(ICON)
Prudential
Municipal
Series Fund
Arizona Series
ANNUAL REPORT
Aug. 31, 1995
(LOGO)
<PAGE>
Prudential Municipal Series Fund
Arizona Series
Performance At A Glance.
It has been a good year for shareholders of the Prudential
Municipal Series
Fund: Arizona Series. Municipal bond investors earned not
only their coupon
income, but also saw a gain in net asset value as well. We
are pleased to
report that your Portfolio performed in line with the
average Arizona
municipal bond fund measured by Lipper Analytical Services
over the past 12
months.
<TABLE>
<CAPTION>
Cumulative Total Returns1 As of
8/31/95
One Five Ten
Since
Year Years Years
Inception2
<S> <C> <C> <C>
<C>
Class A 8.1% 48.8% N/A
51.8%
Class B 7.8 45.9 114.0%
143.5
Class C 7.5 N/A N/A
7.7
Lipper AZ Muni Avg3 7.8 47.8 113.6
140.0
<CAPTION>
Average Annual Total Returns1 As of
9/30/95
One Five Ten
Since
Year Years Years
Inception2
<S> <C> <C> <C>
<C>
Class A 6.3% 7.7% N/A
7.1%
Class B 4.2 7.8 8.1%
8.4%
Class C 7.9 N/A N/A
6.8
</TABLE>
<TABLE>
<CAPTION>
Taxable Equivalent Yield
Total Dividends 30-Day
At Tax Rates of
Paid for 12 Mos. SEC Yield
36% 39.6%
<S> <C> <C> <C>
<C>
Your Class A $0.62 4.14%
6.85% 7.26%
Dividend Class B $0.58 4.26
7.05 7.47
As of 8/31/95 Class C $0.56 4.27
7.07 7.49
</TABLE>
Past performance is not a guarantee of future results.
Principal and investment
return will fluctuate so that an investor's shares, when
redeemed, may be worth
more or less than their original cost.
1Source: Prudential Mutual Fund Management and Lipper
Analytical Services. The
cumulative total returns do not take into account sales
charges. The average
annual returns do take into account applicable sales
charges. The Series
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. Class B shares
automatically convert to Class A shares on a quarterly
basis, after
approximately seven years.
2Inception dates: 1/22/90 for Class A; 9/24/84 for Class B;
and 8/1/94 for
Class C.
3The Lipper Arizona Municipal Bond fund average includes 30
funds for one year,
seven funds for five years, one fund for 10 years, and one
fund since inception
of the Class B shares on 9/24/84.
How Investments Compared.
(as of 8/31/95)
(GRAPH)
Source: Lipper Analytical Services. Financial markets
change, so a mutual
fund's past performance should never be used to predict
future results. The
risks to each of the investments listed above are different
- - -- we provide
12-month total returns for several Lipper mutual fund
categories to show you
that reaching for higher yields means tolerating more risk.
The greater the
risk, the larger the potential reward or loss. In addition,
we've added
historical 20-year average annual returns. These returns
assume the
reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Smaller
capitalization stocks
offer greater potential for long-term growth but may be more
volatile than
larger capitalization stocks. Investors receive higher
historical total returns
from stocks than from most other investments.
General Bond Funds provide more income than stock funds,
which can help smooth
out their total returns year by year. But their prices still
fluctuate
(sometimes a good deal) and their returns are historically
lower than those of
stock funds.
General Municipal Debt Funds invest in bonds issued by state
governments, state
agencies and/or municipalities. This investment provides
income that is usually
exempt from federal and state income taxes. (20-year returns
are not
available.)
Money Market Funds attempt to preserve a constant share
value; they don't
fluctuate much in price but their returns are generally
among the lowest of
the major investment categories.
*19 years for General Muni Debt Funds.
<PAGE>
Christian Smith, Fund Manager
Portfolio
Manager's Report
(PHOTO)
The Series invests in carefully selected long-term municipal
bonds that offer
a high level of current income exempt from Arizona state and
federal income
taxes, consistent with preservation of capital. Certain
shareholders may be
subject to the federal alternative minimum tax, however. The
Series invests
primarily in obligations of Arizona state, municipal and
local governments,
including U.S. territories (such as Puerto Rico, the U.S.
Virgin Islands and
Guam), the income of which is also exempt from federal and
Arizona state
income taxes.
Strategy Session.
It has been a positive year for tax-free municipal bonds.
Although interest
rates rose sharply in 1994 on inflation fears, they have
tumbled back down
slowly so far in 1995, as economic growth slowed. The Bond
Buyer Revenue Bond
Index Yield stood at 6.4% on September 1, 1994 (the index is
calculated on
Thursdays), and rose by a percentage point to a high of 7.4%
in mid-October
1994, before falling to 6.3% on August 31, 1995. As you can
see, when the dust
had settled, long-term municipal bond interest rates ended
the period lower.
This year, we have been buying longer-maturity bonds with
discount coupons
(coupons lower than the prevailing market), and some zero
coupon bonds,
because these are more likely to appreciate if interest
rates fall as we
expect. In addition, we sold bonds that could be called
within the next five
years, because they are less likely to appreciate as
interest rates fall.
Sector Breakdown
(GRAPH)
Merger Approved.
The Trustees have approved a plan to merge the Prudential
Municipal Series
Fund: Arizona Series with the Prudential National Municipals
Fund effective
October 27. Until the merger, Christian Smith has served as
portfolio manager
of the Prudential Municipal Series Fund: Arizona Series. He
was named to the
position in May.
<PAGE>
What Went Well.
We Held On
To Good Yields
We increased assets invested in non-callable bonds (those
that cannot be paid
off prematurely by the issuer to save on interest costs) to
39% up from 32% a
year ago. We did so by selling bonds that were callable,
selling current
(market-rate coupons), and buying deep discount (below
market interest rate)
and non-callable bonds. These bonds not only offered
attractive yields but also
appreciated when interest rates declined. They are valuable
because not many
bonds offer protection from call risk -- only about a third
of the securities
in the Lehman Brothers' Municipal Bond Index are non-
callable.
It Paid To Buy Puerto Rico and Guam Bonds
The supply of new municipal bonds has declined sharply in
Arizona, by 35% this
year alone. So we looked elsewhere. We bought bonds issued
by Puerto Rico and
Guam, because they are tax-exempt federally in virtually all
states, including
Arizona. As a result, they are in demand. Our holdings in
Puerto Rico and Guam
are now 12% of assets, up from 3% a year ago.
And Not So Well.
A Longer Duration Would Have Helped.
Duration measures the sensitivity of a bond's price to
interest rate changes.
The longer the duration, the more a bond's price appreciates
when interest
rates fall, and vice versa. Over the winter, our duration
was shorter than that
of some competing funds, because we expected economic growth
to remain strong.
As the slowdown became apparent in the second quarter, we
extended duration. On
August 31, 1995, our duration was 7.8 years, up from 6.3
years a year ago.
Municipals Suffered From Tax Talk.
Congress is considering various changes in the federal
income tax, including a
flat tax -- an income tax at a single, flat rate. One
proposal would eliminate
taxes on most investment income. Clearly, this has created
uncertainty in the
municipal market -- one reason why municipal bonds did not
follow taxable bond
prices higher this spring. At this writing, we believe it is
unlikely that a
flat tax proposal in this form will pass Congress --
especially not before
next year's election.
Five Largest
Holdings.*
<TABLE>
<S> <C>
5.4% Pima County Ind. Dev. Auth.
Tuscon Electric Power Co.
5.2% Arizona State
Municipal Finance
4.6% Salt River Project
Agriculture Improvement
4.3% Puerto Rico
Highway & Transportation
4.2% Tucson
General Obligation
</TABLE>
* Expressed as a percentage of total net assets as of
8/31/95.
Looking Ahead.
Municipal bond yields are very attractive now. As we
mentioned earlier, when
U.S. government and corporate bond yields fell this spring,
municipal yields
did not follow to the same extent. That means there are some
good buying
opportunities now in the municipal market. Should interest
rates remain
stable, municipal bond investors may look forward to earning
their coupon
income. Plus, if interest rates fall further, investors
could reasonably
expect price appreciation as well.
Nevertheless, municipal bond investors should be prepared to
weather some
volatility this year as various proposals to change the
nation's income tax
structure are debated. Overall, we believe municipal bonds
still offer good
value, and that volatility can offer some attractive buying
opportunities.
- - ------------------------------------------------------------
- - -------------------
1
<PAGE>
President's Letter
October 11, 1995
(PHOTO)
Dear Shareholder:
We hope you like the fresh look and information we've given
your shareholder
letter. We've also introduced another feature, called
Getting the Most Out of
Your Prudential Mutual Fund, which will appear from time to
time at the back of
your report. Look for topics like "Understanding Risk &
Reward" as well as
easy-to-understand explanations of financial terms. Why are
we providing such
information? Because at Prudential Mutual Funds, we believe
an informed
investor makes smart investment decisions.
On the Hill
As an informed investor, you should know about the "American
Dream Savings
Account" that is part of the federal budget package now
under debate in the
Senate. It is a type of Individual Retirement Account that
offers a
common-sense approach to long-term saving. Investors should
like it because--
- You can withdraw funds -- without penalty -- to pay for
certain expenses
like buying a first home, medical care or educational
needs;
- All account earnings would accumulate tax-free, not
merely tax-deferred
like the current IRA;
- You can make contributions past age 70 1/2, instead of
having to take
distributions as the current law requires.
Of course, the federal budget process is never easy and
while we hope this
measure is adopted, there's no way of knowing if it will be.
So why not let
your Senator and/or Representative know your opinion today?
Simply call
202-224-3121.
- - ------------------------------------------------------------
- - -------------------
In Closing
One final note: if you're a Class B shareholder of
Prudential Mutual Funds,
you'll begin noticing a change on your statements once
you've held your shares
for seven years. At that time, they will automatically begin
to convert to
Class A shares on a quarterly basis. Since Class A shares
carry lower annual
distribution charges than Class B shares, your total returns
will be higher
after the conversion than they would have been without it.
Conversions started
earlier this year and beginning in December they will take
place during each
calendar quarter -- December, March, June and September.
It's our way of
thanking you for your loyalty -- and rewarding you for
maintaining a long-term
investment program by helping you earn more total investment
return on your
Prudential Mutual Fund. I hope you'll find this information
useful as you work
with your financial advisor or registered representative to
develop your
personal investment plan.
Thank you for choosing Prudential Mutual Funds for your
mutual fund investment.
Sincerely,
Richard A. Redeker
President
- - ------------------------------------------------------------
- - -------------------
2
<PAGE>
Portfolio of Investments as PRUDENTIAL
MUNICIPAL SERIES FUND
of August 31, 1995 ARIZONA SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
LONG-TERM INVESTMENTS--100.3%
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
Arizona St. Edl. Loan Mkt. Corp., Ser. B
A
7.00% 3/01/05 $ 1,375 $ 1,463,550
Arizona St. Mun. Fin. Proj.,
Cert. of Part., Ser. 15, B.I.G.
Aaa
8.75 8/01/06 700 755,475
Cert. of Part., Ser. 25, A.M.B.A.C.
Aaa
7.875 8/01/14 2,250 2,851,560
Arizona St. Trans. Brd. Hwy. Rev.
Aaa
7.00 7/01/09 2,000(c) 2,236,520
Arizona St. Univ. Sys. Rev., Ser. A
Aaa
7.00 7/01/10 1,000(c) 1,151,670
Central Arizona Wtr. Consv. Dist., Contract Rev.
A1
7.50 11/01/05 1,500(c) 1,730,595
Chandler, Cap. Apprec. Ref.,
F.G.I.C.
Aaa
Zero 7/01/02 2,000 1,439,060
Gen. Oblig., F.G.I.C.
Aaa
4.375 7/01/13 500 413,165
Guam Pwr. Auth. Rev.,
Ser. A
BBB(b)
6.625 10/01/14 250 256,193
Ser. A
BBB(b)
6.75 10/01/24 1,780 1,817,451
Maricopa Cnty. Ind. Dev. Auth. Hosp. Fac. Rev.,
John C. Lincoln Hosp., F.S.A.
Aaa
7.00 12/01/00 2,000 2,183,420
Samaritan Hlth. Svcs.
Aaa
12.00 1/01/08 285(c) 321,377
Maricopa Cnty. Sch. Dist.,
No. 40 Glendale Elem. Sch., A.M.B.A.C.
Aaa
Zero 7/01/04 2,810 1,800,957
No. 41 Gilbert Proj., F.G.I.C.
Aaa
Zero 7/01/07 1,500 792,945
No. 92 Pendergast Elem. Sch., F.G.I.C.
Aaa
Zero 7/01/04 1,140 730,637
No. 11 Peoria Unified Sch. Dist., M.B.I.A.
Aaa
Zero 7/01/04 1,500 961,365
No. 3 Tempe Elem. Sch., A.M.B.A.C.
Aaa
Zero 7/01/09 1,500 688,395
No. 3 Tempe Elem. Sch., A.M.B.A.C.
Aaa
Zero 7/01/14 1,500 492,645
Maricopa Cnty. Unified Sch. Dist.,
No. 80 Chandler, F.G.I.C.
Aaa
6.25 7/01/11 1,000 1,085,150
No. 80 Chandler, F.G.I.C.
Aaa
Zero 7/01/09 1,330 610,377
No. 80 Chandler, M.B.I.A.
Aaa
Zero 7/01/10 1,050 447,048
No. 80 Chandler, M.B.I.A.
Aaa
Zero 7/01/11 1,200 479,364
Navajo Cnty. Poll. Ctrl. Corp. Rev., Ser. A, A.M.B.A.C.
Aaa
5.50 8/15/28 1,000 947,680
Nogales Mun. Dev. Auth. Rev., M.B.I.A.
Aaa
8.00 6/01/08 500(c)/(d) 554,915
Peoria Bell Road Impvt. Dist.
BBB(b)
7.20 1/01/11 465 497,820
Phoenix Arpt. Rev. Ref., Ser. D, M.B.I.A.
Aaa
6.40 7/01/12 810 858,641
Phoenix St. & Hwy. User Rev., F.G.I.C.
Aaa
Zero 7/01/12 3,000 1,123,590
Pima Cnty. Ind. Dev. Auth. Hlth. Care,
Carondelet St. Josephs & Marys Hosp, B.I.G.
Aaa
7.90 7/01/05 895(c) 1,001,478
Carondelet St. Josephs & Marys Hosp, B.I.G.
Aaa
7.90 7/01/05 105 114,358
Carondelet St. Josephs & Marys Hosp, B.I.G.
Aaa
8.00 7/01/13 890(c) 998,242
Carondelet St. Josephs & Marys Hosp, B.I.G.
Aaa
8.00 7/01/13 110 122,452
Pima Cnty. Ind. Dev. Auth. Rev., Tucson Elec. Pwr. Co.,
F.S.A.
Aaa
7.25 7/15/10 2,700 3,000,402
Pima Cnty., Unified Sch. Dist. No. 16, Catalina Foothills,
F.G.I.C.
Aaa
Zero 7/01/09 3,455 1,585,603
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
3
<PAGE>
Portfolio of Investments as PRUDENTIAL
MUNICIPAL SERIES FUND
of August 31, 1995 ARIZONA SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
Puerto Rico Comnwlth.,
Gen. Oblig., M.B.I.A.
Aaa
5.782% 7/01/08 $ 2,000 $ 2,068,460
Hwy. Auth. Rev., Ser. Q
Baa1
7.70 7/01/03 490(c) 568,189
Puerto Rico Hwy. & Trans. Auth. Rev.
Baa1
5.50 7/01/15 2,500 2,350,400
Salt River Proj. Agric. Impvt. & Pwr. Dist., Elec. Sys.
Rev., Ser. D
Aa
5.00 1/01/30 3,000 2,550,150
Santa Cruz Cnty., Unified Sch. Dist.,
No. 1 Nogales, Cruz Cnty., A.M.B.A.C.
Aaa
Zero 1/01/06 770 446,669
No. 1 Nogales, Cruz Cnty., A.M.B.A.C.
Aaa
Zero 7/01/06 700 395,507
Scottsdale Ind. Dev. Auth. Rev., Mem. Hosp., Ser. A,
A.M.B.A.C.
Aaa
8.50 9/01/07 2,100 2,317,833
Scottsdale,
Gen. Oblig.
Aa1
5.50 7/01/09 500 503,815
Gen. Oblig., Ser. D
Aa1
4.00 7/01/13 1,000 771,750
Tempe, Gen. Oblig.
Aa
5.25 7/01/13 500 471,235
Tempe Union High Sch. Dist. No. 213, Ref., F.G.I.C.
Aaa
7.00 7/01/08 1,000 1,159,780
Tucson Gen. Oblig., Ser. A
A1
5.375 7/01/20 2,500 2,326,725
Tucson Wtr. Rev.
A1
5.50 7/01/09 1,000 997,990
Tucson Wtr. Rev., E.T.M.
Aaa
8.60 7/01/00 1,000 1,179,060
Virgin Islands Pub. Fin. Auth. Rev., Hwy. Trans. Trust
Fund, Ser. A
NR
7.25 10/01/18 600 632,976
Virgin Islands Terr., Hugo Ins. Claims Fund Proj., Ser. 91
NR
7.75 10/01/06 440 479,459
Virgin Islands Wtr. & Pwr. Auth., Elec. Sys. Rev., Ser. A
NR
7.40 7/01/11 500 531,620
-----------
Total long-term investments (cost $51,291,909)
55,265,718
SHORT-TERM INVESTMENTS--0.8%
La Paz Cnty., Unified Sch. Dist., No. 27, Parker Impvt.
Proj.
(cost $446,625)
Baa
9.40 7/01/96 450 468,081
-----------
Total Investments--101.1%
(cost $51,738,534; Note 4)
55,733,799
Liabilities in excess of other assets--(1.1)%
(614,449)
-----------
Net Assets--100%
$55,119,350
-----------
-----------
</TABLE>
- - ---------------
(a) The following abbreviations are used in portfolio
descriptions:
A.M.B.A.C.--American Municipal Bond Assurance
Corporation.
B.I.G.--Bond Investors Guaranty Insurance Company.
E.T.M.--Escrowed to Maturity.
F.G.I.C.--Financial Guaranty Insurance Company.
F.S.A.--Financial Security Assurance.
M.B.I.A.--Municipal Bond Insurance Association.
(b) Standard & Poor's rating.
(c) Prerefunded issues are secured by escrowed cash and/or
direct U.S.
guaranteed obligations.
(d) Pledged as initial margin on financial futures
contracts.
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.
- - ------------------------------------------------------------
- - --------------------
4 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Statement of Assets and Liabilities ARIZONA
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<S>
<C>
Assets
August 31, 1995
Investments, at value (cost
$51,738,534)................................................
.................
..... $55,733,799
Receivable for investments
sold........................................................
.................
...... 797,070
Interest
receivable..................................................
.................
........................ 637,154
Other
assets......................................................
.................
........................... 1,754
-----------
Total
assets......................................................
.................
........................ 57,169,777
-----------
Liabilities
Bank
overdraft...................................................
.................
............................ 654,204
Payable for Fund shares
reacquired..................................................
.................
......... 1,252,736
Accrued
expenses....................................................
.................
......................... 70,576
Dividends
payable.....................................................
.................
....................... 30,710
Management fee
payable.....................................................
.................
.................. 21,688
Due to broker-variation
margin......................................................
.................
......... 14,094
Distribution fee
payable.....................................................
.................
................ 4,819
Deferred trustees'
fees........................................................
.................
.............. 1,600
-----------
Total
liabilities.................................................
.................
........................ 2,050,427
-----------
Net
Assets......................................................
.................
............................. $55,119,350
-----------
-----------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
.............
$ 46,716
Paid-in capital in excess of
par.........................................................
..................
50,931,833
-----------
50,978,549
Accumulated net realized gain on
investments.................................................
..............
192,879
Net unrealized appreciation of
investments.................................................
................
3,947,922
-----------
Net assets, August 31,
1995........................................................
.................
.......... $55,119,350
-----------
-----------
Class A:
Net asset value and redemption price per share
($28,043,678 / 2,376,181 shares of beneficial interest
issued and
outstanding).......................... $11.80
Maximum sales charge (3.0% of offering
price)......................................................
........
.36
-----------
Maximum offering price to
public......................................................
.................
.... $12.16
-----------
-----------
Class B:
Net asset value, offering price and redemption price per
share
($27,064,415 / 2,294,422 shares of beneficial interest
issued and
outstanding).......................... $11.80
-----------
-----------
Class C:
Net asset value, offering price and redemption price per
share
($11,257 / 954 shares of beneficial interest issued
and
outstanding)....................................
$11.80
-----------
-----------
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
5
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MUNICIPAL SERIES FUND
ARIZONA SERIES
Statement of Operations
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income August 31,
1995
<S> <C>
Income
Interest................................. $ 3,685,787
-------------
- - --
Expenses
Management fee, net waiver of $19,126.... 268,246
Distribution fee--Class A................ 19,250
Distribution fee--Class B................ 181,641
Distribution fee--Class C................ 70
Custodian's fees and expenses............ 83,000
Reports to shareholders.................. 63,000
Registration fees........................ 43,000
Transfer agent's fees and expenses....... 31,000
Audit fee................................ 11,000
Legal fees............................... 10,000
Trustees' fees........................... 3,200
Miscellaneous............................ 7,763
-------------
- - --
Total expenses........................ 721,170
Less: custodian fee credit...............
(1,461)
-------------
- - --
Net expenses.......................... 719,709
-------------
- - --
Net investment income....................... 2,966,078
-------------
- - --
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions.................. 634,913
Financial futures contract
transactions..........................
(125,546)
-------------
- - --
509,367
-------------
- - --
Net change in unrealized appreciation/depreciation of:
Investments.............................. 761,582
Financial futures contracts..............
(23,593)
-------------
- - --
737,989
-------------
- - --
Net gain on investments..................... 1,247,356
-------------
- - --
Net Increase in Net Assets
Resulting from Operations................... $ 4,213,434
-------------
- - --
-------------
- - --
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
MUNICIPAL SERIES FUND
ARIZONA SERIES
Statement of Changes in Net Assets
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended August
31,
<S> <C> <C>
in Net Assets 1995 1994
Operations
Net investment income............ $ 2,966,078 $
3,162,438
Net realized gain on investment
transactions.................. 509,367
757,503
Net change in unrealized
appreciation/depreciation of
investments................... 737,989
(4,585,506)
----------- -------
- - ----
Net increase (decrease) in net
assets resulting from
operations.................... 4,213,434
(665,565)
----------- -------
- - ----
Dividends and distributions (Note 1):
Dividends from net investment income
Class A....................... (1,023,229)
(386,495)
Class B....................... (1,942,359)
(2,775,943)
Class C....................... (490)
- - --
----------- -------
- - ----
(2,966,078)
(3,162,438)
----------- -------
- - ----
Distributions from net realized gains
Class A....................... (36,415)
(74,328)
Class B....................... (254,495)
(618,468)
Class C....................... (52)
- - --
----------- -------
- - ----
(290,962)
(692,796)
----------- -------
- - ----
Series share transactions (net of
share conversions) (Note 5):
Net proceeds from shares sold.... 5,390,448
10,037,346
Net asset value of shares issued
in reinvestment of dividends
and distributions............. 1,695,473
2,064,510
Cost of shares reacquired........ (12,701,794)
(11,709,424)
----------- -------
- - ----
Net increase (decrease) in net
assets from Series share
transactions.................. (5,615,873)
392,432
----------- -------
- - ----
Total decrease...................... (4,659,479)
(4,128,367)
Net Assets
Beginning of year................... 59,778,829
63,907,196
----------- -------
- - ----
End of year......................... $55,119,350
$59,778,829
----------- -------
- - ----
----------- -------
- - ----
</TABLE>
- - ------------------------------------------------------------
- - --------------------
6 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements ARIZONA
SERIES
- - ------------------------------------------------------------
- - --------------------
Prudential Municipal Series Fund (the ``Fund'') is
registered under the
Investment Company Act of 1940, as an open-end investment
company. The Fund was
organized as a Massachusetts business trust on May 18, 1984
and consists of
seventeen series. The monies of each series are invested in
separate,
independently managed portfolios. The Arizona Series (the
``Series'') commenced
investment operations in September, 1984. The Series is
diversified and seeks
to
achieve its investment objective of obtaining the maximum
amount of income
exempt from federal and applicable state income taxes with
the minimum of risk
by investing in ``investment grade'' tax-exempt securities
whose ratings are
within the four highest ratings categories by a nationally
recognized
statistical rating organization or, if not rated, are of
comparable quality. The
ability of the issuers of the securities held by the Series
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, and the Series, 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 Trustees.
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.
All securities are valued as of 4:15 P.M., New York time.
Financial Futures Contracts: A financial futures contract is
an agreement to
purchase (long) or sell (short) an agreed amount of debt
securities at a set
price for delivery on a future date. Upon entering into a
financial futures
contract, the Series 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 Series
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 Series
invests in financial
futures contracts in order to hedge its existing portfolio
securities or
securities the Series intends to purchase, against
fluctuations in value caused
by changes in prevailing interest rates. Should interest
rates move
unexpectedly, the Series 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 securities are
calculated on the identified cost basis. Interest income is
recorded on the
accrual basis. The Series amortizes premiums and original
issue discount paid
on
purchases of 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: For federal income tax purposes, each
series in the Fund
is treated as a separate taxpaying entity. It is the intent
of the Series 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
shareholders. For this reason and because substantially all
of the Series' gross
income consists of tax-exempt interest, no federal income
tax provision is
required.
Dividends and Distributions: The Series declares daily
dividends from net
investment income. Payment of dividends is made monthly.
Distributions of net
capital gains, if any, are made annually.
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
- - ------------------------------------------------------------
- - --------------------
7
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements ARIZONA
SERIES
- - ------------------------------------------------------------
- - --------------------
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 services of PIC, 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 1% of the average daily net assets of the
Series. Effective
January 1, 1995, PMF has agreed to waive a portion (.05 of
1% of the Series'
average daily net assets) of its management fee, which
amounted to $19,126
($0.004 per share for Class A, B and C shares; .03% of
average net assets). The
Series 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.
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%,
.48 of 1% and .70
of
1% of the average daily net assets of the Class A, B and C
shares, respectively,
for the year ended August 31, 1995. Effective August 1,
1995, such expenses
under the Class B and C Plans were reduced to .10 of 1% of
the average daily net
assets of Class B and C shares.
PMFD has advised the Series that it has received
approximately $4,700 in
front-end sales charges resulting from sales of Class A
shares during the year
ended August 31, 1995. 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 Series that for the year ended August
31, 1995, it received
approximately $100,900 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 Transactions with Affiliates
Prudential Mutual Fund Services, Inc. (``PMFS''), a wholly-
owned subsidiary of
PMF, serves as the Fund's transfer agent. During the year
ended August 31, 1995,
the Series incurred fees of approximately $23,000 for the
services of PMFS. As
of August 31, 1995, approximately $1,900 of such fees were
due to PMFS. Transfer
agent fees and expenses in the Statement of Operations
include certain
out-of-pocket expenses paid to non-affiliates.
- - ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of portfolio securities of the Series,
excluding short-term
investments, for the year ended August 31, 1995 were
$20,129,123 and
$24,879,312, respectively.
The cost basis of investments for federal income tax
purposes is substantially
the same as for financial reporting purposes and,
accordingly, as of August 31,
1995, net unrealized appreciation of investments, including
short-term
investments, for federal income tax purposes is $3,995,265
(gross unrealized
appreciation--$4,232,082 gross unrealized depreciation--
$236,817).
At August 31, 1995, the Series sold financial futures
contracts on the Municipal
Bond Index expiring in September 1995. The value at
disposition of such
contracts is $2,786,688. The value of such contracts on
August 31, 1995 was
$2,834,031, thereby resulting in an unrealized loss of
$47,343.
- - ------------------------------------------------------------
Note 5. Capital
The Series offers Class A, Class B and Class C shares. Class
A shares are sold
with a front-end sales charge of up to 3.0%. Class B shares
are sold with a
contingent deferred sales charge which declines from 5% to
zero depending on the
period of time the shares are held. Class C shares are sold
with a contingent
deferred sales charge of 1% during the first year. Class B
shares will
automatically convert to Class A shares on a quarterly basis
approximately seven
years after purchase.
The Fund has authorized an unlimited number of shares of
beneficial interest of
each class at $.01 par value per share. Transactions in
shares of
- - ------------------------------------------------------------
- - --------------------
8
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements ARIZONA
SERIES
- - ------------------------------------------------------------
- - --------------------
beneficial interest for the fiscal years ended August 31,
1994 and 1995 were as
follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- - ------------------------------------ ---------- --------
- - ----
<S> <C> <C>
Year ended August 31, 1995:
Shares sold......................... 48,775 $
556,300
Shares issued in reinvestment of
dividends and distributions....... 53,613
619,182
Shares reacquired................... (378,290)
(4,367,006)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................. (275,902)
(3,191,524)
Shares issued upon conversion from
Class B........................... 1,989,674
22,698,793
---------- --------
- - ----
Net increase in shares
outstanding....................... 1,713,772 $
19,507,269
---------- --------
- - ----
---------- --------
- - ----
Year ended August 31, 1994:
Shares sold......................... 156,225 $
1,879,629
Shares issued in reinvestment of
dividends and distributions....... 29,257
350,410
Shares reacquired................... (55,416)
(665,858)
---------- --------
- - ----
Net increase in shares
outstanding....................... 130,066 $
1,564,181
---------- --------
- - ----
---------- --------
- - ----
<CAPTION>
Class B
- - ------------------------------------
<S> <C> <C>
Year ended August 31, 1995:
Shares sold......................... 423,333 $
4,823,840
Shares issued in reinvestment of
dividends and distributions....... 94,897
1,075,764
Shares reacquired................... (731,769)
(8,334,788)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................. (213,539)
(2,435,184)
Shares reacquired upon conversion
into Class A...................... (1,989,752)
(22,698,793)
---------- --------
- - ----
Net decrease in shares
outstanding....................... (2,203,291)
$(25,133,977)
---------- --------
- - ----
---------- --------
- - ----
Year ended August 31, 1994:
Shares sold......................... 679,458 $
8,157,517
Shares issued in reinvestment of
dividends and distributions....... 142,601
1,714,100
Shares reacquired................... (930,146)
(11,043,566)
---------- --------
- - ----
Net decrease in shares
outstanding....................... (108,087) $
(1,171,949)
---------- --------
- - ----
---------- --------
- - ----
<CAPTION>
Class C Shares
Amount
- - ------------------------------------ ---------- --------
- - ----
<S> <C> <C>
Year ended August 31, 1995:
Shares sold......................... 891 $
10,308
Shares issued in reinvestment of
dividends and distributions....... 46
527
---------- --------
- - ----
Net increase in shares
outstanding....................... 937 $
10,835
---------- --------
- - ----
---------- --------
- - ----
August 1, 1994* through
August 31, 1994:
Shares sold......................... 17 $
200
---------- --------
- - ----
Net increase in shares
outstanding....................... 17 $
200
---------- --------
- - ----
---------- --------
- - ----
</TABLE>
- - ---------------
* Commencement of offering of Class C shares.
- - ------------------------------------------------------------
Note 6. Proposed Reorganization
On July 24, 1995, the Trustees approved an Agreement and
Plan of Reorganization
and Liquidation for the Series (the ``Plan of
Reorganization'') which provides
for the transfer of substantially all of the assets and
liabilities of the
Series to Prudential National Municipals Fund, Inc.
(``National Municipals'').
Class A, Class B and Class C shares of the Series would be
exchanged at net
asset value for Class A, Class B and Class C shares,
respectively, of equivalent
value of National Municipals. The Series would then cease
operations.
The Plan requires the approval of shareholders of the Series
to become effective
and a proxy/prospectus will be mailed to shareholders in
September 1995. If the
Plan is approved, it is expected that the reorganization
will take place in
October 1995. The Series and National Municipals will each
bear their pro rata
share of the costs of the reorganization, including costs of
proxy solicitation.
- - ------------------------------------------------------------
- - --------------------
9
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights ARIZONA
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class A
- - ---------------------------------------------------
Year Ended August
31,
- - ---------------------------------------------------
1995
1994 1993
1992 1991
-------
- - ------ ------
------ ------
<S> <C>
<C> <C>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year.......... $ 11.59
$12.44 $11.88
$11.32 $10.80
-------
- - ------ ------
------ ------
Income from investment operations
Net investment income....................... .62(a)
.65 .67
.68 .69
Net realized and unrealized gain (loss) on
investment transactions.................. .27
(.72) .68
.56 .52
-------
- - ------ ------
------ ------
Total from investment operations......... .89
(.07) 1.35
1.24 1.21
-------
- - ------ ------
------ ------
Less distributions
Dividends from net investment income........ (.62)
(.65) (.67)
(.68) (.69)
Distributions from net realized gains....... (.06)
(.13) (.12)
-- --
-------
- - ------ ------
------ ------
Total distributions...................... (.68)
(.78) (.79)
(.68) (.69)
-------
- - ------ ------
------ ------
Net asset value, end of year................ $ 11.80
$11.59 $12.44
$11.88 $11.32
-------
- - ------ ------
------ ------
-------
- - ------ ------
------ ------
TOTAL RETURN(b):............................ 8.06%
(.59)% 11.79%
11.23% 11.45%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)............... $28,044
$7,675 $6,622
$2,146 $1,508
Average net assets (000).................... $19,250
$7,141 $3,613
$1,758 $937
Ratios to average net assets:
Expenses, including distribution fees.... 1.04%(a)
.89% .92%
1.02% 1.02%
Expenses, excluding distribution fees.... .94%(a)
.79% .82%
.92% .92%
Net investment income.................... 5.32%(a)
5.40% 5.58%
5.81% 6.13%
Portfolio turnover rate..................... 36%
33% 14%
42% 25%
</TABLE>
- - ---------------
(a) Net of management fee waiver.
(b) Total return does not consider the effects of sales
loads. Total return
is calculated assuming a purchase of shares on the
first day and a sale
on the last day of each year reported and includes
reinvestment of
dividends and distributions.
- - ------------------------------------------------------------
- - --------------------
10 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights ARIZONA
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class
B Class C
- - -------------------------------------------------------
- - ----------
Year Ended
August 31, Year Ended
- - -------------------------------------------------------
August 31,
1995
1994 1993
1992 1991 1995
-------
- - ------- -------
------- ------- -----
<S> <C>
<C> <C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........ $ 11.58
$ 12.44 $ 11.87
$ 11.32 $ 10.80 $11.58
-------
- - ------- -------
------- ------- -----
Income from investment operations
Net investment income....................... .58(a)
.60 .62
.63 .64 .56(a)
Net realized and unrealized gain (loss) on
investment transactions.................. .28
(.73) .69
.55 .52 .28
-------
- - ------- -------
------- ------- -----
Total from investment operations......... .86
(.13) 1.31
1.18 1.16 .84
-------
- - ------- -------
------- ------- -----
Less distributions
Dividends from net investment income........ (.58)
(.60) (.62)
(.63) (.64) (.56)
Distributions from net realized gains....... (.06)
(.13) (.12)
-- -- (.06)
-------
- - ------- -------
------- ------- -----
Total distributions...................... (.64)
(.73) (.74)
(.63) (.64) (.62)
-------
- - ------- -------
------- ------- -----
Net asset value, end of period.............. $ 11.80
$ 11.58 $ 12.44
$ 11.87 $ 11.32 $11.80
-------
- - ------- -------
------- ------- -----
-------
- - ------- -------
------- ------- -----
TOTAL RETURN(b):............................ 7.74%
(1.08)% 11.42%
10.68% 11.02% 7.54%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............. $27,064
$52,104 $57,286
$51,697 $57,209 $11
Average net assets (000).................... $38,214
$55,526 $53,656
$53,477 $58,973 $10
Ratios to average net assets:
Expenses, including distribution fees.... 1.36%(a)
1.29% 1.32%
1.42% 1.41% 1.61%(a)
Expenses, excluding distribution fees.... .89%(a)
.79% .82%
.92% .91% .92%(a)
Net investment income.................... 5.08%(a)
5.40% 5.18%
5.42% 5.77% 4.82%(a)
Portfolio turnover rate..................... 36%
33% 14%
42% 25% 36%
<CAPTION>
<S> <C>
August 1,
1994(d)
through
August 31,
1994
-----
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........ $ 11.60
-----
Income from investment operations
Net investment income....................... .04
Net realized and unrealized gain (loss) on
investment transactions.................. (.02)
-----
Total from investment operations......... .02
-----
Less distributions
Dividends from net investment income........ (.04)
Distributions from net realized gains....... --
-----
Total distributions...................... (.04)
-----
Net asset value, end of period.............. $ 11.58
-----
-----
TOTAL RETURN(b):............................ 0.10%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............. $200(e)
Average net assets (000).................... $199(e)
Ratios to average net assets:
Expenses, including distribution fees.... 1.90%(c)
Expenses, excluding distribution fees.... 1.14%(c)
Net investment income.................... 6.34%(c)
Portfolio turnover rate..................... 33%
</TABLE>
- - ---------------
(a) Net of management fee waiver.
(b) 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.
(c) Annualized.
(d) Commencement of offering of Class C shares.
(e) Figures are actual and not rounded to the nearest
thousand.
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
11
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Independent Auditors' Report ARIZONA
SERIES
- - ------------------------------------------------------------
- - --------------------
The Shareholders and Board of Trustees
Prudential Municipal Series Fund, Arizona Series
We have audited the accompanying statement of assets and
liabilities, including
the portfolio of investments, of Prudential Municipal Series
Fund, Arizona
Series as of August 31, 1995, the related statements of
operations for the year
then ended and of changes in 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. These financial statements and financial
highlights are the
responsibility of the Fund's management. Our responsibility
is to express an
opinion on these financial statements and financial
highlights based on our
audits.
We conducted our audits in accordance with generally
accepted auditing
standards. Those standards require that we plan and perform
the audit to obtain
reasonable assurance about whether the financial statements
and financial
highlights are free of material misstatement. An audit
includes examining, on
a
test basis, evidence supporting the amounts and disclosures
in the financial
statements. Our procedures included confirmation of the
securities owned as of
August 31, 1995 by correspondence with the custodian. An
audit also includes
assessing the accounting principles used and significant
estimates made by
management, as well as evaluating the overall financial
statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, such financial statements and financial
highlights present
fairly, in all material respects, the financial position of
Prudential Municipal
Series Fund, Arizona Series, as of August 31, 1995, the
results of its
operations, the changes in its net assets, and its financial
highlights for the
respective stated periods in conformity with generally
accepted accounting
principles.
DELOITTE & TOUCHE LLP
New York, New York
October 16, 1995
PRUDENTIAL
MUNICIPAL SERIES FUND
Federal Income Tax Information ARIZONA
SERIES
- - ------------------------------------------------------------
- - --------------------
We are required by the Internal Revenue Code to advise you
within 60 days of the
Series' fiscal year end (August 31, 1995) as to the federal
tax status of
dividends paid by the Series during such fiscal year.
Accordingly, we are
advising you that in the fiscal year ended August 31, 1995,
dividends paid from
net investment income of $.62 per Class A share, $.58 per
Class B share, and
$.56 per Class C share were all federally tax-exempt
interest dividends. In
addition, the Series paid to Class A, B and C shares a long-
term capital gain
distribution of $.058 per share, which is taxable as such.
In January 1996, you will be advised on IRS Form 1099 DIV or
substitute 1099 DIV
as to the federal tax status of the distributions received
by you in calendar
year 1995.
- - ------------------------------------------------------------
- - --------------------
12
<PAGE>
Getting The Most From Your Prudential Mutual Fund
When you invest through Prudential Mutual Funds, you receive
financial advice
through a Prudential Securities financial advisor or
Prudential/Pruco
Securities registered representative. Your advisor or
representative can
provide you with the following services.
- - ------------------------------------------------------------
- - -------------------
There's No Reward Without Risk; But Is This Risk Worth It?
Your financial adviser or registered representative can help
you match the
reward you seek with the risk you can tolerate. And risk can
be difficult to
gauge -- sometimes even the simplest investments bear
surprising risks. The
educated investor knows that markets seldom move in just one
direction --
there are times when a market sector or asset class will
lose value or provide
little in the way of total return. Managing your own
expectations is easier
with help from someone who understands the markets and who
knows you!
- - ------------------------------------------------------------
- - -------------------
Keeping Up With The Joneses.A financial adviser or
registered representative
can help you wade through the numerous mutual funds
available to find the ones
that fit your own individual investment profile and risk
tolerance. While the
newspapers and popular magazines are full of advice about
investing, they are
aimed at generic groups of people or representative
individuals, not at you
personally. Your financial advisor or registered
representative will review
your investment objectives with you. This means you can make
financial
decisions based on the assets and liabilities in your
current portfolio and
your risk tolerance -- not just based on the current
investment fad.
- - ------------------------------------------------------------
- - -------------------
Buy Low, Sell High.
Buying at the top of a market cycle and selling at the
bottom are among the
most common investor mistakes. But sometimes it's difficult
to hold on to an
investment when it's losing value every month. Your
financial adviser or
registered representative can answer questions when you're
confused or worried
about your investment, and remind you that you're investing
for the long haul.
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
Prudential Mutual Fund Management (LOGO)
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy Hays Teeters
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Grace Torres, Treasurer
S. Jane Rose, Secretary
Stephen M. Ungerman, Assistant Treasurer
Deborah A. Docs, Assistant 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
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
This report is not authorized for distribution to
prospective investors unless
preceded or accompanied by a current prospectus.
74435M101
74435M200
74435M598
(ICON)
Prudential
Municipal
Series Fund
Connecticut
Money Market Series
ANNUAL
REPORT
AUG. 31, 1995
(LOGO)
<PAGE>
Prudential Municipal Series Fund
Connecticut Money Market Series
Performance At A Glance.
Over the past 12 months, Connecticut's economy continued a
modest recovery and
its credit rating as of August 31, 1995, was Aa, according
to Moody's
Investors Service. The Prudential Municipal Series Fund:
Connecticut Money
Market Series' 7-day current yield on August 31, 1995 was
3.39% compared to
3.43% six months ago.
<TABLE>
<CAPTION>
Fund Facts
As of 8/31/95
7-Day Net Asset Taxable
Equivalent Yield*
Weighted Total
Current Yld. Value @31%
@36% @39.6%
Avg. Mat. Assets (mil.)
<S> <C> <C> <C> <C>
<C> <C>
<C>
CT Money
Market Fund 3.39% $1.00 5.14%
5.55% 5.88%
54 Days $63
IBC/Donoghue
CT Tax-exempt 3.01 1.00 4.57
4.92 5.22
59 Days N/A
Fund Average **
</TABLE>
Note: Yields will fluctuate from time to time and past
performance is no
guarantee of future results.
An investment in the Series is neither insured nor
guaranteed by the U.S.
government and there can be no assurance that the Series
will be able to
maintain a stable net asset value.
* Some investors may be subject to the federal alternative
minimum tax.
**This is the average 7-day current yield, NAV and WAM of 12
funds in the
International Business Communications/Donoghue Connecticut
tax-exempt money
market fund category as of August 31, 1995.
How Investments Compared.
(As of 8/31/95)
(GRAPH)
Source: Lipper Analytical Services.
Financial markets change, so a mutual fund's past
performance should never be
used to predict future results. The risks to each of the
investments listed
above are different -- we provide 12-month total returns for
several Lipper
mutual fund categories to show you that reaching for higher
yields means
tolerating more risk. The greater the risk, the larger the
potential reward or
loss. In addition, we've added historical 20-year average
annual returns.
These returns assume the reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Smaller
capitalization stocks
offer greater potential for long-term growth but may be more
volatile than
larger capitalization stocks. Investors receive higher
historical total returns
from stocks than from most other investments.
General Bond Funds provide more income than stock funds,
which can help smooth
out their total returns year by year. But their prices still
fluctuate
(sometimes a good deal) and their returns are historically
lower than those of
stock funds.
General Municipal Debt Funds invest in bonds issued by state
governments,
state agencies and/or municipalities. This investment
provides income that is
usually exempt from federal and state income taxes.
Tax-Exempt Money Market Funds attempt to preserve a constant
share value and
provide tax-free income; they don't fluctuate much in price
but their returns
are generally among the lowest of the major investment
categories.
*19 years for General Muni Debt Funds.
17 years for Tax-Free Money Market Funds.
<PAGE>
Richard Lynes, Fund Manager
(PHOTO)
Portfolio
Manager's Report
Prudential Municipal Series Fund: Connecticut Money Market
Series seeks the
highest current income that is exempt from federal and
Connecticut income
taxes, consistent with liquidity, the preservation of
capital, and maintenance
of a stable net asset value of $1 per share. The Series
invests in a portfolio
of short-term debt securities and obligations of Connecticut
state, its
municipalities, local governments and other qualifying
issuers.
Strategy Session.
A Critical Eye For Quality.
The Connecticut Money Market Series has followed a
conservative, quality
oriented investment strategy. We take a critical look not
only at a security's
current credit rating but also at the issuer as well. The
accounting mechanisms
between state and local municipalities can be an important
factor in weighing
the true value of a security. In some states, taxes
collected by a municipality
may be passed through to the state, which actually controls
the revenues.
Lessons Learned.
December's bankruptcy filing by California's Orange County
after it suffered
$1.7 billion in investment losses surprised the municipal
securities markets
nationwide. The sudden collapse of one of America's richest
counties and highly
rated bond issuers underscored the importance of quality
credit research and
diversification.
The Connecticut Money Market Series is invested across a
broad spectrum of
issues to reduce risk. This approach has led to the
purchases of high-quality
securities from many entities across Connecticut and from
other qualified
issuers, like Puerto Rico. As of August 31, 1995, we had
invested in securities
from 21 different issuers representing various public works
projects. In
addition, many of these investments include credit
enhancements like a letter
of credit from a major money center bank, such as Morgan
Guaranty, or bond
insurance from AMBAC.
Interest Rates Trend Lower
(GRAPH)
Federal Funds Rate vs. One-Year Bond Index
Source: Bloomberg & the Bond Buyer. The One-Year Bond Buyer
Index is an average
of one-year, tax-exempt notes of 10 issuers calculated by
the Bond Buyer
weekly on Wednesdays.
<PAGE>
We Did A Lot Of Shopping.
Although Connecticut has one of the more active and
aggressive retail markets
in tax-exempt securities, municipal issuance within the
state is sometimes
limited. This factor, combined with our strategy of seeking
greater
diversification, meant we had to do a lot more shopping for
quality issues.
Since our last report to you, we have on occasion invested
up to 15% of net
assets in out-of-state securities, as we are permitted to do
by prospectus.
We have also purchased "territorial paper" issued by the
Commonwealth of
Puerto Rico. These securities, such as Puerto Rico Medical &
Environmental
obligations, offer attractive yields, are exempt from
federal and Connecticut
taxes, and are secured by credit enhancements.
Strong Points.
Throughout the past 12 months, the Series' weighted average
maturity was
shorter than our peer group. That's been a plus because we
have been able to
take advantage of rising interest rates. In July and August
we selectively
extended portions of the portfolio to lock in competitive
yields in case the
Federal Reserve lowered its target for short-term interest
rates. For example,
we purchased Connecticut State Special Assessment
Unemployment revenue
securities that were attractively priced and credit
enhanced. The bonds yield
3.9% (which is equivalent to a taxable yield of 6.45% in the
39.6% bracket)
and mature on July 1, 1996.
State Of The State.
The Recovery Continued.
Over the past 12 months, Connecticut has continued to
recover from its
recession of the early 1990s. Some highlights --
- - -Signs of job growth were reported in the trade and
professional services
sectors. Employment growth still lagged New England and the
nation, but
payrolls did increase 0.7%. Declines in employment are
forecast for the
defense-related and financial services industries.
- - -The state government realized a budgetary surplus of $19.7
million for fiscal
year 1994, and preliminary results for fiscal year 1995
suggest a possible $74
million surplus. In the long-term, however, Connecticut
remains in a difficult
fiscal position as a result of a high debt burden and
relatively high taxes.
Looking Ahead.
Going forward, we believe that yields for tax-free money
market funds will
decline, following the taxable short-term interest rate cuts
engineered by the
Federal Reserve. The central bank's next move may be to cut
taxable rates
again, but we don't know for sure by how much. We have and
will continue to
structure the Series' portfolio to produce a competitive
yield while
maintaining our ability to respond to changing markets.
A Word
About Quality.
Your Series typically will purchase securities with
maturities of one year or
less that are rated Aaa, Aa; Notes: MIG-1, MIG-2, P-1 or P-2
by Moody's
Investors Service, or AAA, AA; Notes: SP-1, SP-1+, A-1 or A-
2 by Standard &
Poor's or, if not rated, deemed to be of comparable quality
by the Fund's
investment adviser. Although there is never a guarantee that
the share price
of the Connecticut Money Market Series will stay at $1, we
at Prudential
emphasize a conservative, quality-oriented investment
approach.
- - ------------------------------------------------------------
- - -------------------
1
<PAGE>
President's Letter
October 11, 1995
(PHOTO)
Dear Shareholder:
We hope you like the fresh look and information we've given
your shareholder
letter. We've also introduced another feature, called
Getting the Most Out of
Your Prudential Mutual Fund, which will appear from time to
time at the back
of your report. Look for topics like "Understanding Risk &
Reward" as well as
easy-to-understand explanations of financial terms. Why are
we providing such
information? Because at Prudential Mutual Funds, we believe
an informed
investor makes smart investment decisions.
On the Hill
As an informed investor, you should know about the "American
Dream Savings
Account" that is part of the federal budget package now
under debate in the
Senate. It is a type of Individual Retirement Account that
offers a common-
sense approach to long-term saving. Investors should like it
because --
- - - You can withdraw funds -- without penalty -- to pay for
certain expenses
like buying a first home, medical care or educational
needs;
- - - All account earnings would accumulate tax-free, not merely
tax-deferred like
the current IRA;
- - - You can make contributions past age 70 1/2, instead of
having to take
distributions as the current law requires.
Of course, the federal budget process is never easy and
while we hope this
measure is adopted, there's no way of knowing if it will be.
So why not let
your Senator and/or Representative know your opinion today?
Simply call
202-224-3121.
In Closing
One final note: if you're a Class B shareholder of other
Prudential Mutual
Funds, you'll begin noticing a change on your statements
once you've held
your shares for seven years. At that time, they will
automatically begin to
convert to Class A shares on a quarterly basis. Since Class
A shares carry
lower annual distribution charges than Class B shares, your
total returns will
be higher after the conversion than they would have been
without it.
Conversions started earlier this year and will take place
during each calendar
quarter -- December, March, June and September. It's our way
of thanking you
for your loyalty -- and rewarding you for maintaining a long-
term investment
program by helping you earn more total investment return on
your Prudential
Mutual Fund. I hope you'll find this information useful as
you work with your
financial advisor or registered representative to develop
your personal
investment plan.
Thank you for choosing Prudential Mutual Funds for your
mutual fund investment.
Sincerely,
Richard A. Redeker
President
- - ------------------------------------------------------------
- - -------------------
2
<PAGE>
Portfolio of Investments as PRUDENTIAL
MUNICIPAL SERIES FUND
of August 31, 1995 CONNECTICUT
MONEY MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
SHORT-TERM INVESTMENTS--101.0%
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
City of New Haven, Ser. 95
Aaa
5.00% 2/15/96 $ 1,250 $ 1,252,182
Connecticut St. Economic Recovery, Ser. A
Aa
5.40 12/15/95 2,000 2,006,947
Connecticut St. Dev. Auth., Ctrl. Rev.,
Conco Proj. Ser. 85, F.R.W.D.
P1
3.50 9/07/95 1,700 1,700,000
Jewish Cmnty. Ctr. of New Haven, Ser. 92, F.R.M.D.
A-1*
3.90 9/01/95 650 650,000
Lt. & Pwr. Co. Proj., Ser. 93B, F.R.W.D.
VMIG1
3.70 9/06/95 4,400 4,400,000
Rand Whitney Container Bd., Ser. 93, F.R.W.D.
P1
3.15 9/06/95 1,000 1,000,000
SHW Inc. Proj., Ser. 90, F.R.W.D.
NR
3.65 9/06/95 3,600 3,600,000
Water Facs. Rev. Bridgeport Hydrolic
Company Project., Ser. 95, F.R.W.D.
P1
3.10 9/06/95 2,000 2,000,000
Connecticut St. Hlth. & Edl. Facs. Auth. Rev.,
Bridgeport Hospital, Series B, F.R.W.D.
VMIG1
3.35 9/06/95 1,300 1,300,000
Charlotte-Hungerford Ser. B, F.R.W.D.
VMIG1
3.70 9/07/95 1,200 1,200,000
Pomfret School Issue, Series A, F.R.W.D.
VMIG1
3.50 9/06/95 1,000 1,000,000
Yale Univ., Ser. L, T.E.C.P.
VMIG1
3.50 11/09/95 1,100 1,100,000
Yale Univ., Ser. N, T.E.C.P.
VMIG1
3.50 11/09/95 1,500 1,500,000
Connecticut St. Hsg. Fin. Auth., Mtg. Fin. Prog. Ser.
93E-2, A.M.T.
VMIG1
4.50 11/15/95 1,000 1,000,000
Connecticut St. Mun. Elec. Engy., Pwr. Supply
Sys. Rev., Ser. 95A, T.E.C.P.
P1
3.55 12/08/95 1,600 1,600,000
Connecticut St. Spec. Assmt.,
Unemployment Comp. Ser. 93C, A.M.T.
VMIG1
3.90 7/01/96 2,500 2,500,000
Unemployment Comp. Ser. 93B, F.R.W.D.
VMIG1
3.60 9/06/95 3,500 3,500,000
Connecticut St. Spec. Tax Oblig., Trans. Infrastructure
Rev.,
Ser. 90I, F.R.W.D.
VMIG1
3.65 9/06/95 2,000 2,000,000
Davies Cnty. Solid Wst. Disp. Fac. Rev., Scott Paper Co.
Proj., Ser. 93B, F.R.D.D.
VMIG1
3.70 9/01/95 700 700,000
Dist. of Columbia Rev.,
Gen. Oblig., Rev., Ser. 92A-1, F.R.D.D.
VMIG1
3.70 9/01/95 300 300,000
Gen. Oblig., Rev., Ser. 92A-3, F.R.D.D.
VMIG1
3.70 9/01/95 1,000 1,000,000
Gen. Oblig., Rev., Ser. 92A-6, F.R.D.D.
VMIG1
3.70 9/01/95 1,500 1,500,000
Fairfield Connecticut, B.A.N.,
NR
5.25 1/16/96 1,000 1,001,321
Gulf Coast Ind. Dev. Auth., Citgo Petroleum, Ser. 94,
F.R.D.D.
VMIG1
3.70 9/01/95 500 500,000
Harris County Texas Ind. Dev. Co., Exxon Corp., Ser. 87,
F.R.D.D.
P1
3.65 9/01/95 600 600,000
Hartford Connecticut Redevelopment Agency MultiFamily
Mortgage,
Ser. 90, F.R.W.D.
NR
3.60 9/07/95 2,800 2,800,000
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
3
<PAGE>
Portfolio of Investments as PRUDENTIAL
MUNICIPAL SERIES FUND
of August 31, 1995 CONNECTICUT
MONEY MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
King George County Virginia Ind. Dev. Auth.,
Birchwood Pwr. Proj., Ser. 94, F.R.D.D
NR
3.75% 9/01/95 $ 500 $ 500,000
Birchwood Pwr. Proj., Ser. 94B, F.R.D.D
NR
3.75 9/01/95 1,000 1,000,000
Puerto Rico Comnwlth., Gov't. Dev. Bank., Ser. 85, F.R.W.D.
VMIG1
3.20 9/06/95 2,600 2,600,000
Puerto Rico Comnwlth. Hwy. & Trans. Auth. Rev., Ser. 85,
F.R.W.D.
VMIG1
3.20 9/06/95 2,300 2,300,000
Puerto Rico Hsg. Fin. Corp., MultiFamily Mtge. Rev.,
Portfolio A, Ser. 901, M.T.H.O.T.
Aa
3.70 9/15/95 2,165 2,165,000
Puerto Rico Ind. Med. & Environ. Facs.,
Ana G. Mendez Ed. Fndtn., Ser. 85, F.R.W.D.
A-1*
3.60 9/06/95 1,500 1,500,000
Inter Amer. Proj., Ser. 88, T.E.C.P.
VMIG1
3.45 10/11/95 1,800 1,800,000
Reynolds Metal Co. Proj., Ser. 83, A.O.T.
P1
3.75 9/01/96 3,000 2,997,327
Schering-Plough Corp., Ser. 83A, A.O.T.
AAA*
4.35 12/01/95 2,500 2,497,588
Puerto Rico Public Bldgs. Auth. Rev., Ser. SG34, F.R.W.D.
NR
3.60 9/07/95 3,000 3,000,000
Stamford Connecticut Housing Authority Revenue Morgan
Street Project, Ser. 94, F.R.W.D
VMIG1
3.55 9/06/95 1,400 1,400,000
-----------
Total Investments--101.0%
(amortized cost--$63,470,365(c))
63,470,365
Liabilities in excess of other assets--(1.0)%
(603,580)
-----------
Net Assets--100%
$62,866,785
-----------
-----------
</TABLE>
- - ---------------
(a) The following abbreviations are used in portfolio
descriptions:
A.M.T.--Annual Mandatory Tender.
A.O.T.--Annual Optional Tender.
B.A.N.--Bond Anticipation Note.
F.R.D.D.--Floating Rate (Daily) Demand Note (b).
F.R.M.D.--Floating Rate (Monthly) Demand Note (b).
F.R.W.D.--Floating Rate (Weekly) Demand Note (b).
M.T.H.O.T.--Monthly Optional Tender.
T.E.C.P.--Tax Exempt Commercial Paper.
(b) 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.
(c) The cost of securities for federal income tax purposes
is substantially
the same as for financial reporting purposes.
* Standard & Poor's rating.
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.
- - ------------------------------------------------------------
- - --------------------
4 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Statement of Assets and Liabilities CONNECTICUT
MONEY MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<S>
<C>
Assets
August 31, 1995
Investments, at amortized cost which approximates market
value............................................... $
63,470,365
Cash........................................................
.................
................................ 38,027
Receivable for Fund shares
sold........................................................
.................
..... 1,163,721
Interest
receivable..................................................
.................
....................... 359,529
Receivable for investments
sold........................................................
.................
..... 25,000
Deferred
expenses....................................................
.................
....................... 14,976
------------
Total
assets......................................................
.................
....................... 65,071,618
------------
Liabilities
Payable for investments
purchased...................................................
.................
........ 1,097,327
Payable for Fund shares
reacquired..................................................
.................
........ 1,003,145
Accrued
expenses....................................................
.................
........................ 67,968
Dividends
payable.....................................................
.................
...................... 24,177
Management fee
payable.....................................................
.................
................. 6,889
Distribution fee
payable.....................................................
.................
............... 3,727
Deferred Trustees'
fees........................................................
.................
............. 1,600
------------
Total
liabilities.................................................
.................
....................... 2,204,833
------------
Net
Assets......................................................
.................
............................ $ 62,866,785
------------
------------
Net assets were comprised of:
Shares of beneficial interest, at $.01 par
value.......................................................
... $
628,668
Paid-in capital in excess of
par.........................................................
.................
62,238,117
------------
Net assets, August 31,
1995........................................................
.................
......... $ 62,866,785
------------
------------
Net asset value, offering price and redemption price per
share ($62,866,785 /
62,866,785 shares of beneficial
interest issued and outstanding; unlimited number of
shares
authorized)...................................
$1.00
------------
------------
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
5
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
CONNECTICUT MONEY MARKET SERIES
Statement of Operations
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Year
Ended
Net Investment Income August 31,
1995
<S> <C>
Income
Interest and discount earned............... $
2,111,441
-----------
- - ----
Expenses
Management fee, net of waiver of
$214,138................................
71,379
Distribution fee...........................
71,379
Custodian's fees and expenses..............
62,000
Transfer agent's fees and expenses.........
35,000
Registration fees..........................
28,000
Reports to shareholders....................
20,900
Amortization of organization expense.......
15,133
Audit fee..................................
10,500
Legal fees.................................
10,000
Trustees' fees.............................
3,200
Miscellaneous..............................
4,532
-----------
- - ----
Total expenses..........................
332,023
Less: custodian fee credit....................
(33,213)
-----------
- - ----
Net expenses............................
298,810
-----------
- - ----
Net investment income.........................
1,812,631
-----------
- - ----
Realized Gain on Investments
Net realized gain on investment
transactions...............................
714
-----------
- - ----
Net Increase in Net Assets Resulting from
Operations.................................... $
1,813,345
-----------
- - ----
-----------
- - ----
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
CONNECTICUT MONEY MARKET SERIES
Statement of Changes in Net Assets
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended August 31,
<S> <C> <C>
in Net Assets 1995 1994
Operations
Net investment income.......... $ 1,812,631 $
1,208,289
Net realized gain (loss) on
investment transactions..... 714
(4,743)
------------ --------
- - ----
Net increase in net assets
resulting from operations... 1,813,345
1,203,546
------------ --------
- - ----
Dividends and distributions to
shareholders................... (1,813,345)
(1,203,546)
------------ --------
- - ----
Series share transactions (at $1
per share)
Net proceeds from shares
sold........................ 234,075,262
210,712,023
Net asset value of shares
issued to shareholders in
reinvestment of dividends... 1,751,916
1,156,043
Cost of shares reacquired...... (227,262,566)
(215,359,425)
------------ --------
- - ----
Net increase (decrease) in net
assets from Series share
transactions................ 8,564,612
(3,491,359)
------------ --------
- - ----
Total increase (decrease)......... 8,564,612
(3,491,359)
Net Assets
Beginning of year................. 54,302,173
57,793,532
------------ --------
- - ----
End of year....................... $ 62,866,785 $
54,302,173
------------ --------
- - ----
------------ --------
- - ----
</TABLE>
- - ------------------------------------------------------------
- - --------------------
6 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements CONNECTICUT
MONEY MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
Prudential Municipal Series Fund (the ``Fund'') is
registered under the
Investment Company Act of 1940, as an open-end investment
company. The Fund was
organized as a Massachusetts business trust on May 18, 1984
and consists of
seventeen series. The monies of each series are invested in
separate,
independently managed portfolios. The Connecticut Money
Market Series (the
``Series'') commenced investment operations on August 5,
1991. The Series is
non-diversified and seeks to provide the highest level of
income that is exempt
from Connecticut State, local and federal income taxes with
the minimum of risk
by investing in ``investment grade'' tax-exempt securities
having a maturity of
thirteen months or less and whose ratings are within the two
highest ratings
categories by a nationally recognized statistical rating
organization, or if not
rated, are of comparable quality. The ability of the issuers
of the securities
held by the Series to meet their obligations may be affected
by economic
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, and the Series, in the preparation of its financial
statements.
Securities Valuations: Portfolio securities of the Series
are valued at
amortized cost, which approximates market value. The
amortized cost method of
valuation involves valuing a security at its cost on the
date of purchase and
thereafter assuming a constant amortization to maturity of
any discount or
premium.
All securities are valued as of 4:30 p.m., New York time.
Securities Transactions and Investment Income: Securities
transactions are
recorded on the trade date. Realized gains and losses on
sales of investments
are calculated on the identified cost basis. Interest income
is recorded on the
accrual basis.
Federal Income Taxes: For federal income tax purposes, each
series in the Fund
is treated as a separate taxpaying entity. It is the intent
of the Series 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
shareholders. For this reason and because substantially all
of the Series' gross
income consists of tax-exempt interest, no federal income
tax provision is
required.
Dividends: The Series declares daily dividends from net
investment income.
Payment of dividends is made monthly. Income distributions
and capital gain
distributions are determined in accordance with income tax
regulations which may
differ from generally accepted accounting principles.
Deferred Organization Expenses: The Series incurred
approximately $52,600 in
organization and initial registration expenses. Such amount
has been deferred
and is being amortized over a period of 60 months ending
July 1996.
Custody Fee Credits: The Series has an arrangement with its
custodian bank,
whereby uninvested monies earn credits which reduce the fees
charged by the
custodian.
- - ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential 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 1% of the average daily net assets of the
Series. For the fiscal
year ended August 31, 1995, PMF voluntarily waived 75% of
its management fee.
The amount of fees waived for the fiscal year ended August
31, 1995 amounted to
$214,138 ($.003 per share; .375% of average net assets, as
annualized).
The Fund has a distribution agreement with Prudential Mutual
Fund Distributors,
Inc. (``PMFD''). To reimburse PMFD for its expenses incurred
pursuant to a plan
of distribution, the Fund pays PMFD a reimbursement, accrued
daily and payable
monthly, at an annual rate of .125 of 1% of the Series'
average daily net
assets. PMFD pays various broker-dealers, including
Prudential Securities
Incorporated (``PSI'') and Pruco Securities Corporation,
affiliated
broker-dealers, for account servicing fees and other
expenses incurred by such
broker-dealers.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC
are (indirect)
wholly-owned subsidiaries of The Prudential Insurance
Company of America.
- - ------------------------------------------------------------
- - --------------------
7
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements CONNECTICUT
MONEY MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
- - ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services, Inc. (``PMFS''), a wholly-
owned subsidary of
PMF, serves as the Fund's transfer agent. During the year
ended August 31, 1995,
the Series incurred fees of approximately $31,000 for the
services of PMFS. As
of August 31, 1995, approximately $2,500 of such fees were
due to PMFS. Transfer
agent fees and expenses in the Statement of Operations also
include certain
out-of-pocket expenses paid to non-affiliates.
- - ------------------------------------------------------------
- - --------------------
8
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights CONNECTICUT
MONEY MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
August 5,
1991(a)
Year Ended August
31, through
- - ------------------------------------------------ August
31,
1995
1994
1993 1992 1991
------
- - -------
- - ------- ------- ----------
<S> <C>
<C> <C>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 1.00
$ 1.00 $
1.00 $ 1.00 $ 1.00
Net investment income and realized gains(c)... .032
.020
.022 .034 .003
Dividends and distributions to shareholders... (.032)
(.020)
(.022) (.034) (.003)
------
- - -------
- - ------- ------- ----------
Net asset value, end of period................ $ 1.00
$ 1.00 $
1.00 $ 1.00 $ 1.00
------
- - -------
- - ------- ------- ----------
------
- - -------
- - ------- ------- ----------
TOTAL RETURN(d):.............................. 3.16%
2.02%
2.20% 3.42% .30%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $ 62,867
$54,302
$57,794 $40,480 $ 10,904
Average net assets (000)...................... $ 57,103
$60,594
$53,152 $33,964 $ 6,730
Ratios to average net assets(c):
Expenses, including distribution fee........ .581%
.542%
.387% .125% .125%(b)
Expenses, excluding distribution fee........ .456%
.417%
.262% .00% .00%(b)
Net investment income....................... 3.17%
1.99%
2.17% 3.20% 4.42%(b)
</TABLE>
- - ---------------
(a) Commencement of investment operations.
(b) Annualized.
(c) Net of management fee waiver and/or expense subsidy.
(d) Total return includes reinvestment of dividends and
distributions. Total
returns for periods of less than a full year are not
annualized.
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
9
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Independent Auditors' Report CONNECTICUT
MONEY MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
The Shareholders and Board of Trustees
Prudential Municipal Series Fund, Connecticut Money Market
Series
We have audited the accompanying statement of assets and
liabilities, including
the portfolio of investments, of Prudential Municipal Series
Fund, Connecticut
Money Market Series, as of August 31, 1995, the related
statements of operations
for the year then ended and of changes in net assets for
each of the two years
in the period then ended, and the financial highlights for
each of the four
years in the period then ended and for the period August 5,
1991 (commencement
of investment operations) through August 31, 1991. These
financial statements
and financial highlights are the responsibility of the
Fund's management. Our
responsibility is to express an opinion on these financial
statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally
accepted auditing
standards. Those standards require that we plan and perform
the audit to obtain
reasonable assurance about whether the financial statements
and financial
highlights are free of material misstatment. An audit
includes examining, on a
test basis, evidence supporting the amounts and disclosures
in the financial
statements. Our procedures included confirmation of the
securities owned as of
August 31, 1995 by correspondence with the custodian and
brokers; where replies
were not received from brokers, we performed other auditing
procedures. An audit
also includes assessing the accounting principles used and
significant estimates
made by management, as well as evaluating the overall
financial statement
presentation. We believe that our audits provide a
reasonable basis for our
opinion.
In our opinion, such financial statements and financial
highlights present
fairly, in all material respects, the financial position of
Prudential Municipal
Series Fund, Connecticut Money Market Series, as of August
31, 1995, the results
of its operations, the changes in net assets, and its
financial highlights for
the respective stated periods in conformity with generally
accepted accounting
principles.
DELOITTE & TOUCHE LLP
New York, New York
October 16, 1995
PRUDENTIAL
MUNICIPAL SERIES FUND
Federal Income Tax Information CONNECTICUT
MONEY MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
We are required by the Internal Revenue Code to advise you
within 60 days of the
Series' fiscal year end (August 31, 1995) as to the federal
tax status of
dividends paid by the Series during such fiscal year.
Accordingly, we are
advising you that in the fiscal year ended August 31, 1995,
dividends paid from
net investment income of .032 per share were all federally
tax-exempt interest
dividends.
- - ------------------------------------------------------------
- - --------------------
10
<PAGE>
Getting
The Most
From Your
Prudential
Mutual Fund
When you invest through Prudential Mutual Funds, you receive
financial advice
through a Prudential Securities financial advisor or
Prudential/Pruco
Securities registered representative. Your advisor or
representative can
provide you with the following services.
There's No Reward Without Risk; But Is This Risk Worth It?
Your financial adviser or registered representative can help
you match the
reward you seek with the risk you can tolerate. And risk can
be difficult to
gauge --sometimes even the simplest investments bear
surprising risks. The
educated investor knows that markets seldom move in just one
direction --
there are times when a market sector or asset class will
lose value or provide
little in the way of total return. Managing your own
expectations is easier
with help from someone who understands the markets and who
knows you!
Keeping Up With The Joneses.
A financial adviser or registered representative can help
you wade through the
numerous mutual funds available to find the ones that fit
your own individual
investment profile and risk tolerance. While the newspapers
and popular
magazines are full of advice about investing, they are aimed
at generic groups
of people or representative individuals, not at you
personally. Your financial
advisor or registered representative will review your
investment objectives
with you. This means you can make financial decisions based
on the assets and
liabilities in your current portfolio and your risk
tolerance -- not just
based on the current investment fad.
Buy Low, Sell High.
Buying at the top of a market cycle and selling at the
bottom are among the
most common investor mistakes. But sometimes it's difficult
to hold on to an
investment when it's losing value every month. Your
financial adviser or
registered representative can answer questions when you're
confused or worried
about your investment, and remind you that you're investing
for the long haul.
<PAGE>
Getting
The Most
From Your
Prudential
Mutual Fund
Some mutual fund shareholders won't ever read this -- they
don't read annual
and semi-annual reports. It's quite understandable These
annual and semi-
annual reports are prepared to comply with Federal
regulations. They are often
written in language that is difficult to understand. So when
most people run
into those particularly daunting sections of these reports,
they don't read
them.
We think that's a mistake.
At Prudential Mutual Funds, we've made some changes to our
report to make it
easier to understand and more pleasant to read, in hopes
you'll find it
profitable to spend a few minutes familiarizing yourself
with your investment.
Here's what you'll find in the report:
At A Glance
Since an investment's performance is often a shareholder's
primary concern, we
present performance information in two different formats.
You'll find it first
on the "At A Glance" page where we compare the Fund and the
comparable average
calculated by Lipper Analytical Services, Inc., a nationally
recognized mutual
fund rating agency. We report both the cumulative total
returns and the average
annual total returns. The cumulative total return is the
total amount of income
and appreciation the Fund has achieved in various time
periods. The average
annual total return is an annualized representation of the
Fund's performance
- - -- it generally smoothes out returns and gives you an idea
how much the Fund
has earned in an average year, for a given time period.
Under the performance
box, you'll see legends that explain the performance
information, whether fees
and sales charges have been included in returns, and the
inception dates for
the Fund's share classes.
See the performance comparison charts at the back of the
report for more
performance information. And keep in mind that past
performance is not
indicative of future results.
Portfolio Manager's Report
The portfolio manager who invests your money for you reports
on successful --
and not-so-successful -- strategies in this section of your
report. Look for
recent purchases and sales here, as well as information
about the sectors the
portfolio managers favors and any changes that are on the
drawing board.
Portfolio Of Investments
This is where the report begins to look technical, but it's
really just a
listing of each security held at the end of the reporting
period, along with
valuations and other information. Please note that sometimes
we discuss a
security in the Portfolio Manager's Report that doesn't
appear in this listing
because it was sold before the close of the reporting
period.
<PAGE>
Statement Of Assets And Liabilities
The balance sheet shows the assets (the value of the Fund's
holdings),
liabilities (how much the Fund owes) and net assets (the
Fund's equity, or
holdings after the Fund pays its debts) as of the end of the
reporting period.
It also shows how we calculate the net asset value per share
for each class of
shares. The net asset value is reduced by payment of your
dividend, capital
gain, or other distribution, but remember that the money or
new shares are
being paid or issued to you and thus is not a realized loss.
The net asset
value fluctuates daily along with the value of every
security in the portfolio.
Statement Of Operations
This is the income statement, which details income (mostly
interest and
dividends earned) and expenses (including what you pay us to
manage your
money). You'll also see capital gains here -- both realized
and unrealized.
Statement Of Changes In Net Assets
This schedule shows how income and expenses translate into
changes in net
assets, compared to last year's performance. The Fund is
required to pay out
the bulk of its income to shareholders every year, and this
statement shows
you how we do it -- through dividends and distributions --
and how that
affects the net assets. This statement also shows how money
from investors
flowed into and out of the Fund.
Notes To Financial Statements
This is the kind of technical material that can intimidate
readers, but it
does contain useful information. The Notes provide a brief
history and
explanation of your Fund's objectives. In addition, they
also outline how
Prudential Mutual Funds prices securities. The Notes also
explain who manages
and distributes the Fund's shares, and more importantly, how
much they are
paid for doing so. Finally, the Notes explain how many
shares are outstanding
and the number issued and redeemed over the period.
Financial Highlights
This information contains many elements from prior pages,
but on a per share
basis. It is designed to help you understand how the Fund
performed and to
compare this year's performance and expenses to those of
prior years.
Independent Auditor's Report
Once a year, an outside auditor looks over our books and
certifies that the
information we've presented is fair and complies with
generally accepted
accounting principles.
Tax Information
This is information which we report annually about how much
of your total
return is taxable. Should you have any questions, you may
want to consult a
tax advisor.
Performance Comparison
These charts are included in the annual report and are
required by the
Securities Exchange Commission. Performance is presented
here as a
hypothetical $10,000 investment in the Fund since its
inception or for 10
years (whichever is shorter). To help you put that return in
context, we are
required to include the performance of an unmanaged, broad
based securities
index, as well. The index does not reflect the cost of
buying the securities
it contains or the cost of managing a mutual fund. Of
course, the index
holdings do not mirror those of the fund -- the index is a
broadly based
reference point commonly used by investors to measure how
well they are doing.
A definition of the selected index is also provided.
Investors generally
cannot invest directly in an index.
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
Prudential Mutual Fund Management (LOGO)
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy Hays Teeters
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Grace Torres, Treasurer
S. Jane Rose, Secretary
Stephen M. Ungerman, Assistant Treasurer
Deborah A. Docs, Assistant 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
Distributor
Prudential Mutual Fund Distributors, Inc.
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
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
This report is not authorized for distribution to
prospective investors
unless preceded or accompanied by a current prospectus.
MF154E
74435M648 Cat.
#4445050
(ICON)
ANNUAL
REPORT
Aug. 31, 1995
Prudential
Municipal
Series Fund
- - -----------------------
Florida Series
(LOGO)
<PAGE>
Prudential Municipal Series Fund
Florida Series
Performance At A Glance.
It has been a good year for shareholders of the Prudential
Municipal Series
Fund: Florida Series. Municipal bond investors earned not
only their coupon
income, but also saw a gain in net asset value as well. We
are pleased to
report that your Portfolio performed in line with the
average Florida municipal
bond fund measured by Lipper Analytical Services over the
past 12 months.
Cumulative Total Returns1 As of
8/31/95
<TABLE>
<CAPTION>
One
Since
Year
Inception2
<S> <C> <C>
Class A 7.9%
44.8%
Class B 7.4 7.3
Class C 7.1 7.8
Lipper Fla. Muni Avg3 7.7 42.4
</TABLE>
Average Annual Total Returns1 As
of 9/30/95
<TABLE>
<CAPTION>
One
Since
Year
Inception2
<S> <C> <C>
Class A 7.5%
7.6%
Class B 5.3 3.5
Class C 9.1 3.8
</TABLE>
<TABLE>
<CAPTION>
Taxable Equivalent Yield
Total Dividends 30-Day
At Tax Rates of
Paid for 12 Mos. SEC Yield
36% 39.6%
<S> <C> <C> <C>
<C> <C>
Your Class A $0.59 5.55%
8.67% 9.19%
Dividend Class B $0.55 5.33
8.33 8.82
As of 8/31/95 Class C $0.53 5.08
7.94 8.41
</TABLE>
Past performance is not a guarantee of future results.
Principal and investment
return will fluctuate so that an investor's shares, when
redeemed, may be worth
more or less than their original cost.
1Source: Prudential Mutual Fund Management and Lipper
Analytical Services. The
cumulative total returns do not take into account sales
charges. The average
annual returns do take into account applicable sales
charges. The Series
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. Class B shares
automatically convert to Class A shares on a quarterly
basis, after
approximately seven years.
2Inception dates: 12/28/90 for Class A; 8/1/94 for Class B;
and 7/26/93 for
Class C.
3The Lipper Florida Municipal Bond fund average includes 69
funds for one year
and 10 funds since inception of the Class A shares on
12/28/90.
How Investments Compared.
(As of 8/31/95)
(GRAPH)
Source: Lipper Analytical Services. Financial markets
change, so a mutual
fund's past performance should never be used to predict
future results. The
risks to each of the investments listed above are different
- - -- we provide
12-month total returns for several Lipper mutual fund
categories to show you
that reaching for higher yields means tolerating more risk.
The greater the
risk, the larger the potential reward or loss. In addition,
we've added
historical 20-year average annual returns. These returns
assume the
reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Smaller
capitalization stocks
offer greater potential for long-term growth but may be more
volatile than
larger capitalization stocks. Investors receive higher
historical total
returns from stocks than from most other investments.
General Bond Funds provide more income than stock funds,
which can help smooth
out their total returns year by year. But their prices still
fluctuate
(sometimes a good deal) and their returns are historically
lower than those of
stock funds.
General Municipal Debt Funds invest in bonds issued by state
governments, state
agencies and/or municipalities. This investment provides
income that is usually
exempt from federal and state income taxes.
Money Market Funds attempt to preserve a constant share
value; they don't
fluctuate much in price but their returns are generally
among the lowest of
the major investment categories.
*19 years for General Muni Debt Funds.
<PAGE>
Marie Conti, Fund Manager
(PHOTO)
Portfolio
Manager's Report
The Series invests in carefully selected long-term municipal
bonds that offer
a high level of current income exempt from federal income
taxes and invest in
securities which will enable its shares to be exempt from
the Florida
intangibles tax. Certain shareholders may be subject to the
federal
alternative minimum tax, however.
Overview.
The Series invests primarily in obligations of Florida,
municipal and local
governments, including U.S. territories (such as Puerto
Rico, the U.S. Virgin
Islands and Guam), which are exempt from the Florida
intangibles tax and which
pay income exempt from federal income tax.
Strategy Session.
It has been a positive year for tax-free municipals.
Although interest rates
rose sharply last year on inflation fears, they have tumbled
back down slowly
so far in 1995, as economic growth slowed. The Bond Buyer
Revenue Bond Index
Yield stood at 6.4% on September 1, 1994 (the index is
calculated on Thursdays)
and rose by a percentage point to a high of 7.4% in mid-
October 1994,
before falling to 6.3% on August 31, 1995. As you can see,
when the dust had
settled, long-term municipal bond interest rates ended the
period lower.
As interest rates declined over the last six months, we
increased our holdings
in revenue bonds to 60% from 56% because they pay a higher
rate of interest. In
addition, we have been buying longer maturity bonds with
discount coupons
(coupons lower than the prevailing market), and some zero
coupon bonds, because
these are more likely to appreciate more if interest rates
fall, as we expect.
State Of The State: Employment Is Higher.
Florida's economy is not easily contained. Although the
state's largest
industry, tourism, suffered from crime fears in 1994,
overall employment was up
3.7% last year, higher than regional and national rates.
Unemployment at this
writing is slightly lower than the national average. Most
job gains are in the
service sector, particularly in the rapidly growing
healthcare area. By 2010,
about 41% of Florida's population will be aged 50 or over --
nine percentage
points higher than in 1990.
Fiscally, Florida is improving as well. The state government
is in its third
consecutive year of operating surpluses, and now has a
Budget Stabilization
Fund of $120 million. As for the future, voters last
November adopted a plan
to limit state budget increases to the five-year average
personal income
increase.
Sector Brakdown.
(GRAPH)
<PAGE>
What Went Well.
We Held On To Good Yields.
Our assets invested in non-callable bonds (those that can
not be paid off
prematurely by the issuer to save on interest costs) ranged
from 11% to 6%.
These bonds not only offer attractive yields but also
appreciate well when
interest rates decline. They are valuable because not many
bonds offer
protection from call risk -- only about a third of the
securities in the
Lehman Brothers' Municipal Bond Index are non-callable.
It Paid To Buy Puerto Rico Bonds.
This year, the supply of new municipal bonds has declined in
Florida by 5% this
year alone. So we looked elsewhere. We bought bonds sold by
Puerto Rico,
because they are tax-exempt federally and in virtually all
states, including
Florida. As a result, they are in demand. Our holdings in
Puerto Rico are now
nearly 10% of assets.
And Not So Well.
A Longer Duration Would Have Helped.
In the first quarter, our duration was shorter than that of
some competing
funds, because we thought economic growth would be stronger.
As the slowdown
became apparent in the second quarter, we extended duration,
but should have
done so sooner. Duration generally ranged from 7.6 years to
8.3 years, and was
8.1 years on June 30.
Municipals Have
Suffered From Tax Talk.
Congress is considering various plans to reduce the value of
the tax exemption
enjoyed by municipal bonds, perhaps by lowering or
eliminating income taxes on
other types of bonds. Clearly, this created uncertainty in
the market -- one
reason why municipal bonds did not rise in tandem with
taxable bonds in the
second quarter. We believe it is unlikely that a flat tax
proposal -- under
which everyone would pay a single-rate income tax -- will
pass Congress.
Five Largest Holdings.*
<TABLE>
<S> <C>
5.4% Orlando Utilities Comm.
4.1% Dade Co. Public Impr.
J&K Seaport
3.2% Puerto Rico
General Obligation
2.7% Jacksonville
Hospital Revenue
2.7% Brevard County
School Board
</TABLE>
* Expressed as a percentage of total net assets as of
8/31/95.
Looking Ahead.
Municipal bonds yields are very attractive now. This spring,
when U.S.
government and corporate bond yields fell, municipal yields
did not follow to
the same extent. The results are some very good buying
opportunities now in the
municipal market. Should interest rates remain stable,
investors may look
forward to earning their coupon. Plus, if interest rates
fall further,
investors in tax-exempt securities could reasonably expect
some price
appreciation as well as coupon income.
Municipal bond investors should be prepared to weather some
volatility this
year as a consequence of proposals to change the federal
income tax. Overall,
we believe municipal bonds still offer good value, and that
volatility can
offer some attractive buying opportunities.
1
<PAGE>
President's Letter October 11, 1995
Dear Shareholder:
We hope you like the fresh look and information we've given
your shareholder
letter. We've also introduced another feature, called
Getting the Most Out of
Your Prudential Mutual Fund, which will appear from time to
time at the back of
your report. Look for topics like ``Understanding Risk &
Reward'' as well as
easy-to-understand explanations of financial terms. Why are
we providing such
information? Because at Prudential Mutual Funds, we believe
an informed
investor makes smart investment decisions.
- - ------------------------------------------------------------
- - -------------------
On the Hill
As an informed investor, you should know about the
``American Dream Savings
Account'' that is part of the federal budget package now
under debate in the
Senate. It is a type of Individual Retirement Account that
offers a
common-sense approach to long-term saving. Investors should
like it because--
- You can withdraw funds -- without penalty -- to pay
for certain expenses
like buying a first home, medical care or educational
needs;
- All account earnings would accumulate tax-free, not
merely tax-deferred
like the current IRA;
- You can make contributions past age 70 1/2, instead of
having to take
distributions as the current law requires.
Of course, the federal budget process is never easy and
while we hope this
measure is adopted, there's no way of knowing if it will be.
So why not let
your Senator and/or Representative know your opinion today?
Simply call
202-224-3121.
- - ------------------------------------------------------------
- - -------------------
In Closing
One final note: if you're a Class B shareholder of
Prudential Mutual Funds,
you'll begin noticing a change on your statements once
you've held your shares
for seven years. At that time, they will automatically begin
to convert to
Class A shares on a quarterly basis. Since Class A shares
carry lower annual
distribution charges than Class B shares, your total returns
will be higher
after the conversion than they would have been without it.
Conversions started
earlier this year and beginning in December they will take
place during each
calendar quarter -- December, March, June and September.
It's our way of
thanking you for your loyalty -- and rewarding you for
maintaining a long-term
investment program by helping you earn more total investment
return on your
Prudential Mutual Fund. I hope you'll find this information
useful as you work
with your financial advisor or registered representative to
develop your
personal investment plan.
Thank you for choosing Prudential Mutual Funds for your
mutual fund investment.
Sincerely,
Richard A. Redeker
President
2
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Portfolio of Investments as of August 31, 1995 FLORIDA
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
LONG-TERM INVESTMENTS--93.6%
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
Alachua Cnty. Hlth. Facs. Auth. Rev.,
Santa Fe Healthcare Facs. Proj.
Baa
7.60% 11/15/13 $ 1,750 $ 1,870,697
Alachua Cnty. Ind. Dev. Rev., HB Fuller Co. Proj.
NR
7.75 11/01/16 3,000 3,146,130
Brevard Cnty. Edl. Facs. Auth. Rev.,
Florida Inst. of Tech.
BBB(g)
6.875 11/01/22 1,500 1,517,565
Wuesthoff Mem. Hosp., Ser. A, M.B.I.A.
Aaa
6.625 4/01/13 1,000 1,066,920
Brevard Cnty. Sch. Brd. Ctfs. of Part., Ser. A,
A.M.B.A.C.
Aaa
6.50 7/01/12 3,500 3,716,790
Broward Cnty. Edl. Facs. Auth. Rev.,
Nova Univ. Dorm. Proj., Ser. A
BBB(g)
7.50 4/01/17 1,500 (c) 1,732,020
Broward Cnty. Hlth. Facs Auth., North Beach Hosp.,
M.B.I.A.
Aaa
6.75 8/15/06 1,000 1,103,500
Broward Cnty. Wtr. & Swr. Rev., A.M.B.A.C.
Aaa
5.125 10/01/15 1,000 920,480
Cape Canaveral Hosp. Dist. Rev., Ctfs. of Part.,
A.M.B.A.C.
Aaa
6.875 1/01/21 1,000 1,067,610
City of Cocoa Wtr. & Swr. Rev., A.M.B.A.C.
Aaa
5.00 10/01/23 1,000 874,730
City of Miami Beach Wtr. & Swr. Rev., F.S.A.
Aaa
5.375 9/01/15 3,000 2,833,260
Clay Cnty. Hsg. Fin. Auth. Rev.,
Sngl. Fam. Mtge., Ser. A, G.N.M.A.
Aaa
7.45 9/01/23 375 399,394
Coral Springs Impvt. Dist., Wtr. & Swr. Rev., M.B.I.A.
Aaa
6.00 6/01/10 1,000 1,058,280
Dade Cnty. Aviation Dept. Rev.,
Aaa
6.60 10/01/22 1,500 1,562,205
Ser. E, A.M.B.A.C.
Aaa
5.50 10/01/10 1,000 993,870
Dade Cnty. Hlth. Facs. Auth. Rev.,
Baptist Hosp. of Miami Proj., Ser. A, M.B.I.A.
Aaa
6.75 5/01/08 500 534,260
Dade Cnty. Hsg. Fin. Auth. Rev.,
Sngl. Fam. Mtge., G.N.M.A., Ser. B
Aaa
7.25 9/01/23 360 (d) 380,189
Sngl. Fam. Mtge., G.N.M.A., Ser. C
Aaa
7.75 9/01/22 915 980,495
Dade Cnty. Pub. Facs. Rev., Jackson Mem. Hosp., Ser. A,
M.B.I.A.
Aaa
4.875 6/01/15 3,000 2,621,640
Dade Cnty. Pub. Impvt. Rev., J & K Seaport, A.M.B.A.C.
Aaa
6.50 10/01/26 5,500 5,739,140
Dade Cnty. Sch. Dist.,
Gen. Oblig. M.B.I.A.
Aaa
5.00 8/01/11 1,235 1,147,710
Gen. Oblig. M.B.I.A.
Aaa
5.00 8/01/13 1,500 1,365,750
Dade Cnty. Wtr. & Swr. Sys. Rev., F.G.I.C.
Aaa
5.00 10/01/13 1,500 1,365,030
Duval Cnty. Hsg. Fin. Auth. Rev., Sngl. Fam. Mtge.,
G.N.M.A.
AAA(g)
8.375 12/01/14 630 672,853
Enterprise Cmnty. Dev. Dist., Osceola Co. Spl. Assmnt.,
M.B.I.A.
Aaa
6.00 5/01/10 2,320 2,427,973
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
3
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Portfolio of Investments as of August 31, 1995 FLORIDA
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
Escambia Cnty. Hlth. Facs. Auth. Rev., Baptist Hosp.
Inc., Ser. A
BBB+(g)
8.70% 10/01/14 $ 1,830 $ 2,053,681
Escambia Cnty. Poll. Ctrl. Rev., Champion Int'l. Corp.
Proj.
Baa1
6.90 8/01/22 3,500 3,663,695
Florida St. Brd. of Ed., Cap. Outlay
Aa
5.125 6/01/22 1,000 887,700
Florida St. Dept. of Trans., Ser. A, A.M.B.A.C.
Aaa
7.20 7/01/11 1,000(c)(e) 1,154,750
Florida St. Gen. Oblig., Ref. Dade Cnty. Rd.
Aa
5.125 7/01/13 1,500 1,391,415
Gainesville Utils. Sys. Rev., Ser. A
Aa
6.50 10/01/22 2,150 2,251,867
Hillsborough Cnty. Ind. Dev. Auth. Poll. Ctrl. Rev.,
Tampa Elec. Proj., Ser. 9
Aa2
8.00 5/01/22 1,750 2,080,995
Hillsborough Cnty. Solid Wst. & Res. Rec., M.B.I.A.
