69) (.49) -- -- (.10) (.69) (.49) --
-- --
------- ------- ------ ------ ------ -------- -------- -------- --------
-------- ------
Total
distri-
butions. (.91) (1.59) (1.43) (.97) (.90) (.85) (1.53) (1.37) (.91)
(.90) (.29)
------- ------- ------ ------ ------ -------- -------- -------- --------
-------- ------
Net
asset
value,
end
of
period $ 14.42 $ 16.30 $15.94 $16.00 $15.09 $ 14.45 $ 16.33 $ 15.97 $ 16.02
$ 15.11 $14.44
------- ------- ------ ------ ------ -------- -------- -------- --------
-------- ------
------- ------- ------ ------ ------ -------- -------- -------- --------
-------- ------
TOTAL
RETURN#:...(6.04)% 12.60% 8.88% 12.94% 6.88% (6.39)% 12.15% 8.50% 12.42%
5.96% (2.63)%
RATIOS/SUPPLEMENTAL
DATA:
Net
assets,
end
of
period
(000)...$12,721 $14,167 $7,700 $3,819 $1,846 $672,272 $848,299 $828,702 $874,338
$882,212 $ 141
Average
net
assets
(000).. $14,116 $11,786 $5,401 $2,697 $1,161 $751,623 $854,919 $829,830 $862,249
$940,215 $ 103
Ratios
to
average
net
assets:##
Expenses,
including
distribution
fees... .77% .69% .72% .75% .75%* 1.17% 1.09% 1.12% 1.15%
1.13% 1.51%*
Expenses,
excluding
distribution
fees... .67% .59% .62% .65% .65%* .67% .59% .62% .65%
.64% .76%*
Net
investment
income.. 5.38% 5.49% 5.79% 6.27% 6.43%* 4.96% 5.09% 5.39% 5.87%
6.03% 4.84%*
Portfolio
turnover
rate... 120% 82% 114% 59% 110% 120% 82% 114% 59%
110% 120%
</TABLE>
- ---------------
* Annualized.
D Commencement of offering of Class A shares.
DD Commencement of offering of Class C shares.
# 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.
## Because of the event referred to in DD and the timing of such, the
ratios for the Class C shares are not necessarily comparable to that of
Class A or B shares and are not necessarily indicative of future ratios.
See Notes to Financial Statements.
-16-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Prudential National Municipals Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential National Municipals
Fund, Inc. (the ``Fund'') at December 31, 1994, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the five years
in the period then ended, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as ``financial statements'') are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1994 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 21, 1995
TAX INFORMATION (UNAUDITED)
We are required by the Internal Revenue Code to advise you within 60 days of
the Fund's fiscal year end (December 31, 1994) as to the federally 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, 1994, dividends paid from net
investment income totalling $.81 per Class A share, $.75 per Class B share and
$.28 per Class C shares were all federally tax-exempt interest dividends. In
addition, the Fund paid to both Class A and B shares a long-term capital gain
distribution of $.10 per share which is taxable as such.
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.
-17-
<PAGE>
<PAGE>
Prudential National Municipals Fund, Inc.
Comparison of Change in Value of $10,000 Investment in Prudential National
Municipals Fund, Inc. and The Lehman Bros. General Municipal Bond Index
<TABLE>
Average Annual Total Returns
<CAPTION>
With Sales Load
1 Year Since Inception (1/22/90)
<S> <C> <C>
- -8.86% 6.25%
<CAPTION>
Without Sales Load
1 Year Since Inception (1/22/90)
<S> <C> <C>
- -6.04% 6.90%
</TABLE>
Class A
(GRAPH)
<TABLE>
Average Annual Total Returns
<CAPTION>
With Sales Load
1 Year 5 Year 10 Year (4/25/80)
<S> <C> <C> <C>
- -11.39% 6.13% 8.41%
<CAPTION>
Without Sales Load
1 Year 5 Year 10 Year (4/25/80)
<S> <C> <C> <C>
- -6.39% 6.29% 8.41%
</TABLE>
Class B
(GRAPH)
<TABLE>
Average Annual Total Returns
<CAPTION>
With Sales Load
1 Year Since Inception (8/1/94)
<S> <C> <C>
N/A -3.63%
<CAPTION>
Without Sales Load
1 Year Since Inception (8/1/94)
<S> <C> <C>
N/A -2.63%
</TABLE>
Class C
(GRAPH)
Lehman Bros. General Municipal Prudential National Municipals
Bond Index Fund, Inc.
Past performance is not predictive of future performance and an investor's
shares when redeemed may be worth more or less than their original cost.