Aaa
5.70 10/01/08 1,000 1,033,250
Jacksonville Elec. Auth. Rev.,
Elec. Sys. 3-B
Aa1
5.20 10/01/13 1,000 920,670
St. Johns Rvr. Pwr. Park
Aa1
Zero 10/01/10 3,000 1,264,560
Jacksonville Hlth. Facs. Auth. Hosp. Rev.,
Daughters Of Charity, Ser. A
Aa
5.00 11/15/15 1,000 877,330
Nat'l. Ben. Assoc.
Baa1
7.00 12/01/22 1,825 1,842,009
St. Lukes Hosp. Assoc. Proj.
AA+(g)
7.125 11/15/20 1,000 1,077,790
Jacksonville Wtr. & Swr. Dev. Rev.,
United Water Florida Proj., A.M.B.A.C.
Aaa
6.35 8/01/25 1,500 1,533,885
Suburban Utils.
A3
6.75 6/01/22 1,000 1,066,470
Lake Cnty. Res. Rec. Ind. Dev. Rev., Ser. A
Baa
5.95 10/01/13 1,035 971,751
Lee Cnty. Trans. Facs. Rev., A.M.B.A.C.
Aaa
6.75 10/01/11 1,000 1,084,680
Leon Cnty. Hsg. Fin. Auth. Rev.,
Sngl. Fam. Mtge., Ser. A, G.N.M.A.
Aaa
7.30 4/01/21 445 470,917
Martin Cnty., A.M.B.A.C.
Aaa
4.50 2/01/09 1,575 1,400,679
Martin Cnty. Ind. Dev. Auth. Rev., Indiantown Cogen
Proj.
Baa3
7.875 12/15/25 1,200 1,329,444
Miami Hlth. Facs. Auth. Hosp. Rev., Mercy Hosp.
A
8.125 8/01/11 1,000 1,098,500
Miami Spec. Oblig.,
Admin. Bldg. Acquis. Proj., F.G.I.C.
Aaa
6.00 2/01/16 1,500 1,507,515
Admin. Bldg. Acquis. Proj., F.G.I.C.
Aaa
6.00 2/01/25 500 502,925
Miramar Wstwtr. Impvt. Assmt., F.G.I.C.
Aaa
6.75 10/01/16 2,500 2,683,150
Ocala Cap. Impvt. Rev., A.M.B.A.C.
Aaa
5.00 10/01/18 3,000 2,654,880
Okaloosa Cnty. Cap. Impvt. Rev., M.B.I.A.
Aaa
Zero 12/01/06 450 252,023
Orange Cnty. Hlth. Facs. Auth., Adventist Hlth. Sys.,
A.M.B.A.C.
Aaa
5.25 11/15/20 3,000 2,716,380
Orange Cnty. Hsg. Fin. Auth. Mtge. Rev.,
Ser. A, G.N.M.A.
AAA(g)
7.375 9/01/24 420 448,505
</TABLE>
- - ------------------------------------------------------------
- - --------------------
4 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Portfolio of Investments as of August 31, 1995 FLORIDA
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
Orange Cnty. Hsg. Fin. Auth. Mtge. Rev.,
MultiFam. Ashley Point Apts.
BBB+(g)
6.85% 10/01/16 $ 1,200 $ 1,228,896
MultiFam. Ashley Point Apts.
BBB+(g)
7.10 10/01/24 855 878,812
Orange Cnty. Sales Tax Rev., Ser. B
A1
5.375 1/01/24 2,000 1,833,020
Orlando & Orange Cnty. Expwy. Auth. Rev.,
Sr. Lein, A.M.B.A.C.
Aaa
5.25 7/01/14 1,000 933,040
Jr. Lein
A-(g)
5.95 7/01/23 1,750 1,687,665
Orlando Utils. Comn.,
Wtr. & Elec. Rev.
Aa1
5.125 10/01/19 1,500 1,339,080
Wtr. & Elec. Rev.
Aa
5.25 10/01/23 1,690 1,525,124
Wtr. & Elec. Rev., Ser. D
Aa
6.75 10/01/17 4,200 (d) 4,738,314
Palm Beach Cnty. Arpt. Sys. Rev., M.B.I.A.
Aaa
7.75 10/01/10 1,000 1,162,050
Palm Beach Cnty. Hlth. Facs. Auth. Rev.,
Good Samaritan Hlth. Sys.
A+(g)
6.30 10/01/22 1,000 1,008,820
Pasco Cnty. Sch. Brd. Ctfs. of Part., Ser. A, F.S.A.
Aaa
6.40 8/01/06 1,000 1,067,120
Pensacola Hlth. Facs. Auth.,
Daughters of Charity, M.B.I.A.
Aaa
5.25 1/01/11 1,600 1,520,624
Polk Cnty. Hsg. Fin. Auth.,
Sngle. Fam. Mtge., Ser. A, G.N.M.A
Aaa
7.875 9/01/22 1,330 1,425,427
Polk Cnty. Sch. Brd., Ctfs. of Part., F.S.A.
Aaa
4.875 1/01/18 1,000 864,680
Puerto Rico Gen. Oblig.,
M.B.I.A.
Aaa
5.00 7/01/21 1,750 1,550,762
F.S.A.
Aaa
7.723 7/01/20 3,000 (d)(f) 2,936,250
Puerto Rico Elec. Pwr. Auth. Rev., Ser. R
Baa1
6.25 7/01/17 2,500 2,533,525
Puerto Rico Ind. Tour. Edl. Hosp. Auxil.,
Mut. Oblig. Grp. Proj., M.B.I.A.
Aaa
6.25 7/01/24 2,635 2,692,654
Puerto Rico Pub. Bldgs. Auth., A.M.B.A.C.
Aaa
5.50 7/01/21 1,905 1,814,112
Puerto Rico Tel. Auth. Rev., Ser. I, M.B.I.A.
Aaa
6.763 1/16/15 2,250 (f) 2,041,875
St Lucie Cnty. Sales Tax Rev., F.G.I.C.
Aaa
5.00 10/01/19 2,500 2,206,650
St. Petersburg Hlth. Facs. Auth. Rev.,
Allegheny Hlth. Prog., M.B.I.A.
Aaa
7.00 12/01/15 1,000 1,095,330
Tampa Allegheny Hlth. Sys. Rev., St. Mary's Hosp.,
M.B.I.A.
Aaa
5.125 12/01/23 1,000 881,510
Tampa Gtd. Entitlement Rev., A.M.B.A.C.
Aaa
7.05 10/01/07 2,000 2,263,680
Venice Hlth. Facs. Rev., Venice Hosp. Proj.
A
5.75 12/01/24 1,250 1,163,213
Virgin Islands Pub. Fin. Auth. Rev.,
Ref. Matching Loan Notes, Ser. A
NR
7.25 10/01/18 900 949,464
Virgin Islands Territory., Hugo Ins. Claims Fund Proj.,
Ser. 91
NR
7.75 10/01/06 1,335 1,454,723
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
5
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Portfolio of Investments as of August 31, 1995 FLORIDA
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
Volusia Cnty. Edl. Facs. Auth. Rev.,
AAA(g)
6.625% 10/15/22 $ 1,000 $ 1,049,770
Volusia Cnty. Hlth. Facs. Auth. Rev., Mem. Hlth. Sys.
Proj.
BBB+(g)
8.25 6/01/20 2,000(c)(d) 2,331,900
------------
Total long-term investments (cost $124,734,361)
129,497,997
------------
SHORT-TERM INVESTMENTS--4.6%
Dade Cnty. Hlth. Facs. Auth. Rev., Miami Children's
Hosp. Proj., F.R.D.D.
VMIG1
3.60% 9/01/95 1,100 1,100,000
Jacksonville Hlth. Facs. Auth. Rev., Baptist Med. Ctr.,
M.B.I.A., F.R.D.D.
VMIG1
3.55 9/01/95 1,500 1,500,000
Pinellas Cnty. Hlth. Facs. Auth. Rev., Pooled Hosp. Loan
Proj., F.R.D.D.
VMIG1
3.55 9/01/95 1,100 1,100,000
St Lucie Cnty. Pwr. & Lt. Rev., T.E.C.P.
VMIG1
3.60 10/30/95 2,700 2,700,000
------------
Total short-term investments (cost $6,400,000)
6,400,000
------------
Total Investments--98.2%
(cost $131,134,361; Note 5)
135,897,997
Other assets in excess of liabilities--1.8%
2,418,946
------------
Net Assets--100%
$138,316,943
------------
------------
</TABLE>
- - ---------------
<TABLE>
<C> <S>
(a) The following abbreviations are used in portfolio
descriptions:
A.M.B.A.C.--American Municipal Bond Assurance
Corporation.
F.G.I.C.--Financial Guaranty Insurance Company.
F.R.D.D.--Floating Rate (Daily) Demand Note.(b)
F.S.A.--Financial Security Assurance.
G.N.M.A.--Government National Mortgage Association.
M.B.I.A.--Municipal Bond Insurance Association.
T.E.C.P.--Tax Exempt Commercial Paper.
(b) 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.
(c) Prerefunded issues are secured by escrowed cash and/or
direct U.S.
guaranteed obligations.
(d) Indicates a when-issued security.
(e) Pledged as initial margin on financial futures
contracts.
(f) Inverse floating rate bond. The coupon is inversely
indexed to a floating
interest rate. The rate shown is the rate at
period end.
(g) Standard & Poor's rating.
N.R.--Not Rated by Moody's or Standard & Poor's.
</TABLE>
The Fund's current Statement of Additional Information
contains a description
of
Moody's and Standard & Poor's ratings.
- - ------------------------------------------------------------
- - --------------------
6 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Statement of Assets and Liabilities FLORIDA
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<S>
<C>
Assets
August 31, 1995
Investments, at value (cost
$131,134,361)...............................................
.................
.... $135,897,997
Cash........................................................
.................
................................ 102,822
Interest
receivable..................................................
.................
....................... 2,329,970
Receivable for investments
sold........................................................
.................
..... 1,044,814
Due from
Manager.....................................................
.................
....................... 201,510
Receivable for Fund shares
sold........................................................
.................
..... 72,952
Due from
Distributors................................................
.................
....................... 13,827
Prepaid
expenses....................................................
.................
........................ 2,745
------------
Total
assets......................................................
.................
....................... 139,666,637
------------
Liabilities
Payable for Fund shares
reacquired..................................................
.................
........ 1,101,410
Accrued expenses and other
liabilities.................................................
.................
..... 173,277
Dividends
payable.....................................................
.................
...................... 44,501
Due to broker - variation margin
payable.....................................................
................
28,906
Deferred trustees'
fees........................................................
.................
............. 1,600
------------
Total
liabilities.................................................
.................
....................... 1,349,694
------------
Net
Assets......................................................
.................
............................ $138,316,943
------------
------------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
............
$ 137,510
Paid-in capital in excess of
par.........................................................
.................
138,281,465
------------
138,418,975
Accumulated net realized loss on
investments.................................................
.............
(4,818,793)
Net unrealized appreciation on
investments.................................................
...............
4,716,761
------------
Net assets, August 31,
1995........................................................
.................
......... $138,316,943
------------
------------
Class A:
Net asset value and redemption price per share
($120,962,492 / 12,025,745 shares of beneficial
interest issued and
outstanding)....................... $10.06
Maximum sales charge (3.0% of offering
price)......................................................
.......
.31
------------
Maximum offering price to
public......................................................
....................
$10.37
------------
------------
Class B:
Net asset value, offering price and redemption price per
share
($8,326,253 / 827,698 shares of beneficial interest
issued and
outstanding)............................ $10.06
------------
------------
Class C:
Net asset value, offer price and redemption price per
share
($9,028,198 / 897,559 shares of beneficial interest
issued and
outstanding)............................ $10.06
------------
------------
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
7
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
FLORIDA SERIES
Statement of Operations
- - ------------------------------------------------------------
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income August 31,
1995
-------------
- - --
<S> <C>
Income
Interest................................. $ 8,710,600
-------------
- - --
Expenses
Management fee, net waiver of $464,337... 231,778
Distribution fee--Class A, net waiver of
$41,745............................... 82,514
Distribution fee--Class B................ 23,495
Distribution fee--Class C................ 76,991
Custodian's fees and expenses............ 135,000
Transfer agent's fees and expenses....... 65,000
Reports to shareholders.................. 60,000
Registration fees........................ 42,000
Audit fee................................ 11,000
Legal fees............................... 16,000
Trustees' fees........................... 3,200
Miscellaneous............................ 17,037
-------------
- - --
Total expenses........................ 764,015
Less: expense subsidy (Note 4)...........
(349,237)
Less: custodian fee credit...............
(17,642)
-------------
- - --
Net expenses.......................... 397,136
-------------
- - --
Net investment income....................... 8,313,464
-------------
- - --
Realized and Unrealized
Gain (Loss) on Investments
Net realized loss on:
Investment transactions..................
(3,626,120)
Financial futures contracts..............
(529,354)
-------------
- - --
(4,155,474)
-------------
- - --
Net change in unrealized appreciation
(depreciation) on:
Investments.............................. 6,157,898
Financial futures contracts..............
(132,656)
-------------
- - --
6,025,242
-------------
- - --
Net gain on investments..................... 1,869,768
-------------
- - --
Net Increase in Net Assets
Resulting from Operations................... $10,183,232
-------------
- - --
-------------
- - --
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
FLORIDA SERIES
Statement of Changes in Net Assets
- - ------------------------------------------------------------
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended August 31,
in Net Assets 1995 1994
------------ --------
- - ----
<S> <C> <C>
Operations
Net investment income.......... $ 8,313,464 $
8,768,570
Net realized loss on investment
transactions................ (4,155,474)
(8,676)
Net change in unrealized
appreciation (depreciation)
of investments.............. 6,025,242
(11,870,836)
------------ --------
- - ----
Net increase (decrease) in net
assets resulting from
operations.................. 10,183,232
(3,110,942)
------------ --------
- - ----
Dividends and distributions (Note
1)
Dividends to shareholders from
net investment income
Class A..................... (7,502,100)
(8,305,093)
Class B..................... (262,158)
(582)
Class C..................... (549,206)
(462,895)
------------ --------
- - ----
(8,313,464)
(8,768,570)
------------ --------
- - ----
Distributions to shareholders
from net realized gains
Class A..................... --
(2,821,851)
Class B..................... --
- - --
Class C..................... --
(142,331)
------------ --------
- - ----
--
(2,964,182)
------------ --------
- - ----
Series share transactions (Note 6)
Net proceeds from shares
sold........................ 26,011,068
35,379,732
Net asset value of shares
issued in reinvestment of
dividends and
distributions............... 3,653,143
5,323,495
Cost of shares reacquired...... (39,832,414)
(31,275,509)
------------ --------
- - ----
Net increase (decrease) in net
assets from Series share
transactions................ (10,168,203)
9,427,718
------------ --------
- - ----
Total decrease.................... (8,298,435)
(5,415,976)
Net Assets
Beginning of year................. 146,615,378
152,031,354
------------ --------
- - ----
End of year....................... $138,316,943
$146,615,378
------------ --------
- - ----
------------ --------
- - ----
</TABLE>
- - ------------------------------------------------------------
- - --------------------
8 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements FLORIDA
SERIES
- - ------------------------------------------------------------
- - --------------------
Prudential Municipal Series Fund, (the ``Fund'') is
registered under the
Investment Company Act of 1940, as an open-end investment
company. The Fund was
organized as a Massachusetts business trust on May 18, 1984
and consists of
seventeen series. The monies of each series are invested in
separate,
independently managed portfolios. The Florida Series (the
``Series'') commenced
investment operations on December 28, 1990. The Series is
non-diversified and
seeks to achieve its investment objective of providing the
maximum amount of
income that is exempt from federal income taxes with the
minimum of risk, and
investing in securities which will enable its shares to be
exempt from the
Florida intangibles tax by investing in ``investment grade''
tax-exempt
securities whose ratings are within the four highest ratings
categories by a
nationally recognized statistical rating organization or, if
not rated, are of
comparable quality. The ability of the issuers of the
securities held by the
Series to meet their obligations may be affected by economic
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, and the Series, 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 Trustees.
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.
All securities are valued as of 4:15 P.M., New York time.
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 Series 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 Series 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 Series invests in financial futures contracts in order
to hedge its existing
portfolio securities, or securities the Series intends to
purchase, against
fluctuations in value caused by changes in prevailing
interest rates. Should
interest rates move unexpectedly, the Series 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.
Options: The Series 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 or foreign currency exchange rates
with respect to
securities or currencies which the Series currently owns or
intends to purchase.
When the Series purchases an option, it pays a premium and
an amount equal to
that premium is recorded as an investment. When the Series
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 Series
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 basis of the purchase in
determining whether
the Series has realized a gain or loss. The difference
between the premium and
the amount received or paid on effecting a closing purchase
or sale transaction
is also treated as a realized gain or loss. Gain or loss on
purchased options
is
included in net realized gain (loss) on investment
transactions. Gain or loss
on
written options is presented separately as net realized gain
(loss) on written
option transactions.
The Series, as writer of an option, has no control over
whether the underlying
securities or currencies may be sold (called) or purchased
(put). As a result,
the Series bears the market risk of an unfavorable change in
the price of the
security or currency underlying the written option. The
Series, as purchaser of
an option, bears the risk of the potential inability of the
counterparties to
meet the terms of their contracts.
- - ------------------------------------------------------------
- - --------------------
9
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements FLORIDA
SERIES
- - ------------------------------------------------------------
- - --------------------
Securities Transactions and Investment Income: Securities
transactions are
recorded on the trade date. Realized gains and losses on
sales of securities are
calculated on the identified cost basis. Interest income is
recorded on the
accrual basis. The Series amortizes premiums and original
issue discount paid
on
purchases of 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: For federal income tax purposes, each
series in the Fund
is treated as a separate taxpaying entity. It is the intent
of the Series to
meet the requirements of the Internal Revenue Code
applicable to regulated
investment companies and to distribute all of its net income
to shareholders.
For this reason and because substantially all of the Series'
gross income
consists of tax-exempt interest, no federal income tax
provision is required.
Dividends and Distributions: The Series declares daily
dividends from net
investment income. Payment of dividends is made monthly.
Distributions of net
capital gains, if any, are made annually.
Income distributions and capital gain distributions are
determined in accordance
with income tax regulations which may differ from generally
accepted accounting
principles.
Deferred Organization Expenses: The Series incurred
approximately $32,000 in
organization and initial registration expenses. Such amount
has been deferred
and is being amortized over a period of 60 months ending
December 1995.
- - ------------------------------------------------------------
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 1% of the average daily net assets of the
Series. For the four
months ended December 31, 1994, PMF waived 60% of its
management fee. For the
eight months ended August 31, 1995, PMF waived 70% of its
management fee. The
amount of fees waived during the year ended August 31, 1995
amounted to $464,337
($.03 per share for Class A, B and C shares; .33% of average
net assets). The
Series 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.
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 .75 of 1%, of the average daily net assets of the
Class A, B and C
shares, respectively. With respect to the Class A Plan, PMFD
voluntarily agreed
to waive its distribution fee, currently limited to .10 of
1% of average net
assets, for the period September 1, 1994 through December
31, 1994. Effective
January 1, 1995, PMFD eliminated its waiver. The amount of
distribution fees
waived by PMFD was $41,745 ($.003 per share for Class A
shares; .03% of Class
A
average net assets) for the fiscal year ended August 31,
1995. Such expenses
under the Class A, B and C Plans were .07 of 1%, .50 of 1%
and .75 of 1% of the
average daily net assets, respectively, for the fiscal year
ended August 31,
1995.
PMFD has advised the Series that it has received
approximately $170,300 in
front-end sales charges resulting from sales of Class A
shares during the fiscal
year ended August 31, 1995. 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 Series that for the fiscal year ended
August 31, 1995, it
received approximately $7,500 and $1,000 in contingent
deferred sales charges
imposed upon certain redemptions by Class B and C
shareholders, respectively.
- - ------------------------------------------------------------
- - --------------------
10
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements FLORIDA
SERIES
- - ------------------------------------------------------------
- - --------------------
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 Transactions with Affiliates
Prudential Mutual Fund Services, Inc. (``PMFS''), a wholly
owned subsidiary of
PMF, serves as the Fund's transfer agent. During the year
ended August 31, 1995,
the Series incurred fees of approximately $41,700 for the
services of PMFS. As
of August 31, 1995, approximately $3,200 of such fees were
due to PMFS. Transfer
agent fees and expenses in the Statement of Operations
include certain
out-of-pocket expenses paid to non-affiliates.
- - ------------------------------------------------------------
Note 4. Expense Subsidy
PMF voluntarily subsidized all operating expenses (except
management and
distribution fees) of the Class A, Class B and Class C
shares of the Series
until further notice. For the year ended August 31, 1995,
PMF subsidized
$349,237 ($.03 per share for Class A, B and C shares; .25%
of average net
assets) of the Series' expenses. The Series is not required
to reimburse PMF for
such subsidy.
- - ------------------------------------------------------------
Note 5. Portfolio Securities
Purchases and sales of portfolio securities, excluding short-
term investments,
for the year ended August 31, 1995 were $86,432,314 and
$102,993,871,
respectively.
The cost basis of investments for federal income tax
purposes as of August 31,
1995 was $131,135,611 and, accordingly, net unrealized
appreciation was
$4,762,386 (gross unrealized appreciation--$6,087,823; gross
unrealized
depreciation--$1,325,437).
The Series has a capital loss carryforward of $2,726,000,
which expires in 2003.
The Series will elect to treat net realized capital losses
of approximately
$2,138,200 incurred in the ten month period ended August 31,
1995 as having been
incurred in the following fiscal year.
At August 31, 1995 the Series sold 55 financial futures
contracts on the
Municipal Bond Index expiring in September 1995. The value
at disposition of
such contracts was $6,202,344. The value of such contracts
on August 31, 1995
was $6,249,219, thereby resulting in an unrealized loss of
$46,875.
- - ------------------------------------------------------------
Note 6. Capital
The Series currently offers Class A, Class B and Class C
shares. Class A shares
are sold with a front-end sales charge of up to 3.0%. Class
B shares are sold
with a contingent deferred sales charge which declines from
5% to zero depending
on the period of time the shares are held. Class C shares,
which prior to August
1, 1994 were known as D 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.
The Fund has authorized an unlimited number of shares of
beneficial interest at
$.01 par value per share. Transactions in shares of
beneficial interest for the
years ended August 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- - ------------------------------------ ---------- --------
- - ----
<S> <C> <C>
Year ended August 31, 1995:
Shares sold......................... 1,647,106 $
15,829,864
Shares issued in reinvestment of
dividends......................... 327,990
3,198,613
Shares reacquired................... (3,554,066)
(34,407,990)
---------- --------
- - ----
Net decrease in shares
outstanding....................... (1,578,970)
$(15,379,513)
---------- --------
- - ----
---------- --------
- - ----
Year ended August 31, 1994:
Shares sold......................... 2,274,149 $
24,062,897
Shares issued in reinvestment of
dividends and distributions....... 475,125
4,935,129
Shares reacquired................... (2,838,050)
(29,205,030)
---------- --------
- - ----
Net decrease in shares
outstanding....................... (88,776) $
(207,004)
---------- --------
- - ----
---------- --------
- - ----
<CAPTION>
Class B
- - ------------------------------------
<S> <C> <C>
Year ended August 31, 1995:
Shares sold......................... 945,274 $
9,166,110
Shares issued in reinvestment of
dividends......................... 11,460
113,360
Shares reacquired................... (187,734)
(1,825,550)
---------- --------
- - ----
Net increase in shares
outstanding....................... 769,000 $
7,453,920
---------- --------
- - ----
---------- --------
- - ----
August 1, 1994* through
August 31, 1994:
Shares sold......................... 58,689 $
579,300
Shares issued in reinvestment of
dividends......................... 24
235
Shares reacquired................... (15)
(150)
---------- --------
- - ----
Net increase in shares
outstanding....................... 58,698 $
579,385
---------- --------
- - ----
---------- --------
- - ----
</TABLE>
- - ------------------
* Commencement of offering of Class B shares.
- - ------------------------------------------------------------
- - --------------------
11
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements FLORIDA
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class C Shares
Amount
- - ------------------------------------ ---------- --------
- - ----
<S> <C> <C>
Year ended August 31, 1995:
Shares sold......................... 104,420 $
1,015,094
Shares issued in reinvestment of
dividends......................... 34,986
341,170
Shares reacquired................... (370,059)
(3,598,874)
---------- --------
- - ----
Net decrease in shares
outstanding....................... (230,653) $
(2,242,610)
---------- --------
- - ----
---------- --------
- - ----
Year ended August 31, 1994:
Shares sold......................... 1,004,802 $
10,737,535
Shares issued in reinvestment of
dividends and distributions....... 37,628
388,131
Shares reacquired................... (202,212)
(2,070,329)
---------- --------
- - ----
Net increase in shares
outstanding....................... 840,218 $
9,055,337
---------- --------
- - ----
---------- --------
- - ----
</TABLE>
- - ------------------------------------------------------------
- - --------------------
12
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights FLORIDA
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class
A Class B
- - ------------------------------------------------------------
- - -----
- - -----------
December 28,
1990(a)
Years Ended August 31,
through Year Ended
- - ----------------------------------------------- August
31, August 31,
1995
1994 1993
1992 1991 1995
-------- ---
- - ----- --------
-------- ----------- -----------
<S> <C> <C>
<C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $ 9.91 $
10.87 $ 10.27
$ 9.76 $ 9.55 $ 9.91
-------- ---
- - ----- --------
-------- --------- -----------
Income from investment operations
Net investment income(c)................ .59
.59 .57
.65 .44 .55
Net realized and unrealized gain (loss)
on investment transactions........... .15
(.76) .73
.51 .21 .15
-------- ---
- - ----- --------
-------- --------- -----------
Total from investment operations..... .74
(.17) 1.30
1.16 .65 .70
-------- ---
- - ----- --------
-------- --------- -----------
Less distributions
Dividends from net investment income.... (.59)
(.59) (.57)
(.65) (.44) (.55)
Distributions from net realized gains... --
(.20) (.13)
-- -- --
-------- ---
- - ----- --------
-------- --------- -----------
Total distributions.................. (.59)
(.79) (.70)
(.65) (.44) (.55)
-------- ---
- - ----- --------
-------- --------- -----------
Net asset value, end of period.......... $ 10.06 $
9.91 $ 10.87
$ 10.27 $ 9.76 $ 10.06
-------- ---
- - ----- --------
-------- --------- -----------
-------- ---
- - ----- --------
-------- --------- -----------
TOTAL RETURN(f):........................ 7.85%
(1.69)% 13.78%
12.26% 6.90% 7.39%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)......... $120,963
$134,849 $148,900
$104,335 $63,929 $8,326
Average net assets (000)................ $124,259
$146,489 $123,820
$ 82,893 $41,528 $4,699
Ratios to average net assets(c):
Expenses, including distribution
fees.............................. .24%
.20% .20%
.09% 0 .67%
Expenses, excluding distribution
fees.............................. .17%
.20% .20%
.09% 0 .17%
Net investment income................ 6.04%
5.67% 5.94%
6.41% 6.68%(b) 5.56%
Portfolio turnover rate................. 65%
75% 68%
56% 39% 65%
<CAPTION>
Class B
Class C
------------
- - -----------------------------------
<S> <C>
<C> <C>
<C>
August 1,
July 26,
1994(e)
Years Ended August
1993(d)
through
31,
through
August 31, --
- - -----------------
August 31,
1994
1995 1994
1993
---------- --
- - ----- -------
-----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $ 9.95 $
9.91 $ 10.87
$ 10.58
-------- --
- - ----- -------
-----------
Income from investment operations
Net investment income(c)................ .04
.53 .48
.03
Net realized and unrealized gain (loss)
on investment transactions........... (.04)
.15 (.76)
.29
-------- --
- - ----- -------
-----------
Total from investment operations..... --
.68 (.28)
.32
-------- --
- - ----- -------
-----------
Less distributions
Dividends from net investment income.... (.04)
(.53) (.48)
(.03)
Distributions from net realized gains... --
- - -- (.20)
--
-------- --
- - ----- -------
-----------
Total distributions.................. (.04)
(.53) (.68)
(.03)
-------- --
- - ----- -------
-----------
Net asset value, end of period.......... $ 9.91 $
10.06 $ 9.91
$ 10.87
-------- --
- - ----- -------
-----------
-------- --
- - ----- -------
-----------
TOTAL RETURN(f):........................ (0.05)%
7.12% (2.40)%
3.14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)......... $582
$9,028 $11,185
$3,132
Average net assets (000)................ $118
$10,265 $ 9,280
$1,038
Ratios to average net assets(c):
Expenses, including distribution
fees.............................. .70%(b)
.92% .95%
.95%(b)
Expenses, excluding distribution
fees.............................. .20%(b)
.17% .20%
.20%(b)
Net investment income................ 6.21%(b)
5.35% 4.99%
5.19%(b)
Portfolio turnover rate................. 75%
65% 75%
68%
</TABLE>
<TABLE>
<C> <S>
- - ---------------
(a) Commencement of investment operations.
(b) Annualized.
(c) Net of expense subsidy and fee waiver.
(d) Commencement of offering of Class C shares. Prior to
August 1, 1994, Class
C shares were called Class D shares.
(e) Commencement of offering of Class B shares.
(f) 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.
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
13
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Independent Auditors' Report FLORIDA
SERIES
- - ------------------------------------------------------------
- - --------------------
The Shareholders and Board of Trustees
Prudential Municipal Series Fund, Florida Series
We have audited the accompanying statement of assets and
liabilities, including
the portfolio of investments, of Prudential Municipal Series
Fund, Florida
Series, as of August 31, 1995, the related statements of
operations for the year
then ended and of changes in net assets for each of the two
years in the period
then ended, and the financial highlights for each of the
four years in the
period then ended and for the period December 28, 1990
(commencement of
investment operations) through August 31, 1991. These
financial statements and
financial highlights are the responsibility of the Fund's
management. Our
responsibility is to express an opinion on these financial
statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally
accepted auditing
standards. Those standards require that we plan and perform
the audit to obtain
reasonable assurance about whether the financial statements
and financial
highlights are free of material misstatement. An audit
includes examining, on
a
test basis, evidence supporting the amounts and disclosures
in the financial
statements. Our procedures included confirmation of the
securities owned as of
August 31, 1995 by correspondence with the custodian. An
audit also includes
assessing the accounting principles used and significant
estimates made by
management, as well as evaluating the overall financial
statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, such financial statements and financial
highlights present
fairly, in all material respects, the financial position of
Prudential Municipal
Series Fund, Florida Series, as of August 31, 1995, the
results of its
operations, the changes in its net assets, and its financial
highlights for the
respective stated periods in conformity with generally
accepted accounting
principles.
DELOITTE & TOUCHE LLP
New York, New York
October 16, 1995
PRUDENTIAL
MUNICIPAL SERIES FUND
Federal Income Tax Information FLORIDA
SERIES
- - ------------------------------------------------------------
- - --------------------
We are required by the Internal Revenue Code to advise you
within 60 days of the
Series' fiscal year end (August 31, 1995) as to the federal
tax status of
dividends paid by the Series during such fiscal year.
Accordingly, we are
advising you that in the fiscal year ended August 31, 1995,
dividends paid from
net investment income of $.59 per Class A share, $.55 per
Class B share and $.53
per Class C share were all federally tax-exempt interest
dividends.
- - ------------------------------------------------------------
- - --------------------
14
<PAGE>
Getting The Most From Your Prudential Mutual Fund
Some mutual fund shareholders won't ever read this -- they
don't read annual
and semi-annual reports. It's quite understandable. These
annual and
semi-annual reports are prepared to comply with Federal
regulations. They are
often written in language that is difficult to understand.
So when most people
run into those particularly daunting sections of these
reports, they don't
read them.
We think that's a mistake.
At Prudential Mutual Funds, we've made some changes to our
report to make it
easier to understand and more pleasant to read, in hopes
you'll find it
profitable to spend a few minutes familiarizing yourself
with your investment.
Here's what you'll find in the report:
At A Glance
Since an investment's performance is often a shareholder's
primary concern, we
present performance information in two different formats.
You'll find it first
on the ``At A Glance'' page where we compare the Fund and
the comparable
average calculated by Lipper Analytical Services, Inc., a
nationally recognized
mutual fund rating agency. We report both the cumulative
total returns and the
average annual total returns. The cumulative total return is
the total amount
of income and appreciation the Fund has achieved in various
time periods. The
average annual total return is an annualized representation
of the Fund's
performance -- it generally smoothes out returns and gives
you an idea how much
the Fund has earned in an average year, for a given time
period. Under the
performance box, you'll see legends that explain the
performance information,
whether fees and sales charges have been included in
returns, and the inception
dates for the Fund's share classes.
See the performance comparison charts at the back of the
report for more
performance information. And keep in mind that past
performance is not
indicative of future results.
Portfolio Manager's Report
The portfolio manager who invests your money for you reports
on successful --
and not-so-successful -- strategies in this section of your
report. Look for
recent purchases and sales here, as well as information
about the sectors the
portfolio managers favors and any changes that are on the
drawing board.
Portfolio Of Investments
This is where the report begins to look technical, but it's
really just a
listing of each security held at the end of the reporting
period, along with
valuations and other information. Please note that sometimes
we discuss a
security in the Portfolio Manager's Report that doesn't
appear in this listing
because it was sold before the close of the reporting
period.
<PAGE>
Statement Of Assets And Liabilities
The balance sheet shows the assets (the value of the Fund's
holdings),
liabilities (how much the Fund owes) and net assets (the
Fund's equity, or
holdings after the Fund pays its debts) as of the end of the
reporting period.
It also shows how we calculate the net asset value per share
for each class of
shares. The net asset value is reduced by payment of your
dividend, capital
gain, or other distribution, but remember that the money or
new shares are
being paid or issued to you and thus is not a realized loss.
The net asset
value fluctuates daily along with the value of every
security in the portfolio.
Statement Of Operations
This is the income statement, which details income (mostly
interest and
dividends earned) and expenses (including what you pay us to
manage your
money). You'll also see capital gains here -- both realized
and unrealized.
Statement Of Changes In Net Assets
This schedule shows how income and expenses translate into
changes in net
assets, compared to last year's performance. The Fund is
required to pay out
the bulk of its income to shareholders every year, and this
statement shows you
how we do it -- through dividends and distributions -- and
how that affects the
net assets. This statement also shows how money from
investors flowed into and
out of the Fund.
Notes To Financial Statements
This is the kind of technical material that can intimidate
readers, but it does
contain useful information. The Notes provide a brief
history and explanation
of your Fund's objectives. In addition, they also outline
how Prudential Mutual
Funds prices securities. The Notes also explain who manages
and distributes the
Fund's shares, and more importantly, how much they are paid
for doing so.
Finally, the Notes explain how many shares are outstanding
and the number
issued and redeemed over the period.
Financial Highlights
This information contains many elements from prior pages,
but on a per share
basis. It is designed to help you understand how the Fund
performed and to
compare this year's performance and expenses to those of
prior years.
Independent Auditor's Report
Once a year, an outside auditor looks over our books and
certifies that the
information we've presented is fair and complies with
generally accepted
accounting principles.
Tax Information
This is information which we report annually about how much
of your total
return is taxable. Should you have any questions, you may
want to consult a
tax advisor.
Performance Comparison
These charts are included in the annual report and are
required by the
Securities Exchange Commission. Performance is presented
here as a hypothetical
$10,000 investment in the Fund since its inception or for 10
years (whichever
is shorter). To help you put that return in context, we are
required to include
the performance of an unmanaged, broad based securities
index, as well. The
index does not reflect the cost of buying the securities it
contains or the
cost of managing a mutual fund. Of course, the index
holdings do not mirror
those of the fund -- the index is a broadly based reference
point commonly
used by investors to measure how well they are doing. A
definition of the
selected index is also provided. Investors generally cannot
invest directly in
an index.
<PAGE>
Getting The Most From Your Prudential Mutual Fund
When you invest through Prudential Mutual Funds, you receive
financial advice
through a Prudential Securities financial advisor or
Prudential/Pruco
Securities registered representative. Your advisor or
representative can
provide you with the following services.
- - ------------------------------------------------------------
- - -------------------
There's No Reward Without Risk; But Is This Risk Worth It?
Your financial adviser or registered representative can help
you match the
reward you seek with the risk you can tolerate. And risk can
be difficult to
gauge --sometimes even the simplest investments bear
surprising risks. The
educated investor knows that markets seldom move in just one
direction --
there are times when a market sector or asset class will
lose value or provide
little in the way of total return. Managing your own
expectations is easier
with help from someone who understands the markets and who
knows you!
- - ------------------------------------------------------------
- - -------------------
Keeping Up With The Joneses.
A financial adviser or registered representative can help
you wade through the
numerous mutual funds available to find the ones that fit
your own individual
investment profile and risk tolerance. While the newspapers
and popular
magazines are full of advice about investing, they are aimed
at generic groups
of people or representative individuals, not at you
personally. Your financial
advisor or registered representative will review your
investment objectives
with you. This means you can make financial decisions based
on the assets and
liabilities in your current portfolio and your risk
tolerance -- not just
based on the current investment fad.
- - ------------------------------------------------------------
- - -------------------
Buy Low, Sell High.
Buying at the top of a market cycle and selling at the
bottom are among the
most common investor mistakes. But sometimes it's difficult
to hold on to an
investment when it's losing value every month. Your
financial adviser or
registered representative can answer questions when you're
confused or worried
about your investment, and remind you that you're investing
for the long haul.
<PAGE>
Prudential Municipal Series Fund: Florida Series
Lehman Bros. General Municipal Debt Index
The Prudential Municipal Series Fund: Florida Series and
the Lehman Bros. Index: Comparing a $10,000 Investment.
Class A
<GRAPH>
Class B
<GRAPH>
Class C
<GRAPH>
Past performance is no guarantee of future results.
Investment return and
principal value will fluctuate so an investor's shares, when
redeemed, will be
worth more or less than their original cost. The charts on
the right are
designed to give you an idea how much the Series' returns
can fluctuate from
year to year by measuring the best and worst years in terms
of total annual
return since inception of each share class.
These graphs are furnished to you in accordance with SEC
regulations. They
compare a $10,000 investment in the Prudential Municipal
Series Fund: Florida
Series (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 the most recent reporting period (August 31), as
measured on a quarterly
basis, beginning in 1995. For purposes of the graphs, and
unless otherwise
indicated, in the accompanying tables it has been assumed
(a) that the maximum
applicable front-end sales charge was deducted from the
initial $10,000
investment in Class A shares; (b) the maximum applicable
contingent deferred
sales charge was deducted from the value of the investment
in Class B and Class
C shares, assuming full redemption on August 31, 1995; (c)
all recurring fees
(including management fees) were deducted; and (d) all
dividends and
distributions were reinvested. Class B shares automatically
convert to Class A
shares, on a quarterly basis, approximately seven years
after purchase. This
conversion feature is not reflected in the graph. The graph
and accompanying
tables reflect the past subsidy and/or waiver of expenses
and/or management
fees.
* Without waivers and expense subsidies the value of the
$10,000 investment in
the Series and the Series' average annual total return, as
illustrated above,
would have been lower, as indicated in parentheses ( ).
The Index is a weighted index comprised 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. It is an unmanaged index that
includes the reinvestment
of all dividends, but does not reflect the transaction costs
and advisory fees
paid by the Series' investors. The Index's holdings differ
from the Series'
portfolio. The Index is not the only one that may be used to
characterize
performance of bond funds and other indices may portray
different comparative
performance.
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
(LOGO)
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy Hays Teeters
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Grace Torres, Treasurer
S. Jane Rose, Secretary
Stephen M. Ungerman, Assistant Treasurer
Deborah A. Docs, Assistant 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
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
This report is not authorized for distribution to
prospective investors unless
preceded or accompanied by a current prospectus.
74435M507 MF148E
74435M606 Cat. #4443525
74435M614
(ICON)
Prudential
Municipal
Series Fund
Georgia Series
ANNUAL
REPORT
Aug. 31, 1995
(LOGO)
<PAGE>
Prudential Municipal Series Fund
Georgia Series
Performance At A Glance.
It has been a good year for shareholders of the Prudential
Municipal Series
Fund: Georgia Series. Municipal bond investors not only
earned their coupon
income, but also saw a gain in net asset value as well. We
are pleased to
report that your Series performed in line with the average
Georgia municipal
bond fund measured by Lipper Analytical Services over the
past 12 months.
<TABLE>
<CAPTION>
Cumulative Total Returns1 As of
8/31/95
One Five Ten
Since
Year Years Years
Inception2
<S> <C> <C> <C>
<C>
Class A 7.5% 46.2% N/A
48.6%
Class B 7.0 43.1 114.4%
142.8
Class C 6.8 N/A N/A
6.7
Lipper GA Muni Avg3 7.2 46.2 N/A
N/A
<CAPTION>
Average Annual Total Returns1 As of
9/30/95
One Five Ten
Since
Year Years Years
Inception2
<S> <C> <C> <C>
<C>
Class A 6.9% 7.3% N/A
6.7%
Class B 4.7 7.4 8.1%
8.4
Class C 8.6 N/A N/A
6.2
</TABLE>
<TABLE>
<CAPTION>
Taxable Equivalent Yield
Total Dividends 30-Day
At Tax Rates of
Paid for 12 Mos. SEC Yield
36% 39.6%
<S> <C> <C> <C>
<C>
Your Class A $0.56 4.56%
7.58% 8.03%
Dividend Class B $0.52 4.32
7.18 7.61
As of 8/31/95 Class C $0.50 3.77
6.27 6.64
</TABLE>
Past performance is not a guarantee of future results.
Principal and
investment return will fluctuate so that an investor's
shares, when redeemed,
may be worth more or less than their original cost.
1Source: Prudential Mutual Fund Management and Lipper
Analytical Services. The
cumulative total returns do not take into account sales
charges. The average
annual returns do take into account applicable sales
charges. The Series
charged 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. Class B shares
automatically convert to Class A shares on a quarterly
basis, after
approximately seven years.
2Inception dates: 1/22/90 for Class A; 9/25/84 for Class B;
and 8/1/94 for
Class C.
3The Lipper Georgia Municipal Bond fund average includes 26
funds for one year
and six for five years.
How Investments Compared.
(As of 8/31/95)
(GRAPH)
Source: Lipper Analytical Services. Financial markets
change, so a mutual
fund's past performance should never be used to predict
future results. The
risks to each of the investments listed above are different
- - -- we provide
12-month total returns for several Lipper mutual fund
categories to show you
that reaching for higher yields means tolerating more risk.
The greater the
risk, the larger the potential reward or loss. In addition,
we've added
historical 20-year average annual returns. These returns
assume the
reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Smaller
capitalization stocks
offer greater potential for long-term growth but may be more
volatile than
larger capitalization stocks. Investors receive higher
historical total
returns from stocks than from most other investments.
General Bond Funds provide more income than stock funds,
which can help smooth
out their total returns year by year. But their prices still
fluctuate
(sometimes a good deal) and their returns are historically
lower than those of
stock funds.
General Municipal Debt Funds invest in bonds issued by state
governments,
state agencies and/or municipalities. This investment
provides income that is
usually exempt from federal and state income taxes. (20-year
returns are not
available.)
Money Market Funds attempt to preserve a constant share
value; they don't
fluctuate much in price but their returns are generally
among the lowest of
the major investment categories.
*19 years for General Muni Debt Funds.
<PAGE>
Marie Conti, Fund Manager
Portfolio
Manager's Report
(PHOTO)
The Series invests in carefully selected long-term municipal
bonds that offer
a high level of current income exempt from Georgia state and
federal income
taxes consistent with preservation of capital. Certain
shareholders may be
subject to the federal alternative minimum tax, however. The
Series invests
primarily in obligations of Georgia state, municipal and
local governments,
including U.S. territories (such as Puerto Rico, the U.S.
Virgin Islands and
Guam), the income of which is also exempt from federal and
Georgia state
income taxes.
Merger Approved.
The Trustees have approved a plan to merge the Prudential
Municipal Series
Fund: Georgia Series with the Prudential National Municipals
Fund effective
October 27. Until the merger, Marie Conti has served as
portfolio manager of
the Prudential Municipal Series Fund: Georgia Series. She
was named to the
position in May.
Strategy Session.
It has been a positive year for tax-free municipal bonds.
Although interest
rates rose sharply in 1994 on inflation fears, they have
tumbled back down
slowly so far in 1995, as economic growth slowed. The Bond
Buyer Revenue Bond
Index Yield stood at 6.4% on September 1, 1994 (the index is
calculated on
Thursdays) and rose by a percentage point to a high of 7.4%
in mid-October
1994, before falling to 6.3% on August 31, 1995. As you can
see, when the dust
had settled, long-term municipal bond interest rates ended
the period lower.
As interest rates declined over the last six months, we
increased our holdings
in revenue bonds to 49% from 44% because they pay a higher
rate of interest.
Our holdings in this sector are primarily in utility (20% of
assets) and
health care bonds (16%). In addition, we have been buying
longer-maturity
bonds with discount coupons (lower than the prevailing
market), and some zero
coupon bonds, because these are more likely to appreciate
more if interest
rates fall as we expect.
Sector Breakdown.
(GRAPH)
State Of The State:
Preparing for Olympics.
We are implementing our strategy in one of the strongest
economies in the
South. Unemployment in Georgia in 1994 ran at nearly a full
percentage point
below the national average, driven by strong growth in
services, construction
and manufacturing throughout the state. In preparation for
the Olympic Games
next summer, tourism in the Atlanta region increased
steadily last year, and
construction employment has grown dramatically, particularly
in multi- family
housing. Even manufacturing is growing -- at 3% -- among the
healthiest in
the region.
Georgia has an excellent fiscal record as well. It operates
with a nearly $11
billion budget, and has finished the last two years with
positive surpluses
and fully funded reserves.
<PAGE>
What Went Well.
We Held On
To Good Yields.
We increased assets invested in non-callable bonds (those
that cannot be paid
off prematurely by the issuer to save on interest costs) to
32%, up from 29% a
year ago. These bonds not only offer attractive yields but
also appreciate well
when interest rates decline. They are valuable because not
many bonds offer
protection from call risk -- only about a third of the
securities in the
Lehman Brothers' Municipal Bond Index are non-callable.
It Paid To Buy
Puerto Rico Bonds.
The supply of new municipal bonds has declined sharply in
Georgia, by 41% this
year alone. So we looked elsewhere. We bought bonds issued
by Puerto Rico,
because they are tax-exempt federally and in virtually all
states, including
Georgia. As a result, they are in demand. Our holdings in
Puerto Rico are now
nearly 7% of assets.
And Not So Well.
A Longer Duration
Would Have Helped.
Duration measures the sensitivity of a bond's price to
interest rate changes.
The longer the duration, the more a bond's price appreciates
when interest
rates fall, and vice versa. Over the winter, our duration
was shorter than
that of some competing funds, because we expected economic
growth to remain
strong. As the slowdown became apparent in the second
quarter, we extended
duration. Duration generally ranged from 7.5 years to 8.0
years, and was 7.5
years on August 31.
Municipals Suffered
From Tax Talk.
Congress is considering various changes in the federal
income tax, including a
flat tax -- an income tax at a single, flat rate. One
proposal would eliminate
taxes on most investment income. Clearly, this has created
uncertainty in the
municipal market -- one reason why municipal bonds did not
follow taxable bond
prices higher this spring. At this writing, we believe it is
unlikely that a
flat tax proposal in this form is likely to pass Congress --
especially not
before next year's election.
Five Largest
Holdings.*
<TABLE>
<C> <S>
6.5% Atlanta Urban Res.Fin. Auth.
Dorm. Project
4.7% Henry Cnty. Sch. Dist.
Dev. Rev.
4.6% Fulton Cnty. Sch. Dist. Rev.
Lindbrook Square Fndtn.
4.2% Douglasville-Douglas Cnty.
Water & Sewer Auth. Rev.
4.2% Puerto Rico Commonwlth.
General Obligation
</TABLE>
* Expressed as a percentage of total net assets.
Looking Ahead.
Municipal bond yields are very attractive now. As we
mentioned earlier, when
U.S. government and corporate bond yields fell this spring,
municipal yields
did not follow to the same extent. That means there are some
good buying
opportunities now in the municipal market. Should interest
rates remain stable,
municipal bond investors may look forward to earning their
coupon income. Plus,
if interest rates fall further, investors could reasonably
expect some price
appreciation as well. Nevertheless, municipal bond investors
should be prepared
to weather some volatility this year as various proposals to
change the
country's income tax structure are proposed and debated.
Overall, we believe municipal bonds still offer good value,
and that volatility
can offer some attractive buying opportunities.
- - ------------------------------------------------------------
- - -------------------
1
<PAGE>
President's Letter
October 11, 1995
(PHOTO)
Dear Shareholder:
We hope you like the fresh look and information we've given
your shareholder
letter. We've also introduced another feature, called
Getting the Most Out of
Your Prudential Mutual Fund, which will appear from time to
time at the back
of your report. Look for topics like "Understanding Risk &
Reward" as well as
easy-to-understand explanations of financial terms. Why are
we providing such
information? Because at Prudential Mutual Funds, we believe
an informed
investor makes smart investment decisions.
On the Hill
As an informed investor, you should know about the "American
Dream Savings
Account" that is part of the federal budget package now
under debate in the
Senate. It is a type of Individual Retirement Account that
offers a common-
sense approach to long-term saving. Investors should like it
because --
- - - You can withdraw funds -- without penalty -- to pay for
certain expenses
like buying a first home, medical care or educational needs;
- - - All account earnings would accumulate tax-free, not merely
tax-deferred like
the current IRA;
- - - You can make contributions past age 70 1/2, instead of
having to take
distributions as the current law requires.
Of course, the federal budget process is never easy and
while we hope this
measure is adopted, there's no way of knowing if it will be.
So why not let
your Senator and/or Representative know your opinion today?
Simply call
202-224-3121.
In Closing
One final note: if you're a Class B shareholder of other
Prudential Mutual
Funds, you'll begin noticing a change on your statements
once you've held your
shares for seven years. At that time, they will
automatically begin to convert
to Class A shares on a quarterly basis. Since Class A shares
carry lower annual
distribution charges than Class B shares, your total returns
will be higher
after the conversion than they would have been without it.
Conversions started
earlier this year and will take place during each calendar
quarter -- December,
March, June and September. It's our way of thanking you for
your loyalty -- and
rewarding you for maintaining a long-term investment program
by helping you
earn more total investment return on your Prudential Mutual
Fund. I hope you'll
find this information useful as you work with your financial
advisor or
registered representative to develop your personal
investment plan.
Thank you for choosing Prudential Mutual Funds for your
mutual fund investment.
Sincerely,
Richard A. Redeker
President
- - ------------------------------------------------------------
- - -------------------
2
<PAGE>
Portfolio of Investments as PRUDENTIAL
MUNICIPAL SERIES FUND
of August 31, 1995 GEORGIA
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
LONG-TERM INVESTMENTS--95.9%
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
Atlanta Urban Res. Fin. Auth., Clark Atlanta Univ. Dorm.
Proj.
NR
9.25% 6/01/10 $ 935(d) $ 1,135,706
Atlanta Wtr. & Swr. Rev.
Aa
4.75 1/01/23 500 413,590
Burke Cnty. Dev. Auth., Georgia Pwr. Co., M.B.I.A.
Aaa
6.625 10/01/24 500 523,980
Clarke Cnty. Sch. Dist., F.G.I.C.
Aaa
5.50 7/01/08 425 433,602
Clayton Cnty. Wtr. Auth., Wtr. & Sewage Rev.
Aaa
6.65 5/01/12 500(d) 567,785
Cobb Cnty. Kennestone Hosp., Auth. Rev., Ser. A, M.B.I.A.
Aaa
5.00 4/01/24 750 653,543
Columbus Hosp. Auth. Rev., Antic. Cert., St. Francis Hosp.,
B.I.G.
Aaa
8.25 1/01/07 500(d) 537,235
DeKalb Cnty. Wtr. & Swr. Rev.
Aa
5.25 10/01/23 750 680,610
DeKalb Private Hosp. Auth. Rev., Wesley Svcs. Inc. Proj.
Aa3
8.25 9/01/15 500 521,865
Douglasville-Douglas Cnty. Wtr. & Swr. Auth. Rev.,
A.M.B.A.C.
Aaa
5.625 6/01/15 750 737,205
Forsyth Cnty. Sch. Dist. Dev. Rev., Ser. A
A1
6.75 7/01/16 500 555,660
Fulco Hosp. Auth. Rev., Antic. Cert., Baptist Hlth., Ser. B
Baa1
6.375 9/01/22 750 702,938
Fulton Cnty. Bldg. Auth. Rev., Judicial Ctr. Proj.
Aa
Zero 1/01/11 1,325 550,591
Fulton Cnty. Sch. Dist. Rev., Lindbrook Square Fndtn.
Aa
6.375 5/01/17 750(c) 807,563
Georgia Metro. Atl. Rapid Trans. Auth. Rev.,
Ser. A
Aaa
5.125 7/01/17 500 455,585
Ser. A, M.B.I.A.
Aaa
6.90 7/01/20 500 546,125
Georgia Mun. Elec. Auth. Pwr. Rev. Ref.,
Ser. B
A
6.25 1/01/17 475 485,098
Ser. C, A.M.B.A.C.
Aaa
4.75 1/01/19 750 638,025
Georgia Mun. Gas Auth. Rev., Southern Storage Gas Proj.
A-(b)
6.40 7/01/14 600 608,820
Green Cnty. Dev. Auth., Ind. Park Rev.
NR
6.875 2/01/04 635 692,702
Hancock County Georgia
AA(b)
6.70 4/01/15 250 260,760
Henry Cnty. Sch. Dist. Dev. Rev., Ser. A
A1
6.45 8/01/11 750 814,042
Marietta Dev. Auth. Rev., Life Coll. Inc. Proj., C.G.I.C.
Aaa
7.20 12/01/09 500 549,895
Peach Cnty. Sch. Dist., M.B.I.A.
Aaa
6.40 2/01/19 500 521,360
Puerto Rico Comnwlth.,
Gen. Oblig., M.B.I.A.
Aaa
5.50 7/01/13 750 729,187
Gen. Oblig., F.S.A.
Aaa
7.723 7/01/20 450(e) 440,438
Savannah Hosp. Auth. Rev., Candler Hosp.
Baa
7.00 1/01/23 500 501,285
Toombs Cnty. Hosp., Dr. John Meadows Mem. Hosp.
BBB(b)
7.00 12/01/17 500 494,915
Virgin Islands Pub. Fin. Auth. Rev., Hwy. Trans. Trust
Fund, Ser. A
NR
7.25 10/01/18 200 210,992
-----------
Total long-term investments (cost $16,011,843)
16,771,102
-----------
SHORT-TERM INVESTMENTS--4.0%
Burke Cnty. Dev. Auth., Georgia Pwr. Co., F.R.D.D.
VMIG1
3.50 9/01/95 500 500,000
Puerto Rico Comnwlth., Dev. Bank., F.R.W.D., Ser. 85
VMIG1
3.20 9/06/95 200 200,000
-----------
Total short-term investments (cost $700,000)
700,000
-----------
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
3
<PAGE>
Portfolio of Investments as PRUDENTIAL
MUNICIPAL SERIES FUND
of August 31, 1995 GEORGIA
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Value
Description (a)
(Note 1)
<S>
<C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
Total Investments--99.9%
(cost $ 16,711,843; Note 4)
$17,471,102
Other assets in excess of liabilities--0.1%
12,645
-----------
Net Assets--100%
$17,483,747
-----------
-----------
</TABLE>
- - ---------------
(a) The following abbreviations are used in portfolio
descriptions:
A.M.B.A.C.--American Municipal Bond Assurance
Corporation.
B.I.G.--Bond Investors Guaranty Insurance Company.
C.G.I.C.--Capital Guaranty Insurance Company.
F.G.I.C.--Financial Guaranty Insurance Company.
F.R.D.D.--Floating Rate (Daily) Demand(f).
F.R.W.D.--Floating Rate (Weekly) Demand(f).
F.S.A.--Financial Security Assurance.
M.B.I.A.--Municipal Bond Insurance Association.
(b) Standard & Poor's rating.
(c) Pledged as initial margin on futures contracts.
(d) Prerefunded issues are secured by escrowed cash and/or
direct U.S.
guaranteed obligations.
(e) Inverse floating rate bond. The coupon is inversely
indexed to a floating
interest rate. The rate shown is the rate at year end.
(f) For purposes of amortized cost valuation, the maturity
date of these
securities 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.
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.
- - ------------------------------------------------------------
- - --------------------
4 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Statement of Assets and Liabilities GEORGIA SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<S>
<C>
Assets
August 31, 1995
Investments, at value (cost
$16,711,843)................................................
.................
..... $17,471,102
Cash........................................................
.................
................................. 119,411
Interest
receivable..................................................
.................
........................ 256,568
Due from
manager.....................................................
.................
........................ 29,939
Deferred expenses and other
assets......................................................
.................
..... 719
-----------
Total
assets......................................................
.................
........................ 17,877,739
-----------
Liabilities
Payable for Series shares
reacquired..................................................
.................
....... 334,387
Accrued
expenses....................................................
.................
......................... 35,785
Dividends
payable.....................................................
.................
....................... 16,639
Due to broker-variation
margin......................................................
.................
......... 4,063
Deferred trustees'
fees........................................................
.................
.............. 1,600
Distribution fee
payable.....................................................
.................
................ 1,518
-----------
Total
liabilities.................................................
.................
........................ 393,992
-----------
Net
Assets......................................................
.................
............................. $17,483,747
-----------
-----------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
.............
$ 15,302
Paid-in capital in excess of
par.........................................................
..................
16,634,008
-----------
16,649,310
Accumulated net realized gain on
investments.................................................
..............
78,616
Net unrealized appreciation on
investments.................................................
................
755,821
-----------
Net assets, August 31,
1995........................................................
.................
.......... $17,483,747
-----------
-----------
Class A:
Net asset value and redemption price per share
($9,954,031 / 870,975 shares of beneficial interest
issued and
outstanding)............................. $11.43
Maximum sales charge (3.0% of offering
price)......................................................
........
.35
-----------
Maximum offering price to
public......................................................
.................
.... $11.78
-----------
-----------
Class B:
Net asset value, offering price and redemption price per
share
($7,529,507 / 659,169 shares of beneficial interest
issued and
outstanding)............................. $11.42
-----------
-----------
Class C:
Net asset value, offering price and redemption price per
share
($209 / 18.3 shares of beneficial interest issued and
outstanding)......................................
$11.42
-----------
-----------
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
5
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MUNICIPAL SERIES FUND
GEORGIA SERIES
Statement of Operations
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Year
Ended
Net Investment Income August 31,
1995
<S> <C>
Income
Interest................................... $
1,207,185
-----------
- - ----
Expenses
Management fee (net of fee waiver of
$6,103).................................
86,901
Distribution fee--Class A..................
6,224
Distribution fee--Class B..................
59,263
Distribution fee--Class C..................
1
Custodian's fees and expenses..............
65,000
Reports to shareholders....................
45,000
Registration fees..........................
34,000
Transfer agent's fees and expenses.........
17,000
Audit fee..................................
11,000
Legal fee..................................
10,000
Trustees' fees.............................
3,200
Miscellaneous..............................
1,679
-----------
- - ----
Total expenses..........................
339,268
Less: expense subsidy (Note 5).............
(37,348)
Less: custodian fee credit.................
(724)
-----------
- - ----
Net expenses............................
301,196
-----------
- - ----
Net investment income.........................
905,989
-----------
- - ----
Realized and Unrealized Gain
(Loss) on Investments
Net realized gain on:
Investment transactions....................
105,706
Financial futures transactions.............
45,600
-----------
- - ----
151,306
-----------
- - ----
Net change in unrealized appreciation (depreciation) on:
Investments................................
128,559
Financial futures contracts................
(20,594)
-----------
- - ----
107,965
-----------
- - ----
Net gain on investments.......................
259,271
-----------
- - ----
Net Increase in Net Assets
Resulting from Operations..................... $
1,165,260
-----------
- - ----
-----------
- - ----
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
MUNICIPAL SERIES FUND
GEORGIA SERIES
Statement of Changes in Net Assets
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended August
31,
<S> <C> <C>
in Net Assets 1995 1994
Operations
Net investment income............ $ 905,989 $
982,702
Net realized gain (loss) on
investment transactions....... 151,306
(3,540)
Net change in unrealized
appreciation (depreciation) of
investments................... 107,965
(1,407,842)
----------- -------
- - ----
Net increase (decrease) in net
assets resulting from
operations.................... 1,165,260
(428,680)
----------- -------
- - ----
Dividends and distributions (Note 1)
Dividends from net investment income
Class A....................... (313,243)
(55,820)
Class B....................... (592,736)
(926,882)
Class C....................... (10)
- - --
----------- -------
- - ----
(905,989)
(982,702)
----------- -------
- - ----
Distributions from net realized
gains
Class A....................... --
(15,680)
Class B....................... --
(302,050)
----------- -------
- - ----
--
(317,730)
----------- -------
- - ----
Series share transactions (net of
share conversion) (Note 6)
Net proceeds from shares sold.... 1,204,122
3,261,528
Net asset value of shares issued
in reinvestment of dividends
and distributions............. 596,905
863,092
Cost of shares reacquired........ (5,279,962)
(3,609,847)
----------- -------
- - ----
Net increase (decrease) in net
assets from Series share
transactions.................. (3,478,935)
514,773
----------- -------
- - ----
Total decrease...................... (3,219,664)
(1,214,339)
Net Assets
Beginning of year................... 20,703,411
21,917,750
----------- -------
- - ----
End of year......................... $17,483,747
$20,703,411
----------- -------
- - ----
----------- -------
- - ----
</TABLE>
- - ------------------------------------------------------------
- - --------------------
6 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements GEORGIA SERIES
- - ------------------------------------------------------------
- - --------------------
Prudential Municipal Series Fund (the ``Fund'') is
registered under the
Investment Company Act of 1940, as an open-end investment
company. The Fund was
organized as a Massachusetts business trust on May 18, 1984
and consists of
seventeen series. The monies of each series are invested in
separate,
independently managed portfolios. The Georgia Series (the
``Series'') commenced
investment operations in September, 1984. The Series is
diversified and seeks
to
achieve its investment objective of obtaining the maximum
amount of income
exempt from federal and applicable state income taxes with
the minimum of risk
by investing in ``investment grade'' tax-exempt securities
whose ratings are
within the four highest ratings categories by a nationally
recognized
statistical rating organization or, if not rated, are of
comparable quality. The
ability of the issuers of the securities held by the Series
to meet their
obligations may be affected by economic 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, and the Series, in the preparation of its financial
statements.
Securities Valuations: The Series 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 Trustees.
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.
All securities are valued as of 4:15 P.M., New York time.
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 Series 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 Series 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 Series invests in financial futures contracts in order
to hedge its existing
portfolio securities, or securities the Series intends to
purchase, against
fluctuations in value caused by changes in prevailing
interest rates. Should
interest rates move unexpectedly, the Series 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 securities are
calculated on the identified cost basis. Interest income is
recorded on the
accrual basis. The Series amortizes premiums and original
issue discount paid
on
purchases of 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: For federal income tax purposes, each
series in the Fund
is treated as a separate taxpaying entity. It is the intent
of the Series 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
shareholders. For this reason and because substantially all
of the Series' gross
income consists of tax-exempt interest, no federal income
tax provision is
required.
Dividends and Distributions: The Series declares daily
dividends from net
investment income. Payment of dividends is made monthly.
Distributions of net
capital gains, if any, are made annually.
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
- - ------------------------------------------------------------
- - --------------------
7
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements GEORGIA SERIES
- - ------------------------------------------------------------
- - --------------------
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 1% of the average daily net assets of the
Series. Effective
January 1, 1995, PMF has agreed to waive a portion (.05 of
1% of the Series'
average daily net assets) of its management fee, which
amounted to $6,103
($0.004 per share; 0.03% of average daily net assets). The
Series 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.
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 period September 1, 1994 through July 31, 1995 and
.10 of 1% of the
average daily net assets of the Class A, B and C shares for
the period August
1,
1995 through August 31, 1995.
PMFD has advised the Series that it has received
approximately $4,500 in
front-end sales charges resulting from sales of Class A
shares during the fiscal
year ended August 31, 1995. 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 Series that for the fiscal year ended
August 31, 1995, it
received approximately $63,700 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 Transactions with Affiliates
Prudential Mutual Fund Services, Inc. (``PMFS''), a wholly-
owned subsidiary of
PMF, serves as the Fund's transfer agent. During the fiscal
year ended August
31, 1995, the Series incurred fees of approximately $13,100
for the services of
PMFS. As of August 31, 1995, approximately $1,100 of such
fees were due to PMFS.
Transfer agent fees and expenses in the Statement of
Operations include certain
out-of-pocket expenses paid to non-affiliates.
- - ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of portfolio securities of the Series,
excluding short-term
investments, for the fiscal year ended August 31, 1995 were
$2,611,178 and
$6,236,208, respectively.
The cost basis of investments for federal income tax
purposes at August 31, 1995
was substantially the same as the basis for financial
reporting purposes and,
accordingly, net unrealized appreciation of investments for
federal income tax
purposes is $759,259 (gross unrealized appreciation--
$927,655, gross unrealized
depreciation--$168,396).
At August 31, 1995, the Series sold 10 financial futures
contracts on the
Municipal Bond Index expiring in September 1995. The value
at disposition of
such contracts was $1,140,937. The value of such contracts
on August 31, 1995
was $1,144,375, thereby resulting in an unrealized loss of
$3,438.
The Fund elected to treat net capital losses of
approximately $45,000 incurred
in the ten month period ended August 31, 1994 as having
occurred in the current
fiscal year.
- - ------------------------------------------------------------
Note 5. Expense Subsidy
PMF has agreed to subsidize expenses so that the total
Series' operating
expenses did not exceed the following levels for the periods
indicated:
<TABLE>
<CAPTION>
Period Class A Class B
Class C
- - ------------------------------------- ------- -------
- - -------
<S> <C> <C>
<C>
September 1, 1994 through December 1.40% 1.80%
2.05%
31, 1994
January 1, 1995 through July 31, 1995 1.35% 1.75%
2.00%
August 1, 1995 through August 31, 1.35% 1.35%
1.35%
1995
</TABLE>
- - ------------------------------------------------------------
- - --------------------
8
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements GEORGIA SERIES
- - ------------------------------------------------------------
- - --------------------
For the year ended August 31, 1995, PMF subsidized $37,348
($0.024 per share;
0.20% of average daily net assets) of the Series' expenses.
- - ------------------------------------------------------------
Note 6. Capital
The Series currently offers Class A, Class B and Class C
shares. Class A shares
are sold with a front-end sales charge of up to 3.0%. Class
B shares are sold
with a contingent deferred sales charge which declines from
5% to zero depending
on the period of time the shares are held. Class C shares
are sold with a
contingent deferred sales charge of 1% during the first
year. Class B shares
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 qualified to purchase Class A shares at net
asset value.
The Fund has authorized an unlimited number of shares of
beneficial interest of
each class at $.01 par value per share.
Transactions in shares of beneficial interest for the year
ended August 31, 1995
and 1994 were as follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- - ----------------------------------- ---------- --------
- - ----
<S> <C> <C>
Year ended August 31, 1995:
Shares sold........................ 19,672 $
220,772
Shares issued in reinvestment of
dividends........................ 18,359
207,636
Shares reacquired.................. (134,799)
(1,514,764)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................ (96,768)
(1,086,356)
Shares issued upon conversion from
Class B.......................... 862,188
9,550,909
---------- --------
- - ----
Net increase in shares
outstanding...................... 765,420 $
8,464,553
---------- --------
- - ----
---------- --------
- - ----
Year ended August 31, 1994:
Shares sold........................ 40,971 $
479,185
Shares issued in reinvestment of
dividends and distributions...... 3,476
40,440
Shares reacquired.................. (30,202)
(352,696)
---------- --------
- - ----
Net increase in shares
outstanding...................... 14,245 $
166,929
---------- --------
- - ----
---------- --------
- - ----
</TABLE>
<TABLE>
<CAPTION>
Class B Shares
Amount
- - ----------------------------------- ---------- --------
- - ----
<S> <C> <C>
Year ended August 31, 1995:
Shares sold........................ 89,155 $
983,350
Shares issued in reinvestment of
dividends........................ 35,627
389,264
Shares reacquired.................. (347,590)
(3,765,198)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................ (222,808)
(2,392,584)
Shares reacquired upon conversion
into Class A..................... (862,242)
(9,550,909)
---------- --------
- - ----
Net decrease in shares
outstanding...................... (1,085,050)
$(11,943,493)
---------- --------
- - ----
---------- --------
- - ----
Year ended August 31, 1994:
Shares sold........................ 237,894 $
2,782,143
Shares issued in reinvestment of
dividends and distributions...... 70,614
822,652
Shares reacquired.................. (281,823)
(3,257,151)
---------- --------
- - ----
Net increase in shares
outstanding...................... 26,685 $
347,644
---------- --------
- - ----
---------- --------
- - ----
</TABLE>
<TABLE>
<CAPTION>
Class C
- - -----------------------------------
<S> <C> <C>
Year ended August 31, 1995:
Shares issued in reinvestment of
dividends........................ -- $
5
---------- --------
- - ----
---------- --------
- - ----
August 1, 1994(a) through
August 31, 1994:
Shares sold........................ 18 $
200
---------- --------
- - ----
---------- --------
- - ----
- - ---------------
(a) Commencement of offering of Class C shares.
</TABLE>
- - ------------------------------------------------------------
Note 7. Proposed Reorganization
On July 24, 1995 and October 16, 1995 the Trustees and
shareholders,
respectively, approved an Agreement and Plan of
Reorganization and Liquidation
for the Series (the ``Plan of Reorganization'') which
provides for the transfer
of substantially all of the assets and liabilities of the
Series to Prudential
National Municipals Fund, Inc. (``National Municipals'').
Class A, Class B and
Class C shares of the Series would be exchanged at net asset
value for Class A,
Class B and Class C shares, respectively, of equivalent
value of National
Municipals. The Series would then cease operations.
The Plan requires the approval of shareholders of the Series
to become effective
and a proxy/prospectus will be mailed to shareholders in
September 1995. If the
Plan is approved, it is expected that the reorganization
will take place in
October 1995. The Series and National Municipals will each
bear their pro rata
share of the costs of the reorganization, including costs of
proxy solicitation.
- - ------------------------------------------------------------
- - --------------------
9
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights GEORGIA
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class A
- - --------------------------------------------------
Year Ended
August 31,
- - --------------------------------------------------
1995 1994
1993 1992 1991
----
- - -- ------
- - ------ ------ ------
<S> <C>
<C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year..................
$11.19 $12.12
$11.69 $11.39 $11.05
----
- - -- ------
- - ------ ------ ------
Income from investment operations
Net investment income...............................
.56(a) .57
.62 .65(a) .64
Net realized and unrealized gain (loss) on
investment transactions..........................
.24 (.76)
.85 .54 .43
----
- - -- ------
- - ------ ------ ------
Total from investment operations.................
.80 (.19)
1.47 1.19 1.07
----
- - -- ------
- - ------ ------ ------
Less distributions
Dividends from net investment income................
(.56) (.57)
(.62) (.65) (.64)
Distributions from net realized gains...............
- - -- (.17)
(.42) (.24) (.09)
----
- - -- ------
- - ------ ------ ------
Total distributions..............................
(.56) (.74)
(1.04) (.89) (.73)
----
- - -- ------
- - ------ ------ ------
Net asset value, end of year........................
$11.43 $11.19
$12.12 $11.69 $11.39
----
- - -- ------
- - ------ ------ ------
----
- - -- ------
- - ------ ------ ------
TOTAL RETURN(b):....................................
7.50% (1.58)%
13.28% 10.84% 10.03%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000).......................
$9,954 $1,182
$1,107 $ 177 $ 102
Average net assets (000)............................
$6,224 $1,134
$ 475 $ 155 $ 98
Ratios to average net assets:
Expenses, including distribution fees............
1.37%(a) 1.30%
1.27% 1.24%(a) 1.70%
Expenses, excluding distribution fees............
1.27%(a) 1.20%
1.17% 1.14%(a) 1.60%
Net investment income............................
5.12%(a) 4.92%
5.29% 5.68%(a) 5.67%
Portfolio turnover rate.............................
15% 27%
41% 58% 33%
- - ---------------
</TABLE>
(a) Net of expense subsidy/fee waiver.
(b) Total return does not consider the effects of sales
loads. Total return
is calculated assuming a purchase of shares on the
first day and a sale
on the last day of each year reported and includes
reinvestment of
dividends and distributions.
- - ------------------------------------------------------------
- - --------------------
10 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights GEORGIA SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class B Class C
- - -------------------------------------------------------
- - ------------
Year
Year
Ended August 31, Ended
- - -------------------------------------------------------
August 31,
1995 1994
1993 1992 1991 1995
----
- - --- -------
------- ------- ------- ------
<S> <C>
<C>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................ $
11.19 $ 12.12
$ 11.69 $ 11.39 $ 11.05 $ 11.19
----
- - --- -------
------- ------- ------- ------
Income from investment operations
Net investment income...............................
.52(a) .52
.57 .61(a) .60 .50(a)
Net realized and unrealized gain (loss) on
investment transactions..........................
.23 (.76)
.85 .54 .43 .23
----
- - --- -------
------- ------- ------- ------
Total from investment operations.................
.75 (.24)
1.42 1.15 1.03 .73
----
- - --- -------
------- ------- ------- ------
Less distributions
Dividends from net investment income................
(.52) (.52)
(.57) (.61) (.60) (.50)
Distributions from net realized gains...............
- - -- (.17)
(.42) (.24) (.09) --
----
- - --- -------
------- ------- ------- ------
Total distributions..............................
(.52) (.69)
(.99) (.85) (.69) (.50)
----
- - --- -------
------- ------- ------- ------
Net asset value, end of period...................... $
11.42 $ 11.19
$ 12.12 $ 11.69 $ 11.39 $ 11.42
----
- - --- -------
------- ------- ------- ------
----
- - --- -------
------- ------- ------- ------
TOTAL RETURN(b):....................................
6.97% (1.98)%
12.83% 10.40% 9.57% 6.78%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..................... $
7,530 $19,522
$20,811 $17,702 $17,722 $ 209(e)
Average net assets (000)............................
$12,376 $20,492
$18,437 $17,436 $19,008 $ 200(e)
Ratios to average net assets:
Expenses, including distribution fees............
1.75%(a) 1.70%
1.67% 1.64%(a) 2.08% 1.96%(a)
Expenses, excluding distribution fees............
1.27%(a) 1.20%
1.17% 1.14%(a) 1.58% 1.27%(a)
Net investment income............................
4.74%(a) 4.52%
4.89% 5.28%(a) 5.36% 4.53%(a)
Portfolio turnover rate.............................
15% 27%
41% 58% 33% 15%
<CAPTION>
<S> <C>
August
1,
1994(c)
Through
August
31,
1994
------
- - ----
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................ $
11.23
------
- - ----
Income from investment operations
Net investment income...............................
.04
Net realized and unrealized gain (loss) on
investment transactions..........................
(.04)
------
- - ----
Total from investment operations.................
- - --
------
- - ----
Less distributions
Dividends from net investment income................
(.04)
Distributions from net realized gains...............
- - --
------
- - ----
Total distributions..............................
(.04)
------
- - ----
Net asset value, end of period...................... $
11.19
------
- - ----
------
- - ----
TOTAL RETURN(b):....................................
(0.06)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..................... $
200(e)
Average net assets (000)............................ $
199(e)
Ratios to average net assets:
Expenses, including distribution fees............
2.05%(d)
Expenses, excluding distribution fees............
1.30%(d)
Net investment income............................
4.68%(d)
Portfolio turnover rate.............................
27%
- - ---------------
</TABLE>
(a) Net of expense subsidy/fee waiver.
(b) 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.
(c) Commencement of offering of Class C shares.
(d) Annualized.
(e) Amounts are actual and are not rounded to the nearest
thousand.
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
11
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Independent Auditors' Report GEORGIA SERIES
- - ------------------------------------------------------------
- - --------------------
The Shareholders and Board of Trustees
Prudential Municipal Series Fund, Georgia Series
We have audited the accompanying statement of assets and
liabilities, including
the portfolio of investments, of Prudential Municipal Series
Fund, Georgia
Series, as of August 31, 1995, the related statements of
operations for the year
then ended and of changes in 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. These financial statements and financial
highlights are the
responsibility of the Fund's management. Our responsibility
is to express an
opinion on these financial statements and financial
highlights based on our
audits.
We conducted our audits in accordance with generally
accepted auditing
standards. Those standards require that we plan and perform
the audit to obtain
reasonable assurance about whether the financial statements
and financial
highlights are free of material misstatement. An audit
includes examining, on
a
test basis, evidence supporting the amounts and disclosures
in the financial
statements. Our procedures included confirmation of the
securities owned as of
August 31, 1995 by correspondence with the custodian. An
audit also includes
assessing the accounting principles used and significant
estimates made by
management, as well as evaluating the overall financial
statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, such financial statements and financial
highlights present
fairly, in all material respects, the financial position of
Prudential Municipal
Series Fund, Georgia Series, as of August 31, 1995, the
results of its
operations, the changes in its net assets, and its financial
highlights for the
respective stated periods in conformity with generally
accepted accounting
principles.
DELOITTE & TOUCHE LLP
New York, New York
October 16, 1995
PRUDENTIAL
MUNICIPAL SERIES FUND
Federal Income Tax Information GEORGIA SERIES
- - ------------------------------------------------------------
- - --------------------
We are required by the Internal Revenue Code to advise you
within 60 days of the
Series' fiscal year end (August 31, 1995) as to the federal
tax status of
dividends and distributions paid by the Series during such
fiscal year.
Accordingly, we are advising you that in the fiscal year
ended August 31, 1995,
dividends paid from net investment income of $.56 per Class
A share, $.52 per
Class B share and $.50 per Class C shares were all federally
tax-exempt interest
dividends.
In January 1996, you will be advised on IRS Form 1099 DIV or
substitute 1099 DIV
as to the federal tax status of the distributions received
by you in calendar
year 1995.
- - ------------------------------------------------------------
- - --------------------
12
<PAGE>
Getting
The Most
From Your
Prudential
Mutual
Fund
When you invest through Prudential Mutual Funds, you receive
financial advice
through a Prudential Securities financial advisor or
Prudential/Pruco
Securities registered representative. Your advisor or
representative can
provide you with the following services.
There's No Reward Without Risk; But Is This Risk Worth It?
Your financial adviser or registered representative can help
you match the
reward you seek with the risk you can tolerate. And risk can
be difficult to
gauge --sometimes even the simplest investments bear
surprising risks. The
educated investor knows that markets seldom move in just one
direction --
there are times when a market sector or asset class will
lose value or provide
little in the way of total return. Managing your own
expectations is easier
with help from someone who understands the markets and who
knows you!
Keeping Up With The Joneses.
A financial adviser or registered representative can help
you wade through
the numerous mutual funds available to find the ones that
fit your own
individual investment profile and risk tolerance. While the
newspapers and
popular magazines are full of advice about investing, they
are aimed at
generic groups of people or representative individuals, not
at you personally.
Your financial advisor or registered representative will
review your
investment objectives with you. This means you can make
financial decisions
based on the assets and liabilities in your current
portfolio and your risk
tolerance -- not just based on the current investment fad.
Buy Low, Sell High.
Buying at the top of a market cycle and selling at the
bottom are among the
most common investor mistakes. But sometimes it's difficult
to hold on to an
investment when it's losing value every month. Your
financial adviser or
registered representative can answer questions when you're
confused or worried
about your investment, and remind you that you're investing
for the long haul.
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
Prudential Mutual Fund Management (LOGO)
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy Hays Teeters
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Grace Torres, Treasurer
S. Jane Rose, Secretary
Stephen M. Ungerman, Assistant Treasurer
Deborah A. Docs, Assistant 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
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
This report is not authorized for distribution to
prospective investors unless
preceded or accompanied by a current prospectus.
74435M309
74435M408
74435M580
(ICON)
Prudential
Municipal
Series Fund
Hawaii Income Series
Annual Report
Aug. 31, 1995
(LOGO)
<PAGE>
Prudential Municipal Series Fund
Hawaii Income Series
Performance At A Glance.
It has been a good year for shareholders of the Prudential
Municipal Series
Fund: Hawaii Income Series. Municipal bond investors not
only earned their
coupon income, but also saw a gain in net asset value as
well. We are pleased
to report that your Series performed in line with the
average Hawaii municipal
bond fund measured by Lipper Analytical Services over the
past 12 months.
Cumulative Total Returns1 As of
8/31/95
<TABLE>
<CAPTION>
Six
Since
Months
Inception2
<S> <C> <C>
Class A 5.1%
9.4%
Class B 4.9 9.0
Class C 4.8 8.8
Lipper HI Muni Avg3 5.0 8.8
</TABLE>
Average Annual Total Returns1 As of
9/30/95
<TABLE>
<CAPTION>
One
Since
Year
Inception2
<S> <C> <C>
Class A 6.8%
6.2%
Class B 4.7 5.1
Class C 8.4 8.7
</TABLE>
<TABLE>
<CAPTION>
Taxable Equivalent Yield
Total Dividends 30-Day
At Tax Rates of
Paid for 12 Mos. SEC Yield
36% 39.6%
<S> <C> <C> <C>
<C> <C>
Your Class A $0.58 5.17%
8.98% 9.51%
Dividend Class B $0.54 4.93
8.56 9.07
As of 8/31/95 Class C $0.51 4.71
8.18 8.66
</TABLE>
Past performance is not a guarantee of future results.
Principal and investment
return will fluctuate so that an investor's shares, when
redeemed, may be worth
more or less than their original cost.
1Source: Prudential Mutual Fund Management and Lipper
Analytical Services. The
cumulative total returns do not take into account sales
charges. The average
annual returns do take into account applicable sales
charges. The Fund charges
a maximum front-end sales load of 3% for Class A shares and
a 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. Class B
shares automatically
convert to Class A shares on a quarterly basis, after
approximately seven years.
2Inception dates: 9/19/94 for Class A, Class B and Class C.
3The Lipper Hawaii Municipal Bond fund average includes 12
funds for six
months and 10 funds since inception of all classes of shares
on 9/19/94.
How Investments Compared.
(As of 8/31/95)
<GRAPH)
Source: Lipper Analytical Services. Financial markets
change, so a mutual
fund's past performance should never be used to predict
future results. The
risks to each of the investments listed above are different
- - -- we provide
12-month total returns for several Lipper mutual fund
categories to show you
that reaching for higher yields means tolerating more risk.
The greater the
risk, the larger the potential reward or loss. In addition,
we've added
historical 20-year average annual returns. These returns
assume the
reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Smaller
capitalization stocks
offer greater potential for long-term growth but may be more
volatile than
larger capitalization stocks. Investors receive higher
historical total
returns from stocks than from most other investments.
General Bond Funds provide more income than stock funds,
which can help smooth
out their total returns year by year. But their prices still
fluctuate
(sometimes a good deal) and their returns are historically
lower than those of
stock funds.
General Municipal Debt Funds invest in bonds issued by state
governments, state
agencies and/or municipalities. This investment provides
income that is usually
exempt from federal and state income taxes. (20-year returns
are not
available.)
Money Market Funds attempt to preserve a constant share
value; they don't
fluctuate much in price but their returns are generally
among the lowest of
the major investment categories.
*19 years for General Muni Debt Funds.
<PAGE>
Christian Smith, Fund Manager
Portfolio
Manager's Report
The Series invests in carefully selected long-term municipal
bonds that offer
a high level of current income exempt from Hawaii state and
federal income
taxes consistent with preservation of capital. Certain
shareholders may be
subject to the federal alternative minimum tax, however. The
Series invests in
obligations of Hawaii state, municipal and local
governments, including U.S.
territories (such as Puerto Rico, the U.S. Virgin Islands
and Guam), the
income of which is also exempt from federal and Hawaii state
income taxes.
High Yield Bonds.
Until May, the Series was permitted to invest up to 30% of
its total assets in
high yield securities, which are rated below investment
grade. The Series had
not purchased any because the supply of high yield bonds in
Hawaii is very
limited, and most of the high yield bonds did not meet our
internal credit
guidelines. In May, the Trustees approved a change in
investment policy whereby
the Series will no longer be permitted to purchase high
yield bonds.
Strategy Session.
It has been a positive year for tax-free municipal bonds.
Although interest
rates rose sharply in 1994 on inflation fears, they have
tumbled back down
slowly this year, as economic growth slowed. The Bond Buyer
Revenue Bond Index
Yield stood at 6.4% on September 1, 1994 (the index is
calculated on
Thursdays), and rose by a percentage point to a high of 7.4%
in mid-October
1994, before falling to 6.3% on August 31, 1995. As you can
see, when the dust
had settled, long-term municipal bond interest rates ended
the period lower.
This year, we have been buying longer maturity bonds with
discount coupons
(coupons lower than theprevailing market), because these are
more likely to
appreciate if interest rates fall, as we expect. We remain
cautious because
the state has a negative credit outlook from Standard &
Poor's.
The slow growth of Hawaii's economy is beginning to put
pressure on its history
of sound fiscal management and high budget reserves. On a
more positive note,
Hawaii's economy is recovering from the recession of the
early 1990's, though
slowly.
Sector Beakdown
(GRAPH)
<PAGE>
What Went Well.
It Paid To Buy Puerto Rico and Guam Bonds.
The supply of new municipal bonds has declined sharply in
Hawaii, by 43% this
year alone. So we looked elsewhere. We bought bonds issued
by Puerto Rico and
Guam, because they are tax-exempt federally and in virtually
all states,
including Hawaii. As a result, they are in demand and have
performed well this
year.
Our Puerto Rico holdings are well diversified and many are
insured. For
example, we own insured bonds from the University of Puerto
Rico, Puerto Rico
housing authority bonds backed by the Government National
Mortgage Agency
(GNMA), Puerto Rico municipal finance and Puerto Rico
telephone authority
bonds.
And Not So Well.
A Longer Duration Would Have Helped.
Duration measures the sensitivity of a bond's price to
interest rate changes.
The longer the duration, the more a bond's price appreciates
when interest
rates fall and vice versa. Over the winter, our duration was
shorter than that
of some competing funds, because we expected economic growth
to remain strong.
As the slowdown became apparent in the second quarter, we
extended duration. On
August 31, 1995, our duration was 7.6 years.
Municipals Suffered From Tax Talk.
Congress is considering various changes in the federal
income tax, including a
flat tax -- an income tax at a single, flat rate. One
proposal would eliminate
taxes on most investment income. Clearly, this has created
uncertainty in the
municipal market -- one reason why municipal bonds did not
follow taxable bond
prices higher this spring.
At this writing, we believe it is unlikely that a flat tax
proposal in this
form is likely to pass Congress -- especially not before
next year's election.
<TABLE>
<S> <C>
*7.3% Puerto Rico
Telephone Authority
6.1% Puerto Rico
Housing Finance Corp.
5.2% Puerto Rico
University Revenue Bonds
5.1% Hawaii State
General Obligation
4.2% Hawaii State
Hawaiian Electric Co.
</TABLE>
* Expressed as a percentage of total net assets as of
8/31/95.
Looking Ahead.
Municipal bond yields are very attractive now. As we
mentioned earlier, when
U.S. government and corporate bond yields fell this spring,
municipal yields
did not follow to the same extent. That means there are some
very good buying
opportunities now in the municipal market.
Should interest rates remain stable, investors may look
forward to earning
their coupon. Plus, if interest rates fall further,
municipal bond investors
could reasonably expect some price appreciation as well.
Nevertheless, municipal bond investors should be prepared to
weather some
volatility this year as various proposals to change the
country's income tax
structure are proposed and debated.
Overall, we believe municipal bonds still offer good value,
and that volatility
can offer some attractive buying opportunities.
1
<PAGE>
President's Letter October 11, 1995
Dear Shareholder:
We hope you like the fresh look and information we've given
your shareholder
letter. We've also introduced another feature, called
Getting the Most Out of
Your Prudential Mutual Fund, which will appear from time to
time at the back
of your report. Look for topics like ``Understanding Risk &
Reward'' as well
as easy-to-understand explanations of financial terms. Why
are we providing
such information? Because at Prudential Mutual Funds, we
believe an informed
investor makes smart investment decisions.
- - ------------------------------------------------------------
- - -------------------
On the Hill As an informed investor, you should know about
the ``American
Dream Savings Account'' that is part of the federal budget
package now under
debate in the Senate. It is a type of Individual Retirement
Account that
offers a common-sense approach to long-term saving.
Investors should like
it because--
- You can withdraw funds -- without penalty -- to pay
for certain expenses
like buying a first home, medical care or educational
needs;
- All account earnings would accumulate tax-free, not
merely tax-deferred
like the current IRA;
- You can make contributions past age 70 1/2, instead of
having to take
distributions as the current law requires.
Of course, the federal budget process is never easy and
while we hope this
measure is adopted, there's no way of knowing if it will be.
So why not let
your Senator and/or Representative know your opinion today?
Simply call
202-224-3121.
- - ------------------------------------------------------------
- - -------------------
In Closing
One final note: if you're a Class B shareholder of
Prudential Mutual Funds,
you'll begin noticing a change on your statements once
you've held your shares
for seven years. At that time, they will automatically begin
to convert to
Class A shares on a quarterly basis. Since Class A shares
carry lower annual
distribution charges than Class B shares, your total returns
will be higher
after the conversion than they would have been without it.
Conversions started
earlier this year and beginning in December they will take
place during each
calendar quarter -- December, March, June and September.
It's our way of
thanking you for your loyalty -- and rewarding you for
maintaining a long-term
investment program by helping you earn more total investment
return on your
Prudential Mutual Fund. I hope you'll find this information
useful as you work
with your financial advisor or registered representative to
develop your
personal investment plan.
Thank you for choosing Prudential Mutual Funds for your
mutual fund investment.
Sincerely,
Richard A. Redeker
President
2
<PAGE>
Portfolio of Investments as of PRUDENTIAL
MUNICIPAL SERIES FUND
August 31, 1995 HAWAII INCOME
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
LONG-TERM INVESTMENTS--98.3%
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
Guam Gov't., Ser. A
BBB(e)
5.90% 9/01/05 $ 500 $496,650
Guam Pwr. Auth. Rev.,
Ser. A
BBB(e)
6.625 10/01/14 250 256,192
Ser. A
BBB(e)
6.75 10/01/24 525 536,046
Hawaii St. Arpt. Sys. Rev.
A
7.00 7/01/18 365 382,630
Hawaii St. Arpt. Sys. Rev., 2nd Ser. 90, F.G.I.C.
Aaa
7.50 7/01/20 500 551,370
Hawaii St. Dept. Budget & Fin.,
Kapiolani Hlth. Care Sys.
A
6.30 7/01/08 500 511,340
Mtg. Rev., Hawaiian Elec. Co., Ser. C, M.B.I.A.
Aaa
7.375 12/01/20 500 554,055
Queens Med. Ctr. Proj., F.G.I.C.
Aaa
5.90 7/01/07 230 238,627
Hawaii St. Harbor Cap. Impvt. Rev.,
F.G.I.C.
Aaa
6.25 7/01/10 250(d) 260,972
F.G.I.C.
Aaa
6.25 7/01/15 500 509,800
Hawaii St. Hsg. Fin. & Dev. Corp., Sngl. Fam. Mtge. Rev.,
Ser. B, F.N.M.A.
Aa
5.85 7/01/17 500 486,740
Hawaii St., Gen. Oblig., Ser. CJ
Aa
6.25 1/01/15 650 667,017
Honolulu Hawaii City & Cnty., Ser. D
Aaa
6.70 12/01/02 450(c) 500,463
Maui Cnty., Ref., F.G.I.C.
Aaa
5.125 12/15/10 500 478,740
Puerto Rico Comnwlth., Gen. Oblig.
Baa1
6.45 7/01/17 500 516,875
Puerto Rico Elec. Pwr. Auth. Rev., Ser. O,
(Frmly. Puerto Rico Comnwlth.Wtr. Res. Auth.)
Baa1
5.00 7/01/12 600 536,910
Puerto Rico Hsg. Fin. Corp., Sngl. Fam. Mtge. Rev.,
G.N.M.A.
Aaa
6.40 10/15/06 750 797,205
Puerto Rico Hwy. & Trans. Auth. Rev.
Baa1
6.375 7/01/08 500 526,305
Puerto Rico Ind., Tourist, Edu., Med. & Envir. Ctrl. Facs.,
Doctor Pila Hosp. Proj., F.H.A.
AAA(e)
6.125 8/01/25 500(b) 501,855
Hosp. Auxilio Mutuo Oblig. Grp. Proj.,
M.B.I.A.
Aaa
6.25 7/01/16 500 515,305
M.B.I.A.
Aaa
6.25 7/01/24 250 255,470
Puerto Rico Mun. Fin. Agcy., Ser. A, F.S.A.
Aaa
6.00 7/01/14 250 253,553
Puerto Rico Tel. Auth. Rev., Ser. I, M.B.I.A.
Aaa
5.449 1/16/15 1,000 953,940
Puerto Rico Univ. Rev., Ser. M, M.B.I.A.
Aaa
5.25 6/01/25 750 685,853
Univ. of Hawaii Sys. Rev., Ser. G, A.M.B.A.C.
Aaa
5.45 10/01/06 280 287,039
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
3
<PAGE>
Portfolio of Investments as of PRUDENTIAL
MUNICIPAL SERIES FUND
August 31, 1995 HAWAII INCOME
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
Virgin Islands Pub. Fin. Auth. Rev.,
Gov't. Dev. Proj., Ser. B
BBB-(e)
7.375% 10/01/10 $ 300 $ 327,402
Hwy. Trans. Trust Fund, Ser. A
NR
7.25 10/01/18 250 263,740
-----------
Total long-term investments (cost $12,356,446)
12,852,094
SHORT-TERM INVESTMENTS--6.1%
Hawaii St. Dept. Budget & Fin., Adventist Hlth. Sys/West,
Ser. 94, F.R.W.D.
VMIG1
3.35 9/06/95 100 100,000
Puerto Rico Comnwlth., Gov't. Dev. Bank., Ser. 85, F.R.W.D.
VMIG1
3.20 9/06/95 700 700,000
-----------
Total short-term investments (cost $800,000)
800,000
Total Investments--104.4%
(cost $13,156,446; Note 5)
13,652,094
Liabilities in excess of other assets--(4.4)%
(572,880)
-----------
Net Assets--100%
$13,079,214
-----------
-----------
</TABLE>
- - ---------------
(a) The following abbreviations are used in portfolio
descriptions:
A.M.B.A.C.--American Municipal Bond Assurance
Corporation.
F.G.I.C.--Financial Guaranty Insurance Company.
F.H.A.--Federal Housing Administration.
F.N.M.A.--Federal National Mortgage Association.
F.R.W.D.--Floating Rate Weekly Demand Note(f).
F.S.A.--Financial Security Assurance.
G.N.M.A.--Government National Mortgage Association.
M.B.I.A.--Municipal Bond Insurance Association.
(b) Indicates a when-issued security.
(c) Prerefunded issues are secured by escrowed cash and
direct U.S. guaranteed
obligations.
(d) Pledged as initial margin on financial futures
contracts.
(e) Standard & Poor's rating.
(f) 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.
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.
- - ------------------------------------------------------------
- - --------------------
4 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Statement of Assets and Liabilities HAWAII INCOME
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<S>
<C>
Assets
August 31, 1995
Investments, at value (cost
$13,156,446)................................................
.................
..... $13,652,094
Cash........................................................
.................
................................. 62,256
Interest
receivable..................................................
.................
........................ 177,528
Receivable for Fund shares
sold........................................................
.................
...... 36,768
Due from
Manager.....................................................
.................
........................ 1,635
Other
assets......................................................
.................
........................... 84,982
-----------
Total
assets......................................................
.................
........................ 14,015,263
-----------
Liabilities
Payable for investments
purchased...................................................
.................
......... 497,347
Payable for Fund shares
reacquired..................................................
.................
......... 379,881
Accrued
expenses....................................................
.................
......................... 43,028
Dividends
payable.....................................................
.................
....................... 7,696
Distribution fee
payable.....................................................
.................
................ 4,528
Due to broker - variation margin
payable.....................................................
.................
2,969
Deferred trustees'
fees........................................................
.................
.............. 600
-----------
Total
liabilities.................................................
.................
........................ 936,049
-----------
Net
Assets......................................................
.................
............................. $13,079,214
-----------
-----------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
.............
$ 10,784
Paid-in capital in excess of
par.........................................................
..................
12,492,346
-----------
12,503,130
Accumulated net realized gain on
investments.................................................
..............
94,967
Net unrealized appreciation on
investments.................................................
................
481,117
-----------
Net assets, August 31,
1995........................................................
.................
.......... $13,079,214
-----------
-----------
Class A:
Net asset value and redemption price per share
($3,333,130 / 274,820 shares of beneficial interest
issued and
outstanding)............................. $12.13
Maximum sales charge (3.0% of offering
price)......................................................
........
.38
Maximum offering price to
public......................................................
.................
.... $12.51
Class B:
Net asset value, offering price and redemption price per
share
($8,948,854 / 737,840 shares of beneficial interest
issued and
outstanding)............................. $12.13
Class C:
Net asset value, offer price and redemption price per
share
($797,230 / 65,733 shares of beneficial interest
issued and
outstanding)................................
$12.13
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
5
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND PRUDENTIAL
MUNICIPAL SERIES FUND
HAWAII INCOME SERIES HAWAII INCOME
SERIES
Statement of Operations Statement of
Changes in Net Assets
- - ------------------------------------------------------------
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
September 19,
1994D
through
Net Investment Income August 31,
1995
<S> <C>
Income
Interest................................ $ 524,323
--------------
- - -
Expenses
Management fee, net of waiver of
$3,651............................... 41,133
Distribution fee--Class A............... 2,641
Distribution fee--Class B............... 29,804
Distribution fee--Class C............... 2,659
Custodian's fees and expenses........... 58,000
Reports to shareholders................. 33,000
Registration fees....................... 26,000
Legal fees.............................. 17,000
Amortization of organization expenses... 13,935
Audit fee............................... 11,000
Transfer agent's fees and expenses...... 3,600
Trustees' fees.......................... 3,200
Miscellaneous........................... 4,398
--------------
- - -
Total expenses....................... 246,370
--------------
- - -
Less: expense subsidy (Note 4).......... (179,090)
--------------
- - -
Net expenses......................... 67,280
--------------
- - -
Net investment income...................... 457,043
--------------
- - -
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions................. 100,147
Financial futures contract
transactions......................... (5,180)
--------------
- - -
94,967
--------------
- - -
Net change in unrealized appreciation/depreciation on:
Investments............................. 495,648
Financial futures contracts............. (14,531)
--------------
- - -
481,117
--------------
- - -
Net gain on investments.................... 576,084
--------------
- - -
Net Increase in Net Assets
Resulting from Operations.................. $ 1,033,127
--------------
- - -
--------------
- - -
</TABLE>
- - ------------
D Commencement of investment operations.
<TABLE>
<CAPTION>
September
19,
1994D
Increase (Decrease) through
in Net Assets August 31,
1995
<S> <C>
Operations
Net investment income..................... $ 457,043
Net realized gain on investment
transactions........................... 94,967
Net change in unrealized appreciation of
investments............................ 481,117
-------------
- - --
Net increase in net assets resulting from
operations............................. 1,033,127
-------------
- - --
Dividends from net investment income
(Note 1):
Class A................................
(140,503)
Class B................................
(299,569)
Class C................................
(16,971)
-------------
- - --
(457,043)
-------------
- - --
Series share transactions (net of share
conversions) (Note 6):
Net proceeds from shares sold............. 13,508,423
Net asset value of shares issued
in reinvestment of dividends........... 199,822
Cost of shares reacquired.................
(1,205,115)
-------------
- - --
Net increase in net assets from Series
share transactions..................... 12,503,130
-------------
- - --
Total increase............................... 13,079,214
Net Assets
Beginning of period.......................... 0
-------------
- - --
End of period................................ $13,079,214
-------------
- - --
-------------
- - --
</TABLE>
- - ------------
D Commencement of investment operations.
- - ------------------------------------------------------------
- - --------------------
6 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements HAWAII INCOME
SERIES
- - ------------------------------------------------------------
- - --------------------
Prudential Municipal Series Fund (the ``Fund'') is
registered under the
Investment Company Act of 1940, as an open-end investment
company. The Fund was
organized as a Massachusetts business trust on May 18, 1984
and consists of
seventeen series. The monies of each series are invested in
separate,
independently managed portfolios. The Hawaii Income Series
(the ``Series'')
commenced investment operations on September 19, 1994. The
Series is
non-diversified and seeks to provide the maximum amount of
income that is exempt
from Hawaii State and federal income taxes consistent with
the preservation of
capital by investing in investment grade municipal
obligations but may also
invest a portion of its assets in lower-quality municipal
obligations or in
non-rated securities which, in the opinion of the Fund's
investment adviser, are
of comparable quality. The ability of the issuers of the
securities held by the
Series 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, and the Series, 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 Trustees.
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.
All securities are valued as of 4:15 P.M., New York time.
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 Series 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 Series 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 Series invests in financial
futures contracts
in order to hedge its existing portfolio securities or
securities the Series
intends to purchase, against fluctuations in value caused by
changes in
prevailing interest rates. Should interest rates move
unexpectedly, the Series
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 securities are
calculated on the identified cost basis. Interest income is
recorded on the
accrual basis. The Series amortizes premiums and original
issue discount paid
on
purchases of 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: For federal income tax purposes, each
series in the Fund
is treated as a separate taxpaying entity. It is the intent
of the Series to
meet the requirements of the Internal Revenue Code
applicable to regulated
investment companies and to distribute all of its net income
to shareholders.
For this reason and because substantially all of the Series'
gross income
consists of tax-exempt interest, no federal income tax
provision is required.
Dividends and Distributions: The Series declares daily
dividends from net
investment income. Payment of dividends is made monthly.
Distributions of net
capital gains, if any, are made annually.
Income distributions and capital gain distributions are
determined in accordance
with income tax regulations which may differ from generally
accepted accounting
principles.
Deferred Organization Expenses: The Series incurred $98,700
in organization and
initial registration expenses. Such amount has been deferred
and is being
amortized over a period of 60 months ending September 1999.
- - ------------------------------------------------------------
- - --------------------
7
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements HAWAII INCOME
SERIES
- - ------------------------------------------------------------
- - --------------------
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 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 PMF is computed daily and payable
monthly, at an annual
rate of .50 of 1% of the average daily net assets of the
Series. Effective
January 1, 1995, PMF has agreed to waive a portion (.05 of
1% of the Series'
average daily net assets) of its management fee, which
amounted to $3,651
($0.004 per share for Class A, B, and C shares; .04% of
average net assets). The
Series 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.
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 period ended August 31, 1995.
PMFD has advised the Series that it has received
approximately $19,600 in
front-end sales charges resulting from sales of Class A
shares during the period
ended August 31, 1995. 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 Series that for the period ended August
31, 1995, it
received approximately $12,700 and $100 in contingent
deferred sales charges
imposed upon certain redemptions by Class B and Class C
shareholders,
respectively.
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 Transactions with Affiliates
Prudential Mutual Fund Services, Inc. (``PMFS''), a wholly-
owned subsidiary of
PMF, serves as the Fund's transfer agent. During the period
ended August 31,
1995, the Series incurred fees of approximately $2,500 for
the services of PMFS.
As of August 31, 1995, approximately $300 of such fees were
due to PMFS.
Transfer agent fees and expenses in the Statement of
Operations include certain
out-of-pocket expenses paid to non-affiliates.
- - ------------------------------------------------------------
Note 4. Expense Subsidy
PMF has agreed to subsidize expenses so that total operating
expenses do not
exceed .50%, .90% and 1.15% of the average net assets of the
Class A shares,
Class B shares and Class C shares, respectively until
further notice. For the
period ended August 31, 1995, PMF subsidized $179,090 ($.22
per share for Class
A, B and C shares; 2.00% of average net assets) of the
Series' expenses. The
Series is not required to reimburse PMF for such subsidy.
- - ------------------------------------------------------------
Note 5. Portfolio Securities
Purchases and sales of portfolio securities of the Series,
excluding short-term
investments, for the period ended August 31, 1995 were
$16,927,504 and
$4,671,596, respectively.
At August 31, 1995, the Fund sold 5 financial futures
contracts on the U.S.
Treasury Index which expire in September 1995. The value at
disposition of such
contracts is $565,781. The value of such contracts on August
31, 1995 was
$551,250, thereby resulting in an unrealized loss of
$14,531.
The cost basis of investments for federal income tax
purposes is substantially
the same as for financial reporting purposes and,
accordingly, as of August 31,
1995, net unrealized appreciation for federal income tax
purposes was $495,648
(gross unrealized appreciation--$507,204; gross unrealized
depreciation--$11,556).
- - ------------------------------------------------------------
- - --------------------
8
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements HAWAII INCOME
SERIES
- - ------------------------------------------------------------
- - --------------------
- - ------------------------------------------------------------
Note 6. Capital
The Series offers Class A, Class B and Class C shares. Class
A shares are sold
with a front-end sales charge of up to 3.0%. Class B shares
are sold with a
contingent deferred sales charge which declines from 5% to
zero depending on the
period of time the shares are held. Class C shares are sold
with a contingent
deferred sales charge of 1% during the first year. Class B
shares will
automatically convert to Class A shares on a quarterly basis
approximately seven
years after purchase.
The Fund has authorized an unlimited number of shares of
beneficial interest of
each class at $.01 par value per share. Of the 1,078,393
shares of beneficial
interest issued and outstanding at August 31, 1995, PMF
owned 171,851 shares.
Transactions in shares of beneficial interest for the period
ended August 31,
1995 were as follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- - --------------------------------------- -------- ------
- - ----
<S> <C> <C>
September 19, 1994* through
August 31, 1995:
Shares sold............................ 279,870
$3,255,106
Shares issued in reinvestment of
dividends and distributions.......... 1,566
18,665
Shares reacquired...................... (10,702)
(123,633)
-------- ------
- - ----
Net increase in shares outstanding
before conversion.................... 270,734
$3,150,138
Shares issued upon conversion from
Class B.............................. 4,086
49,084
-------- ------
- - ----
Net increase in shares outstanding..... 274,820
$3,199,222
-------- ------
- - ----
-------- ------
- - ----
<CAPTION>
Class B
<S> <C> <C>
September 19, 1994* through
August 31, 1995:
Shares sold............................ 816,861
$9,471,988
Shares issued in reinvestment of
dividends and distributions.......... 14,410
171,145
Shares reacquired...................... (89,345)
(1,066,264)
-------- ------
- - ----
Net decrease in shares outstanding
before conversion.................... 741,926
8,576,869
Shares reacquired upon conversion into
Class A.............................. (4,086)
(49,084)
-------- ------
- - ----
Net decrease in shares outstanding..... 737,840
$8,527,785
-------- ------
- - ----
-------- ------
- - ----
<CAPTION>
Class C Shares
Amount
- - --------------------------------------- -------- ------
- - ----
<S> <C> <C>
September 19, 1994* through
August 31, 1995:
Shares sold............................ 66,136 $
781,329
Shares issued in reinvestment of
dividends............................ 845
10,012
Shares reacquired...................... (1,248)
(15,218)
-------- ------
- - ----
Net increase in shares outstanding..... 65,733 $
776,123
-------- ------
- - ----
-------- ------
- - ----
</TABLE>
- - ---------------
* Commencement of investment operations.
- - ------------------------------------------------------------
- - --------------------
9
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights HAWAII INCOME
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
September 19, 1994(b) through August 31, 1995
- - -----------------------------------------------------
Class A Class B Class C
- - ------------- ------------- -------------
<S>
<C>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period.....................................
$ 11.64 $ 11.64 $ 11.64
----- ----- -----
Income from investment operations
Net investment
income(d).................................................
.58 .54 .51
Net realized and unrealized gain (loss) on investment
transactions.......
.49 .49 .49
----- ----- -----
Total from investment
operations......................................
1.07 1.03 1.00
----- ----- -----
Less distributions
Dividends from net investment
income.....................................
(.58) (.54) (.51)
----- ----- -----
Net asset value, end of
period...........................................
$ 12.13 $ 12.13 $ 12.13
----- ----- -----
----- ----- -----
TOTAL
RETURN(c):..................................................
.......
9.42% 9.03% 8.78%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)..........................................
$ 3,333 $ 8,949 $ 797
Average net assets
(000).................................................
$ 2,778 $ 6,270 $ 373
Ratios to average net assets:(a)/(d)
Expenses, including distribution
fees.................................
.46% .86% 1.11%
Expenses, excluding distribution
fees.................................
.36% .36% .36%
Net investment
income.................................................
5.32% 5.03% 4.79%
Portfolio turnover
rate..................................................
75% 75% 75%
</TABLE>
- - ---------------
(a) Annualized.
(b) Commencement of investment operations.
(c) 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. Total return is not annualized.
(d) Net of expense subsidy and management fee waiver.
- - ------------------------------------------------------------
- - --------------------
10 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Independent Auditors' Report HAWAII INCOME
SERIES
- - ------------------------------------------------------------
- - --------------------
The Shareholders and Board of Trustees
Prudential Municipal Series Fund, Hawaii Income Series
We have audited the accompanying statement of assets and
liabilities, including
the portfolio of investments, of Prudential Municipal Series
Fund, Hawaii Income
Series as of August 31, 1995, the related statements of
operations and of
changes in net assets and the financial highlights for the
period September 19,
1994 (Commencement of investment operations) to August 31,
1995. These financial
statements and financial highlights are the responsibility
of the Fund's
management. Our responsibility is to express an opinion on
these financial
statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards.
Those standards require that we plan and perform the audit
to obtain reasonable
assurance about whether the financial statements and
financial highlights are
free of material misstatement. An audit includes examining,
on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. Our
procedures included confirmation of the securities owned as
of August 31, 1995
by correspondence with the custodian and brokers; where
replies were not
received from brokers, we performed other auditing
procedures. An audit also
includes assessing the accounting principles used and
significant estimates made
by management, as well as evaluating the overall financial
statement
presentation. We believe that our audit provides a
reasonable basis for our
opinion.
In our opinion, such financial statements and financial
highlights present
fairly, in all material respects, the financial position of
Prudential Municipal
Series Fund, Hawaii Income Series, as of August 31, 1995,
the results of its
operations, the changes in its net assets, and its financial
highlights for the
above stated period in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
October 16, 1995
PRUDENTIAL
MUNICIPAL SERIES FUND
Federal Income Tax Information HAWAII INCOME
SERIES
- - ------------------------------------------------------------
- - --------------------
We are required by the Internal Revenue Code to advise you
within 60 days of the
Series' fiscal year end (August 31, 1995) as to the federal
tax status of
dividends paid by the Series during such fiscal year.
Accordingly, we are
advising you that in the fiscal year ended August 31, 1995,
dividends paid from
net investment income of $.58 per Class A share, $.54 per
Class B share, and
$.51 per Class C share were all federally tax-exempt
interest dividends.
In January 1996, you will be advised on IRS Form 1099 DIV or
substitute 1099 DIV
as to the federal tax status of the distributions received
by you in calendar
year 1995.
- - ------------------------------------------------------------
- - --------------------
11
<PAGE>
Getting The Most From Your Prudential Mutual Fund
When you invest through Prudential Mutual Funds, you receive
financial advice
through a Prudential Securities financial advisor or
Prudential/Pruco
Securities registered representative. Your advisor or
representative can
provide you with the following services.
- - ------------------------------------------------------------
- - -------------------
There's No Reward Without Risk; But Is This Risk Worth It?
Your financial adviser or registered representative can help
you match the
reward you seek with the risk you can tolerate. And risk can
be difficult to
gauge -- sometimes even the simplest investments bear
surprising risks. The
educated investor knows that markets seldom move in just one
direction -- there
are times when a market sector or asset class will lose
value or provide little
in the way of total return. Managing your own expectations
is easier with help
from someone who understands the markets and who knows you!
- - ------------------------------------------------------------
- - -------------------
Keeping Up With The Joneses.
A financial adviser or registered representative can help
you wade through the
numerous mutual funds available to find the ones that fit
your own individual
investment profile and risk tolerance. While the newspapers
and popular
magazines are full of advice about investing, they are aimed
at generic groups
of people or representative individuals, not at you
personally. Your financial
advisor or registered representative will review your
investment objectives
with you. This means you can make financial decisions based
on the assets and
liabilities in your current portfolio and your risk
tolerance -- not just based
on the current investment fad.
- - ------------------------------------------------------------
- - -------------------
Buy Low, Sell High.
Buying at the top of a market cycle and selling at the
bottom are among the
most common investor mistakes. But sometimes it's difficult
to hold on to an
investment when it's losing value every month. Your
financial adviser or
registered representative can answer questions when you're
confused or worried
about your investment, and remind you that you're investing
for the long haul.
<PAGE>
The Prudential Municipal Series Fund: Hawaii Income Series
and
the Lehman Bros. Index: Comparing a $10,000 Investment.
Class A
(GRAPH)
Class B
(GRAPH)
Class C
(GRAPH)
Past performance is no guarantee of future results.
Investment return and
principal value will fluctuate so an investor's shares, when
redeemed, will 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 Municipal
Series Fund: Hawaii
Income Series (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 the most recent reporting period (August 31),
as measured on a
quarterly basis, beginning in 1994 for Class A, Class B, and
Class C shares.
For purposes of the graphs, and unless otherwise indicated,
in the accompanying
tables it has been assumed (a) that the maximum applicable
front-end sales
charge was deducted from the initial $10,000 investment in
Class A shares; (b)
the maximum applicable contingent deferred sales charge was
deducted from the
value of the investment in Class B and Class C shares,
assuming full redemption
on August 31, 1995; (c) all recurring fees (including
management fees) were
deducted; and (d) all dividends and distributions were
reinvested. Class B
shares automatically convert to Class A shares, on a
quarterly basis,
approximately seven years after purchase. This conversion
feature is not
reflected in the graph. The graph and accompanying tables
reflect the past
subsidy and/or waiver of expenses and/or management fees.
Without
waivers and expense subsidies the value of the $10,000
investment in
the Series and the Series' average annual total return, as
illustrated above,
would have been lower.
The Index is a weighted index comprised 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. It is an unmanaged index that
includes the reinvestment
of all dividends, but does not reflect the transaction costs
and advisory fees
paid by the Funds' investors. The Index's holdings differ
from the Funds'
portfolio. The Index is not the only one that may be used to
characterize
performance of bond funds and other indices may portray
different comparative
performance.
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
(LOGO)
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy Hays Teeters
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Grace Torres, Treasurer
S. Jane Rose, Secretary
Stephen M. Ungerman, Assistant Treasurer
Deborah A. Docs, Assistant 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
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
This report is not authorized for distribution to
prospective investors unless
preceded or accompanied by a current prospectus.
74435M473 MF165E
74435M465 Cat. #42M160Y
74435M457
(ICON)
Prudential
Municipal
Series Fund
Massachusetts Series
Annual Report
Aug. 31, 1995
(LOGO)
<PAGE>
Prudential Municipal Series Fund
Massachusetts Series
Performance At A Glance.
It has been a good year for shareholders of the Prudential
Municipal Series
Fund: Massachusetts Series. Municipal bond investors not
only earned their
coupon income, but also saw a gain in net asset value as
well. We are pleased
to report that your fund has performed better than the
average Massachusetts
municipal bond fund measured by Lipper Analytical Services
over the past
12 months.
Cumulative Total Returns1 As of
8/31/95
<TABLE>
<CAPTION>
One Five Ten
Since
Year Years Years
Inception2
<S> <C> <C> <C>
<C>
Class A 8.3% 50.9% N/A
53.0%
Class B 7.9 47.7 109.2%
135.0
Class C 7.6 N/A N/A
7.5
Lipper MA Muni Avg3 7.2 50.0 119.7
153.6
</TABLE>
Average Annual Total Returns1 As of
9/30/95
<TABLE>
<CAPTION>
One Five Ten
Since
Year Years Years
Inception2
<S> <C> <C> <C>
<C>
Class A 7.1% 8.1% N/A
7.3%
Class B 4.9 8.2 7.8%
8.1
Class C 8.7 N/A N/A
6.7
</TABLE>
<TABLE>
<CAPTION>
Taxable Equivalent Yield
Total Dividends 30-Day
At Tax Rates of
Paid for 12 Mos. SEC Yield
36% 39.6%
<S> <C> <C>
<C> <C>
Your Class A $0.65 4.61%
8.19% 8.67%
Dividend Class B $0.60 4.36
7.74 8.20
As of 8/31/95 Class C $0.57 4.12
7.32 7.75
</TABLE>
Past performance is not a guarantee of future results.
Principal and investment
return will fluctuate so that an investor's shares, when
redeemed, may be worth
more or less than their original cost.
1Source: Prudential Mutual Fund Management and Lipper
Analytical Services. The
cumulative total returns do not take into account sales
charges. The average
annual returns do take into account applicable sales
charges. The Series
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. Class B shares
automatically convert to Class A shares on a quarterly
basis, after
approximately seven years.
2Inception dates: 1/22/90 for Class A; 9/25/84 for Class B;
and 8/1/94 for
Class C.
3The Lipper Massachusetts Municipal Bond fund average
includes 40 funds for
one year, 18 funds for five years, seven funds for 10 years
and four funds
since inception of the Class B shares on 9/25/84.
How Investments Compared.
(As of 8/31/95)
(GRAPH)
Source: Lipper Analytical Services. Financial markets
change, so a mutual
fund's past performance should never be used to predict
future results. The
risks to each of the investments listed above are different
- - -- we provide
12-month total returns for several Lipper mutual fund
categories to show you
that reaching for higher yields means tolerating more risk.
The greater the
risk, the larger the potential reward or loss. In addition,
we've added
historical 20-year average annual returns. These returns
assume the
reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Smaller
capitalization stocks
offer greater potential for long-term growth but may be more
volatile than
larger capitalization stocks. Investors receive higher
historical total returns
from stocks than from most other investments.
General Bond Funds provide more income than stock funds,
which can help smooth
out their total returns year by year. But their prices still
fluctuate
(sometimes a good deal) and their returns are historically
lower than those of
stock funds.
General Municipal Debt Funds invest in bonds issued by state
governments, state
agencies and/or municipalities. This investment provides
income that is usually
exempt from federal and state income taxes.
Money Market Funds attempt to preserve a constant share
value; they don't
fluctuate much in price but their returns are generally
among the lowest of
the major investment categories.
*19 years for General Muni Debt Funds.
<PAGE>
Marie Conti, Fund Manager
(PHOTO)
Portfolio
Manager's Report
The Series invests in carefully selected long-term municipal
bonds that offer
a high level of current income exempt from Massachusetts
state and federal
income taxes consistent with preservation of capital.
Certain shareholders
may be subject to the federal alternative minimum tax,
however. The Series
invests primarily in obligations of Massachusetts state,
municipal and local
governments, including U.S. territories (such as Puerto
Rico, the U.S. Virgin
Islands and Guam), the income of which is also exempt from
federal and
Massachusetts state income taxes.
Manager Named.
In May, Marie Conti was appointed portfolio manager of the
Prudential Municipal
Series Fund: Massachusetts Series.
Marie manages more than $700 million in municipal
portfolios, including the
Prudential Municipal Bond Fund/Intermediate Series.
Strategy Session.
It has been a positive year for tax-free municipals.
Although interest rates
rose sharply in 1994 on inflation fears, they have tumbled
back down slowly so
far in 1995, as economic growth slowed. The Bond Buyer
Revenue Bond Index Yield
stood at 6.4% on September 1, 1994 (the index is calculated
on Thursdays) and
rose by a percentage point to a high of 7.4% in mid-October
1994, before
falling to 6.3% on August 31, 1995. As you can see, when the
dust had settled,
long-term municipal bond interest rates ended the period
lower.
We found value by increasing our assets in general
obligation bonds, which are
easier to trade in volatile markets. As interest rates fell,
we increased our
holdings in revenue bonds to 46% from 43% of assets because
they pay a higher
rate of interest.
State Of The State.
Massachusetts has a growing population for the first time
since the early
1990s. People are staying in the state because the jobs are
coming back, led
by gains in construction (up 8.6%), health care (up 6.9%)
and business services
(up 6.6%). In the substantial health care sector here,
consolidation has
reduced hospital employment, but jobs are increasing in
clinics and
laboratories.
There is usually a year-end budget surplus in state
government here now. That's
the good news, but such hasn't always been the case here.
While per capita
income is the fourth highest in the nation, so is net tax-
supported state
debt -- 8.2% of income versus the median of 2.1%. So any
change in the
state's economy can affect its flexibility to accommodate
heavy pension,
education and transit costs in the years to come.
Sector Breakdown
(GRAPH)
<PAGE>
What Went Well.
We Held On
To Good Yields.
We held assets invested in non-callable bonds (those that
can not be paid off
prematurely by the issuer to save on interest costs) steady
at about 11% of
total net assets. These bonds not only offer attractive
yields but also
appreciate well when interest rates decline. They are
valuable because not
many bonds offer protection from call risk -- only about a
third of the
securities in the Lehman Brothers' Municipal Bond Index are
non-callable.
It Paid To Buy
Puerto Rico Bonds.
The supply of new municipal bonds has declined in
Massachusetts by 24% this
year alone. So we looked elsewhere. We bought bonds sold by
Puerto Rico,
because they are tax-exempt federally and in virtually all
states, including
Massachusetts. As a result, they are in demand. Our holdings
in Puerto Rico
are now 9% of assets.
And Not So Well.
A Longer Duration
Would Have Helped.
Duration measures the sensitivity of a bond's price to
interest rate changes.
The longer the duration, the more a bond's price appreciates
when interest
rates fall, and vice versa. Over the winter, our duration
was shorter than that
of some competing funds, because we expected economic growth
to remain strong.
As the slowdown became apparent in the second quarter, we
extended duration.
Duration generally ranged from 7.0 years to 7.7 years, and
was 7.7 years on
August 31.
Municipals Suffered
From Tax Talk.
Congress is considering various changes in the federal
income tax, including a
flat tax -- an income tax at a single, flat rate. One
proposal would eliminate
taxes on most investment income. Clearly, this has created
uncertainty in the
municipal market -- one reason why municipal bonds did not
follow taxable bond
prices higher this spring. At this writing, we believe it is
unlikely that a
flat tax proposal in this form is likely to pass Congress --
especially not
before next year's election.
Looking Ahead.
Municipal bonds yields are very attractive now. This spring,
when U.S.
government and corporate bond yields fell, municipal yields
did not follow to
the same extent. The results are some very good buying
opportunities now in the
municipal market. Should interest rates remain stable,
investors may look
forward to earning their coupon. Plus, if interest rates
fall further,
investors in tax-exempt securities could reasonably expect
some price
appreciation as well as coupon income.
Municipal bond investors should be prepared to weather some
volatility this
year as a consequence of proposals to change the federal
income tax. Overall,
we believe municipal bonds still offer good value, and that
volatility can
offer some attractive buying opportunities.
Five Largest
Holdings.*
<TABLE>
<S> <C>
4.3% Lynn Wtr. & Swr. Comm.
General Revenue
4.3% Mass. St. Ind. Agcy. Rev.
Cape Cod Hlth. Sys.
4.1% Boston Mass.
General Obligation
4.0% Mass. St. Hlth. & Edl.
Newton-Wellesley Hosp.
3.5% Gloucester Mass.
General Obligation
</TABLE>
*Expressed as a percentage of total net assets as of
8/31/95.
1
<PAGE>
President's Letter October 11, 1995
(PHOTO)
Dear Shareholder:
We hope you like the fresh look and information we've given
your shareholder
letter. We've also introduced another feature, called
Getting the Most Out of
Your Prudential Mutual Fund, which will appear from time to
time at the back of
your report. Look for topics like "Understanding Risk &
Reward" as well as
easy-to-understand explanations of financial terms. Why are
we providing such
information? Because at Prudential Mutual Funds, we believe
an informed
investor makes smart investment decisions.
- - ------------------------------------------------------------
- - -------------------
On the Hill
As an informed investor, you should know about the "American
Dream Savings
Account" that is part of the federal budget package now
under debate in the
Senate. It is a type of Individual Retirement Account that
offers a
common-sense approach to long-term saving. Investors should
like it because --
- You can withdraw funds -- without penalty -- to pay for
certain expenses
like buying a first home, medical care or educational
needs;
- All account earnings would accumulate tax-free, not
merely tax-deferred
like the current IRA;
- You can make contributions past age 70 1/2, instead of
having to take
distributions as the current law requires.
Of course, the federal budget process is never easy and
while we hope this
measure is adopted, there's no way of knowing if it will be.
So why not let
your Senator and/or Representative know your opinion today?
Simply call
202-224-3121.
- - ------------------------------------------------------------
- - -------------------
In Closing
One final note: if you're a Class B shareholder of
Prudential Mutual Funds,
you'll begin noticing a change on your statements once
you've held your shares
for seven years. At that time, they will automatically begin
to convert to
Class A shares on a quarterly basis. Since Class A shares
carry lower annual
distribution charges than Class B shares, your total returns
will be higher
after the conversion than they would have been without it.
Conversions started
earlier this year and beginning in December they will take
place during each
calendar quarter -- December, March, June and September.
It's our way of
thanking you for your loyalty -- and rewarding you for
maintaining a long-term
investment program by helping you earn more total investment
return on your
Prudential Mutual Fund. I hope you'll find this information
useful as you work
with your financial advisor or registered representative to
develop your
personal investment plan.
Thank you for choosing Prudential Mutual Funds for your
mutual fund investment.
Sincerely,
Richard A. Redeker
President
2
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Portfolio of Investments as of August 31, 1995
MASSACHUSETTS SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
LONG-TERM INVESTMENTS--94.4%
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
Boston Ind. Dev. Fin. Auth., Swr. Fac. Rev., Harbor Elec.
Energy Co. Proj.
Baa1
7.375% 5/15/15 $ 1,500 $ 1,576,500
Boston Mass., Gen. Oblig., Ser. A, A.M.B.A.C.
Aaa
7.375 2/01/10 2,000 2,263,320
Boston Mass. Rev., Boston City Hosp., FHA
Aa
5.75 2/15/23 2,000 1,874,400
Brockton Mass.
Baa
6.125 6/15/18 1,030 1,029,876
Gloucester Mass., Gen. Oblig., F.S.A.
Aaa
5.50 11/15/13 2,000 1,930,700
Holyoke, Gen. Oblig., Sch. Proj., M.B.I.A.
Aaa
8.10 6/15/05 700 839,006
Lowell, Gen. Oblig.
Aaa
7.625 2/15/10 750(d) 877,485
Lynn Wtr. & Swr. Comn., Gen. Rev., Ser. A, M.B.I.A.
Aaa
7.25 12/01/10 2,100(d) 2,403,597
Mass. St. Gen. Oblig., Ser. A
A1
Zero 8/01/06 665 381,717
Ser. C, F.G.I.C.
Aaa
6.00 8/01/09 1,500 1,590,195
Gen. Oblig., A.M.B.A.C.
Aaa
5.00 7/01/12 1,000 920,720
Mass. St. Hlth. & Edl. Fac. Auth. Rev.,
Beth Israel Hosp. A.M.B.A.C
Aaa
8.218 7/01/25 1,500(e) 1,477,500
Dana Farber Cancer Project Series G/1
A1
6.25 12/01/22 625 617,663
Faulkner Hosp., Ser. C
Baa1
6.00 7/01/23 1,500 1,317,105
Holyoke Hosp. Rev.
Baa1
6.50 7/01/15 1,500 1,430,835
Jordan Hosp.
A-(c)
6.875 10/01/22 1,850 1,894,345
Lahey Clinic, Ser. B, M.B.I.A.
Aaa
5.375 7/01/23 450 413,829
Med Academic Scientific A
A-(c)
6.625 1/01/15 1,000 1,013,800
New England Med. Ctr., Ser. E
A1
7.875 7/01/11 1,175 1,308,656
Newton-Wellesley Hosp., M.B.I.A.
Aaa
5.875 7/01/15 1,000 985,520
Newton-Wellesley Hosp., M.B.I.A.
Aaa
6.00 7/01/18 1,000 994,980
Newton-Wellesley Hosp., Ser. C, B.I.G.
Aaa
8.00 7/01/18 2,000 2,233,540
Tufts Univ., Ser. C
Aaa
7.40 8/01/18 1,235(d) 1,367,478
Valley Regl. Hlth. Sys., Ser. B
Aaa
8.00 7/01/18 1,000(d) 1,167,980
Valley Regl. Hlth. Sys.
AAA(c)
7.00 7/01/10 825 930,435
Winchester Hosp.
AAA(c)
5.75 7/01/24 2,000 1,877,040
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
3
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Portfolio of Investments as of August 31, 1995
MASSACHUSETTS SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
Mass. St. Hsg. Fin. Agcy. Rev.,
Sngl. Fam. Mtge., Ser. 1985A
Aa
9.50% 12/01/16 $ 415 $ 429,508
Sngl. Fam. Mtge., Ser. 6
Aa
8.10 12/01/14 1,755 1,896,699
Mass. St. Ind. Fin. Agcy. Rev.,
Brooks Sch.
A
5.95 7/01/23 640 632,211
Cape Cod Hlth. Sys.
Aaa
8.50 11/15/20 2,000 2,402,200
Springfield College
Baa1
5.625 9/15/10 900 829,152
Mass. St. Industrial Fin. Agcy. Rev. Phillips Academy
Aa1
5.375 9/01/23 1,000 920,800
Mass. St. Indl. Fin. Agcy., Poll. Ctrl. Rev., Eastern
Edison Co. Proj.
Baa2
5.875 8/01/08 1,000 991,470
Mass. St. Port Auth. Rev.
Aa
5.00 7/01/18 1,000 884,380
Mass. St. Mun. Wholesale Ele. Co. Pwr. Supply Sys. Rev.
Aaa
5.00 7/01/14 1,500 1,349,175
Mass. St. Water Poll. Abatement Trust Water Poll. Rev.
Aa
6.375 2/01/15 1,000 1,028,670
Palmer, Gen. Oblig., Ser. F, A.M.B.A.C.
Aaa
7.30 3/01/10 500 (d) 565,295
Plymouth Cnty. Corr. Facs. Proj., Cert. of Part., Ser. A
A-(c)
7.00 4/01/22 500 544,430
Puerto Rico Aqueduct & Swr. Auth. Rev., E.T.M.
Aaa
10.25 7/01/09 400 562,432
Puerto Rico Comnwlth.,
Gen. Oblig.
Baa1
5.25 7/01/18 1,000 899,290
Gen. Oblig., A.M.B.A.C.
Aaa
7.00 7/01/10 1,000 1,160,650
Gen. Oblig., F.S.A.
Aaa
7.723 7/01/20 1,250 (e) 1,223,437
Pub. Impvt. Ref.
Aaa
7.00 7/01/10 250 290,163
Puerto Rico Elec. Pwr. Auth. Rev. Ser. S
Baa1
7.00 7/01/06 450 507,632
Puerto Rico Ele. Pwr. Auth. Rev. (Formerly Puerto Rico
Comnwlth. Water Res. Auth. Pwr. Rev.)
Baa1
6.125 7/01/09 500 518,180
Virgin Islands Pub. Fin. Auth. Rev., Hwy. Trans. Trust
Fund, Ser. A
NR
7.25 10/01/18 400 421,984
-----------
Total long-term investments (cost $48,941,217)
52,775,980
-----------
</TABLE>
- - ------------------------------------------------------------
- - --------------------
4 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Portfolio of Investments as of August 31, 1995
MASSACHUSETTS SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
SHORT-TERM INVESTMENTS--8.2%
Mass. Comnwlth., Ded. Inc.Tax, F.R.D.D., Ser. 90B
VMIG1
3.20% 9/01/95 $ 2,900 $ 2,900,000
Mass. Ind. Fin. Agcy. Ind. Rev., Showa Womens Inst. Inc.,
F.R.D.D.,
Ser. 94
VMIG1
3.40 9/01/95 1,000 1,000,000
Puerto Rico Comnwlth., Dev. Bank., F.R.W.D., Ser. 85
VMIG1
3.20 9/06/95 700 700,000
-----------
Total short-term investments (cost $4,600,000)
4,600,000
-----------
Total Investments--102.6%
(cost $53,541,217; Note 4)
57,375,980
Other assets in excess of liabilities--(2.6)%
(1,470,047)
-----------
Net Assets--100%
$55,905,933
-----------
-----------
</TABLE>
- - ---------------
(a) The following abbreviations are used in portfolio
descriptions:
A.M.B.A.C.--American Municipal Bond Assurance
Corporation.
B.I.G.--Bond Investors Guaranty Insurance Company.
E.T.M.--Escrowed to Maturity.
F.G.I.C.--Financial Guaranty Insurance Association.
F.H.A.--Federal Housing Administration.
F.R.W.D.--Floating Rate (Weekly) Demand Note (b).
F.R.D.D.--Floating Rate (Daily) Demand Note (b).
F.S.A.--Financial Security Assurance.
M.B.I.A.--Municipal Bond Insurance Association.
<TABLE>
<C> <S>
(b) For purposes of amortized cost valuation, the maturity
date of these
securities are 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.
(c) Standard & Poor's rating.
(d) Prerefunded issues are secured by escrowed cash and
direct U.S. guaranteed
obligations.
(e) Inverse floating rate bond. The coupon is inversely
indexed to a floating
interest rate. The rate shown is the rate at
period end.
</TABLE>
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information
contains a description
of
Moody's and Standard & Poor's ratings.
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
5
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Statement of Assets and Liabilities
MASSACHUSETTS SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<S>
<C>
Assets
August 31, 1995
Investments, at value (cost
$53,541,217)................................................
.................
..... $57,375,980
Interest
receivable..................................................
.................
........................ 684,875
Deferred expenses and other
assets......................................................
.................
..... 2,214
-----------
Total
assets......................................................
.................
........................ 58,063,069
-----------
Liabilities
Bank
overdraft...................................................
.................
............................ 103,004
Payable for investments
purchased...................................................
.................
......... 1,951,233
Payable for Fund shares
reacquired..................................................
.................
......... 30,015
Dividends
payable.....................................................
.................
....................... 29,425
Due to
Manager.....................................................
.................
.......................... 21,155
Due to
Distributors................................................
.................
.......................... 14,341
Accrued
expenses....................................................
.................
......................... 6,363
Deferred trustees'
fees........................................................
.................
.............. 1,600
-----------
Total
liabilities.................................................
.................
........................ 2,157,136
-----------
Net
Assets......................................................
.................
............................. $55,905,933
-----------
-----------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
.............
$ 48,077
Paid-in capital in excess of
par.........................................................
..................
52,152,628
-----------
52,200,705
Accumulated net realized loss on
investments.................................................
..............
(129,535)
Net unrealized appreciation on
investments.................................................
................
3,834,763
-----------
Net assets, August 31,
1995........................................................
.................
.......... $55,905,933
-----------
-----------
Class A:
Net asset value and redemption price per share
($27,524,632 / 2,366,271 shares of beneficial interest
issued and
outstanding).......................... $11.63
Maximum sales charge (3% of offering
price)......................................................
..........
.36
-----------
Maximum offering price to
public......................................................
.................
.... $11.99
-----------
-----------
Class B:
Net asset value, offering price and redemption price per
share
($28,366,921 / 2,440,169 shares of beneficial interest
issued and
outstanding).......................... $11.62
-----------
-----------
Class C:
Net asset value, offer price and redemption price per
share
($14,380 / 1,237 shares of beneficial interest issued
and
outstanding)..................................
$11.62
-----------
-----------
</TABLE>
- - ------------------------------------------------------------
- - --------------------
6 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MASSACHUSETTS SERIES
Statement of Operations
- - ------------------------------------------------------------
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income August 31,
1995
-------------
- - --
<S> <C>
Income
Interest................................. $ 3,685,338
-------------
- - --
Expenses
Management fee, net of waiver of
$18,492............................... 258,040
Distribution fee--Class A................ 15,837
Distribution fee--Class B................ 197,277
Distribution fee--Class C................ 104
Custodian's fees and expenses............ 85,000
Transfer agent's fees and expenses....... 38,000
Reports to shareholders.................. 27,400
Registration fees........................ 20,500
Audit fee................................ 11,000
Legal fees............................... 21,000
Trustees' fees........................... 3,200
Miscellaneous............................ 8,867
-------------
- - --
Total expenses........................ 686,225
Less: custodian fee credit............
(3,722)
-------------
- - --
Net expenses.......................... 682,503
-------------
- - --
Net investment income....................... 3,002,835
-------------
- - --
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions.................. 327,609
Financial futures contract
transactions..........................
(20,626)
Options purchased........................
(12,625)
-------------
- - --
294,358
-------------
- - --
Net change in unrealized appreciation on:
Investments.............................. 871,511
-------------
- - --
Net gain on investments..................... 1,165,869
-------------
- - --
Net Increase in Net Assets
Resulting from Operations................... $ 4,168,704
-------------
- - --
-------------
- - --
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
MASSACHUSETTS SERIES
Statement of Changes in Net Assets
- - ------------------------------------------------------------
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended August
31,
in Net Assets 1995 1994
------- ------
- - -
<S> <C> <C>
Operations
Net investment income............ $ 3,002,835 $
3,240,965
Net realized gain (loss) on
investment transactions....... 294,358
(262,240)
Net change in unrealized
appreciation/depreciation of
investments................... 871,511
(3,647,136)
----------- -------
- - ----
Net increase (decrease) in net
assets resulting from
operations.................... 4,168,704
(668,411)
----------- -------
- - ----
Dividends and distributions (Note 1):
Dividends from net investment
income
Class A....................... (884,881)
(144,412)
Class B....................... (2,117,251)
(3,096,493)
Class C....................... (703)
(60)
----------- -------
- - ----
(3,002,835)
(3,240,965)
----------- -------
- - ----
Distributions from net realized
gains
Class A....................... --
(16,934)
Class B....................... --
(376,754)
----------- -------
- - ----
--
(393,688)
----------- -------
- - ----
Series share transactions (net of
share conversions) (Note 5):
Net proceeds from shares sold.... 3,105,413
7,355,596
Net asset value of shares issued
in reinvestment of
dividends..................... 1,755,219
2,173,313
Cost of shares reacquired........ (7,833,814)
(10,958,113)
----------- -------
- - ----
Net decrease in net assets from
Series share transactions..... (2,973,182)
(1,429,204)
----------- -------
- - ----
Total decrease...................... (1,807,313)
(5,732,268)
Net Assets
Beginning of year................... 57,713,246
63,445,514
----------- -------
- - ----
End of year......................... $55,905,933
$57,713,246
----------- -------
- - ----
----------- -------
- - ----
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
7
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements
MASSACHUSETTS SERIES
- - ------------------------------------------------------------
- - --------------------
Prudential Municipal Series Fund (the ``Fund'') is
registered under the
Investment Company Act of 1940, as an open-end investment
company. The Fund was
organized as a Massachusetts business trust on May 18, 1984
and consists of
seventeen series. The monies of each series are invested in
separate,
independently managed portfolios. The Massachusetts Series
(the ``Series'')
commenced investment operations in September, 1984. The
Series is diversified
and seeks to achieve its investment objective of obtaining
the maximum amount
of
income exempt from federal and applicable state income taxes
with the minimum
of
risk by investing in ``investment grade'' tax-exempt
securities whose ratings
are within the four highest ratings categories by a
nationally recognized
statistical rating organization or, if not rated, are of
comparable quality. The
ability of the issuers of the securities held by the Series
to meet their
obligations may be affected by economic 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, and the Series, 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 Trustees.
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.
All securities are valued as of 4:15 P.M., New York time.
Financial Futures Contracts: A financial futures contract is
an agreement to
purchase (long) or sell (short) an agreed amount of debt
securities at a set
price for delivery on a future date. Upon entering into a
financial futures
contract, the Series 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 Series
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. The Series invests in financial
futures contracts
solely for the purpose of hedging its existing portfolio
securities or
securities the Series intends to purchase against
fluctuations in value caused
by changes in prevailing market interest rates. Should
interest rates move
unexpectedly, the Series 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.
Option Writing: When the Fund writes an option, an amount
equal to the premium
received by the Fund is recorded as a liability and is
subsequently adjusted to
the current market value of the option written. Premiums
received from writing
options which expire unexercised are treated by the Fund on
the expiration date
as realized gains from securities or currencies based upon
the type of option
written. The difference between the premium and the amount
paid on effecting a
closing purchase transaction, including brokerage
commissions, is also treated
as a realized gain, or if the premium received is less than
the amount paid for
the closing purchase transaction, as a realized loss. If a
call option is
exercised, the premium is added to the proceeds from the
sale of the underlying
security or currency in determining whether the Fund has
realized a gain or
loss. If a put option is exercised, the premium reduces the
cost basis of the
securities or currencies purchased by the Fund. The Fund as
writer of an option
may have no control over whether the underlying securities
may be sold (call)
or
purchased (put) and as a result bears the market risk of an
unfavorable change
in the price of the security underlying the written option.
There were no
written options outstanding at August 31, 1995.
Securities Transactions and Investment Income: Securities
transactions are
recorded on the trade date. Realized gains and losses on
sales of securities are
calculated on the identified cost basis. Interest income is
recorded on the
accrual basis. The Series amortizes premiums and original
issue discount paid
on
purchases of 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: For federal income tax purposes, each
series in the Fund
is treated as a separate taxpaying entity. It is the intent
of the Series to
continue to meet the requirements of the Internal Revenue
Code
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8
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements
MASSACHUSETTS SERIES
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- - --------------------
applicable to regulated investment companies and to
distribute all of its net
income to shareholders. For this reason and because
substantially all of the
Series' gross income consists of tax-exempt interest, no
federal income tax
provision is required.
Dividends and Distributions: The Series declares daily
dividends from net
investment income. Payment of dividends is made monthly.
Distributions of net
capital gains, if any, are made annually.
Income distributions and capital gain distributions are
determined in accordance
with income tax regulations which may differ from generally
accepted accounting
principles. These differences are primarily due to differing
treatments for
short-term capital gains and market discount.
- - ------------------------------------------------------------
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 1% of the average daily net assets of the
Series. Effective
January 1, 1995, PMF has agreed to waive a portion (.05 of
1% of the Series'
average daily net assets) of its management fee, which
amounted to $18,492
($0.003 per share; .03% of average net assets). The Series
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.
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 year ended August 31, 1995.
PMFD has advised the Series that it has received
approximately $6,800 in
front-end sales charges resulting from sales of Class A
shares during the year
ended August 31, 1995. 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 Series that for the year ended August
31, 1995, it received
approximately $69,000 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 Transactions With Affiliates
Prudential Mutual Fund Services, Inc. (``PMFS''), a wholly-
owned subsidiary of
PMF, serves as the Fund's transfer agent and during the year
ended August 31,
1995, the Series incurred fees of approximately $24,500 for
the services of
PMFS. As of August 31, 1995, approximately $2,200 of such
fees were due to PMFS.
Transfer agent fees and expenses in the statement of
operations include certain
out-of-pocket expenses paid to non-affiliates.
- - ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of portfolio securities of the Series,
excluding short-term
investments, for the year ended August 31, 1995, were
$19,262,334 and
$23,901,769, respectively.
The cost basis of investments for federal income tax
purposes, at August 31,
1995, was $53,650,045 and, accordingly, net unrealized
appreciation of
investments, including short-term investments for federal
income tax purposes
was $3,725,935 (gross unrealized appreciation--$3,855,820,
gross unrealized
depreciation--$129,885).
- - ------------------------------------------------------------
- - --------------------
9
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements
MASSACHUSETTS SERIES
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- - --------------------
The Fund will elect to treat net capital losses of
approximately $975,100
incurred in the ten month period ended August 31, 1995 as
having been incurred
in the following fiscal year.
- - ------------------------------------------------------------
Note 5. Capital
The Series currently offers Class A, Class B and Class C
shares. Class A shares
are sold with a front-end sales charge of up to 3.0%. Class
B shares are sold
with a contingent deferred sales charge which declines from
5% to zero depending
on the period of time the shares are held. Class C shares
are sold with a
contingent deferred sales charge of 1% during the first
year. Class B shares
will automatically convert to Class A shares on a quarterly
basis approximately
seven years after purchase.
The Fund has authorized an unlimited number of shares of
beneficial interest of
each class at $.01 par value per share.
Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- - ------------------------------------ ---------- --------
- - ----
<S> <C> <C>
Year ended August 31, 1995:
Shares sold......................... 32,229 $
365,268
Shares issued in reinvestment of
dividends......................... 44,959
516,523
Shares reacquired................... (153,318)
(1,754,945)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................. (76,130)
(873,154)
Shares issued upon conversion from
Class B........................... 2,240,731
25,201,555
---------- --------
- - ----
Net increase in shares
outstanding....................... 2,164,601 $
24,328,401
---------- --------
- - ----
---------- --------
- - ----
Year ended August 31, 1994:
Shares sold......................... 79,658 $
955,193
Shares issued in reinvestment of
dividends and distributions....... 7,338
86,177
Shares reacquired................... (76,352)
(888,834)
---------- --------
- - ----
Net increase in shares
outstanding....................... 10,644 $
152,536
---------- --------
- - ----
---------- --------
- - ----
</TABLE>
<TABLE>
<CAPTION>
Class B Shares
Amount
- - ------------------------------------ ---------- --------
- - ----
<S> <C> <C>
Year ended August 31, 1995:
Shares sold......................... 241,751 $
2,725,137
Shares issued in reinvestment of
dividends......................... 111,056
1,237,961
Shares reacquired................... (546,923)
(6,076,741)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................. (194,116)
(2,113,643)
Shares reacquired upon conversion
into Class A...................... (2,242,679)
(25,201,555)
---------- --------
- - ----
Net decrease in shares
outstanding....................... (2,436,795)
$(27,315,198)
---------- --------
- - ----
---------- --------
- - ----
Year ended August 31, 1994:
Shares sold......................... 533,589 $
6,293,496
Shares issued in reinvestment of
dividends and distributions....... 177,548
2,087,119
Shares reacquired................... (857,454)
(9,963,041)
---------- --------
- - ----
Net decrease in shares
outstanding....................... (146,317) $
(1,582,426)
---------- --------
- - ----
---------- --------
- - ----
<CAPTION>
Class C
- - ------------------------------------
<S> <C> <C>
Year ended August 31, 1995:
Shares sold......................... 1,340 $
15,008
Shares issued in reinvestment of
dividends......................... 65
735
Shares reacquired................... (187)
(2,128)
---------- --------
- - ----
Net increase in shares
outstanding....................... 1,218 $
13,615
---------- --------
- - ----
---------- --------
- - ----
August 1, 1994* through August 31,
1994:
Shares sold......................... 9,403 $
106,907
Shares issued in reinvestment of
dividends......................... 1
17
Shares reacquired................... (9,385)
(106,238)
---------- --------
- - ----
Net increase in shares
outstanding....................... 19 $
686
---------- --------
- - ----
---------- --------
- - ----
- - ---------------
* Commencement of offering of Class C shares.
</TABLE>
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- - --------------------
10
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights
MASSACHUSETTS SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class
A
- - ---------------------------------------------------
Year Ended
August 31,
- - ---------------------------------------------------
1995
1994 1993
1992 1991
-------
- - ------
- - ------ ------ ------
<S> <C>
<C> <C>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year.............. $ 11.37
$12.17
$11.50 $10.94 $10.44
-------
- - ------
- - ------ ------ ------
Income from investment operations
Net investment income...........................
.65(a) .67
.68 .69 .70
Net realized and unrealized gain (loss) on
investment transactions...................... .26
(.73)
.67 .56 .50
-------
- - ------
- - ------ ------ ------
Total from investment operations............. .91
(.06)
1.35 1.25 1.20
-------
- - ------
- - ------ ------ ------
Less distributions
Dividends from net investment income............ (.65)
(.67)
(.68) (.69) (.70)
Distributions from net realized gains........... --
(.07)
- - -- -- --
-------
- - ------
- - ------ ------ ------
Total distributions.......................... (.65)
(.74)
(.68) (.69) (.70)
-------
- - ------
- - ------ ------ ------
Net asset value, end of year.................... $ 11.63
$11.37
$12.17 $11.50 $10.94
-------
- - ------
- - ------ ------ ------
-------
- - ------
- - ------ ------ ------
TOTAL RETURN(b):................................ 8.33%
(.58)%
12.10% 11.76% 11.81%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................... $27,525
$2,293
$2,325 $ 903 $ 665
Average net assets (000)........................ $15,837
$2,578
$1,336 $ 770 $ 344
Ratios to average net assets:
Expenses, including distribution fees........
.97%(a) .87%
.95% .99% 1.05%
Expenses, excluding distribution fees........
.87%(a) .77%
.85% .89% .95%
Net investment income........................
5.59%(a) 5.60%
5.79% 6.14% 6.53%
Portfolio turnover rate......................... 36%
33%
56% 32% 34%
</TABLE>
<TABLE>
<C> <S>
- - ---------------
(a) Net of management fee waiver.
(b) 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.
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
11
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights
MASSACHUSETTS SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class C
----------
Class B Year Ended
- - -------------------------------------------------------
August 31,
1995
1994
1993 1992 1991 1995
-------
- - -------
- - ------- ------- ------- ---------
<S> <C>
<C> <C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............ $ 11.36
$ 12.17 $
11.49 $ 10.94 $ 10.44 $11.36
-------
- - -------
- - ------- ------- ------- -------
Income from investment operations
Net investment income...........................
.60(a) .61
.63 .64 .65 .57(a)
Net realized and unrealized gain (loss) on
investment transactions...................... .26
(.74)
.68 .55 .50 .26
-------
- - -------
- - ------- ------- ------- -------
Total from investment operations............. .86
(.13)
1.31 1.19 1.15 .83
-------
- - -------
- - ------- ------- ------- -------
Less distributions
Dividends from net investment income............ (.60)
(.61)
(.63) (.64) (.65) (.57)
Distributions from net realized gains........... --
(.07)
-- -- -- --
-------
- - -------
- - ------- ------- ------- -------
Total distributions.......................... (.60)
(.68)
(.63) (.64) (.65) (.57)
-------
- - -------
- - ------- ------- ------- -------
Net asset value, end of period.................. $ 11.62
$ 11.36 $
12.17 $ 11.49 $ 10.94 $11.62
-------
- - -------
- - ------- ------- ------- -------
-------
- - -------
- - ------- ------- ------- -------
TOTAL RETURN(b):................................ 7.90%
(1.15)%
11.77% 11.23% 11.38% 7.60%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)................. $28,367
$55,420
$61,121 $53,449 $49,641 $ 14
Average net assets (000)........................ $39,455
$59,544
$55,965 $50,607 $49,083 $ 14
Ratios to average net assets:
Expenses, including distribution fees........
1.34%(a) 1.27%
1.35% 1.39% 1.45% 1.60%(a)
Expenses, excluding distribution fees........
.84%(a) .77%
.85% .89% .95% .85%(a)
Net investment income........................
5.37%(a) 5.20%
5.39% 5.74% 6.13% 5.07%(a)
Portfolio turnover rate......................... 36%
33%
56% 32% 34% 36%
<CAPTION>
August 1,
1994(d)
through
August 31,
1994
<S> <C>
-----
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............ $11.41
-----
Income from investment operations
Net investment income........................... .04
Net realized and unrealized gain (loss) on
investment transactions...................... (.05)
-----
Total from investment operations............. (.01)
-----
Less distributions
Dividends from net investment income............ (.04)
Distributions from net realized gains........... --
-----
Total distributions.......................... (.04)
-----
Net asset value, end of period.................. $11.36
-----
-----
TOTAL RETURN(b):................................ (0.27)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)................. $
216(e)
Average net assets (000)........................ $
15(e)
Ratios to average net assets:
Expenses, including distribution fees........
1.57%(c)
Expenses, excluding distribution fees........
.82%(c)
Net investment income........................
5.06%(c)
Portfolio turnover rate......................... 33%
</TABLE>
<TABLE>
<C> <S>
- - ---------------
(a) Net of management fee waiver.
(b) 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.
(c) Annualized.
(d) Commencement of offering of Class C shares.
(e) Amounts are actual and not rounded to the nearest
thousand.
</TABLE>
- - ------------------------------------------------------------
- - --------------------
12 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Independent Auditors' Report
MASSACHUSETTS SERIES
- - ------------------------------------------------------------
- - --------------------
The Shareholders and Board of Trustees
Prudential Municipal Series Fund, Massachusetts Series
We have audited the accompanying statement of assets and
liabilities, including
the portfolio of investments, of Prudential Municipal Series
Fund, Massachusetts
Series, as of August 31, 1995, the related statements of
operations for the year
then ended and of changes in 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. These financial statements and financial
highlights are the
responsibility of the Fund's management. Our responsibility
is to express an
opinion on these financial statements and financial
highlights based on our
audits.
We conducted our audits in accordance with generally
accepted auditing
standards. Those standards require that we plan and perform
the audit to obtain
reasonable assurance about whether the financial statements
and financial
highlights are free of material misstatement. An audit
includes examining, on
a
test basis, evidence supporting the amounts and disclosures
in the financial
statements. Our procedures included confirmation of the
securities owned as of
August 31, 1995 by correspondence with the custodian and
brokers; where replies
were not received from brokers, we performed other auditing
procedures. An audit
also includes assessing the accounting principles used and
significant estimates
made by management, as well as evaluating the overall
financial statement
presentation. We believe that our audits provide a
reasonable basis for our
opinion.
In our opinion, such financial statements and financial
highlights present
fairly, in all material respects, the financial position of
Prudential Municipal
Series Fund, Massachusetts Series, as of August 31, 1995,
the results of its
operations, the changes in its net assets, and its financial
highlights for the
respective stated periods in conformity with generally
accepted accounting
principles.
DELOITTE & TOUCHE LLP
New York, New York
October 16, 1995
PRUDENTIAL
MUNICIPAL SERIES FUND
Federal Income Tax Information
MASSACHUSETTS SERIES
- - ------------------------------------------------------------
- - --------------------
We are required by the Internal Revenue Code to advise you
within 60 days of the
Series' fiscal year end (August 31, 1995) as to the federal
tax status of
dividends paid by the Series during such fiscal year.
Accordingly, we are
advising you that in the fiscal year ended August 31, 1995,
dividends paid from
net investment income of $.65 per Class A share, $.60 per
Class B share, and
$.57 per Class C share were all federally tax-exempt
interest dividends.
In January 1996, you will be advised on IRS Form 1099 DIV or
substitute 1099 DIV
as to the federal tax status of the distributions received
by you in calendar
year 1995.
- - ------------------------------------------------------------
- - --------------------
13
<PAGE>
Getting The Most From Your Prudential Mutual Fund
Some mutual fund shareholders won't ever read this -- they
don't read annual
and semi-annual reports. It's quite understandable. These
annual and
semi-annual reports are prepared to comply with Federal
regulations. They are
often written in language that is difficult to understand.
So when most people
run into those particularly daunting sections of these
reports, they don't read
them.
We think that's a mistake.
At Prudential Mutual Funds, we've made some changes to our
report to make it
easier to understand and more pleasant to read, in hopes
you'll find it
profitable to spend a few minutes familiarizing yourself
with your investment.
Here's what you'll find in the report:
At A Glance
Since an investment's performance is often a shareholder's
primary concern, we
present performance information in two different formats.
You'll find it first
on the "At A Glance" page where we compare the Fund and the
comparable average
calculated by Lipper Analytical Services, Inc., a nationally
recognized mutual
fund rating agency. We report both the cumulative total
returns and the average
annual total returns. The cumulative total return is the
total amount of income
and appreciation the Fund has achieved in various time
periods. The average
annual total return is an annualized representation of the
Fund's
performance -- it generally smoothes out returns and gives
you an idea how much
the Fund has earned in an average year, for a given time
period. Under the
performance box, you'll see legends that explain the
performance information,
whether fees and sales charges have been included in
returns, and the inception
dates for the Fund's share classes.
See the performance comparison charts at the back of the
report for more
performance information. And keep in mind that past
performance is not
indicative of future results.
Portfolio
Manager's Report
The portfolio manager who invests your money for you reports
on successful --
and not-so-successful -- strategies in this section of your
report. Look for
recent purchases and sales here, as well as information
about the sectors the
portfolio managers favors and any changes that are on the
drawing board.
Portfolio Of
Investments
This is where the report begins to look technical, but it's
really just a
listing of each security held at the end of the reporting
period, along with
valuations and other information. Please note that sometimes
we discuss a
security in the Portfolio Manager's Report that doesn't
appear in this listing
because it was sold before the close of the reporting
period.
<PAGE>
Statement Of Assets
And Liabilities
The balance sheet shows the assets (the value of the Fund's
holdings),
liabilities (how much the Fund owes) and net assets (the
Fund's equity, or
holdings after the Fund pays its debts) as of the end of the
reporting period.
It also shows how we calculate the net asset value per share
for each class of
shares. The net asset value is reduced by payment of your
dividend, capital
gain, or other distribution, but remember that the money or
new shares are
being paid or issued to you and thus is not a realized loss.
The net asset
value fluctuates daily along with the value of every
security in the portfolio.
Statement Of
Operations
This is the income statement, which details income (mostly
interest and
dividends earned) and expenses (including what you pay us to
manage your
money). You'll also see capital gains here -- both realized
and unrealized.
Statement Of Changes
In Net Assets
This schedule shows how income and expenses translate into
changes in net
assets, compared to last year's performance. The Fund is
required to pay out
the bulk of its income to shareholders every year, and this
statement shows
you how we do it -- through dividends and distributions --
and how that
affects the net assets. This statement also shows how money
from investors
flowed into and out of the Fund.
Notes To Financial
Statements
This is the kind of technical material that can intimidate
readers, but it does
contain useful information. The Notes provide a brief
history and explanation
of your Fund's objectives. In addition, they also outline
how Prudential Mutual
Funds prices securities. The Notes also explain who manages
and distributes the
Fund's shares, and more importantly, how much they are paid
for doing so.
Finally, the Notes explain how many shares are outstanding
and the number
issued and redeemed over the period.
Financial Highlights
This information contains many elements from prior pages,
but on a per share
basis. It is designed to help you understand how the Fund
performed and to
compare this year's performance and expenses to those of
prior years.
Independent
Auditor's Report
Once a year, an outside auditor looks over our books and
certifies that the
information we've presented is fair and complies with
generally accepted
accounting principles.
Tax Information
This is information which we report annually about how much
of your total
return is taxable. Should you have any questions, you may
want to consult a
tax advisor.
Performance
Comparison
These charts are included in the annual report and are
required by the
Securities Exchange Commission. Performance is presented
here as a hypothetical
$10,000 investment in the Fund since its inception or for 10
years (whichever
is shorter). To help you put that return in context, we are
required to include
the performance of an unmanaged, broad based securities
index, as well. The
index does not reflect the cost of buying the securities it
contains or the
cost of managing a mutual fund. Of course, the index
holdings do not mirror
those of the fund -- the index is a broadly based reference
point commonly
used by investors to measure how well they are doing. A
definition of the
selected index is also provided. Investors generally cannot
invest directly in
an index.
<PAGE>
Getting The Most From Your Prudential Mutual Fund
When you invest through Prudential Mutual Funds, you receive
financial advice
through a Prudential Securities financial advisor or
Prudential/Pruco
Securities registered representative. Your advisor or
representative can
provide you with the following services.
- - ------------------------------------------------------------
- - -------------------
There's No Reward Without Risk; But Is This Risk Worth It?
Your financial adviser or registered representative can help
you match the
reward you seek with the risk you can tolerate. And risk can
be difficult to
gauge -- sometimes even the simplest investments bear
surprising risks. The
educated investor knows that markets seldom move in just one
direction -- there
are times when a market sector or asset class will lose
value or provide little
in the way of total return. Managing your own expectations
is easier with help
from someone who understands the markets and who knows you!
- - ------------------------------------------------------------
- - -------------------
Keeping Up With The Joneses.
A financial adviser or registered representative can help
you wade through the
numerous mutual funds available to find the ones that fit
your own individual
investment profile and risk tolerance. While the newspapers
and popular
magazines are full of advice about investing, they are aimed
at generic groups
of people or representative individuals, not at you
personally. Your financial
advisor or registered representative will review your
investment objectives
with you. This means you can make financial decisions based
on the assets and
liabilities in your current portfolio and your risk
tolerance -- not just
based on the current investment fad.
- - ------------------------------------------------------------
- - -------------------
Buy Low, Sell High.
Buying at the top of a market cycle and selling at the
bottom are among the
most common investor mistakes. But sometimes it's difficult
to hold on to an
investment when it's losing value every month. Your
financial adviser or
registered representative can answer questions when you're
confused or worried
about your investment, and remind you that you're investing
for the long haul.
<PAGE>
Prudential Municipal Series Fund: Massachusetts Series
Lehman Bros. General Municipal Debt Index
The Prudential Municipal Series Fund: Massachusetts Series
and the Lehman Bros. Index: Comparing a $10,000 Investment.
Class A
(GRAPH)
Class B
(GRAPH)
Class C
(GRAPH)
Past performance is no guarantee of future results.
Investment return and
principal value will fluctuate so an investor's shares, when
redeemed, will be
worth more or less than their original cost. The charts on
the right are
designed to give you an idea how much the Series' returns
can fluctuate from
year to year by measuring the best and worst years in terms
of total annual
return since inception of each share class.
These graphs are furnished to you in accordance with SEC
regulations. They
compare a $10,000 investment in the Prudential Municipal
Series Fund:
Massachusetts Series (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 the Class A and
C shares and 10
years for Class B shares, and subsequent account values at
the end of the most
recent reporting period (August 31), as measured on a
quarterly basis,
beginning in 1990 for Class A shares, 1985 for Class B
shares and 1994 for
Class C shares. For purposes of the graphs, and unless
otherwise indicated, in
the accompanying tables it has been assumed (a) that the
maximum applicable
front-end sales charge was deducted from the initial $10,000
investment in
Class A shares; (b) the maximum applicable contingent
deferred sales charge
was deducted from the value of the investment in Class B and
Class C shares,
assuming full redemption on August 31, 1995; (c) all
recurring fees (including
management fees) were deducted; and (d) all dividends and
distributions were
reinvested. Class B shares automatically convert to Class A
shares, on a
quarterly basis, approximately seven years after purchase.
This conversion
feature is not reflected in the graph. The graph and
accompanying tables
reflect the past subsidy and/or waiver of expenses and/or
management fees.
* Without waivers and expense subsidies the value of the
$10,000 investment in
the Series and the Series' average annual total return, as
illustrated above,
would have been lower, as indicated in parentheses ( ).
The Index is a weighted index comprised 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. It is an unmanaged index that
includes the reinvestment
of all dividends, but does not reflect the transaction costs
and advisory fees
paid by the Series' investors. The Index's holdings differ
from the Series'
portfolio. The Index is not the only one that may be used to
characterize
performance of bond funds and other indices may portray
different comparative
performance.
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
(LOGO)
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy Hays Teeters
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Grace Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Deborah A. Docs, Assistant 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
Distributor
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
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
This report is not authorized for distribution to
prospective investors unless
preceded or accompanied by a current prospectus.
74435M665 MF119E
74435M663 Cat. #642984M
74435M564
(ICON)
Prudential
Municipal
Series Fund
Massachusetts
Money Market Series
Annual Report
Aug. 31, 1995
(LOGO)
<PAGE>
Prudential Municipal Series Fund
Massachusetts Money Market Series
Performance At A Glance.
Over the past 12 months, Massachusetts' economy continued a
modest recovery
and its credit rating as of August 31, 1995, was A1
according to Moody's
Investors Service. The Prudential Municipal Series Fund:
Massachusetts Money
Market Series' 7-day current yield on August 31, 1995 was
3.30%(D) compared to
3.38% six months ago.
<TABLE>
Fund Facts
As of 8/31/95
<CAPTION>
7-Day Net Asset Taxable Equivalent
Yield* Weighted
Total
Current Yld. Value @31% @36%
@39.6% Avg. Mat.
Assets (mil.)
<S> <C> <C> <C> <C>
<C> <C>
<C>
MA Money
Market Fund 3.30%D $1.00 5.43% 5.86%
6.21% 46 Days
$57
IBC/Donoghue
MA Tax-exempt 3.17 1.00 5.22 5.63
5.96 56 Days
N/A
Fund Average **
</TABLE>
Note: Yields will fluctuate from time to time and past
performance is no
guarantee of future results. An investment in the Series is
neither insured
nor guaranteed by the U.S. government and there can be no
assurance that the
Series will be able to maintain a stable net asset value.
* Some investors may be subject to the federal alternative
minimum tax.
** This is the average 7-day current yield, NAV and WAM of
11 funds in the
International Business Communications/Donoghue Massachusetts
tax-exempt money
market fund category as of August 31, 1995.
(D)The indicated yield is lower than that which was
originally reported due to
subsequent adjustments of expense accruals.
How Investments Compared.
(As of 8/31/95)
(GRAPH)
Source: Lipper Analytical Services. Financial markets
change, so a mutual
fund's past performance should never be used to predict
future results. The
risks to each of the investments listed above are different
- - -- we provide
12-month total returns for several Lipper mutual fund
categories to show you
that reaching for higher yields means tolerating more risk.
The greater the
risk, the larger the potential reward or loss. In addition,
we've added
historical 20-year average annual returns. These returns
assume the
reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Smaller
capitalization stocks
offer greater potential for long-term growth but may be more
volatile than
larger capitalization stocks. Investors receive higher
historical total returns
from stocks than from most other investments.
General Bond Funds provide more income than stock funds,
which can help smooth
out their total returns year by year. But their prices still
fluctuate
(sometimes a good deal) and their returns are historically
lower than those of
stock funds.
General Municipal Debt Funds invest in bonds issued by state
governments, state
agencies and/or municipalities. This investment provides
income that is usually
exempt from federal and state income taxes.
Tax-Exempt Money Market Funds attempt to preserve a constant
share value and
provide tax-free income; they don't fluctuate much in price
but their returns
are generally among the lowest of the major investment
categories.
*19 years for General Muni Debt Funds.
17 years for Tax-Free Money Market Funds.
<PAGE>
Colleen Meehan, Fund Manager
Portfolio
Manager's Report
Prudential Municipal Series Fund: Massachusetts Money Market
Series seeks the
highest current income that is exempt from federal and
Massachusetts income
taxes, consistent with liquidity, the preservation of
capital, and maintenance
of a stable net asset value of $1 per share. The Series
invests in a portfolio
of short-term debt securities and obligations of
Massachusetts state, its
municipalities, local governments and other qualifying
issuers. There is no
assurance that the Series' investment objective will be
achieved.
Strategy Session.
The Massachusetts Money Market Series has followed a
conservative, quality
oriented investment strategy. We take a critical look not
only at a security's
current credit rating but the issuer as well. This includes
examining the
security's "linkage" between state and municipal
governments. The accounting
mechanisms between state and local municipalities can be an
important factor in
weighing the true value of a security. In some states taxes
collected by the
municipality are passed on to the state, which actually
controls the revenues.
Lessons Learned From Orange County.
December's bankruptcy filing by California's Orange County
after it suffered
$1.7 billion in investment losses surprised the municipal
securities markets.
The sudden collapse of one of America's richest counties and
highly rated bond
issuers underscored the importance of quality credit
research and
diversification.
The Massachusetts Money Market Series invests across a broad
spectrum of issues
to lessen risk. We held approximately 44 securities
representing 24 issuers
from across the state. As of August 31, 1995, 78% of the
portfolio was
credit-enhanced by insurance, a letter of credit from a
major money center
bank, or prerefunded with U.S. governments that are held in
escrow. We should
note that our credit research team also scrutinizes the
issuers of credit
enhancements for their quality and strength.
Interest Rates Trend Lower
(GRAPH)
Federal Funds Rate vs. One-Year Bond Buyer Index
Source: Bloomberg & the Bond Buyer. The One-Year Bond Buyer
Index is an
average of one-year, tax-exempt notes of 10 issuers
calculated by the Bond
Buyer weekly on Wednesdays.
<PAGE>
State Of The State.
Recovery Remains On Track.
The Massachusetts economy continues a gradual recovery. The
state's credit
rating as of August 31, 1995 was A1, according to Moody's.
Some highlights--
- - - Employment gains have been recorded in the business
service sector (computer
software and personnel supply services), and in
construction. The turnaround
has also apparently stopped the migration of residents out
of state that
began during the recessionary years of the early 1990s.
- - - State finances appear to have stabilized and the
government is spending
conservatively, which should bode well for the state's
credit rating. The
state does face a substantial debt burden, along with
heavy pension,
education and transit costs, which may affect the state's
ability to deal
with future economic challenges.
Looking Ahead.
Going forward, we believe that yields for tax-free money
market funds will
decline, following the taxable short-term interest rate cut
engineered by the
Federal Reserve. The central bank's next move may be to cut
taxable rates
again, but we don't know for sure by how much or when. We
have and will
continue to structure the Series' portfolio to produce a
competitive yield
while maintaining our ability to respond to changing markets
and continuing
credit quality.
A WordAbout Quality.
Your Series typically will purchase securities with
maturities of one year or
less that are rated Aaa, Aa; Notes: MIG-1, MIG-2, P-1 or P-2
by Moody's
Investors Service, or AAA, AA; Notes: SP-1, SP-1+, A-1 or A-
2 by Standard &
Poor's or, if not rated, deemed to be of comparable quality
by the Fund's
investment adviser. Although there is never a guarantee that
the share price
of the Massachusetts Money Market Series will stay at $1, we
at Prudential
emphasize a conservative, quality-oriented investment
approach.
1
<PAGE>
President's Letter
October 11, 1995
(PICTURE)
Dear Shareholder:
We hope you like the fresh look and information we've given
your shareholder
letter. We've also introduced another feature, called
Getting the Most Out
of Your Prudential Mutual Fund, which will appear from time
to time at the
back of your report. Look for topics like "Understanding
Risk & Reward" as
well as easy-to-understand explanations of financial terms.
Why are we
providing such information? Because at Prudential Mutual
Funds, we believe
an informed investor makes smart investment decisions.
- - ------------------------------------------------------------
- - -------------------
On the Hill
As an informed investor, you should know about the "American
Dream Savings
Account" that is part of the federal budget package now
under debate in the
Senate. It is a type of Individual Retirement Account that
offers a
common-sense approach to long-term saving. Investors should
like it because --
- You can withdraw funds -- without penalty -- to pay for
certain expenses
like buying a first home, medical care or educational
needs;
- All account earnings would accumulate tax-free, not
merely tax-deferred
like the current IRA;
- You can make contributions past age 70 1/2, instead of
having to take
distributions as the current law requires.
Of course, the federal budget process is never easy and
while we hope this
measure is adopted, there's no way of knowing if it will be.
So why not let
your Senator and/or Representative know your opinion today?
Simply call
202-224-3121.
- - ------------------------------------------------------------
- - -------------------
In Closing
One final note: if you're a Class B shareholder of other
Prudential Mutual
Funds, you'll begin noticing a change on your statements
once you've held your
shares for seven years. At that time, they will
automatically begin to convert
to Class A shares on a quarterly basis. Since Class A shares
carry lower annual
distribution charges than Class B shares, your total returns
will be higher
after the conversion than they would have been without it.
Conversions started
earlier this year and will take place during each calendar
quarter -- December,
March, June and September. It's our way of thanking you for
your loyalty -- and
rewarding you for maintaining a long-term investment program
by helping you
earn more total investment return on your Prudential Mutual
Fund. I hope you'll
find this information useful as you work with your financial
advisor or
registered representative to develop your personal
investment plan.
Thank you for choosing Prudential Mutual Funds for your
mutual fund investment.
Sincerely,
Richard A. Redeker
President
2
<PAGE>
Portfolio of Investments as of PRUDENTIAL
MUNICIPAL SERIES FUND
August 31, 1995 MASSACHUSETTS
MONEY MARKET SERIES
- - ------------------------------------------------------------
- - -------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
SHORT-TERM INVESTMENTS--102.4%
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
Boston Wtr. & Swr. Comn.,
Ser. 85A, F.R.W.D.
VMIG1
3.40% 9/06/95 $ 400 $ 400,000
Ser. 94A, F.R.W.D.
VMIG1
3.45 9/07/95 2,400 2,400,000
Dist. of Columbia, Gen. Oblig., Ser. 92A-3, F.R.D.D.
VMIG1
3.70 9/01/95 600 600,000
Greenfield Mass. Unlimited Tax Gen. Oblig., Ser. 91
Aaa
8.00 10/15/95 725 727,578
Gulf Coast Ind. Dev. Auth., Citgo Petroleum, Ser. 95,
F.R.D.D.
VMIG1
3.70 9/01/95 400 400,000
Holyoke Poll. Ctrl. Rev., Ser. 88, F.R.W.D.
A-1+*
3.40 9/06/95 700 700,000
Jackson County Miss. Ind. Swg. Facs. Rev., Chevron Inc.
Project, Ser. 94, F.R.D>D.
P1
3.65 9/01/95 2,200 2,200,000
Marlborough Mass., B.A.N
NR
3.75 2/29/96 2,000 2,002,336
Mass. Bay Trans. Auth.,
Ser. A, T.E.C.P.
P1
3.75 9/15/95 1,500 1,500,000
Ser. B, Notes
MIG2
5.00 9/08/95 250 250,050
Ser. C, T.E.C.P.
A-1+*
3.85 10/13/95 1,000 1,000,000
Ser. 84A, S.E.M.O.T.
VMIG1
3.75 3/01/96 1,000 1,000,000
Mass. Comnwlth., Ded. Inc.Tax, Ser., 90B, F.R.D.D.
VMIG1
3.20 9/01/95 1,350 1,350,000
Mass. Edl. Loan & Auth., Ser. 95A, F.R.W.D.
NR
3.15 9/06/95 1,500 1,500,000
Mass. Hlth. & Edl. Facs. Auth. Rev.,
Boston Univ. Ser. 85H, T.E.C.P.
VMIG1
3.70 9/07/95 2,000 2,000,000
Cap. Asset Prog., Ser. D, F.R.W.D.
VMIG1
3.35 9/06/95 2,000 2,000,000
Cap. Asset Prog., Ser. 85B, F.R.D.D.
VMIG1
3.35 9/01/95 500 500,000
Cap. Asset Prog., Ser. 85C, F.R.D.D.
VMIG1
3.35 9/01/95 1,500 1,500,000
Harvard Univ., Ser. 85
Aaa
8.75 12/01/95 1,000(d) 1,013,003
Harvard Univ., Ser. 89L, T.E.C.P.
VMIG1
3.50 10/20/95 1,000 1,000,000
Mass. Hsg. Fin. Agcy. Rev.,
Ser. 94A, F.R.W.D.
NR
3.65 9/07/95 1,000 1,000,000
Sngl. Fam. Hsg. Rev. Bds., Ser. 5, Q.T.R.O.T.
Aaa
3.80 12/01/95 975 975,000
Sngl. Fam. Hsg. Rev. Bds., F.R.W.D.
NR
3.65 9/07/95 960 960,000
Mass. Ind. Fin. Agcy. Ind. Rev.,
Riverdale Mills, Ser. 95, F.R.W.D.
NR
3.70 9/07/95 1,500 1,500,000
New England Deaconess Proj., Ser. 93B, F.R.W.D.
VMIG1
3.15 9/06/95 300 300,000
New England Pwr. Co., Ser. 93A, T.E.C.P.
VMIG1
3.80 12/06/95 2,200 2,200,000
Ocean Spray Cranberry, A.O.T.
NR
4.30 10/15/95 1,700 1,700,000
Showa Womens Inst. Inc., Ser. 94, F.R.D.D.
VMIG1
3.40 9/01/95 4,350 4,350,000
United Med. Corp., Ser. 92 F.R.W.D.
P1
3.55 9/06/95 800 800,000
Mass. Ind. Fin. Agcy. Res. Rec. Rev., Ogden Haverhill
Proj., Ser. 92A, F.R.W.D.
VMIG1
3.25 9/06/95 1,000 1,000,000
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
3
<PAGE>
Portfolio of Investments as of PRUDENTIAL
MUNICIPAL SERIES FUND
August 31, 1995 MASSACHUSETTS
MONEY MARKET SERIES
- - ------------------------------------------------------------
- - -------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
Mass. Mun. Whsl. Elec. Co., Pwr. Supply Sys. Rev., Ser.
94C, F.R.W.D.
VMIG1
3.50% 9/06/95 $ 1,500 $ 1,500,000
Mass. Port Auth. Rev., Multi Modal, Ser. 95B, F.R.D.D.
VMIG1
3.35 9/01/95 3,300 3,300,000
Mass. Wtr. Res. Auth., T.E.C.P.
P1
3.55 9/27/95 1,100 1,100,000
Mass. Wtr. Res. Auth., T.E.C.P.
P1
3.60 10/27/95 1,000 1,000,000
Peabody Mass., Ser. 95
Aa1
5.40 7/15/96 650 659,156
Puerto Rico Comnwlth.,
Gov't Dev. Bank., Ser. 95, T.E.C.P.
A-1+*
4.10 9/08/95 1,000 1,000,000
Gov't Dev. Bank., Ser. 95, T.E.C.P.
A-1+*
3.60 9/11/95 1,000 1,000,000
Gov't Dev. Bank., Ser. 95, T.E.C.P.
A-1+*
3.50 10/05/95 1,000 1,000,000
Puerto Rico Ind. Med. & Environ. Facs.,
Inter Amer. Proj., Ser. 88, T.E.C.P.
VMIG1
3.65 10/06/95 300 300,000
Reynolds Metal Co. Proj., Ser. 83A, A.O.T.
P1
3.75 9/01/96 2,000 1,995,140
Schering-Plough Corp., Ser. 83A, A.O.T.
Aa3
4.35 12/01/95 2,000 1,998,070
Puerto Rico Public Bldgs. Auth. Rev., Ser. 34, F.R.W.D.
A-1+*
3.60 9/07/95 1,000 1,000,000
Revere Hsg. Auth., Multifamily Mtge. Rev., Waters Edge
Proj., Ser. 91C, F.R.W.D.
A-1*
3.90 9/01/95 1,990 1,990,000
St. Lucie Co., Ser. 93, T.E.C.P.
VMIG1
3.65 10/30/95 1,500 1,500,000
-----------
Total Investments--102.4%
(amortized cost-$58,170,333(c))
58,170,333
Liabilities in excess of other assets--(2.4)%
(1,348,520)
-----------
Net Assets--100%
$56,821,813
-----------
-----------
</TABLE>
- - ---------------
(a) The following abbreviations are used in portfolio
descriptions:
A.O.T.--Annual Optional Tender
B.A.N.--Bond Anticipation Note.
F.R.D.D.--Floating Rate (Daily) Demand Note (b)
F.R.W.D.--Floating Rate (Weekly) Demand Note (b)
Q.T.R.O.T.--Quarterly Tax & Reserve Optional Tender
S.E.M.O.T.--Semi-Monthly Tender Offer
T.E.C.P.--Tax-Exempt Commercial Paper
(b) 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.
(c) The cost of securities for federal income tax purposes
is substantially
the same as for financial reporting purposes.
(d) Prerefunded issues are secured by escrowed cash and/or
direct U.S.
guaranteed obligations.
* Standard & Poor's rating.
NR--Not Rated by Moody's or Standard and Poor's ratings.
The Fund's current Statement of Additional Information
contains a description
of Moody's and Standard & Poor's ratings.
- - ------------------------------------------------------------
- - --------------------
4 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Statement of Assets and Liabilities MASSACHUSETTS
MONEY MARKET SERIES
- - ------------------------------------------------------------
- - -------------------
<TABLE>
<S>
<C>
Assets
August 31, 1995
Investments, at amortized cost which approximates market
value................................................
$58,170,333
Cash........................................................
.................
................................. 32,360
Receivable for investments
sold........................................................
.................
...... 3,327,006
Interest
receivable..................................................
.................
........................ 295,385
Receivable for Fund shares
sold........................................................
.................
...... 120,839
Deferred expenses and other
assets......................................................
.................
..... 11,723
-----------
Total
assets......................................................
.................
........................ 61,957,646
-----------
Liabilities
Payable for investments
purchased...................................................
.................
......... 3,979,646
Payable for Fund shares
reacquired..................................................
.................
......... 1,076,102
Accrued
expenses....................................................
.................
......................... 44,569
Dividends
payable.....................................................
.................
....................... 24,245
Management fee
payable.....................................................
.................
.................. 6,256
Distribution fee
payable.....................................................
.................
................ 3,415
Deferred Trustees'
fees........................................................
.................
.............. 1,600
-----------
Total
liabilities.................................................
.................
........................ 5,135,833
-----------
Net
Assets......................................................
.................
............................. $56,821,813
-----------
-----------
Net assets were comprised of:
Shares of beneficial interest, at $.01 par
value.......................................................
.... $
568,218
Paid-in capital in excess of
par.........................................................
..................
56,253,595
-----------
Net assets, August 31,
1995........................................................
.................