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, Class B and Class C) with a similar investment in the Lehman Brothers
Municipal Bond Index by portraying the initial account values at the
commencement of operations of each class, 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 shares, in 1984 for Class B shares and in 1994
for Class C shares. For purposes of the graphs, and unless otherwise indicated,
in the accompanying tables it has been assumed (a) that the maximum applicable
contingent deferred sales charge was deducted from the initial $10,000
investment in Class A shares; (b) the maximum applicable contingent deferred
sales charge was deducted from the value of the investment in Class B and Class
C shares, assuming full redemption on December 31, 1994; (c) all recurring fees
(including management fees) were deducted; and (d) all dividends and
distributions were reinvested. Class B shares will automatically convert to
Class A shares, on a quarterly basis, beginning approximately seven years after
purchase. This conversion feature is not reflected in the graph.
The Lehman Brothers Municipal Bond index is a weighted index of 21,000
municipal bonds (general obligation bonds, revenue bonds, insured bonds and
prerefunded bonds) selected by Lehman Brothers as representative of the
long-term investment grade municipal bond market. The index is unmanaged and
includes the reinvestment of dividends but does not reflect the payment of
transaction costs and advisory fees associated with an investment in the Fund.
The securities in the index may differ substantially from the Fund's
securities. The index is not the only one that may be used to characterize
performance of long-term, investment-grade tax-exempt bond funds and other
indexes may portray different comparative performance.
<PAGE>
The Prudential Mutual Fund Family
- ------------------------------------------------------------------------------
Prudential Mutual Fund Management offers a broad range of mutual funds designed
to meet your individual needs. We welcome you to review the investment options
available through our family of funds. For more information on the Prudential
Mutual Funds, including charges and expenses, contact your Prudential
Securities Financial Advisor or Pruco Securities Representative or telephone
the Funds at (800) 225-1852 for a free prospectus. Read the prospectus
carefully before you invest or send money.
Taxable Bond Funds
Prudential Adjustable Rate Securities Fund, Inc.
Prudential Diversified Bond Fund, Inc.
Prudential GNMA Fund, Inc.
Prudential Government Income Fund, Inc.
(formerly known as Prudential
Government Plus Fund)
Prudential Government Securities Trust
Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential Structured Maturity Fund, Inc.
Income Portfolio
Prudential U.S. Government Fund
The BlackRock Government Income Trust
Tax-Exempt Bond Funds
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Yield Series
Insured Series
Modified Term Series
Prudential Municipal Series Fund
Arizona Series
Florida Series
Georgia Series
Hawaii Income Series
Maryland Series
Massachusetts Series
Michigan Series
Minnesota Series
New Jersey Series
New York Series
North Carolina Series
Ohio Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
Global Funds
Prudential Europe Growth Fund, Inc.
Prudential Global Fund, Inc.
Prudential Global Genesis Fund, Inc.
Prudential Global Natural Resources Fund, Inc.
Prudential Intermediate Global Income Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential Short-Term Global Income Fund, Inc.
Global Assets Portfolio
Short-Term Global Income Portfolio
Global Utility Fund, Inc.
Equity Funds
Prudential Allocation Fund
(formerly known as Prudential FlexiFund)
Conservatively Managed Portfolio
Strategy Portfolio
Prudential Equity Fund, Inc.
Prudential Equity Income Fund
Prudential Growth Opportunity Fund, Inc.
Prudential IncomeVertible(R) Fund, Inc.
Prudential Multi-Sector Fund, Inc.
Prudential Strategist Fund, Inc.
(formerly known as Prudential Growth Fund)
Prudential Utility Fund, Inc.
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
Money Market Funds
- -Taxable Money Market Funds
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Special Money Market Fund
Money Market Series
Prudential MoneyMart Assets
- -Tax-Free Money Market Funds
Prudential Tax-Free Money Fund
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
- -Command Funds
Command Money Fund
Command Government Fund
Command Tax-Free Fund
- -Institutional Money Market Funds
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
<PAGE>
Directors
Delayne Dedrick Gold
Arthur Hauspurg
Harry A. Jacobs, Jr.
Lawrence C. McQuade
Stephen P. Munn
Richard A. Redeker
Louis A. Weil, III
Officers
Lawrence C. McQuade, President
David W. Drasnin, Vice President
Robert F. Gunia, Vice President
Susan C. Cote, Treasurer
S. Jane Rose, Secretary
Ronald Amblard, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributors
Prudential Mutual Fund Distributors, Inc.
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Price Waterhouse LLP
1177 Avenue of Americas
New York, NY 10036
Legal Counsel
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852, Collect (908) 417-7555
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
743918203
743918104
743918302 (LOGO) MF 104E