.......... $56,821,813
-----------
-----------
Net asset value, offering price and redemption price per
share ($56,821,813 /
56,821,813 shares of
beneficial interest issued and outstanding; unlimited
number of shares
authorized)......................... $1.00
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
5
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND PRUDENTIAL
MUNICIPAL SERIES FUND
MASSACHUSETTS MONEY MARKET SERIES MASSACHUSETTS
MONEY MARKET SERIES
Statement of Operations Statement of
Changes in Net Assets
- - ------------------------------------------------------------
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income August 31,
1995
-------------
- - --
<S> <C>
Income
Interest................................. $ 1,594,584
-------------
- - --
Expenses
Management fee, net of waiver of
$160,946.............................. 53,649
Distribution fee......................... 53,649
Custodian's fees and expenses............ 65,000
Transfer agent's fees and expenses....... 27,000
Reports to shareholders.................. 17,000
Registration fees........................ 15,000
Amortization of organization expenses.... 12,151
Audit fee................................ 10,500
Legal fees............................... 10,000
Trustees' fees........................... 3,200
Miscellaneous............................ 1,983
-------------
- - --
Total expenses........................ 269,132
Less: custodian fee credit..................
(23,554)
-------------
- - --
Net expenses.......................... 245,578
-------------
- - --
Net investment income....................... 1,349,006
-------------
- - --
Realized Loss on investments
Net realized loss on investment
transactions.............................
(663)
-------------
- - --
Net Increase in Net Assets
Resulting from Operations................... $ 1,348,343
-------------
- - --
-------------
- - --
</TABLE>
<TABLE>
<CAPTION>
Increase Year Ended August 31,
in Net Assets 1995 1994
<S> <C> <C>
Operations
Net investment income........ $ 1,349,006 $
789,061
Net realized loss on
investment transactions... (663)
- - --
------------- ---------
- - ----
Net increase in net assets
resulting from
operations................ 1,348,343
789,061
------------- ---------
- - ----
Dividends to shareholders (Note
1)........................... (1,348,343)
(789,061)
------------- ---------
- - ----
Series share transactions
(at $1 per share)
Net proceeds from shares
sold...................... 209,358,640
147,907,523
Net asset value of shares
issued to shareholders in
reinvestment of
dividends................. 1,276,924
757,067
Cost of shares reacquired.... (191,091,855)
(147,994,192)
------------- ---------
- - ----
Net increase in net assets
from Series share
transactions.............. 19,543,709
670,398
------------- ---------
- - ----
Total increase.................. 19,543,709
670,398
Net Assets
Beginning of year............... 37,278,104
36,607,706
------------- ---------
- - ----
End of year..................... $ 56,821,813 $
37,278,104
------------- ---------
- - ----
------------- ---------
- - ----
</TABLE>
- - ------------------------------------------------------------
- - --------------------
6 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements MASSACHUSETTS
MONEY MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
Prudential Municipal Series Fund (the ``Fund'') is
registered under the
Investment Company Act of 1940, as an open-end investment
company. The Fund was
organized as a Massachusetts business trust on May 18, 1984
and consists of
seventeen series. The monies of each series are invested in
separate,
independently managed portfolios. The Massachusetts Money
Market Series (the
``Series'') commenced investment operations on August 5,
1991. The Series is
non-diversified and seeks to provide the highest level of
income that is exempt
from Massachusetts State, local and federal income taxes
with the minimum of
risk by investing in ``investment grade'' tax-exempt
securities having a
maturity of thirteen months or less and whose ratings are
within the two highest
ratings categories by a nationally recognized statistical
rating organization,
or if not rated, are of comparable quality. The ability of
the issuers of the
securities held by the Series to meet their obligations may
be affected by
economic 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, and the Series, in the preparation of its financial
statements.
Securities Valuations: Portfolio securities of the Series
are valued at
amortized cost, which approximates market value. The
amortized cost method of
valuation involves valuing a security at its cost on the
date of purchase and
thereafter assuming a constant amortization to maturity of
any discount or
premium.
All securities are valued as of 4:30 P.M., New York time.
Securities Transactions and Investment Income: Securities
transactions are
recorded on the trade date. Realized gains and losses on
sales of investments
are calculated on the identified cost basis. Interest income
is recorded on the
accrual basis.
Federal Income Taxes: For federal income tax purposes, each
series in the Fund
is treated as a separate taxpaying entity. It is the intent
of the Series 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
shareholders. For this reason and because substantially all
of the Series' gross
income consists of tax-exempt interest, no federal income
tax provision is
required.
Dividends: The Series declares daily dividends from net
investment income.
Payment of dividends is made monthly. Income distributions
and capital gain
distributions are determined in accordance with income tax
regulations which may
differ from generally accepted accounting principles.
Deferred Organization Expenses: The Series incurred
approximately $51,000 in
organization and initial registration expenses. Such amount
has been deferred
and is being amortized over a period of 60 months ending
July 1996.
Custody Fee Credits: The Series has an arrangement with its
custodian bank,
whereby uninvested monies earn credits which reduce the fees
charged by the
custodian.
- - ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential 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 1% of the average daily net assets of the
Series. For the fiscal
year ended August 31, 1995, PMF voluntarily waived 75% of
its management fee.
The amount of fees waived for the fiscal year ended August
31, 1995 amounted to
$160,946 ($.003 per share; .375% of average net assets).
The Fund has a distribution agreement with Prudential Mutual
Fund Distributors,
Inc. (``PMFD''). To reimburse PMFD for its expenses incurred
pursuant to a plan
of distribution, the Fund pays PMFD a reimbursement, accrued
daily and payable
monthly, at an annual rate of .125 of 1% of the Series'
average daily net
assets. PMFD pays various broker-dealers, including
Prudential Securities
Incorporated (``PSI'') and Pruco Securities Corporation,
affiliated
broker-dealers, for account servicing fees and other
expenses incurred by such
broker-dealers.
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 Transactions with Affiliates
Prudential Mutual Fund Services, Inc. (``PMFS''), a wholly-
owned subsidiary of
PMF, serves as the Fund's transfer agent. During the year
ended August 31, 1995,
the Series incurred fees of approximately $24,000 for the
services of PMFS. As
of August 31, 1995, approximately $1,900 of such fees were
due to PMFS. Transfer
agent fees and expenses in the Statement of Operations also
includes certain
out-of-pocket expenses paid to non-affiliates.
- - ------------------------------------------------------------
- - --------------------
7
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights MASSACHUSETTS
MONEY MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
August 5,
1991(a)
Year
Ended August 31, through
- - ------------------------------------------- August 31,
1995
1994 1993 1992 1991
<S>
<C> <C>
<C> <C> <C>
- - -------
- - ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................
$ 1.00 $
1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income and realized gains(c).................
.031
.019 .021 .034 .003
Dividends and distributions to shareholders.................
(.031)
(.019) (.021) (.034) (.003)
- - -------
- - ------- ------- ------- -------
Net asset value, end of period..............................
$ 1.00 $
1.00 $ 1.00 $ 1.00 $ 1.00
- - -------
- - ------- ------- ------- -------
- - -------
- - ------- ------- ------- -------
TOTAL RETURN(d):............................................
3.10%
1.89% 2.17% 3.44% 0.29%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).............................
$56,822
$37,278 $36,608 $18,019 $6,365
Average net assets (000)....................................
$42,919
$42,427 $32,246 $15,477 $3,200
Ratio to average net assets:(c)
Expenses, including distribution fee.....................
.627%
.620% .365% .125% .125%(b)
Expenses, excluding distribution fee.....................
.502%
.495% .240% .00% .00%(b)
Net investment income....................................
3.14%
1.86% 2.11% 3.20% 4.46%(b)
</TABLE>
- - ---------------
(a) Commencement of investment operations.
(b) Annualized.
(c) Net of management fee waiver and expense subsidy.
(d) Total return includes reinvestment of dividends and
distributions. Total
returns for periods of less than a full year are not
annualized.
- - ------------------------------------------------------------
- - --------------------
8 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Independent Auditors' Report MASSACHUSETTS
MONEY MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
The Shareholders and Board of Trustees
Prudential Municipal Series Fund, Massachusetts Money Market
Series
We have audited the accompanying statement of assets and
liabilities, including
the portfolio of investments, of Prudential Municipal Series
Fund, Massachusetts
Money Market Series, as of August 31, 1995, the related
statements of operations
for the year then ended and of changes in net assets for
each of the two years
in the period then ended, and the financial highlights for
each of the four
years in the period then ended and for the period August 5,
1991 (commencement
of investment operations) through August 31, 1991. These
financial statements
and financial highlights are the responsibility of the
Fund's management. Our
responsibility is to express an opinion on these financial
statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally
accepted auditing
standards. Those standards require that we plan and perform
the audit to obtain
reasonable assurance about whether the financial statements
and financial
highlights are free of material misstatement. An audit
includes examining, on
a
test basis, evidence supporting the amounts and disclosures
in the financial
statements. Our procedures included confirmation of the
securities owned as of
August 31, 1995 by correspondence with the custodian and
brokers; where replies
were not received from brokers, we performed other auditing
procedures. An audit
also includes assessing the accounting principles used and
significant estimates
made by management, as well as evaluating the overall
financial statement
presentation. We believe that our audits provide a
reasonable basis for our
opinion.
In our opinion, such financial statements and financial
highlights present
fairly, in all material respects, the financial position of
Prudential Municipal
Series Fund, Massachusetts Money Market Series, as of August
31, 1995, the
results of its operations, the changes in its net assets,
and its financial
highlights for the respective stated periods in conformity
with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
October 16, 1995
PRUDENTIAL
MUNICIPAL SERIES FUND
Federal Income Tax Information MASSACHUSETTS
MONEY MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
We are required by the Internal Revenue Code to advise you
within 60 days of the
Series' fiscal year end (August 31, 1995) as to the federal
tax status of
dividends paid by the Series during such fiscal year.
Accordingly, we are
advising you that in the fiscal year ended August 31, 1995,
dividends paid from
net investment income of $.031 per share were all federally
tax-exempt interest
dividends.
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
(LOGO)
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy Hays Teeters
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Grace Torres, Treasurer
S. Jane Rose, Secretary
Stephen M. Ungerman, Assistant Treasurer
Deborah A. Docs, Assistant 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
Distributor
Prudential Mutual Fund Distributors, Inc.
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
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
This report is not authorized for distribution to
prospective investors
unless preceded or accompanied by a current prospectus.
MF153E
74435M630 Cat. #444595R
(ICON)
Prudential
Municipal
Series Fund
Maryland Series
ANNUAL REPORT
Aug. 31, 1995
(LOGO)
<PAGE>
Prudential Municipal Series Fund
Maryland Series
Performance At A Glance.
It has been a favorable year for shareholders of the
Prudential Municipal Series
Fund: Maryland Series. Municipal bond investors earned their
coupon income,
while their net asset value fell slightly. Although returns
are favorable, your
fund lagged the average Maryland municipal bond fund
measured by Lipper
Analytical Services because its average maturity was shorter
that its peers.
<TABLE>
Cumulative Total Returns1
As of 8/31/95
<CAPTION>
One Five Ten
Since
Year Years Years
Inception2
<S> <C> <C> <C>
<C>
Class A 6.3% 43.0% N/A
45.4%
Class B 5.9 40.3 100.6%
108.3
Class C 5.6 N/A N/A
5.7
Lipper MD Muni Avg3 7.3 45.8 106.5
115.7
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns1
As of 9/30/95
One Five Ten
Since
Year Years Years
Inception2
<S> <C> <C> <C>
<C>
Class A 5.6% 6.9% N/A
6.3%
Class B 3.4 6.9 7.3%
7.2
Class C 7.2 N/A N/A
5.2
</TABLE>
<TABLE>
<CAPTION>
Your Taxable
Equivalent Yield
Dividend Total Dividends 30-Day At
Tax Rates Of
As of 8/31/95 Paid for 12 Mos. SEC Yield 36%
39.6%
<S> <C> <C> <C>
<C>
Class A $0.63 3.72%
6.18% 6.55%
Class B $0.59 3.45 5.73
6.08
Class C $0.57 3.20 5.32
5.64
</TABLE>
Past performance is not a guarantee of future results.
Principal and investment
return will fluctuate so that an investor's shares, when
redeemed, may be worth
more or less than their original cost.
1Source: Prudential Mutual Fund Management and Lipper
Analytical Services. The
cumulative total returns do not take into account sales
charges. The average
annual returns do take into account applicable sales
charges. The Series
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. Class B
shares automatically
convert to Class A shares on a quarterly basis, after
approximately seven years.
2Inception dates: 1/22/90 for Class A; 1/22/85 for Class B;
and 8/1/94 for
Class C.
3The Lipper Maryland Municipal Bond fund average includes 24
funds for one year,
eight funds for five years, two funds for 10 years, and two
funds since
inception of the Class B shares on 1/22/85.
How Investments Compared.
(As of 8/31/95)
(GRAPH)
Source: Lipper Analytical Services.
Financial markets change, so a mutual fund's past
performance should never be
used to predict future results. The risks to each of the
investments listed
above are different -- we provide 12-month total returns for
several Lipper
mutual fund categories to show you that reaching for higher
yields means
tolerating more risk. The greater the risk, the larger the
potential reward or
loss. In addition, we've added historical 20-year average
annual returns.
These returns assume the reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Smaller
capitalization stocks
offer greater potential for long-term growth but may be more
volatile than
larger capitalization stocks. Investors receive higher
historical total returns
from stocks than from most other investments.
General Bond Funds provide more income than stock funds,
which can help smooth
out their total returns year by year. But their prices still
fluctuate
(sometimes a good deal) and their returns are historically
lower than those
of stock funds.
General Municipal Debt Funds invest in bonds issued by state
governments, state agencies and/or municipalities. This
investment provides
income that is usually exempt from federal and state income
taxes. (20-year
returns are not available.)
Money Market Funds attempt to preserve a constant share
value; they don't
fluctuate much in price but their returns are generally
among the lowest of
the major investment categories.
*19 years for General Muni Debt Funds.
<PAGE>
Marie Conti, Fund Manager
(PICTURE)
Portfolio
Manager's Report
The Series invests in carefully selected long-term municipal
bonds that offer
a high level of current income exempt from Maryland state
and federal income
taxes consistent with preservation of capital. Certain
shareholders may be
subject to the federal alternative minimum tax, however.
Overview.
The Series invests primarily in obligations of Maryland
state, municipal and
local governments, including U.S. territories (such as
Puerto Rico, the U.S.
Virgin Islands and Guam), the income of which is also exempt
from federal and
Maryland state income taxes.
Strategy Session.
It has been a positive year for tax-free municipals.
Although interest rates
rose sharply in 1994 on inflation fears, they have tumbled
back down slowly so
far in 1995, as economic growth slowed. The Bond Buyer
Revenue Bond Index Yield
was at 6.4% on September 1, 1994 (the index is calculated on
Thursdays), and
rose a percentage point to a high of 7.4% in mid-October
1994, before falling
to
6.3% on August 31, 1995. As you can see, when the dust had
settled, long-term
municipal bond interest rates ended the period slightly
lower.
We found value by increasing our assets in general
obligation bonds, which are
easier to trade in volatile markets. As interest rates fell,
we increased our
holdings in revenue bonds to 48% from 43% of assets because
they pay a higher
rate of interest. We sold pre-refunded bonds which have less
appreciation
potential as interest rates fall. We held a high
concentration of housing bonds
(9% of assets), which have constrained performance because
their prices fell on
mortgage prepayment fears as interest rates declined. Still,
we expect to
continue to hold them because tax-free municipals are in
short supply in
Maryland.
Sector Breakdown
(CHART)
State of the State:
Challenges Ahead.
Maryland is one of the wealthiest states in the nation.
Maryland has an
unemployment rate that is generally below the national
average. Nevertheless,
it
has lagged the country in recovering from the recession --
it has yet to regain
the number of jobs lost. Recent Congressional efforts to
reduce the size of the
federal government will prove challenging to Maryland's
economy, adding to the
economic stress of cutbacks in defense-related manufacturing
and corporate
downsizing.
Fortunately, Maryland has benefited from a tradition of
prudent fiscal
management. The state government builds up reserves in
prosperous times, and
spends them down during recessions. In Fiscal 1994, Maryland
managed its first
surplus in years, and is expected to repeat the performance
this year as well.
<PAGE>
What Went Well.
We Held On
To Good Yields.
We increased assets invested in non-callable bonds (those
that can not be paid
off prematurely by the issuer to save on interest costs) to
19%, up from 10% a
year ago. These bonds not only offer attractive yields but
also appreciate well
when interest rates decline. They are valuable because not
many bonds offer
protection from call risk -- only about a third of the
securities in the Lehman
Brothers' Municipal Bond Index are non-callable.
It Paid To Buy
Puerto Rico Bonds.
The supply of new municipal bonds has declined sharply in
Maryland, by nearly
42% this year alone. So we looked elsewhere. We bought bonds
issued by Puerto
Rico, because they are tax-exempt federally and in virtually
all states,
including Maryland. As a result, they are in demand. Our
holdings in Puerto Rico
are now nearly 11% of assets, up from 4% a year ago.
And Not So Well.
A Longer Duration
Would Have Helped.
Duration measures the sensitivity of a bond's price to
interest rate changes.
The longer the duration, the more a bond's price appreciates
when interest rates
fall, and vice versa. Over the winter, our duration was
shorter than that of
some competing funds, because we expected economic growth to
remain strong. As
the slowdown became apparent in the second quarter, we
extended duration.
Duration generally ranged from 6.4 years to 7.8 years, and
was 7.8 years on
August 31.
Municipals Suffered
From Tax Talk.
Congress is considering various changes in the federal
income tax, including a
flat tax -- an income tax at a single, flat rate. One
proposal would eliminate
taxes on most investment income. Clearly, this has created
uncertainty in the
municipal market -- one reason why municipal bonds did not
follow taxable bond
prices higher this spring. At this writing, we believe it is
unlikely that a
flat tax proposal in this form is likely to pass Congress --
especially not
before next year's election.
Five Largest
Long-Term Holdings.*
5.6% Northeast Waste Disposal
Montgomery County
3.7% Washington Suburban
Sanitary District
3.5% Montgomery County
Public Improvement
3.3% Washington County
Public Improvement
3.3% Puerto Rico
Hospital
* Expressed as a percentage of total net assets as of
8/31/95.
Looking Ahead.
Municipal bond yields are very attractive now. As we
mentioned earlier, when
U.S. government and corporate bond yields fell this spring,
municipal yields
did not follow to the same extent. That means there are some
very good buying
opportunities now in the municipal market. Should interest
rates remain stable,
investors may look forward to earning their coupon income.
Plus, if interest
rates fall further, municipal bond investors could
reasonably expect some price
appreciation as well.
Nevertheless, municipal bond investors should be prepared
to weather some volatility this year as various proposals to
change the
country's income tax structure are proposed and debated.
Overall, we believe
municipal bonds still offer good value, and that volatility
can offer some
attractive buying opportunities.
1
<PAGE>
President's Letter
October 11, 1995
(PICTURE)
Dear Shareholder:
We hope you like the fresh look and information we've given
your shareholder
letter. We've also introduced another feature, called
Getting the Most Out of
Your Prudential Mutual Fund, which will appear from time to
time at the back of
your report. Look for topics like "Understanding Risk &
Reward" as well as
easy-to-understand explanations of financial terms. Why are
we providing such
information? Because at Prudential Mutual Funds, we believe
an informed investor
makes smart investment decisions.
On the Hill
As an informed investor, you should know about the "American
Dream Savings
Account" that is part of the federal budget package now
under debate in the
Senate. It is a type of Individual Retirement Account that
offers a
common-sense approach to long-term saving. Investors should
like it because --
- - - You can withdraw funds -- without penalty -- to pay for
certain expenses like
buying a first home, medical care or educational needs;
- - - All account earnings would accumulate tax-free, not merely
tax-deferred
like the current IRA;
- - - You can make contributions past age 70 1/2, instead of
having to take
distributions as the current law requires.
Of course, the federal budget process is never easy and
while we hope this
measure is adopted, there's no way of knowing if it will be.
So why not let
your Senator and/or Representative know your opinion today?
Simply call
202-224-3121.
In Closing
One final note: if you're a Class B shareholder of
Prudential Mutual Funds,
you'll begin noticing a change on your statements once
you've held your shares
for seven years. At that time, they will automatically begin
to convert to Class
A shares on a quarterly basis. Since Class A shares carry
lower annual
distribution charges than Class B shares, your total returns
will be higher
after the conversion than they would have been without it.
Conversions started
earlier this year and beginning in December they will take
place during each
calendar quarter -- December, March, June and September.
It's our way of
thanking you for your loyalty -- and rewarding you for
maintaining a long-term
investment program by helping you earn more total investment
return on your
Prudential Mutual Fund. I hope you'll find this information
useful as you work
with your financial advisor or registered representative to
develop your
personal investment plan.
Thank you for choosing Prudential Mutual Funds for your
mutual fund investment.
Sincerely,
Richard A. Redeker
President
2
<PAGE>
Portfolio of Investments as of PRUDENTIAL
MUNICIPAL SERIES FUND
August 31, 1995 MARYLAND
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
LONG-TERM INVESTMENTS--93.7%
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
Baltimore Conv. Ctr. Rev., F.G.I.C.
Aaa
5.75% 9/01/08 $ 1,075 $ 1,103,853
Baltimore Econ. Dev. Lease Rev., Armistead Partnership
BBB+(c)
7.00 8/01/11 1,000 1,044,210
Gaithersburg Econ. Dev. Rev., Asbury Methodist
NR
5.50 1/01/20 1,000 874,080
Gaithersburg Hosp. Facs. Rev., Ref. Impvt., Shady Grove
Adventist Hosp., F.S.A.
Aaa
5.50 9/01/15 1,000 955,650
Gaithersburg Nursing Home Rev., Ref., Shady Grove
Adventist, F.S.A
Aaa
5.50 9/01/15 1,000 955,650
Howard Cnty., Met. Dist.,
Ser. B
Aa1
6.00 8/15/03 1,000 1,085,430
Ser. B
Aa1
Zero 8/15/09 2,115 995,932
Kent Cnty., Coll. Rev. Proj. & Ref., Washington Coll. Proj.
Baa1
7.70 7/01/18 750 822,788
Maryland St. Econ. Dev. Co., Hilton Street Facility, Ser. A
AA(c)
7.00 1/01/10 600 654,234
Maryland St. Hlth. & Higher Edl. Facs., Auth. Rev.,
Doctor's Comn. Hosp.
Baa
5.50 7/01/24 1,000 806,730
Howard Cnty. Gen. Hosp.
Baa1
5.50 7/01/21 1,000 834,770
Sinai Hosp. of Baltimore, A.M.B.A.C.
Aaa
5.25 7/01/19 500 456,265
Sinai Hosp. of Baltimore, A.M.B.A.C.
Aaa
5.25 7/01/23 350 315,966
Univ. of Md. Med. Ctr., F.G.I.C.
Aaa
5.00 7/01/20 1,000 875,140
Maryland St. Hsg. & Cmnty. Dev. Admin.,
Sngl. Fam. Mtge. Rev. Proj., Fourth Ser.
Aa
7.70 4/01/15 920 974,547
Sngl. Fam. Mtge. Rev. Proj., Sixth Ser.
Aa
7.125 4/01/14 835 879,547
Sngl. Fam. Mtge. Rev. Proj., Third Ser.
Aa
8.00 4/01/18 750 798,773
Maryland St. Ind. Dev. Fin. Auth. Rev., Amer. Ctr. For
Physics
BBB(c)
6.625 1/01/17 1,000 1,007,120
Maryland Wtr. Quality Fin. Admin.,
Revolving Loan Fund Rev.
Aa
5.40 9/01/13 250 239,188
Revolving Loan Fund Rev., Ser. A
Aa
5.90 9/01/04 565 606,143
Montgomery Cnty. Hsg. Opportunities Comn., Sngl. Fam. Mtge.
Rev., F.H.A.
AAA(c)
6.25 7/01/25 850 849,898
Montgomery Cnty.,
Cons. Pub. Impvt.
Aaa
9.75 6/01/01 450 569,245
Cons. Pub. Impvt., Ser. A
Aaa
5.75 10/01/07 1,300 1,374,191
Northeast Waste Disp. Auth.,
Baltimore City Sludge Proj.
NR
7.25 7/01/07 957 985,595
Montgomery Cnty. Proj.
A
6.30 7/01/16 2,200 2,202,948
Prince Georges Cnty.,
Cons. Pub. Impvt., M.B.I.A.
Aaa
5.25 1/01/15 750 708,188
Hosp. Rev., Dimensions Hlth. Corp.
A
5.30 7/01/24 1,250 1,058,437
Ref. Cons. Pub. Impvt.
A1
5.25 10/01/11 1,000 964,170
Stormwater Mgmt.
Aa
6.50 3/15/03 1,140 1,265,913
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
3
<PAGE>
Portfolio of Investments as of PRUDENTIAL
MUNICIPAL SERIES FUND
August 31, 1995 MARYLAND
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
Puerto Rico Comnwlth.,
Aqueduct & Swr. Auth. Rev.
Aaa
10.25% 7/01/09 $ 225 $ 316,368
Gen. Oblig., F.S.A.
Aaa
7.683 7/01/20 1,000 (d) 978,750
Puerto Rico Elec. Pwr. Auth. Pwr. Rev.
Baa1
6.125 7/01/09 785 813,542
Puerto Rico Ind. Tourist, Edl. Med. & Envir. Hosp.,
M.B.I.A.
Aaa
6.25 7/01/24 1,250 1,277,350
Puerto Rico Tel. Auth. Rev., Ser. I, M.B.I.A.
Aaa
6.763 1/16/15 1,000 (d) 907,500
Takoma Park Hosp. Facs. Rev., Ref. Impvt., Washington
Adventist Hosp., F.S.A.
Aaa
6.50 9/01/12 1,000 1,080,670
Virgin Islands Pub. Fin. Auth. Rev., Hwy. Trans. Trust
Fund, Ser. A
NR
7.25 10/01/18 600 632,976
Washington Cnty. Public Impvt., F.G.I.C.
Aaa
4.875 1/01/14 1,450 (e) 1,286,208
Washington Suburban San. Dist.,
Gen. Construction
Aa1
5.25 6/01/12 1,500 1,436,970
Water Supply
Aa1
5.25 6/01/14 950 891,689
Water Supply
Aa1
5.25 6/01/13 875 829,439
-----------
Total long-term investments (cost $35,547,405)
36,716,063
-----------
SHORT-TERM INVESTMENTS--6.6%
Maryland St. Energy Fin. Auth., Baltimore Proj., F.R.D.D.,
Ser. 91
VMIG1
3.55 9/01/95 700 700,000
Puerto Rico Comnwlth., Gov't. Dev. Bank., F.R.W.D., Ser. 85
VMIG1
3.20 9/06/95 1,900 1,900,000
-----------
Total short-term investments (cost $2,600,000)
2,600,000
-----------
Total Investments--100.3%
(cost $38,147,405; Note 4)
39,316,063
Liabilities in excess of other assets--(0.3)%
(124,391)
-----------
Net Assets--100%
$39,191,672
-----------
-----------
</TABLE>
- - ---------------
(a) The following abbreviations are used in portfolio
descriptions:
A.M.B.A.C.--American Municipal Bond Assurance
Corporation.
F.G.I.C.--Financial Guaranty Insurance Company.
F.H.A.--Federal Housing Administration.
F.R.D.D.--Floating Rate (Daily) Demand Note (b).
F.R.W.D.--Floating Rate (Weekly) Demand Note (b).
F.S.A.--Financial Security Assurance.
M.B.I.A.--Municipal Bond Insurance Association.
(b) 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.
(c) Standard & Poor's Rating.
(d) Inverse floating rate bond. The coupon is inversely
indexed to a floating
interest rate. The rate shown is the rate at year end.
(e) Pledged as initial margin on financial futures
contracts.
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.
- - ------------------------------------------------------------
- - --------------------
4 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Statement of Assets and Liabilities MARYLAND
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<S>
<C>
Assets
August 31, 1995
Investments, at value (cost
$38,147,405)................................................
.................
.... $ 39,316,063
Cash........................................................
.................
................................ 502,086
Interest
receivable..................................................
.................
....................... 557,284
Receivable for investments
sold........................................................
.................
..... 10,297
Receivable for Fund shares
sold........................................................
.................
..... 1,570
Other
assets......................................................
.................
.......................... 1,484
------------
Total
assets......................................................
.................
........................ 40,388,784
------------
Liabilities
Payable for investments
purchased...................................................
.................
........ 986,738
Payable for Fund shares
reacquired..................................................
.................
........ 94,943
Accrued
expenses....................................................
.................
........................ 62,300
Management fee
payable.....................................................
.................
................. 14,951
Dividends
payable.....................................................
.................
...................... 13,896
Due to broker-variation
margin......................................................
.................
........ 12,031
Distribution fee
payable.....................................................
.................
............... 10,653
Deferred trustees'
fees........................................................
.................
............. 1,600
------------
Total
liabilities.................................................
.................
........................ 1,197,112
------------
Net
Assets......................................................
.................
............................ $ 39,191,672
------------
------------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
.............
$ 36,754
Paid-in capital in excess of
par.........................................................
..................
38,549,190
------------
38,585,944
Accumulated net realized loss on
investments.................................................
..............
(558,711)
Net unrealized appreciation on
investments.................................................
................
1,164,439
------------
Net assets, August 31,
1995........................................................
.................
......... $ 39,191,672
------------
------------
Class A:
Net asset value and redemption price per share
($17,725,981 / 1,663,449 shares of beneficial interest
issued and
outstanding).......................... $10.66
Maximum sales charge (3.0% of offering
price)......................................................
........
.33
Maximum offering price to
public......................................................
.................
.... $10.99
Class B:
Net asset value, offering price and redemption price per
share
($21,413,564 / 2,007,101 shares of beneficial interest
issued and
outstanding).......................... $10.67
Class C:
Net asset value, offering price and redemption price per
share
($52,127 / 4,886 shares of beneficial interest issued
and
outstanding)..................................
$10.67
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
5
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MARYLAND SERIES
Statement of Operations
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Year
Ended
Net Investment Income August 31,
1995
<S> <C>
Income
Interest................................... $
2,833,827
-----------
- - ----
Expenses
Management fee, net of waiver of $14,170...
210,311
Distribution fee--Class A..................
11,341
Distribution fee--Class B..................
167,486
Distribution fee--Class C..................
437
Reports to shareholders....................
82,000
Custodian's fees and expenses..............
79,000
Registration fees..........................
45,000
Transfer agent's fees and expenses.........
36,000
Audit fee..................................
11,000
Legal fees.................................
10,000
Trustees' fees.............................
3,200
Miscellaneous..............................
11,429
-----------
- - ----
Total expenses..........................
667,204
Less: custodian fee credit.................
(19,273)
-----------
- - ----
Net expenses............................
647,931
-----------
- - ----
Net investment income.........................
2,185,896
-----------
- - ----
Realized and Unrealized Gain (Loss)
on Investments
Net realized loss on:
Investment transactions....................
(48,440)
Financial futures contract transactions....
(381,131)
-----------
- - ----
(429,571)
-----------
- - ----
Net change in unrealized
appreciation/depreciation of:
Investments................................
481,333
Financial futures contracts................
(38,532)
-----------
- - ----
442,801
-----------
- - ----
Net gain on investments.......................
13,230
-----------
- - ----
Net Increase in Net Assets
Resulting from Operations..................... $
2,199,126
-----------
- - ----
-----------
- - ----
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
MARYLAND SERIES
Statement of Changes in Net Assets
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended August
31,
<S> <C> <C>
in Net Assets 1995 1994
Operations
Net investment income............ $ 2,185,896 $
2,785,557
Net realized gain (loss) on
investment transactions....... (429,571)
658,135
Net change in unrealized
appreciation/depreciation of
investments................... 442,801
(4,715,895)
----------- -------
- - ----
Net increase (decrease) in net
assets resulting from
operations.................... 2,199,126
(1,272,203)
----------- -------
- - ----
Dividends and distributions (Note
1):
Dividends from net investment
income
Class A....................... (561,997)
(149,002)
Class B....................... (1,621,246)
(2,636,439)
Class C....................... (2,653)
(116)
----------- -------
- - ----
(2,185,896)
(2,785,557)
----------- -------
- - ----
Distributions from net realized
gains
Class A....................... (21,234)
(53,117)
Class B....................... (419,138)
(1,057,112)
Class C....................... (255)
- - --
----------- -------
- - ----
(440,627)
(1,110,229)
----------- -------
- - ----
Series share transactions (net of
share conversions) (Note 5):
Net proceeds from shares sold.... 2,121,739
5,404,805
Net asset value of shares issued
in reinvestment of dividends
and distributions............. 1,744,018
2,685,739
Cost of shares reacquired........ (18,256,314)
(9,441,263)
----------- -------
- - ----
Net decrease in net assets from
Series share transactions..... (14,390,557)
(1,350,719)
----------- -------
- - ----
Total decrease...................... (14,817,954)
(6,518,708)
Net Assets
Beginning of year................... 54,009,626
60,528,334
----------- -------
- - ----
End of year......................... $39,191,672
$54,009,626
----------- -------
- - ----
----------- -------
- - ----
</TABLE>
- - ------------------------------------------------------------
- - --------------------
6 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements MARYLAND
SERIES
- - ------------------------------------------------------------
- - --------------------
Prudential Municipal Series Fund (the ``Fund'') is
registered under the
Investment Company Act of 1940, as an open-end investment
company. The Fund was
organized as a Massachusetts business trust on May 18, 1984
and consists of
seventeen series. The monies of each series are invested in
separate,
independently managed portfolios. The Maryland Series (the
``Series'') commenced
investment operations in January, 1985. The Series is
diversified and seeks to
achieve its investment objective of obtaining the maximum
amount of income
exempt from federal and applicable state income taxes with
the minimum of risk
by investing in ``investment grade'' tax-exempt securities
whose ratings are
within the four highest ratings categories by a nationally
recognized
statistical rating organization or, if not rated, are of
comparable quality. The
ability of the issuers of the securities held by the Series
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, and the Series, 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 Trustees.
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.
All securities are valued as of 4:15 P.M., New York time.
Financial Futures Contracts: A financial futures contract is
an agreement to
purchase (long) or sell (short) an agreed amount of debt
securities at a set
price for delivery on a future date. Upon entering into a
financial futures
contract, the Series 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 Series
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 Series
invests in financial
futures contracts in order to hedge its existing portfolio
securities or
securities the Series intends to purchase, against
fluctuations in value caused
by changes in prevailing interest rates. Should interest
rates move
unexpectedly, the Series 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 securities are
calculated on the identified cost basis. Interest income is
recorded on the
accrual basis. The Series amortizes premiums and original
issue discount paid
on
purchases of 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: For federal income tax purposes, each
series in the Fund
is treated as a separate taxpaying entity. It is the intent
of the Series 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
shareholders. For this reason and because substantially all
of the Series' gross
income consists of tax-exempt interest, no federal income
tax provision is
required.
Dividends and Distributions: The Series declares daily
dividends from net
investment income. Payment of dividends is made monthly.
Distributions of net
capital gains, if any, are made annually.
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
- - ------------------------------------------------------------
- - --------------------
7
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements MARYLAND SERIES
- - ------------------------------------------------------------
- - --------------------
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 services of PIC, 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 1% of the average daily net assets of the
Series. Effective
January 1, 1995, PMF has agreed to waive a portion (.05 of
1% of the Series'
average daily net assets) of its management fee, which
amounted to $14,170
($0.004 per share for Class A, B and C shares; .03% of
average net assets). The
Series' 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.
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 year ended August 31, 1995.
PMFD has advised the Series that it has received
approximately $3,000 in
front-end sales charges resulting from sales of Class A
shares during the year
ended August 31, 1995. 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 Series that for the year ended August
31, 1995, it received
approximately $134,200 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 Transactions With Affiliates
Prudential Mutual Fund Services, Inc. (``PMFS''), a wholly-
owned subsidiary of
PMF, serves as the Fund's transfer agent. During the year
ended August 31, 1995,
the Series incurred fees of approximately $25,900 for the
services of PMFS. As
of August 31, 1995, approximately $2,100 of such fees were
due to PMFS. Transfer
agent fees and expenses in the Statement of Operations
include certain
out-of-pocket expenses paid to non-affiliates.
- - ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of portfolio securities of the Series,
excluding short-term
investments, for the fiscal year ended August 31, 1995 were
$20,811,030 and
$35,356,008, respectively.
At August 31, 1995, the Fund sold 25 financial futures
contracts on the
Municipal Bond Index expiring in 1995. The value at
disposition of such
contracts is $2,843,906. The value of such contracts on
August 31, 1995 was
$2,848,125, thereby resulting in an unrealized loss of
$4,219.
The cost basis of investments for federal income tax
purposes is substantially
the same as for financial reporting purposes and,
accordingly, as of August 31,
1995, net unrealized appreciation of investments for federal
income tax purposes
is $1,168,658 (gross unrealized appreciation--$1,478,098;
gross unrealized
depreciation $309,440).
- - ------------------------------------------------------------
Note 5. Capital
The Series offers Class A, Class B and Class C shares. Class
A shares are sold
with a front-end sales charge of up to 3.0%. Class B shares
are sold with a
contingent deferred sales charge which declines from 5% to
zero depending on the
period of time the shares are held. Class C shares are sold
with a contingent
deferred sales charge of 1% during the first year. Class B
shares will
automatically convert to Class A shares on a quarterly basis
approximately seven
years after purchase.
- - ------------------------------------------------------------
- - --------------------
8
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements MARYLAND
SERIES
- - ------------------------------------------------------------
- - --------------------
The Fund has authorized an unlimited number of shares of
beneficial interest of
each class at $.01 par value per share. Transactions in
shares of beneficial
interest for the fiscal years ended August 31, 1994 and 1995
were as follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- - ----------------------------------- ---------- --------
- - ----
<S> <C> <C>
Year ended August 31, 1995:
Shares sold........................ 30,696 $
321,277
Shares issued in reinvestment of
dividends and distributions...... 36,276
380,528
Shares reacquired.................. (516,337)
(5,397,762)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................ (449,365)
(4,695,957)
Shares issued upon conversion from
Class B.......................... 1,858,567
19,167,920
---------- --------
- - ----
Net increase in shares
outstanding...................... 1,409,202 $
14,471,963
---------- --------
- - ----
---------- --------
- - ----
Year ended August 31, 1994:
Shares sold........................ 74,702 $
830,474
Shares issued in reinvestment of
dividends and distributions...... 12,858
143,277
Shares reacquired.................. (85,098)
(937,854)
---------- --------
- - ----
Net increase in shares
outstanding...................... 2,462 $
35,897
---------- --------
- - ----
---------- --------
- - ----
</TABLE>
<TABLE>
<CAPTION>
Class B
- - -----------------------------------
<S> <C> <C>
Year ended August 31, 1995:
Shares sold........................ 168,521 $
1,765,335
Shares issued in reinvestment of
dividends and distributions...... 133,516
1,361,503
Shares reacquired.................. (1,235,993)
(12,775,937)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................ (933,956)
(9,649,099)
Shares reacquired upon conversion
into Class A..................... (1,856,766)
(19,167,920)
---------- --------
- - ----
Net decrease in shares
outstanding...................... (2,790,722)
$(28,817,019)
---------- --------
- - ----
---------- --------
- - ----
Year ended August 31, 1994:
Shares sold........................ 399,067 $
4,473,113
Shares issued in reinvestment of
dividends and distributions...... 228,006
2,542,431
Shares reacquired.................. (772,159)
(8,503,409)
---------- --------
- - ----
Net decrease in shares
outstanding...................... (145,086) $
(1,487,865)
---------- --------
- - ----
---------- --------
- - ----
</TABLE>
<TABLE>
<CAPTION>
Class C Shares
Amount
- - ----------------------------------------- ------ ------
- - --
<S> <C> <C>
Year ended August 31, 1995:
Shares sold.............................. 3,361
$35,127
Shares issued in reinvestment of
dividends and distributions............ 194
1,987
Shares reacquired........................ (8,221)
(82,615 )
------ ------
- - --
Net decrease in shares outstanding....... (4,666)
$(45,501)
------ ------
- - --
------ ------
- - --
August 1, 1994* through
August 31, 1994:
Shares sold.............................. 9,549
$101,218
Shares issued in reinvestment of
dividends.............................. 3
31
------ ------
- - --
Net increase in shares outstanding....... 9,552
$101,249
------ ------
- - --
------ ------
- - --
</TABLE>
- - ---------------
* Commencement of offering of Class C shares.
- - ------------------------------------------------------------
- - --------------------
9
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights MARYLAND
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class
A
- - ----------------------------------------------------
Year Ended
August 31,
- - ----------------------------------------------------
1995
1994 1993
1992 1991
-------
- - -------
- - ------ ------ ------
<S> <C>
<C> <C>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............. $ 10.66
$ 11.64
$11.11 $10.67 $10.23
-------
- - -------
- - ------ ------ ------
Income from investment operations
Net investment income..........................
.53(a) .57
.62 .63 .67
Net realized and unrealized gain (loss) on
investment transactions..................... .10
(.77)
.65 .44 .44
-------
- - -------
- - ------ ------ ------
Total from investment operations............ .63
(.20)
1.27 1.07 1.11
-------
- - -------
- - ------ ------ ------
Less distributions
Dividends from net investment income........... (.53)
(.57)
(.62) (.63) (.67)
Distributions from net realized gains.......... (.10)
(.21)
(.12) -- --
-------
- - -------
- - ------ ------ ------
Total distributions......................... (.63)
(.78)
(.74) (.63) (.67)
-------
- - -------
- - ------ ------ ------
Net asset value, end of year................... $ 10.66
$ 10.66
$11.64 $11.11 $10.67
-------
- - -------
- - ------ ------ ------
-------
- - -------
- - ------ ------ ------
TOTAL RETURN(b):............................... 6.32%
(1.75)%
11.89% 10.35% 10.84%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000).................. $17,726
$2,709
$2,930 $1,335 $804
Average net assets (000)....................... $11,341
$2,877
$2,068 $1,080 $518
Ratios to average net assets:
Expenses, including distribution fees.......
1.30%(a) .95%
.96% .96% 1.10%
Expenses, excluding distribution fees.......
1.20%(a) .85%
.86% .86% 1.00%
Net investment income.......................
4.96%(a) 5.18%
5.51% 5.80% 6.07%
Portfolio turnover rate........................ 49%
40%
41% 34% 18%
</TABLE>
- - ---------------
(a) Net of management fee waiver.
(b) Total return does not consider the effects of sales
loads. Total return is
calculated assuming a purchase of shares on the first
day and a sale on
the last day of each year reported and includes
reinvestment of dividends
and distributions.
- - ------------------------------------------------------------
- - --------------------
10 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights MARYLAND
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class C
Class
B ------------
- - -------------------------------------------------------
Year
Year Ended
August 31, Ended
- - -------------------------------------------------------
August 31,
1995
1994 1993
1992 1991 1995
<S> <C>
<C> <C>
<C> <C> <C>
-------
- - -------
- - ------- ------- ------- ------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........... $ 10.67
$ 11.65 $
11.12 $ 10.68 $ 10.23 $ 10.67
-------
- - -------
- - ------- ------- ------- ------
Income from investment operations
Net investment income..........................
.49(a) .53
.58 .59 .63 .47(a)
Net realized and unrealized gain (loss) on
investment transactions..................... .10
(.77)
.65 .44 .45 .10
-------
- - -------
- - ------- ------- ------- ------
Total from investment operations............ .59
(.24)
1.23 1.03 1.08 .57
-------
- - -------
- - ------- ------- ------- ------
Less distributions
Dividends from net investment income........... (.49)
(.53)
(.58) (.59) (.63) (.47)
Distributions from net realized gains.......... (.10)
(.21)
(.12) -- -- (.10)
-------
- - -------
- - ------- ------- ------- ------
Total distributions......................... (.59)
(.74)
(.70) (.59) (.63) (.57)
-------
- - -------
- - ------- ------- ------- ------
Net asset value, end of period................. $ 10.67
$ 10.67 $
11.65 $ 11.12 $ 10.68 $ 10.67
-------
- - -------
- - ------- ------- ------- ------
-------
- - -------
- - ------- ------- ------- ------
TOTAL RETURN(b):............................... 5.88%
(2.13)%
11.43% 9.90% 10.49% 5.62%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)................ $21,414
$51,198
$57,598 $51,313 $51,110 $52
Average net assets (000)....................... $33,497
$55,223
$53,780 $50,970 $48,422 $58
Ratios to average net assets:
Expenses, including distribution fees.......
1.55%(a) 1.35%
1.36% 1.37% 1.49% 1.82%(a)
Expenses, excluding distribution fees.......
1.05%(a) .85%
.86% .87% .99% 1.07%(a)
Net investment income.......................
4.84%(a) 4.77%
5.11% 5.42% 5.70% 4.55%(a)
Portfolio turnover rate........................ 49%
40%
41% 34% 18% 49%
<CAPTION>
August 1,
through
August 31,
1994
<S> <C>
----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........... $ 10.70
----------
Income from investment operations
Net investment income.......................... .05
Net realized and unrealized gain (loss) on
investment transactions..................... (.03)
----------
Total from investment operations............ .02
----------
Less distributions
Dividends from net investment income........... (.05)
Distributions from net realized gains.......... --
----------
Total distributions......................... (.05)
----------
Net asset value, end of period................. $ 10.67
----------
----------
TOTAL RETURN(b):............................... .07%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)................ $102
Average net assets (000)....................... $31
Ratios to average net assets:
Expenses, including distribution fees.......
2.21%(c)
Expenses, excluding distribution fees.......
1.47%(c)
Net investment income.......................
4.75%(c)
Portfolio turnover rate........................ 40%
</TABLE>
- - ---------------
(a) Net of management fee waiver.
(b) 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.
(c) Annualized.
(d) Commencement of offering of Class C shares.
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
11
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Independent Auditors' Report MARYLAND
SERIES
- - ------------------------------------------------------------
- - --------------------
The Shareholders and Board of Trustees
Prudential Municipal Series Fund, Maryland Series
We have audited the accompanying statement of assets and
liabilities, including
the portfolio of investments, of Prudential Municipal Series
Fund, Maryland
Series as of August 31, 1995, the related statements of
operations for the year
then ended and of changes in 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. These financial statements and financial
highlights are the
responsibility of the Fund's management. Our responsibility
is to express an
opinion on these financial statements and financial
highlights based on our
audits.
We conducted our audits in accordance with generally
accepted auditing
standards. Those standards require that we plan and perform
the audit to obtain
reasonable assurance about whether the financial statements
and financial
highlights are free of material misstatement. An audit
includes examining, on
a
test basis, evidence supporting the amounts and disclosures
in the financial
statements. Our procedures included confirmation of the
securities owned as of
August 31, 1995 by correspondence with the custodian and
brokers; where replies
were not received from brokers, we performed other auditing
procedures. An audit
also includes assessing the accounting principles used and
significant estimates
made by management, as well as evaluating the overall
financial statement
presentation. We believe that our audits provide a
reasonable basis for our
opinion.
In our opinion, such financial statements and financial
highlights present
fairly, in all material respects, the financial position of
Prudential Municipal
Series Fund, Maryland Series, as of August 31, 1995, the
results of its
operations, the changes in its net assets, and its financial
highlights for the
respective stated periods in conformity with generally
accepted accounting
principles.
DELOITTE & TOUCHE LLP
New York, New York
October 16, 1995
PRUDENTIAL
MUNICIPAL SERIES FUND
Federal Income Tax Information MARYLAND
SERIES
- - ------------------------------------------------------------
- - --------------------
We are required by the Internal Revenue Code to advise you
within 60 days of the
Series' fiscal year end (August 31, 1995) as to the federal
tax status of
dividends paid by the Series during such fiscal year.
Accordingly, we are
advising you that in the fiscal year ended August 31, 1995,
dividends paid from
net investment income of $.53 per Class A share, $.49 per
Class B share, and
$.47 per Class C share were all federally tax-exempt
interest dividends. In
addition, the Series paid to Class A, B and C shares a long-
term capital gain
distribution of $.095 per share, which is taxable as such.
In January 1996, you will be advised on IRS Form 1099 DIV or
substitute 1099 DIV
as to the federal tax status of the distributions received
by you in calendar
year 1995.
- - ------------------------------------------------------------
- - --------------------
12
<PAGE>
The Prudential Municipal Series Fund: Maryland Series and
the Lehman Bros. Index: Comparing a $10,000 Investment.
Class A
(CHART)
Class B
(CHART)
Class C
(CHART)
Past performance is no guarantee of future results.
Investment return and
principal value will fluctuate so an investor's shares, when
redeemed, will be
worth more or less than their original cost. The charts on
the right are
designed to give you an idea how much the Series' returns
can fluctuate from
year to year by measuring the best and worst years in terms
of total annual
return since inception of each share class.
These graphs are furnished to you in accordance with SEC
regulations. They
compare a $10,000 investment in the Prudential Municipal
Series Fund: Maryland
Series (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 the Class A and C shares and
for 10 years for the
Class B shares, and subsequent account values at the end of
the most recent
reporting period (August 31), as measured on a quarterly
basis, beginning in
1990 for Class A shares, 1985 for Class B shares and 1994
for Class C shares.
For purposes of the graphs, and unless otherwise indicated,
in the accompanying
tables it has been assumed (a) that the maximum applicable
front-end sales
charge was deducted from the initial $10,000 investment in
Class A shares; (b)
the maximum applicable contingent deferred sales charge was
deducted from the
value of the investment in Class B and Class C shares,
assuming full redemption
on August 31, 1995; (c) all recurring fees (including
management fees) were
deducted; and (d) all dividends and distributions were
reinvested. Class B
shares automatically convert to Class A shares, on a
quarterly basis,
approximately seven years after purchase. This conversion
feature is not
reflected in the graph. The graph and accompanying tables
reflect the past
subsidy and/or waiver of expenses and/or management fees.
* Without waivers and expense subsidies the value of the
$10,000 investment in
the Series and the Series' average annual total return, as
illustrated above,
would have been lower, as indicated in parentheses ( ).
The Index is a weighted index comprised 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. It is an unmanaged index that includes the
reinvestment of all
dividends, but does not reflect the transaction costs and
advisory fees paid
by the Series' investors. The Index's holdings differ from
the Series'
portfolio. The Index is not the only one that may be used to
characterize
performance of bond funds and other indices may portray
different comparative
performance.
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
(LOGO)
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy Hays Teeters
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Grace Torres, Treasurer
S. Jane Rose, Secretary
Stephen M. Ungerman, Assistant Treasurer
Deborah A. Docs, Assistant 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
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
This report is not authorized for distribution to
prospective investors
unless preceded or accompanied by a current prospectus.
74435M705
MF125E
74435M804
Cat. #6420828
74435M572
(ICON)
Prudential
Municipal
Series Fund
Michigan Series
ANNUAL REPORT
Aug. 31, 1995
(LOGO)
Prudential Municipal Series Fund
Michigan Series
Performance At A Glance.
It has been a good year for shareholders of the Prudential
Municipal
Series Fund: Michigan Series. Municipal bond investors
earned not only
their coupon income, but also saw a gain in net asset value
as well.
We are pleased to report that your Portfolio performed in
line with
the average Michigan municipal bond fund measured by Lipper
Analytical
Services over the past 12 months.
<TABLE>
Cumulative Total Returns1
As of 8/31/95
<CAPTION>
One Five Ten
Since
Year Years Years
Inception2
<S> <C> <C> <C>
<C>
Class A 7.2% 48.1% N/A
50.8%
Class B 6.6 45.0 119.3%
147.4
Class C 6.3 N/A N/A
6.4
Lipper MI Muni Avg3 7.1 48.2 131.9
161.6
<CAPTION>
Average Annual Total Returns1
As of 9/30/95
One Five Ten
Since
Year Years Years
Inception2
<S> <C> <C> <C>
<C>
Class A 5.7% 7.6% N/A
7.0%
Class B 3.5 7.7 8.4%
8.6
Class C 7.2 N/A N/A
5.8
</TABLE>
<TABLE>
<CAPTION>
Taxable Equivalent Yield
Total Dividends 30-Day
At Tax Rates Of
Paid for 12 Mos. SEC Yield
36% 39.6%
<S> <C> <C> <C>
<C> <C>
Your Class A $0.67 4.66%
7.62% 8.07%
Dividend Class B $0.62 4.41
7.21 7.64
As of 8/31/95 Class C $0.59 4.16
6.80 7.20
</TABLE>
Past performance is not a guarantee 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 Series 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. Class B shares automatically convert to Class A
shares on a
quarterly basis, after approximately seven years.
2 Inception dates: 1/22/90 for Class A; 9/19/84 for Class B;
and 8/1/94
for Class C.
3 The Lipper Michigan Municipal Bond fund average includes
35 funds for
one year, 12 funds for five years, four funds for 10 years
and two funds
since inception of the Class B shares on 9/19/84.
How Investments Compared.
(As of 8/31/95)
(CHART)
Source: Lipper Analytical Services.
Financial markets change, so a mutual fund's past
performance should never
be used to predict future results. The risks to each of the
investments
listed above are different -- we provide 12-month total
returns for several
Lipper mutual fund categories to show you that reaching for
higher yields
means tolerating more risk. The greater the risk, the larger
the potential
reward or loss. In addition, we've added historical 20-year
average annual
returns. These returns assume the reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Smaller
capitalization stocks
offer greater potential for long-term growth but may be more
volatile than
larger capitalization stocks. Investors receive higher
historical total
returns from stocks than from most other investments.
General Bond Funds provide more income than stock funds,
which can help
smooth out their total returns year by year. But their
prices still
fluctuate (sometimes a good deal) and their returns are
historically
lower than those of stock funds.
General Municipal Debt Funds invest in bonds issued by state
governments,
state agencies and/or municipalities. This investment
provides income that
is usually exempt from federal and state income taxes.
Money Market Funds attempt to preserve a constant share
value; they don't
fluctuate much in price but their returns are generally
among the lowest
of the major investment categories.
*19 years for General Muni Debt Funds.
<PAGE>
Marie Conti, Fund Manager
(PHOTO)
Portfolio
Manager's Report
The Series invests in carefully selected long-term municipal
bonds that
offer a high level of current income exempt from Michigan
state and
federal income taxes consistent with preservation of
capital.
Certain shareholders may be subject to the federal
alternative minimum
tax, however.
Strategy Session.
It has been a positive year for tax-free municipals.
Although interest rates
rose sharply in 1994 on inflation fears, they have tumbled
back down slowly
so far in 1995, as economic growth slowed. The Bond Buyer
Revenue Bond
Index Yield stood at 6.4% on September 1, 1994 (the index is
calculated
on Thursdays) and rose by a percentage point to a high of
7.4% in mid-October
1994, before falling to 6.3% on August 31, 1995. As you can
see, when the
dust had settled, long-term municipal bond interest rates
ended the period
lower.
As interest rates fell, we increased our holdings in revenue
bonds to 52%
from 46% of net assets because they pay a higher rate of
interest. Our
largest holdings are in utility bonds (19%) and health care
(16%). We
also sold off bonds that mature in three and a half years or
less to
lengthen our average maturity so that our holdings will
appreciate
faster should interest rates fall further.
State Of The State:
Autos Drive Economy.
Michigan's economy tends to accelerate or decelerate as auto
sales rise
or fall. Fortunately, the auto sector has been quite strong
over the
last year, and unemployment in recent months has been
running below
the national average. Job growth is expected to taper off
with consumer
demand later this year and into 1996.
Michigan is known for its low debt levels, which is
favorable for
investors because the borrower has an easier time satisfying
obligations.
As a percentage of personal income, debt here is 1.6%, less
than the
national average of 2.1%. In fact, Michigan ranks 36th in
net
tax-supported debt as a percentage of personal income. The
state
has also shown fiscal discipline in recent years by
replenishing
its "rainy day" fund for use when revenues fall in
recessionary
years. While many other states have not been planning for
the future
by saving during this period of economic growth, Michigan's
"rainy day"
fund this year is expected to reach $1 billion.
Sector Breakdown.
(CHART)
Overview.
The Series invests primarily in obligations of Michigan
state,
municipal and local governments, including U.S. territories
(such as
Puerto Rico, the U.S. Virgin Islands and Guam), the income
of which is
also exempt from federal and Michigan state income taxes.
<PAGE>
What Went Well.
We Held On
To Good Yields.
Our assets invested in non-callable bonds (those that can
not be paid
off prematurely by the issuer to save on interest costs)
ranged from
12% to 15%. These bonds not only offer attractive yields but
also
appreciate well when interest rates decline. They are
valuable because
not many bonds offer protection from call risk -- only about
a third of
the securities in the Lehman Brothers' Municipal Bond Index
are
non-callable.
It Paid To Buy
Puerto Rico Bonds.
Nationally, the supply of new municipal bonds this year
alone is down
by 22%. So the market looked elsewhere. As a result, there
is substantial
national demand for bonds that are tax-exempt federally and
in virtually
all states (including Michigan), such as those of Puerto
Rico. Because
these bonds are more attractive, we increased our holdings
in Puerto Rico
to 9% of total net assets.
And Not So Well.
A Longer Duration
Would Have Helped.
Duration measures the sensitivity of a bond's price to
interest rate
changes. The longer the duration, the more a bond's price
appreciates
when interest rates fall, and vice versa. Over the winter,
our duration
was shorter than that of some competing funds, because we
expected economic
growth to remain strong. As the slowdown became apparent in
the second
quarter, we extended duration. Duration generally ranged
from 6.2 years
to 7.8 years, and was 7.8 years on August 31.
Municipals Suffered From Tax Talk.
Congress is considering various changes in the federal
income tax,
including a flat tax -- an income tax at a single, flat
rate. One proposal
would eliminate taxes on most investment income. Clearly,
this has created
uncertainty in the municipal market -- one reason why
municipal bonds did
not follow taxable bond prices higher this spring. At this
writing, we
believe it is unlikely that a flat tax proposal in this form
is likely
to pass Congress -- especially not before next year's
election.
Looking Ahead.
Municipal bond yields are very attractive now. As we
mentioned earlier,
when U.S. government and corporate bond yields fell this
spring, municipal
yields did not follow to the same extent. That means there
are some good
buying opportunities now in the municipal market. Should
interest rates
remain stable, investors may look forward to earning their
coupon
income. Plus, if interest rates fall further, municipal bond
investors
could reasonably expect some price appreciation as well.
Nevertheless, municipal bond investors should be prepared to
weather
some volatility this year as various proposals to change the
country's
income tax structure are proposed and debated. Overall, we
believe
municipal bonds still offer good value, and that volatility
can offer
some attractive buying opportunities.
Five Largest Holdings.*
4.3% Michigan Hospital Finance
Henry Ford Hospital
3.3% Monroe County
Pollution Control
3.2% Wyandotte
Electric Revenue
3.2% Michigan Hospital Finance
Sisters of Mercy (MBIA)
3.1% Michigan Hospital Finance
Bay Medical Center
* Expressed as a percentage of total net assets
as of 8/31/95.
1
<PAGE>
President's Letter
October 11, 1995
(PHOTO)
Dear Shareholder:
We hope you like the fresh look and information we've given
your shareholder
letter. We've also introduced another feature, called
Getting the Most
Out of Your Prudential Mutual Fund, which will appear from
time to time
at the back of your report. Look for topics like
"Understanding Risk
& Reward" as well as easy-to-understand explanations of
financial terms.
Why are we providing such information? Because at Prudential
Mutual Funds,
we believe an informed investor makes smart investment
decisions.
On the Hill
As an informed investor, you should know about the "American
Dream Savings
Account" that is part of the federal budget package now
under debate in
the Senate. It is a type of Individual Retirement Account
that offers a
common-sense approach to long-term saving. Investors should
like it
because --
- - --You can withdraw funds -- without penalty -- to pay for
certain expenses
like buying a first home, medical care or educational needs;
- - --All account earnings would accumulate tax-free, not merely
tax-deferred
like the current IRA;
- - --You can make contributions past age 70 1/2, instead of
having to take
distributions as the current law requires.
Of course, the federal budget process is never easy and
while we hope
this measure is adopted, there's no way of knowing if it
will be. So
why not let your Senator and/or Representative know your
opinion today?
Simply call 202-224-3121.
In Closing
One final note: if you're a Class B shareholder of
Prudential Mutual Funds,
you'll begin noticing a change on your statements once
you've held your
shares for seven years. At that time, they will
automatically begin to
convert to Class A shares on a quarterly basis. Since Class
A shares carry
lower annual distribution charges than Class B shares, your
total
returns will be higher after the conversion than they would
have been
without it. Conversions started earlier this year and
beginning in
December they will take place during each calendar quarter -
- - - December,
March, June and September. It's our way of thanking you for
your
loyalty -- and rewarding you for maintaining a long-term
investment
program by helping you earn more total investment return on
your
Prudential Mutual Fund. I hope you'll find this information
useful
as you work with your financial advisor or registered
representative
to develop your personal investment plan.
Thank you for choosing Prudential Mutual Funds for your
mutual fund
investment.
Sincerely,
Richard A. Redeker
President
2
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Portfolio of Investments as of August 31, 1995
MICHIGAN
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
LONG-TERM INVESTMENTS--96.7%
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
Adams Twnshp. Sch. Dist. Rev., Gen. Oblig., A.M.B.A.C.
Aaa
6.60% 5/01/24 $ 1,000 $ 1,053,750
Arpt. Michigan Comm. Sch. Dist., A.M.B.A.C.
Aaa
5.125 5/01/22 1,535 1,377,877
Breitung Twnshp. Sch. Dist. Rev., Gen. Oblig., M.B.I.A.
Aaa
6.30 5/01/15 250 257,363
Canton Charter Twnshp. Bldg. Auth.,
Wayne Cnty. Golf Course, F.S.A.
Aaa
4.75 1/01/11 450 398,214
Wayne Cnty. Golf Course, F.S.A.
Aaa
4.75 1/01/12 450 393,610
Wayne Cnty. Golf Course, F.S.A.
Aaa
4.75 1/01/13 500 432,205
Wayne Cnty. Golf Course, F.S.A.
Aaa
4.75 1/01/14 500 430,530
Central Michigan Univ. Rev.
A
7.00 10/01/10 700 (b) 789,509
Chippewa Valley Sch. Dist., F.G.I.C.
Aaa
5.00 5/01/21 2,400 2,118,888
Detroit Econ. Dev. Corp., Res. Rec. Rev., Ser. A, F.S.A.
Aaa
6.875 5/01/09 1,000 1,078,730
Detroit Wtr. Supply Sys. Rev.,
F.G.I.C.
Aaa
4.75 7/01/19 1,000 843,610
F.G.I.C.
Aaa
5.00 7/01/23 1,250 1,098,550
Detroit Sewage Disp. Rev., F.G.I.C.
Aaa
5.70 7/01/23 2,000 1,895,860
Detroit St. Aid, Gen. Oblig.
Baa
5.625 5/01/97 1,500 1,523,325
Dickinson Cnty., Mem. Hosp. Sys. Rev.
Ba1
8.00 11/01/14 1,000 1,013,800
Ferris St. Univ. Gen. Rev., A.M.B.A.C.
Aaa
5.80 10/01/05 440 467,949
Grand Rapids San. Swr. Sys. Rev.
A1
7.00 1/01/16 500 533,925
Guam Pwr. Auth. Rev., Ser. A
BBB(e)
6.625 10/01/14 1,000 1,024,770
Holland Sch. Dist., A.M.B.A.C.
Aaa
Zero 5/01/15 2,400 732,648
Huron Valley Sch. Dist., Gen. Oblig., F.G.I.C.
Aaa
Zero 5/01/10 3,500 1,487,500
Jackson Cnty., Hosp. Fin. Auth. Rev., Ser. A, F.G.I.C.
Aaa
5.25 6/01/23 1,500 1,350,555
Kent Hosp. Fac. Fin. Auth. Rev., Blodgette Mem. Med. Ctr.,
Ser. A
A
7.25 7/01/05 500 540,100
Lincoln Sch. Dist., Gen. Oblig., F.G.I.C.
Aaa
5.80 5/01/14 500 494,335
Michigan Higher Ed., Student Loan Auth. Rev., Ser. XIII-A,
M.B.I.A.
Aaa
7.55 10/01/08 500 546,875
Michigan Pub. Pwr. Agcy. Rev.,
Belle River Proj., Ser. A
A1
5.25 1/01/18 1,250 1,132,500
Belle River Proj.
A1
5.00 1/01/19 1,000 870,670
Michigan St. Hosp. Fin. Auth. Rev.,
Bay Med. Ctr., Ser. A
Baa1
8.25 7/01/12 2,000 2,136,180
Henry Ford Hosp.
Aaa
9.00 5/01/08 2,340 2,961,130
Hosp. Genesys Hlth. Sys.
Baa
8.125 10/01/21 1,000 1,074,550
Hosp. Genesys Hlth. Sys.
Baa
7.50 10/01/27 500 510,930
Hosp. Pontiac Osteopathic, Ser. A
Baa1
6.00 2/01/24 900 785,583
McLaren Obligated Group, Ser. A
Aaa
7.50 9/15/21 800 (b) 935,104
Oakwood Hosp. Obligated Group, F.G.I.C.
Aaa
6.95 7/01/02 1,000 b)(c) 1,123,260
Sisters of Mercy, Ser. H, M.B.I.A.
Aaa
7.50 8/15/07 2,000 2,179,100
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
3 -----
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Portfolio of Investments as of August 31, 1995
MICHIGAN
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
Michigan St. Hsg. Dev. Auth. Rev.,
Multifamily Mtge. Insured Hsg., Ser. A
A+(e)
7.15% 4/01/10 $ 1,000 $ 1,057,640
Multifamily Mtge. Insured Hsg., Ser. A
A+(e)
7.70 4/01/23 500 532,010
Sngl. Fam. Mtge., Ser. A
AA(e)
7.70 12/01/16 370 397,361
Michigan St. Strategic Fund Ltd. Obligated Rev.,
Waste Mgmt. Inc. Proj.
A1
6.625 12/01/12 2,000 2,066,000
Michigan St. Trunk Line Hwy.,
Ser. A, A.M.B.A.C.
Aaa
Zero 10/01/05 2,600 1,534,234
Ser. A, A.M.B.A.C.
Aaa
Zero 10/01/06 1,250 691,012
Michigan St. Univ. Rev., Ser. A
A1
5.50 8/15/22 640 590,278
Monroe Cnty. Poll. Ctrl. Rev., Detroit Edison Co., F.G.I.C.
Aaa
7.65 9/01/20 2,000 2,248,940
Mt. Pleasant Wtr. Rev., Wtr. & Swr.,
M.B.I.A.
Aaa
5.00 2/01/22 520 458,354
M.B.I.A.
Aaa
4.00 2/01/23 550 401,715
M.B.I.A.
Aaa
4.00 2/01/24 585 425,061
Oak Park, Gen. Oblig.,
A.M.B.A.C.
Aaa
7.00 5/01/11 375 (b) 429,128
A.M.B.A.C.
Aaa
7.00 5/01/12 400 (b) 457,736
Oakland Cnty., Leuders Drainage Dept., A.M.B.A.C.
Aaa
5.50 5/01/09 350 348,971
Oakland Univ. Rev., Gen. Oblig., M.B.I.A.
Aaa
5.75 5/15/26 1,400 1,358,644
Posen Cons. Sch. Dist., Sch. Dist. No. 9, M.B.I.A.
Aaa
6.75 5/01/22 1,000 1,076,060
Puerto Rico Commonwlth. Hwy. Auth. Rev.,
Ser. Q
Baa1
7.75 7/01/16 1,500 (b) 1,742,595
M.B.I.A.
Aaa
5.782 7/01/08 2,000 2,068,460
Puerto Rico Elec. Pwr. Auth. Rev., Ser. N
Baa1
7.125 7/01/14 920 992,395
Puerto Rico Ind., Tourist, Edu., Med. & Envir. Ctrl. Facs.,
Hosp. Auxilio Mutuo Oblig. Grp. A, M.B.I.A.
Aaa
6.25 7/01/24 1,000 1,021,880
Saginaw Valley St. Univ. Gen. Rev., M.B.I.A.
Aaa
5.375 7/01/16 790 744,172
St. Clair Cnty., Wtr. Supply Sys. No. VII, IRA Township,
A.M.B.A.C.
Aaa
5.25 7/01/15 1,000 901,820
Tri-Cnty. Area Schs., Gen. Oblig., F.G.I.C.
Aaa
5.25 5/01/20 2,000 1,834,400
Univ. of Michigan Major Cap. Proj. Rev.
Aa1
5.50 4/01/13 355 341,446
Univ. of Michigan Rev.,
Pkg. Sys. Rfdg.
Aa
5.00 6/01/15 500 445,195
Virgin Islands Pub. Fin. Auth. Rev., Matching Loan Notes,
Ser. A
NR
7.25 10/01/18 500 527,480
Virgin Islands Wtr. & Pwr. Auth., Elec. Sys. Rev., Ser. A
NR
7.40 7/01/11 500 531,620
Warren Cons. Sch. Dist., Consolidated Sch. Dist., Ser. II,
F.G.I.C.
Aaa
5.25 5/01/21 1,000 915,740
Wayne Cnty. Arpt. Rev., M.B.I.A.
Aaa
6.125 12/01/24 500 502,565
Wayne Cnty. Bldg. Auth., Ser. A
Baa
8.00 3/01/17 1,250 (b) 1,491,013
Western Michigan Univ. Gen. Rev., F.G.I.C.
Aaa
5.00 7/15/21 500 441,240
Wyandotte Elec. Rev., M.B.I.A.
Aaa
6.25 10/01/08 2,000 2,185,460
-----------
Total long-term investments (cost $63,241,333)
66,354,110
</TABLE>
- - ------------------------------------------------------------
- - --------------------
- - ----- 4 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Portfolio of Investments as of August 31, 1995
MICHIGAN
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
SHORT-TERM INVESTMENTS--0.3%
Michigan Strategic Fund Poll. Ctrl. Rev., Consumers Pwr.
Proj., F.R.D.D., Ser. 88A
(cost $200,000)
P-1
3.55% 9/01/95 $ 200 $ 200,000
-----------
Total Investments--97.0%
(cost $63,441,333; Note 4)
66,554,110
Other assets in excess of liabilities--3.0%
2,029,503
-----------
Net Assets--100%
$68,583,613
-----------
-----------
</TABLE>
- - ---------------
(a) The following abbreviations are used in portfolio
descriptions:
A.M.B.A.C.--American Municipal Bond Assurance
Corporation.
F.G.I.C.--Financial Guaranty Insurance Company.
F.R.D.D.--Floating Rate (Daily) Demand Note(d).
F.S.A.--Financial Security Assurance.
M.B.I.A.--Municipal Bond Insurance Association.
<TABLE>
<C> <S>
(b) Prerefunded issues are secured by escrowed cash and/or
direct U.S. guaranteed obligations.
(c) Pledged as initial margin on financial futures
contracts.
(d) 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.
(e) Standard & Poor's rating.
</TABLE>
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information
contains a description
of
Moody's and Standard & Poor's ratings.
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
5 -----
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Statement of Assets and Liabilities
MICHIGAN
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<S>
<C>
Assets
August 31, 1995
Investments, at value (cost
$63,441,333)................................................
.................
..... $66,554,110
Cash........................................................
.................
................................. 60,311
Interest
receivable..................................................
.................
........................ 1,077,967
Receivable for investments
sold........................................................
.................
...... 1,044,792
Receivable for Fund shares
sold........................................................
.................
...... 16,297
Other
assets......................................................
.................
........................... 1,814
-----------
Total
assets......................................................
.................
........................ 68,755,291
-----------
Liabilities
Accrued
expenses....................................................
.................
......................... 50,427
Dividends
payable.....................................................
.................
....................... 35,908
Management fee
payable.....................................................
.................
.................. 25,921
Payable for Fund shares
reacquired..................................................
.................
......... 23,957
Distribution fee
payable.....................................................
.................
................ 19,803
Due to broker-variation margin
payable.....................................................
...................
14,062
Deferred trustee
fees........................................................
.................
................ 1,600
-----------
Total
liabilities.................................................
.................
........................ 171,678
-----------
Net
Assets......................................................
.................
............................. $68,583,613
-----------
-----------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
.............
$ 57,725
Paid-in capital in excess of
par.........................................................
..................
64,831,781
-----------
64,889,506
Accumulated net realized gain on
investments.................................................
..............
598,830
Net unrealized appreciation on
investments.................................................
................
3,095,277
-----------
Net assets, August 31,
1995........................................................
.................
....... $68,583,613
-----------
-----------
Class A:
Net asset value and redemption price per share
($27,024,496 / 2,273,555 shares of beneficial interest
issued and
outstanding).......................... $11.89
Maximum sales charge (3.0% of offering
price)......................................................
........
.37
-----------
Maximum offering price to
public......................................................
.................
.... $12.26
-----------
-----------
Class B:
Net asset value, offering price and redemption price per
share
($41,459,262 / 3,490,489 shares of beneficial interest
issued and
outstanding).......................... $11.88
-----------
-----------
Class C:
Net asset value, offering price and redemption price per
share
($99,855 / 8,407 shares of beneficial interest issued
and
outstanding)..................................
$11.88
-----------
-----------
</TABLE>
- - ------------------------------------------------------------
- - --------------------
- - ----- 6 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
PRUDENTIAL
MUNICIPAL SERIES FUND
MICHIGAN SERIES
MICHIGAN
SERIES
Statement of Operations
Statement of
Changes in Net Assets
- - ------------------------------------------------------------
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income August 31,
1995
<S> <C>
Income
Interest................................. $ 4,423,046
-------------
- - --
Expenses
Management fee, net waiver of $22,911.... 323,133
Distribution fee--Class A................ 16,932
Distribution fee--Class B................ 261,080
Distribution fee--Class C................ 458
Custodian's fees and expenses............ 94,000
Reports to shareholders.................. 65,000
Transfer agent's fees and expenses....... 57,000
Registration fees........................ 42,000
Audit fee................................ 11,000
Legal fees............................... 10,000
Trustees' fees........................... 3,200
Miscellaneous............................ 7,168
-------------
- - --
Total expenses........................ 890,971
Less: custodian fee credit...............
(2,591)
-------------
- - --
Net expenses.......................... 888,380
-------------
- - --
Net investment income....................... 3,534,666
-------------
- - --
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions.................. 1,174,983
Financial futures contract
transactions..........................
(329,952)
-------------
- - --
845,031
-------------
- - --
Net change in unrealized
appreciation/depreciation of:
Investments..............................
(146,487)
Financial futures contracts.............. 38,125
-------------
- - --
(108,362)
-------------
- - --
Net gain on investments..................... 736,669
-------------
- - --
Net Increase in Net Assets
Resulting from Operations................... $ 4,271,335
-------------
- - --
-------------
- - --
</TABLE>
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended August 31,
<S> <C> <C>
in Net Assets 1995 1994
Operations
Net investment income.......... $ 3,534,666 $
3,752,311
Net realized gain on investment
transactions................ 845,031
455,336
Net change in unrealized
appreciation/depreciation of
investments................. (108,362)
(4,917,813)
------------ --------
- - ----
Net increase (decrease) in net
assets resulting from
operations.................. 4,271,335
(710,166)
------------ --------
- - ----
Dividends and distributions (Note
1):
Dividends from net investment
income
Class A..................... (898,307)
(237,966)
Class B..................... (2,633,512)
(3,514,345)
Class C..................... (2,847)
- - --
------------ --------
- - ----
(3,534,666)
(3,752,311)
------------ --------
- - ----
Distributions from net realized
gains
Class A..................... (12,146)
(25,697)
Class B..................... (177,027)
(429,245)
Class C..................... (43)
- - --
------------ --------
- - ----
(189,216)
(454,942)
------------ --------
- - ----
Series share transactions (net of
share conversions) (Note 5):
Net proceeds from shares
sold........................ 4,796,012
13,225,456
Net asset value of shares
issued in reinvestment of
dividends and
distributions............... 2,351,573
2,730,066
Cost of shares reacquired...... (13,930,082)
(10,334,965)
------------ --------
- - ----
Net increase (decrease) in net
assets from Series share
transactions................ (6,782,497)
5,620,557
------------ --------
- - ----
Total increase (decrease)......... (6,235,044)
703,138
Net Assets
Beginning of year................. 74,818,657
74,115,519
------------ --------
- - ----
End of year....................... $ 68,583,613 $
74,818,657
------------ --------
- - ----
------------ --------
- - ----
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
7 -----
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements
MICHIGAN
SERIES
- - ------------------------------------------------------------
- - --------------------
Prudential Municipal Series Fund (the ``Fund'') is
registered under the
Investment Company Act of 1940, as an open-end investment
company. The Fund was
organized as a Massachusetts business trust on May 18, 1984
and consists of
seventeen series. The monies of each series are invested in
separate,
independently managed portfolios. The Michigan Series (the
``Series'') commenced
investment operations in September, 1984. The Series is
diversified and seeks
to
achieve its investment objective of obtaining the maximum
amount of income
exempt from federal and applicable state income taxes with
the minimum of risk
by investing in ``investment grade'' tax-exempt securities
whose ratings are
within the four highest ratings categories by a nationally
recognized
statistical rating organization or, if not rated, are of
comparable quality. The
ability of the issuers of the securities held by the Series
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, and the Series, 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 Trustees.
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.
All securities are valued as of 4:15 P.M., New York time.
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 Series 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 Series 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 Series invests in financial futures contracts in order
to hedge it's
existing portfolio securities, or securities the Series
intends to purchase,
against fluctuations in value caused by changes in
prevailing interest rates.
Should interest rates move unexpectedly, the Series 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 securities are
calculated on the identified cost basis. Interest income is
recorded on the
accrual basis. The Series amortizes premiums and original
issue discount paid
on
purchases of 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: For federal income tax purposes, each
series in the Fund
is treated as a separate taxpaying entity. It is the intent
of the Series to
meet the requirements of the Internal Revenue Code
applicable to regulated
investment companies and to distribute all of its net income
to shareholders.
For this reason and because substantially all of the Series'
gross income
consists of tax-exempt interest, no federal income tax
provision is required.
Dividends and Distributions: The Series declares daily
dividends from net
investment income. Payment of dividends is made monthly.
Distributions of net
capital gains, if any, are made annually.
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
- - ------------------------------------------------------------
- - --------------------
- - ----- 8
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements
MICHIGAN
SERIES
- - ------------------------------------------------------------
- - --------------------
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 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 PMF is computed daily and payable
monthly, at an annual
rate of .50 of 1% of the average daily net assets of the
Series. Effective
January 1, 1995, PMF has agreed to waive a portion (.05 of
1% of the Series'
average daily net assets) of its management fee, which
amounted to $22,911
($0.004 per share for Class A, B and C shares; .03% of
average net assets). The
Series' 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.
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 August 31, 1995.
PMFD has advised the Series that it has received
approximately $8,100 in
front-end sales charges resulting from sales of Class A
shares during the fiscal
year ended August 31, 1995. 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 Series that for the fiscal year ended
August 31, 1995, it
received approximately $127,100 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 Transactions with Affiliates
Prudential Mutual Fund Services, Inc. (``PMFS''), a wholly-
owned subsidiary of
PMF, serves as the Fund's transfer agent. During the fiscal
year ended August
31, 1995, the Series incurred fees of approximately $39,000
for the services of
PMFS. As of August 31, 1995, approximately $3,100 of such
fees were due to PMFS.
Transfer agent fees and expenses in the Statement of
Operations include certain
out-of-pocket expenses paid to non-affiliates.
- - ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of portfolio securities of the Series,
excluding short-term
investments, for the fiscal year ended August 31, 1995 were
$22,270,724 and
$30,476,270, respectively.
At August 31, 1995, the Fund sold 20 financial futures
contracts on the
Municipal Bond Index and 10 on the U.S. Treasury Index both
of which expire in
September, 1995. The value at disposition of such contracts
is $3,420,313. The
value of such contracts on August 31, 1995 was $3,402,813,
thereby resulting in
an unrealized loss of $17,500.
The cost basis of investments for federal income tax
purposes is substantially
the same as for financial reporting purposes and,
accordingly, as of August 31,
1995, net unrealized appreciation for federal income tax
purposes was $3,112,777
(gross unrealized appreciation--$3,601,842; gross unrealized
depreciation--$489,065).
- - ------------------------------------------------------------
Note 5. Capital
The Series offers Class A, Class B and Class C shares. Class
A shares are sold
with a front-end sales charge of up to 3.0%. Class B shares
are sold with a
contingent deferred sales charge which declines from 5% to
zero depending on the
period of time the shares are held. Class C shares are sold
with a contingent
deferred sales charge of 1% during the first year. Class B
shares will
automatically convert to Class A shares on a quarterly basis
approximately seven
years after purchase.
The Fund has authorized an unlimited number of shares of
beneficial interest of
each class at $.01 par value per share. Transactions in
shares of
- - ------------------------------------------------------------
- - --------------------
9 -----
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements
MICHIGAN
SERIES
- - ------------------------------------------------------------
- - --------------------
beneficial interest for the fiscal years ended August 31,
1994 and 1995 were as
follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- - ------------------------------------ ---------- --------
- - ----
<S> <C> <C>
Year ended August 31, 1995:
Shares sold......................... 39,300 $
455,090
Shares issued in reinvestment of
dividends
and distributions................. 47,423
558,002
Shares reacquired................... (207,127)
(2,427,463)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................. (120,404)
(1,414,371)
Shares issued upon conversion from
Class B........................... 1,993,537
23,087,478
---------- --------
- - ----
Net increase in shares
outstanding....................... 1,873,133 $
21,673,107
<CAPTION>
---------- --------
- - ----
---------- --------
- - ----
<S> <C> <C>
Year ended August 31, 1994:
Shares sold......................... 125,287 $
1,540,765
Shares issued in reinvestment of
dividends
and distributions................. 14,526
176,113
Shares reacquired................... (44,147)
(531,472)
---------- --------
- - ----
Net increase in shares
outstanding....................... 95,666 $
1,185,406
<CAPTION>
---------- --------
- - ----
---------- --------
- - ----
Class B
- - ------------------------------------
<S> <C> <C>
Year ended August 31, 1995:
Shares sold......................... 366,931 $
4,247,921
Shares issued in reinvestment of
dividends
and distributions................. 155,664
1,790,735
Shares reacquired................... (1,004,534)
(11,502,619)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................. (481,939)
(5,463,963)
Shares reacquired upon conversion
into Class A...................... (1,995,260)
(23,087,478)
---------- --------
- - ----
Net decrease in shares
outstanding....................... (2,477,199)
$(28,551,441)
---------- --------
- - ----
---------- --------
- - ----
Year ended August 31, 1994:
Shares sold......................... 953,569 $
11,684,491
Shares issued in reinvestment of
dividends
and distributions................. 210,536
2,553,953
Shares reacquired................... (816,504)
(9,803,493)
---------- --------
- - ----
Net increase in shares
outstanding....................... 347,601 $
4,434,951
---------- --------
- - ----
---------- --------
- - ----
<CAPTION>
Class C Shares
Amount
- - ------------------------------------ ---------- --------
- - ----
<S> <C> <C>
Year ended August 31, 1995:
Shares sold......................... 8,149 $
93,001
Shares issued in reinvestment of
dividends
and distributions................. 241
2,836
---------- --------
- - ----
Net increase in shares
outstanding....................... 8,390 $
95,837
---------- --------
- - ----
---------- --------
- - ----
August 1, 1994* through
August 31, 1994:
Shares sold......................... 17 $
200
---------- --------
- - ----
Net increase in shares
outstanding....................... 17 $
200
---------- --------
- - ----
---------- --------
- - ----
- - ---------------
* Commencement of offering of Class C shares.
</TABLE>
- - ------------------------------------------------------------
- - --------------------
- - ----- 10
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights
MICHIGAN
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class A
- - ---------------------------------------------------
<S> <C>
<C> <C>
<C> <C>
Year Ended August
31,
- - ---------------------------------------------------
1995
1994 1993
1992 1991
<CAPTION>
------- -
- - ----- ------
------ ------
<S> <C>
<C> <C>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year......... $ 11.75
$12.51 $11.90
$11.30 $10.81
------- -
- - ----- ------
------ ------
Income from investment operations
Net investment income...................... .64(a)
.64 .67
.68 .67
Net realized and unrealized gain (loss) on
investment transactions.................. .17
(.69) .71
.60 .49
------- -
- - ----- ------
------ ------
Total from investment operations........ .81
(.05) 1.38
1.28 1.16
------- -
- - ----- ------
------ ------
Less distributions
Dividends from net investment income....... (.64)
(.64) (.67)
(.68) (.67)
Distributions from net realized gains...... (.03)
(.07) (.10)
-- --
------- -
- - ----- ------
------ ------
Total distributions..................... (.67)
(.71) (.77)
(.68) (.67)
------- -
- - ----- ------
------ ------
Net asset value, end of year............... $ 11.89
$11.75 $12.51
$11.90 $11.30
------- -
- - ----- ------
------ ------
------- -
- - ----- ------
------ ------
TOTAL RETURN(b):........................... 7.13%
(0.38)% 11.95%
11.63% 11.04%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000).............. $27,024
$4,706 $3,814
$1,618 $835
Average net assets (000)................... $16,932
$4,505 $2,285
$1,235 $694
Ratios to average net assets:
Expenses, including distribution fees... 1.02%(a)
.91% .96%
.98% 1.09%
Expenses, excluding distribution fees... .92%(a)
.81% .86%
.88% .99%
Net investment income................... 5.31%(a)
5.27% 5.51%
5.82% 6.09%
Portfolio turnover rate.................... 33%
12% 14%
30% 62%
</TABLE>
- - ---------------
<TABLE>
<C> <S>
(a) Net of management fee waiver.
(b) Total return does not consider the effects of sales
loads. Total return is
calculated assuming a purchase of shares on the
first day and a sale on the last day of each year
reported and includes
reinvestment of dividends and distributions.
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
11 -----
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights
MICHIGAN
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class C
Class B
-------------------------
- - -------------------------------------------------------
August 1,
Year 1994(d)
Year Ended
August 31, Ended through
- - -------------------------------------------------------
August 31,
August 31,
1995
1994 1993
1992 1991 1995 1994
<S> <C>
<C> <C>
<C> <C> <C> <C>
------- -
- - ------ -------
------- ------- ---------- ----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....... $ 11.75 $
12.51 $ 11.90
$ 11.30 $ 10.81 $ 11.75 $ 11.78
<CAPTION>
------- -
- - ------ -------
------- ------- ---------- ----------
<S> <C>
<C> <C>
<C> <C> <C> <C>
Income from investment operations
Net investment income...................... .59(a)
.59 .62
.63 .63 .56(a) .04
Net realized and unrealized gain (loss) on
investment transactions.................. .16
(.69) .71
.60 .49 .16 (.03)
<CAPTION>
------- -
- - ------ -------
------- ------- ---------- ----------
<S> <C>
<C> <C>
<C> <C> <C> <C>
Total from investment operations........ .75
(.10) 1.33
1.23 1.12 .72 .01
<CAPTION>
------- -
- - ------ -------
------- ------- ---------- ----------
<S> <C>
<C> <C>
<C> <C> <C> <C>
Less distributions
Dividends from net investment income....... (.59)
(.59) (.62)
(.63) (.63) (.56) (.04)
Distributions from net realized gains...... (.03)
(.07) (.10)
-- -- (.03) --
<CAPTION>
------- -
- - ------ -------
------- ------- ---------- ----------
<S> <C>
<C> <C>
<C> <C> <C> <C>
Total distributions..................... (.62)
(.66) (.72)
(.63) (.63) (.59) (.04)
<CAPTION>
------- -
- - ------ -------
------- ------- ---------- ----------
<S> <C>
<C> <C>
<C> <C> <C> <C>
Net asset value, end of period............. $ 11.88 $
11.75 $ 12.51
$ 11.90 $ 11.30 $ 11.88 $ 11.75
<CAPTION>
------- -
- - ------ -------
------- ------- ---------- ----------
------- -
- - ------ -------
------- ------- ---------- ----------
<S> <C>
<C> <C>
<C> <C> <C> <C>
TOTAL RETURN(b):........................... 6.60%
(0.78)% 11.51%
11.18% 10.60% 6.29% 0.06%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............ $41,459
$70,112 $70,302
$56,095 $59,400 $100 $200(e)
Average net assets (000)................... $52,216
$72,095 $61,548
$52,137 $50,809 $61 $199(e)
Ratios to average net assets:
Expenses, including distribution fees... 1.37%(a)
1.31% 1.36%
1.38% 1.49% 1.68%(a) 2.15%(c)
Expenses, excluding distribution fees... .87%(a)
.81% .86%
.88% .99% .93%(a) 1.39%(c)
Net investment income................... 5.04%(a)
4.87% 5.11%
5.42% 5.66% 4.66%(a) 4.56%(c)
Portfolio turnover rate.................... 33%
12% 14%
30% 62% 33% 12%
</TABLE>
- - ---------------
<TABLE>
<C> <S>
(a) Net of management fee waiver.
(b) 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.
(c) Annualized.
(d) Commencement of offering of Class C shares.
(e) Figures are actual and not rounded to the nearest
thousand.
</TABLE>
- - ------------------------------------------------------------
- - --------------------
- - ----- 12 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Independent Auditors' Report
MICHIGAN
SERIES
- - ------------------------------------------------------------
- - --------------------
The Shareholders and Board of Trustees
Prudential Municipal Series Fund, Michigan Series
We have audited the accompanying statement of assets and
liabilities, including
the portfolio of investments, of Prudential Municipal Series
Fund, Michigan
Series, as of August 31, 1995, the related statements of
operations for the year
then ended and of changes in 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. These financial statements and financial
highlights are the
responsibility of the Fund's management. Our responsibility
is to express an
opinion on these financial statements and financial
highlights based on our
audits.
We conducted our audits in accordance with generally
accepted auditing
standards. Those standards require that we plan and perform
the audit to obtain
reasonable assurance about whether the financial statements
and financial
highlights are free of material misstatement. An audit
includes examining, on
a
test basis, evidence supporting the amounts and disclosures
in the financial
statements. Our procedures included confirmation of the
securities owned as of
August 31, 1995 by correspondence with the custodian. An
audit also includes
assessing the accounting principles used and significant
estimates made by
management, as well as evaluating the overall financial
statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, such financial statements and financial
highlights present
fairly, in all material respects, the financial position of
Prudential Municipal
Series Fund, Michigan Series, as of August 31, 1995, the
results of its
operations, the changes in its net assets, and its financial
highlights for the
respective stated periods in conformity with generally
accepted accounting
principles.
DELOITTE & TOUCHE LLP
New York, New York
October 16, 1995
PRUDENTIAL
MUNICIPAL SERIES FUND
Federal Income Tax Information
MICHIGAN
SERIES
- - ------------------------------------------------------------
- - --------------------
We are required by the Internal Revenue Code to advise you
within 60 days of the
Series' fiscal year end (August 31, 1995) as to the federal
tax status of
dividends paid by the Series during such fiscal year.
Accordingly, we are
advising you that in the fiscal year ended August 31, 1995,
dividends paid from
net investment income of $.64 per Class A share, $.59 per
Class B share, and
$.56 per Class C share were all federally tax-exempt
interest dividends. In
addition, the Series paid to Class A, B and C shares a long-
term capital gain
distribution of $.032 per share, which is taxable as such.
In January 1996, you will be advised on IRS Form 1099 DIV or
substitute 1099 DIV
as to the federal tax status of the distributions received
by you in calendar
year 1995.
- - ------------------------------------------------------------
- - --------------------
13 -----
<PAGE>
Getting The Most From Your Prudential Mutual Fund
Some mutual fund shareholders won't ever read this -- they
don't read annual
and semi-annual reports. It's quite understandable These
annual and
semi-annual reports are prepared to comply with Federal
regulations.
They are often written in language that is difficult to
understand. So
when most people run into those particularly daunting
sections of these
reports, they don't read them.
We think that's a mistake.
At Prudential Mutual Funds, we've made some changes to our
report to make
it easier to understand and more pleasant to read, in hopes
you'll find
it profitable to spend a few minutes familiarizing yourself
with your
investment. Here's what you'll find in the report:
At A Glance
Since an investment's performance is often a shareholder's
primary concern,
we present performance information in two different formats.
You'll find
it first on the "At A Glance" page where we compare the Fund
and the
comparable average calculated by Lipper Analytical Services,
Inc., a
nationally recognized mutual fund rating agency. We report
both the
cumulative total returns and the average annual total
returns. The
cumulative total return is the total amount of income and
appreciation
the Fund has achieved in various time periods. The average
annual
total return is an annualized representation of the Fund's
performance -- it generally smoothes out returns and gives
you an
idea how much the Fund has earned in an average year, for a
given
time period. Under the performance box, you'll see legends
that explain
the performance information, whether fees and sales charges
have been
included in returns, and the inception dates for the Fund's
share
classes.
See the performance comparison charts at the back of the
report for more
performance information. And keep in mind that past
performance is not
indicative of future results.
Portfolio Manager's Report
The portfolio manager who invests your money for you reports
on
successful -- and not-so-successful -- strategies in this
section
of your report. Look for recent purchases and sales here, as
well
as information about the sectors the portfolio managers
favors and
any changes that are on the drawing board.
Portfolio Of Investments
This is where the report begins to look technical, but it's
really
just a listing of each security held at the end of the
reporting
period, along with valuations and other information. Please
note
that sometimes we discuss a security in the Portfolio
Manager's
Report that doesn't appear in this listing because it was
sold
before the close of the reporting period.
<PAGE>
Statement Of Assets And Liabilities
The balance sheet shows the assets (the value of the Fund's
holdings),
liabilities (how much the Fund owes) and net assets (the
Fund's equity,
or holdings after the Fund pays its debts) as of the end of
the reporting
period. It also shows how we calculate the net asset value
per share for
each class of shares. The net asset value is reduced by
payment of your
dividend, capital gain, or other distribution, but remember
that the
money or new shares are being paid or issued to you and thus
is not
a realized loss. The net asset value fluctuates daily along
with the
value of every security in the portfolio.
Statement Of Operations
This is the income statement, which details income (mostly
interest and
dividends earned) and expenses (including what you pay us to
manage
your money). You'll also see capital gains here -- both
realized and
unrealized.
Statement Of Changes In Net Assets
This schedule shows how income and expenses translate into
changes in
net assets, compared to last year's performance. The Fund is
required
to pay out the bulk of its income to shareholders every
year, and this
statement shows you how we do it -- through dividends and
distributions -- and
how that affects the net assets. This statement also shows
how money from
investors flowed into and out of the Fund.
Notes To Financial Statements
This is the kind of technical material that can intimidate
readers, but
it does contain useful information. The Notes provide a
brief history
and explanation of your Fund's objectives. In addition, they
also
outline how Prudential Mutual Funds prices securities. The
Notes
also explain who manages and distributes the Fund's shares,
and
more importantly, how much they are paid for doing so.
Finally,
the Notes explain how many shares are outstanding and the
number
issued and redeemed over the period.
Financial Highlights
This information contains many elements from prior pages,
but on a
per share basis. It is designed to help you understand how
the Fund
performed and to compare this year's performance and
expenses to
those of prior years.
Independent Auditor's Report
Once a year, an outside auditor looks over our books and
certifies that
the information we've presented is fair and complies with
generally
accepted accounting principles.
Tax Information
This is information which we report annually about how much
of your
total return is taxable. Should you have any questions, you
may want
to consult a tax advisor.
Performance Comparison
These charts are included in the annual report and are
required by the
Securities Exchange Commission. Performance is presented
here as a
hypothetical $10,000 investment in the Fund since its
inception or for
10 years (whichever is shorter). To help you put that return
in context,
we are required to include the performance of an unmanaged,
broad based
securities index, as well. The index does not reflect the
cost of buying
the securities it contains or the cost of managing a mutual
fund. Of
course, the index holdings do not mirror those of the fund -
- - - the index
is a broadly based reference point commonly used by
investors to measure
how well they are doing. A definition of the selected index
is also
provided. Investors generally cannot invest directly in an
index.
<PAGE>
Getting The Most From Your Prudential Mutual Fund
When you invest through Prudential Mutual Funds, you receive
financial
advice through a Prudential Securities financial advisor or
Prudential/Pruco
Securities registered representative. Your advisor or
representative can
provide you with the following services.
There's No Reward Without Risk; But Is This Risk Worth It?
Your financial adviser or registered representative can help
you match
the reward you seek with the risk you can tolerate. And risk
can be
difficult to gauge --sometimes even the simplest investments
bear surprising
risks. The educated investor knows that markets seldom move
in just
one direction -- there are times when a market sector or
asset class
will lose value or provide little in the way of total
return. Managing
your own expectations is easier with help from someone who
understands
the markets and who knows you!
Keeping Up With The Joneses.
A financial adviser or registered representative can help
you wade
through the numerous mutual funds available to find the ones
that fit
your own individual investment profile and risk tolerance.
While the
newspapers and popular magazines are full of advice about
investing,
they are aimed at generic groups of people or representative
individuals,
not at you personally. Your financial advisor or registered
representative
will review your investment objectives with you. This means
you can make
financial decisions based on the assets and liabilities in
your
current portfolio and your risk tolerance -- not just based
on the
current investment fad.
Buy Low, Sell High.
Buying at the top of a market cycle and selling at the
bottom are
among the most common investor mistakes. But sometimes it's
difficult
to hold on to an investment when it's losing value every
month. Your
financial adviser or registered representative can answer
questions
when you're confused or worried about your investment, and
remind you
that you're investing for the long haul.
Prudential Municipal Series Trust: Michigan Series--Lehman
Bros. General Municipal Debt Index
The Prudential Municipal Series Fund: Michigan Series and
the Lehman Bros. Index: Comparing a $10,000 Investment.
Class A
(CHART)
Class B
(CHART)
Class C
(CHART)
Past performance is no guarantee of future results.
Investment return and
principal value will fluctuate so an investor's shares, when
redeemed,
will be worth more or less than their original cost. The
charts on the
right are designed to give you an idea how much the Series'
returns can
fluctuate from year to year by measuring the best and worst
years in terms
of total annual return since inception of each share class.
These graphs are furnished to you in accordance with SEC
regulations. They
compare a $10,000 investment in the Prudential Municipal
Series Fund: Michigan
Series (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 (or 10 years
ago, whichever
is shorter), and subsequent account values at the end of the
most recent
reporting period (August 31), as measured on a quarterly
basis beginning
in 1990 for Class A shares, in 1985 for Class B shares, and
in 1994 for
Class C shares.. For purposes of the graphs, and unless
otherwise
indicated, in the accompanying tables it has been assumed
(a) that
the maximum applicable front-end sales charge was deducted
from the
initial $10,000 investment in Class A shares; (b) the
maximum applicable
contingent deferred sales charge was deducted from the value
of the
investment in Class B and Class C shares, assuming full
redemption
on August 31, 1995; (c) all recurring fees (including
management fees)
were deducted; and (d) all dividends and distributions were
reinvested.
Class B shares automatically convert to Class A shares, on a
quarterly
basis, approximately seven years after purchase. This
conversion feature
is not reflected in the graph. The graph and accompanying
tables reflect
the past subsidy and/or waiver of expenses and/or management
fees.
* Without waivers and expense subsidies the value of the
$10,000 investment
in the Series and the Series' average annual total return,
as illustrated
above, would have been lower, as indicated in parentheses (
).
The Index is a weighted index comprised 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. It is an unmanaged index that
includes the
reinvestment of all dividends, but does not reflect the
transaction costs
and advisory fees paid by the Series' investors. The Index's
holdings
differ from the Series' portfolio. The Index is not the only
one that
may be used to characterize performance of bond funds and
other indices
may portray different comparative performance.
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
(LOGO)
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy Hays Teeters
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Grace Torres, Treasurer
S. Jane Rose, Secretary
Stephen M. Ungerman, Assistant Treasurer
Deborah A. Docs, Assistant 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
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
This report is not authorized for distribution to
prospective investors
unless preceded or accompanied by a current prospectus.
74435M671 MF120E
74435M689 Cat. #6427410
74435M556
(ICON)
Prudential
Municipal
Series Fund
Minnesota Series
Annual Report
Aug. 31, 1995
(LOGO)
<PAGE>
Prudential Municipal Series Fund
Minnesota Series
Performance At A Glance.
It has been a good year for shareholders of the Prudential
Municipal Series
Fund: Minnesota Series. Municipal bond investors not only
earned their coupon
income, but also saw a gain in net asset value as well.
Although returns were
favorable, your fund lagged the average Minnesota bond fund
measured by Lipper
Analytical Services because its average maturity was shorter
than that of its
peers.
Cumulative Total Returns1 As
of 8/31/95
<TABLE>
<CAPTION>
One Five Ten
Since
Year Years Years
Inception2
<S> <C> <C> <C> <C>
<C>
Class A 6.3% 40.5% N/A
43.3%
Class B 5.9 37.7 102.3%
127.5
Class C 5.6 N/A N/A
5.6
Lipper MN Muni Avg3 6.6 44.3 118.4
79.0
</TABLE>
Average Annual Total Returns1
As of 9/30/95
<TABLE>
<CAPTION>
One Five Ten
Since
Year Years Years
Inception2
<S> <C> <C> <C> <C>
<C>
Class A 4.8% 6.4% N/A
6.0%
Class B 2.7 6.5 7.6%
7.8
Class C 6.4 N/A N/A
5.1
</TABLE>
<TABLE>
<CAPTION>
Taxable Equivalent Yield
Total Dividends 30-Day
At Tax Rates of
Paid for 12 Mos. SEC Yield
36% 39.6%
<S> <C> <C> <C>
<C> <C>
Your Class A $0.60 2.88%
4.92% 5.21%
Dividend Class B $0.55 2.98
5.09 5.39
As of 8/31/95 Class C $0.52 3.15
5.38 5.70
</TABLE>
Past performance is not a guarantee of future results.
Principal and investment
return will fluctuate so that an investor's shares, when
redeemed, may be worth
more or less than their original cost.
1Source: Prudential Mutual Fund Management and Lipper
Analytical Services. The
cumulative total returns do not take into account sales
charges. The average
annual returns do take into account applicable sales
charges. The Series
charged 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. Class B shares
automatically convert to Class A shares on a quarterly
basis, after
approximately seven years.
2Inception dates: 1/22/90 for Class A; 10/4/84 for Class B;
and 8/1/94 for
Class C.
3The Lipper Minnesota Municipal Bond fund average includes
36 funds for one
year, 17 for five years, four for 10 years and three funds
since inception of
the Class B shares on 10/4/84.
How Investments Compared.
(As of 8/31/95)
(GRAPH)
Source: Lipper Analytical Services. Financial markets
change, so a mutual
fund's past performance should never be used to predict
future results. The
risks to each of the investments listed above are different
- - -- we provide
12-month total returns for several Lipper mutual fund
categories to show you
that reaching for higher yields means tolerating more risk.
The greater the
risk, the larger the potential reward or loss. In addition,
we've added
historical 20-year average annual returns. These returns
assume the
reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Smaller
capitalization stocks
offer greater potential for long-term growth but may be more
volatile than
larger capitalization stocks. Investors receive higher
historical total returns
from stocks than from most other investments.
General Bond Funds provide more income than stock funds,
which can help smooth
out their total returns year by year. But their prices still
fluctuate
(sometimes a good deal) and their returns are historically
lower than those of
stock funds.
General Municipal Debt Funds invest in bonds issued by state
governments, state
agencies and/or municipalities. This investment provides
income that is usually
exempt from federal and state income taxes. (20-year returns
are not
available.)
Money Market Funds attempt to preserve a constant share
value; they don't
fluctuate much in price but their returns are generally
among the lowest of
the major investment categories.
*19 years for General Muni Debt Funds.
<PAGE>
Marie Conti, Fund Manager
(PHOTO)
Portfolio
Manager's Report
The Series invests in carefully selected long-term municipal
bonds that offer
a high level of current income exempt from Minnesota
personal income and
federal income taxes consistent with preservation of
capital. Certain
shareholders may be subject to the federal alternative
minimum tax, however.
The Series invests primarily in obligations of Minnesota
State, municipal and
local governments, including U.S. territories (such as
Puerto Rico, the U.S.
Virgin Islands and Guam), the income of which is also exempt
from federal and
Minnesota personal income taxes.
Merger Approved.
Shareholders have approved a plan to merge the Prudential
Municipal Series
Fund: Minnesota Series with the Prudential National
Municipals Fund effective
October 27. Until the merger, Marie Conti has served as
portfolio manager of
the Prudential Municipal Series Fund: Minnesota Series. She
was named to the
position in May.
Strategy Session.
It has been a positive year for tax-free municipal bonds.
Although interest
rates rose sharply in 1994 on inflation fears, they have
tumbled back down
slowly this year, as economic growth slowed. The Bond Buyer
Revenue Bond Index
Yield stood at 6.4% on September 1,1994 (the index is
calculated on
Thursdays), and rose by a percentage point to a high of 7.4%
in mid-October
1994, before falling to 6.3% on August 31, 1995. As you can
see, when the dust
had settled, long-term municipal bond interest rates ended
the period lower.
As interest rates fell, we purchased higher-yielding bonds,
slightly decreasing
our holdings in Triple-A rated and insured bonds and
slightly increasing assets
in A and AA-rated bonds, relying heavily on our research
staff. For example,
we increased our holdings in transportation bonds to 18% of
net assets and
health-care bonds to 11% of net assets. Minnesota is a
leading health-care
center -- it's the home of the Mayo Clinic -- so it provides
attractive
investment opportunities in this sector.
State Of The State.
Minnesota is above average in job gains and employment. It
has a sturdy,
well-diversified economy. Unemployment this year ran as much
as two full
percentage points below the national average, as a result of
healthy job gains
in services, trade, manufacturing and government. The
state's government is
fiscally conservative and only moderately indebted. A policy
adopted in 1993
stipulates a six-year budgetary time frame, mandatory limits
on growth in
spending, and debt management guidelines. The nearly $17
billion 1994-1995
budget is estimated to close with a $921 balance in October.
The state is
required to set aside revenues for future cash flow to avoid
the need for
short-term borrowing.
Sector Breakdown.
(CHART)
<PAGE>
What Went Well.
We Held On To Good Yields.
We increased assets invested in non-callable bonds (those
that cannot be paid
off prematurely by the issuer to save on interest costs) to
13%, up from 6% a
year ago. These bonds not only offer attractive yields but
also appreciate
well when interest rates decline. They are valuable because
not many bonds
offer protection from call risk -- only about a third of the
securities in the
Lehman Brothers' Municipal Bond Index are non-callable.
And Not So Well.
A Longer Duration Would Have Helped.
Duration measures the sensitivity of a bond's price to
interest rate changes.
The longer the duration, the more a bond's price appreciates
when interest
rates fall and vice versa. Over the winter, our duration
was shorter than
that of some competing funds, because we expected stronger
economic growth.
As the slowdown became apparent in the second quarter, we
extended duration.
Duration generally ranged from 6.1 years to 7.0 years, and
was 7.0 years on
August 31.
Municipals Suffered From Tax Talk.
Congress is considering various changes in the federal
income tax, including a
flat tax -- an income tax at a single, flat rate. One
proposal would eliminate
taxes on most investment income. Clearly, this has created
uncertainty in the
municipal market -- one reason why municipal bonds did not
follow taxable bond
prices higher this spring. At this writing, we believe it is
unlikely that a
flat tax proposal in this form is likely to pass Congress --
especially not
before next year's election.
Looking Ahead.
Municipal bond yields are very attractive now. As we
mentioned earlier, when
U.S. government and corporate bond yields fell this spring,
municipal yields
did not follow to the same extent. That means there are some
very good buying
opportunities now in the municipal market.
Should interest rates remain stable, investors may look
forward to earning
their coupon. Plus, if interest rates fall further,
municipal bond investors
could reasonably expect some price appreciation as well.
Nevertheless, municipal bond investors should be prepared to
weather some
volatility this year as various proposals to change the
country's income tax
structure are proposed and debated. Overall, we believe
municipal bonds still
offer good value, and that volatility can offer some
attractive buying
opportunities.
1
<PAGE>
President's Letter October 11, 1995
(PHOTO)
Dear Shareholder:
We hope you like the fresh look and information we've given
your shareholder
letter. We've also introduced another feature, called
Getting the Most Out of
Your Prudential Mutual Fund, which will appear from time to
time at the back of
your report. Look for topics like "Understanding Risk &
Reward" as well as
easy-to-understand explanations of financial terms. Why are
we providing such
information? Because at Prudential Mutual Funds, we believe
an informed
investor makes smart investment decisions.
- - ------------------------------------------------------------
- - -------------------
On the Hill
As an informed investor, you should know about the "American
Dream Savings
Account" that is part of the federal budget package now
under debate in the
Senate. It is a type of Individual Retirement Account that
offers a
common-sense approach to long-term saving. Investors should
like it because --
- - - You can withdraw funds -- without penalty -- to pay for
certain expenses like
buying a first home, medical care or educational needs;
- - - All account earnings would accumulate tax-free, not merely
tax-deferred like
the current IRA;
- - - You can make contributions past age 70 1/2, instead of
having to take
distributions as the current law requires.
Of course, the federal budget process is never easy and
while we hope this
measure is adopted, there's no way of knowing if it will be.
So why not let
your Senator and/or Representative know your opinion today?
Simply call
202-224-3121.
- - ------------------------------------------------------------
- - -------------------
In Closing
One final note: if you're a Class B shareholder of other
Prudential Mutual
Funds, you'll begin noticing a change on your statements
once you've held your
shares for seven years. At that time, they will
automatically begin to convert
to Class A shares on a quarterly basis. Since Class A shares
carry lower annual
distribution charges than Class B shares, your total returns
will be higher
after the conversion than they would have been without it.
Conversions started
earlier this year and beginning in December they will take
place during each
calendar quarter -- December, March, June and September.
It's our way of
thanking you for your loyalty -- and rewarding you for
maintaining a long-term
investment program by helping you earn more total investment
return on your
Prudential Mutual Fund. I hope you'll find this information
useful as you work
with your financial advisor or registered representative to
develop your
personal investment plan.
Thank you for choosing Prudential Mutual Funds for your
mutual
fund investment.
Sincerely,
Richard A. Redeker
President
2
<PAGE>
Portfolio of Investments as of PRUDENTIAL
MUNICIPAL SERIES FUND
August 31, 1995 MINNESOTA
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
LONG-TERM INVESTMENTS--94.6%
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
Anoka Hennepin Indpt. Sch. Dist., No. 11, Ser. C, C.G.I.C.
Aaa
Zero 2/01/12 $ 1,575 $ 604,406
Dakota Cnty. Hsg. & Redev. Auth., Burnsville & Inner
Grove, Sngl. Fam. Mtge., F.G.I.C.
Aaa
9.375% 5/01/18 10 10,786
Metropolitan Council of Minneapolis,
Hubert H. Humphrey Metrodome
A
6.00 10/01/09 500 510,845
St. Paul Met. Area, Ser. A
Aaa
6.25 12/01/06 750 800,962
St. Paul Met. Area, Ser. D
Aaa
6.75 9/01/10 500 536,005
Minneapolis Cmnty. Dev. Agcy.,
St. Paul Hsg. & Redev. Auth. Rev.
Aa
9.875 12/01/15 10 10,338
Tax Increment Rev., M.B.I.A.
Aaa
Zero 9/01/01 750 565,883
Tax Increment Rev., M.B.I.A.
Aaa
Zero 3/01/06 1,000 575,010
Tax Increment Rev., M.B.I.A.
Aaa
Zero 9/01/07 1,000 523,910
Minneapolis Hosp. Rev.,
Lifespan Inc., Ser. B
A1
8.70 12/01/02 820(c) 918,384
Lifespan Inc., Ser. B
A
8.125 8/01/17 800 885,936
Minneapolis-St. Paul Hsg. Fin. Brd. Rev., Sngl.
Fam. Mtge., G.N.M.A.
AAA(d)
7.30 8/01/31 910 962,489
Minneapolis-St. Paul Met. Arpts., Ser. 7
Aaa
7.80 1/01/14 1,000 1,112,630
Minnesota Pub. Facs. Auth.,
Wtr. Poll. Ctrl. Rev., Ser. A
AA+(d)
6.90 3/01/03 500 556,145
Wtr. Poll. Ctrl. Rev.,
AA+(d)
7.00 3/01/09 650 706,583
Minnesota St. Higher Ed. Facs. Auth. Rev.,
Macalester Coll.
Aa
6.40 3/01/22 500 514,690
Univ. of St. Thomas
A1
5.60 9/01/14 300 289,134
Minnesota St., Deleuth Arpt. Lease Rev., Ser. C
Aa1
6.25 8/01/14 500 511,455
Minnesota St., Gen. Oblig.
Aa1
6.00 10/01/13 500 511,915
Northern Mun. Pwr. Agcy.,
Elec. Sys. Rev., Ser. A
A
7.25 1/01/16 370 405,457
Elec. Sys. Rev., Ser. B., A.M.B.A.C.
Aaa
5.50 1/01/18 750 721,958
Northfield Coll. Fac. Rev., St. Olaf Coll.
A
6.30 10/01/12 370 384,748
Ramsey Cnty., Gen. Oblig.
Aaa
7.25 2/01/04 500 536,455
Robbinsdale Hosp. Rev., North Memorial Med. Ctr.,
A.M.B.A.C.
Aaa
5.55 5/15/19 1,000 950,630
Rochester Hlth. Care Facs. Rev., Mayo Med. Ctr., Ser. A
NR
8.30 11/15/07 500(c) 576,975
Science Museum, St. Paul, Cert. of Part.
AAA(d)
7.50 12/15/01 1,147(c) 1,254,904
Southern Mun. Pwr. Agcy.,
Pwr. Supply Sys. Rev., Ser. B
Aaa
5.50 1/01/15 195(c) 189,117
Pwr. Supply Sys. Rev., Ser. B, A.M.B.A.C.
Aaa
5.50 1/01/15 305 295,103
Pwr. Supply Sys. Ser. A, M.B.I.A.
Aaa
Zero 1/01/20 3,250 754,877
St. Paul Hsg. & Redev. Auth.,
Ramsey Med. Ctr. Proj., A.M.B.A.C.
Aaa
5.55 5/15/23 500 474,250
Tax Increment Rev., A.M.B.A.C.
Aaa
5.25 9/01/05 1,000 1,020,840
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
3
<PAGE>
Portfolio of Investments as of PRUDENTIAL
MUNICIPAL SERIES FUND
August 31, 1995 MINNESOTA
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
St. Paul Port Auth., Energy Park Tax Increment Rev.
Baa
8.00% 12/01/07 $ 820(c) $ 923,705
Univ. of Minnesota Rev., Ser. A
A1
6.00 2/01/11 1,000(c) 1,019,100
Western Mun. Pwr. Agcy., Supply Rev., Ser. A
A1
5.50 1/01/15 500 473,205
-----------
Total long-term investments (cost $19,399,047)
21,088,830
-----------
SHORT-TERM INVESTMENTS--2.3%
Beltrami Cnty. Environ. Ctl. Rev., Northwood Panel Brd.
Proj., F.R.D.D.
A-1+(d)
3.35 9/01/95 200 200,000
Beltrami Cnty. Environ. Ctl. Rev., Northwood Panel Brd.
Proj., F.R.D.D.
SP-1+(d)
3.55 9/01/95 300 300,000
-----------
Total short-term investments (cost $500,000)
500,000
-----------
Total Investments--96.9%
(cost $19,899,047; Note 4)
21,588,830
Other assets in excess of liabilities--3.1%
696,524
-----------
Net Assets--100%
$22,285,354
-----------
-----------
</TABLE>
- - ---------------
(a) The following abbreviations are used in portfolio
descriptions:
A.M.B.A.C.--American Municipal Bond Assurance
Corporation.
C.G.I.C.--Capital Guaranty Insurance Company.
F.G.I.C.--Financial Guaranty Insurance Company.
F.R.D.D.--Floating Rate (Daily) Demand Note (b).
G.N.M.A.--Government National Mortgage Association.
M.B.I.A.--Municipal Bond Insurance Association.
(b) For purposes of amortized cost valuation, the maturity
date of such
securities 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.
(c) Prerefunded issues are secured by escrowed cash and/or
direct U.S.
guaranteed obligations.
(d) Standard & Poor's rating.
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.
- - ------------------------------------------------------------
- - --------------------
4 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Statement of Assets and Liabilities MINNESOTA
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<S>
<C>
Assets
August 31, 1995
Investments, at value (cost
$19,899,047)................................................
....................
$ 21,588,830
Cash........................................................
.................
............................... 425,920
Interest
receivable..................................................
.................
...................... 300,491
Other
assets......................................................
.................
......................... 792
--------------
Total
assets......................................................
.................
...................... 22,316,033
--------------
Liabilities
Management fee
payable.....................................................
.................
................ 8,538
Payable for Series shares
reacquired..................................................
.................
..... 8,000
Dividends
payable.....................................................
.................
..................... 7,836
Accrued
expenses....................................................
.................
....................... 2,807
Distribution fee
payable.....................................................
.................
.............. 1,898
Deferred trustees'
fees........................................................
.................
............ 1,600
--------------
Total
liabilities.................................................
.................
...................... 30,679
--------------
Net
Assets......................................................
.................
........................... $ 22,285,354
--------------
--------------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
........... $
19,044
Paid-in capital in excess of
par.........................................................
................
20,998,117
--------------
21,017,161
Accumulated net realized loss on
investments.................................................
............
(421,590)
Net unrealized appreciation on
investments.................................................
..............
1,689,783
--------------
Net assets, August 31,
1995........................................................
.................
........ $ 22,285,354
--------------
--------------
Class A:
Net asset value and redemption price per share
($10,563,469 / 902,651 shares of beneficial interest
issued and
outstanding).......................... $11.70
Maximum sales charge (3.0% of offering
price)......................................................
......
.36
Maximum offering price to
public......................................................
...................
$12.06
Class B:
Net asset value, offering price and redemption price per
share
($11,721,065 / 1,001,635 shares of beneficial interest
issued and
outstanding)........................ $11.70
Class C:
Net asset value, offering price and redemption price per
share
($819.95 / 70.07 shares of beneficial interest issued
and
outstanding)................................
$11.70
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
5
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND PRUDENTIAL
MUNICIPAL SERIES FUND
MINNESOTA SERIES MINNESOTA
SERIES
Statement of Operations Statement of
Changes in Net Assets
- - ------------------------------------------------------------
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income August 31,
1995
<S> <C>
Income
Interest................................. $
1,475,807
-------------
- - --
Expenses
Management fee, net of waiver of
$7,592................................
108,549
Distribution fee--Class A................
6,228
Distribution fee--Class B................
80,942
Distribution fee--Class C................
2
Custodian's fees and expenses............
75,000
Reports to shareholders..................
46,000
Registration fees........................
34,300
Transfer agent's fees and expenses.......
31,400
Audit fee................................
11,000
Legal fees...............................
10,000
Trustees' fees...........................
3,200
Miscellaneous............................
58
-------------
- - --
Total expenses........................
406,679
Less: custodian fee credit...............
(1,478)
-------------
- - --
Net expenses.............................
405,201
-------------
- - --
Net investment income.......................
1,070,606
-------------
- - --
Realized and Unrealized
Gain (Loss) on Investments
Net realized loss on:
Investment transactions..................
(309,670)
Financial futures transactions...........
(81,018)
-------------
- - --
(390,688)
-------------
- - --
Net change in unrealized appreciation on:
Investments..............................
600,914
Financial futures contracts..............
20,687
-------------
- - --
621,601
-------------
- - --
Net gain on investments.....................
230,913
-------------
- - --
Net Increase in Net Assets
Resulting from Operations................... $
1,301,519
-------------
- - --
-------------
- - --
</TABLE>
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended August
31,
in Net Assets 1995 1994
----------- -------
- - ----
<S> <C> <C>
Operations
Net investment income............ $ 1,070,606 $
1,216,366
Net realized gain (loss) on
investment transactions....... (390,688)
193,802
Net change in unrealized
appreciation/
depreciation on investments... 621,601
(1,803,545)
----------- -------
- - ----
Net increase (decrease) in net
assets resulting from
operations.................... 1,301,519
(393,377)
----------- -------
- - ----
Dividends and distributions (Note 1)
Dividends from net investment
income
Class A....................... (292,225)
(57,132)
Class B....................... (778,365)
(1,159,234)
Class C....................... (16)
- - --
----------- -------
- - ----
(1,070,606)
(1,216,366)
----------- -------
- - ----
Distributions from net realized
gains
Class A....................... (3,744)
(6,669)
Class B....................... (82,924)
(189,576)
Class C....................... (1)
- - --
----------- -------
- - ----
(86,669)
(196,245)
----------- -------
- - ----
Series share transactions (net of
share conversions) (Note 5)
Net proceeds from shares sold.... 1,108,621
3,930,513
Net asset value of shares issued
in reinvestment of dividends
and distributions............. 766,339
949,351
Cost of shares reacquired........ (5,509,840)
(4,757,735)
----------- -------
- - ----
Net increase (decrease) in net
assets from Series share
transactions.................. (3,634,880)
122,129
----------- -------
- - ----
Total decrease...................... (3,490,636)
(1,683,859)
Net Assets
Beginning of year................... 25,775,990
27,459,849
----------- -------
- - ----
End of year......................... $22,285,354
$25,775,990
----------- -------
- - ----
----------- -------
- - ----
</TABLE>
- - ------------------------------------------------------------
- - --------------------
6 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements MINNESOTA
SERIES
- - ------------------------------------------------------------
- - --------------------
Prudential Municipal Series Fund (the ``Fund'') is
registered under the
Investment Company Act of 1940 as an open-end investment
company. The Fund was
organized as a Massachusetts business trust on May 18, 1984
and consists of
seventeen series. The monies of each series are invested in
separate,
independently managed portfolios. The Minnesota Series (the
``Series'')
commenced investment operations in October, 1984. The Series
is diversified and
seeks to achieve its investment objective of obtaining the
maximum amount of
income exempt from federal and applicable state income taxes
with the minimum
of
risk by investing in ``investment grade'' tax-exempt
securities whose ratings
are within the four highest ratings categories by a
nationally recognized
statistical rating organization or, if not rated, are of
comparable quality. The
ability of the issuers of the securities held by the Series
to meet their
obligations may be affected by economic 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 and the Series in the preparation of its financial
statements.
Securities Valuations: The Series 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 Trustees.
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.
All securities are valued as of 4:15 P.M., New York time.
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 Series 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 Series 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 Series invests in financial futures contracts in order
to hedge its existing
portfolio securities or securities the Series intends to
purchase, against
fluctuations in value caused by changes in prevailing
interest rates. Should
interest rates move unexpectedly, the Series 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 securities are
calculated on the identified cost basis. Interest income is
recorded on the
accrual basis. The Series amortizes premiums and original
issue discount paid
on
purchases of 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: For federal income tax purposes, each
series in the Fund
is treated as a separate taxpaying entity. It is the intent
of the Series 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
shareholders. For this reason and because substantially all
of the Series' gross
income consists of tax-exempt interest, no federal income
tax provision is
required.
Dividends and Distributions: The Series declares daily
dividends from net
investment income. Payment of dividends are made monthly.
Distributions of net
capital gains, if any, are made annually.
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
- - ------------------------------------------------------------
- - --------------------
7
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements MINNESOTA
SERIES
- - ------------------------------------------------------------
- - --------------------
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 and
employees of the Fund, and 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 1% of the average daily net assets of the
Series. Effective
January 1, 1995, PMF has agreed to waive a portion (.05 of
1% of the Series'
average daily net assets) of its management fee, which
amounted to $7,592 ($.004
per share, .03% of average net assets). The Series 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.
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. Effective August 1, 1995, such expenses under
the Class B and C
Plans were reduced to .10 of 1% of the average daily net
assets of Class B and
C
shares. Such expenses under the Plans were .10 of 1%, .48 of
1% and .62 of 1%
of
the average daily net assets of the Class A, B and C shares,
respectively, for
the year ended August 31, 1995.
PMFD has advised the Series that it has received
approximately $2,000 in
front-end sales charges resulting from sales of Class A
shares during the year
ended August 31, 1995. 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 Series that for the year ended August
31, 1995, it received
approximately $50,000 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 Transactions with Affiliates
Prudential Mutual Fund Services, Inc. (``PMFS''), a wholly-
owned subsidiary of
PMF, serves as the Fund's transfer agent and during the year
ended August 31,
1995, the Series incurred fees of approximately $21,200 for
the services of
PMFS. As of August 31, 1995, approximately $1,700 of such
fees were due to PMFS.
Transfer agent fees and expenses in the Statement of
Operations include certain
out-of-pocket expenses paid to non-affiliates.
- - ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of portfolio securities of the Series,
excluding short-term
investments, for the year ended August 31, 1995, were
$2,116,379 and $6,679,630,
respectively.
The cost basis of investments for federal income tax
purposes at August 31, 1995
was substantially the same as the basis for financial
reporting purposes and,
accordingly, net unrealized appreciation of investments for
federal income tax
purposes was $1,689,783 (gross unrealized appreciation--
$1,705,975; gross
unrealized depreciation--$16,192).
For federal income tax purposes, the Series had a capital
loss carryforward at
August 31, 1995 of approximately $380,845 which expires in
2003. Accordingly,
no
capital gains distributions are expected to be paid to
shareholders until net
gains have been realized in excess of such amount.
- - ------------------------------------------------------------
Note 5. Capital
The Series currently offers Class A, Class B and Class C
shares. Class A shares
are sold with a front-end sales charge of up to 3%. Class B
shares are sold with
a contingent deferred sales charge which declines from 5% to
zero depending on
the period of time the shares are held. Class C shares are
sold with a
contingent deferred sales charge of 1% during the first
year. Class B shares
will automatically convert to Class A shares on a quarterly
basis approximately
seven years after purchase.
- - ------------------------------------------------------------
- - --------------------
8
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements MINNESOTA
SERIES
- - ------------------------------------------------------------
- - --------------------
The Fund has authorized an unlimited number of shares of
beneficial interest of
each class at $.01 par value per share.
Transactions in shares of beneficial interest for the fiscal
years ended August
31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- - ------------------------------------ ---------- --------
- - ----
<S> <C> <C>
Year ended August 31, 1995:
Shares sold......................... 12,462 $
161,863
Shares issued in reinvestment of
dividends and distributions....... 17,312
199,905
Shares reacquired................... (86,796)
(993,426)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................. (57,022)
(631,658)
Shares issued upon conversion from
Class B........................... 848,345
9,631,676
---------- --------
- - ----
Net increase in shares
outstanding....................... 791,323 $
9,000,018
---------- --------
- - ----
---------- --------
- - ----
Year ended August 31, 1994:
Shares sold......................... 57,307 $
690,269
Shares issued in reinvestment of
dividends and distributions....... 4,480
53,440
Shares reacquired................... (23,024)
(272,744)
---------- --------
- - ----
Net increase in shares
outstanding....................... 38,763 $
470,965
---------- --------
- - ----
---------- --------
- - ----
<CAPTION>
Class B
- - ------------------------------------
<S> <C> <C>
Year ended August 31, 1995:
Shares sold......................... 80,539 $
946,157
Shares issued in reinvestment of
dividends and distributions....... 50,255
566,421
Shares reacquired................... (399,534)
(4,516,414)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................. (268,740)
(3,003,836)
Shares reacquired upon conversion
into Class A...................... (848,367)
(9,631,676)
---------- --------
- - ----
Net decrease in shares
outstanding....................... (1,117,107)
$(12,635,512)
---------- --------
- - ----
---------- --------
- - ----
Year ended August 31, 1994:
Shares sold......................... 267,959 $
3,240,044
Shares issued in reinvestment of
dividends and distributions....... 74,796
895,911
Shares reacquired................... (378,895)
(4,484,991)
---------- --------
- - ----
Net decrease in shares
outstanding....................... (36,140) $
(349,036)
---------- --------
- - ----
---------- --------
- - ----
<CAPTION>
Class C Shares
Amount
- - ------------------------------------ ---------- --------
- - ----
<S> <C> <C>
Year ended August 31, 1995:
Shares sold......................... 52 $
601
Shares issued in reinvestment of
dividends and distributions....... 1
13
---------- --------
- - ----
Net increase in shares
outstanding....................... 53 $
614
---------- --------
- - ----
---------- --------
- - ----
August 1, 1994(a) through
August 31, 1994:
Shares sold......................... 17 $
200
---------- --------
- - ----
---------- --------
- - ----
</TABLE>
- - ---------------
(a) Commencement of offering of Class C shares.
- - ------------------------------------------------------------
Note 6. Proposed Reorganization
On July 24, 1995, the Trustees approved an Agreement and
Plan of Reorganization
and Liquidation for the Series (the ``Plan of
Reorganization'') which provides
for the transfer of substantially all of the assets and
liabilities of the
Series to Prudential National Municipals Fund, Inc.
(``National Municipals'').
Class A, Class B and Class C shares of the Series would be
exchanged at net
asset value for Class A, Class B and Class C shares,
respectively, of equivalent
of National Municipals. The Series would then cease
operations.
The Plan requires the approval of shareholders of the Series
to become effective
and a proxy/prospectus was mailed to shareholders in
September 1995. If the Plan
is approved, it is expected that the reorganization will
take place in October
1995. The Series and National Municipals will each bear
their pro rata share of
the costs of the reorganization, including costs of proxy
solicitation.
- - ------------------------------------------------------------
- - --------------------
9
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights MINNESOTA
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class A
- - --------------------------------------------------------
<S> <C>
<C> <C>
<C> <C>
Year Ended August
31,
- - --------------------------------------------------------
1995
1994 1993
1992 1991
--------
- - ------ ------
------ ------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year....... $ 11.56
$12.33 $11.78
$11.40 $10.98
--------
- - ------ ------
------ ------
Income from investment operations
Net investment income.................... .56(a)
.58 .62
.66 .64
Net realized and unrealized gain (loss)
on investment transactions............. .18
(.68) .57
.38 .42
--------
- - ------ ------
------ ------
Total from investment operations....... .74
(.10) 1.19
1.04 1.06
--------
- - ------ ------
------ ------
Less distributions
Dividends from net investment income..... (.56)
(.58) (.62)
(.66) (.64)
Distributions from net realized gains.... (.04)
(.09) (.02)
-- --
--------
- - ------ ------
------ ------
Total distributions.................... (.60)
(.67) (.64)
(.66) (.64)
--------
- - ------ ------
------ ------
Net asset value, end of year............. $ 11.70
$11.56 $12.33
$11.78 $11.40
--------
- - ------ ------
------ ------
--------
- - ------ ------
------ ------
TOTAL RETURN(b):......................... 6.33%
(0.87)% 10.45%
9.38% 9.93%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)............ $ 10,563
$1,287 $894
$402 $229
Average net assets (000)................. $ 6,228
$1,179 $616
$291 $202
Ratios to average net assets:
Expenses, including distribution
fees................................. 1.48%(a)
1.25% 1.29%
1.22% 1.41%
Expenses, excluding distribution
fees................................. 1.38%(a)
1.15% 1.19%
1.11% 1.31%
Net investment income.................. 4.69%(a)
4.84% 5.15%
5.69% 5.73%
Portfolio turnover rate.................. 9%
21% 27%
32% 56%
</TABLE>
- - ---------------
(a) Net of fee waiver.
(b) 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.
- - ------------------------------------------------------------
- - --------------------
10 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights MINNESOTA
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class B
- - ------------------------------------------------------------
Year
Year Ended
August 31, Ended
- - ------------------------------------------------------------
August 31,
1995
1994 1993
1992 1991 1995
<S> <C>
<C> <C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period..... $ 11.56
$ 12.33 $
11.78 $ 11.41 $ 10.98 $11.56
--------
- - -------
- - ------- ------- ------- ------
Income from investment operations
Net investment income.................... .51(a)
.53
.58 .61 .60 .48(a)
Net realized and unrealized gain (loss)
on investment transactions............. .18
(.68)
.57 .37 .43 .18
--------
- - -------
- - ------- ------- ------- ------
Total from investment operations....... .69
(.15)
1.15 .98 1.03 .66
--------
- - -------
- - ------- ------- ------- ------
Less distributions
Dividends from net investment income..... (.51)
(.53)
(.58) (.61) (.60) (.48)
Distributions from net realized gains.... (.04)
(.09)
(.02) -- -- (.04)
--------
- - -------
- - ------- ------- ------- ------
Total distributions.................... (.55)
(.62)
(.60) (.61) (.60) (.52)
--------
- - -------
- - ------- ------- ------- ------
Net asset value, end of period........... $ 11.70
$ 11.56 $
12.33 $ 11.78 $ 11.41 $11.70
--------
- - -------
- - ------- ------- ------- ------
--------
- - -------
- - ------- ------- ------- ------
TOTAL RETURN(b):......................... 5.93%
(1.26)%
9.99% 8.83% 9.64% 5.58%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).......... $ 11,721
$24,489
$26,565 $24,746 $23,600 $820(e)
Average net assets (000)................. $ 17,000
$26,113
$25,387 $24,038 $23,558 $397(e)
Ratios to average net assets:
Expenses, including distribution
fees................................. 1.86%(a)
1.65%
1.69% 1.62% 1.81% 2.00%(a)
Expenses, excluding distribution
fees................................. 1.38%(a)
1.15%
1.19% 1.12% 1.31% 1.38%(a)
Net investment income.................. 4.31%(a)
4.44%
4.75% 5.29% 5.33% 4.17%(a)
Portfolio turnover rate.................. 9%
21%
27% 32% 56% 9%
<CAPTION>
Class C
August 1,
Through
August 31,
1994
-----
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period..... $11.63
-----
Income from investment operations
Net investment income.................... .04
Net realized and unrealized gain (loss)
on investment transactions............. (.07)
-----
Total from investment operations....... (.03)
-----
Less distributions
Dividends from net investment income..... (.04)
Distributions from net realized gains.... --
-----
Total distributions.................... (.04)
-----
Net asset value, end of period........... $11.56
-----
-----
TOTAL RETURN(b):......................... (.38)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).......... $199(e)
Average net assets (000)................. $200(e)
Ratios to average net assets:
Expenses, including distribution
fees................................. 2.15%(c)
Expenses, excluding distribution
fees................................. 1.40%(c)
Net investment income.................. 3.86%(c)
Portfolio turnover rate.................. 21%
</TABLE>
- - ---------------
(a) Net of fee waiver.
(b) 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 return for periods of less than one
full year are not
annualized.
(c) Annualized.
(d) Commencement of offering of Class C shares.
(e) Amounts are actual and not rounded to nearest thousand.
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
11
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Independent Auditors' Report MINNESOTA
SERIES
- - ------------------------------------------------------------
- - --------------------
The Shareholders and Board of Trustees
Prudential Municipal Series Fund, Minnesota Series
We have audited the accompanying statement of assets and
liabilities, including
the portfolio of investments, of Prudential Municipal Series
Fund, Minnesota
Series, as of August 31, 1995, the related statements of
operations for the year
then ended and of changes in 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. These financial statements and financial
highlights are the
responsibility of the Fund's management. Our responsibility
is to express an
opinion on these financial statements and financial
highlights based on our
audits.
We conducted our audits in accordance with generally
accepted auditing
standards. Those standards require that we plan and perform
the audit to obtain
reasonable assurance about whether the financial statements
and financial
highlights are free of material misstatement. An audit
includes examining, on
a
test basis, evidence supporting the amounts and disclosures
in the financial
statements. Our procedures included confirmation of the
securities owned as of
August 31, 1995 by correspondence with the custodian. An
audit also includes
assessing the accounting principles used and significant
estimates made by
management, as well as evaluating the overall financial
statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, such financial statements and financial
highlights present
fairly, in all material respects, the financial position of
Prudential Municipal
Series Fund, Minnesota Series, as of August 31, 1995, the
results of its
operations, the changes in its net assets, and its financial
highlights for the
respective stated periods in conformity with generally
accepted accounting
principles.
DELOITTE & TOUCHE LLP
New York, New York
October 16, 1995
PRUDENTIAL
MUNICIPAL SERIES FUND
Federal Income Tax Information MINNESOTA
SERIES
- - ------------------------------------------------------------
- - --------------------
We are required by the Internal Revenue Code to advise you
within 60 days of the
Series' fiscal year end (August 31, 1995) as to the federal
tax status of
dividends and distributions paid by the Series during such
fiscal year.
Accordingly, we are advising you that in the fiscal year
ended August 31, 1995,
dividends paid from net investment income of $.56 per Class
A share, $.51 per
Class B share and $.48 per Class C shares were all federally
tax-exempt interest
dividends. In addition, the Series paid to both Class A and
B shares a long-term
capital gain distribution of $.04 per share which is taxable
as such.
In January 1996, you will be advised on IRS Form 1099 DIV or
substitute 1099 DIV
as to the federal tax status of the distributions received
by you in calendar
year 1995.
- - ------------------------------------------------------------
- - --------------------
12
<PAGE>
Getting The Most From Your Prudential Mutual Fund
When you invest through Prudential Mutual Funds, you receive
financial advice
through a Prudential Securities financial advisor or
Prudential/Pruco
Securities registered representative. Your advisor or
representative can
provide you with the following services.
- - ------------------------------------------------------------
- - -------------------
There's No Reward Without Risk; But Is This Risk Worth It?
Your financial adviser or registered representative can help
you match the
reward you seek with the risk you can tolerate. And risk can
be difficult to
gauge -- sometimes even the simplest investments bear
surprising risks. The
educated investor knows that markets seldom move in just one
direction -- there
are times when a market sector or asset class will lose
value or provide little
in the way of total return. Managing your own expectations
is easier with help
from someone who understands the markets and who knows you!
- - ------------------------------------------------------------
- - -------------------
Keeping Up With The Joneses.
A financial adviser or registered representative can help
you wade through the
numerous mutual funds available to find the ones that fit
your own individual
investment profile and risk tolerance. While the newspapers
and popular
magazines are full of advice about investing, they are aimed
at generic groups
of people or representative individuals, not at you
personally. Your financial
advisor or registered representative will review your
investment objectives
with you. This means you can make financial decisions based
on the assets and
liabilities in your current portfolio and your risk
tolerance -- not just
based on the current investment fad.
- - ------------------------------------------------------------
- - -------------------
Buy Low, Sell High.
Buying at the top of a market cycle and selling at the
bottom are among the
most common investor mistakes. But sometimes it's difficult
to hold on to an
investment when it's losing value every month. Your
financial adviser or
registered representative can answer questions when you're
confused or worried
about your investment, and remind you that you're investing
for the long haul.
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
(LOGO)
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy Hays Teeters
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Grace Torres, Treasurer
S. Jane Rose, Secretary
Stephen M. Ungerman, Assistant Treasurer
Deborah A. Docs, Assistant 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
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
This report is not authorized for distribution to
prospective investors unless
preceded or accompanied by a current prospectus.
74435M697
74435M713
74435M549
(ICON)
Prudential
Municipal
Series Fund
North Carolina Series
ANNUAL REPORT
AUG. 31, 1995
(LOGO)
Prudential Municipal Series Fund
North Carolina Series
Performance At A Glance.
It has been a good year for shareholders of the Prudential
Municipal Series
Fund: North Carolina Series. Municipal bond investors not
only earned their
coupon income, but also saw a gain in net asset value as
well. Although returns
are favorable, your fund lagged the average North Carolina
municipal bond fund
measured by Lipper Analytical Services because its average
maturity was shorter
that its peers.
<TABLE>
<CAPTION>
Cumulative Total Returns1
As of 8/31/95
One Five Ten
Since
Year Years Years
Inception2
<S> <C> <C> <C>
<C>
Class A 6.9% 45.1% N/A
48.1%
Class B 6.4 42.2 107.5%
116.9
Class C 6.2 N/A N/A
6.2
Lipper NC Muni Avg3 7.1 44.3 113.2
130.2
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns1
As of 9/30/95
One Five Ten
Since
Year Years Years
Inception2
<S> <C> <C> <C>
<C>
Class A 6.2% 7.2% N/A
6.7%
Class B 4.0 7.3 7.8%
7.6
Class C 7.7 N/A N/A
5.7
</TABLE>
<TABLE>
<CAPTION>
Your
Dividend
As of 8/31/95 Taxable
Equivalent Yield
Total Dividends 30-Day At
Tax Rates Of
Paid for 12 Mos. SEC Yield
36% 39.6%
<S> <C> <C> <C>
<C>
Class A $0.60 4.67%
7.91% 8.38%
Class B $0.55 4.43 7.50
7.95
Class C $0.52 4.18 7.08
6.50
</TABLE>
Past performance is not a guarantee of future results.
Principal and investment
return will fluctuate so that an investor's shares, when
redeemed, may be
worth more or less than their original cost.
1Source: Prudential Mutual Fund Management and Lipper
Analytical Services.
The cumulative total returns do not take into account sales
charges. The average
annual returns do take into account applicable sales
charges. The Series
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. Class B shares
automatically convert to Class A shares on a quarterly
basis, after
approximately seven years.
2Inception dates: 1/22/90 for Class A; 2/13/85 for Class B;
and 8/1/94
for Class C.
3The Lipper North Carolina Municipal Bond fund average
includes 27 funds for
one year, six funds for five years, two funds for 10 years
and two funds
since inception of the Class B shares on 2/13/85.
How Investments Compared.
(As of 8/31/95)
(Chart)
Source: Lipper Analytical Services.
Financial markets change, so a mutual fund's past
performance should never be
used to predict future results. The risks to each of the
investments listed
above are different -- we provide 12-month total returns for
several Lipper
mutual fund categories to show you that reaching for higher
yields means
tolerating more risk. The greater the risk, the larger the
potential reward
or loss. In addition, we've added historical 20-year average
annual returns.
These returns assume the reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Smaller
capitalization stocks
offer greater potential for long-term growth but may be more
volatile than
larger capitalization stocks. Investors receive higher
historical total
returns from stocks than from most other investments.
General Bond Funds provide more income than stock funds,
which can help smooth
out their total returns year by year. But their prices still
fluctuate
(sometimes a good deal) and their returns are historically
lower than those of
stock funds.
General Municipal Debt Funds invest in bonds issued by state
governments,
state agencies and/or municipalities. This investment
provides income that
is usually exempt from federal and state income taxes. (20-
year returns are
not available.)
Money Market Funds attempt to preserve a constant share
value; they don't
fluctuate much in price but their returns are generally
among the lowest of
the major investment categories.
*19 years for General Muni Debt Funds.
<PAGE>
Marie Conti, Fund Manager
(PICTURE)
Portfolio
Manager's Report
The Series invests in carefully selected long-term municipal
bonds that offer
a high level of current income exempt from North Carolina
State and federal
income taxes consistent with preservation of capital.
Certain shareholders may
be subject to the federal alternative minimum tax, however.
The Series invests
primarily in obligations of North Carolina state, municipal
and local
governments, including U.S. territories (such as Puerto
Rico, the U.S. Virgin
Islands and Guam), the income of which is also exempt from
North Carolina
state and federal income taxes.
Manager Named.
Marie Conti was appointed portfolio manager of the
Prudential Municipal Series
Fund: North Carolina Series in May. Marie manages more than
$700 million in
municipal portfolios, including the Prudential Municipal
Bond Fund/Intermediate
Series.
Strategy Session.
It has been a positive year for tax-free municipal bonds.
Although interest
rates rose sharply in 1994 on inflation fears, they have
tumbled back down
slowly this year, as economic growth slowed. The Bond Buyer
Revenue Bond
Index Yield stood at 6.4% on September 1, 1994 (the index is
calculated on
Thursdays), and rose by a percentage point to a high of 7.4%
in
mid-October 1994, before falling to 6.3% on August 31, 1995.
As you can see,
when the dust had settled, long-term municipal bond interest
rates ended the
period lower.
Sector Breakdown
(Chart)
We found value by increasing our holdings in general
obligation bonds (to 42%
from 29% of net assets) because they are easier to trade in
volatile markets.
We have also sold off our holdings in bonds backed by
leases. In addition, we
have been buying more insured bonds, bonds with longer
maturities and discount
coupons (lower than the prevailing market), and some zero
coupon bonds,
because these are more likely to appreciate more if interest
rates fall as we
expect.
State Of The State.
North Carolina's economy continues to diversify into
financial services,
research, and high technology, and away from tobacco and
textiles.
Unemployment last year was one and a half percentage points
below the national
average. Job growth in the high tech sector here grew 5.2%
last year, and
housing and construction employment grew by 6.4%. North
Carolina's Research
Triangle is rapidly becoming the Silicon Valley of the East
as companies like
IBM, AT&T and Northern Telecom move workers there.
The state government is fiscally frugal. It ended fiscal
1994 with $1.4
billion in revenues, 10% more than expenditures. The state
has replenished
its reserves, reduced its state income tax, and eliminated
the intangibles
tax on investors.
<PAGE>
What Went Well.
We Held On
To Good Yields.
We increased assets invested in non-callable bonds (those
that can not be
paid off prematurely by the issuer to save on interest
costs) to 17%, up from
16% a year ago. These bonds not only offer attractive yields
but also
appreciate well when interest rates decline. They are
valuable because not many
bonds offer protection from call risk -- only about a third
of the securities
in the Lehman Brothers' Municipal Bond Index are non-
callable.
It Paid To Buy
Puerto Rico Bonds.
The supply of new municipal bonds has declined sharply in
North Carolina, by
56% this year alone. So we looked elsewhere. We bought bonds
issued by
Puerto Rico, because they are tax-exempt federally and in
virtually all
states, including North Carolina. As a result, they are in
demand. Our
holdings in Puerto Rico are now 13% of assets.
And Not So Well.
A Longer Duration
Would Have Helped.
Duration measures the sensitivity of a bond's price to
interest rate changes.
The longer the duration, the more a bond's price appreciates
when interest
rates fall and vice versa. Over the winter, our duration was
shorter than that
of some competing funds, because we expected economic growth
to remain strong.
As the slowdown became apparent in the second quarter, we
extended duration.
Duration generally ranged from 7.1 years to 7.6 years, and
was 7.6 years
on August 31.
Municipals Suffered
From Tax Talk.
Congress is considering various changes in the federal
income tax, including a
flat tax -- an income tax at a single, flat rate. One
proposal would eliminate
taxes on most investment income. Clearly, this has created
uncertainty in the
municipal market -- one reason why municipal bonds did not
follow taxable bond
prices higher this spring.
At this writing, we believe it is unlikely that a flat tax
proposal in this
form is likely to pass Congress -- especially not before
next year's election.
Five Largest
Holdings.*
10.5% North Carolina State
Eastern Mun. Pwr. Agcy.
8.5% Puerto Rico
General Obligation
7.3% Charlotte
Convention Center
6.1% North Carolina State
Mun. Pwr. Agcy.: Catawba
3.8% Charlotte Water & Sewer
* Expressed as a percentage of total net assets as of
8/31/95.
Looking Ahead.
Municipal bond yields are very attractive now. As we
mentioned earlier, when
U.S. government and corporate bond yields fell this spring,
municipal yields
did not follow to the same extent. That means there are some
very good buying
opportunities now in the municipal market.
Should interest rates remain stable, investors may look
forward to earning
their coupon. Plus, if interest rates fall further,
municipal bond investors
could reasonably expect some price appreciation as well.
Nevertheless, municipal bond investors should be prepared to
weather some
volatility this year as various proposals to change the
country's income
tax structure are proposed and debated. Overall, we believe
municipal bonds
still offer good value, and that volatility can offer some
attractive buying
opportunities.
1
<PAGE>
President's Letter
October 11, 1995
(PICTURE)
Dear Shareholder:
We hope you like the fresh look and information we've given
your shareholder
letter. We've also introduced another feature, called
Getting the Most Out of
Your Prudential Mutual Fund, which will appear from time to
time at the back
of your report. Look for topics like "Understanding Risk &
Reward" as well as
easy-to-understand explanations of financial terms. Why are
we providing such
information? Because at Prudential Mutual Funds, we believe
an informed
investor makes smart investment decisions.
On the Hill
As an informed investor, you should know about the "American
Dream Savings
Account" that is part of the federal budget package now
under debate in the
Senate. It is a type of Individual Retirement Account that
offers a
common-sense approach to long-term saving. Investors should
like it because --
- - - You can withdraw funds -- without penalty -- to pay for
certain expenses
like buying a first home, medical care or educational needs;
- - - All account earnings would accumulate tax-free, not merely
tax-deferred like
the current IRA;
- - - You can make contributions past age 70 1/2, instead of
having to take
distributions as the current law requires.
Of course, the federal budget process is never easy and
while we hope this
measure is adopted, there's no way of knowing if it will be.
So why not let
your Senator and/or Representative know your opinion today?
Simply call 202-224-3121.
In Closing
One final note: if you're a Class B shareholder of
Prudential Mutual
Funds, you'll begin noticing a change on your statements
once you've held your
shares for seven years. At that time, they will
automatically begin to convert
to Class A shares on a quarterly basis. Since Class A shares
carry lower annual
distribution charges than Class B shares, your total returns
will be higher
after the conversion than they would have been without it.
Conversions started
earlier this year and beginning in December they will take
place during each
calendar quarter -- December, March, June and September.
It's our way of
thanking you for your loyalty -- and rewarding you for
maintaining a long-term
investment program by helping you earn more total investment
return on your
Prudential Mutual Fund. I hope you'll find this information
useful as you
work with your financial advisor or registered
representative to develop your
personal investment plan.
Thank you for choosing Prudential Mutual Funds for your
mutual fund investment.
Sincerely,
Richard A. Redeker
President
2
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Portfolio of Investments as of August 31, 1995 NORTH
CAROLINA SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
LONG-TERM INVESTMENTS--93.7%
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
Buncombe Cnty., Pub. Impvt. Bonds,
Aa
6.90% 3/01/09 $ 1,000 (d) $ 1,101,560
City of Greensboro Enterprise Sys. Rev., Comb Ser. A
A1
5.30 6/01/15 1,000 932,660
Charlotte, Cert. of Part.,
Conv. Fac. Proj., A.M.B.A.C.
Aaa
Zero 12/01/09 3,000 1,330,050
Conv. Fac. Proj., A.M.B.A.C.
Aaa
5.00 12/01/21 4,000 3,561,040
Charlotte Mecklenberg Hosp., Hlth. Care Sys. Rev.,
Aa
6.25 1/01/20 750 763,553
Charlotte Wtr. & Swr.,
Aaa
6.20 6/01/17 1,500 1,546,530
Charlotte Wtr. & Swr.,
Aaa
5.90 2/01/19 1,000 1,019,110
Cleveland Cnty., Ser. 1993, F.G.I.C.
Aaa
5.10 6/01/07 2,500 2,493,225
Concord Util. Sys. Rev., M.B.I.A.
Aaa
5.50 12/01/14 1,000 978,990
Dare Cnty., Util. Sys. Rev., M.B.I.A.
Aaa
5.75 6/01/14 500 495,415
Davidson Cnty.
Aa
5.40 6/01/14 800 768,936
Durham Cnty., Pub. Impvt.,
Aaa
4.60 5/01/04 2,000 1,974,540
Fayetteville, Cert. of Part., San. Swr. & Pub. Impvt.,
A.M.B.A.C.
Aaa
6.875 12/01/08 1,750 1,891,925
Gastonia, Gen. Oblig., Wtr. Sys. & St. Impvt., F.G.I.C.
Aaa
5.25 4/01/09 1,625 1,597,066
Guilford Cnty., Pub. Impvt.,
Aa1
5.40 4/01/09 500 505,735
Lincoln Cnty. Gen. Oblig., Ref., F.G.I.C.
Aaa
5.10 6/01/09 1,170 1,136,140
Martin Cnty. Ind. Facs. & Poll. Ctrl. Fin. Auth. Rev.,
Weyerhaueser Co. Proj.,
A2
8.50 6/15/99 200 228,156
Mecklenberg Cnty., Pub. Impvt.,
Aaa
5.00 4/01/08 1,000 988,000
New Hanover Cnty. Hosp. Rev., Regl. Med. Ctr. Proj.,
A.M.B.A.C.
Aaa
4.75 10/01/23 1,600 1,328,048
No. Carolina Eastn. Mun. Pwr. Agcy.,
Pwr. Sys. Rev., A.M.B.A.C.
Aaa
6.00 1/01/18 1,000 1,018,470
Pwr. Sys. Rev., E.T.M.
Aaa
6.50 1/01/18 1,995 2,200,326
Pwr. Sys. Rev.,
A
6.50 1/01/18 1,005 1,004,879
Pwr. Sys. Rev.,
Aaa
6.00 1/01/26 650 (d) 676,351
Pwr. Sys. Rev., Ser. A
A
6.40 1/01/21 1,000 987,530
Pwr. Sys. Rev., Ser. A, A.M.B.A.C.
Aaa
7.625 1/01/22 1,000 (d) 1,097,660
No. Carolina Gen. Oblig. Cap. Impvt., Ser. A
Aaa
4.70 2/01/10 1,200 1,104,108
No. Carolina Hsg. Fin. Agcy., Sngl. Fam. Mtge. Rev., Ser. G
Aa
7.80 3/01/21 790 843,309
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
3 -----
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Portfolio of Investments as of August 31, 1995 NORTH
CAROLINA SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
No. Carolina Med. Care Comn., Hlth. Care Facs. Rev.,
Stanley Mem. Hosp. Proj.,
Baa1
7.80% 10/01/19 $ 650 $ 686,719
No. Carolina Med. Care Comn., Hosp. Rev.,
Alamance Hlth. Serv. Inc., F.S.A.
Aaa
5.50 8/15/24 2,000 1,876,340
Annie Pen Mem. Hosp. Proj.,
Baa
7.50 8/15/21 1,000 1,028,880
Baptist Hosp. Proj.,
Aa
6.00 6/01/22 1,000 981,600
Carolina Medicorp Proj.,
Aa
6.00 5/01/21 1,500 1,500,555
Rex Hosp. Proj.,
A1
6.25 6/01/17 1,750 1,797,985
Scotland Mem. Hosp., Ser. 88
Baa
8.625 10/01/11 1,000 (d) 1,140,180
No. Carolina Mun. Pwr. Agcy.,
No. 1 Catawba Elec. Rev.,
A
5.25 1/01/09 1,000 955,580
No. 1 Catawba Elec. Rev., M.B.I.A.
Aaa
6.00 1/01/10 1,250 1,302,475
No. 1 Catawba Elec. Rev., M.B.I.A.
Aaa
6.72 1/01/12 2,000 (e) 1,810,000
Northern Hosp. Dist. Surry Cnty. Hlth. Care Facs. Rev.,
No. Carolina Hosp.,
Ba1
7.875 10/01/21 1,500 1,568,085
Piedmont Triad Arpt. Auth., M.B.I.A.
Aaa
5.00 7/01/16 1,000 895,540
Puerto Rico Comnwlth.,
Ser. A, M.B.I.A.
Aaa
6.25 7/01/10 1,240 1,301,603
Gen. Oblig., M.B.I.A.
Aaa
5.50 7/01/13 1,750 1,701,438
Gen. Oblig., F.S.A.
Aaa
7.723 7/01/20 1,300 (e) 1,272,375
Pub. Impt., M.B.I.A.
Aaa
5.375 7/01/22 1,520 1,420,744
Puerto Rico Hsg. Fin. Corp., Sngl. Fam. Mtge. Rev.,
Ser. 1-B, G.N.M.A.
Aaa
7.65 10/15/22 665 708,943
Puerto Rico Ind. Med. & Environ. Poll. Ctrl. Facs.,
Upjohn Co. Proj.,
Aa3
7.50 12/01/23 500 554,905
Puerto Rico Tel. Auth. Rev., Ser. I, M.B.I.A.
Aaa
6.617 1/25/07 1,000 (e) 996,250
Robeson Cnty.,
Aaa
7.80 6/01/09 500 d)(f) 557,655
Union Cnty. Wtr. & Swr., Solid Waste Rev.,
A1
6.50 4/01/07 850 912,653
Univ. of Puerto Rico Sys. Rev., Ser. M, M.B.I.A.
Aaa
5.25 6/01/25 1,000 914,470
Virgin Islands Pub. Fin. Auth. Rev.,
Hwy. Trans. Trust Fund, Ser. A,
NR
7.25 10/01/18 700 738,472
Virgin Islands Terr., Hugo Ins. Claims Fund Proj., Ser. 91,
NR
7.75 10/01/06 440 479,459
Wake Cnty. Hosp. Rev., M.B.I.A.
Aaa
5.125 10/01/26 1,500 1,340,085
Winston Salem, Sngl. Fam. Mtge. Rev.,
A1
8.00 9/01/07 445 466,169
-----------
Total long-term investments (cost $60,882,863)
62,482,472
-----------
</TABLE>
- - ------------------------------------------------------------
- - --------------------
- - ----- 4 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Portfolio of Investments as of August 31, 1995 NORTH
CAROLINA SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
SHORT-TERM INVESTMENTS--5.2%
Halifax Cnty. Ind. Facs. & Poll. Ctrl.,
Westmoreland L.G. & E. Partners, Ser. 93, F.R.D.D.
A-1(c)
3.65% 9/01/95 $ 2,600 $ 2,600,000
Westmoreland-Hadson Roano, Ser. 91, F.R.D.D.
CPS1
3.70 9/01/95 600 600,000
Puerto Rico Comnwlth., Gov't. Dev. Bank., Ser. 85, F.R.W.D.
VMIG1
3.20 9/06/95 300 300,000
-----------
Total short-term investments (cost $3,500,000)
3,500,000
-----------
Total Investments--98.9%
(cost $64,382,863)
65,982,472
Other assets in excess of liabilities--1.1%
708,959
-----------
Net Assets--100%
$66,691,431
-----------
-----------
</TABLE>
- - ---------------
(a) The following abbreviations are used in portfolio
descriptions:
A.M.B.A.C.--American Municipal Bond Assurance
Corporation.
E.T.M..--Escrowed to Maturity.
F.G.I.C.--Financial Guaranty Insurance Association.
F.R.D.D.--Flating Rate (Daily) Demand Note (b).
F.R.W.D.--Floating Rate (Weekly) Demand Note (b).
F.S.A.--Financial Security Assurance.
G.N.M.A.--Government National Mortgage Association.
M.B.I.A.--Municipal Bond Insurance Association.
<TABLE>
<C> <S>
(b) For purposes of amortized cost valuation, the maturity
date of these
securities are 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.
(c) Standard & Poor's Rating.
(d) Prerefunded issues are secured by escrowed cash and/or
direct U.S.
guaranteed obligations.
(e) Inverse floating rate bond. The coupon is inversely
indexed to a floating
interest rate. The rate shown is the rate at
period end.
(f) Entire principal amount pledged as initial margin on
financial futures
contracts.
</TABLE>
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information
contains a description
of
Moody's and Standard & Poor's ratings.
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
5 -----
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Statement of Assets and Liabilities NORTH
CAROLINA SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<S>
<C>
Assets
August 31, 1995
Investments, at value (cost
$64,382,863)................................................
.................
..... $65,982,472
Interest
receivable..................................................
.................
........................ 973,437
Deferred expenses and other
assets......................................................
.................
..... 2,390
-----------
Total
assets......................................................
.................
........................ 66,958,299
-----------
Liabilities
Bank
overdraft...................................................
.................
............................ 35,206
Payable for Fund shares
reacquired..................................................
.................
......... 107,106
Dividends
payable.....................................................
.................
....................... 34,673
Due to
Manager.....................................................
.................
.......................... 25,233
Accrued
expenses....................................................
.................
......................... 23,472
Due to broker-variation
margin......................................................
.................
......... 20,313
Due to
Distributors................................................
.................
.......................... 19,265
Deferred Trustees'
fees........................................................
.................
.............. 1,600
-----------
Total
liabilities.................................................
.................
........................ 266,868
-----------
Net
Assets......................................................
.................
............................. $66,691,431
-----------
-----------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
.............
$ 59,607
Paid-in capital in excess of
par.........................................................
..................
64,482,173
-----------
64,541,780
Accumulated net realized gain on
investments.................................................
..............
497,855
Net unrealized appreciation on
investments.................................................
................
1,651,796
-----------
Net assets, August 31,
1995........................................................
.................
.......... $66,691,431
-----------
-----------
Class A:
Net asset value and redemption price per share
($26,518,740 / 2,370,820 shares of beneficial interest
issued and
outstanding).......................... $11.19
Maximum sales charge (3% of offering
price)......................................................
..........
.35
-----------
Maximum offering price to
public......................................................
.................
.... $11.54
-----------
-----------
Class B:
Net asset value, offering price and redemption price per
share
($40,119,072 / 3,585,058 shares of beneficial interest
issued and
outstanding).......................... $11.19
-----------
-----------
Class C:
Net asset value, offering price and redemption price per
share
($53,619 / 4,791 shares of beneficial interest issued
and
outstanding)..................................
$11.19
-----------
-----------
</TABLE>
- - ------------------------------------------------------------
- - --------------------
- - ----- 6 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NORTH CAROLINA SERIES
Statement of Operations
- - ------------------------------------------------------------
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income August 31,
1995
<S> <C>
Income
Interest................................. $ 4,291,640
-------------
- - --
Expenses
Management fee, net waiver of $22,350.... 313,847
Distribution fee--Class A................ 15,244
Distribution fee--Class B................ 259,815
Distribution fee--Class C................ 241
Custodian's fees and expenses............ 90,000
Reports to shareholders.................. 56,000
Transfer agent's fees and expenses....... 42,000
Registration fees........................ 36,000
Audit fee................................ 11,000
Legal fees............................... 10,000
Trustee's Fees........................... 3,200
Miscellaneous............................ 11,614
-------------
- - --
Total expenses........................ 848,961
Less: custodian fee credit...............
(8,596)
-------------
- - --
Net expenses.......................... 840,365
-------------
- - --
Net investment income....................... 3,451,275
-------------
- - --
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions.................. 914,738
Financial futures contract
transactions..........................
(239,013)
-------------
- - --
675,725
-------------
- - --
Net change in unrealized
appreciation/depreciation on:
Investments..............................
(172,563)
Financial futures contract............... 42,188
-------------
- - --
(130,375)
-------------
- - --
Net gain on investments..................... 545,350
-------------
- - --
Net Increase in Net Assets
Resulting from Operations................... $ 3,996,625
-------------
- - --
-------------
- - --
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
NORTH CAROLINA SERIES
Statement of Changes in Net Assets
- - ------------------------------------------------------------
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended August
31,
<S> <C> <C>
in Net Assets 1995 1994
Operations
Net investment income........... $ 3,451,275 $
3,711,296
Net realized gain on investment
transactions................. 675,725
276,064
Net change in unrealized
appreciation/depreciation of
investments.................. (130,375)
(5,436,522)
----------- --------
- - ----
Net increase (decrease) in net
assets resulting from
operations................... 3,996,625
(1,449,162)
----------- --------
- - ----
Dividends and distributions (Note
1):
Dividends from net investment
income
Class A...................... (800,554)
(109,844)
Class B...................... (2,649,245)
(3,601,431)
Class C...................... (1,476)
(21)
----------- --------
- - ----
(3,451,275)
(3,711,296)
----------- --------
- - ----
Distributions from net realized
gains
Class A...................... --
(33,123)
Class B...................... --
(1,379,190)
----------- --------
- - ----
--
(1,412,313)
----------- --------
- - ----
Series share transactions (net of
share conversions) (Note 5):
Net proceeds from shares sold... 4,576,741
9,251,532
Net asset value of shares issued
in reinvestment of dividends
and distributions............ 1,814,783
2,641,848
Cost of shares reacquired....... (11,959,150)
(10,898,454)
----------- --------
- - ----
Net increase (decrease) in net
assets from Series share
transactions................. (5,567,626)
994,926
----------- --------
- - ----
Total decrease..................... (5,022,276)
(5,577,845)
Net Assets
Beginning of year.................. 71,713,707
77,291,552
----------- --------
- - ----
End of year........................ $66,691,431 $
71,713,707
----------- --------
- - ----
----------- --------
- - ----
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
7 -----
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements NORTH
CAROLINA SERIES
- - ------------------------------------------------------------
- - --------------------
Prudential Municipal Series Fund (the ``Fund'') is
registered under the
Investment Company Act of 1940, as an open-end investment
company. The Fund was
organized as a Massachusetts business trust on May 18, 1984
and consists of
seventeen series. The monies of each series are invested in
separate,
independently managed portfolios. The North Carolina Series
(the ``Series'')
commenced investment operations in February, 1985. The
Series is diversified and
seeks to achieve its investment objective of obtaining the
maximum amount of
income exempt from federal and applicable state income taxes
with the minimum
of
risk by investing in ``investment grade'' tax-exempt
securities whose ratings
are within the four highest ratings categories by a
nationally recognized
statistical rating organization or, if not rated, are of
comparable quality. The
ability of the issuers of the securities held by the Series
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, and the Series, 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 Trustees.
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.
All securities are valued as of 4:15 P.M., New York time.
Financial Futures Contracts: A financial futures contract is
an agreement to
purchase (long) or sell (short) an agreed amount of debt
securities at a set
price for delivery on a future date. Upon entering into a
financial futures
contract, the Series 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 Series
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 until the contracts expire or are
closed, at which time
the gain or loss is reclassified to realized gain or loss.
The Series invests
in
financial futures contracts solely for the purpose of
hedging its existing
portfolio securities, or securities the Series intends to
purchase against
fluctuations in value caused by changes in prevailing market
conditions. Should
market conditions move unexpectedly, the Series 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 securities are
calculated on the identified cost basis. Interest income is
recorded on the
accrual basis. The Series amortizes premiums and original
issue discount paid
on
purchases of 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: For federal income tax purposes, each
series in the Fund
is treated as a separate taxpaying entity. It is the intent
of the Series 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
shareholders. For this reason and because substantially all
of the Series' gross
income consists of tax-exempt interest, no federal income
tax provision is
required.
Dividends and Distributions: The Series declares daily
dividends from net
investment income. Payment of dividends is made monthly.
Distributions of net
capital gains, if any, are made annually.
Income distributions and capital gain distributions are
determined in accordance
with income tax regulations which may differ from generally
accepted accounting
principles. These differences are primarily due to differing
treatments for
short-term capital gains and market discount.
- - ------------------------------------------------------------
- - --------------------
- - ----- 8
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements NORTH
CAROLINA SERIES
- - ------------------------------------------------------------
- - --------------------
- - ------------------------------------------------------------
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 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 PMF is computed daily and payable
monthly, at an annual
rate of .50 of 1% of the average daily net assets of the
Series. Effective
January 1, 1995, PMF has agreed to waive a portion (.05 of
1% of the Series'
average daily net assets) of its management fee, which
amounted to $22,350
($0.004 per share for Class A, B and C shares; .033% of
average net assets). The
Series 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.
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 year ended August 31, 1995.
PMFD has advised the Series that it has received
approximately $12,600 in
front-end sales charges resulting from sales of Class A
shares during the year
ended August 31, 1995. 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 Series that for the year ended August
31, 1995, it received
approximately $97,900 and $100 in contingent deferred sales
charges imposed upon
certain redemptions by Class B and Class C shareholders,
respectively.
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 Transactions with Affiliates
Prudential Mutual Fund Services, Inc. (``PMFS''), a wholly-
owned subsidiary of
PMF, serves as the Fund's transfer agent and during the year
ended August 31,
1995, the Series incurred fees of approximately $28,400 for
the services of
PMFS. As of August 31, 1995, approximately $2,300 of such
fees were due to PMFS.
Transfer agent fees and expenses in the Statement of
Operations include certain
out-of-pocket expenses paid to non-affiliates.
- - ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of portfolio securities of the Series,
excluding short-term
investments, for the year ended August 31, 1995 were
$18,001,985 and
$27,107,030, respectively.
The cost basis of investments for federal income tax
purposes is substantially
the same as for financial reporting purposes and,
accordingly, as of August 31,
1995, net unrealized appreciation for federal income tax
purposes was $1,599,609
(gross unrealized appreciation--$2,305,476; gross unrealized
depreciation--$705,867).
As of August 31, 1995, the Series sold 500 financial futures
contracts on the
Municipal Bond Index expiring in September 1995. The value
at disposition of
such contracts is $5,774,062. The value of such contracts on
August 31, 1995 was
$5,721,875, thereby resulting in an unrealized gain of
$52,187.
- - ------------------------------------------------------------
Note 5. Capital
The Series currently offers Class A, Class B and Class C
shares. Class A shares
are sold with a front-end sales charge of up to 3.0%. Class
B shares are sold
with a contingent deferred sales charge which declines from
5% to zero depending
on the period of time the shares are held. Class C shares
are sold with a
contingent deferred sales charge of 1% during the
- - ------------------------------------------------------------
- - --------------------
9 -----
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements NORTH
CAROLINA SERIES
- - ------------------------------------------------------------
- - --------------------
first year. Class B shares will automatically convert to
Class A shares on a
quarterly basis approximately seven years after purchase.
The Fund has authorized an unlimited number of shares of
beneficial interest of
each class at $.01 par value per share.
Transactions in shares of beneficial interest for the fiscal
years ended August
31, 1995 and 1994, were as follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- - ------------------------------------ ---------- --------
- - ----
<S> <C> <C>
Year ended August 31, 1995:
Shares sold......................... 101,495 $
1,107,658
Shares issued in reinvestment of
dividends......................... 40,041
444,345
Shares reacquired................... (219,838)
(2,440,629)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................. (78,302)
(888,626)
Shares issued upon conversion from
Class B........................... 2,245,102
24,527,190
---------- --------
- - ----
Net increase in shares
outstanding....................... 2,166,800 $
23,638,564
---------- --------
- - ----
---------- --------
- - ----
Year ended August 31, 1994:
Shares sold......................... 81,115 $
947,875
Shares issued in reinvestment of
dividends and distributions....... 8,558
98,262
Shares reacquired................... (33,172)
(382,692)
---------- --------
- - ----
Net increase in shares
outstanding....................... 56,501 $
663,445
---------- --------
- - ----
---------- --------
- - ----
<CAPTION>
Class B
- - ------------------------------------
<S> <C> <C>
Year ended August 31, 1995:
Shares sold......................... 313,714 $
3,421,366
Shares issued in reinvestment of
dividends......................... 126,657
1,369,272
Shares reacquired................... (889,076)
(9,511,942)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................. (448,705)
(4,721,304)
Shares reacquired upon conversion
into Class A...................... (2,245,029)
(24,527,190)
---------- --------
- - ----
Net decrease in shares
outstanding....................... (2,693,734)
$(29,248,494)
---------- --------
- - ----
---------- --------
- - ----
Year ended August 31, 1994:
Shares sold......................... 711,751 $
8,293,464
Shares issued in reinvestment of
dividends and distributions....... 220,668
2,543,573
Shares reacquired................... (920,864)
(10,515,762)
---------- --------
- - ----
Net increase in shares
outstanding....................... 11,555 $
321,275
---------- --------
- - ----
---------- --------
- - ----
<CAPTION>
Class C Shares
Amount
- - ------------------------------------
<S> <C> <C>
---------- --------
- - ----
Year ended August 31, 1995:
Shares sold......................... 4,353 $
47,717
Shares issued in reinvestment of
dividends......................... 105
1,166
Shares reacquired................... (592)
(6,579)
---------- --------
- - ----
Net increase in shares
outstanding....................... 3,866 $
42,304
---------- --------
- - ----
---------- --------
- - ----
August 1, 1994* through
August 31, 1994:
Shares sold......................... 924 $
10,193
Shares issued in reinvestment of
dividends......................... 1
13
---------- --------
- - ----
Net increase in shares
outstanding....................... 925 $
10,206
---------- --------
- - ----
---------- --------
- - ----
- - ------------------
* Commencement of offering of Class C shares.
</TABLE>
- - ------------------------------------------------------------
- - --------------------
- - ----- 10
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights NORTH
CAROLINA SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class
A
- - ---------------------------------------------------
<S> <C>
<C> <C>
<C> <C>
Year Ended
August 31,
- - ---------------------------------------------------
1995
1994 1993
1992 1991
<CAPTION>
-------
- - ------ ------
------ ------
<S> <C>
<C> <C>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............ $ 11.06
$12.04 $11.37
$10.86 $10.45
-------
- - ------ ------
------ ------
Income from investment operations
Net investment income......................... .60(a)
.61 .65
.67 .67
Net realized and unrealized gain (loss) on
investment transactions..................... .13
(.76) .67
.51 .41
-------
- - ------ ------
------ ------
Total from investment operations............ .73
(.15) 1.32
1.18 1.08
-------
- - ------ ------
------ ------
Less distributions
Dividends from net investment income.......... (.60)
(.61) (.65)
(.67) (.67)
Distributions from net realized gains......... --
(.22) --
-- --
-------
- - ------ ------
------ ------
Total distributions......................... (.60)
(.83) (.65)
(.67) (.67)
-------
- - ------ ------
------ ------
Net asset value, end of year.................. $ 11.19
$11.06 $12.04
$11.37 $10.86
-------
- - ------ ------
------ ------
-------
- - ------ ------
------ ------
TOTAL RETURN(b):.............................. 6.86%
(1.35)% 11.99%
11.12% 10.63%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................. $26,519
$2,256 $1,777
$ 917 $ 362
Average net assets (000)...................... $15,244
$2,067 $1,316
$ 612 $ 246
Ratios to average net assets:
Expenses, including distribution fees.......
.98%(a) .88% .87%
.91% .99%
Expenses, excluding distribution fees.......
.88%(a) .78% .77%
.81% .89%
Net investment income.......................
5.25%(a) 5.31% 5.55%
5.90% 6.24%
Portfolio turnover rate....................... 28%
17% 38%
36% 27%
</TABLE>
<TABLE>
<C> <S>
- - ---------------
(a) Net of management fee waiver.
(b) 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.
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
11 -----
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights NORTH
CAROLINA SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class
B Class C
- - -------------------------------------------------------
- - ----------
<S> <C>
<C> <C>
<C> <C> <C>
Year
Year Ended
August 31, Ended
- - -------------------------------------------------------
August 31,
1995
1994 1993
1992 1991 1995
-----
-------
- - -------
- - ------- ------- -------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 11.06
$ 12.05 $
11.37 $ 10.86 $ 10.45 $11.06
-----
-------
- - -------
- - ------- ------- -------
Income from investment operations
Net investment income......................... .55(a)
.56
.60 .62 .63 .52(a)
Net realized and unrealized gain (loss) on
investment transactions..................... .13
(.77)
.68 .51 .41 .13
-----
-------
- - -------
- - ------- ------- -------
Total from investment operations............ .68
(.21)
1.28 1.13 1.04 .65
-----
-------
- - -------
- - ------- ------- -------
Less distributions
Dividends from net investment income.......... (.55)
(.56)
(.60) (.62) (.63) (.52)
Distributions from net realized gains......... --
(.22)
- - -- -- -- --
-----
-------
- - -------
- - ------- ------- -------
Total distributions......................... (.55)
(.78)
(.60) (.62) (.63) (.52)
-----
-------
- - -------
- - ------- ------- -------
Net asset value, end of period................ $ 11.19
$ 11.06 $
12.05 $ 11.37 $ 10.86 $11.19
-----
-----
-------
- - -------
- - ------- ------- -------
-------
- - -------
- - ------- ------- -------
TOTAL RETURN(b):.............................. 6.44%
(1.82)%
11.62% 10.64% 10.17% 6.17%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $40,119
$69,448
$75,515 $63,573 $59,875 $ 53
Average net assets (000)...................... $51,963
$73,606
$67,997 $60,751 $59,071 $ 32
Ratios to average net assets:
Expenses, including distribution fees.......
1.34%(a) 1.28%
1.27% 1.31% 1.39% 1.63%(a)
Expenses, excluding distribution fees.......
.84%(a) .78%
.77% .81% .89% .88%(a)
Net investment income.......................
5.10%(a) 4.89%
5.18% 5.58% 5.88% 4.59%(a)
Portfolio turnover rate....................... 28%
17%
38% 36% 27% 28%
<CAPTION>
<S> <C>
August 1,
1994(d)
through
August 31,
1994
-----
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $11.09
-----
Income from investment operations
Net investment income......................... .04(c)
Net realized and unrealized gain (loss) on
investment transactions..................... (.03)
-----
Total from investment operations............ .01
-----
Less distributions
Dividends from net investment income.......... (.04)
Distributions from net realized gains......... --
-----
Total distributions......................... (.04)
-----
Net asset value, end of period................ $11.06
-----
-----
TOTAL RETURN(b):.............................. .02%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $ 10
Average net assets (000)...................... $ 5
Ratios to average net assets:
Expenses, including distribution fees....... 1.67%(c)
Expenses, excluding distribution fees....... .92%(c)
Net investment income....................... 5.06%(c)
Portfolio turnover rate....................... 17%
</TABLE>
<TABLE>
<C> <S>
- - ---------------
(a) Net of management fee waiver.
(b) 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.
(c) Annualized.
(d) Commencement of offering of Class C Shares.
</TABLE>
- - ------------------------------------------------------------
- - --------------------
- - ----- 12 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Independent Auditors' Report NORTH
CAROLINA SERIES
- - ------------------------------------------------------------
- - --------------------
The Shareholders and Board of Trustees
Prudential Municipal Series Fund, North Carolina Series
We have audited the accompanying statement of assets and
liabilities, including
the portfolio of investments, of Prudential Municipal Series
Fund, North
Carolina Series, as of August 31, 1995, the related
statements of operations for
the year then ended and of changes in 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. These financial statements and
financial highlights
are the responsibility of the Fund's management. Our
responsibility is to
express an opinion on these financial statements and
financial highlights based
on our audits.
We conducted our audits in accordance with generally
accepted auditing
standards. Those standards require that we plan and perform
the audit to obtain
reasonable assurance about whether the financial statements
and financial
highlights are free of material misstatement. An audit
includes examining, on
a
test basis, evidence supporting the amounts and disclosures
in the financial
statements. Our procedures included confirmation of the
securities owned as of
August 31, 1995 by correspondence with the custodian. An
audit also includes
assessing the accounting principles used and significant
estimates made by
management, as well as evaluating the overall financial
statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, such financial statements and financial
highlights present
fairly, in all material respects, the financial position of
Prudential Municipal
Series Fund, North Carolina Series, as of August 31, 1995,
the results of its
operations, the changes in its net assets, and its financial
highlights for the
respective stated periods in conformity with generally
accepted accounting
principles.
DELOITTE & TOUCHE LLP
New York, New York
October 16, 1995
PRUDENTIAL
MUNICIPAL SERIES FUND
Federal Income Tax Information NORTH
CAROLINA SERIES
- - ------------------------------------------------------------
- - --------------------
We are required by the Internal Revenue Code to advise you
within 60 days of the
Series' fiscal year end (August 31, 1995) as to the federal
tax status of
dividends paid by the Series during such fiscal year.
Accordingly, we are
advising you that in the fiscal year ended August 31, 1995,
dividends paid from
net investment income of $0.60 per Class A share, $0.55 per
Class B share, and
$0.52 per Class C share were all federally tax-exempt
interest dividends.
In January 1996, you will be advised on IRS Form 1099 DIV or
Substitute 1099 DIV
as to the federal tax status of the distributions received
by you in calendar
year 1995.
- - ------------------------------------------------------------
- - --------------------
13 -----
<PAGE>
Getting
The Most
From Your
Prudential
Mutual
Fund
Some mutual fund shareholders won't ever read this -- they
don't read annual
and semi-annual reports. It's quite understandable. These
annual and
semi-annual reports are prepared to comply with Federal
regulations. They are
often written in language that is difficult to understand.
So when most people
run into those particularly daunting sections of these
reports, they don't read
them.
We think that's a mistake.
At Prudential Mutual Funds, we've made some changes to our
report to make it
easier to understand and more pleasant to read, in hopes
you'll find it
profitable to spend a few minutes familiarizing yourself
with your investment.
Here's what you'll find in the report:
At A Glance
Since an investment's performance is often a shareholder's
primary concern,
we present performance information in two different formats.
You'll find it
first on the "At A Glance" page where we compare the Fund
and the comparable
average calculated by Lipper Analytical Services, Inc., a
nationally recognized
mutual fund rating agency. We report both the cumulative
total returns and the
average annual total returns. The cumulative total return is
the total amount
of income and appreciation the Fund has achieved in various
time periods.
The average annual total return is an annualized
representation of the Fund's
performance -- it generally smoothes out returns and gives
you an idea how much
the Fund has earned in an average year, for a given time
period. Under the
performance box, you'll see legends that explain the
performance information,
whether fees and sales charges have been included in
returns, and the inception
dates for the Fund's share classes.
See the performance comparison charts at the back of the
report for more
performance information. And keep in mind that past
performance is not
indicative of future results.
Portfolio
Manager's Report
The portfolio manager who invests your money for you reports
on successful --
and not-so-successful -- strategies in this section of your
report. Look for
recent purchases and sales here, as well as information
about the sectors the
portfolio managers favors and any changes that are on the
drawing board.
Portfolio Of
Investments
This is where the report begins to look technical, but it's
really just a
listing of each security held at the end of the reporting
period, along with
valuations and other information. Please note that sometimes
we discuss a
security in the Portfolio Manager's Report that doesn't
appear in this listing
because it was sold before the close of the reporting
period.
<PAGE>
Statement Of Assets
And Liabilities
The balance sheet shows the assets (the value of the Fund's
holdings),
liabilities (how much the Fund owes) and net assets (the
Fund's equity, or
holdings after the Fund pays its debts) as of the end of the
reporting period.
It also shows how we calculate the net asset value per share
for each class of
shares. The net asset value is reduced by payment of your
dividend, capital
gain, or other distribution, but remember that the money or
new shares are
being paid or issued to you and thus is not a realized loss.
The net asset
value fluctuates daily along with the value of every
security in the portfolio.
Statement Of
Operations
This is the income statement, which details income (mostly
interest and
dividends earned) and expenses (including what you pay us to
manage your money).
You'll also see capital gains here -- both realized and
unrealized.
Statement Of Changes
In Net Assets
This schedule shows how income and expenses translate into
changes in net
assets, compared to last year's performance. The Fund is
required to pay out
the bulk of its income to shareholders every year, and this
statement shows
you how we do it -- through dividends and distributions --
and how that
affects the net assets. This statement also shows how money
from investors
flowed into and out of the Fund.
Notes To Financial
Statements
This is the kind of technical material that can intimidate
readers, but it
does contain useful information. The Notes provide a brief
history and
explanation of your Fund's objectives. In addition, they
also outline how
Prudential Mutual Funds prices securities. The Notes also
explain who manages
and distributes the Fund's shares, and more importantly, how
much they are
paid for doing so. Finally, the Notes explain how many
shares are outstanding
and the number issued and redeemed over the period.
Financial Highlights
This information contains many elements from prior pages,
but on a per share
basis. It is designed to help you understand how the Fund
performed and to
compare this year's performance and expenses to those of
prior years.
Independent
Auditor's Report
Once a year, an outside auditor looks over our books and
certifies that the
information we've presented is fair and complies with
generally accepted
accounting principles.
Tax Information
This is information which we report annually about how much
of your total
return is taxable. Should you have any questions, you may
want to consult
a tax advisor.
Performance
Comparison
These charts are included in the annual report and are
required by the
Securities Exchange Commission. Performance is presented
here as a
hypothetical $10,000 investment in the Fund since its
inception or for 10 years
(whichever is shorter). To help you put that return in
context, we are required
to include the performance of an unmanaged, broad based
securities index, as
well. The index does not reflect the cost of buying the
securities it contains
or the cost of managing a mutual fund. Of course, the index
holdings do not
mirror those of the fund -- the index is a broadly based
reference point
commonly used by investors to measure how well they are
doing. A definition
of the selected index is also provided. Investors generally
cannot invest
directly in an index.
<PAGE>
Getting
The Most
From Your
Prudential
Mutual Fund
When you invest through Prudential Mutual Funds, you receive
financial advice
through a Prudential Securities financial advisor or
Prudential/Pruco Securities
registered representative. Your advisor or representative
can provide you with
the following services.
There's No Reward Without Risk; But Is This Risk Worth It?
Your financial adviser or registered representative can help
you match the
reward you seek with the risk you can tolerate. And risk can
be difficult to
gauge -- sometimes even the simplest investments bear
surprising risks. The
educated investor knows that markets seldom move in just one
direction -- there
are times when a market sector or asset class will lose
value or provide little
in the way of total return. Managing your own expectations
is easier with help
from someone who understands the markets and who knows you!
Keeping Up With The Joneses.
A financial adviser or registered representative can help
you wade through the
numerous mutual funds available to find the ones that fit
your own individual
investment profile and risk tolerance. While the newspapers
and popular
magazines are full of advice about investing, they are aimed
at generic groups
of people or representative individuals, not at you
personally. Your financial
advisor or registered representative will review your
investment objectives
with you. This means you can make financial decisions based
on the assets and
liabilities in your current portfolio and your risk
tolerance -- not just based
on the current investment fad.
Buy Low, Sell High.
Buying at the top of a market cycle and selling at the
bottom are among the most
common investor mistakes. But sometimes it's difficult to
hold on to an
investment when it's losing value every month. Your
financial adviser or
registered representative can answer questions when you're
confused or worried
about your investment, and remind you that you're investing
for the long haul.
<PAGE>
Prudential Municipal Series Fund: North Carolina Series --
Lehman Bros.
General Municipal Debt Index
The Prudential Municipal Series Fund: North Carolina Series
and the Lehman Bros. Index: Comparing a $10,000 Investment.
(Chart)
(Class A)
(Chart)
(Class B)
(Chart)
(Class C)
Past performance is no guarantee of future results.
Investment return and
principal value will fluctuate so an investor's shares, when
redeemed, will be
worth more or less than their original cost. The charts on
the right are
designed to give you an idea how much the Series' returns
can fluctuate from
year to year by measuring the best and worst years in terms
of total annual
return since inception of each share class.
These graphs are furnished to you in accordance with SEC
regulations. They
compare a $10,000 investment in the Prudential Municipal
Series Fund: North
Carolina Series (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 the Class A and
C shares and/or
10 years for Class B shares, and subsequent account values
at the end of the
most recent reporting period (August 31), as measured on a
quarterly basis,
beginning in 1990 for the Class A shares, in 1985 for the
Class B shares, and
in 1994 for the Class C shares. For purposes of the graphs,
and unless
otherwise indicated, in the accompanying tables it has been
assumed (a) that
the maximum applicable front-end sales charge was deducted
from the initial
$10,000 investment in Class A shares; (b) the maximum
applicable contingent
deferred sales charge was deducted from the value of the
investment in Class B
and Class C shares, assuming full redemption on August 31,
1995; (c) all
recurring fees (including management fees) were deducted;
and (d) all dividends
and distributions were reinvested. Class B shares
automatically convert to
Class A shares, on a quarterly basis, approximately seven
years after purchase.
This conversion feature is not reflected in the graph. The
graph and
accompanying tables reflect the past subsidy and/or waiver
of expenses and/or
management fees. Without waivers and expense subsidies the
value of the
$10,000 investment in the Series and the Series' average
annual total return,
as illustrated above, would have been lower.
The Index is a weighted index comprised 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. It is an unmanaged index that includes the
reinvestment of all
dividends, but does not reflect the transaction costs and
advisory fees paid
by the Fund's investors. The Index's holdings differ from
the Fund's
portfolio. The Index is not the only one that may be used to
characterize
performance of bond funds and other indices may portray
different comparative
performance.
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
(LOGO)
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy Hays Teeters
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Grace Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Deborah A. Docs, Assistant 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
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
This report is not authorized for distribution to
prospective investors unless
preceded or accompanied by a current prospectus.
74435M812 MF126E
74435M820 Cat. #642962S
74435M515
(ICON)
Prudential
Municipal
Series Fund
New Jersey Series
Annual Report
Aug. 31, 1995
(LOGO)
<PAGE>
Prudential Municipal Series Fund
New Jersey Series
Performance At A Glance.
It has been a good year for shareholders of the Prudential
Municipal Series
Fund: New Jersey Series. Municipal bond investors not only
earned their coupon
income, but also saw a gain in net asset value as well. We
are pleased to
report that your Series performed in line with the average
New Jersey
municipal bond fund measured by Lipper Analytical Services
over the past
12 months.
Cumulative Total Returns1 As of
8/31/95
<TABLE>
<CAPTION>
One Five Since
Year Years Inception2
<S> <C> <C> <C>
Class A 7.5% 50.6% 54.0%
Class B 7.1 47.8 78.2
Class C 6.8 N/A 7.1
Lipper NJ Muni Avg3 7.2 48.9 83.8
</TABLE>
Average Annual Total Returns1 As of
9/30/95
<TABLE>
<CAPTION>
One Five Since
Year Years Inception2
<S> <C> <C> <C>
Class A 6.6% 8.0% 7.5%
Class B 4.5 8.1 8.0
Class C 8.2 N/A 6.5
</TABLE>
<TABLE>
<CAPTION>
Taxable Equivalent Yield
Total Dividends 30-Day
At Tax Rates of
Paid for 12 Mos. SEC Yield
36% 39.6%
<S> <C> <C> <C>
<C>
Your Class A $0.61 5.03%
8.41% 8.91%
Dividend Class B $0.57 4.79
8.01 8.49
As of 8/31/95 Class C $0.54 4.54
7.59 8.05
</TABLE>
Past performance is not a guarantee of future results.
Principal and investment
return will fluctuate so that an investor's shares, when
redeemed, may be worth
more or less than their original cost.
1Source: Prudential Mutual Fund Management and Lipper
Analytical Services. The
cumulative total returns do not take into account sales
charges. The average
annual returns do take into account applicable sales
charges. The Fund charges
a maximum front-end sales load of 3% for Class A shares and
a 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. Class B
shares
automatically convert to Class A shares on a quarterly
basis, after
approximately seven years.
2Inception dates: 1/22/90 for Class A; 3/4/88 for Class B;
and 8/1/94 for
Class C.
3The Lipper New Jersey Municipal Bond fund average includes
43 funds for one
year, 12 funds for five years and five funds since inception
of the Class B
shares on 3/4/88.
How Investments Compared.
(As of 8/31/95)
(GRAPH)
Source: Lipper Analytical Services. Financial markets
change, so a mutual
fund's past performance should never be used to predict
future results. The
risks to each of the investments listed above are different
- - -- we provide
12-month total returns for several Lipper mutual fund
categories to show you
that reaching for higher yields means tolerating more risk.
The greater the
risk, the larger the potential reward or loss. In addition,
we've added
historical 20-year average annual returns.. These returns
assume the
reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Smaller
capitalization stocks
offer greater potential for long-term growth but may be more
volatile than
larger capitalization stocks. Investors receive higher
historical total returns
from stocks than from most other investments.
General Bond Funds provide more income than stock funds,
which can help smooth
out their total returns year by year. But their prices still
fluctuate
(sometimes a good deal) and their returns are historically
lower than those of
stock funds.
General Municipal Debt Funds invest in bonds issued by state
governments, state
agencies and/or municipalities. This investment provides
income that is usually
exempt from federal and state income taxes. (20-year returns
are not
available.)
Money Market Funds attempt to preserve a constant share
value; they don't
fluctuate much in price but their returns are generally
among the lowest of
the major investment categories.
*19 years for General Muni Debt Funds.
<PAGE>
Marie Conti, Fund Manager
(PHOTO)
Portfolio
Manager's Report
The Series invests in carefully selected long-term municipal
bonds that offer
a high level of current income exempt from New Jersey state
and federal income
taxes consistent with preservation of capital. Certain
shareholders may be
subject to the federal alternative minimum tax, however. The
Series invests
primarily in obligations of New Jersey State, municipal and
local governments,
including U.S. territories (such as Puerto Rico, the U.S.
Virgin Islands and
Guam), the income of which is also exempt from New Jersey
state and federal
income taxes.
Manager Named.
Marie Conti was appointed portfolio manager of the
Prudential Municipal Series
Fund: New Jersey Series in May. Marie manages more than $700
million in
municipal portfolios, including the Prudential Municipal
Bond Fund/Intermediate
Series.
Strategy Session.
It has been a positive year for tax-free municipal bonds.
Although interest
rates rose sharply in 1994 on inflation fears, they have
tumbled back down
slowly this year, as economic growth slowed. The Bond Buyer
Revenue Bond Index
Yield stood at 6.4% on September 1, 1994 (the index is
calculated on
Thursdays), and rose by a percentage point to a high of 7.4%
in mid-October
1994, before falling to 6.3% on August 31, 1995. As you can
see, when the dust
had settled, long-term municipal bond interest rates ended
the period lower.
We found value by increasing our assets in general
obligation bonds, which are
easier to trade in volatile markets. As interest rates fell,
we also increased
our holdings in revenue bonds, which offer higher interest
rates and in turn
help us pay our dividend. We sold off our holdings in
leases. Our revenue bond
holdings are focused in transportation (18% of net assets)
and utilities (14%).
State Of The State.
While the Northeast has trailed the rest of the nation in
economic recovery,
New Jersey -- which has the second highest per capita income
in the nation --
is performing better than its neighbors. Job growth last
year was 1.7%,
compared to 0.6% in New York and 1.3% in Pennsylvania, but
unemployment this
year is a percentage point above the national average. One
cause for optimism:
New Jersey did better than expected in the latest round of
military base
closings.
The fiscal outlook for state government is less promising.
Revenues are
lagging budget projections, and will fall further when the
final 15% cut in
income taxes takes effect next year. Plus, the state's debt
service burden
grows substantially this year, as a result of an earlier
debt restructuring.
And finally, voters will be asked in November to dedicate a
higher percentage
of gasoline tax revenues to transportation. Since this money
now goes into the
state's General Fund, passage of the referendum could create
a new revenue gap
in the state budget.
Sector Breakdown
(CHART)
<PAGE>
What Went Well.
We Held On
To Good Yields.
We increased assets invested in non-callable bonds (those
that can not be paid
off prematurely by the issuer to save on interest costs) to
33%, up from 29% a
year ago. These bonds not only offer attractive yields but
also appreciate well
when interest rates decline. They are valuable because not
many bonds offer
protection from call risk -- only about a third of the
securities in the Lehman
Brothers' Municipal Bond Index are non-callable.
It Paid To Buy
Puerto Rico Bonds.
The supply of new municipal bonds has declined sharply in
New Jersey, by 37%
this year alone. So we looked elsewhere. We bought bonds
issued by Puerto Rico,
because they are tax-exempt federally and in virtually all
states, including
New Jersey. Our holdings in Puerto Rico are now 11% of
assets.
And Not So Well.
A Longer Duration
Would Have Helped.
Duration measures the sensitivity of a bond's price to
interest rate changes.
The longer the duration, the more a bond's price appreciates
when interest
rates fall and vice versa. Over the winter, our duration was
shorter than that
of some competing funds, because we expected economic growth
to remain strong.
As the slowdown became apparent in the second quarter, we
extended duration.
Duration generally ranged from 6.7 years to 8.4 years, and
was 8.4 years on
August 31.
Municipals Suffered
From Tax Talk.
Congress is considering various changes in the federal
income tax, including a
flat tax -- an income tax at a single, flat rate. One
proposal would eliminate
taxes on most investment income. Clearly, this has created
uncertainty in the
municipal market -- one reason why municipal bonds did not
follow taxable bond
prices higher this spring.
At this writing, we believe it is unlikely that a flat tax
proposal in this
form is likely to pass Congress -- especially not before
next year's election.
Five Largest
Holdings.*
<TABLE>
<CAPTION>
<S> <C>
5.4% NJ State Turnpike Authority
4.0% Puerto Rico Commonwealth
G.O. (AMBAC)
2.6% Puerto Rico Tel. Authority
2.5% Salem County NJ Industrial
Pollution Control Authority
2.4% Union County Utility
Authority
</TABLE>
*Expressed as a percentage of total net assets as of
8/31/95.
Looking Ahead.
Municipal bond yields are very attractive now. As we
mentioned earlier, when
U.S. government and corporate bond yields fell this spring,
municipal yields
did not follow to the same extent. That means there are some
very good buying
opportunities now in the municipal market.
Should interest rates remain stable, municipal bond
investors may look forward
to earning their coupon. Plus, if interest rates fall
further, municipal bond
investors could reasonably expect some price appreciation as
well.
Nevertheless, municipal bond investors should be prepared to
weather some
volatility this year as various proposals to change the
country's income tax
structure are proposed and debated.
Overall, we believe municipal bonds still offer good value,
and that volatility
can offer some attractive buying opportunities.
1
<PAGE>
President's Letter October 11, 1995
(PHOTO)
Dear Shareholder:
We hope you like the fresh look and information we've given
your shareholder
letter. We've also introduced another feature, called
Getting the Most Out of
Your Prudential Mutual Fund, which will appear from time to
time at the back of
your report. Look for topics like "Understanding Risk &
Reward" as well as
easy-to-understand explanations of financial terms. Why are
we providing such
information? Because at Prudential Mutual Funds, we believe
an informed
investor makes smart investment decisions.
- - ------------------------------------------------------------
- - -------------------
On the Hill
As an informed investor, you should know about the "American
Dream Savings
Account" that is part of the federal budget package now
under debate in the
Senate. It is a type of Individual Retirement Account that
offers a
common-sense approach to long-term saving. Investors should
like it because--
- You can withdraw funds -- without penalty -- to pay for
certain expenses
like buying a first home, medical care or educational
needs;
- All account earnings would accumulate tax-free, not
merely tax-deferred
like the current IRA;
- You can make contributions past age 70 1/2, instead of
having to take
distributions as the current law requires.
Of course, the federal budget process is never easy and
while we hope this
measure is adopted, there's no way of knowing if it will be.
So why not let
your Senator and/or Representative know your opinion today?
Simply call
202-224-3121.
- - ------------------------------------------------------------
- - -------------------
In Closing
One final note: if you're a Class B shareholder of
Prudential Mutual Funds,
you'll begin noticing a change on your statements once
you've held your shares
for seven years. At that time, they will automatically begin
to convert to
Class A shares on a quarterly basis. Since Class A shares
carry lower annual
distribution charges than Class B shares, your total returns
will be higher
after the conversion than they would have been without it.
Conversions started
earlier this year and beginning in December they will take
place during each
calendar quarter -- December, March, June and September.
It's our way of
thanking you for your loyalty -- and rewarding you for
maintaining a long-term
investment program by helping you earn more total investment
return on your
Prudential Mutual Fund. I hope you'll find this information
useful as you work
with your financial advisor or registered representative to
develop your
personal investment plan.
Thank you for choosing Prudential Mutual Funds for your
mutual fund investment.
Sincerely,
Richard A. Redeker
President
<PAGE>
Portfolio of Investments as PRUDENTIAL
MUNICIPAL SERIES FUND
of August 31, 1995 NEW JERSEY
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
LONG-TERM INVESTMENTS--98.5%
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
Atlantic City, Gen. Oblig., Ser. A
BAA1
Zero 11/01/06 $ 1,490 $ 838,065
Atlantic City Mun. Utils. Auth. Rev., Wtr. System
A-(c)
7.75% 5/01/17 2,000(e) 2,298,580
Bergen Cnty., Utils. Auth.,
Wtr. Poll. Ctrl. Rev., F.G.I.C., Ser. B
Aaa
5.75 12/15/05 1,000 1,069,630
Wtr. Poll. Ctrl. Rev., F.G.I.C., Ser. B
Aaa
Zero 12/15/08 7,250 3,598,973
Camden Cnty. Fin. Auth., F.S.A.
Aaa
Zero 2/15/03 1,600 1,119,312
Camden Cnty. Poll. Ctrl. Fin. Auth., Solid Waste Res.
Rec. Rev., Ser. B
Ba
7.50 12/01/09 3,400 3,472,624
Cape May Cnty. Ind. Poll. Ctrl., Fin. Auth. Rev.,
M.B.I.A.
Aaa
6.80 3/01/21 2,615 2,999,248
Cherry Hill Township
Aa
5.90 6/01/05 1,000 1,060,140
Cherry Hill Township
Aa
6.30 6/01/12 2,000 2,092,040
Cinnaminson Sewage Auth. Rev.
A1
7.40 2/01/15 1,600 1,812,224
Delaware River Bay Auth., M.B.I.A.
Aaa
5.00 1/01/17 2,250 2,028,555
Edison Twnshp., Gen. Oblig., A.M.B.A.C.
Aaa
6.00 1/01/08 5,390 5,758,191
Egg Harbor Twnshp. Sch. Dist., F.S.A.
Aaa
4.75 2/15/09 1,010 933,169
Egg Harbor Twnshp. Sch. Dist., Cert. of Part., M.B.I.A.
Aaa
7.40 4/01/02 1,000(d)(e) 1,119,400
Essex Cnty. Impvt. Auth., A.M.B.A.C.
Aaa
5.50 12/01/20 1,600 1,534,560
Essex Cnty. New Jersey Refunding Series A-1, A.M.B.A.C.
Aaa
5.375 9/01/10 6,000 5,822,760
Evesham Mun. Utils. Auth. Rev., Ser. B, M.B.I.A.
Aaa
7.00 7/01/10 2,000 2,180,400
Hammonton, Gen. Oblig., A.M.B.A.C.
Aaa
6.85 8/15/03 500 570,650
Hammonton, Gen. Oblig., A.M.B.A.C.
Aaa
6.85 8/15/04 500 573,885
Hammonton, Gen. Oblig., A.M.B.A.C.
Aaa
6.85 8/15/05 500 576,075
Howell Twnshp. Mun. Utils. Auth. Rev., 2nd Ser.
NR
8.60 1/01/14 750(e) 849,683
Hudson Cnty. Impvt. Auth.,
Solid Waste Sys. Rev.
BBB-(c)
7.10 1/01/20 2,050 2,047,356
Solid Waste Sys. Rev.
A+(c)
6.10 7/01/20 1,500 1,510,485
Jackson Twnshp. Sch. Dist., F.G.I.C.
Aaa
6.60 6/01/04 1,020 1,160,760
Jackson Twnshp. Sch. Dist., F.G.I.C.
Aaa
6.60 6/01/05 940 1,072,784
Jackson Twnshp. Sch. Dist., F.G.I.C.
Aaa
6.60 6/01/10 1,600 1,803,824
Jackson Twnshp. Sch. Dist., F.G.I.C.
Aaa
6.60 6/01/11 1,600 1,801,760
Jersey City, Gen. Oblig., F.S.A., Ser. A
Aaa
9.25 5/15/04 4,310 5,635,972
Jersey City, Hudson Cnty. Qualified Water Auth. Rev.,
F.S.A.
Aaa
5.00 12/15/17 1,200 1,087,608
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
3
<PAGE>
Portfolio of Investments as PRUDENTIAL
MUNICIPAL SERIES FUND
of August 31, 1995 NEW JERSEY
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
Jersey City, Redev. Auth. Rev., Red Dixon Mill Apts.
Proj., F.N.M.A.
AAA(c)
6.10% 5/01/12 $ 5,000 $ 5,127,400
Lakewood Twnshp., Gen., Oblig., F.G.I.C.
Aaa
6.60 12/01/04 450 509,886
Lakewood Twnshp., Gen., Oblig., F.G.I.C.
Aaa
6.60 12/01/05 445 505,342
Lenape Regl. High Sch. Dist., Gen. Oblig., M.B.I.A.
Aaa
7.625 1/01/12 400 487,368
Mercer Cnty. Impvt. Auth. Rev.
Aa1
Zero 4/01/06 2,500 1,459,550
Mercer Cnty. Impvt. Auth. Rev.
Aa1
Zero 4/01/07 2,725 1,490,003
Mercer Cnty. Impvt. Auth. Rev.,
West Windsor Twnshp. Police Proj.
Aa
6.00 11/15/10 1,250 1,273,337
Middle Twnshp. Sch. Dist., F.G.I.C.
Aaa
7.00 7/15/05 1,200 1,394,268
Millburn Twnshp. Brd. of Ed.
Aaa
5.35 7/15/13 1,140 1,110,497
Millburn Twnshp. Brd. of Ed.
Aaa
5.35 7/15/14 1,135 1,095,706
Millburn Twnshp. Brd. of Ed.
Aaa
5.35 7/15/16 1,150 1,095,755
Millburn Twnshp. Brd. of Ed.
Aaa
5.35 7/15/17 1,150 1,091,695
Monmouth Cnty. Impvt. Auth. Rev.,
Howell Twnshp. Brd. of Ed. Proj. Rev.
AA(c)
6.45 7/01/08 2,000 2,161,780
Nat'l Auth. Rev.
AA(c)
6.55 7/01/12 4,065 4,354,143
Water & Sewage Facs Rev., M.B.I.A.
Aaa
5.00 2/01/13 1,600 1,459,120
Wtr. Treatment Fac., M.B.I.A.
Aaa
6.875 8/01/12 750 841,200
Morris Cnty.
Aaa
5.00 7/15/14 3,180 2,910,718
Morris Cnty.
Aaa
5.00 7/15/15 3,180 2,878,472
Water Facs., F.G.I.C.
NR
8.20 11/01/29 5,000(f) 4,737,500
Middlesex Water Co., A.M.B.A.C.
Aaa
5.25 10/01/23 2,900 2,620,759
New Jersey St. Bldg. Auth. Rev.
Aa
5.00 6/15/17 1,000 881,410
New Jersey St. Bldg. Auth. Rev., Garden St. Svg. Bonds,
Ser. A
Aa
Zero 6/15/03 890 612,747
New Jersey St. Econ. Dev. Auth.,
Amer. Airlines Inc. Proj.
Baa2
7.10 11/01/31 3,900 4,056,000
Jersey Central Pwr. & Light
Aa
7.10 7/01/15 400 423,924
Nat'l. Assoc. of Accountants
NR
7.50 7/01/01 1,050 1,105,356
Nat'l. Assoc. of Accountants
NR
7.65 7/01/09 950 999,447
Peddie School Project
AA-(c)
5.75 2/01/12 1,250 1,249,925
St Barnabas Reality Project M.B.I.A.
Aaa
5.25 7/01/20 3,000 2,784,000
New Jersey St. Econ. Dist. Heating & Cool., Trigen
Trenton Proj., Ser. B
BBB-(c)
6.20 12/01/07 2,725 2,840,077
New Jersey Econ. Dist. Heating & Cool., Trigen Trenton
Proj.
BBB-(c)
6.20 12/01/10 600 602,628
New Jersey St. Edl. Facs. Fin. Auth. Rev.,
Princeton University
Aaa
5.25 7/01/25 3,760 3,503,079
Princeton Inst. For Advanced Study, Ser. B
Aaa
6.35 7/01/21 5,620 5,797,479
Seton Hall Univ. Proj., Ser. B, M.B.I.A.
Aaa
6.25 7/01/07 680 726,254
Seton Hall Univ. Proj., Ser. D
Baa1
7.00 7/01/21 2,000 2,115,620
</TABLE>
- - ------------------------------------------------------------
- - --------------------
4 See Notes to
Financial Statements.
<PAGE>
Portfolio of Investments as PRUDENTIAL
MUNICIPAL SERIES FUND
of August 31, 1995 NEW JERSEY
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
New Jersey St. Hlth. Care Facs. Fin. Auth. Rev.,
Atlantic City Med. Ctr., Ser. C
A
6.80% 7/01/11 $ 3,900 $ 4,083,846
East Orange Gen. Hosp., Ser. B
BBB+(c)
7.75 7/01/20 2,250 2,385,248
Helene Fuld Med. Ctr., Ser. C
A(c)
8.00 7/01/08 2,700 2,998,350
Helene Fuld Med. Ctr., Ser. C
A(c)
8.125 7/01/13 500 552,805
Intercare Hlth. Systems-JFK Ctr.
A
7.50 7/01/07 1,000 1,092,570
Intercare Hlth. Systems-JFK Ctr.
A
7.625 7/01/18 945 1,039,566
Jersey Shore Med. Ctr., A.M.B.A.C.
Aaa
6.00 7/01/09 1,465 1,526,486
Jersey Shore Med. Ctr.
Aaa
6.25 7/01/21 1,500 1,539,000
Kensington Cmnty. Med. Ctr., M.B.I.A.
Aaa
7.00 7/01/20 3,450 3,790,791
Rahway Hospital, Ser. B
Baa1
7.75 7/01/14 4,740 4,851,864
St. Peters Med. Ctr., M.B.I.A., Ser. E
Aaa
6.50 7/01/07 1,725(e) 1,922,978
Somerset Med. Ctr., F.G.I.C.
Aaa
5.20 7/01/24 1,015 920,260
Warren Hosp.
AA(c)
5.25 7/01/14 2,985 2,709,096
New Jersey St. Hsg. & Mtge. Fin. Agcy., M.B.I.A., Ser. D
Aaa
7.70 10/01/29 4,810 5,084,218
New Jersey St. Hsg. & Mtge. Fin. Agcy., Tiffany Manor,
Ser. B
A+(c)
6.75 11/01/11 2,190 2,268,840
New Jersey St. Hwy. Auth., Garden St. Pkwy. Gen. Rev.
A1
6.20 1/01/10 3,035 3,224,839
New Jersey St. Trans. Trust Fund Auth.,
Trans. Sys., M.B.I.A.
Aaa
5.00 6/15/15 4,000 3,669,920
Trans. Sys., M.B.I.A.
Aaa
6.50 6/15/11 5,000 5,483,600
Trans. Sys., M.B.I.A.
Aaa
5.50 6/15/15 5,000 4,830,000
New Jersey St. Tpke. Auth. Rev.,
Ser. C, M.B.I.A.
Aaa
6.50 1/01/09 1,000 1,106,520
Ser. C, M.B.I.A.
Aaa
6.50 1/01/16 14,835 16,157,392
Ser. A
A
6.75 1/01/08 2,000 2,169,100
New Jersey St. Wastewater Treatment,
Trust Loan Rev.
Aa
6.875 6/15/06 1,000 1,100,590
Trust Loan Rev., Ser. A
Aa
6.00 7/01/09 1,000 1,032,010
North Brunswick Twnshp.,
Brd. of Ed., Gen. Oblig.
Aa
6.80 6/15/06 350 401,377
Brd. of Ed., Gen. Oblig.
Aa
6.80 6/15/07 350 399,854
Rict Hosp. Rev., Gen. Oblig.
Aa
6.40 5/15/10 2,000 2,127,380
Passaic Valley New Jersey Water Comm. Water Supply Rev.,
F.G.I.C.
Aaa
5.00 12/15/22 5,000 4,454,750
Paterson Cnty., F.S.A.
Aaa
6.50 2/15/05 2,000 2,185,180
Pennsauken Twnshp., Brd. of Ed., Cert. of Part., B.I.G.
Aaa
7.70 7/15/09 1,030 1,153,785
Port Auth. New York & New Jersey, Ser. 92
A1
5.00 7/15/23 2,000 1,730,660
Port Auth. New York & New Jersey
A1
5.75 6/15/30 5,025 4,834,753
Port Auth. New York & New Jersey,
A1
5.75 12/15/20 500 486,955
Ser. 96, F.G.I.C.
Aaa
6.60 10/01/23 2,750 2,880,103
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
5
<PAGE>
Portfolio of Investments as PRUDENTIAL
MUNICIPAL SERIES FUND
of August 31, 1995 NEW JERSEY
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
Puerto Rico Comnwlth.,
Gen. Oblig., M.B.I.A.
Aaa
5.50% 7/01/08 $ 3,000 $ 3,091,770
Gen. Oblig., A.M.B.A.C.
Aaa
7.00 7/01/10 10,250 11,896,662
Pub. Impvt. Ref., M.B.I.A.
Aaa
7.00 7/01/10 1,000(d) 1,160,650
Puerto Rico Elec. Pwr. Auth. Rev., Ref. Ser. S
Baa1
6.125 7/01/08 2,300 2,422,199
Puerto Rico Hwy. Auth. Rev.,
Ser. Q
AAA(c)
7.75 7/01/10 2,000(d)(e) 2,323,460
Ser. R
Baa1
6.75 7/01/05 1,000 1,088,610
Ser. S
AAA(c)
6.50 7/01/22 750(e) 844,223
Puerto Rico Indus. Tourist Edl. Hosp. Auxilio Mutuo
Oblig.
Grp A, M.B.I.A.
Aaa
6.25 7/01/24 3,000 3,065,640
Puerto Rico Tel. Auth. Rev., Ser. I, M.B.I.A.
Aaa
6.363 1/25/07 7,875(f) 7,845,469
Rutgers St. Univ. Rev.,
Ser. A
A1
6.40 5/01/13 5,000 5,368,550
Ser. P
A1
6.85 5/01/12 2,810 3,047,895
Salem Cnty. New Jersey Indus. Poll. Cntl. Fin. Auth.
Rev.
Aaa
5.55 11/01/33 8,000 7,530,240
South Brunswick Twnshp.,
Wtr. & Swr. Utils., Gen. Impvt.
NR
6.90 8/01/05 850 952,697
Wtr. & Swr. Utils., Gen. Impvt.
NR
6.90 8/01/06 850 952,697
Union City New Jersey, Sch.Impvt., F.S.A.
Aaa
6.375 11/01/08 1,545 1,685,502
Union Cnty. Utils. Auth.,
Solid Waste Rev., Ser. A
A-(c)
7.10 6/15/06 1,255 1,302,941
Solid Waste Rev., Ser. A
A-(c)
7.20 6/15/14 6,850 7,124,342
Virgin Islands Pub. Fin. Auth. Rev., Hwy. Trans. Trust
Fund
BBB(c)
7.70 10/01/04 2,750 3,013,505
Virgin Islands Territory, Hugo Ins. Claims Fund Prog.,
Ser. 91.
NR
7.75 10/01/06 1,970 2,146,670
West Morris Regl. High Sch. Dist., Cert. of Part.,
B.I.G.
Aaa
7.50 3/15/09 1,500 1,648,425
West New York & New Jersey,
Mun. Utils., Auth. Swr. Rev., F.G.I.C.
Aaa
Zero 12/15/06 3,540 2,009,339
Mun. Utils., Auth. Swr. Rev., F.G.I.C.
Aaa
Zero 12/15/12 1,410 534,503
Mun. Utils., Auth. Swr. Rev., F.G.I.C.
Aaa
Zero 12/15/13 2,910 1,035,524
------------
Total long-term investments (cost $279,205,394)
293,017,357
------------
SHORT-TERM INVESTMENTS--0.6%
New Jersey Eco. Dev. Auth., F.R.D.D.,
Dow Chemical, Ser. 84A
P1
3.35 9/01/95 100 100,000
Dow Chemical, Ser. 84B
P1
3.35 9/01/95 800 800,000
Port Auth. of New York & New Jersey, Spec. Oblig. Rev.,
Ser.1 F.R.D.D.
VMIG1
3.45 9/01/95 600 600,000
</TABLE>
- - ------------------------------------------------------------
- - --------------------
6 See Notes to
Financial Statements.
<PAGE>
Portfolio of Investments as PRUDENTIAL
MUNICIPAL SERIES FUND
of August 31, 1995 NEW JERSEY
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
Union Cnty. Ind. Poll. Ctrl. Fin. Auth. Rev., Poll.
Ctrl. Rev.,
F.R.D.D., Ser. 94
P1
3.25% 9/01/95 $ 300 $ 300,000
------------
Total short-term investments (cost $1,800,000)
1,800,000
------------
Total Investments--99.1%
(cost $281,005,394; Note 4)
294,817,357
Other assets in excess of liabilities--0.9%
2,552,590
------------
Net Assets--100%
$297,369,947
------------
------------
</TABLE>
- - ---------------
(a) The following abbreviations are used in portfolio
descriptions:
A.M.B.A.C.--American Municipal Bond Assurance
Corporation.
B.I.G.--Bond Investors Guaranty Insurance Company.
F.G.I.C.--Financial Guaranty Insurance Company.
F.R.D.D.--Floating Rate (Daily) Demand Note (b).
F.S.A.--Financial Security Assurance.
M.B.I.A.--Municipal Bond Insurance Association.
F.N.M.A.--Federal National Mortgage Association.
(b) 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.
(c) Standard & Poor's Rating.
(d) Pledged as initial margin on financial futures
contracts.
(e) Prerefunded issues are secured by escrowed cash and/or
direct U.S.
guaranteed obligations.
(f) Inverse floating rate bond. The coupon is inversely
indexed to a floating
interest rate. The rate shown is the rate at period
end.
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.
7
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Statement of Assets and Liabilities NEW JERSEY
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<S>
<C>
Assets
August 31, 1995
Investments, at value (cost
$281,005,394)...............................................
.................
.... $294,817,357
Cash........................................................
.................
................................ 94,799
Interest
receivable..................................................
.................
....................... 3,717,758
Receivable for Fund shares
sold........................................................
.................
..... 130,295
Deferred expenses and other
assets......................................................
.................
.... 51,498
------------
Total
assets......................................................
.................
....................... 298,811,707
------------
Liabilities
Payable for Fund shares
reacquired..................................................
.................
........ 1,074,124
Due to
Distributors................................................
.................
......................... 109,328
Dividends
payable.....................................................
.................
...................... 154,410
Due to
Manager.....................................................
.................
......................... 81,517
Due to broker-variation margin
payable.....................................................
..................
20,781
Deferred trustees'
fees........................................................
.................
............. 1,600
------------
Total
liabilities.................................................
.................
....................... 1,441,760
------------
Net
Assets......................................................
.................
............................ $297,369,947
------------
------------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
............
$ 270,807
Paid-in capital in excess of
par.........................................................
.................
285,074,748
------------
285,345,555
Accumulated net realized loss on
investments.................................................
.............
(1,747,102)
Net unrealized appreciation on
investments.................................................
...............
13,771,494
------------
Net assets, August 31,
1995........................................................
.................
......... $297,369,947
------------
------------
Class A:
Net asset value and redemption price per share
($49,665,933 / 4,523,163 shares of beneficial interest
issued and
outstanding)......................... $10.98
Maximum sales charge (3.0% of offering
price)......................................................
.......
.34
------------
Maximum offering price to
public......................................................
....................
$11.32
------------
------------
Class B:
Net asset value, offering price and redemption price per
share
($246,201,663 / 22,420,702 shares of beneficial
interest issued and
outstanding)....................... $10.98
------------
------------
Class C:
Net asset value, offering price and redemption price per
share
($1,502,351 / 136,816 shares of beneficial interest
issued and
outstanding)............................ $10.98
------------
------------
</TABLE>
- - ------------------------------------------------------------
- - --------------------
8 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW JERSEY SERIES
Statement of Operations
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Year
Ended
Net Investment Income August 31,
1995
-----------
- - ----
<S> <C>
Income
Interest...................................
$19,123,944
-----------
- - ----
Expenses
Management fee, net of waiver of
$483,073................................
1,047,300
Distribution fee--Class A..................
30,290
Distribution fee--Class B..................
1,374,973
Distribution fee--Class C..................
5,924
Transfer agent's fees and expenses.........
138,000
Custodian's fees and expenses..............
110,000
Reports to shareholders....................
63,000
Registration fees..........................
19,000
Audit fee..................................
11,000
Legal fees.................................
10,000
Insurance..................................
9,500
Trustee's fees.............................
3,200
Miscellaneous..............................
14,050
-----------
- - ----
Total expenses..........................
2,836,237
Less: Custodian fee credit.................
(43,589)
-----------
- - ----
Net expenses...........................
2,792,648
-----------
- - ----
Net investment income.........................
16,331,296
-----------
- - ----
Realized and Unrealized
Gain (Loss) on Investments
Net realized (gain) loss on:
Investment transactions....................
2,223,013
Financial futures contract transactions....
(911,541)
Options purchased..........................
(53,313)
-----------
- - ----
1,258,159
-----------
- - ----
Net change in unrealized appreciation on:
Investments................................
1,994,868
Financial futures contracts................
2,281
-----------
- - ----
1,997,149
-----------
- - ----
Net gain on investments.......................
3,255,308
-----------
- - ----
Net Increase in Net Assets
Resulting from Operations.....................
$19,586,604
-----------
- - ----
-----------
- - ----
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW JERSEY SERIES
Statement of Changes in Net Assets
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended August 31,
<S> <C> <C>
in Net Assets 1995 1994
------------- --------
- - ----
Operations
Net investment income......... $ 16,331,296 $
18,099,624
Net realized gain (loss) on
investment transactions.... 1,258,159
(1,294,945)
Net change in unrealized
appreciation/depreciation
of investments............. 1,997,149
(23,297,125)
------------- --------
- - ----
Net increase (decrease) in net
assets resulting from
operations................. 19,586,604
(6,492,446)
------------- --------
- - ----
Dividends and distributions (Note 1):
Dividends from net investment
income
Class A.................... (1,712,625)
(831,601)
Class B.................... (14,579,222)
(17,267,981)
Class C.................... (39,449)
(42)
------------- --------
- - ----
(16,331,296)
(18,099,624)
------------- --------
- - ----
Distributions from net
realized gains
Class A.................... --
(237,645)
Class B.................... --
(5,452,932)
------------- --------
- - ----
--
(5,690,577)
------------- --------
- - ----
Series share transactions (net of
share conversions) (Note 5):
Net proceeds from shares
sold....................... 18,110,094
41,819,711
Net asset value of shares
issued in reinvestment of
dividends and
distributions.............. 9,760,545
14,387,672
Cost of shares reacquired..... (71,846,422)
(55,213,009)
------------- --------
- - ----
Net increase (decrease) in net
assets from Series share
transactions............... (43,975,783)
994,374
------------- --------
- - ----
Total increase (decrease)........ (40,720,475)
(29,288,273)
Net Assets
Beginning of year................ 338,090,422
367,378,695
------------- --------
- - ----
End of year...................... $ 297,369,947
$338,090,422
------------- --------
- - ----
------------- --------
- - ----
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
9
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements NEW JERSEY
SERIES
- - ------------------------------------------------------------
- - --------------------
Prudential Municipal Series Fund (the ``Fund'') is
registered under the
Investment Company Act of 1940, as an open-end investment
company. The Fund was
organized as a Massachusetts business trust on May 18, 1984,
and consists of
seventeen series. The monies of each series are invested in
separate,
independently managed portfolios. The New Jersey Series (the
``Series'')
commenced investment operations in March 1988. The Series is
diversified and
seeks to achieve its investment objective of obtaining the
maximum amount of
income exempt from federal and applicable state income taxes
with the minimum
of
risk by investing in ``investment grade'' tax-exempt
securities whose ratings
are within the four highest ratings categories by a
nationally recognized
statistical rating organization or, if not rated, are of
comparable quality. The
ability of the issuers of the securities held by the Series
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, and the Series, 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 Trustees.
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.
All securities are valued as of 4:15 P.M., New York time.
Financial Futures Contracts: A financial futures contract is
an agreement to
purchase (long) or sell (short) an agreed amount of debt
securities at a set
price for delivery on a future date. Upon entering into a
financial futures
contract, the Series 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 Series
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. The Series invests in financial
futures contracts
solely for the purpose of hedging its existing portfolio
securities or
securities the Series intends to purchase against
fluctuations in value caused
by changes in prevailing market interest rates. Should
interest rates move
unexpectedly, the Series 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.
Option Writing: When the Fund writes an option, an amount
equal to the premium
received by the Fund is recorded as a liability and is
subsequently adjusted to
the current market value of the option written. Premiums
received from writing
options which expire unexercised are treated by the Fund on
the expiration date
as realized gains from securities or currencies based upon
the type of option
written. The difference between the premium and the amount
paid on effecting a
closing purchase transaction, including brokerage
commissions, is also treated
as a realized gain, or if the premium received is less than
the amount paid for
the closing purchase transaction, as a realized loss. If a
call option is
exercised, the premium is added to the proceeds from the
sale of the underlying
security or currency in determining whether the Fund has
realized a gain or
loss. If a put option is exercised, the premium reduces the
cost basis of the
securities or currencies purchased by the Fund. The Fund as
writer of an option
may have no control over whether the underlying securities
may be sold (call)
or
purchased (put) and as a result bears the market risk of an
unfavorable change
in the price of the security underlying the written option.
There were no
written options outstanding at August 31, 1995.
Securities Transactions and Investment Income: Securities
transactions are
recorded on the trade date. Realized gains and losses on
sales of securities are
calculated on the identified cost basis. Interest income is
recorded on the
accrual basis. The Series amortizes premiums and original
issue discount paid
on
purchases of 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: For federal income tax purposes, each
series in the Fund
is treated as a separate taxpaying entity. It is the intent
of the Series to
continue to meet the requirements of the Internal Revenue
Code
- - ------------------------------------------------------------
- - --------------------
10
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements NEW JERSEY
SERIES
- - ------------------------------------------------------------
- - --------------------
applicable to regulated investment companies and to
distribute all of its net
income to shareholders. For this reason and because
substantially all of the
Series' gross income consists of tax-exempt interest, no
federal income tax
provision is required.
Dividends and Distributions: The Series declares daily
dividends from net
investment income. Payment of dividends is made monthly.
Distributions of net
capital gains, if any, are made annually.
Income distributions and capital gain distributions are
determined in accordance
with income tax regulations which may differ from generally
accepted accounting
principles. These differences are primarily due to differing
treatments for
short-term capital gains and market discount.
- - ------------------------------------------------------------
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 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 PMF is computed daily and payable
monthly, at an annual
rate of .50 of 1% of the average daily net assets of the
Series. For the four
months ended December 31, 1994, PMF waived 25% of its
management fee. For the
eight months ended August 31, 1995, PMF waived 35% of its
management fee. The
amount of fees waived for the fiscal year ended August 31,
1995, amounted to
$483,073 ($0.018 per share for Class A, B and C shares;
0.16% of average net
assets). The Series 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.
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 year ended August 31, 1995.
PMFD has advised the Series that it has received
approximately $16,200 in
front-end sales charges resulting from sales of Class A
shares during the fiscal
year ended August 31, 1995. 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 Series that for the fiscal year ended
August 31, 1995, it
received approximately $665,390 in contingent deferred sales
charges imposed
upon certain redemptions by Class B and Class C (per Note 5)
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 Transactions with Affiliates
Prudential Mutual Fund Services, Inc. (``PMFS''), a wholly-
owned subsidiary of
PMF, serves as the Fund's transfer agent and during the
fiscal year ended August
31, 1995, the Series incurred fees of approximately $110,100
for the services
of
PMFS. As of August 31, 1995, approximately $8,800 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 non-affiliates.
- - ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of portfolio securities of the Series,
excluding short-term
investments, for the year ended August 31, 1995, were
$110,077,138 and
$152,249,270, respectively.
At August 31, 1995 the Series sold 35 financial futures
contracts on U.S.
Treasury Bonds which expire in September 1995. The value at
disposition of such
contracts was $3,920,000. The value of such contracts on
August 31, 1995 was
$3,960,469, thereby resulting in an unrealized loss of
$40,469.
- - ------------------------------------------------------------
- - --------------------
11
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements NEW JERSEY
SERIES
- - ------------------------------------------------------------
- - --------------------
The cost basis of investments for federal income tax
purposes at August 31,
1995, was $281,017,544 and, accordingly, net unrealized
appreciation of
investments for federal income tax purposes is $13,799,813
(gross unrealized
appreciation--$15,035,122; gross unrealized depreciation--
$1,235,309).
For federal income tax purposes, the Fund has a capital loss
carryforward as of
August 31, 1995 of approximately $1,724,478 which will
expire in 2003.
Accordingly, no capital gains distribution is expected to be
paid to
shareholders until future net gains have been realized in
excess of such
carryforward.
- - ------------------------------------------------------------
Note 5. Capital
The Series currently offers Class A, Class B and Class C
shares. Class A shares
are sold with a front-end sales charge of up to 3.0%. Class
B shares are sold
with a contingent deferred sales charge which declines from
5% to zero depending
on the period of time the shares are held. Class C shares
are sold with a
contingent deferred sales charge of 1% during the first
year. Class B shares
will automatically convert to Class A shares on a quarterly
basis approximately
seven years after purchase.
The Fund has authorized an unlimited number of shares of
beneficial interest of
each class at $.01 par value per share.
Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- - ------------------------------------ ---------- --------
- - ----
<S> <C> <C>
Year ended August 31, 1995:
Shares sold......................... 146,305 $
1,554,250
Shares issued in reinvestment
of dividends...................... 101,255
1,092,947
Shares reacquired................... (644,816)
(6,937,778)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................. (397,256)
(4,290,581)
Shares issued upon conversion from
Class B........................... 3,553,656
38,072,569
---------- --------
- - ----
Net increase in shares
outstanding....................... 3,156,400 $
33,781,988
---------- --------
- - ----
---------- --------
- - ----
Year ended August 31, 1994:
Shares sold......................... 314,116 $
3,550,381
Shares issued in reinvestment of
distributions..................... 62,184
699,684
Shares reacquired................... (329,592)
(3,698,430)
---------- --------
- - ----
Net increase in shares
outstanding....................... 46,708 $
551,635
---------- --------
- - ----
---------- --------
- - ----
<CAPTION>
Class B Shares
Amount
- - ------------------------------------ ---------- --------
- - ----
<S> <C> <C>
Year ended August 31, 1995:
Shares sold......................... 1,439,537 $
15,328,727
Shares issued in reinvestment
of dividends...................... 811,273
8,636,803
Shares reacquired................... (6,166,186)
(64,879,456)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................. (3,915,376)
(40,913,926)
Shares reacquired upon conversion
into Class A...................... (3,553,656)
(38,072,569)
---------- --------
- - ----
Net decrease in shares
outstanding....................... (7,469,032)
$(78,986,495)
---------- --------
- - ----
---------- --------
- - ----
Year ended August 31, 1994:
Shares sold......................... 3,349,228 $
38,030,222
Shares issued in reinvestment
of dividends and distributions.... 1,214,942
13,687,960
Shares reacquired................... (4,642,077)
(51,514,579)
---------- --------
- - ----
Net decrease in shares
outstanding....................... (77,907) $
(203,603)
---------- --------
- - ----
---------- --------
- - ----
<CAPTION>
Class C
- - ------------------------------------
<S> <C> <C>
Six months ended August 31, 1995:
Shares sold......................... 114,493 $
1,227,117
Shares issued in reinvestment
of dividends...................... 2,852
30,795
Shares reacquired................... (2,705)
(29,188)
---------- --------
- - ----
Net increase in shares
outstanding....................... 114,640 $
1,228,724
---------- --------
- - ----
---------- --------
- - ----
August 1, 1994* through August 31,
1994:
Shares sold......................... 22,173 $
239,108
Shares issued in reinvestment
of dividends...................... 3
28
Shares reacquired................... --
- - --
---------- --------
- - ----
Net increase in shares
outstanding....................... 22,176 $
239,136
---------- --------
- - ----
---------- --------
- - ----
</TABLE>
- - ---------------
* Commencement of offering Class C shares.
- - ------------------------------------------------------------
- - --------------------
12
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights NEW JERSEY
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class A
- - ------------------------------------------------------
Year Ended August
31,
- - ------------------------------------------------------
1995
1994 1993
1992 1991
------- ---
- - ---- -------
------- ------
<S> <C> <C>
<C>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year....... $ 10.81 $
11.74 $ 11.15
$ 10.73 $10.16
------- ---
- - ---- -------
------- ------
Income from investment operations
Net investment income(a)................. .61
.61 .64
.67 .69
Net realized and unrealized gain (loss)
on investment transactions............ .17
(.75) .71
.51 .59
------- ---
- - ---- -------
------- ------
Total from investment operations...... .78
(.14) 1.35
1.18 1.28
------- ---
- - ---- -------
------- ------
Less distributions
Dividends from net investment income..... (.61)
(.61) (.64)
(.67) (.69)
Distributions from net realized gains on
investment transactions............... --
(.18) (.12)
(.09) (.02)
------- ---
- - ---- -------
------- ------
Total distributions................... (.61)
(.79) (.76)
(.76) (.71)
------- ---
- - ---- -------
------- ------
Net asset value, end of year............. $ 10.98 $
10.81 $ 11.74
$ 11.15 $10.73
------- ---
- - ---- -------
------- ------
------- ---
- - ---- -------
------- ------
TOTAL RETURN(b):......................... 7.55%
(1.27)% 12.57%
11.35% 12.96%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)............ $49,666
$14,774 $15,501
$11,941 $8,041
Average net assets (000)................. $30,290
$15,334 $13,444
$ 9,759 $5,637
Ratios to average net assets:(a)
Expenses, including distribution
fees............................... .55%
.58% .61%
.48% .29%
Expenses, excluding distribution
fees............................... .45%
.48% .51%
.38% .19%
Net investment income................. 5.65%
5.42% 5.63%
6.14% 6.58%
Portfolio turnover rate.................. 37%
34% 32%
38% 116%
</TABLE>
- - ---------------
(a) Net of management and/or distribution fee waiver.
(b) 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.
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
13
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights NEW JERSEY
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class C
Class B
----------
- - ------------------------------------------------------------
Year
Year Ended
August 31, Ended
- - ------------------------------------------------------------
August 31,
1995
1994 1993
1992 1991 1995
-------- --
- - ------ --------
-------- -------- ----------
<S> <C>
<C> <C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period..... $ 10.81 $
11.74 $ 11.15
$ 10.73 $ 10.16 $10.81
-------- --
- - ------ --------
-------- -------- -----
Income from investment operations
Net investment income(a)................. .57
.56 .59
.63 .65 .54
Net realized and unrealized gain (loss)
on investment transactions............ .17
(.75) .71
.51 .59 .17
-------- --
- - ------ --------
-------- -------- -----
Total from investment operations...... .74
(.19) 1.30
1.14 1.24 .71
-------- --
- - ------ --------
-------- -------- -----
Less distributions
Dividends from net investment income..... (.57)
(.56) (.59)
(.63) (.65) (.54)
Distributions from net realized gains on
investment transactions............... --
(.18) (.12)
(.09) (.02) --
-------- --
- - ------ --------
-------- -------- -----
Total distributions................... (.57)
(.74) (.71)
(.72) (.67) (.54)
-------- --
- - ------ --------
-------- -------- -----
Net asset value, end of period........... $ 10.98 $
10.81 $ 11.74
$ 11.15 $ 10.73 $10.98
-------- --
- - ------ --------
-------- -------- -----
-------- --
- - ------ --------
-------- -------- -----
TOTAL RETURN(b):......................... 7.12%
(1.67)% 12.12%
10.93% 12.52% 6.86%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).......... $246,202
$323,077 $351,878
$295,781 $244,322 $1,502
Average net assets (000)................. $274,995
$343,941 $316,372
$269,318 $208,893 $ 790
Ratios to average net assets:(a)
Expenses, including distribution
fees............................... .95%
.98% 1.01%
.88% .69% 1.20%
Expenses, excluding distribution
fees............................... .45%
.48% .51%
.38% .19% .45%
Net investment income................. 5.30%
5.02% 5.23%
5.74% 6.18% 4.99%
Portfolio turnover rate.................. 37%
34% 32%
38% 116% 37%
<CAPTION>
August 1,
through
August 31,
1994
<S> <C>
----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period..... $10.83
-----
Income from investment operations
Net investment income(a)................. .04
Net realized and unrealized gain (loss)
on investment transactions............ (.02)
-----
Total from investment operations...... .02
-----
Less distributions
Dividends from net investment income..... (.04)
Distributions from net realized gains on
investment transactions............... --
-----
Total distributions................... (.04)
-----
Net asset value, end of period........... $10.81
-----
-----
TOTAL RETURN(b):......................... 0.14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).......... $ 240
Average net assets (000)................. $ 11
Ratios to average net assets:(a)
Expenses, including distribution
fees............................... 1.29%(c)
Expenses, excluding distribution
fees............................... .54%(c)
Net investment income................. 5.06%(c)
Portfolio turnover rate.................. 34%
</TABLE>
- - ---------------
(a) Net of management and/or distribution fee waiver.
(b) 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.
(c) Annualized.
(d) Commencement of offering of Class C shares.
- - ------------------------------------------------------------
- - --------------------
14 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Independent Auditors' Report NEW JERSEY
SERIES
- - ------------------------------------------------------------
- - --------------------
The Shareholders and Board of Trustees
Prudential Municipal Series Fund, New Jersey Series
We have audited the accompanying statement of assets and
liabilities, including
the portfolio of investments, of Prudential Municipal Series
Fund, New Jersey
Series, as of August 31, 1995, the related statements of
operations for the year
then ended and of changes in 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. These financial statements and financial
highlights are the
responsibility of the Fund's management. Our responsibility
is to express an
opinion on these financial statements and financial
highlights based on our
audits.
We conducted our audits in accordance with generally
accepted auditing
standards. Those standards require that we plan and perform
the audit to obtain
reasonable assurance about whether the financial statements
and financial
highlights are free of material misstatement. An audit
includes examining, on
a
test basis, evidence supporting the amounts and disclosures
in the financial
statements. Our procedures included confirmation of the
securities owned as of
August 31, 1995 by correspondence with the custodian. An
audit also includes
assessing the accounting principles used and significant
estimates made by
management, as well as evaluating the overall financial
statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, such financial statements and financial
highlights present
fairly, in all material respects, the financial position of
Prudential Municipal
Series Fund, New Jersey Series, as of August 31, 1995, the
results of its
operations, the changes in its net assets, and its financial
highlights for the
respective stated periods in conformity with generally
accepted accounting
principles.
DELOITTE & TOUCHE LLP
New York, New York
October 16, 1995
PRUDENTIAL
MUNICIPAL SERIES FUND
Federal Income Tax Information NEW JERSEY
SERIES
- - ------------------------------------------------------------
- - --------------------
We are required by the Internal Revenue Code to advise you
within 60 days of the
Series' fiscal year end (August 31, 1995) as to the federal
tax status of
dividends paid by the Series during such fiscal year.
Accordingly, we are
advising you that in the fiscal year ended August 31, 1995,
dividends paid from
net investment income of $.61 per Class A share, $.57 per
Class B share, and
$.54 per Class C share were all federally tax-exempt
interest dividends.
In January 1996, you will be advised on IRS Form 1099 DIV or
substitute 1099 DIV
as to the federal tax status of the distributions received
by you in calendar
year 1995.
- - ------------------------------------------------------------
- - --------------------
15
<PAGE>
Getting The Most From Your Prudential Mutual Fund
When you invest through Prudential Mutual Funds, you receive
financial advice
through a Prudential Securities financial advisor or
Prudential/Pruco
Securities registered representative. Your advisor or
representative can
provide you with the following services.
- - ------------------------------------------------------------
- - -------------------
There's No Reward Without Risk; But Is This Risk Worth It?
Your financial adviser or registered representative can help
you match the
reward you seek with the risk you can tolerate. And risk can
be difficult to
gauge -- sometimes even the simplest investments bear
surprising risks. The
educated investor knows that markets seldom move in just one
direction --
there are times when a market sector or asset class will
lose value or provide
little in the way of total return. Managing your own
expectations is easier
with help from someone who understands the markets and who
knows you!
- - ------------------------------------------------------------
- - -------------------
Keeping Up With The Joneses.
A financial adviser or registered representative can help
you wade through the
numerous mutual funds available to find the ones that fit
your own individual
investment profile and risk tolerance. While the newspapers
and popular
magazines are full of advice about investing, they are aimed
at generic groups
of people or representative individuals, not at you
personally. Your financial
advisor or registered representative will review your
investment objectives
with you. This means you can make financial decisions based
on the assets and
liabilities in your current portfolio and your risk
tolerance -- not just based
on the current investment fad.
- - ------------------------------------------------------------
- - -------------------
Buy Low, Sell High.
Buying at the top of a market cycle and selling at the
bottom are among the
most common investor mistakes. But sometimes it's difficult
to hold on to an
investment when it's losing value every month. Your
financial adviser or
registered representative can answer questions when you're
confused or worried
about your investment, and remind you that you're investing
for the long haul.
<PAGE>
Prudential Municipal Series Fund: New Jersey Series
Lehman Bros. General Municipal Debt Index
The Prudential Municipal Series Fund: New Jersey Series and
the Lehman Bros. Index: Comparing a $10,000 Investment.
Class A
(GRAPH)
Class B
(GRAPH)
Class C
(GRAPH)
Past performance is no guarantee of future results.
Investment return and
principal value will fluctuate so an investor's shares, when
redeemed, will be
worth more or less than their original cost. The charts on
the right are
designed to give you an idea how much the Series' returns
can fluctuate from
year to year by measuring the best and worst years in terms
of total annual
return since inception of each share class.
These graphs are furnished to you in accordance with SEC
regulations. They
compare a $10,000 investment in the Prudential Municipal
Series Fund: New
Jersey Series (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 the most recent reporting period (August 31),
as measured on a
quarterly basis, beginning in 1990 for the Class A shares,
in 1988 for the
Class B shares, and in 1994 for the Class C shares. For
purposes of the graphs,
and unless otherwise indicated, in the accompanying tables
it has been assumed
(a) that the maximum applicable front-end sales charge was
deducted from the
initial $10,000 investment in Class A shares; (b) the
maximum applicable
contingent deferred sales charge was deducted from the value
of the investment
in Class B and Class C shares, assuming full redemption on
August 31, 1995;
(c) all recurring fees (including management fees) were
deducted; and (d) all
dividends and distributions were reinvested. Class B shares
automatically
convert to Class A shares, on a quarterly basis,
approximately seven years
after purchase. This conversion feature is not reflected in
the graph. The
graph and accompanying tables reflect the past subsidy
and/or waiver of
expenses and/or management fees.
*Without waivers and expense subsidies the value of the
$10,000 investment in
the Series and the Series' average annual total return, as
illustrated above,
would have been lower, as indicated in parentheses ( ).
The Index is a weighted index comprised 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. It is an unmanaged index that
includes the reinvestment
of all dividends, but does not reflect the transaction costs
and advisory fees
paid by the Series' investors. The Index's holdings differ
from the Series'
portfolio. The Index is not the only one that may be used to
characterize
performance of bond funds and other indices may portray
different comparative
performance.
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
(LOGO)
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy Hays Teeters
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Grace Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Deborah A. Docs, Assistant 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, Inc.
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
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
This report is not authorized for distribution to
prospective investors unless
preceded or accompanied by a current prospectus.
74435M788
74435M796 MF138E
74435M531 CAT# 642872T
(ICON)
Prudential
Municipal
Series Fund
New Jersey
Money Market Series
ANNUAL
REPORT
Aug. 31, 1995
(LOGO)
<PAGE>
Prudential Municipal Series Fund
New Jersey Money Market Series
Performance At A Glance.
Over the past 12 months, New Jersey's economy continued to
expand and its
credit rating as of August 31, 1995, was Aa1, according to
Moody's Investors
Service. Prudential Municipal Series Fund: New Jersey Money
Market Series'
7-day current yield on August 31, 1995 was 3.13% compared to
3.42% six months
ago.
<TABLE>
<CAPTION>
Fund Facts As of 8/31/95
7-Day Net Asset Taxable
Equivalent Yield*
Weighted Total
Current Yld. Value @31%
@36% @39.6%
Avg. Mat. Assets (mil.)
<S> <C> <C> <C> <C>
<C> <C>
<C>
NJ Money
Market Fund 3.13% $1.00 4.86%
5.24% 5.55%
49 Days $182
IBC/Donoghue
NJ Tax-exempt 3.06 1.00 4.77
5.14 5.45
57 Days N/A
Fund Average **
</TABLE>
Note: Yields will fluctuate from time to time and past
performance is no
guarantee of future results.
An investment in the Series is neither insured nor
guaranteed by the U.S.
government and there can be no assurance that the Series
will be able to
maintain a stable net asset value.
* Some investors may be subject to the federal alternative
minimum tax.
**This is the average 7-day current yield, NAV and WAM of 11
funds in the
International Business Communications/Donoghue New Jersey
tax-exempt money
market fund category as of August 31, 1995.
How Investments Compared.
(As of 8/31/95)
(GRAPH)
Source: Lipper Analytical Services.
Financial markets change, so a mutual fund's past
performance should never be
used to predict future results. The risks to each of the
investments listed
above are different -- we provide 12-month total returns for
several Lipper
mutual fund categories to show you that reaching for higher
yields means
tolerating more risk. The greater the risk, the larger the
potential reward or
loss. In addition, we've added historical 20-year average
annual returns.
These returns assume the reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Smaller
capitalization stocks
offer greater potential for long-term growth but may be more
volatile than
larger capitalization stocks. Investors receive higher
historical total
returns from stocks than from most other investments.
General Bond Funds provide more income than stock funds,
which can help smooth
out their total returns year by year. But their prices still
fluctuate
(sometimes a good deal) and their returns are historically
lower than those of
stock funds.
General Municipal Debt Funds invest in bonds issued by state
governments,
state agencies and/or municipalities. This investment
provides income that is
usually exempt from federal and state income taxes.
Tax-Exempt Money Market Funds attempt to preserve a constant
share value and
provide tax-free income; they don't fluctuate much in price
but their returns
are generally among the lowest of the major investment
categories.
*19 years for General Muni Debt Funds.
17 years for Tax-Free Money Market Funds.
<PAGE>
Ken Potts, Fund Manager
Portfolio
Manager's Report
Prudential Municipal Series Fund: New Jersey Money Market
Series seeks the
highest current income that is exempt from federal and New
Jersey income
taxes, consistent with liquidity, the preservation of
capital, and maintenance
of a stable net asset value of $1 per share. The Series
invests in a portfolio
of short-term debt securities and obligations of New Jersey
state, its
municipalities, local governments and other qualifying
issuers.
Strategy Session.
Lessons Learned
From Orange County.
The New Jersey Money Market Series has followed a
conservative, quality
oriented investment strategy. This means we look beyond a
bond's rating and
examine the issuer as well.
December's bankruptcy filing by California's Orange County
after it suffered
$1.7 billion in investment losses surprised the municipal
securities markets.
The sudden collapse of such a highly rated issuer
underscored the importance
of quality credit research and diversification.
The New Jersey Money Market Series invests across a broad
spectrum of issues
to lessen risk. As of August 31, 1995, we were invested in
48 securities
representing 39 issuers from across the state. In addition,
58% of the
portfolio was credit-enhanced by a letter of credit from a
major money center
institution, like Morgan Guaranty or bond insurance, like
AMBAC. We also
favored securities that were backed by a revenue stream
specifically collected
for the given public project.
Interest Rates Trend Lower
(GRAPH)
Federal Funds Rate vs. One-Year Bond Buyer Index
Source: Bloomberg & the Bond Buyer. The One-Year Bond Buyer
Index is an
average of one-year, tax-exempt notes of 10 issuers
calculated by the Bond
Buyer weekly on Wednesday.
<PAGE>
State Of The State.
High Demand And Stability.
New Jersey's per capita income is second in the nation,
which translates into
high demand for tax-free securities. The state's economy is
slowly
strengthening and its overall credit rating as of August 31,
1995, was Aa1,
according to Moody's.
Some state highlights --
- - - Over the past year economic growth in the Garden State
lagged the nation but
was slightly ahead of the Mid-Atlantic region. The state did
better than
expected in the recent round of military base closures, with
only one major
facility, the Bayonne Military Ocean Terminal, feeling the
budget ax.
- - - In Trenton, Gov. Christine Todd Whitman pushed forward
with her final 15%
cut in personal income taxes, despite revenue collections
which fall short of
budget projections. Increased debt service from a
restructuring of outstanding
bond issues may also cause a substantial increase to the
state's debt burden
later this year.
Looking Ahead.
Going forward, we believe that yields for tax-free money
market funds will
fall lower following the taxable short-term interest rate
cut engineered by
the Federal Reserve. The central bank's next move may be to
cut taxable rates
again, but we don't know for sure by how much. We have and
will continue to
structure the Series' portfolio to produce a competitive
yield while
maintaining our ability to respond to changing markets.
A Word
About Quality.
Your Series typically will purchase securities with
maturities of one year or
less that are rated Aaa, Aa; Notes: MIG-1, MIG-2, P-1 or P-2
by Moody's
Investors Service, or AAA, AA; Notes: SP-1, SP-1+, A-1 or A-
2 by Standard &
Poor's or,if not rated, deemed to be of comparable quality
by the Fund's
investment adviser. Although there is never a guarantee that
the share price
of the New Jersey Money Market Series will stay at $1, we at
Prudential
emphasize a conservative, quality-oriented investment
approach.
- - ------------------------------------------------------------
- - -------------------
1
President's Letter
October 11, 1995
(PHOTO)
Dear Shareholder:
We hope you like the fresh look and information we've given
your shareholder
letter. We've also introduced another feature, called
Getting the Most Out of
Your Prudential Mutual Fund, which will appear from time to
time at the back
of your report. Look for topics like "Understanding Risk &
Reward" as well as
easy-to-understand explanations of financial terms. Why are
we providing such
information? Because at Prudential Mutual Funds, we believe
an informed
investor makes smart investment decisions.
On the Hill
As an informed investor, you should know about the "American
Dream Savings
Account" that is part of the federal budget package now
under debate in the
Senate. It is a type of Individual Retirement Account that
offers a common-
sense approach to long-term saving. Investors should like it
because --
- - - You can withdraw funds -- without penalty -- to pay for
certain expenses
like buying a first home, medical care or educational needs;
- - - All account earnings would accumulate tax-free, not merely
tax-deferred like
the current IRA;
- - - You can make contributions past age 70 1/2, instead of
having to take
distributions as the current law requires.
Of course, the federal budget process is never easy and
while we hope this
measure is adopted, there's no way of knowing if it will be.
So why not let
your Senator and/or Representative know your opinion today?
Simply call
202-224-3121.
In Closing
One final note: if you're a Class B shareholder of other
Prudential Mutual
Funds, you'll begin noticing a change on your statements
once you've held
your shares for seven years. At that time, they will
automatically begin to
convert to Class A shares on a quarterly basis. Since Class
A shares carry
lower annual distribution charges than Class B shares, your
total returns
will be higher after the conversion than they would have
been without it.
Conversions started earlier this year and will take place
during each calendar
quarter -- December, March, June and September. It's our way
of thanking you
for your loyalty -- and rewarding you for maintaining a long-
term investment
program by helping you earn more total investment return on
your Prudential
Mutual Fund. I hope you'll find this information useful as
you work with your
financial advisor or registered representative to develop
your personal
investment plan.
Thank you for choosing Prudential Mutual Funds for your
mutual fund investment.
Sincerely,
Richard A. Redeker
President
- - ------------------------------------------------------------
- - -------------------
2
<PAGE>
Portfolio of Investments as PRUDENTIAL
MUNICIPAL SERIES FUND
of August 31, 1995 NEW JERSEY
MONEY MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
Atlantic Cnty. Impvt. Auth. Rev., Ser. 86, F.R.W.D.
VMIG1
3.50% 9/06/95 $ 1,300 $ 1,300,000
Burlington County, B.A.N.
NR
5.00 11/30/95 6,000 6,004,228
East Brunswick Twnshp., B.A.N.
NR
5.75 1/03/96 7,000 7,015,838
Gloucester Cnty. Ind. Poll. Ctrl. Fin. Auth. Rev.,
Mobil Corp. Proj., F.R.W.D.
P-1
3.20 9/06/95 4,610 4,610,000
Monsanto Co. Proj., Ser. 92, F.R.W.D.
P-1
3.45 9/06/95 3,120 3,120,000
Hudson Cnty. Impvt. Auth. Rev., Ser. 86, F.R.W.D.
A-1(c)
3.55 9/07/95 4,445 4,445,000
Jersey City, Ser. 94, B.A.N.
NR
4.75 9/29/95 5,000 5,001,654
Maplewood Twnshp., B.A.N.
NR
5.25 10/17/95 5,318 5,321,720
New Jersey St. Econ. Dev. Auth.,
Applewood Ctr. for Aging, Ser.89, F.R.W.D.
A-1(c)
3.60 9/07/95 7,350 7,350,000
Catholic Cmnty. Svcs Proj., Ser. 93, F.R.W.D.
VMIG1
3.45 9/07/95 6,000 6,000,000
Catholic Cmnty. Svcs Proj., Ser. 95, F.R.W.D.
VMIG1
3.45 9/07/95 1,250 1,250,000
Chambers Cogeneration Ltd., Ser. 91, T.E.C.P.
VMIG1
3.65 9/21/95 3,000 3,000,000
Chambers Cogeneration Ltd., Ser. 91, T.E.C.P.
VMIG1
3.95 10/19/95 4,400 4,400,000
Dow Chemical, Ser. 84A, F.R.D.D.
P1
3.35 9/01/95 7,000 7,000,000
East Meadow Corp., Ser. 86A, F.R.W.D.
VMIG1
3.75 9/06/95 2,675 2,675,000
Econ. Growth Bds., Ser. 94B, F.R.W.D.
A-1+(c)
3.60 9/07/95 2,000 2,000,000
Fellowship Village Proj., Ser. 95, F.R.W.D.
VMIG1
3.55 9/07/95 7,000 7,000,000
Franciscan Oaks Proj., Ser. 92B, F.R.W.D.
A-1+(c)
3.40 9/06/95 1,600 1,600,000
General Motors Proj., F.R.W.D.
VMIG2
3.60 9/06/95 7,350 7,350,000
Hillcrest Health Svc. Sys. Proj., Ser. 95, F.R.W.D.
P1
3.60 9/06/95 8,000 8,000,000
Hoffman La-Roche Inc. Proj., Ser. 93, F.R.D.D.
Aaa
3.35 9/01/95 5,000 5,000,000
Kent Place, Ser. 92L, F.R.W.D.
VMIG1
3.55 9/07/95 1,940 1,940,000
Keystone Proj., Ser. 92, T.E.C.P.
VMIG1
3.95 10/19/95 1,500 1,500,000
Keystone Proj., Ser. 92, T.E.C.P.
VMIG1
3.60 10/27/95 2,600 2,600,000
Marriot Corp. Proj., Ser. 84, F.R.W.D.
P1
3.15 9/06/95 6,700 6,700,000
Michael Shalit Proj., Ser. 93, F.R.D.D.
Aa3
3.35 9/01/95 1,800 1,800,000
North Plainfield Hldg., Ser. 92, A.O.T.
VMIG1
4.15 9/01/96 3,880 3,880,000
Ocean Spray Cranberry Inc. Proj., Ser. 87, S.A.O.T.
A+(c)
4.00 7/01/96 5,455 5,455,000
Office Court Assoc. Proj., F.R.W.D.
A-1+(c)
3.60 9/05/95 1,850 1,850,000
Peddie Sch. Proj., Ser. 94B, F.R.W.D.
A-1(c)
3.65 9/07/95 3,000 3,000,000
RJB Associates LTD., F.R.W.D.
Aa3
3.65 9/07/95 1,580 1,580,000
Russ Berrie & Co., Ser. 83, F.R.W.D.
A-1(c)
3.35 9/06/95 200 200,000
New Jersey St. Hsg. Fin. Agcy., Ser. 92A, Q.T.P.O.T.
AA+(c)
3.75 11/01/95 3,000 3,000,000
New Jersey St. Tpke. Auth. Rev., Ser. 91D, F.R.W.D.
VMIG1
3.05 9/06/95 12,000 12,000,000
Newark Healthcare Facs. Rev., Ser. 95A, F.R.W.D.
A-1(c)
3.50 9/07/95 2,965 2,965,000
Passaic County, B.A.N.
NR
5.00 4/05/96 4,000 4,013,613
Port Auth. of New York & New Jersey, F.R.W.D.,
Ser. 93-2
NR
3.627 9/05/95 8,000 8,000,000
KIAC Partners, Ser. 93-2
VMIG1
3.40 9/06/95 2,900 2,900,000
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
3
<PAGE>
Portfolio of Investments as PRUDENTIAL
MUNICIPAL SERIES FUND
of August 31, 1995 NEW JERSEY
MONEY MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
Puerto Rico Comnwlth. Hwy. & Trans. Auth. Rev., F.R.W.D.
VMIG1
3.20% 9/06/95 $ 200 $ 200,000
Puerto Rico Comnwlth.,
Gov't Dev. Bank., Ser. 85, F.R.W.D.
VMIG1
3.20 9/06/95 6,800 6,800,000
Gov't Dev. Bank., Ser. 95, T.E.C.P.
A-1+(c)
4.10 9/08/95 2,500 2,500,000
Puerto Rico Ind. Med. & Environ. Poll. Ctrl. Fin. Auth.
Rev.,
Inter American Proj., Ser. 88, T.E.C.P.
VMIG1
3.65 9/08/95 2,800 2,800,000
Rockaway Twnshp., B.A.N.
NR
3.92 7/31/96 4,899 4,900,174
------------
Total Investments--98.7%
(amortized cost $180,027,227(d))
180,027,227
Other assets in excess of liabilities--1.3%
2,425,565
------------
Net Assets--100%
$182,452,792
------------
------------
</TABLE>
- - ---------------
(a) The following abbreviations are used in portfolio
descriptions:
A.O.T.--Annual Optional Tender.
B.A.N.--Bond Anticipation Note.
F.R.D.D.--Floating Rate (Daily) Demand Note (b).
F.R.W.D.--Floating Rate (Weekly) Demand Note (b).
Q.T.P.O.T.--Quarterly Third Party Optional Tender.
S.A.O.T.--Semi-Annual Optional Tender.
T.E.C.P.--Tax Exempt Commercial Paper.
(b) For purposes of amortized cost valuation, the maturity
date of such
securities are 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.
(c) Standard & Poor's rating.
(d) The cost of securities for federal income tax purposes
is substantially the
same as for financial reporting purposes.
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.
- - ------------------------------------------------------------
- - --------------------
4 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Statement of Assets and Liabilities NEW JERSEY
MONEY MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<S>
<C>
Assets
August 31, 1995
Investments, at amortized cost which approximates market
value...............................................
$180,027,227
Cash........................................................
.................
................................ 51,515
Receivable for investments
sold........................................................
.................
..... 4,115,000
Receivable for Series shares
sold........................................................
....................
2,080,414
Interest
receivable..................................................
.................
....................... 1,625,300
Deferred expenses and other
assets......................................................
.................
.... 5,891
------------
Total
assets......................................................
.................
....................... 187,905,347
------------
Liabilities
Payable for investments
purchased...................................................
.................
........ 3,880,000
Payable for Series shares
reacquired..................................................
.................
...... 1,392,918
Dividends
payable.....................................................
.................
...................... 64,568
Management fee
payable.....................................................
.................
................. 60,373
Accrued expenses and other
liabilities.................................................
.................
..... 42,241
Distribution fee
payable.....................................................
.................
............... 10,855
Deferred trustees'
fees........................................................
.................
............. 1,600
------------
Total
liabilities.................................................
.................
....................... 5,452,555
------------
Net
Assets......................................................
.................
............................ $182,452,792
------------
------------
Net assets were comprised of:
Shares of beneficial interest, at $.01 par
value.......................................................
... $
1,824,528
Paid-in capital in excess of
par.........................................................
.................
180,628,264
------------
Net assets, August 31,
1995........................................................
.................
......... $182,452,792
------------
------------
Net asset value, offering price and redemption price per
share ($182,452,792 /
182,452,792 shares of
beneficial interest issued and outstanding; unlimited
number of shares
authorized)........................ $1.00
------------
------------
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
5
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW JERSEY MONEY MARKET SERIES
Statement of Operations
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income August 31,
1995
-------------
- - --
<S> <C>
Income
Interest and discount earned............. $ 6,375,246
-------------
- - --
Expenses
Management fee, net of waiver of
$214,029.............................. 642,087
Distribution fee......................... 214,029
Transfer agent's fees and expenses....... 90,000
Custodian's fees and expenses............ 50,000
Registration fees........................ 28,000
Reports to shareholders.................. 24,000
Legal fees............................... 13,000
Audit fee................................ 10,500
Deferred organization expenses........... 6,440
Insurance expense........................ 5,000
Trustees' fees........................... 3,000
Miscellaneous............................ 7,889
-------------
- - --
Total expenses........................ 1,093,945
Less: custodian fee credit...............
(47,681)
-------------
- - --
Net expenses.......................... 1,046,264
-------------
- - --
Net investment income....................... 5,328,982
-------------
- - --
Net Increase in Net Assets
Resulting from Operations................... $ 5,328,982
-------------
- - --
-------------
- - --
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW JERSEY MONEY MARKET SERIES
Statement of Changes in Net Assets
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended August 31,
<S> <C> <C>
in Net Assets 1995 1994
Operations
Net investment income........ $ 5,328,982 $
3,169,992
------------- ---------
- - ----
Net increase in net assets
resulting from
operations................ 5,328,982
3,169,992
------------- ---------
- - ----
Dividends to shareholders....... (5,328,982)
(3,169,992)
------------- ---------
- - ----
Series share transactions
(at $1 per share)
Net proceeds from shares
subscribed................ 621,173,812
556,557,575
Net asset value of shares
issued to shareholders in
reinvestment of
dividends................. 5,178,490
3,057,774
Cost of shares reacquired.... (602,179,432)
(564,422,228)
------------- ---------
- - ----
Net increase (decrease) in
net assets from Series
share transactions........ 24,172,870
(4,806,879)
------------- ---------
- - ----
Total increase (decrease)....... 24,172,870
(4,806,879)
Net Assets
Beginning of year............... 158,279,922
163,086,801
------------- ---------
- - ----
End of year..................... $ 182,452,792 $
158,279,922
------------- ---------
- - ----
------------- ---------
- - ----
</TABLE>
- - ------------------------------------------------------------
- - --------------------
6 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements NEW JERSEY
MONEY MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
Prudential Municipal Series Fund (the ``Fund'') is
registered under the
Investment Company Act of 1940 as an open-end investment
company. The Fund was
organized as a Massachusetts business trust on May 18, 1984
and consists of
seventeen series. The monies of each series are invested in
separate,
independently managed portfolios. The New Jersey Money
Market Series (the
``Series'') commenced investment operations on December 3,
1990. The Series is
non-diversified and seeks to achieve its investment
objective of providing the
highest level of income that is exempt from New Jersey State
and federal income
taxes with a minimum of risk by investing in ``investment
grade'' tax-exempt
securities maturing within 13 months or less and whose
ratings are within the
two highest ratings categories by a nationally recognized
statistical rating
organization, or if not rated, are of comparable quality.
The ability of the
issuers of the securities held by the Series to meet their
obligations may be
affected by economic 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, and the Series, in the preparation of its financial
statements.
Securities Valuations: Portfolio securities of the Series
are valued at
amortized cost, which approximates market value. The
amortized cost method of
valuation involves valuing a security at its cost on the
date of purchase and
thereafter assuming a constant amortization to maturity of
any discount or
premium.
All securities are valued as of 4:30 P.M., New York time.
Securities Transactions and Investment Income: Securities
transactions are
recorded on the trade date. Realized gains and losses on
sales of investments
are calculated on the identified cost basis. Interest income
is recorded on the
accrual basis.
Federal Income Taxes: For federal income tax purposes, each
series in the Fund
is treated as a separate taxpaying entity. It is the intent
of the Series 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
shareholders. For this reason and because substantially all
of the Series' gross
income consists of tax-exempt interest, no federal income
tax provision is
required.
Dividends: The Series declares daily dividends from net
investment income.
Payment of dividends is made monthly.
Income distributions and capital gain distributions are
determined in accordance
with income tax regulations which may differ from generally
accepted accounting
principles.
Deferred Organization Expenses: The Series incurred $32,200
in organization and
initial registration expenses. Such amount has been deferred
and is being
amortized over a period of 60 months ending December 1995.
- - ------------------------------------------------------------
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 1% of the average daily net assets of each of
the Series. During
the year ended August 31, 1995, PMF waived 25% of its
management fee. The amount
of such fees waived for the year ended August 31, 1995
amounted to $214,029
($.001 per share; .125% of average net assets).
The Fund has a distribution agreement with Prudential Mutual
Fund Distributors,
Inc. (``PMFD''). To reimburse PMFD for its expenses incurred
pursuant to a plan
of distribution, the Fund pays PMFD a reimbursement, accrued
daily and payable
monthly, at an annual rate of .125 of 1% of the Series'
average daily net
assets. PMFD pays various broker-dealers, including
Prudential Securities
Incorporated (``PSI'') and Pruco Securities Corporation,
affiliated
broker-dealers, for account servicing fees and other
expenses incurred by such
broker-dealers.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC
are (indirect)
wholly-owned subsidiaries of The Prudential Insurance
Company of America.
- - ------------------------------------------------------------
- - --------------------
7
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements NEW JERSEY
MONEY MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
- - ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services, Inc. (``PMFS''), a wholly-
owned subsidiary of
PMF, serves as the Fund's transfer agent. During the year
ended August 31, 1995,
the Series incurred fees of approximately $82,000 for the
services of PMFS. As
of August 31, 1995, approximately $7,000 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.
- - ------------------------------------------------------------
- - --------------------
8
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights NEW JERSEY
MONEY MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Year Ended August 31,
- - -----------------------------------------------
1995 1994 1993 1992
- - -------- -------- -------- --------
<S>
<C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period..................................... $
1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income and net realized
gains(c)..........................
.03 .02 .02 .04
Dividends and
distributions..............................................
(.03) (.02) (.02) (.04)
- - -------- -------- -------- --------
Net asset value, end of
period........................................... $
1.00 $ 1.00 $ 1.00 $ 1.00
- - -------- -------- -------- --------
- - -------- -------- -------- --------
TOTAL
RETURN(d):..................................................
.......
3.15% 1.90% 2.31% 3.48%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)..........................................
$182,453 $158,280 $163,087 $164,092
Average net assets
(000).................................................
$171,223 $169,123 $170,103 $155,915
Ratios to average net assets(c):
Expenses, including distribution
fee..................................
.64% .68% .64% .32%
Expenses, excluding distribution
fee..................................
.51% .55% .51% .19%
Net investment
income.................................................
3.11% 1.87% 2.02% 3.33%
<CAPTION>
December 3,
1990(a)
Through
August 31,
1991
- - -----------
<S>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period..................................... $
1.00
Net investment income and net realized
gains(c)..........................
.03
Dividends and
distributions..............................................
(.03)
- - -----------
Net asset value, end of
period........................................... $
1.00
- - -----------
- - -----------
TOTAL
RETURN(d):..................................................
.......
3.55%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).......................................... $
117,460
Average net assets
(000)................................................. $
89,273
Ratios to average net assets(c):
Expenses, including distribution
fee..................................
.13%(b)
Expenses, excluding distribution
fee..................................
.00%(b)
Net investment
income.................................................
4.48%(b)
</TABLE>
- - ---------------
(a) Commencement of investment operations.
(b) Annualized.
(c) Net of management fee waiver and/or expense subsidy.
(d) Total return includes reinvestment of dividends and
distributions. Total
returns for periods of less than one year are not
annualized.
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
9
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Independent Auditors' Report NEW JERSEY
MONEY MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
The Shareholders and Board of Trustees
Prudential Municipal Series Fund, New Jersey Money Market
Series
We have audited the accompanying statement of assets and
liabilities, including
the portfolio of investments, of Prudential Municipal Series
Fund, New Jersey
Money Market Series, as of August 31, 1995, the related
statements of operations
for the year then ended and of changes in net assets for
each of the two years
in the period then ended, and the financial highlights for
each of the four
years in the period then ended and for the period December
3, 1990 (commencement
of investment operations) through August 31, 1991. These
financial statements
and financial highlights are the responsibility of the
Fund's management. Our
responsibility is to express an opinion on these financial
statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally
accepted auditing
standards. Those standards require that we plan and perform
the audit to obtain
reasonable assurance about whether the financial statements
and financial
highlights are free of material misstatement. An audit
includes examining, on
a
test basis, evidence supporting the amounts and disclosures
in the financial
statements. Our procedures included confirmation of the
securities owned as of
August 31, 1995 by correspondence with the custodian and
brokers; where replies
were not received from brokers, we performed other auditing
procedures. An audit
also includes assessing the accounting principles used and
significant estimates
made by management, as well as evaluating the overall
financial statement
presentation. We believe that our audits provide a
reasonable basis for our
opinion.
In our opinion, such financial statements and financial
highlights present
fairly, in all material respects, the financial position of
Prudential Municipal
Series Fund, New Jersey Money Market Series, as of August
31, 1995, the results
of its operations, the changes in its net assets, and its
financial highlights
for the respective stated periods in conformity with
generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
October 16, 1995
PRUDENTIAL
MUNICIPAL SERIES FUND
Federal Income Tax Information NEW JERSEY
MONEY MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
We are required by the Internal Revenue Code to advise you
within 60 days of the
Series' fiscal year end (August 31, 1995) as to the federal
tax status of
dividends paid by the Series during such fiscal year.
Accordingly, we are
advising you that in the fiscal year ended August 31, 1995,
dividends paid from
net investment income of $.03 per share were federally tax-
exempt interest
dividends.
- - ------------------------------------------------------------
- - --------------------
10
<PAGE>
Getting
The Most
From Your
Prudential
Mutual Fund
When you invest through Prudential Mutual Funds, you receive
financial advice
through a Prudential Securities financial advisor or
Prudential/Pruco
Securities registered representative. Your advisor or
representative can
provide you with the following services.
There's No Reward Without Risk; But Is This Risk Worth It?
Your financial adviser or registered representative can help
you match the
reward you seek with the risk you can tolerate. And risk can
be difficult to
gauge --sometimes even the simplest investments bear
surprising risks. The
educated investor knows that markets seldom move in just one
direction --
there are times when a market sector or asset class will
lose value or provide
little in the way of total return. Managing your own
expectations is easier
with help from someone who understands the markets and who
knows you!
Keeping Up With The Joneses.
A financial adviser or registered representative can help
you wade through the
numerous mutual funds available to find the ones that fit
your own individual
investment profile and risk tolerance. While the newspapers
and popular
magazines are full of advice about investing, they are aimed
at generic groups
of people or representative individuals, not at you
personally. Your financial
advisor or registered representative will review your
investment objectives
with you. This means you can make financial decisions based
on the assets and
liabilities in your current portfolio and your risk
tolerance -- not just
based on the current investment fad.
Buy Low, Sell High.
Buying at the top of a market cycle and selling at the
bottom are among the
most common investor mistakes. But sometimes it's difficult
to hold on to an
investment when it's losing value every month. Your
financial adviser or
registered representative can answer questions when you're
confused or
worried about your investment, and remind you that you're
investing for the
long haul.
<PAGE>
Getting
The Most
From Your
Prudential
Mutual Fund
Some mutual fund shareholders won't ever read this -- they
don't read annual
and semi-annual reports. It's quite understandable These
annual and semi-
annual reports are prepared to comply with Federal
regulations. They are often
written in language that is difficult to understand. So when
most people run
into those particularly daunting sections of these reports,
they don't read
them.
We think that's a mistake.
At Prudential Mutual Funds, we've made some changes to our
report to make it
easier to understand and more pleasant to read, in hopes
you'll find it
profitable to spend a few minutes familiarizing yourself
with your investment.
Here's what you'll find in the report:
At A Glance
Since an investment's performance is often a shareholder's
primary concern,
we present performance information in two different formats.
You'll find it
first on the "At A Glance" page where we compare the Fund
and the comparable
average calculated by Lipper Analytical Services, Inc., a
nationally
recognized mutual fund rating agency. We report both the
cumulative total
returns and the average annual total returns. The cumulative
total return is
the total amount of income and appreciation the Fund has
achieved in various
time periods. The average annual total return is an
annualized representation
of the Fund's performance -- it generally smoothes out
returns and gives you
an idea how much the Fund has earned in an average year, for
a given time
period. Under the performance box, you'll see legends that
explain the
performance information, whether fees and sales charges have
been included in
returns, and the inception dates for the Fund's share
classes.
See the performance comparison charts at the back of the
report for more
performance information. And keep in mind that past
performance is not
indicative of future results.
Portfolio Manager's Report
The portfolio manager who invests your money for you reports
on successful --
and not-so-successful -- strategies in this section of your
report. Look for
recent purchases and sales here, as well as information
about the sectors the
portfolio managers favors and any changes that are on the
drawing board.
Portfolio Of Investments
This is where the report begins to look technical, but it's
really just a
listing of each security held at the end of the reporting
period, along with
valuations and other information. Please note that sometimes
we discuss a
security in the Portfolio Manager's Report that doesn't
appear in this listing
because it was sold before the close of the reporting
period.
<PAGE>
Statement Of Assets And Liabilities
The balance sheet shows the assets (the value of the Fund's
holdings),
liabilities (how much the Fund owes) and net assets (the
Fund's equity, or
holdings after the Fund pays its debts) as of the end of the
reporting period.
It also shows how we calculate the net asset value per share
for each class of
shares. The net asset value is reduced by payment of your
dividend, capital
gain, or other distribution, but remember that the money or
new shares are
being paid or issued to you and thus is not a realized loss.
The net asset
value fluctuates daily along with the value of every
security in the portfolio.
Statement Of Operations
This is the income statement, which details income (mostly
interest and
dividends earned) and expenses (including what you pay us to
manage your
money). You'll also see capital gains here -- both realized
and unrealized.
Statement Of Changes In Net Assets
This schedule shows how income and expenses translate into
changes in net
assets, compared to last year's performance. The Fund is
required to pay out
the bulk of its income to shareholders every year, and this
statement shows
you how we do it -- through dividends and distributions --
and how that
affects the net assets. This statement also shows how money
from investors
flowed into and out of the Fund.
Notes To Financial Statements
This is the kind of technical material that can intimidate
readers, but it
does contain useful information. The Notes provide a brief
history and
explanation of your Fund's objectives. In addition, they
also outline how
Prudential Mutual Funds prices securities. The Notes also
explain who manages
and distributes the Fund's shares, and more importantly, how
much they are
paid for doing so. Finally, the Notes explain how many
shares are outstanding
and the number issued and redeemed over the period.
Financial Highlights
This information contains many elements from prior pages,
but on a per share
basis. It is designed to help you understand how the Fund
performed and to
compare this year's performance and expenses to those of
prior years.
Independent Auditor's Report
Once a year, an outside auditor looks over our books and
certifies that the
information we've presented is fair and complies with
generally accepted
accounting principles.
Tax Information
This is information which we report annually about how much
of your total
return is taxable. Should you have any questions, you may
want to consult a
tax advisor.
Performance Comparison
These charts are included in the annual report and are
required by the
Securities Exchange Commission. Performance is presented
here as a hypothetical
$10,000 investment in the Fund since its inception or for 10
years (whichever
is shorter). To help you put that return in context, we are
required to include
the performance of an unmanaged, broad based securities
index, as well. The
index does not reflect the cost of buying the securities it
contains or the
cost of managing a mutual fund. Of course, the index
holdings do not mirror
those of the fund -- the index is a broadly based reference
point commonly used
by investors to measure how well they are doing. A
definition of the selected
index is also provided. Investors generally cannot invest
directly in an index.
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
(LOGO)
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy Hays Teeters
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Grace Torres, Treasurer
S. Jane Rose, Secretary
Stephen M. Ungerman, Assistant Treasurer
Deborah A. Docs, Assistant 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
Distributor
Prudential Mutual Fund Distributors, Inc.
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
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
This report is not authorized for distribution to
prospective investors unless
preceded or accompanied by a current prospectus.
MF147E
74435M762 Cat. #4443541
(ICON)
Prudential
Municipal
Series Fund
New York Series
Annual Report
Aug. 31, 1995
(LOGO)
<PAGE>
Prudential Municipal Series Fund
New York Series
Performance At A Glance.
It has been a good year for shareholders of the Prudential
Municipal Series
Fund: New York Series. Municipal bond investors earned not
only their coupon
income, but also saw a gain in share price as well. We are
pleased to report
that your Series performed better than the average New York
municipal bond fund
measured by Lipper Analytical Services over the past 12
months.
<TABLE>
<CAPTION>
Cumulative Total Returns1
As of 8/31/95
One Five Ten
Since
Year Years Years
Inception2
<S> <C> <C> <C>
<C>
Class A 7.7% 51.0% N/A
54.1%
Class B 7.3 47.9 110.2%
145.6
Class C 7.0 N/A N/A
7.1
Lipper NY Muni Avg3 6.6 48.9 123.3
163.1
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns1
As of 9/30/95
One Five Ten
Since
Year Years Years
Inception2
<S> <C> <C> <C>
<C>
Class A 7.0% 8.2% N/A
7.5%
Class B 4.8 8.3 8.0%
8.6
Class C 8.5 N/A N/A
6.7
</TABLE>
<TABLE>
<CAPTION>
Your
Dividend
As of 8/31/95
Taxable Equivalent Yield
Total Dividends 30-Day
At Tax Rates Of
Paid for 12 Mos. SEC Yield
36% 39.6%
<S> <C> <C>
<C> <C>
Class A $0.66 4.83%
8.19% 8.68%
Class B $0.61 4.58
7.77 8.23
Class C $0.58 4.33
7.34 7.78
</TABLE>
Past performance is not a guarantee of future results.
Principal and investment
return will fluctuate so that an investor's shares, when
redeemed, may be worth
more or less than their original cost.
1Source: Prudential Mutual Fund Management and Lipper
Analytical Services. The
cumulative total returns do not take into account sales
charges. The average
annual returns do take into account applicable sales
charges. The Fund charges
a maximum front-end sales load of 3% for Class A shares and
a 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. Class B
shares automatically
convert to Class A shares on a quarterly basis, after
approximately seven years.
2Inception dates: 1/22/90 Class A; 9/13/84 Class B; 8/1/94
Class C.
3The Lipper New York Municipal Bond fund average includes 76
funds for one year,
39 funds for five years, 15 funds for 10 years, and 13 funds
since inception of
the Class B shares on 9/13/84.
How Investments Compared.
(As of 8/31/95)
(GRAPH)
Source: Lipper Analytical Services.
Financial markets change, so a mutual fund's past
performance should never be
used to predict future results. The risks to each of the
investments listed
above are different -- we provide 12-month total returns for
several Lipper
mutual fund categories to show you that reaching for higher
yields means
tolerating more risk. The greater the risk, the larger the
potential reward or
loss. In addition, we've added historical 20-year average
annual returns. These
returns assume the reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Smaller
capitalization stocks
offer greater potential for long-term growth but may be more
volatile than
larger capitalization stocks. Investors receive higher
historical total returns
from stocks than from most other investments.
General Bond Funds provide more income than stock funds,
which can help smooth
out their total returns year by year. But their prices still
fluctuate
(sometimes a good deal) and their returns are historically
lower than those of
stock funds.
General Municipal Debt Funds invest in bonds issued by state
governments, state
agencies and/or municipalities. This investment provides
income that is usually
exempt from federal and state income taxes.
Money Market Funds attempt to preserve a constant share
value; they don't
fluctuate much in price but their returns are generally
among the lowest of
the major investment categories.
*19 years for General Muni Debt Funds.
<PAGE>
Patricia Dolan, Fund Manager
(PICTURE)
Portfolio
Manager's Report
The Series invests in carefully selected long-term municipal
bonds that offer
a high level of current income exempt from New York state,
New York City, and
federal income taxes consistent with preservation of
capital. Certain
shareholders may be subject to the federal alternative
minimum tax, however.
The Series invests primarily in obligations of New York
state, New York City,
and other local governments, including U.S. territories
(such as Puerto Rico,
the U.S. Virgin Islands and Guam), the income of which is
also exempt from
federal, New York state and New York City income taxes.
Manager Named.
Patricia Dolan was appointed portfolio manager in April. She
manages
more than $1.5 billion in municipal portfolios for
Prudential, including the
Prudential National Municipals Fund.
Strategy Session.
It has been a positive year for tax-free municipals.
Although interest rates
rose sharply in 1994 on inflation fears, they have fallen
back slowly so far
in 1995, as economic growth slowed. The Bond Buyer Revenue
Bond Index Yield
stood at 6.4% on September 1, 1994 (the index is calculated
on Thursdays) and
rose by a percentage point to a high of 7.4% in mid-October
1994, before falling
to 6.3% on August 31, 1995. When the dust had settled, long-
term municipal bond
interest rates ended the period lower.
Our strategy was to look for value. We find that attractive
bonds are available
at inexpensive prices from time to time in the rapidly
changing municipal bond
market. For instance, we increased assets in general
obligation bonds, which are
easier to trade in volatile markets. At the same time, we
decreased our holdings
in housing bonds and utilities this year, as they have had
less appreciation
potential. Housing bond prices can fall on mortgage
prepayment fears as
interest rates decline and utility bonds have not performed
well because of
threats of new competition.
The last 12 months have been particularly important to
investors in New York
state bonds. Newly-elected Gov. George Pataki took office in
January, saying he
was determined to improve the state's financial position. He
was able to gain
legislative approval for the first budget in 40 years that
actually reduced
spending, if only by 1%.
As they struggle toward fiscal responsibility, both the
state and New York City
face the added burden that their economic growth is not
keeping pace with the
nation.
Of course, if the governor eliminates the state's structural
deficit and
reduces personal income taxes, the state's economy could
strengthen and bond
holders could benefit because timely repayment would be
facilitated.
Sector Breakdown.
(CHART)
<PAGE>
What Went Well.
We Held On To
Good Yields.
We increased assets invested in non-callable bonds (those
that can not be paid
off prematurely by the issuer to save on interest costs) to
28%, up from 14%
a year ago. These bonds not only offer attractive yields but
also appreciate
well when interest rates decline. They are valuable because
not many bonds
offer protection from call risk -- only about a third of the
securities in
Lehman Brothers' Municipal Bond Index are non-callable.
It Paid To Buy
Puerto Rico Bonds.
The supply of new municipal bonds has declined sharply in
New York state, by 21%
this year alone. So we looked elsewhere. We bought bonds
sold by Puerto Rico,
because they are tax-exempt federally and in virtually all
states, including
New York. As a result, they are in demand. Our holdings in
Puerto Rico are now
11% of assets, up from 5% a year ago.
And Not So Well.
A Longer Duration
Would Have Helped.
Duration measures the sensitivity of a bond's price to
interest rate changes.
The longer the duration, the more a bond's price appreciates
when interest rates
fall, and vice versa. Over the winter, our duration was
shorter than that of
some competing funds, because we expected economic growth to
remain strong. As
the slowdown became apparent in the second quarter, we
extended duration.
Duration generally ranged from 7.0 years to 7.9 years, and
was 7.0 years on
August 31.
Municipals Suffered
From Tax Talk.
Congress is considering various changes in the federal
income tax, including
a flat tax -- an income tax at a single, flat rate. One
proposal would
eliminate taxes on most investment income. Clearly, this has
created uncertainty
in the municipal market -- one reason why municipal bonds
did not follow taxable
bond prices higher this spring. At this writing, we believe
it is unlikely that
a flat tax proposal in this form is likely to pass Congress
- - -- especially not
before next year's elections.
Five Largest Holdings.*
6.4% NYS Medical Care Facilities
Mental Health
6.1% NY City
General Obligation
5.7% NYS Dormitory Authority
City University
5.6% NY State
Local Gov't. Assist. Corp.
4.4% Puerto Rico
General Obligation
* Expressed as a percentage of total net assets as of
8/31/95.
Looking Ahead.
Municipal bond yields are very attractive now. As we
mentioned earlier, when
U.S. government and corporate bond yields fell this spring,
municipal yields
did not follow to the same extent. That means there are some
good buying
opportunities now in the municipal market. Should interest
rates remain stable,
municipal bond investors may look forward to earning their
coupon income. Plus,
if interest rates fall further, investors could reasonably
expect some price
appreciation as well.
Nevertheless, municipal bond investors should be prepared
to weather some volatility this year as various proposals to
change the
country's income tax structure are debated. Overall, we
believe municipal
bonds still offer good value, and that volatility can offer
some attractive
buying opportunities.
1
<PAGE>
President's Letter
October 11, 1995
(PICTURE)
Dear Shareholder:
We hope you like the fresh look and information we've given
your shareholder
letter. We've also introduced another feature, called
Getting the Most Out of
Your Prudential Mutual Fund, which will appear from time to
time at the back of
your report. Look for topics like "Understanding Risk &
Reward" as well as
easy-to-understand explanations of financial terms. Why are
we providing such
information? Because at Prudential Mutual Funds, we believe
an informed investor
makes smart investment decisions.
On the Hill
As an informed investor, you should know about the "American
Dream Savings
Account" that is part of the federal budget package now
under debate in the
Senate. It is a type of Individual Retirement Account that
offers a
common-sense approach to long-term saving. Investors should
like it because --
- - - You can withdraw funds -- without penalty -- to pay for
certain expenses like
buying a first home, medical care or educational needs;
- - - All account earnings would accumulate tax-free, not merely
tax-deferred like
the current IRA;
- - - You can make contributions past age 70 1/2, instead of
having to take
distributions as the current law requires.
Of course, the federal budget process is never easy and
while we hope this
measure is adopted, there's no way of knowing if it will be.
So why not
let your Senator and/or Representative know your opinion
today? Simply
call 202-224-3121.
In Closing
One final note: if you're a Class B shareholder of
Prudential Mutual Funds,
you'll begin noticing a change on your statements once
you've held your shares
for seven years. At that time, they will automatically begin
to convert to
Class A shares on a quarterly basis. Since Class A shares
carry lower annual
distribution charges than Class B shares, your total returns
will be higher
after the conversion than they would have been without it.
Conversions started
earlier this year and beginning in December they will take
place during each
calendar quarter -- December, March, June and September.
It's our way of
thanking you for your loyalty -- and rewarding you for
maintaining a long-term
investment program by helping you earn more total investment
return on your
Prudential Mutual Fund. I hope you'll find this information
useful as you work
with your financial advisor or registered representative to
develop your
personal investment plan.
Thank you for choosing Prudential Mutual Funds for your
mutual fund investment.
Sincerely,
Richard A. Redeker
President
2
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Portfolio of Investments as of August 31, 1995 NEW YORK
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
LONG-TERM INVESTMENTS--91.7%
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
Babylon Ind. Dev. Agcy. Res. Rec. Rev.,
Babylon Cmnty. Waste Mgmt. Facs., Ser. A
Baa1
7.875% 7/01/06 $ 3,520(d) $ 4,015,792
Ogden Martin Sys. Inc., Ser. B
Baa1
8.50 1/01/19 495 557,464
Ogden Martin Sys. Inc., Ser. C
Baa1
8.50 1/01/19 3,450 3,885,356
City of New Rochelle Ind. Dev. Agcy.,
Coll. of New Rochelle
BBB-(c)
6.625 7/01/12 500 508,785
Coll. of New Rochelle
BBB-(c)
6.75 7/01/22 2,000 2,038,340
Dutchess Cnty. Res. Rec. Agcy. Rev.,
Solid Waste Mgmt., Ser. A, F.G.I.C.
Aaa
7.50 1/01/09 1,150 1,284,481
Great Neck No. Wtr. Auth., Wtr. Sys. Rev., Ser. A
A1
7.00 1/01/18 1,750(d) 1,958,390
Hempstead Town, Ser. B, F.G.I.C.
Aaa
5.625 2/01/15 3,400 3,311,702
Islip Res. Rec., Ser. B, A.M.B.A.C.
Aaa
7.20 7/01/10 1,745 2,021,705
Jefferson Cnty. Ind. Dev. Agcy., Solid Waste Disp. Rev.
Baa1
7.20 12/01/20 1,500 1,591,530
Metro. Trans. Auth. Facs. Rev.,
Commuter Facs., Ser. 7
Baa1
Zero 7/01/08 4,030 1,903,692
Commuter Facs., Ser. 7
Baa1
Zero 7/01/09 4,445 1,948,910
Commuter Facs., Ser. N, F.G.I.C.
Aaa
Zero 7/01/12 5,575 2,146,877
Commuter Facs., Ser. N, F.G.I.C.
Aaa
Zero 7/01/13 4,000 1,445,360
Trans. Facs., Ser. O
Baa1
5.75 7/01/08 2,500 2,472,975
Trans. Facs., Ser. O
Baa1
5.75 7/01/13 1,975 1,908,620
Nassau Cnty. Ind. Dev. Agcy. Rev., Hofstra Univ. Proj.
A
8.25 7/01/03 2,500 (d) 2,773,925
New York City, Gen. Oblig.,
Ser. A
Baa1
7.75 3/15/03 3,500 3,850,490
Ser. B
Baa1
8.00 6/01/99 1,900 2,082,970
Ser. B
Baa1
7.50 2/01/01 4,000 4,370,080
Ser. D
Baa1
8.00 8/01/03 2,500 2,802,700
Ser. D
Baa1
7.70 2/01/09 3,040 3,349,654
Ser. F
Baa1
8.20 11/15/03 3,000 3,457,830
New York City Ind. Dev. Agcy., Spec. Fac. Rev.,
American Airlines Proj.
Baa2
6.90 8/01/24 6,000 6,194,520
Term. One Group Assoc. Proj.
A
6.00 1/01/15 3,000 2,899,860
Term. One Group Assoc. Proj.
A
6.00 1/01/19 5,000 4,787,950
U.S.T.A. National Tennis Center Proj., F.S.A.
Aaa
6.375 11/15/14 1,000 1,040,090
Y.M.C.A. Of Greater N.Y. Proj.
NR
8.00 8/01/16 1,350 1,444,514
New York City Mun. Wtr. Fin. Auth. Rev.,
Wtr. & Swr. Sys., Ser. A, M.B.I.A.
Aaa
7.25 6/15/15 3,000 3,405,270
Wtr. & Swr. Sys., Ser. C
Aaa
7.375 6/15/13 4,000 (d) 4,635,200
New York St. Dorm. Auth. Rev., City Univ. Sys. Cons.,
Ser. A
Baa1
8.125 7/01/07 3,435 3,831,742
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
3
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Portfolio of Investments as of August 31, 1995 NEW YORK
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
New York St. Dorm. Auth. Rev., City Univ. Sys. Cons.,
(cont'd)
Ser. A
Baa1
5.75% 7/01/13 $ 2,500 $ 2,398,875
Ser. C, F.G.I.C.
Aaa
7.50 7/01/10 3,500 4,199,230
Ser. D
Baa1
8.75 7/01/02 5,000 6,067,000
Ser. D
Baa1
7.00 7/01/09 1,880 2,069,711
Coll. & Univ. Ed., M.B.I.A.
Aaa
Zero 7/01/04 2,255 1,437,811
Episcopal Hlth. Svcs., G.N.M.A.
AAA(c)
7.55 8/01/29 3,000 3,266,730
Insured Mount Sinai Med. Sch., Ser. A, M.B.I.A.
Aaa
5.00 7/01/13 2,945 2,648,762
Long Island Med. Ctr.,
Ser. A, F.H.A.
Aa
7.625 8/15/08 2,595 2,812,746
Ser. A, F.H.A.
Aa
7.75 8/15/27 4,100 4,455,839
Menorah Campus, F.H.A.
AA(c)
7.40 2/01/31 2,990 3,323,176
Spec. Act. Sch. Districts, F.G.I.C.
Aaa
7.00 7/01/13 3,050 3,322,426
St. Univ. Edl. Facs., Ser. A, A.M.B.A.C.
Baa1
5.25 5/15/15 5,000 4,494,850
New York St. Energy Resh. & Dev. Auth. Rev.,
Brooklyn Union Gas Co., M.B.I.A.
Aaa
6.75 2/01/24 2,000 2,105,020
Brooklyn Union Gas Co., Ser. D, M.B.I.A.
Aaa
7.225 7/08/26 2,000 (e) 1,720,000
Con. Edison Co.
Aa3
7.50 7/01/25 6,735 7,268,142
Con. Edison Co.
Aa3
7.50 1/01/26 4,775 5,158,767
New York St. Environ. Facs. Corp.,
Occidental Pet. Corp. Proj.
Baa3
5.70 9/01/28 2,000 1,778,720
Poll. Ctrl. Rev., St. Wtr. Revolving Fund, Ser. B
Aa
7.50 3/15/11 1,300 1,432,691
Poll. Ctrl. Rev., St. Wtr. Revolving Fund, Ser. E
Aa
6.50 6/15/14 1,000 1,059,960
New York St. Hsg. Fin. Agcy. Rev., Ser. A,
Multifamily Hsg.
Aa
7.05 8/15/24 1,000 1,048,600
St. Univ. Constr.
Aaa
8.10 11/01/10 1,000 (d) 1,137,720
St. Univ. Constr.
Aaa
8.00 5/01/11 3,600 4,375,980
Svc. Contract
Aaa
7.375 9/15/21 2,000 (d) 2,346,220
New York St. Local Gov't. Assistance Corp.,
Ser. B
A
5.375 4/01/16 5,000 4,627,500
Ser. B
A
6.25 4/01/21 2,000 2,015,700
Ser. C
A
Zero 4/01/14 10,000 3,327,200
Ser. E
A
6.00 4/01/14 4,000 4,035,520
Ser. E
A
5.25 4/01/16 4,500 4,118,670
New York St. Med. Care Facs. Fin. Agcy. Rev.,
Booth, Silvercrest & Kings Brook Hosp., Ser. A, F.H.A.
Aa
7.60 2/15/29 2,750 3,030,720
Ellis & Ira Davenport Hosp., Ser. B, F.H.A.
Aa
8.00 2/15/28 1,495 1,658,942
F.U.C. Insured Mtge., Ser. A, A.M.B.A.C.
Aaa
6.50 8/15/29 3,000 3,122,850
Good Samaritan Hosp., Ser. A, F.H.A.
Aa
7.625 2/15/23 3,500 3,804,780
Hosp. & Nursing Home, Ser. A, F.H.A.
Aaa
7.70 2/15/25 1,000 (d) 1,162,790
Hosp. & Nursing Home, Ser. C, F.H.A.
Aa
8.625 2/15/06 1,430 1,464,677
Long Island Coll. Hosp., Ser. A, F.H.A.
AAA(c)
8.50 1/15/22 4,000 4,151,080
Long Island Coll. Hosp., Ser. B, F.H.A.
Aa
8.00 2/15/08 3,000 3,330,810
</TABLE>
- - ------------------------------------------------------------
- - --------------------
4 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Portfolio of Investments as of August 31, 1995 NEW YORK
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
New York St. Med. Care Facs. Fin. Agcy. Rev., Mental Hlth.
Svcs., (cont'd)
F.G.I.C.
Aaa
5.375% 2/15/14 $ 5,000 $ 4,739,250
F.G.I.C.
Aaa
5.25 2/15/19 6,250 5,663,687
M.B.I.A.
Aaa
6.00 8/15/02 3,000 3,229,020
Ser. A
Aaa
7.50 8/15/07 2,185 (d) 2,537,812
Ser. A
Baa1
7.50 8/15/07 815 883,721
Ser. A
Baa1
7.75 8/15/11 135 148,001
Ser. A
Aaa
7.50 2/15/21 3,135 (d) 3,641,208
St. Francis Hosp., Proj. A, F.G.I.C.
Aaa
7.60 11/01/08 2,350 2,629,321
New York St. Mtge. Agcy. Rev.,
Homeowner Mtge.
Aa
5.375 10/01/17 2,000 1,800,620
Homeowner Mtge.
Aa
8.05 10/01/21 3,110 3,314,576
New York St. Mun. Bond Bank Agcy., Spec. Proj. Rev., Ser.
A
A+(c)
6.75 3/15/11 3,000 3,186,870
New York St. Thrwy. Auth. Svc. Contract Rev.,
Local Highway & Bridge
Baa1
5.875 4/01/14 1,485 1,427,337
New York St. Urban Dev. Corp. Rev.,
Correctional Cap. Facs., Ser. 5
Baa1
6.00 1/01/04 4,415 4,527,936
Correctional Cap. Facs.
Baa1
Zero 1/01/08 10,000 4,834,800
Correctional Cap. Facs.
Baa1
5.25 1/01/21 2,960 2,562,146
Niagara Falls Bridge Comn., Toll Bridge Sys. Rev.,
F.G.I.C.
Aaa
5.25 10/01/21 2,350 2,150,673
Port Auth. of New York & New Jersey, Ser. 70
A1
7.25 8/01/25 1,000 1,077,610
Suffolk Cnty. Ind. Dev. Agcy., Southwest Swr. Sys. Rev.,
F.G.I.C.
Aaa
6.00 2/01/07 1,000 1,068,170
Suffolk Cnty. Wtr. Auth., Waterworks Rev., M.B.I.A.
Aaa
6.00 6/01/09 5,160 5,467,536
Triborough Bridge & Tunl. Auth. Rev.,
Ser. A, M.B.I.A.
Aaa
6.00 1/01/10 2,000 2,102,140
Ser. A
Aa
5.00 1/01/15 5,000 4,468,800
Ser. M
Aaa
7.50 1/01/15 2,035 (d) 2,228,122
Puerto Rico Comnwlth., Gen. Oblig.,
A.M.B.A.C.
Aaa
7.00 7/01/10 6,500 7,544,225
A.M.B.A.C.
Aaa
5.25 7/01/18 1,000 923,650
A.M.B.A.C.
Aaa
5.00 7/01/21 5,000 4,430,750
Pub. Impvt. Ref.
Aaa
7.00 7/01/10 1,250 1,450,812
Puerto Rico Hsg. Fin. Auth. Rev., Single Family
Baa
5.25 12/01/06 2,000 1,914,600
Puerto Rico Hwy. & Trans. Auth.,
Hwy. Rev. Ser. W
Baa1
5.50 7/01/13 3,000 2,849,370
Hwy. Rev. Ser. W, F.S.A.
Aaa
5.25 7/01/20 2,215 2,031,044
Hwy. Rev. Ser. X
Baa1
5.50 7/01/19 3,450 3,199,530
Hwy. Rev. Ser. X, F.S.A.
Aaa
5.00 7/01/22 2,940 2,599,842
Puerto Rico Pub. Bldgs. Auth. Rev. Gtd. Gov't. Facs.,
Ser. A, A.M.B.A.C.
Aaa
6.25 7/01/15 850 902,938
Puerto Rico Tel. Auth. Rev.,
Ser. I, M.B.I.A.
Aaa
6.617 1/25/07 7,875 7,845,469
Ser. I, M.B.I.A.
Aaa
5.449 1/16/15 1,000 953,940
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
5
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Portfolio of Investments as of August 31, 1995 NEW YORK
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
Virgin Islands Pub. Fin. Auth. Rev.,
Hwy. Trans. Trust Fund
BBB(c)
7.70% 10/01/04 $ 2,500 $ 2,739,550
Hwy. Trans. Trust Fund, Ser. A
NR
7.25 10/01/18 2,550 2,690,148
------------
Total long-term investments (cost $280,229,855)
299,472,213
------------
SHORT-TERM INVESTMENTS--7.5%
Babylon Ind. Dev. Agcy. Res. Rec. Rev., Ser. 89, F.R.D.D.
A1+(c)
3.50 9/01/95 1,000 1,000,000
New York City, Gen. Oblig.,
Ser. 94A-4, F.R.D.D.
VMIG1
3.45 9/01/95 400 400,000
Ser. A, F.R.D.D.
VMIG1
3.45 9/01/95 2,200 2,200,000
New York City Hsg. Dev. Corp., E.17th St. Property,
Ser. 93A, F.R.D.D.
A-1(c)
3.50 9/01/95 4,300 4,300,000
New York St. Dorm. Auth. Rev.,
St. Francis Center at the Knolls, F.R.D.D.
VMIG1
3.45 9/01/95 2,600 2,600,000
New York St. Energy Resch. & Dev. Auth. Rev., F.R.D.D.,
Energy & Gas, Ser. 94B
VMIG1
3.15 9/01/95 300 300,000
Niagara Mohawk Pwr. Corp., Ser. 85A
A1+(c)
3.50 9/01/95 4,800 4,800,000
Niagara Mohawk Pwr. Corp., Ser. 85B
P1
3.45 9/01/95 800 800,000
Niagara Mohawk Pwr. Corp., Ser. 86A
P1
3.55 9/01/95 8,000 8,000,000
------------
Total short-term investments (cost $24,400,000)
24,400,000
------------
Total Investments--99.2%
(cost $304,629,855; Note 4)
323,872,213
Other assets in excess of liabilities--0.8%
2,694,687
------------
Net Assets--100%
$326,566,900
------------
------------
</TABLE>
- - ---------------
(a) The following abbreviations are used in portfolio
descriptions:
A.M.B.A.C.--American Municipal Bond Assurance
Corporation.
F.G.I.C.--Financial Guaranty Insurance Company.
F.H.A.--Federal Housing Administration.
F.R.D.D.--Floating Rate (Daily) Demand Note (b).
F.S.A.--Financial Security Assurance.
G.N.M.A.--Government National Mortgage Association.
M.B.I.A.--Municipal Bond Insurance Association.
<TABLE>
<C> <S>
(b) For purposes of amortized cost valuation, the maturity
date of such
security 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.
(c) Standard & Poor's rating.
(d) Prerefunded issues are secured by escrowed cash and/or
direct U.S.
guaranteed obligations.
(e) Inverse floating rate bond. The coupon is inversely
indexed to a floating
interest rate. The rate shown is the rate at
period end.
</TABLE>
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information
contains a description
of
Moody's and Standard & Poor's ratings.
- - ------------------------------------------------------------
- - --------------------
6 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Statement of Assets and Liabilities NEW YORK
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<S>
<C>
Assets
August 31, 1995
Investments, at value (cost
$304,629,855)...............................................
.................
.... $323,872,213
Interest
receivable..................................................
.................
....................... 3,417,340
Receivable for Series shares
sold........................................................
....................
65,397
Receivable for investments
sold........................................................
.................
..... 36,174
Prepaid expenses and other
assets......................................................
.................
..... 9,660
------------
Total
assets......................................................
.................
....................... 327,400,784
------------
Liabilities
Payable for Series shares
reacquired..................................................
.................
...... 369,813
Dividends
payable.....................................................
.................
...................... 191,114
Management fee
payable.....................................................
.................
................. 123,502
Distribution fee
payable.....................................................
.................
............... 82,783
Accrued expenses and other
liabilities.................................................
.................
..... 65,072
Deferred trustees'
fees........................................................
.................
............. 1,600
------------
Total
liabilities.................................................
.................
....................... 833,884
------------
Net
Assets......................................................
.................
............................ $326,566,900
------------
------------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
............
$ 274,187
Paid-in capital in excess of
par.........................................................
.................
308,048,008
------------
308,322,195
Accumulated net realized loss on
investments.................................................
.............
(997,653)
Net unrealized appreciation on
investments.................................................
...............
19,242,358
------------
Net assets, August 31,
1995........................................................
.................
......... $326,566,900
------------
------------
Class A:
Net asset value and redemption price per share
($163,024,630 / 13,689,565 shares of beneficial
interest issued and
outstanding)....................... $11.91
Maximum sales charge (3.0% of offering
price)......................................................
.......
.37
Maximum offering price to
public......................................................
....................
$12.28
Class B:
Net asset value, offering price and redemption price per
share
($163,012,854 / 13,684,725 shares of beneficial
interest issued and
outstanding)....................... $11.91
Class C:
Net asset value, offering price and redemption price per
share
($529,416 / 44,444 shares of beneficial interest
issued and
outstanding)...............................
$11.91
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
7
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW YORK SERIES
Statement of Operations
- - ------------------------------------------------------------
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income August 31,
1995
<S> <C>
Income
Interest and discount earned............. $
20,849,233
-------------
- - --
Expenses
Management fee (net of fee waiver of
$108,361).............................
1,518,552
Distribution fee--Class A................
95,024
Distribution fee--Class B................
1,150,164
Distribution fee--Class C................
2,439
Transfer agent's fees and expenses.......
183,000
Custodian's fees and expenses............
115,000
Registration fees........................
65,000
Legal fees...............................
40,000
Reports to shareholders..................
33,000
Audit fee................................
11,000
Trustees' fees...........................
3,200
Miscellaneous............................
15,340
-------------
- - --
Total expenses........................
3,231,719
Less: custodian fee credit...............
(15,291)
-------------
- - --
Net expenses..........................
3,216,428
-------------
- - --
Net investment income.......................
17,632,805
-------------
- - --
Realized and Unrealized Gain (Loss)
on Investments
Net realized gain (loss) on:
Investment transactions..................
3,593
Financial futures transactions...........
(428,642)
-------------
- - --
(425,049)
-------------
- - --
Net change in unrealized appreciation
(depreciation) on:
Investments..............................
5,028,670
Financial futures contracts..............
(4,844)
-------------
- - --
5,023,826
-------------
- - --
Net gain on investments.....................
4,598,777
-------------
- - --
Net Increase in Net Assets Resulting
from Operations............................. $
22,231,582
-------------
- - --
-------------
- - --
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW YORK SERIES
Statement of Changes in Net Assets
- - ------------------------------------------------------------
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended August 31,
in Net Assets 1995 1994
------ -----
- - -
<S> <C> <C>
Operations
Net investment income.......... $ 17,632,805 $
18,454,581
Net realized loss on investment
transactions................ (425,049)
(16,054)
Net change in unrealized
appreciation (depreciation)
of investments.............. 5,023,826
(25,211,565)
------------ --------
- - ----
Net increase (decrease) in net
assets resulting from
operations.................. 22,231,582
(6,773,038)
------------ --------
- - ----
Dividends from net investment
income (Note 1)
Class A........................ (5,367,852)
(734,832)
Class B........................ (12,248,452)
(17,719,575)
Class C........................ (16,501)
(174)
------------ --------
- - ----
(17,632,805)
(18,454,581)
------------ --------
- - ----
Series share transactions (net of
share conversions) (Note 5)
Net proceeds from shares
sold........................ 18,761,553
41,684,512
Net asset value of shares
issued in reinvestment of
dividends................... 10,361,213
11,015,273
Cost of shares reacquired...... (52,939,335)
(52,115,672)
------------ --------
- - ----
Net increase (decrease) in net
assets from Series share
transactions................ (23,816,569)
584,113
------------ --------
- - ----
Total decrease.................... (19,217,792)
(24,643,506)
Net Assets
Beginning of year................. 345,784,692
370,428,198
------------ --------
- - ----
End of year....................... $326,566,900
$345,784,692
------------ --------
- - ----
------------ --------
- - ----
</TABLE>
- - ------------------------------------------------------------
- - --------------------
8 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements NEW YORK
SERIES
- - ------------------------------------------------------------
- - --------------------
Prudential Municipal Series Fund (the ``Fund'') is
registered under the
Investment Company Act of 1940 as an open-end investment
company. The Fund was
organized as a Massachusetts business trust on May 18, 1984
and consists of
seventeen series. The monies of each series are invested in
separate,
independently managed portfolios. The New York Series (the
``Series'') commenced
investment operations in September, 1984. The Series is
diversified and seeks
to
achieve its investment objective of obtaining the maximum
amount of income
exempt from federal and applicable state and city income
taxes with the minimum
of risk by investing in ``investment grade'' tax-exempt
securities and whose
ratings are within the four highest ratings categories by a
nationally
recognized statistical rating organization or, if not rated,
are of comparable
quality. The ability of the issuers of the securities held
by the Series to meet
their obligations may be affected by economic 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, and the Series, in the preparation of its financial
statements.
Securities Valuations: The Series 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 Trustees.
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.
All securities are valued as of 4:15 P.M., New York time.
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 Series 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 Series 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 Series invests in financial futures contracts in order
to hedge its existing
portfolio securities or securities the Series intends to
purchase, against
fluctuations in value caused by changes in prevailing
interest rates. Should
interest rates move unexpectedly, the Series 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.
There were no futures contracts outstanding at August 31,
1995.
Securities Transactions and Investment Income: Securities
transactions are
recorded on the trade date. Realized gains and losses on
sales of securities are
calculated on the identified cost basis. Interest income is
recorded on the
accrual basis. The Series amortizes premiums and original
issue discount paid
on
purchases of 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: For federal income tax purposes, each
series in the Fund
is treated as a separate taxpaying entity. It is the intent
of the Series 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
shareholders. For this reason and because substantially all
of the Series' gross
income consists of tax-exempt interest, no federal income
tax provision is
required.
Dividends and Distributions: The Series declares daily
dividends from net
investment income. Payment of dividends is made monthly.
Distributions of net
capital gains, if any, are made annually.
Income distributions and capital gain distributions are
determined in accordance
with income tax regulations which may differ from generally
accepted accounting
principles.
- - ------------------------------------------------------------
- - --------------------
9
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements NEW YORK
SERIES
- - ------------------------------------------------------------
- - --------------------
- - ------------------------------------------------------------
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 1% of the average daily net assets of the
Series. Effective
January 1, 1995, PMF has agreed to waive a portion (.05 of
1% of the Series'
average daily net assets) of its management fee, which
amounted to $108,361
($0.004 per share; 0.03% of average daily net assets). The
Series 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.
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 August 31, 1995.
PMFD has advised the Series that it has received
approximately $39,400 in
front-end sales charges resulting from sales of Class A
shares during the fiscal
year ended August 31, 1995. 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 Series that for the year ended August
31, 1995, it received
approximately $360,200 in contingent deferred sales charges
imposed upon certain
redemptions by Class B and C 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 Transactions with Affiliates
Prudential Mutual Fund Services, Inc. (``PMFS''), a wholly-
owned subsidiary of
PMF, serves as the Fund's transfer agent. During the fiscal
year ended August
31, 1995, the Series incurred fees of approximately $134,000
for the services
of
PMFS. As of August 31, 1995, approximately $11,000 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 Securities
Purchases and sales of portfolio securities of the Series,
excluding short-term
investments, for the fiscal year ended August 31, 1995 were
$176,874,532 and
$219,612,500, respectively.
The cost basis of investments for federal income tax
purposes at August 31, 1995
was $304,658,055 and, accordingly, net unrealized
appreciation investments for
federal income tax purposes was $19,214,158 (gross
unrealized
appreciation--$19,976,506, gross unrealized depreciation--
$762,348).
For federal income tax purposes, the Series had a capital
loss carryforward as
of August 31, 1995 of approximately $1,041,800, of which
$15,700 expires in 1999
and $1,026,100 expires in 2003. Accordingly, no capital
gains distributions are
expected to be paid to shareholders until net gains have
been realized in excess
of such carryforward.
The Series elected to treat net capital losses of
approximately $531,600
incurred in the ten month period ended August 31, 1994 as
having occurred in the
current fiscal year.
- - ------------------------------------------------------------
Note 5. Capital
The Series currently offers Class A, Class B and Class C
shares. Class A shares
are sold with a front-end sales charge of up to 3%. Class B
shares are sold with
a contingent deferred sales charge which declines from 5% to
zero depending on
the period of time the shares are held. Class C
- - ------------------------------------------------------------
- - --------------------
10
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements NEW YORK
SERIES
- - ------------------------------------------------------------
- - --------------------
shares are sold with a contingent deferred sales charge of
1% during the first
year. Class B shares 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 qualified to purchase
Class A shares at net
asset value.
The Fund has authorized an unlimited number of shares of
beneficial interest of
each class at $.01 par value per share.
Transactions in shares of beneficial interest for the years
ended August 31,
1995 and 1994 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- - ---------------------------------- ----------- ---------
- - ----
<S> <C> <C>
Year ended August 31 1995:
Shares sold....................... 277,184 $
3,225,910
Shares issued in reinvestment of
dividends....................... 267,148
3,155,429
Shares reacquired................. (1,006,903)
(11,817,623)
----------- ---------
- - ----
Net decrease in shares outstanding
before conversion............... (462,571)
(5,436,284)
Shares issued upon conversion from
Class B......................... 12,985,377
149,561,617
----------- ---------
- - ----
Net increase in shares
outstanding..................... 12,522,806 $
144,125,333
----------- ---------
- - ----
----------- ---------
- - ----
Year ended August 31, 1994:
Shares sold....................... 568,443 $
6,979,928
Shares issued in reinvestment of
dividends....................... 34,634
419,800
Shares reacquired................. (379,015)
(4,536,278)
----------- ---------
- - ----
Net increase in shares
outstanding..................... 224,062 $
2,863,450
----------- ---------
- - ----
----------- ---------
- - ----
</TABLE>
<TABLE>
<CAPTION>
Class B Shares Amount
- - ---------------------------------- ----------- ---------
- - ----
<S> <C> <C>
Year ended August 31, 1995:
Shares sold....................... 1,310,430 $
15,158,331
Shares issued in reinvestment of
dividends....................... 627,938
7,192,642
Shares reacquired................. (3,612,951)
(41,102,851)
----------- ---------
- - ----
Net decrease in shares outstanding
before conversion............... (1,674,583)
(18,751,878)
Shares reacquired upon conversion
into Class A.................... (12,985,377)
(149,561,617)
----------- ---------
- - ----
Net decrease in shares
outstanding..................... (14,659,960)
$(168,313,495)
----------- ---------
- - ----
----------- ---------
- - ----
Year ended August 31, 1994:
Shares sold....................... 2,819,758 $
34,553,962
Shares issued in reinvestment of
dividends....................... 873,809
10,595,424
Shares reacquired................. (3,939,794)
(47,570,423)
----------- ---------
- - ----
Net decrease in shares
outstanding..................... (246,227) $
(2,421,037)
----------- ---------
- - ----
----------- ---------
- - ----
<CAPTION>
Class C
- - ----------------------------------
<S> <C> <C>
Year ended August 31, 1995:
Shares sold....................... 32,796 $
377,312
Shares issued in reinvestment of
dividends....................... 1,131
13,142
Shares reacquired................. (1,612)
(18,861)
----------- ---------
- - ----
Net increase in shares
outstanding..................... 32,315 $
371,593
----------- ---------
- - ----
----------- ---------
- - ----
August 1, 1994(a) through
August 31, 1994:
Shares sold....................... 12,897 $
150,622
Shares issued in reinvestment of
dividends....................... 4
49
Shares reacquired................. (772)
(8,971)
----------- ---------
- - ----
Net increase in shares
outstanding..................... 12,129 $
141,700
----------- ---------
- - ----
----------- ---------
- - ----
- - ---------------
(a) Commencement of offering of Class C shares.
</TABLE>
- - ------------------------------------------------------------
- - --------------------
11
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights NEW YORK
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class
A
- - ------------------------------------------------------
Year Ended
August 31,
- - ------------------------------------------------------
1995
1994
1993 1992 1991
--------
- - -------
- - ------- ------ ------
<S> <C>
<C> <C>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............. $ 11.71
$ 12.54 $
11.75 $11.08 $10.62
--------
- - -------
- - ------- ------ ------
Income from investment operations
Net investment income..........................
.66(a) .67
.70 .71 .72
Net realized and unrealized gain (loss) on
investment transactions..................... .20
(.83)
.79 .67 .46
--------
- - -------
- - ------- ------ ------
Total from investment operations............ .86
(.16)
1.49 1.38 1.18
Less dividends
Dividends from net investment income........... (.66)
(.67)
(.70) (.71) (.72)
--------
- - -------
- - ------- ------ ------
Net asset value, end of year................... $ 11.91
$ 11.71 $
12.54 $11.75 $11.08
--------
- - -------
- - ------- ------ ------
--------
- - -------
- - ------- ------ ------
TOTAL RETURN(b):............................... 7.70%
(1.38)%
13.06% 12.73% 11.49%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000).................. $163,025
$13,661
$11,821 $6,057 $2,729
Average net assets (000)....................... $ 95,024
$13,454 $
8,755 $4,024 $1,579
Ratios to average net assets:
Expenses, including distribution fees.......
.69%(a) .74%
.74% .74% .71%
Expenses, excluding distribution fees.......
.59%(a) .64%
.64% .64% .61%
Net investment income.......................
5.65%(a) 5.46%
5.78% 6.19% 6.61%
Portfolio turnover rate........................ 57%
49%
44% 45% 78%
</TABLE>
<TABLE>
<C> <S>
- - ---------------
(a) Net of fee waiver.
(b) Total return does not consider the effects of sales
loads. Total return is
calculated assuming a purchase of shares on the
first day and a sale on the last day of each year
reported and includes
reinvestment of dividends.
</TABLE>
- - ------------------------------------------------------------
- - --------------------
12 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights NEW YORK
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class C
Class B ------------
- - ------------------------------------------------------------
Year
Year Ended
August 31, Ended
- - ------------------------------------------------------------
August 31,
1995
1994
1993 1992 1991 1995
--------
- - --------
- - -------- -------- -------- -------
<S> <C>
<C> <C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........... $ 11.71
$ 12.54 $
11.75 $ 11.08 $ 10.62 $11.71
--------
- - --------
- - -------- -------- -------- -------
Income from investment operations
Net investment income..........................
.61(a) .62
.65 .66 .67 .58(a)
Net realized and unrealized gain (loss) on
investment transactions...................... .20
(.83)
.79 .67 .46 .20
--------
- - --------
- - -------- -------- -------- -------
Total from investment operations............ .81
(.21)
1.44 1.33 1.13 .78
Less dividends
Dividends from net investment income........... (.61)
(.62)
(.65) (.66) (.67) (.58)
--------
- - --------
- - -------- -------- -------- -------
Net asset value, end of period................. $ 11.91
$ 11.71 $
12.54 $ 11.75 $ 11.08 $11.91
--------
- - --------
- - -------- -------- -------- -------
--------
- - --------
- - -------- -------- -------- -------
TOTAL RETURN(b):............................... 7.27%
(1.77)%
12.61% 12.32% 10.96% 7.01%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)................ $163,013
$331,982
$358,607 $316,472 $293,942 $ 529
Average net assets (000)....................... $230,033
$350,564
$330,823 $303,016 $295,285 $ 325
Ratios to average net assets:
Expenses, including distribution fees.......
1.11%(a) 1.14%
1.14% 1.14% 1.11% 1.36%(a)
Expenses, excluding distribution fees.......
.61%(a) .64%
.64% .64% .61% .61%(a)
Net investment income.......................
5.30%(a) 5.06%
5.38% 5.79% 6.21% 5.05%(a)
Portfolio turnover rate........................ 57%
49%
44% 45% 78% 57%
<CAPTION>
August 1,
Through
August 31,
1994
<S> <C>
-----
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........... $11.74
-----
Income from investment operations
Net investment income.......................... .04
Net realized and unrealized gain (loss) on
investment transactions...................... (.03)
-----
Total from investment operations............ .01
Less dividends
Dividends from net investment income........... (.04)
-----
Net asset value, end of period................. $11.71
-----
-----
TOTAL RETURN(b):............................... 0.06%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)................ $ 142
Average net assets (000)....................... $ 42
Ratios to average net assets:
Expenses, including distribution fees.......
1.62%(c)
Expenses, excluding distribution fees.......
.87%(c)
Net investment income.......................
5.17%(c)
Portfolio turnover rate........................ 49%
</TABLE>
<TABLE>
<C> <S>
- - ---------------
(a) Net of fee waiver.
(b) 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. Total returns for
periods of less than a full year are not annualized.
(c) Annualized.
(d) Commencement of offering of Class C shares.
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
13
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Independent Auditors' Report NEW YORK
SERIES
- - ------------------------------------------------------------
- - --------------------
The Shareholders and Board of Trustees
Prudential Municipal Series Fund, New York Series
We have audited the accompanying statement of assets and
liabilities, including
the portfolio of investments, of Prudential Municipal Series
Fund, New York
Series, as of August 31, 1995, the related statements of
operations for the year
then ended and of changes in 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. These financial statements and financial
highlights are the
responsibility of the Fund's management. Our responsibility
is to express an
opinion on these financial statements and financial
highlights based on our
audits.
We conducted our audits in accordance with generally
accepted auditing
standards. Those standards require that we plan and perform
the audit to obtain
reasonable assurance about whether the financial statements
and financial
highlights are free of material misstatement. An audit
includes examining, on
a
test basis, evidence supporting the amounts and disclosures
in the financial
statements. Our procedures included confirmation of the
securities owned as of
August 31, 1995 by correspondence with the custodian. An
audit also includes
assessing the accounting principles used and significant
estimates made by
management, as well as evaluating the overall financial
statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, such financial statements and financial
highlights present
fairly, in all material respects, the financial position of
Prudential Municipal
Series Fund, New York Series, as of August 31, 1995, the
results of its
operations, the changes in its net assets, and its financial
highlights for the
respective stated periods in conformity with generally
accepted accounting
principles.
DELOITTE & TOUCHE LLP
New York, New York
October 16, 1995
PRUDENTIAL
MUNICIPAL SERIES FUND
Federal Income Tax Information NEW YORK
SERIES
- - ------------------------------------------------------------
- - --------------------
We are required by the Internal Revenue Code to advise you
within 60 days of the
Series' fiscal year end (August 31, 1995) as to the federal
tax status of
dividends paid by the Series during such fiscal year.
Accordingly, we are
advising you that in the fiscal year ended August 31, 1995,
dividends paid from
net investment income of $.66 per share for Class A shares,
$.61 per Class B
shares and $.58 per Class C shares were all federally tax-
exempt interest
dividends.
In January 1996, you will be advised on IRS Form 1099 DIV or
substitute 1099 DIV
as to the federal tax status of the dividends received by
you in calendar year
1995.
- - ------------------------------------------------------------
- - --------------------
14
<PAGE>
Getting
The Most
From Your
Prudential
Mutual
Fund
When you invest through Prudential Mutual Funds, you receive
financial advice
through a Prudential Securities financial advisor or
Prudential/Pruco Securities
registered representative. Your advisor or representative
can provide you with
the following services.
There's No Reward Without Risk; But Is This Risk Worth It?
Your financial adviser or registered representative can help
you match the
reward you seek with the risk you can tolerate. And risk can
be difficult to
gauge --sometimes even the simplest investments bear
surprising risks. The
educated investor knows that markets seldom move in just one
direction -- there
are times when a market sector or asset class will lose
value or provide little
in the way of total return. Managing your own expectations
is easier with help
from someone who understands the markets and who knows you!
Keeping Up With The Joneses.
A financial adviser or registered representative can help
you wade through the
numerous mutual funds available to find the ones that fit
your own individual
investment profile and risk tolerance. While the newspapers
and popular
magazines are full of advice about investing, they are aimed
at generic groups
of people or representative individuals, not at you
personally. Your financial
advisor or registered representative will review your
investment objectives with
you. This means you can make financial decisions based on
the assets and
liabilities in your current portfolio and your risk
tolerance -- not just
based on the current investment fad.
Buy Low, Sell High.
Buying at the top of a market cycle and selling at the
bottom are among the
most common investor mistakes. But sometimes it's difficult
to hold on to an
investment when it's losing value every month. Your
financial adviser or
registered representative can answer questions when you're
confused or worried
about your investment, and remind you that you're investing
for the long haul.
<PAGE>
Getting
The Most
From Your
Prudential
Mutual
Fund
Change Your Mind.
You can exchange your shares in most Prudential Mutual Funds
for shares in most
other Prudential Mutual Funds, without charges. This may be
most helpful if
your investment needs change.
Reinvest Dividends Free Of Charge.
Reinvest your dividends and/or capital gains distributions
automatically --
without charge.
Invest For Retirement.
There is no minimum investment for an IRA. Plus, you defer
taxes on your
investment earnings by investing in an IRA.
If you'd like, you can contribute up to $2,000 a year in an
IRA. If you are
married, you and your spouse (if not working outside the
home) can contribute
up to $2,250 a year. (Withdrawals are taxed as ordinary
income and may be
subject to a 10% penalty prior to age 59 1/2.)
Change Your Job.
You can take your pension with you. Use a rollover IRA to
manage your company-
sponsored retirement plan while retaining the special tax-
deferred advantages.
Invest In Your Children.
There's no fee to open a custodial account for a child's
education or other
needs.
Take Income.
Would you like to receive monthly or quarterly checks in any
amount from your
fund account? Just let us know. We'll take care of it. Of
course, there are
minimum amounts. And shares redeemed may be subject to tax,
and Class B and
C shares may be subject to contingent deferred sales
charges. We'll gladly
answer your questions.
Keep Informed.
We want to keep you up-to-date. Of course, you receive
account activity
statements every quarter. But you also receive annual and
semi-annual fund
reports, as well as other important updates on events that
affect your
investments, including tax information.
This material is only authorized for distribution when
preceded or accompanied
by a current prospectus. Read the prospectus carefully
before you invest or
send money.
<PAGE>
- - -Prudential Municipal Series Fund: New York Series
- - --Lehman Bros. General Municipal Debt Index
The Prudential Municipal Series Fund: New York Series and
the Lehman Bros. Index: Comparing a $10,000 Investment.
Class A
(CHART)
Class B
(CHART)
Class C
(CHART)
Past performance is no guarantee of future results.
Investment return and
principal value will fluctuate so an investor's shares, when
redeemed, will
be worth more or less than their original cost. The charts
on the right are
designed to give you an idea how much the Series' returns
can fluctuate from
year to year by measuring the best and worst years in terms
of total annual
return since inception of each share class.
These graphs are furnished to you in accordance with SEC
regulations. They
compare a $10,000 investment in the Prudential Municipal
Series Fund: New York
Series (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 Class A and C shares and for
10 years for the
Class B shares, and subsequent account values at the end of
the most recent
reporting period (August 31), as measured on a quarterly
basis, beginning in
1990 for Class A shares, 1985 for Class B shares and 1994
for Class C Shares.
For purposes of the graphs, and unless otherwise indicated,
in the accompanying
tables it has been assumed (a) that the maximum applicable
front-end sales
charge was deducted from the initial $10,000 investment in
Class A shares;
(b) the maximum applicable contingent deferred sales charge
was deducted from
the value of the investment in Class B and Class C shares,
assuming full
redemption on August 31, 1995; (c) all recurring fees
(including management
fees) were deducted; and (d) all dividends and distributions
were reinvested.
Class B shares automatically convert to Class A shares, on a
quarterly basis,
approximately seven years after purchase. This conversion
feature is not
reflected in the graph.The graph and accompanying tables
reflect the past
subsidy and/or waiver of expenses and/or management fees.
The Index is a weighted index comprised 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. It is an unmanaged index that includes the
reinvestment of all
dividends, but does not reflect the transaction costs and
advisory fees paid
by the Series' investors. The Index's holdings differ from
the Series'
portfolio. The Index is not the only one that may be used to
characterize
performance of bond funds and other indices may portray
different comparative
performance.
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
(LOGO)
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy Hays Teeters
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Grace Torres, Treasurer
S. Jane Rose, Secretary
Stephen M. Ungerman, Assistant Treasurer
Deborah A. Docs, Assistant 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
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
This report is not authorized for distribution to
prospective investors
unless preceded or accompanied by a current prospectus.
74435M747 MF122E
74435M754
Cat.#6423319
74435M523
(ICON)
Prudential
Municipal
Series Fund
New York
Money Market Series
ANNUAL REPORT
Aug. 31, 1995
(LOGO)
<PAGE>
Prudential Municipal Series Fund
New York Money Market Series
Performance At A Glance.
Over the past 12 months, New York's economy continued to
show weakness and
its credit rating as of August 31, 1995 was A, according to
Moody's Investors
Service. Prudential Municipal Series Fund: New York Money
Market Series' 7-day
current yield on August 31, 1995 was 3.02%, compared to
3.31% six months ago.
<TABLE>
<CAPTION>
Fund Facts
As of 8/31/95
7-Day Net Asset Taxable
Equivalent Yield*
Weighted Total
Current Yld. Value @31%
@36% @39.6%
Avg. Mat. Assets (mil.)
<S> <C> <C> <C> <C>
<C> <C>
<C>
NY Money
Market Fund 3.02% $1.00 4.75%
5.12% 5.43%
64 Days $325
IBC/Donoghue
NY Tax-exempt 3.04 1.00 4.78
5.16 5.46
57 Days N/A
Fund Average **
</TABLE>
Note: Yields will fluctuate from time to time and past
performance is no
guarantee of future results.
An investment in the Series is neither insured nor
guaranteed by the U.S.
government and there can be no assurance that the Series
will be able to
maintain a stable net asset value.
* Some investors may be subject to the federal alternative
minimum tax.
**This is the average 7-day current yield, NAV and WAM of 38
funds in the
International Business Communications/Donoghue New York tax-
exempt money
market fund category as of August 31, 1995.
How Investments Compared.
(As of 8/31/95)
(GRAPH)
Source: Lipper Analytical Services.
Financial markets change, so a mutual fund's past
performance should never be
used to predict future results. The risks to each of the
investments listed
above are different -- we provide 12-month total returns for
several Lipper
mutual fund categories to show you that reaching for higher
yields means
tolerating more risk. The greater the risk, the larger the
potential reward or
loss. In addition, we've added historical 20-year average
annual returns.
These returns assume the reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Smaller
capitalization stocks
offer greater potential for long-term growth but may be more
volatile than
larger capitalization stocks. Investors receive higher
historical total
returns from stocks than from most other investments.
General Bond Funds provide more income than stock funds,
which can help smooth
out their total returns year by year. But their prices still
fluctuate
(sometimes a good deal) and their returns are historically
lower than those of
stock funds.
General Municipal Debt Funds invest in bonds issued by state
governments,
state agencies and/or municipalities. This investment
provides income that is
usually exempt from federal and state income taxes.
Tax-Exempt Money Market Funds attempt to preserve a constant
share value and
provide tax-free income; they don't fluctuate much in price
but their returns
are generally among the lowest of the major investment
categories.
*19 years for General Muni Debt Funds.
17 years for Tax-Free Money Market Funds.
<PAGE>
Colleen Meehan, Fund Manager
Portfolio
Manager's Report
Prudential Municipal Series Fund: New York Money Market
Series seeks the
highest current income that is exempt from federal, New York
state, and New
York City income taxes, consistent with liquidity, the
preservation of
capital, and maintenance of a stable net asset value of $1
per share. The
Series invests in a portfolio of short-term debt securities
and obligations of
New York state, its municipalities, local governments and
other qualifying
issuers.
Strategy Session.
The New York Money Market Series has followed a
conservative, quality oriented
investment strategy. We take a critical look not only at a
security's current
credit rating but also at the issuer as well. This includes
examining the
security's "linkage" between state and municipal
governments.
The accounting mechanisms between state and local
municipalities can be an
important factor in weighing the true underlying value of a
security. In some
states taxes collected by the municipality are passed on to
the state, which
actually controls the revenues.
Orange County Lessons.
December's bankruptcy filing by California's Orange County
after it suffered
$1.7 billion in investment losses surprised the municipal
securities markets.
The sudden collapse of one of America's richest counties and
highly rated bond
issuers underscored the importance of quality credit
research and
diversification.
The New York Money Market Series invests across a broad
spectrum of issues to
lessen risk. We held approximately 70 securities
representing 53 issuers from
across the state. We actively monitor our exposure to
certain areas with an
eye toward maintaining a consistent level of
diversification.
As of August 31, 1995, 67% of the portfolio was credit-
enhanced by insurance,
a letter of credit from a major money center bank, or
prerefunded by U.S.
governments that are held in escrow. We should note that our
credit research
team also scrutinizes issuers of credit enhancements as to
their quality and
strength.
Interest Rates Trend Lower
(GRAPH)
Federal Funds Rate vs. One-Year Bond Buyer Index
Source: Bloomberg & the Bond Buyer. The One-Year Bond Buyer
Index is an average
of
one-year, tax-exempt notes of 10 issuers calculated by the
Bond Buyer weekly on
Wednesdays.
<PAGE>
State Of The State.
Problems Persisted.
A slowdown in the economic recovery in New York is apparent.
The state's
overall credit rating as of August 31, 1995, was A,
according to Moody's.
Standard & Poor's lowered its credit rating for New York
City debt to BBB+
from A- in July affecting the city's $24.8 billion in
outstanding debt.
Other points --
- - - Unemployment remains higher than the national average with
acute losses in
the services sector. Income growth was also down. The
outlook for the
remainder of 1995 was for more of the same.
- - - Despite talk of fiscal restraint and cutbacks, New York's
state budget was
reduced only by 1% compared to the previous year. Gov.
George Pataki could
claim it was the first time in 40 years that the state
budget had actually been
reduced. Unfortunately, most of the cuts were later restored
and paid for by
questionable funding methods.
- - - New York City Mayor Rudolph Giuliani has actively sought
to downsize city
government and has encouraged growth by holding the line on
taxes. However, a
budgetary balance continued to prove elusive because of
softness in the city's
economy. As of this writing, the outlook on the city's
rating was said to be
stable, according to S&P.
Looking Ahead.
Going forward, we believe that yields for tax-free money
market funds will fall
lower following the taxable short-term interest rate cut
engineered by the
Federal Reserve. The central bank's next move may be to cut
taxable rates
again, but we don't know for sure by how much or when. We
have and will
continue to structure the Series' portfolio to produce a
competitive yield
while maintaining our ability to respond to changing markets
and continuing
credit quality.
A Word
About Quality.
Your Series typically will purchase securities with
maturities of one year or
less that are rated Aaa, Aa; Notes: MIG-1, MIG-2, P-1 or P-2
by Moody's
Investors Service, or AAA, AA; Notes: SP-1, SP-1+, A-1 or A-
2 by Standard &
Poor's or, if not rated, deemed to be of comparable quality
by the Fund's
investment adviser. Although there is never a guarantee that
the share price
of the New York Money Market Series will stay at $1, we at
Prudential
emphasize a conservative, quality-oriented investment
approach.
- - ------------------------------------------------------------
- - -------------------
1
<PAGE>
President's Letter
October 11, 1995
(PHOTO)
Dear Shareholder:
We hope you like the fresh look and information we've given
your shareholder
letter. We've also introduced another feature, called
Getting the Most Out of
Your Prudential Mutual Fund, which will appear from time to
time at the back
of your report. Look for topics like "Understanding Risk &
Reward" as well as
easy-to-understand explanations of financial terms. Why are
we providing such
information? Because at Prudential Mutual Funds, we believe
an informed
investor makes smart investment decisions.
On the Hill
As an informed investor, you should know about the "American
Dream Savings
Account" that is part of the federal budget package now
under debate in the
Senate. It is a type of Individual Retirement Account that
offers a common-
sense approach to long-term saving. Investors should like it
because --
- - - You can withdraw funds -- without penalty -- to pay for
certain expenses
like buying a first home, medical care or educational
needs;
- - - All account earnings would accumulate tax-free, not merely
tax-deferred like
the current IRA;
- - - You can make contributions past age 70 1/2, instead of
having to take
distributions as the current law requires.
Of course, the federal budget process is never easy and
while we hope this
measure is adopted, there's no way of knowing if it will be.
So why not let
your Senator and/or Representative know your opinion today?
Simply call
202-224-3121.
In Closing
One final note: if you're a Class B shareholder of other
Prudential Mutual
Funds, you'll begin noticing a change on your statements
once you've held your
shares for seven years. At that time, they will
automatically begin to convert
to Class A shares on a quarterly basis. Since Class A shares
carry lower
annual distribution charges than Class B shares, your total
returns will be
higher after the conversion than they would have been
without it. Conversions
started earlier this year and will take place during each
calendar quarter --
December, March, June and September. It's our way of
thanking you for your
loyalty -- and rewarding you for maintaining a long-term
investment program by
helping you earn more total investment return on your
Prudential Mutual Fund.
I hope you'll find this information useful as you work with
your financial
advisor or registered representative to develop your
personal investment plan.
Thank you for choosing Prudential Mutual Funds for your
mutual fund investment.
Sincerely,
Richard A. Redeker
President
- - ------------------------------------------------------------
- - -------------------
2
<PAGE>
Portfolio of Investments as PRUDENTIAL
MUNICIPAL SERIES FUND
of August 31, 1995 NEW YORK MONEY
MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
Albany City Sch. Dist., Ser. 95, B.A.N.
NR
4.50% 5/03/96 $ 2,000 $ 2,002,175
Amherst Ind. Dev. Agcy. Rev., Gen. Accident Ins. Co., Ser.
85, S.O.T.
A-1+(c)
4.35 11/01/95 3,100 3,100,000
Babylon, Gen. Oblig., Ser. 94B, F.R.W.D., A.M.B.A.C.
VMIG1
3.20 9/06/95 4,700 4,700,000
Babylon Ind. Dev. Agcy. Rev., Res. Rec. Rev., Ser. 89,
F.R.D.D.
A-1+(c)
3.50 9/01/95 6,500 6,500,000
Battery Park Auth. Rev., Ser. 90, F.R.W.D.
A-1(c)
3.80 9/06/95 5,000 5,000,000
Commack Union Free Sch. Dist., Ser. 95, T.A.N.
NR
4.25 6/28/96 2,500 2,509,916
East Islip Union Free Sch. Dist., Ser. 95, T.A.N.
NR
4.50 6/28/96 7,110 7,144,911
Farmingdale Union Free Sch. Dist., Ser. 95, T.A.N.
NR
4.25 6/27/96 3,675 3,684,313
Franklinville Central Sch. Dist., Ser 93, F.R.W.D.
NR
3.75 9/07/95 4,250 4,250,000
Guilderland Ind. Dev. Agcy. Rev., Northeastern Ind'l.
Park, Ser. 93A, F.R.W.D.
P-1
3.50 9/06/95 1,500 1,500,000
Monroe Cnty. Ind. Dev. Agcy. Rev., Gen. Accident Ins. Co.,
Ser. 84, S.O.T.
A-1+(c)
3.85 9/01/95 7,000 7,000,000
Mt. Pleasant Ind. Dev. Agcy. Rev., Poll. Ctrl. Rev., Gen.
Motors Corp. Proj., F.R.W.D.
VMIG2
3.70 9/06/95 6,095 6,095,000
Nassau Cnty., Gen. Oblig., Ser. 95B, R.A.N.
SP-1(c)
4.25 3/15/96 4,000 4,010,443
Nassau Cnty., Ser. 95F, B.A.N.
MIG1
4.50 3/15/96 4,980 4,994,346
New York City, Gen. Oblig.,
Ser. 94A-4, F.R.D.D.
VMIG1
3.45 9/01/95 1,800 1,800,000
Ser. 95, F.R.D.D., M.B.I.A.
VMIG1
3.40 9/01/95 800 800,000
Ser. 95, T.A.N.
MIG1
4.50 2/15/96 8,000 8,030,247
Ser. 95B-9, T.E.C.P.
VMIG1
3.70 10/03/95 2,900 2,900,000
Ser. 95F-3, F.R.W.D.
VMIG1
3.60 9/06/95 6,300 6,300,000
Ser. 95F-5, F.R.W.D.
VMIG1
3.55 9/06/95 700 700,000
New York City Hsg. Dev. Corp.,
E.17th St. Property, Ser. 93A, F.R.D.D.
A-1(c)
3.50 9/01/95 4,600 4,600,000
James Tower Proj., Ser. 94A, F.R.W.D.
A-1(c)
3.40 9/06/95 4,200 4,200,000
Related E. 96th St. Proj., Ser. 90A, F.R.W.D.
VMIG1
3.50 9/07/95 13,500 13,500,000
New York City Ind. Dev. Agcy. Rev.,
Japan Airlines, Ser. 91, F.R.D.D.
A-1+(c)
3.65 9/01/95 15,200 15,200,000
Viola Bakeries, Ser. 90, F.R.W.D.
VMIG1
3.60 9/06/95 2,650 2,650,000
New York City Mun. Water Fin. Auth., Water & Sew. Rev.,
Ser. 9-3, T.E.C.P.
VMIG1
3.55 9/20/95 3,000 3,000,000
Ser. 9-3, T.E.C.P.
P-1
3.75 10/13/95 1,500 1,500,000
Ser. 9-3, T.E.C.P.
P-1
3.80 12/15/95 4,000 4,000,000
New York City Unltd. Tax Rev., JPM Putters, Ser. 33,
F.R.W.D., M.B.I.A.
VMIG1
3.55 9/07/95 3,100 3,100,000
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
3
<PAGE>
Portfolio of Investments as PRUDENTIAL
MUNICIPAL SERIES FUND
of August 31, 1995 NEW YORK MONEY
MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
New York St., Gen. Oblig., Ser. P, T.E.C.P.
P-1
3.75% 10/05/95 $ 4,800 $ 4,800,000
New York St. Dorm. Auth. Rev.,
Mem. Sloan Kettering, Ser. 89A, T.E.C.P.
VMIG1
3.10 9/21/95 4,500 4,500,000
Miriam Osborn Memorial Home, F.R.W.D.
VMIG1
3.30 9/06/95 4,700 4,700,000
Rockefeller Univ., Ser. 91A, F.R.W.D.
Aaa
3.76 9/06/95 13,600 13,600,000
St. Francis Center at the Knolls, F.R.D.D.
VMIG1
3.45 9/01/95 4,000 4,000,000
New York St. Energy Res. & Dev. Auth.,
Long Island Ltg. Co. Proj.,
Ser. 85B, A.M.T.
VMIG1
4.70 3/01/96 7,500 7,500,000
Ser. 95A, F.R.W.D.
VMIG1
3.30 9/06/95 5,000 5,000,000
New York St. Elec. & Gas Co., Ser. 84A, A.M.T.
A-1+(c)
4.60 12/01/95 4,000 4,000,000
Niagara Mohawk Pwr. Corp.,
Ser. 85B, F.R.D.D.
P-1
3.45 9/01/95 500 500,000
Ser. 85C, F.R.D.D.
P-1
3.45 9/01/95 2,600 2,600,000
Ser. 86A, F.R.D.D.
P-1
3.55 9/01/95 9,500 9,500,000
Pollution Control Rev.,
Ser. 85A, A.O.T.
A-1+(c)
4.65 3/15/96 2,000 2,000,000
Ser. 85B, A.O.T.
Aaa
4.10 10/15/95 3,250 3,250,000
New York St. Hsg. Fin. Auth., Liberty View Apts.,
Ser. 85A, F.R.W.D.
VMIG1
3.60 9/06/95 5,400 5,400,000
New York St. Job Dev. Auth., F.R.M.D.,
Ser. 84D
VMIG1
3.70 9/01/95 1,655 1,655,000
Ser. 84E
VMIG1
3.70 9/01/95 3,900 3,900,000
Ser. 84F
VMIG1
3.70 9/01/95 1,525 1,525,000
Ser. 86C
VMIG1
3.80 9/01/95 1,185 1,185,000
New York St. Local Gov't. Assistance Corp.,
Ser. 95E, F.R.W.D.
VMIG1
3.50 9/06/95 3,000 3,000,000
Ser. 95F, F.R.W.D.
VMIG1
3.35 9/06/95 12,400 12,400,000
New York St. Power Auth. Rev., S.M.T.
MIG1
3.85 9/01/95 10,000 10,000,000
New York St. Thruway Auth. Rev., Ser. C, F.R.W.D.,
F.G.I.C.
NR
3.70 9/07/95 7,000 7,000,000
New York St. Urban Dev. Corp. Rev.,
Ser. 86
Aaa
8.00 1/01/96 2,500 2,540,609
Ser. B
Aaa
8.00 1/01/96 5,000 5,156,148
Niagara Cnty. Ind. Dev. Agcy. Rev., Gen. Abrasive
Treibacher,
Ser. 91, F.R.W.D.
P-1
3.65 9/06/95 4,600 4,600,000
Oswego Cnty. Ind. Dev. Agcy. Rev., Philip Morris Co., Ser.
92, F.R.W.D.
P-1
3.65 9/06/95 6,300 6,300,000
Oyster Bay, Gen. Oblig.,
Ser. 94, B.A.N.
NR
4.85 12/08/95 2,000 1,999,370
Ser. 94, B.A.N.
NR
5.00 12/08/95 3,000 3,000,597
</TABLE>
- - ------------------------------------------------------------
- - --------------------
4 See Notes to
Financial Statements.
<PAGE>
Portfolio of Investments as PRUDENTIAL
MUNICIPAL SERIES FUND
of August 31, 1995 NEW YORK MONEY
MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
Port Auth. of New York & New Jersey, Kiac Partners,
Ser. 3-2, F.R.W.D.
VMIG1
3.40% 9/06/95 $ 6,200 $ 6,200,000
Ser. 3-3, F.R.W.D.
VMIG1
3.40 9/06/95 4,500 4,500,000
Spec. Oblig. Rev.,
Ser.1, F.R.D.D.
VMIG1
3.45 9/01/95 2,500 2,500,000
Ser. 93-1, F.R.W.D.
NR
3.627 9/05/95 12,000 12,000,000
Puerto Rico Comnwlth., Gov't. Dev. Bank., Ser. 95,
T.E.C.P.
A-1+(c)
3.60 9/11/95 7,700 7,700,000
Rockland Cnty., Ser. 95, B.A.N
NR
5.50 3/08/96 2,000 2,009,239
Sayville Union Free Sch. Dist., Ser. 95, T.A.N.
MIG1
4.25 6/27/96 6,500 6,526,710
St. Lawrence Cnty. Ind. Dev. Agcy. Rev.,
Clarkson Univ. Proj., Ser. 90, F.R.W.D.
VMIG1
3.80 9/07/95 2,700 2,700,000
Reynolds Metals, F.R.D.D.
P-1
3.35 9/01/95 1,000 1,000,000
Reynolds Metals, Ser. 95, F.R.W.D.
VMIG1
3.50 9/06/95 3,000 3,000,000
United Nations Dev. Corp. Rev., Phase 2 & 3 Sr. Lien
Aaa
7.875 7/01/96 4,000 4,204,061
Westchester Cnty., T.A.N.
NR
5.00 12/14/95 7,000 7,009,650
Yates Cnty. Ind. Dev. Agcy. Rev., Clearplass Containers
Inc.,
Ser. 92A, F.R.W.D.
A-1(c)
3.75 9/07/95 1,455 1,455,000
------------
Total Investments--102.0%
(amortized cost--$331,187,735(d))
331,187,735
Liabilities in excess of other assets--(2.0)%
(6,490,118)
------------
Net Assets--100%
$324,697,617
------------
------------
</TABLE>
- - ---------------
(a) The following abbreviations are used in portfolio
descriptions:
A.M.B.A.C.--American Municipal Bond Assurance
Corporation.
A.M.T.--Annual Mandatory Tender (b).
A.O.T.--Annual Optional Tender (b).
B.A.N.--Bond Anticipation Note.
F.G.I.C.--Financial Guaranty Insurance Company.
F.R.D.D.--Floating Rate (Daily) Demand Note (b).
F.R.M.D.--Floating Rate (Monthly) Demand Note (b).
F.R.W.D.--Floating Rate (Weekly) Demand Note (b).
M.B.I.A.--Municipal Bond Insurance Association.
R.A.N.--Revenue Anticipation Note.
S.M.T.--Semi-Annual Mandatory Tender (b).
S.O.T.--Semi-Annual Optional Tender (b).
T.A.N.--Tax Anticipation Note.
T.E.C.P.--Tax-Exempt Commercial Paper.
(b) For purposes of amortized cost valuation, the maturity
date of such
securities 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.
(c) Standard & Poor's rating.
(d) The cost of securities for federal income tax purposes
is substantially
the same as for financial reporting purposes.
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.
5
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Statement of Assets and Liabilities NEW YORK
MONEY MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<S>
<C>
Assets
August 31, 1995
Investments, at amortized cost which approximates market
value...............................................
$331,187,735
Receivable for investments
sold........................................................
.................
..... 14,312,795
Receivable for Series shares
sold........................................................
....................
2,544,647
Interest
receivable..................................................
.................
....................... 2,064,757
Deferred expenses and other
assets......................................................
.................
.... 7,167
------------
Total
assets......................................................
.................
....................... 350,117,101
------------
Liabilities
Payable for investments
purchased...................................................
.................
........ 17,000,000
Payable for Series shares
reacquired..................................................
.................
...... 8,009,423
Accrued expenses and other
liabilities.................................................
.................
..... 143,748
Management fee
payable.....................................................
.................
................. 137,878
Dividends
payable.....................................................
.................
...................... 111,421
Distribution fee
payable.....................................................
.................
............... 15,414
Deferred trustee
fees........................................................
.................
............... 1,600
------------
Total
liabilities.................................................
.................
....................... 25,419,484
------------
Net
Assets......................................................
.................
............................ $324,697,617
------------
------------
Net assets were comprised of:
Shares of beneficial interest, at $.01 par
value.......................................................
... $
3,246,976
Paid-in capital in excess of
par.........................................................
.................
321,450,641
------------
Net assets, August 31,
1995........................................................
.................
......... $324,697,617
------------
------------
Net asset value, offering price and redemption price per
share ($324,697,617 /
324,697,617
shares of beneficial interest issued and outstanding;
unlimited number of
shares authorized).............. $1.00
</TABLE>
- - ------------------------------------------------------------
- - --------------------
6 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW YORK MONEY MARKET SERIES
Statement of Operations
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Year
Ended
Net Investment Income August 31,
1995
-----------
- - ----
<S> <C>
Income
Interest................................... $
10,956,553
-----------
- - ----
Expenses
Management fee.............................
1,463,815
Distribution fee...........................
365,954
Transfer agent's fees and expenses.........
137,000
Custodian's fees and expenses..............
80,000
Reports to shareholders....................
40,000
Registration fees..........................
16,000
Audit fee..................................
10,500
Legal fees.................................
10,000
Trustees' fees.............................
3,200
Miscellaneous..............................
11,886
-----------
- - ----
Total expenses..........................
2,138,355
Less: custodian fee credit.................
(35,560)
-----------
- - ----
Net expenses............................
2,102,795
-----------
- - ----
Net investment income.........................
8,853,758
-----------
- - ----
Net Increase in Net Assets
Resulting from Operations..................... $
8,853,758
-----------
- - ----
-----------
- - ----
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW YORK MONEY MARKET SERIES
Statement of Changes in Net Assets
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended August 31,
<S> <C> <C>
in Net Assets 1995 1994
Operations
Net investment income....... $ 8,853,758 $
4,997,969
--------------- --------
- - -----
Net increase in net assets
resulting from
operations............... 8,853,758
4,997,969
--------------- --------
- - -----
Dividends to shareholders...... (8,853,758)
(4,997,969)
--------------- --------
- - -----
Series share transactions
(at $1 per share)
Net proceeds from shares
sold..................... 1,099,424,608
956,452,031
Net asset value of shares
issued to shareholders in
reinvestment of
dividends................ 8,564,122
4,807,678
Cost of shares reacquired... (1,052,364,310)
(978,490,262)
--------------- --------
- - -----
Net increase (decrease) in
net assets from Series
share transactions....... 55,624,420
(17,230,553)
--------------- --------
- - -----
Total increase (decrease)...... 55,624,420
(17,230,553)
Net Assets
Beginning of year.............. 269,073,197
286,303,750
--------------- --------
- - -----
End of year.................... $ 324,697,617 $
269,073,197
--------------- --------
- - -----
--------------- --------
- - -----
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
7
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements NEW YORK MONEY
MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
Prudential Municipal Series Fund (the ``Fund'') is
registered under the
Investment Company Act of 1940 as an open-end investment
company. The Fund was
organized as a Massachusetts business trust on May 18, 1984
and consists of
seventeen series. The monies of each series are invested in
separate,
independently managed portfolios. The New York Money Market
Series (the
``Series'') commenced investment operations in April, 1985.
The Series is
diversified and seeks to achieve its investment objective of
providing the
highest level of income that is exempt from New York State,
New York City and
federal income taxes with a minimum of risk by investing in
``investment grade''
tax-exempt securities having a maturity of thirteen months
or less whose ratings
are within the two highest ratings categories by two
nationally recognized
statistical rating organizations, or if not rated, are of
comparable quality.
The ability of the issuers of the securities held by the
Series to meet their
obligations may be affected by economic 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, and the Series, in the preparation of its financial
statements.
Securities Valuations Portfolio securities of the Series are
valued at amortized
cost, which approximates market value. The amortized cost
method of valuation
involves valuing a security at its cost on the date of
purchase and thereafter
assuming a constant amortization to maturity of any discount
or premium.
All securities are valued as of 4:30 P.M., New York time.
Securities Transactions and Investment Income Securities
transactions are
recorded on the trade date. Realized gains and losses on
sales of investments
are calculated on the identified cost basis. Interest income
is recorded on the
accrual basis.
Federal Income Taxes For federal income tax purposes, each
series in the Fund
is
treated as a separate taxpaying entity. It is the intent of
the Series 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
shareholders. For this reason and because substantially all
of the Series' gross
income consists of tax-exempt interest, no federal income
tax provision is
required.
Dividends: The Series declares daily dividends from net
investment income.
Payment of dividends are made monthly.
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 1% of the average daily net assets of the
Series.
The Fund has a distribution agreement with Prudential Mutual
Fund Distributors,
Inc. (``PMFD''). To reimburse PMFD for its expenses incurred
pursuant to a plan
of distribution, the Series pays PMFD a reimbursement,
accrued daily and payable
monthly, at an annual rate of .125 of 1% of the Series'
average daily net
assets. PMFD pays various broker-dealers, including
Prudential Securities
Incorporated (``PSI'') and Pruco Securities Corporation,
affiliated
broker-dealers, for account servicing fees and other
expenses incurred by such
broker-dealers.
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 Transactions with Affiliates
Prudential Mutual Fund Services, Inc. (``PMFS''), a wholly-
owned subsidiary of
PMF, serves as the Fund's transfer agent. During the year
ended August 31, 1995,
the Series incurred fees of approximately $126,000 for the
services of PMFS. As
of August 31, 1995, approximately $10,000 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.
- - ------------------------------------------------------------
- - --------------------
8
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights NEW YORK MONEY
MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Year Ended August 31,
-----------------------------------------------
1995 1994 1993 1992
-------- -------- -------- --------
<S>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
year..........................................
$ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income and net realized
gains................................
.03 .02 .02 .03
Dividends and distributions to
shareholders.................................
(.03) (.02) (.02) (.03)
-------- -------- -------- --------
Net asset value, end of
year................................................
$ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
-------- -------- -------- --------
TOTAL
RETURN(a):..................................................
..........
3.06% 1.80% 1.80% 2.93%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000)...............................................
$324,698 $269,073 $286,304 $249,785
Average net assets
(000)....................................................
$292,763 $280,492 $275,640 $248,557
Ratios to average net assets:
Expenses, including distribution
fee......................................
.73% .77% .75% .76%
Expenses, excluding distribution
fee......................................
.61% .64% .63% .63%
Net investment
income.....................................................
3.02% 1.78% 1.75% 2.83%
<CAPTION>
1991
- - --------
<S>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
year..........................................
$ 1.00
Net investment income and net realized
gains................................
.04
Dividends and distributions to
shareholders.................................
(.04)
- - --------
Net asset value, end of
year................................................
$ 1.00
- - --------
- - --------
TOTAL
RETURN(a):..................................................
..........
4.37%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000)...............................................
$236,361
Average net assets
(000)....................................................
$245,494
Ratios to average net assets:
Expenses, including distribution
fee......................................
.79%
Expenses, excluding distribution
fee......................................
.66%
Net investment
income.....................................................
4.23%
</TABLE>
- - ---------------
(a) Total return includes reinvestment of dividends and
distributions.
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
9
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Independent Auditors' Report NEW YORK MONEY
MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
The Shareholders and Board of Trustees
Prudential Municipal Series Fund, New York Money Market
Series
We have audited the accompanying statement of assets and
liabilities, including
the portfolio of investments, of Prudential Municipal Series
Fund, New York
Money Market Series, as of August 31, 1995, the related
statements of operations
for the year then ended and of changes in 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. These financial statements
and financial
highlights are the responsibility of the Fund's management.
Our responsibility
is to express an opinion on these financial statements and
financial highlights
based on our audits.
We conducted our audits in accordance with generally
accepted auditing
standards. Those standards require that we plan and perform
the audit to obtain
reasonable assurance about whether the financial statements
and financial
highlights are free of material misstatement. An audit
includes examining, on
a
test basis, evidence supporting the amounts and disclosures
in the financial
statements. Our procedures included confirmation of the
securities owned as of
August 31, 1995 by correspondence with the custodian and
brokers; where replies
were not received from brokers, we performed other auditing
procedures. An audit
also includes assessing the accounting principles used and
significant estimates
made by management, as well as evaluating the overall
financial statement
presentation. We believe that our audits provide a
reasonable basis for our
opinion.
In our opinion, such financial statements and financial
highlights present
fairly, in all material respects, the financial position of
Prudential Municipal
Series Fund, New York Money Market Series, as of August 31,
1995, the results
of
its operations, the changes in its net assets, and its
financial highlights for
the respective stated periods in conformity with generally
accepted accounting
principles.
DELOITTE & TOUCHE LLP
New York, New York
October 16, 1995
PRUDENTIAL
MUNICIPAL SERIES FUND
Federal Income Tax Information NEW YORK MONEY
MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
We are required by the Internal Revenue Code to advise you
within 60 days of the
Series' fiscal year end (August 31, 1995) as to the federal
tax status of
dividends paid by the Series during such fiscal year.
Accordingly, we are
advising you that in the fiscal year ended August 31, 1995,
dividends paid from
net investment income totalling $.03 per share were all
federally tax-exempt
interest dividends.
- - ------------------------------------------------------------
- - --------------------
10
<PAGE>
Getting
The Most
From Your
Prudential
Mutual Fund
When you invest through Prudential Mutual Funds, you receive
financial advice
through a Prudential Securities financial advisor or
Prudential/Pruco
Securities registered representative. Your advisor or
representative can
provide you with the following services.
There's No Reward Without Risk; But Is This Risk Worth It?
Your financial adviser or registered representative can help
you match the
reward you seek with the risk you can tolerate. And risk can
be difficult to
gauge --sometimes even the simplest investments bear
surprising risks. The
educated investor knows that markets seldom move in just one
direction --
there are times when a market sector or asset class will
lose value or provide
little in the way of total return. Managing your own
expectations is easier
with help from someone who understands the markets and who
knows you!
Keeping Up With The Joneses.
A financial adviser or registered representative can help
you wade through the
numerous mutual funds available to find the ones that fit
your own individual
investment profile and risk tolerance. While the newspapers
and popular
magazines are full of advice about investing, they are aimed
at generic groups
of people or representative individuals, not at you
personally. Your financial
advisor or registered representative will review your
investment objectives
with you. This means you can make financial decisions based
on the assets and
liabilities in your current portfolio and your risk
tolerance -- not just
based on the current investment fad.
Buy Low, Sell High.
Buying at the top of a market cycle and selling at the
bottom are among the
most common investor mistakes. But sometimes it's difficult
to hold on to an
investment when it's losing value every month. Your
financial adviser or
registered representative can answer questions when you're
confused or worried
about your investment, and remind you that you're investing
for the long haul.
<PAGE>
Getting
The Most
From Your
Prudential
Mutual Fund
Some mutual fund shareholders won't ever read this -- they
don't read annual
and semi-annual reports. It's quite understandable. These
annual and semi-
annual reports are prepared to comply with Federal
regulations. They are often
written in language that is difficult to understand. So when
most people run
into those particularly daunting sections of these reports,
they don't read
them.
We think that's a mistake.
At Prudential Mutual Funds, we've made some changes to our
report to make it
easier to understand and more pleasant to read, in hopes
you'll find it
profitable to spend a few minutes familiarizing yourself
with your investment.
Here's what you'll find in the report:
At A Glance
Since an investment's performance is often a shareholder's
primary concern, we
present performance information in two different formats.
You'll find it first
on the "At A Glance" page where we compare the Fund and the
comparable average
calculated by Lipper Analytical Services, Inc., a nationally
recognized mutual
fund rating agency. We report both the cumulative total
returns and the average
annual total returns. The cumulative total return is the
total amount of income
and appreciation the Fund has achieved in various time
periods. The average
annual total return is an annualized representation of the
Fund's performance
- - -- it generally smoothes out returns and gives you an idea
how much the Fund
has earned in an average year, for a given time period.
Under the performance
box, you'll see legends that explain the performance
information, whether fees
and sales charges have been included in returns, and the
inception dates for
the Fund's share classes.
See the performance comparison charts at the back of the
report for more
performance information. And keep in mind that past
performance is not
indicative of future results.
Portfolio Manager's Report
The portfolio manager who invests your money for you reports
on successful --
and not-so-successful -- strategies in this section of your
report. Look for
recent purchases and sales here, as well as information
about the sectors the
portfolio managers favors and any changes that are on the
drawing board.
Portfolio Of Investments
This is where the report begins to look technical, but it's
really just a
listing of each security held at the end of the reporting
period, along with
valuations and other information. Please note that sometimes
we discuss a
security in the Portfolio Manager's Report that doesn't
appear in this listing
because it was sold before the close of the reporting
period.
<PAGE>
Statement Of Assets And Liabilities
The balance sheet shows the assets (the value of the Fund's
holdings),
liabilities (how much the Fund owes) and net assets (the
Fund's equity, or
holdings after the Fund pays its debts) as of the end of the
reporting period.
It also shows how we calculate the net asset value per share
for each class of
shares. The net asset value is reduced by payment of your
dividend, capital
gain, or other distribution, but remember that the money or
new shares are
being paid or issued to you and thus is not a realized loss.
The net asset
value fluctuates daily along with the value of every
security in the portfolio.
Statement Of Operations
This is the income statement, which details income (mostly
interest and
dividends earned) and expenses (including what you pay us to
manage your
money). You'll also see capital gains here -- both realized
and unrealized.
Statement Of Changes In Net Assets
This schedule shows how income and expenses translate into
changes in net
assets, compared to last year's performance. The Fund is
required to pay out
the bulk of its income to shareholders every year, and this
statement shows
you how we do it -- through dividends and distributions --
and how that
affects the net assets. This statement also shows how money
from investors
flowed into and out of the Fund.
Notes To Financial Statements
This is the kind of technical material that can intimidate
readers, but it does
contain useful information. The Notes provide a brief
history and explanation
of your Fund's objectives. In addition, they also outline
how Prudential Mutual
Funds prices securities. The Notes also explain who manages
and distributes the
Fund's shares, and more importantly, how much they are paid
for doing so.
Finally, the Notes explain how many shares are outstanding
and the number
issued and redeemed over the period.
Financial Highlights
This information contains many elements from prior pages,
but on a per share
basis. It is designed to help you understand how the Fund
performed and to
compare this year's performance and expenses to those of
prior years.
Independent Auditor's Report
Once a year, an outside auditor looks over our books and
certifies that the
information we've presented is fair and complies with
generally accepted
accounting principles.
Tax Information
This is information which we report annually about how much
of your total
return is taxable. Should you have any questions, you may
want to consult a
tax advisor.
Performance Comparison
These charts are included in the annual report and are
required by the
Securities Exchange Commission. Performance is presented
here as a hypothetical
$10,000 investment in the Fund since its inception or for 10
years (whichever
is shorter). To help you put that return in context, we are
required to include
the performance of an unmanaged, broad based securities
index, as well. The
index does not reflect the cost of buying the securities it
contains or the
cost of managing a mutual fund. Of course, the index
holdings do not mirror
those of the fund -- the index is a broadly based reference
point commonly
used by investors to measure how well they are doing. A
definition of the
selected index is also provided. Investors generally cannot
invest directly
in an index.
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
Prudential Mutual Fund Management (LOGO)
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy Hays Teeters
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Grace Torres, Treasurer
S. Jane Rose, Secretary
Stephen M. Ungerman, Assistant Treasurer
Deborah A. Docs, Assistant 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
Distributor
Prudential Mutual Fund Distributors, Inc.
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
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
This report is not authorized for distribution to
prospective investors unless
preceded or accompanied by a current prospectus.
MF127E
74435M721 Cat. #642401A
(ICON)
Prudential
Municipal
Series Fund
Ohio Series
Annual Report
Aug. 31, 1995
(LOGO)
<PAGE>
Prudential Municipal Series Fund
Ohio Series
Performance At A Glance.
It has been a good year for shareholders of the Prudential
Municipal Series
Fund: Ohio Series. Municipal bond investors not only earned
their coupon
income, but also saw a gain in net asset value as well. We
are pleased to
report that your Series performed in line with the average
Ohio municipal bond
fund measured by Lipper Analytical Services over the past 12
months.
Cumulative Total Returns1 As
of 8/31/95
<TABLE>
<CAPTION>
One Five Ten
Since
Year Years Years
Inception2
<S> <C> <C> <C> <C>
<C>
Class A 7.6% 49.0% N/A
52.9%
Class B 7.2 46.2 109.1%
139.6
Class C 6.9 N/A N/A
7.1
Lipper OH Muni Avg3 7.3 48.6 125.7
155.0
</TABLE>
Average Annual Total Returns1
As of 9/30/95
<TABLE>
<CAPTION>
One Five Ten
Since
Year Years Years
Inception2
<S> <C> <C> <C>
<C>
Class A 6.4% 7.7% N/A
7.3%
Class B 4.3 7.8 7.8%
8.3
Class C 8.0 N/A N/A
6.4
</TABLE>
<TABLE>
<CAPTION>
Taxable Equivalent Yield
Total Dividends 30-Day
At Tax Rates of
Paid for 12 Mos. SEC Yield
36% 39.6%
<S> <C> <C> <C>
<C> <C>
Your Class A $0.65 4.58%
7.74% 8.20%
Dividend Class B $0.60 4.32
7.30 7.73
As of 8/31/95 Class C $0.57 4.08
6.89 7.30
</TABLE>
Past performance is not a guarantee of future results.
Principal and investment
return will fluctuate so that an investor's shares, when
redeemed, may be worth
more or less than their original cost.
1Source: Prudential Mutual Fund Management and Lipper
Analytical Services. The
cumulative total returns do not take into account sales
charges. The average
annual returns do take into account applicable sales
charges. The Fund charges
a maximum front-end sales load of 3% for Class A shares and
a 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. Class B
shares
automatically convert to Class A shares on a quarterly
basis, after
approximately seven years.
2Inception dates: 1/22/90 for Class A; 9/20/84 for Class B;
and 8/1/94 for
Class C.
3The Lipper Ohio Municipal Bond fund average includes 43
funds for one year, 17
funds for five years, five funds for 10 years, and two funds
since inception of
the Class B shares on 9/20/84.
How Investments Compared.
(As of 8/31/95)
(GRAPH)
Source: Lipper Analytical Services. Financial markets
change, so a mutual
fund's past performance should never be used to predict
future results. The
risks to each of the investments listed above are different
- - -- we provide
12-month total returns for several Lipper mutual fund
categories to show you
that reaching for higher yields means tolerating more risk.
The greater the
risk, the larger the potential reward or loss. In addition,
we've added
historical 20-year average annual returns. These returns
assume the
reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Smaller
capitalization stocks
offer greater potential for long-term growth but may be more
volatile than
larger capitalization stocks. Investors receive higher
historical total
returns from stocks than from most other investments.
General Bond Funds provide more income than stock funds,
which can help smooth
out their total returns year by year. But their prices still
fluctuate
(sometimes a good deal) and their returns are historically
lower than those of
stock funds.
General Municipal Debt Funds invest in bonds issued by state
governments, state
agencies and/or municipalities. This investment provides
income that is usually
exempt from federal and state income taxes. (20-year returns
are not
available.)
Money Market Funds attempt to preserve a constant share
value; they don't
fluctuate much in price but their returns are generally
among the lowest of
the major investment categories.
*19 years for General Muni Debt Funds.
<PAGE>
Christian Smith, Fund Manager
(PHOTO)
Portfolio
Manager's Report
The Series invests in carefully selected long-term municipal
bonds that offer
a high level of current income exempt from Ohio state and
federal income taxes
consistent with preservation of capital. Certain
shareholders may be subject
to the federal alternative minimum tax, however.
Overview.
The Series invests primarily in obligations of Ohio state,
municipal and local
governments, including U.S. territories (like Puerto Rico,
the U.S. Virgin
Islands and Guam), the income of which is also exempt from
federal and Ohio
state income taxes.
Strategy Session.
It has been a positive year for tax-free municipal bonds.
Although interest
rates rose sharply in 1994 on inflation fears, they have
tumbled back down
slowly this year, as economic growth slowed. The Bond Buyer
Revenue Bond Index
Yield stood at 6.4% on September 1, 1994 (the index is
calculated on
Thursdays), and rose by a percentage point to a high of 7.4%
in mid-October
1994, before falling to 6.3% on August 31, 1995. As you can
see, when the dust
had settled, long-term municipal bond interest rates ended
the period lower.
This year we have been buying longer maturity bonds with
discount coupons
(coupons lower than the prevailing market), and some zero
coupon bonds,
because these are more likely to appreciate if interest
rates fall as we
expect. In addition, we sold bonds maturing in five to seven
years, because
they had little appreciation potential.
Ohio has a healthy economy that benefits from a robust
manufacturing base.
This is good news for the 6.7% of the fund that is invested
in bonds issued by
the Ohio State Building Authority, which are lease
obligations of the State of
Ohio.
Sector Breakdown.
(CHART)
<PAGE>
What Went Well.
We Held On
To Good Yields.
We increased assets invested in non-callable bonds (those
that can not be paid
off prematurely by the issuer to save on interest costs) to
23%, up from 12% a
year ago. We did so by buying non-callable, deep discount
bonds that have
performed well in the market rally. These bonds not only
offer attractive
yields but also appreciate well when interest rates decline.
They are valuable
because not many bonds offer protection from call risk --
only about a third of
the securities in the Lehman Brothers' Municipal Bond Index
are non-callable.
It Paid To Buy Puerto
Rico and Guam Bonds.
The supply of new municipal bonds has declined in Ohio, by
13% this year alone.
So we looked elsewhere. We bought bonds issued by Puerto
Rico and Guam, because
they are tax-exempt federally and in virtually all states,
including Ohio. As
a
result, they are in demand. Our holdings in Puerto Rico and
Guam are now 16% of
assets, up from 4% a year ago.
- - ------------------------------------------------------------
- - -------------------
And Not So Well.
A Longer Duration
Would Have Helped.
Duration measures the sensitivity of a bond's price to
interest rate changes.
The longer the duration, the more a bond's price appreciates
when interest
rates fall and vice versa. Over the winter, our duration was
shorter than that
of some competing funds, because we expected economic growth
to remain strong.
As the slowdown became apparent in the second quarter, we
extended duration,
ending on August 31, 1995 with a duration of 7.6 years, up
from 6.7 years on
August 31, 1994.
Municipals Suffered
From Tax Talk.
Congress is considering various changes in the federal
income tax, including a
flat tax -- an income tax at a single, flat rate. One
proposal would eliminate
taxes on most investment income. Clearly, this has created
uncertainty in the
municipal market -- one reason why municipal bonds did not
follow taxable bond
prices higher this spring.
At this writing, we believe it is unlikely that a flat tax
proposal in this
form is likely to pass Congress -- especially not before
next year's election.
Five Largest
Holdings.*
<TABLE>
<S> <C>
4.8% Lucas County
Toledo Hospital
4.4% Kings County
Local School District
4.1% Puerto Rico
Highway & Transportation
3.7% Franklin County
Doctors Hospital Revenue
3.6% Ohio State
Air Quality Authority
</TABLE>
* Expressed as a percentage of total net assets as of
8/31/95.
Looking Ahead.
Municipal bond yields are very attractive now. As we
mentioned earlier, when
U.S. government and corporate bond yields fell this spring,
municipal yields
did not follow to the same extent. That means there are some
very good buying
opportunities now in the municipal market.
Should interest rates remain stable, investors may look
forward to earning
their coupon. Plus, if interest rates fall further,
municipal bond investors
could reasonably expect some price appreciation as well.
Nevertheless, municipal bond investors should be prepared to
weather some
volatility this year as various proposals to change the
country's income tax
structure are proposed and debated.
Overall, we believe municipal bonds still offer good value,
and that
volatility can offer some attractive buying opportunities.
1
<PAGE>
President's Letter October 11, 1995
(PHOTO)
Dear Shareholder:
We hope you like the fresh look and information we've given
your shareholder
letter. We've also introduced another feature, called
Getting the Most Out of
Your Prudential Mutual Fund, which will appear from time to
time at the back of
your report. Look for topics like "Understanding Risk &
Reward" as well as
easy-to-understand explanations of financial terms. Why are
we providing such
information? Because at Prudential Mutual Funds, we believe
an informed
investor makes smart investment decisions.
- - ------------------------------------------------------------
- - -------------------
On the Hill
As an informed investor, you should know about the "American
Dream
Savings Account" that is part of the federal budget package
now under debate in
the Senate. It is a type of Individual Retirement Account
that offers a
common-sense approach to long-term saving. Investors should
like it because--
- You can withdraw funds -- without penalty -- to pay for
certain expenses
like buying a first home, medical care or educational
needs;
- All account earnings would accumulate tax-free, not
merely tax-deferred
like the current IRA;
- You can make contributions past age 70 1/2, instead of
having to take
distributions as the current law requires.
Of course, the federal budget process is never easy and
while we hope this
measure is adopted, there's no way of knowing if it will be.
So why not let
your Senator and/or Representative know your opinion today?
Simply call
202-224-3121.
- - ------------------------------------------------------------
- - -------------------
In Closing
One final note: if you're a Class B shareholder of
Prudential Mutual Funds,
you'll begin noticing a change on your statements once
you've held your shares
for seven years. At that time, they will automatically begin
to convert to
Class A shares on a quarterly basis. Since Class A shares
carry lower annual
distribution charges than Class B shares, your total returns
will be higher
after the conversion than they would have been without it.
Conversions started
earlier this year and beginning in December they will take
place during each
calendar quarter -- December, March, June and September.
It's our way of
thanking you for your loyalty -- and rewarding you for
maintaining a long-term
investment program by helping you earn more total investment
return on your
Prudential Mutual Fund. I hope you'll find this information
useful as you work
with your financial advisor or registered representative to
develop your
personal investment plan.
Thank you for choosing Prudential Mutual Funds for your
mutual fund investment.
Sincerely,
Richard A. Redeker
President
2
<PAGE>
Portfolio of Investments as of PRUDENTIAL
MUNICIPAL SERIES FUND
August 31, 1995 OHIO SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
LONG-TERM INVESTMENTS--95.5%
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
Akron, Bath & Copley Twnshps., Hosp. Dist. Rev., Summa
Health, Systems Proj., Ser. A
A
5.75% 11/15/08 $ 3,465 $ 3,488,527
Akron, Gen. Oblig.
A
10.50 12/01/04 200 281,188
Akron, Gen. Oblig., F.S.A.
Aaa
4.50 12/01/12 645 544,309
Allen Cnty. Wtr. & Swr. Dist., A.M.B.A.C.
Aaa
7.80 12/01/08 1,000(d)(f) 1,128,600
Bellefontaine City Sch. Dist.,
A.M.B.A.C.
Aaa
Zero 12/01/06 495 279,358
A.M.B.A.C.
Aaa
Zero 12/01/07 485 256,143
A.M.B.A.C.
Aaa
Zero 12/01/08 485 239,396
A.M.B.A.C.
Aaa
Zero 12/01/09 390 179,252
A.M.B.A.C.
Aaa
Zero 12/01/10 390 166,491
A.M.B.A.C.
Aaa
Zero 12/01/11 465 186,256
Berea City Sch. Dist., A.M.B.A.C.
Aaa
5.00 12/15/17 4,375 3,939,863
Canton, Water Works Sys., Gen. Oblig.
Aaa
5.85 12/01/15 700 706,020
Carroll Cnty. Econ. Dev. Rev., Great Trail Lake Ctr.,
F.H.A.
NR
11.75 8/01/14 680 781,211
Cleveland City Sch. Dist., Gen. Oblig.,
Sch. Impvt., Ser. B, F.G.I.C.
Aaa
Zero 6/01/05 490 301,879
Sch. Impvt., Ser. B, F.G.I.C.
Aaa
Zero 6/01/06 400 231,556
Sch. Impvt., Ser. B, F.G.I.C.
Aaa
Zero 6/01/07 315 170,752
Sch. Impvt., Ser. B, F.G.I.C.
Aaa
Zero 12/01/08 550 271,480
Columbus Citation Hsg. Dev. Corp., Mtge. Rev., F.H.A.
AA(b)
7.625 1/01/22 1,885(d) 2,324,375
Columbus, Gen. Oblig., Mun. Arpt. No. 32
Aaa
7.15 7/15/06 435 476,495
Cuyahoga Cnty. Hosp. Rev., Meridia Health Sys.
A1
6.25 8/15/24 1,500 1,503,690
Dayton, Gen. Oblig., M.B.I.A
Aaa
7.00 12/01/07 480 559,406
Dublin City Sch. Dist., Franklin, Delaware & Union Co.,
A.M.B.A.C.
Aaa
Zero 12/01/05 1,000 600,970
East Cleveland Rev., Local Gov't. Fund Notes
NR
7.90 12/01/97 860 924,672
Franklin Cnty. Hosp. Rev.,
Doctors Hosp. Rev.
A
5.875 12/01/13 1,550 1,462,921
Doctors Hosp. Rev.
A
5.875 12/01/23 3,000 2,762,100
Holy Cross Hlth. Sys., Ser. B, A.M.B.A.C.
Aaa
7.65 6/01/10 2,500(d) 2,877,125
Franklin Cnty. Pub. Impvt., Ser. 93
Aaa
5.375 12/01/20 1,690 1,590,949
Gahanna Jefferson City Sch. Dist., Gen. Oblig., A.M.B.A.C.
Aaa
Zero 12/01/09 445 204,531
Greene Cnty. Swr. Sys. Rev., A.M.B.A.C.
Aaa
Zero 12/01/08 450 222,120
Guam Pwr. Auth. Rev., Ser. A
BBB(b)
6.75 10/01/24 3,110 3,175,434
Hamilton Cnty. Gas Sys. Rev., Ser. A, M.B.I.A.
Aaa
4.75 10/15/23 3,250 2,749,565
Hilliard Ohio Sch. Dist.,
Cap. Apprec. Impvt., Ser. A
Aaa
Zero 12/01/09 2,855 1,312,215
Cap. Apprec. Impvt., Ser. A
Aaa
Zero 12/01/10 2,855 1,218,800
Kings Cnty. Local Sch. Dist., F.G.I.C.
Aaa
5.50 12/01/21 5,230 5,019,231
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
3
<PAGE>
Portfolio of Investments as of PRUDENTIAL
MUNICIPAL SERIES FUND
August 31, 1995 OHIO SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
Logan Hocking Local Sch. Dist., Hocking, Perry & Vinton
Co.,
Gen. Oblig., A.M.B.A.C.
Aaa
Zero 12/01/09 $ 650 $ 298,753
Lucas Cnty. Hosp. Rev.,
Toledo Hosp., Impvt. & Ref., M.B.I.A.
Aaa
5.00% 11/15/13 2,000 1,796,460
Toledo Hosp., Impvt. & Ref., M.B.I.A.
Aaa
5.00 11/15/22 4,250 3,713,820
Montgomery Cnty. Swr. Sys. Rev.,
Greater Moraine, Beaver Creek, F.G.I.C.
Aaa
Zero 9/01/05 1,000 608,480
Greater Moraine, Beaver Creek, F.G.I.C.
Aaa
Zero 9/01/07 500 267,525
Mount Vernon City Sch. Dist., Gen. Oblig., F.G.I.C.
Aaa
7.50 12/01/14 500 585,845
Newark Ltd. Tax Gen. Oblig., Wtr. Impvt., A.M.B.A.C.
Aaa
Zero 12/01/06 805 454,310
Ohio Mun. Elec. Generation Agcy., A.M.B.A.C.
Aaa
5.375 2/15/24 2,000 1,850,780
Ohio St. Air Quality Dev. Auth. Rev., Poll. Ctrl.,
Edison Proj., Ser. A, F.G.I.C
Aaa
7.45 3/01/16 3,750 4,137,787
Cleveland Co., Proj., F.G.I.C.
Aaa
8.00 12/01/13 2,500 2,953,200
Ohio St. Bldg. Auth.,
Columbus St. Bldg. Proj., Ser. A
A
7.75 10/01/07 750(d) 841,492
Das Data Ctr. Proj.
Aaa
6.00 10/01/08 615 657,620
St. Correctional Facs.
A
5.90 10/01/07 2,450 2,593,276
St. Correctional Facs., Ser. A
Aaa
8.00 8/01/06 600(d) 664,014
St. Correctional Facs., Ser. A
Aaa
8.00 8/01/08 500(d) 553,345
Workers Comp. - W. Green Bldg. A
A
4.75 4/01/14 2,740 2,359,304
Ohio St. Higher Edl. Fac. Comn. Rev.
Aa
7.70 10/01/18 965(d) 1,044,892
Ohio St. Higher Edl. Fac. Comn. Rev.,
Case Western Resv. Univ., Ser. A
Aa
7.70 10/01/18 35 37,898
Case Western Resv. Univ., Ser. B
Aa
6.50 10/01/20 750 818,895
Oberlin Coll.
NR
7.375 10/01/14 1,000(d) 1,127,770
Ohio St. Mtge. Rev., Ser. A, F.H.A.
AAA(b)
8.15 8/01/17 3,500 3,817,345
Ohio St. Poll. Ctrl. Rev., Standard Oil Co.
AA-(b)
6.75 12/01/15 1,350 1,547,181
Ohio St. Wtr. Dev. Auth. Rev., Ser. I
Aaa
7.50 12/01/08 1,200(d) 1,326,108
Ottawa Cnty. San. Sew. Sys. Rev., Danbury Proj.,
A.M.B.A.C.
Aaa
7.375 10/01/14 1,000(d) 1,131,190
Oxford Hosp. Facs. Rev., 1st Mtge., McCullough Hyde Mem.
NR
8.00 5/01/17 1,445 1,490,532
Pickerington Local Sch. Dist.,
Gen. Oblig., A.M.B.A.C.
Aaa
Zero 12/01/08 890 439,304
Gen. Oblig., A.M.B.A.C.
Aaa
Zero 12/01/09 935 429,745
Gen. Oblig., A.M.B.A.C.
Aaa
Zero 12/01/13 525 185,246
Puerto Rico Comnwlth., Aqueduct & Swr. Auth. Rev., Ser. A
Baa
7.875 7/01/17 1,000 1,113,750
Puerto Rico Comnwlth., Hwy. & Trans. Auth. Rev.
Baa1
5.50 7/01/15 5,000 4,700,800
Puerto Rico Comnwlth., Hwy. & Trans. Auth. Rev., Ser. W
Baa1
5.25 7/01/20 1,005 897,535
Puerto Rico Comnwlth., Reg. Linked Bonds, M.B.I.A.
Aaa
5.782 7/01/08 2,000(e) 2,068,460
Puerto Rico Elec. Pwr. Auth. Rev., Ser. O
Baa1
5.00 7/01/12 1,720 1,539,142
Puerto Rico Pub. Bldgs. Auth., Gtd. Pub. Ed. & Hlth.
Facs., Ser. J
Baa1
Zero 7/01/06 3,000 1,668,390
</TABLE>
- - ------------------------------------------------------------
- - --------------------
4 See Notes to
Financial Statements.
<PAGE>
Portfolio of Investments as of PRUDENTIAL
MUNICIPAL SERIES FUND
August 31, 1995 OHIO SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
Rural Lorain Cnty. Wtr. Auth. Res. Rev., A.M.B.A.C.
Aaa
7.70% 10/01/08 $ 2,000(d) $ 2,241,100
Scioto Cnty. Hosp. Fac. Rev., Portsmouth Proj., Ser. B,
M.B.I.A.
Aaa
7.625 5/15/08 2,290 2,528,687
Sugarcreek Local Sch. Dist., F.G.I.C.
Aaa
Zero 12/01/08 500 243,010
Summit Cnty. Ind. Dev. Rev., Century Products, Gerber
Foods
A2
7.75 11/01/05 3,250 3,445,163
Trumbull Cnty.,
Cap. Apprec.
Aaa
Zero 12/01/08 1,250 617,000
Cap. Apprec.
Aaa
Zero 12/01/09 1,250 574,525
Tuscarawas Cnty. Hosp. Fac. Rev., Union Hosp. Proj., Ser.
A
Baa
6.50 10/01/21 200 186,716
Univ. of Puerto Rico Revs., Ref. Ser. M, M.B.I.A.
Aaa
5.25 6/01/25 1,545 1,412,856
Univ. of Puerto Rico Revs., Cap. Apprec. Ref. Ser. N,
M.B.I.A.,
Aaa
Zero 6/01/13 4,245 1,557,236
Univ. of Toledo, Gen. Receipts, M.B.I.A.
Aaa
7.70 6/01/18 1,000(d) 1,110,240
Virgin Islands Pub. Fin. Auth. Rev., Ser. A
NR
7.25 10/01/18 1,000 1,054,960
Virgin Islands Terr., Hugo Ins. Claims Fund Prog., Ser. 91
NR
7.75 10/01/06 440 479,459
Virgin Islands Wtr. & Pwr. Auth., Elec. Sys. Rev., Ser. A
NR
7.40 7/01/11 1,000 1,063,240
Woodmore Indpt. Sch. Dist., Gen. Oblig.,
A.M.B.A.C.
Aaa
Zero 12/01/05 490 294,475
A.M.B.A.C.
Aaa
Zero 12/01/06 480 270,893
------------
Total long-term investments (cost $102,265,313)
108,936,634
------------
SHORT-TERM INVESTMENTS--3.3%
Cuyahoga Cnty., Univ. Hosp. of Cleveland, Ser. 85,
F.R.D.D.
(cost $3,800,000)
VMIG1
3.55 9/01/95 3,800 3,800,000
------------
Total Investments--98.8%
(cost $106,065,313; Note 4)
112,736,634
Other assets in excess of liabilities--1.2%
1,326,563
------------
Net Assets--100%
$114,063,197
------------
------------
</TABLE>
- - ---------------
(a) The following abbreviations are used in portfolio
descriptions:
A.M.B.A.C.--American Municipal Bond Assurance
Corporation.
F.G.I.C.--Financial Guaranty Insurance Company.
F.H.A.--Federal Housing Administration.
F.R.D.D.--Floating Rate (Daily) Demand Note (c).
F.S.A.--Financial Security Assurance.
M.B.I.A.--Municipal Bond Insurance Association.
(b) Standard & Poor's rating.
(c) For purposes of amortized cost valuation, the maturity
date of such
securities 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.
(d) Prerefunded issues are secured by escrowed cash and/or
direct U.S.
guaranteed obligations.
(e) Inverse floating rate bond. The coupon is inversely
indexed to a floating
interest rate. The rate shown is the rate at year end.
(f) Pledged as initial margin on financial futures
contracts.
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.
5
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Statement of Assets and Liabilities OHIO SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<S>
<C>
Assets
August 31, 1995
Investments, at value (cost
$106,065,313)...............................................
.................
.... $112,736,634
Interest
receivable..................................................
.................
....................... 1,729,925
Receivable for Series shares
sold........................................................
....................
4,846
Deferred expenses and other
assets......................................................
.................
.... 3,072
------------
Total
assets......................................................
.................
....................... 114,474,477
------------
Liabilities
Payable for Series shares
reacquired..................................................
.................
...... 139,123
Accrued expenses and other
liabilities.................................................
.................
..... 102,276
Dividends
payable.....................................................
.................
...................... 58,627
Management fee
payable.....................................................
.................
................. 43,272
Due to broker-variation
margin......................................................
.................
........ 35,406
Distribution fee
payable.....................................................
.................
............... 30,976
Deferred trustee's
fees........................................................
.................
............. 1,600
------------
Total
liabilities.................................................
.................
....................... 411,280
------------
Net
Assets......................................................
.................
............................ $114,063,197
------------
------------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
............
$ 95,644
Paid-in capital in excess of
par.........................................................
.................
107,058,560
------------
107,154,204
Accumulated net realized gain on
investments.................................................
.............
329,547
Net unrealized appreciation on
investments.................................................
...............
6,579,446
------------
Net assets, August 31,
1995........................................................
.................
...... $114,063,197
------------
------------
Class A:
Net asset value and redemption price per share
($51,132,450 / 4,289,011 shares of beneficial interest
issued and
outstanding)......................... $11.92
Maximum sales charge (3.0% of offering
price)......................................................
.......
.37
Maximum offering price to
public......................................................
....................
$12.29
Class B:
Net asset value, offering price and redemption price per
share
($62,804,534 / 5,264,771 shares of beneficial interest
issued and
outstanding)......................... $11.93
Class C:
Net asset value, offering price and redemption price per
share
($126,213 / 10,580 shares of beneficial interest
issued and
outstanding)...............................
$11.93
</TABLE>
- - ------------------------------------------------------------
- - --------------------
6 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND PRUDENTIAL
MUNICIPAL SERIES FUND
OHIO SERIES OHIO SERIES
Statement of Operations Statement of
Changes in Net Assets
- - ------------------------------------------------------------
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Year
Ended
Net Investment Income August 31,
1995
<S> <C>
Income
Interest................................... $
7,429,419
-----------
- - ----
Expenses
Management fee, net of waiver of $38,218...
538,657
Distribution fee--Class A..................
29,904
Distribution fee--Class B..................
427,051
Distribution fee--Class C..................
458
Custodian's fees and expenses..............
89,000
Transfer agent's fees and expenses.........
76,000
Reports to shareholders....................
75,000
Registration fees..........................
40,000
Audit fee..................................
11,000
Legal fee..................................
10,000
Trustees' fees.............................
3,200
Miscellaneous..............................
819
-----------
- - ----
Total expenses..........................
1,301,089
Less: custodian fee credit.................
(8,848)
-----------
- - ----
Net expenses............................
1,292,241
-----------
- - ----
Net investment income.........................
6,137,178
-----------
- - ----
Realized and Unrealized Gain
(Loss) on Investments
Net realized gain (loss) on:
Investment transactions....................
1,393,375
Financial futures transactions.............
(586,229)
-----------
- - ----
807,146
-----------
- - ----
Net change in unrealized appreciation
(depreciation) on:
Investments................................
917,581
Financial futures contracts................
(49,375)
-----------
- - ----
868,206
-----------
- - ----
Net gain on investments.......................
1,675,352
-----------
- - ----
Net Increase in Net Assets
Resulting from Operations..................... $
7,812,530
-----------
- - ----
-----------
- - ----
</TABLE>
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended August 31,
in Net Assets 1995 1994
<S> <C> <C>
Operations
Net investment income.......... $ 6,137,178 $
6,388,587
Net realized gain on investment
transactions................ 807,146
800,646
Net change in unrealized
appreciation (depreciation)
of investments.............. 868,206
(7,741,847)
------------ --------
- - ----
Net increase (decrease) in net
assets resulting from
operations.................. 7,812,530
(552,614)
------------ --------
- - ----
Dividends to shareholders from net
investment income (Note 1)
Class A........................ (1,643,462)
(258,026)
Class B........................ (4,490,813)
(6,130,561)
Class C........................ (2,903)
- - --
------------ --------
- - ----
(6,137,178)
(6,388,587)
------------ --------
- - ----
Series share transactions (net of
share conversions) (Note 5)
Net proceeds from shares
sold........................ 6,780,605
16,655,835
Net asset value of shares
issued in reinvestment of
dividends................... 3,526,725
3,713,106
Cost of shares reacquired...... (20,943,985)
(16,986,967)
------------ --------
- - ----
Net increase (decrease) in net
assets from Series share
transactions................ (10,636,655)
3,381,974
------------ --------
- - ----
Total decrease.................... (8,961,303)
(3,559,227)
Net Assets
Beginning of year................. 123,024,500
126,583,727
------------ --------
- - ----
End of year....................... $114,063,197
$123,024,500
------------ --------
- - ----
------------ --------
- - ----
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
7
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements OHIO SERIES
- - ------------------------------------------------------------
- - --------------------
Prudential Municipal Series Fund (the ``Fund'') is
registered under the
Investment Company Act of 1940, as an open-end investment
company. The Fund was
organized as a Massachusetts business trust on May 18, 1984
and consists of
seventeen series. The monies of each series are invested in
separate,
independently managed portfolios. The Ohio Series (the
``Series'') commenced
investment operations in September, 1984. The Series is
diversified and seeks
to
achieve its investment objective of obtaining the maximum
amount of income
exempt from federal and applicable state income taxes with
the minimum of risk
by investing in ``investment grade'' tax-exempt securities
whose ratings are
within the four highest ratings categories by a nationally
recognized
statistical rating organization or, if not rated, are of
comparable quality. The
ability of the issuers of the securities held by the Series
to meet their
obligations may be affected by economic 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, and the Series, in the preparation of its financial
statements.
Securities Valuations: The Series 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 Trustees.
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.
All securities are valued as of 4:15 P.M., New York time.
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 Series 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 Series 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 Series invests in financial futures contracts in order
to hedge its existing
portfolio securities or securities the Series intends to
purchase, against
fluctuations in value caused by changes in prevailing
interest rates. Should
interest rates move unexpectedly, the Series 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 securities are
calculated on the identified cost basis. Interest income is
recorded on the
accrual basis. The Series amortizes premiums and original
issue discount paid
on
purchases of 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: For federal income tax purposes, each
series in the Fund
is treated as a separate taxpaying entity. It is the intent
of the Series 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
shareholders. For this reason and because substantially all
of the Series' gross
income consists of tax-exempt interest, no federal income
tax provision is
required.
Dividends and Distributions: The Series declares daily
dividends from net
investment income. Payment of dividends is made monthly.
Distributions of net
capital gains, if any, are made annually.
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
- - ------------------------------------------------------------
- - --------------------
8
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements OHIO SERIES
- - ------------------------------------------------------------
- - --------------------
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 1% of the average daily net assets of the
Series. Effective
January 1, 1995, PMF has agreed to waive a portion (.05 of
1% of the Series'
average daily net assets) of its management fee, which
amounted to $38,218
($0.004 per share; 0.03% of average daily net assets). The
Series 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.
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 August 31, 1995.
PMFD has advised the Series that it has received
approximately $14,300 in
front-end sales charges resulting from sales of Class A
shares during the fiscal
year ended August 31, 1995. 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 Series that for the fiscal year ended
August 31, 1995, it
received approximately $165,700 in contingent deferred sales
charges imposed
upon certain redemptions by Class B and C 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 Transactions With Affiliates
Prudential Mutual Fund Services, Inc. (``PMFS''), a wholly-
owned subsidiary of
PMF, serves as the Fund's transfer agent. During the fiscal
year ended August
31, 1995 the Series incurred fees of approximately $53,000
for the services of
PMFS. As of August 31, 1995, approximately $4,000 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 Securities
Purchases and sales of portfolio securities of the Series,
excluding short-term
investments, for the fiscal year ended August 31, 1995 were
$42,529,053 and
$57,876,505, respectively.
The cost basis of investments for federal income tax
purposes at August 31, 1995
was substantially the same as for financial reporting
purposes and, accordingly,
net unrealized appreciation of investments for federal
income tax purposes was
$6,671,321 (gross unrealized appreciation--$7,261,271; gross
unrealized
depreciation--$589,950).
The Series utilized its capital loss carryforward of
approximately $279,400 to
offset the Series net taxable gains realized and recognized
in the fiscal year
ended August 31, 1995.
At August 31, 1995 the Series sold 17 financial futures
contracts on the
Municipal Bond Index and sold 48 financial futures contracts
on U.S. Treasury
Bonds both of which expire in September 1995. The value at
sale of such
contracts was $7,285,063. The value of such contracts on
August 31, 1995 was
$7,376,938, thereby resulting in an unrealized loss of
$91,875.
- - ------------------------------------------------------------
Note 5. Capital
The Series currently offers Class A, Class B and Class C
shares. Class A shares
are sold with a front-end sales charge of up to 3%. Class B
shares are sold with
a contingent deferred sales charge which declines from 5% to
zero depending on
the period of time the shares are held. Class C shares are
sold with a
contingent deferred sales charge of 1% during the first
year. Class B shares
automatically convert to Class A shares on a
- - ------------------------------------------------------------
- - --------------------
9
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements OHIO SERIES
- - ------------------------------------------------------------
- - --------------------
quarterly basis approximately seven years after purchase. A
special exchange
privilege is also available for shareholders who qualified
to purchase Class A
shares at net asset value.
The Fund has authorized an unlimited number of shares of
beneficial interest of
each class at $.01 par value per share.
Transactions in shares of beneficial interest for the fiscal
years ended August
31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- - ------------------------------------ ---------- --------
- - ----
<S> <C> <C>
Year ended August 31, 1995:
Shares sold......................... 66,566 $
777,944
Shares issued in reinvestment of
dividends......................... 76,044
896,433
Shares reacquired................... (429,023)
(5,024,610)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................. (286,413)
(3,350,233)
Shares issued upon conversion from
Class B........................... 4,170,236
48,050,779
---------- --------
- - ----
Net increase in shares
outstanding....................... 3,883,823 $
44,700,546
---------- --------
- - ----
---------- --------
- - ----
Year ended August 31, 1994:
Shares sold......................... 163,929 $
1,993,081
Shares issued in reinvestment of
dividends......................... 12,343
148,632
Shares reacquired................... (146,584)
(1,788,120)
---------- --------
- - ----
Net increase in shares
outstanding....................... 29,688 $
353,593
---------- --------
- - ----
---------- --------
- - ----
<CAPTION>
Class B
- - ------------------------------------
<S> <C> <C>
Year ended August 31, 1995:
Shares sold......................... 508,275 $
5,874,263
Shares issued in reinvestment of
dividends......................... 228,476
2,627,480
Shares reacquired................... (1,391,757)
(15,906,486)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................. (655,006)
(7,404,743)
Shares reacquired upon conversion
into Class A...................... (4,166,740)
(48,050,779)
---------- --------
- - ----
Net decrease in shares
outstanding....................... (4,821,746)
$(55,455,522)
---------- --------
- - ----
---------- --------
- - ----
Year ended August 31, 1994:
Shares sold......................... 1,210,935 $
14,657,554
Shares issued in reinvestment of
dividends......................... 295,981
3,564,474
Shares reacquired................... (1,270,756)
(15,198,847)
---------- --------
- - ----
Net increase in shares
outstanding....................... 236,160 $
3,023,181
---------- --------
- - ----
---------- --------
- - ----
<CAPTION>
Class C Shares
Amount
- - ------------------------------------ ---------- --------
- - ----
<S> <C> <C>
Year ended August 31, 1995:
Shares sold......................... 11,057 $
128,398
Shares issued in reinvestment of
dividends......................... 237
2,812
Shares reacquired................... (1,160)
(12,889)
---------- --------
- - ----
Net increase in shares
outstanding....................... 10,134 $
118,321
---------- --------
- - ----
---------- --------
- - ----
August 1, 1994(a) through
August 31, 1994:
Shares sold......................... 446 $
5,203
---------- --------
- - ----
---------- --------
- - ----
</TABLE>
- - ---------------
(a) Commencement of offering of Class C shares.
- - ------------------------------------------------------------
- - --------------------
10
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights OHIO SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class
A
- - ---------------------------------------------------
<S> <C>
<C> <C>
<C> <C>
Year Ended
August 31,
- - ---------------------------------------------------
1995
1994 1993
1992 1991
<CAPTION>
-------
- - ------ ------
------ ------
<S> <C>
<C> <C>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............ $ 11.72
$12.38 $11.69
$11.17 $10.71
-------
- - ------ ------
------ ------
Income from investment operations
Net investment income......................... .65(a)
.66 .69
.70 .70
Net realized and unrealized gain (loss) on
investment transactions..................... .20
(.66) .69
.52 .46
-------
- - ------ ------
------ ------
Total from investment operations............ .85
- - -- 1.38
1.22 1.16
-------
- - ------ ------
------ ------
Less dividends
Dividends from net investment income.......... (.65)
(.66) (.69)
(.70) (.70)
-------
- - ------ ------
------ ------
Net asset value, end of year.................. $ 11.92
$11.72 $12.38
$11.69 $11.17
-------
- - ------ ------
------ ------
-------
- - ------ ------
------ ------
TOTAL RETURN(b):.............................. 7.59%
(0.01)% 12.12%
11.26% 11.06%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................. $51,132
$4,749 $4,647
$2,095 $ 923
Average net assets (000)...................... $29,904
$4,733 $2,904
$1,289 $ 615
Ratios to average net assets:
Expenses, including distribution fees......
.83%(a) .84% .84%
.81% .93%
Expenses, excluding distribution fees......
.73%(a) .74% .74%
.71% .83%
Net investment income......................
5.50%(a) 5.45% 5.73%
6.34% 6.34%
Portfolio turnover rate....................... 38%
20% 28%
37% 37%
</TABLE>
- - ---------------
(a) Net of fee waiver.
(b) Total return does not consider the effects of sales
loads. Total return is
calculated assuming a purchase of shares on the first
day and a sale on the
last day of each year reported and includes reinvestment
of dividends.
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
11
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights OHIO SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class B Class C
- - -----------------------------------------------------------
Year
Year Ended
August 31, Ended
- - -----------------------------------------------------------
August 31,
1995
1994
1993 1992 1991 1995
<S> <C>
<C> <C>
<C> <C> <C>
-------
- - --------
- - -------- -------- -------- ----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 11.73
$ 12.38 $
11.70 $ 11.18 $ 10.71 $ 11.73
-------
- - --------
- - -------- -------- -------- ----------
Income from investment operations
Net investment income......................... .60(a)
.61
.65 .65 .65 .57(a)
Net realized and unrealized gain (loss) on
investment transactions..................... .20
(.65)
.68 .52 .47 .20
-------
- - --------
- - -------- -------- -------- ----------
Total from investment operations............ .80
(.04)
1.33 1.17 1.12 .77
-------
- - --------
- - -------- -------- -------- ----------
Less dividends
Dividends from net investment income.......... (.60)
(.61)
(.65) (.65) (.65) (.57)
-------
- - --------
- - -------- -------- -------- ----------
Net asset value, end of period................ $ 11.93
$ 11.73 $
12.38 $ 11.70 $ 11.18 $ 11.93
-------
- - --------
- - -------- -------- -------- ----------
-------
- - --------
- - -------- -------- -------- ----------
TOTAL RETURN(b):.............................. 7.16%
(0.33)%
11.58% 10.79% 10.74% 6.89%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $62,805
$118,270
$121,937 $102,199 $ 92,572 $ 126
Average net assets (000)...................... $85,410
$121,365
$110,053 $ 96,178 $ 90,437 $ 61
Ratios to average net assets:
Expenses, including distribution fees......
1.22%(a) 1.24%
1.24% 1.21% 1.33% 1.49%(a)
Expenses, excluding distribution fees......
.72%(a) .74%
.74% .71% .83% .74%(a)
Net investment income......................
5.27%(a) 5.05%
5.33% 5.73% 5.94% 4.76%(a)
Portfolio turnover rate....................... 38%
20%
28% 37% 37% 38%
<CAPTION>
August 1,
Through
August 31,
1994
<S> <C>
----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $11.75
-----
Income from investment operations
Net investment income......................... .05
Net realized and unrealized gain (loss) on
investment transactions..................... (.02)
-----
Total from investment operations............ .03
-----
Less dividends
Dividends from net investment income.......... (.05)
-----
Net asset value, end of period................ $11.73
-----
-----
TOTAL RETURN(b):.............................. 0.18%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $5
Average net assets (000)...................... $2
Ratios to average net assets:
Expenses, including distribution fees...... 2.28%(c)
Expenses, excluding distribution fees...... 1.53%(c)
Net investment income...................... 4.73%(c)
Portfolio turnover rate....................... 20%
</TABLE>
- - ---------------
(a) Net of fee waiver.
(b) 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.
Total returns for periods of less than a full year are
not annualized.
(c) Annualized.
(d) Commencement of offering of Class C shares.
- - ------------------------------------------------------------
- - --------------------
12 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Independent Auditors' Report OHIO SERIES
- - ------------------------------------------------------------
- - --------------------
The Shareholders and Board of Trustees
Prudential Municipal Series Fund, Ohio Series
We have audited the accompanying statement of assets and
liabilities, including
the portfolio of investments, of Prudential Municipal Series
Fund, Ohio Series,
as of August 31, 1995, the related statements of operations
for the year then
ended and of changes in 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. These financial statements and financial
highlights are the
responsibility of the Fund's management. Our responsibility
is to express an
opinion on these financial statements and financial
highlights based on our
audits.
We conducted our audits in accordance with generally
accepted auditing
standards. Those standards require that we plan and perform
the audit to obtain
reasonable assurance about whether the financial statements
and financial
highlights are free of material misstatement. An audit
includes examining, on
a
test basis, evidence supporting the amounts and disclosures
in the financial
statements. Our procedures included confirmation of the
securities owned as of
August 31, 1995 by correspondence with the custodian. An
audit also includes
assessing the accounting principles used and significant
estimates made by
management, as well as evaluating the overall financial
statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, such financial statements and financial
highlights present
fairly, in all material respects, the financial position of
Prudential Municipal
Series Fund, Ohio Series, as of August 31, 1995, the results
of its operations,
the changes in its net assets, and its financial highlights
for the respective
stated periods in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
October 16, 1995
PRUDENTIAL
MUNICIPAL SERIES FUND
Federal Income Tax Information OHIO SERIES
- - ------------------------------------------------------------
- - --------------------
We are required by the Internal Revenue Code to advise you
within 60 days of the
Series' fiscal year end (August 31, 1995) as to the federal
tax status of
dividends paid by the Series during such fiscal year.
Accordingly, we are
advising you that in the fiscal year ended August 31, 1995,
dividends paid from
net investment income of $.65 per Class A share, $.60 per
Class B share and $.57
per Class C share were all federally tax-exempt interest
dividends.
In January 1996, you will be advised on IRS Form 1099 DIV or
substitute 1099 DIV
as to the federal tax status of the dividends received by
you in calendar year
1995.
- - ------------------------------------------------------------
- - --------------------
13
<PAGE>
Getting The Most From Your Prudential Mutual Fund
Some mutual fund shareholders won't ever read this -- they
don't read annual
and semi-annual reports. It's quite understandable.These
annual and
semi-annual reports are prepared to comply with Federal
regulations. They are
often written in language that is difficult to understand.
So when most people
run into those particularly daunting sections of these
reports, they don't read
them.
We think that's a mistake.
At Prudential Mutual Funds, we've made some changes to our
report to make it
easier to understand and more pleasant to read, in hopes
you'll find it
profitable to spend a few minutes familiarizing yourself
with your investment.
Here's what you'll find in the report:
At A Glance
Since an investment's performance is often a shareholder's
primary concern, we
present performance information in two different formats.
You'll find it first
on the "At A Glance" page where we compare the Fund and the
comparable average
calculated by Lipper Analytical Services, Inc., a nationally
recognized mutual
fund rating agency. We report both the cumulative total
returns and the average
annual total returns. The cumulative total return is the
total amount of income
and appreciation the Fund has achieved in various time
periods. The average
annual total return is an annualized representation of the
Fund's
performance -- it generally smoothes out returns and gives
you an idea how
much the Fund has earned in an average year, for a given
time period. Under the
performance box, you'll see legends that explain the
performance information,
whether fees and sales charges have been included in
returns, and the inception
dates for the Fund's share classes.
See the performance comparison charts at the back of the
report for more
performance information. And keep in mind that past
performance is not
indicative of future results.
Portfolio
Manager's Report
The portfolio manager who invests your money for you reports
on successful --
and not-so-successful -- strategies in this section of your
report. Look for
recent purchases and sales here, as well as information
about the sectors the
portfolio managers favors and any changes that are on the
drawing board.
Portfolio Of
Investments
This is where the report begins to look technical, but it's
really just a
listing of each security held at the end of the reporting
period, along with
valuations and other information. Please note that sometimes
we discuss a
security in the Portfolio Manager's Report that doesn't
appear in this listing
because it was sold before the close of the reporting
period.
<PAGE>
Statement Of Assets
And Liabilities
The balance sheet shows the assets (the value of the Fund's
holdings),
liabilities (how much the Fund owes) and net assets (the
Fund's equity, or
holdings after the Fund pays its debts) as of the end of the
reporting period.
It also shows how we calculate the net asset value per share
for each class of
shares. The net asset value is reduced by payment of your
dividend, capital
gain, or other distribution, but remember that the money or
new shares are
being paid or issued to you and thus is not a realized loss.
The net asset
value fluctuates daily along with the value of every
security in the portfolio.
Statement Of
Operations
This is the income statement, which details income (mostly
interest and
dividends earned) and expenses (including what you pay us to
manage your
money). You'll also see capital gains here -- both realized
and unrealized.
Statement Of Changes
In Net Assets
This schedule shows how income and expenses translate into
changes in net
assets, compared to last year's performance. The Fund is
required to pay out
the bulk of its income to shareholders every year, and this
statement shows you
how we do it -- through dividends and distributions -- and
how that affects the
net assets. This statement also shows how money from
investors flowed into and
out of the Fund.
Notes To Financial
Statements
This is the kind of technical material that can intimidate
readers, but it
does contain useful information. The Notes provide a brief
history and
explanation of your Fund's objectives. In addition, they
also outline how
Prudential Mutual Funds prices securities. The Notes also
explain who manages
and distributes the Fund's shares, and more importantly, how
much they are
paid for doing so. Finally, the Notes explain how many
shares are outstanding
and the number issued and redeemed over the period.
Financial Highlights
This information contains many elements from prior pages,
but on a per share
basis. It is designed to help you understand how the Fund
performed and to
compare this year's performance and expenses to those of
prior years.
Independent
Auditor's Report
Once a year, an outside auditor looks over our books and
certifies that the
information we've presented is fair and complies with
generally accepted
accounting principles.
Tax Information
This is information which we report annually about how much
of your total
return is taxable. Should you have any questions, you may
want to consult a
tax advisor.
Performance
Comparison
These charts are included in the annual report and are
required by the
Securities Exchange Commission. Performance is presented
here as a hypothetical
$10,000 investment in the Fund since its inception or for 10
years (whichever
is shorter). To help you put that return in context, we are
required to include
the performance of an unmanaged, broad based securities
index, as well. The
index does not reflect the cost of buying the securities it
contains or the
cost of managing a mutual fund. Of course, the index
holdings do not mirror
those of the fund -- the index is a broadly based reference
point commonly
used by investors to measure how well they are doing. A
definition of the
selected index is also provided. Investors generally cannot
invest directly in
an index.
<PAGE>
Getting The Most From Your Prudential Mutual Fund
When you invest through Prudential Mutual Funds, you receive
financial advice
through a Prudential Securities financial advisor or
Prudential/Pruco
Securities registered representative. Your advisor or
representative can
provide you with the following services.
- - ------------------------------------------------------------
- - -------------------
There's No Reward Without Risk; But Is This Risk Worth It?
Your financial adviser or registered representative can help
you match the
reward you seek with the risk you can tolerate. And risk can
be difficult to
gauge -- sometimes even the simplest investments bear
surprising risks. The
educated investor knows that markets seldom move in just one
direction -- there
are times when a market sector or asset class will lose
value or provide little
in the way of total return. Managing your own expectations
is easier with help
from someone who understands the markets and who knows you!
- - ------------------------------------------------------------
- - -------------------
Keeping Up With The Joneses.
A financial adviser or registered representative can help
you wade through the
numerous mutual funds available to find the ones that fit
your own individual
investment profile and risk tolerance. While the newspapers
and popular
magazines are full of advice about investing, they are aimed
at generic groups
of people or representative individuals, not at you
personally. Your financial
advisor or registered representative will review your
investment objectives
with you. This means you can make financial decisions based
on the assets and
liabilities in your current portfolio and your risk
tolerance -- not just
based on the current investment fad.
- - ------------------------------------------------------------
- - -------------------
Buy Low, Sell High.
Buying at the top of a market cycle and selling at the
bottom are among the
most common investor mistakes. But sometimes it's difficult
to hold on to an
investment when it's losing value every month. Your
financial adviser or
registered representative can answer questions when you're
confused or worried
about your investment, and remind you that you're investing
for the long haul.
<PAGE>
Prudential Municipal Series Fund: Ohio Seies
Lehman Bros. General Municipal Debt Index
The Prudential Municipal Series Fund: Ohio Series and
the Lehman Bros. Index: Comparing a $10,000 Investment.
Class A
(CHART)
Class B
(CHART)
Class C
(CHART)
Past performance is no guarantee of future results.
Investment return and
principal value will fluctuate so an investor's shares, when
redeemed, will be
worth more or less than their original cost. The charts on
the right are
designed to give you an idea how much the Series' returns
can fluctuate from
year to year by measuring the best and worst years in terms
of total annual
return since inception of each share class.
These graphs are furnished to you in accordance with SEC
regulations. They
compare a $10,000 investment in the Prudential Municipal
Series Fund: Ohio
Series (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 Class A and C shares and for
10 years for Class
B
shares, and subsequent account values at the end of the most
recent reporting
period (August 31), as measured on a quarterly basis,
beginning in 1990 for the
Class A shares, in 1985 for the Class B shares, and in 1994
for the Class C
shares. For purposes of the graphs, and unless otherwise
indicated, in the
accompanying tables it has been assumed (a) that the maximum
applicable
front-end sales charge was deducted from the initial $10,000
investment in
Class A shares; (b) the maximum applicable contingent
deferred sales charge was
deducted from the value of the investment in Class B and
Class C shares,
assuming full redemption on August 31, 1995; (c) all
recurring fees (including
management fees) were deducted; and (d) all dividends and
distributions were
reinvested. Class B shares automatically convert to Class A
shares, on a
quarterly basis, approximately seven years after purchase.
This conversion
feature is not reflected in the graph. The graph and
accompanying tables
reflect the past subsidy and/or waiver of expenses and/or
management fees.
The Index is a weighted index comprised 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. It is an unmanaged index that
includes the reinvestment
of all dividends, but does not reflect the transaction costs
and advisory fees
paid by the Series' investors. The Index's holdings differ
from the Series'
portfolio. The Index is not the only one that may be used to
characterize
performance of bond funds and other indices may portray
different comparative
performance.
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
(LOGO)
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy Hays Teeters
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Grace Torres, Treasurer
S. Jane Rose, Secretary
Stephen M. Ungerman, Assistant Treasurer
Deborah A. Docs, Assistant 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
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
This report is not authorized for distribution to
prospective investors unless
preceded or accompanied by a current prospectus.
74435M838
74435M846 MF123E
74435M499 Cat. # 6425323
(ICON)
Prudential
Municipal
Series Fund
Pennsylvania Series
ANNUAL
REPORT
Aug. 31, 1995
(LOGO)
<PAGE>
Prudential Municipal Series Fund
Pennsylvania Series
Performance At A Glance.
It has been a good year for shareholders of the Prudential
Municipal Series
Fund: Pennsylvania Series. Municipal bond investors earned
not only their
coupon income, but also saw a gain in net asset value as
well. We are pleased
to report that your Series performed in line with the
average Pennsylvania
municipal bond fund measured by Lipper Analytical Services
over the past 12
months.
<TABLE>
Cumulative Total Returns1 As of 8/31/95
<CAPTION>
One Five Since
Year Years Inception2
<S> <C> <C> <C>
Class A 7.4% 49.8% 51.9%
Class B 6.9 46.8 76.7
Class C 6.7 N/A 6.8
Lipper PA Muni Avg3 7.4 50.3 79.0
</TABLE>
<TABLE>
Average Annual Total Returns1 As of 9/30/95
<CAPTION>
One Five Since
Year Years Inception2
<S> <C> <C> <C>
Class A 6.3% 7.9% 7.1%
Class B 4.2 8.0 7.0
Class C 7.9 N/A 6.2
</TABLE>
<TABLE>
<CAPTION>
Taxable Equivalent
Yield
Total Dividends 30-Day
At Tax Rates of
Paid for 12 Mos. SEC Yield
36% 39.6%
<S> <C> <C>
<C> <C>
Your
Dividend Class A $0.60 4.77%
7.67% 8.12%
As of 8/31/95 Class B $0.56 4.52
7.27 7.70
Class C $0.53 4.27
6.86 7.27
</TABLE>
Past performance is not a guarantee 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 and Lipper
Analytical Services.
The cumulative total returns do not take into account sales
charges. The
average annual returns do take into account applicable sales
charges. The
Series 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. Class B shares
automatically convert to Class A shares on a quarterly
basis, after
approximately seven years.
2Inception dates: 1/22/90 for Class A; 4/3/87 for Class B;
and 8/1/94 for
Class C.
3The Lipper Pennsylvania Municipal Bond fund average
includes 53 funds for one
year, 18 funds for five years and eight funds since
inception of the Class B
shares on 4/3/87.
How Investments Compared.
(As of 8/31/95)
Source: Lipper Analytical Services. Financial markets
change, so a
mutual fund's past performance should never be used to
predict future
results. The risks to each of the investments listed above
are
different -- we provide 12-month total returns for several
Lipper
mutual fund categories to show you that reaching for higher
yields
means tolerating more risk. The greater the risk, the larger
the potential
reward or loss. In addition, we've added historical 20-year
average annual
returns. These returns assume the reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Smaller
capitalization stocks
offer greater potential for long-term growth but may be more
volatile than
larger capitalization stocks. Investors receive higher
historical total
returns from stocks than from most other investments.
General Bond Funds
provide more income than stock funds, which can help smooth
out their
total returns year by year. But their prices still fluctuate
(sometimes
a good deal) and their returns are historically lower than
those of stock
funds.
General Municipal Debt Funds invest in bonds issued by
state
governments, state agencies and/or municipalities. This
investment
provides income that is usually exempt from federal and
state income
taxes. (20-year data not available.)
Money Market Funds attempt to preserve a constant share
value; they don't
fluctuate much in price but their returns are generally
among the lowest
of the major investment categories.
* 19 years for General Muni Debt Funds.
<PAGE>
Peter Allegrini, Fund Manager
(PHOTO)
Manager Named.
Peter Allegrini was appointed portfolio manager of the
Prudential Municipal
Series Fund: Pennsylvania Series in May. Peter oversees
Prudential Mutual
Funds' municipal bond team and also manages the Prudential
Municipal Bond
Fund/High Yield Series.
Portfolio
Manager's Report
The Series invests in carefully selected long-term municipal
bonds that
offer a high level of current income exempt from
Pennsylvania state and
federal income taxes consistent with preservation of
capital. Certain
shareholders may be subject to the federal alternative
minimum tax.
The Series invests primarily in obligations of Pennsylvania
state, municipal
and local governments, including U.S. territories (such as
Puerto Rico,
the U.S. Virgin Islands and Guam), the income of which is
also exempt
from Pennsylvania state and federal income taxes.
Strategy Session.
It has been a positive year for tax-free municipals.
Although interest
rates rose sharply in 1994 on inflation fears, they have
tumbled back
down slowly so far in 1995, as economic growth slowed. The
Bond Buyer
Revenue Bond Index Yield stood at 6.4% on September 1, 1994
(the index
is calculated on Thursdays) and rose by a percentage point
to a high of
7.4% in mid-October 1994, before falling to 6.3% on August
31, 1995.
When the dust had settled, long-term municipal bond interest
rates ended
the period lower.
As interest rates fell, we increased our holdings in revenue
bonds,
which typically offer higher interest rates than general
obligation
bonds. Our revenue bond holdings are concentrated in the
higher yielding
sectors of health care (17% of assets) and industrial
development (12%).
To enhance our price appreciation potential, we have been
buying more
insured bonds, bonds with longer maturities and discount
coupons (coupons
lower than the prevailing market), and some zero coupon
bonds. These bonds
have the potential to appreciate more if interest rates
fall, as we expect
they will this year.
State Of The State.
The market for tax-free municipal bonds in Pennsylvania has
been more
favorable than other states -- demand has been strong and
prices have
been relatively resistant to declines. This is testimony to
Pennsylvania's
improving economy, which is growing at a faster rate than
some of its
neighbors in the Northeast (although it does lag the
nation). Employment
in 1994 increased by 1.3%, mostly in the services and
construction.
Tax-free municipals are also in demand because the state's
fiscal situation
is improving. For the first time in several years, the
state government ran
at a surplus last year. What's more, Philadelphia's credit
rating this
spring was raised back to investment grade by two major
rating agencies after
it operated on a balanced budget for three consecutive
years.
<PAGE>
What Went Well.
We Held On
To Good Yields.
We increased assets invested in non-callable bonds (those
that can not
be paid off prematurely by the issuer to save on interest
costs) to 18%,
up from 10% a year ago. These bonds not only offer
attractive yields but
also appreciate well when interest rates decline. They are
valuable because
not many bonds offer protection from call risk -- only about
a third of
the securities in Lehman Brothers' Municipal Bond Index are
non-callable.
We also reduced our holdings in pre-refunded bonds.
It Paid To Buy
Puerto Rico Bonds.
The supply of new municipal bonds has declined sharply in
Pennsylvania,
by 43% this year alone. So we looked elsewhere. We bought
bonds sold
by Puerto Rico, because they are tax-exempt federally and in
virtually
all states, including Pennsylvania. As a result, they are
in demand,
which offers appreciation potential. Our holdings in Puerto
Rico are now
10% of assets, up from 7% a year ago.
And Not So Well.
A Longer Duration Would Have Helped.
Duration measures the sensitivity of a bond's price to
interest rate
changes. The longer the duration, the more the bond's price
appreciates
when interest rates fall and vice versa. Over the winter,
our duration
was shorter than that of some competing funds, because we
expected
economic strength to remain strong. As the slowdown became
apparent
in the second quarter, we extended duration. Duration
generally ranged
from 7.0 years to 7.3 years, and was 7.3 years on August 31.
Municipals Suffered From Tax Talk.
Congress is considering various changes in the federal
income tax,
including a flat tax -- an income tax at a single, flat
rate. One
proposal would eliminate taxes on most investment income.
Clearly,
this has created uncertainty in the municipal market -- one
reason
why municipal bonds did not follow taxable bond prices
higher this
spring. At this writing, we believe it is unlikely that a
flat tax
proposal in this form is likely to pass Congress --
especially not
before next year's election.
Looking Ahead.
Municipal bond yields are very attractive now. As we
mentioned earlier,
when U.S. government and corporate bond yields fell this
spring, municipal
yields did not follow to the same extent. That means there
are some good
buying opportunities now in the municipal market. Should
interest rates
remain stable, municipal bond investors may look forward to
earning their
coupon income. Plus, if interest rates fall further,
investors could
reasonably expect some price appreciation as well.
Nevertheless, municipal bond investors should be prepared to
weather
some volatility this year as various proposals to change the
country's
income tax structure are debated. Overall, we believe
municipal bonds
still offer good value, and that volatility can offer some
attractive
buying opportunities.
Five Largest
Issuers.*
8.2% Puerto Rico Comnwlth.
4.5% Phila. Ind. Dev. Rev.
4.4% Phila. Wtr. & Swr. Rev.
4.1% Pa. State Higher Edl. Facs.
3.2% Pa. Econ. Dev. Auth.
* Expressed as a percentage of total net assets as of
8/31/95.
1
<PAGE>
President's Letter
October 11, 1995
(PHOTO)
Dear Shareholder:
We hope you like the fresh look and information we've given
your shareholder
letter. We've also introduced another feature, called
Getting the Most Out
of Your Prudential Mutual Fund, which will appear from time
to time at the
back of your report. Look for topics like "Understanding
Risk & Reward" as
well as easy-to-understand explanations of financial terms.
Why are we
providing such information? Because at Prudential Mutual
Funds, we
believe an informed investor makes smart investment
decisions.
On the Hill
As an informed investor, you should know about the "American
Dream Savings
Account" that is part of the federal budget package now
under debate in
the Senate. It is a type of Individual Retirement Account
that offers a
common-sense approach to long-term saving. Investors should
like it
because --
- - --You can withdraw funds -- without penalty -- to pay for
certain
expenses like buying a first home, medical care or
educational needs;
- - --All account earnings would accumulate tax-free, not merely
tax-deferred
like the current IRA;
- - --You can make contributions past age 70 1/2, instead of
having to take
distributions as the current law requires.
Of course, the federal budget process is never easy and
while we hope
this measure is adopted, there's no way of knowing if it
will be. So
why not let your Senator and/or Representative know your
opinion today?
Simply call 202-224-3121.
In Closing
One final note: if you're a Class B shareholder of
Prudential Mutual Funds,
you'll begin noticing a change on your statements once
you've held your
shares for seven years. At that time, they will
automatically begin to
convert to Class A shares on a quarterly basis. Since Class
A shares carry
lower annual distribution charges than Class B shares, your
total returns
will be higher after the conversion than they would have
been without it.
Conversions started earlier this year and beginning in
December they
will take place during each calendar quarter -- December,
March, June
and September. It's our way of thanking you for your loyalty
- - -- and
rewarding you for maintaining a long-term investment program
by helping
you earn more total investment return on your Prudential
Mutual Fund. I
hope you'll find this information useful as you work with
your financial
advisor or registered representative to develop your
personal investment
plan.
Thank you for choosing Prudential Mutual Funds for your
mutual fund
investment.
Sincerely,
Richard A. Redeker
President
2
<PAGE>
Portfolio of Investments as of PRUDENTIAL
MUNICIPAL SERIES FUND
August 31, 1995 PENNSYLVANIA
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
LONG-TERM INVESTMENTS--99.2%
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
Allegheny Cnty. Arpt. Rev.,
Greater Pittsburgh Int'l. Arpt., Ser. A, F.S.A.
Aaa
6.60% 1/01/04 $ 1,000 $ 1,089,080
Greater Pittsburgh Int'l. Arpt., F.S.A.
Aaa
5.625 1/01/23 1,230 1,154,171
Allegheny Cnty. Higher Ed. Bldg. Auth. Rev.,
Robert Morris Coll., M.B.I.A.
Aaa
7.00 6/15/08 1,000 1,089,450
Allegheny Cnty. Hosp. Dev. Auth. Rev.,
Allegheny Gen. Hosp., Ser. S, M.B.I.A.
Aaa
6.25 9/01/20 1,750 1,779,540
Magee Womens Hosp., F.G.I.C.
Aaa
Zero 10/01/14 2,000 647,220
Magee Womens Hosp., F.G.I.C.
Aaa
Zero 10/01/16 2,000 568,020
Magee Womens Hosp., F.G.I.C.
Aaa
Zero 10/01/18 2,000 499,620
Magee Womens Hosp., F.G.I.C.
Aaa
Zero 10/01/19 4,000 935,440
Presbyterian Univ. Hosp., Ser. C, M.B.I.A.
Aaa
7.625 7/01/15 1,100 1,219,108
West Penn. Hosp. Hlth. Ctr.
NR
8.50 1/01/20 2,000 2,211,780
Allegheny Cnty. Ind. Dev. Auth. Rev., USX Proj., Ser. A
Baa3
6.70 12/01/20 4,500 4,554,315
Allegheny Cnty. Residential Fin. Auth., Mtge. Rev.,
G.N.M.A.,
Ser. F
Aaa
9.00 6/01/17 375 407,831
Ser. Q
Aaa
7.40 12/01/22 970 1,032,051
Allegheny Cnty. San. Auth. Swr. Rev., F.G.I.C.,
Aaa
Zero 12/01/05 2,620 1,544,909
Ser. A
Aaa
Zero 6/01/06 1,640 930,667
Allegheny Cnty., Ser. C-37, M.B.I.A.
Aaa
7.30 12/01/10 1,500(c) 1,696,530
Allentown Wtr. Impvt., A.M.B.A.C.
Aaa
5.65 7/15/10 1,430 1,445,687
Beaver Cnty. Ind. Dev. Auth. Poll. Ctrl. Rev.,
Ohio Edison Proj., Ser. A, F.G.I.C.
Aaa
7.75 9/01/24 1,150 1,291,600
Berks Cnty. Ind. Dev. Auth. Rev., Lutheran Home Proj.
NR
6.875 1/01/23 1,500 1,459,305
Berks Cnty. Mun. Auth. Hosp. Rev.,
Reading Hosp. Med. Ctr. Proj. M.B.I.A.
Aaa
5.70 10/01/14 1,250 1,228,538
Bethlehem Auth. Wtr. Rev., M.B.I.A.
Aaa
5.20 11/15/21 3,000 2,728,710
Boyertown Area Sch. Dist., Ser. B, A.M.B.A.C.
Aaa
5.25 2/01/17 2,000 1,856,700
Bucks Cnty. Wtr. & Swr. Auth. Rev.,
Neshaminy Interceptor Swr. Sys., F.G.I.C.
Aaa
Zero 12/01/15 2,175 651,804
Butler Cnty. Hosp. Auth. Rev., North Hills, Passavant
Hosp.,
Ser. A, C.G.I.C.
AAA(b)
7.00 6/01/22 1,000 1,088,130
Chester Cnty., Gen. Oblig., Ser. B
Aa
5.625 11/15/16 2,090 2,020,946
Chester Upland Sch. Auth., Sch. Rev.
A(b)
6.375 9/01/21 1,000 1,017,180
Dauphin Cnty. Gen. Auth. Rev., B.I.G
Aaa
7.40 1/01/06 1,000 1,060,570
Delaware Cnty., Gen. Oblig.
Aa
5.50 10/01/15 3,000 2,866,470
Delaware Cnty. Auth. Rev.,
Crozer Chester Med. Ctr., Ser. A,B,C; M.B.I.A.
Aaa
7.15 12/15/05 2,550 2,908,836
Villanova Univ., M.B.I.A.
Aaa
5.50 8/01/23 3,000 2,840,460
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
3
<PAGE>
Portfolio of Investments as of PRUDENTIAL
MUNICIPAL SERIES FUND
August 31, 1995 PENNSYLVANIA
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
Delaware Cnty. Ind. Dev. Auth. Rev., Res. Recovery Proj.,
Ser. A
A1
8.10% 12/01/13 $ 2,000 $ 2,099,700
Delaware River Jt. Toll Bridge Comm. Rev., F.G.I.C.
Aaa
6.00 7/01/18 5,500 5,526,950
Doylestown Hosp. Auth. Rev., Pine Run Retirement, Ser. A
NR
7.20 7/01/23 3,180 3,141,904
Emmaus Gen. Auth. Rev., Local Gov't. Bond, B.I.G.
Ser. B
Aaa
8.00 5/15/18 1,000(e) 1,108,450
Ser. C
Aaa
7.90 5/15/18 1,250 1,381,100
Ser. E
Aaa
7.90 5/15/18 2,000 2,209,760
Ser. F
Aaa
7.90 5/15/18 1,600 1,767,808
Erie Higher Ed. Bldg. Auth., College Rev.,
Mercyhurst Coll. Proj.
BBB(b)
7.85 9/15/19 1,000(c) 1,130,700
Mercyhurst Coll. Proj., Ser. B
BBB(b)
5.75 3/15/23 3,250 2,798,932
Harrisburg Auth. Lease Rev., Green Cnty. Prison Proj.,
F.G.I.C.
Aaa
6.625 6/01/13 1,500 1,645,800
Harrisburg Redev. Auth. Rev., Cap. Impvt., Ser. A,
F.G.I.C.
Aaa
7.875 11/02/16 900 970,200
Lancaster Cnty. Solid Waste Mgmt. Auth. Rev.,
Res. Rec. Sys. Landfill Rev.
A1
7.875 12/15/09 500 514,595
Res. Rec. Sys. Landfill Rev.
A1
7.75 12/15/04 750 775,800
Res. Rec. Sys. Rev.
A1
8.375 12/15/04 1,000 1,061,060
Langhorne Manor Boro. Higher Ed. & Hlth. Auth Rev.,
Lower Bucks Hosp.
Ba1
7.35 7/01/22 3,275 3,120,322
Latrobe Ind. Dev. Auth. Coll. Rev.,
St. Vincent Coll. Proj.
Baa1
6.75 5/01/14 1,800 1,838,178
St. Vincent Coll. Proj.
Baa1
6.75 5/01/24 1,500 1,520,280
Lehigh Cnty. Gen. Purpose Auth. Revs.,
Horizon Hlth. Sys. Inc., Ser. A
NR
8.25 7/01/13 500 550,575
St. Lukes Hosp. of Bethlehem Proj., A.M.B.A.C.
Aaa
5.30 11/15/06 750 761,978
St. Lukes Hosp. of Bethlehem Proj., A.M.B.A.C.
Aaa
5.30 11/15/07 1,000 1,004,380
Lower Pottsgrove Township Auth. Swr. Rev.,
Montgomery Cnty., A.M.B.A.C.,
Ser. A
Aaa
Zero 11/01/13 1,155 397,389
Ser. A
Aaa
Zero 11/01/15 1,185 356,887
Luzerne Cnty. Ind. Dev. Auth. Exmpt. Facs. Rev., Gas &
Water,
Ser. B
Baa3
7.125 12/01/22 6,000 6,139,560
Montgomery Cnty. Higher Ed. & Hlth. Auth. Hosp. Rev.,
Jeanes Hlth. Sys. Proj.
BBB(b)
8.625 7/01/07 4,000(c) 4,764,000
Montgomery Cnty. Ind. Dev. Auth. Rev., Poll. Ctrl.,
Philadelphia Elec. Co., Ser. A
Baa1
7.60 4/01/21 1,000 1,080,830
Res. Recovery
AA-(b)
7.50 1/01/12 2,000 2,147,420
Montgomery Cnty. Redev. Auth., Multi-family Hsg., Ser. A
NR
6.50 7/01/25 2,000 1,913,680
Northampton Cnty. Higher Ed. Auth. Rev.,
Lehigh Univ., M.B.I.A.
Aaa
7.10 11/15/09 1,500 1,658,025
Moravian Coll.
BBB-(b)
8.20 6/01/11 2,095 2,493,699
Moravian Coll., A.M.B.A.C.
Aaa
6.25 7/01/11 2,195 2,350,472
Northeastern Hosp. & Ed. Auth. Coll. Rev., Kings Coll.
Proj., Ser. B
BBB(b)
6.00 7/15/18 3,235 3,084,087
</TABLE>
- - ------------------------------------------------------------
- - --------------------
4 See Notes to
Financial Statements.
<PAGE>
Portfolio of Investments as of PRUDENTIAL
MUNICIPAL SERIES FUND
August 31, 1995 PENNSYLVANIA
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
Northumberland Cnty. Ind. Dev. Auth. Rev., Roaring Creek
Wtr.
NR
6.375% 10/15/23 $ 1,000 $ 929,270
Pennsylvania Econ. Dev. Auth.,
Macmillan Ltd. Partnership Proj.
Baa2
7.60 12/01/20 3,000 3,240,990
Wastewater Treatment Rev., Sun Co. R & M Proj., Ser. A
Baa1
7.60 12/01/24 4,500 4,899,015
Pennsylvania Hsg. Fin. Agcy.,
Sngl. Fam. Mtge.
Aa
7.80 10/01/20 2,930 3,122,940
Sngl. Fam. Mtge.
Aa
7.604 4/01/25 1,050(d) 977,813
Sngl. Fam. Mtge., Ser. X
Aa
8.10 10/01/10 780 830,583
Sngl. Fam. Mtge., Ser. X
Aa
8.15 4/01/24 420 432,474
Pennsylvania Intergovernmental Cooperation Auth.,
Spec.Tax Rev., M.B.I.A.
Aaa
5.60 6/15/15 4,000 3,856,040
Pennsylvania St. Cert. of Part., F.S.A.
Aaa
6.25 11/01/06 1,900 2,039,954
Pennsylvania St. Higher Edl. Facs. Auth. Rev.,
Allegheny Coll.
BBB+(b)
6.00 11/01/22 2,000 1,863,380
Hahnemann Univ. Proj., M.B.I.A.
Aaa
7.20 7/01/09 1,500 1,652,880
La Salle Univ., M.B.I.A.
Aaa
7.70 5/01/10 1,100 1,215,456
Med. Coll. of Penn., Ser. A
Baa
8.375 3/01/11 355 384,458
Med. Coll. of Penn., Ser. A
Baa
7.50 3/01/14 2,350 2,403,956
St. Sys, Ser. J, A.M.B.A.C.
Aaa
5.625 6/15/19 1,520 1,459,245
Thomas Jefferson Univ.
AAA(b)
8.00 1/01/18 1,250(c) 1,379,750
Pennsylvania St. Ind. Dev. Auth., Econ. Rev., A.M.B.A.C.
Aaa
5.50 1/01/14 4,250 4,065,295
Pennsylvania St. Tpke. Comn. Rev.,
Ser. D, F.G.I.C.
Aaa
7.625 12/01/17 1,375(c) 1,544,579
Ser. K
Aaa
7.50 12/01/19 4,650(c) 5,301,418
Philadelphia Arpt. Rev., Philadelphia Arpt. Sys.
Baa
9.00 6/15/15 2,000 2,068,200
Philadelphia Gas Wks. Rev.,
Ser. 13
Baa1
7.70 6/15/11 215 251,337
Ser. 13
Baa1
7.20 6/15/98 500 532,670
Ser. 13
Baa1
7.30 6/15/99 625 676,231
Ser. 13
Aaa
7.70 6/15/21 3,430(c) 4,025,037
Philadelphia Hosps. & Higher Ed. Fac. Auth. Rev.,
Childrens' Hosp. Proj., Ser. A
Aa
5.00 2/15/21 2,000 1,715,100
Childrens' Seashore House, Ser. A
A-(b)
7.00 8/15/12 1,000 1,052,200
Childrens' Seashore House, Ser. A
A-(b)
7.00 8/15/17 1,000 1,052,200
Grad. Hlth. Systems
Baa1
7.25 7/01/18 2,750 2,854,802
Grad. Hlth. Systems, Ser. A
Baa1
6.25 7/01/18 1,000 922,460
Philadelphia Ind. Dev. Rev.,
Inst. for Cancer Research Proj., Ser. B
AA-(b)
7.25 7/01/10 5,770 6,230,504
Nat'l. Brd. of Med. Examiners Proj.
A+(b)
6.75 5/01/12 5,000 5,253,450
Philadelphia Mun. Auth. Rev., F.G.I.C.
Aaa
5.625 11/15/14 2,000 1,937,080
Philadelphia Mun. Auth. Rev., F.G.I.C.
Aaa
5.625 11/15/18 1,500 1,440,750
Philadelphia Pkg. Auth. Rev., Arpt. Pkg., A.M.B.A.C.
Aaa
7.375 9/01/18 2,200 2,435,092
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
5
<PAGE>
Portfolio of Investments as of PRUDENTIAL
MUNICIPAL SERIES FUND
August 31, 1995 PENNSYLVANIA
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
Philadelphia Redev. Auth. Rev.,
Home Impvt. Loan, Ser. A
A
7.40% 6/01/08 $ 350 $ 376,162
Home Impvt. Loan, Ser. A
A
7.375 6/01/03 355 371,167
Philadelphia Sch. Dist., Gen. Oblig., Ser. A, M.B.I.A.
Aaa
5.85 7/01/09 1,710 1,765,729
Philadelphia Wtr. & Swr. Rev., M.B.I.A.
Aaa
6.25 8/01/08 2,000 2,175,960
Philadelphia Wtr. & Swr. Rev., M.B.I.A.
Aaa
5.25 6/15/23 2,775 2,519,228
Philadelphia Wtr. & Swr. Rev., M.B.I.A.,
Ser. 15
Aaa
Zero 10/01/02 7,900 5,616,347
Ser. 15
Aaa
6.875 10/01/06 700 764,498
Pittsburgh Stadium Auth. Rev., F.G.I.C.
Aaa
7.50 10/15/01 500 529,915
Pittsburgh Urban Redev. Auth., Mtge. Rev., Ser. B
A1
8.30 4/01/17 795 858,179
Pittsburgh Wtr. & Swr., Ser. A. F.G.I.C.
Aaa
5.60 9/01/22 3,000 2,886,990
Pottsgrove Sch. Dist., Gen. Oblig., Ser. A, A.M.B.A.C.
Aaa
5.30 10/15/14 2,000 1,885,220
Pottstown Boro. Auth., Swr. Rev., F.G.I.C.
Aaa
Zero 11/01/03 1,200 802,992
Puerto Rico Comnwlth.,
Gen. Oblig., M.B.I.A.
Aaa
5.40 7/01/07 1,500 1,548,930
Gen. Oblig., M.B.I.A.
Aaa
5.50 7/01/08 3,340 3,442,171
Gen. Oblig., A.M.B.A.C.
Aaa
7.00 7/01/10 4,030 4,677,419
Gen. Oblig., M.B.I.A.
Aaa
7.00 7/01/10 720 835,668
Gen. Oblig., F.S.A.
Aaa
7.682 7/01/20 4,250(d) 4,159,688
Gen. Oblig.
AAA(b)
7.70 7/01/20 5,250(c) 6,087,742
Puerto Rico Elec. Pwr. Auth., Pwr. Rev., Ser. S
Baa1
7.00 7/01/06 1,800 2,030,526
Puerto Rico Hsg. Bank & Fin. Agcy.
Baa
5.125 12/01/05 750 720,173
Puerto Rico Hsg. Bank & Fin. Agcy.
Baa
5.25 12/01/06 2,000 1,914,600
Sayre Hlth. Care Facs. Auth. Rev., A.M.B.A.C.,
Cap. Asset Fin. Prog. C
Aaa
7.70 12/01/13 500 565,695
Cap. Asset Fin. Prog. C
Aaa
7.625 12/01/15 1,000 1,127,700
Scranton Pkg. Auth. Rev.
A+(b)
8.125 9/15/14 1,600 1,777,840
Scranton-Lackawanna Hlth. & Welfare Auth. Rev.,
Univ. Of Scranton Proj., Ser. C
A-(b)
7.50 6/15/06 1,000(c) 1,141,670
Univ. Of Scranton Proj., Ser. C
A-(b)
6.50 3/01/15 2,250 2,288,138
So. Fork Mun. Auth. Hosp. Rev., Lee Hosp. Proj., Ser. A
A-(b)
5.50 7/01/23 2,500 2,143,000
Swarthmore Boro. Gen. Auth. Rev., Pennsylvania Coll. Rev.
A-(b)
7.25 9/15/10 600(c) 676,980
Unity Township Mun. Auth., Gtd. Swr. Rev., A.M.B.A.C.,
Capital Appreciation
Aaa
Zero 11/01/11 1,035 405,554
Capital Appreciation
Aaa
Zero 11/01/12 1,035 380,166
Capital Appreciation
Aaa
Zero 11/01/13 1,035 356,102
Venango Cnty. Gen. Oblig., Ser. B, F.G.I.C.
Aaa
5.25 7/15/18 2,265 2,097,345
Virgin Islands Pub. Fin. Auth. Rev.,
Hwy. Trans. Trust Fund
BBB(b)
7.70 10/01/04 1,000 1,095,820
Ref. Matching Loan Notes, Ser. A
NR
7.25 10/01/18 1,950 2,057,172
Virgin Islands Terr., Hugo Ins. Claims Fund Prog., Ser. 91
NR
7.75 10/01/06 1,055 1,149,612
</TABLE>
- - ------------------------------------------------------------
- - --------------------
6 See Notes to
Financial Statements.
<PAGE>
Portfolio of Investments as of PRUDENTIAL
MUNICIPAL SERIES FUND
August 31, 1995 PENNSYLVANIA
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Moody's
Principal
Rating
Interest Maturity Amount Value
Description (a)
(Unaudited)
Rate Date (000) (Note 1)
<S>
<C>
<C> <C> <C> <C>
- - ------------------------------------------------------------
- - -----------------
- - -------------------------------------------------
Washington Cnty. Auth. Lease Rev., Mun. Fac., Shadyside
Hosp., Ser. C-1D, A.M.B.A.C.
Aaa
7.45% 12/15/18 $ 2,900(c) $ 3,338,944
Washington Cnty. Hosp. Auth. Rev., Monongahela Valley
Hosp.
A
6.75 12/01/08 2,750 2,810,225
York Cnty. Solid Waste & Refuse Auth. Ind. Dev. Rev., Res.
Rec. Proj., Ser. C
AA-(b)
8.20 12/01/14 1,000 1,103,990
------------
Total long-term investments (cost $237,031,397)
251,671,055
SHORT-TERM INVESTMENT--0.4%
Schuylkill Cnty. Ind. Dev. Auth., Westwood Energy Pty.,
Ser. 85, F.R.D.D. (cost $900,000)
P1
3.60 9/01/95 900 900,000
------------
Total Investments--99.6%
(cost $237,931,397; Note 4)
252,571,055
Other assets in excess of liabilities--0.4%
1,094,434
------------
Net Assets--100%
$253,665,489
------------
------------
</TABLE>
- - ---------------
(a) The following abbreviations are used in portfolio
descriptions:
A.M.B.A.C.--American Municipal Bond Assurance
Corporation.
B.I.G.--Bond Investors Guaranty Insurance Company.
C.G.I.C.--Capital Guaranty Insurance Company.
F.G.I.C.--Financial Guaranty Insurance Company.
F.R.D.D.--Floating Rate (Daily) Demand Note (f).
F.S.A.--Financial Security Assurance.
G.N.M.A.--Government National Mortgage Association.
M.B.I.A.--Municipal Bond Insurance Association.
(b) Standard & Poor's rating.
(c) Prerefunded issues are secured by escrowed cash and/or
direct U.S.
guaranteed obligations.
(d) Inverse floating rate bond. The coupon is inversely
indexed to a floating
interest rate. The rate shown is the rate at the period
end.
(e) Pledged as initial margin on financial futures
contracts.
(f) For purposes of amortized cost valuation, the maturity
date of these
securities are 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.
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.
7
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Statement of Assets and Liabilities PENNSYLVANIA
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<S>
<C>
Assets
August 31, 1995
Investments, at value (cost
$237,931,397)...............................................
.................
.... $252,571,055
Cash........................................................
.................
................................ 72,184
Interest
receivable..................................................
.................
....................... 3,846,415
Receivable for investments
sold........................................................
.................
..... 1,346,313
Receivable for Series shares
sold........................................................
....................
66,608
Deferred expenses and other
assets......................................................
.................
.... 10,420
------------
Total
assets......................................................
.................
....................... 257,912,995
------------
Liabilities
Payable for investments
purchased...................................................
.................
........ 3,480,977
Payable for Series shares
reacquired..................................................
.................
...... 371,999
Dividends
payable.....................................................
.................
...................... 134,934
Management fee
payable.....................................................
.................
................. 95,759
Distribution fee
payable.....................................................
.................
............... 89,757
Accrued
expenses....................................................
.................
........................ 62,324
Due to broker-variation
margin......................................................
.................
........ 10,156
Deferred trustees'
fees........................................................
.................
............. 1,600
------------
Total
liabilities.................................................
.................
....................... 4,247,506
------------
Net
Assets......................................................
.................
............................ $253,665,489
------------
------------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
............
$ 240,517
Paid-in capital in excess of
par.........................................................
.................
240,634,533
------------
240,875,050
Accumulated net realized loss on
investments.................................................
.............
(1,792,188)
Net unrealized appreciation on
investments.................................................
...............
14,582,627
------------
Net assets, August 31,
1995........................................................
.................
......... $253,665,489
------------
------------
Class A:
Net asset value and redemption price per share
($50,696,456 / 4,806,652 shares of beneficial interest
issued and
outstanding)......................... $10.55
Maximum sales charge (3.0% of offering
price)......................................................
.......
.33
Maximum offering price to
public......................................................
....................
$10.88
Class B:
Net asset value, offering price and redemption price per
share
($202,633,238 / 19,213,229 shares of beneficial
interest issued and
outstanding)....................... $10.55
Class C:
Net asset value, offering price and redemption price per
share
($335,795 / 31,838 shares of beneficial interest
issued and
outstanding)...............................
$10.55
</TABLE>
- - ------------------------------------------------------------
- - --------------------
8 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND PRUDENTIAL
MUNICIPAL SERIES FUND
PENNSYLVANIA SERIES PENNSYLVANIA
SERIES
Statement of Operations Statement of
Changes in Net Assets
- - ------------------------------------------------------------
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Year
Ended
Net Investment Income August 31,
1995
<S> <C>
Income
Interest...................................
$16,725,737
-----------
- - ----
Expenses
Management fee, net of waiver of $84,187...
1,182,799
Distribution fee--Class A..................
30,092
Distribution fee--Class B..................
1,115,411
Distribution fee--Class C..................
1,672
Transfer agent's fees and expenses.........
187,000
Reports to shareholders....................
156,000
Custodian's fees and expenses..............
109,000
Registration fees..........................
36,000
Audit fee..................................
11,000
Legal fees.................................
10,000
Trustees' fees.............................
3,200
Miscellaneous..............................
30,887
-----------
- - ----
Total expenses..........................
2,873,061
Less custodian fee credit..................
(17,396)
-----------
- - ----
Net expenses............................
2,855,665
-----------
- - ----
Net investment income.........................
13,870,072
-----------
- - ----
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions....................
504,596
Financial futures contracts................
(1,012,601)
-----------
- - ----
(508,005)
-----------
- - ----
Net change in unrealized appreciation on:
Investments................................
2,796,532
Financial futures contracts................
82,281
-----------
- - ----
2,878,813
-----------
- - ----
Net gain on investments.......................
2,370,808
-----------
- - ----
Net Increase in Net Assets
Resulting from Operations.....................
$16,240,880
-----------
- - ----
-----------
- - ----
</TABLE>
<TABLE>
<CAPTION>
Increase (Decrease) Year Ended August 31,
in Net Assets 1995 1994
<S> <C> <C>
Operations
Net investment income.......... $ 13,870,072 $
14,193,314
Net realized loss on investment
transactions................ (508,005)
(7,799)
Net change in unrealized
appreciation/depreciation of
investments................. 2,878,813
(17,783,224)
------------ --------
- - ----
Net increase (decrease) in net
assets resulting from
operations.................. 16,240,880
(3,597,709)
------------ --------
- - ----
Dividends and distributions (Note 1)
Dividends to shareholders from
net investment income
Class A..................... (1,734,468)
(569,122)
Class B..................... (12,124,140)
(13,624,192)
Class C..................... (11,464)
- - --
------------ --------
- - ----
(13,870,072)
(14,193,314)
------------ --------
- - ----
Distributions to shareholders
from net realized gain on
investment transactions
Class A..................... --
(97,328)
Class B..................... --
(2,598,620)
------------ --------
- - ----
--
(2,695,948)
------------ --------
- - ----
Series share transactions (net of
share conversions) (Note 5)
Net proceeds from shares
sold........................ 19,260,042
46,954,314
Net asset value of shares
issued in reinvestment of
dividends and
distributions............... 7,902,987
9,903,212
Cost of shares reacquired...... (44,342,507)
(40,990,785)
------------ --------
- - ----
Net increase (decrease) in net
assets from Series share
transactions................ (17,179,478)
15,866,741
------------ --------
- - ----
Total decrease.................... (14,808,670)
(4,620,230)
Net Assets
Beginning of year................. 268,474,159
273,094,389
------------ --------
- - ----
End of year....................... $253,665,489
$268,474,159
------------ --------
- - ----
------------ --------
- - ----
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
9
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements PENNSYLVANIA
SERIES
- - ------------------------------------------------------------
- - --------------------
Prudential Municipal Series Fund (the ``Fund'') is
registered under the
Investment Company Act of 1940 as an open-end investment
company. The Fund was
organized as a Massachusetts business trust on May 18, 1984
and consists of
seventeen series. The monies of each series are invested in
separate,
independently managed portfolios. The Pennsylvania Series
(the ``Series'')
commenced investment operations in April, 1987. The Series
is diversified and
seeks to achieve it's investment objective of obtaining the
maximum amount of
income exempt from federal and applicable state income taxes
with the minimum
of
risk by investing in ``investment grade'' tax-exempt
securities whose ratings
are within the four highest ratings categories by a
nationally recognized
statistical rating organization or, if not rated, are of
comparable quality. The
ability of the issuers of the securities held by the Series
to meet their
obligations may be affected by economic 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, and the Series, in the preparation of its financial
statements.
Securities Valuations: The Series 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 Trustees.
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.
All securities are valued as of 4:15 P.M., New York time.
Financial Futures Contracts: A financial futures contract is
an agreement to
purchase (long) or sell (short) an agreed amount of debt
securities at a set
price for delivery on a future date. Upon entering into a
financial futures
contract, the Series 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 Series
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. The Series invests in
financial futures
contracts in order to hedge its existing portfolio
securities or securities the
Series intends to purchase against fluctuations in value
caused by changes in
prevailing interest rates. Should interest rates move
unexpectedly, the Series
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 securities are
calculated on the identified cost basis. Interest income is
recorded on the
accrual basis. The Series amortizes premiums and original
issue discount paid
on
purchases of 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: For federal income tax purposes, each
series in the Fund
is treated as a separate taxpaying entity. It is the intent
of the Series 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
shareholders. For this reason and because substantially all
of the Series' gross
income consists of tax-exempt interest, no federal income
tax provision is
required.
Reclassification of Capital Accounts: The Series accounts
and reports for
distributions to shareholders in accordance with Statement
of Position 93-2:
Determination, Disclosure, and Financial Statement
Presentation of Income,
Capital Gain, and Return of Capital Distributions by
Investment Companies.
During the fiscal year the Series decreased paid-in capital
and decreased
accumulated net realized losses by $15,560 compared to
amounts previously
reported through August 31, 1994. Current year net
investment income, net
realized gains and net assets were not affected by this
change.
Dividends and Distributions: The Series declares daily
dividends from net
investment income. Payment of dividends are made monthly.
Distributions of net
capital gains, if any, are made annually. Income
distributions and capital gain
distributions are determined in accordance with income
- - ------------------------------------------------------------
- - --------------------
10
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements PENNSYLVANIA
SERIES
- - ------------------------------------------------------------
- - --------------------
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 1% of the average daily net assets of the
Series. Effective
January 1, 1995, PMF has agreed to waive a portion (.05 of
1% of the Series'
average daily net assets) of its management fee, which
amounted to $84,187
($0.004 per share for Class A, B and C shares: .03% of
average net assets). The
Series 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.
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 August 31, 1995.
PMFD has advised the Series that it has received
approximately $32,000 in
front-end sales charges resulting from sales of Class A
shares during the fiscal
year ended August 31, 1995. 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 Series that for the fiscal year ended
August 31, 1995, it
received approximately $427,000 and $600 in contingent
deferred sales charges
imposed upon certain redemptions by Class B and Class C
shareholders,
respectively.
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 Transactions with Affiliates
Prudential Mutual Fund Services, Inc. (``PMFS''), a wholly-
owned subsidiary of
PMF, serves as the Fund's transfer agent. During the fiscal
year ended August
31, 1995, the Series incurred fees of approximately $129,000
for the services
of
PMFS. As of August 31, 1995, approximately $11,000 of such
fees were due to
PMFS. Transfer agent fees and expenses in the Statement of
Operations includes
certain out-of-pocket expenses paid to non-affiliates.
- - ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of portfolio securities of the Series,
excluding short-term
investments, for the year ended August 31, 1995 were
$47,151,056 and
$59,872,361, respectively.
The cost basis of investments for federal income tax
purposes was $237,963,978
and, accordingly, as of August 31, 1995 net unrealized
appreciation of
investments for federal income tax purposes is $14,607,077
(gross unrealized
appreciation--$16,370,301; gross unrealized depreciation--
$1,763,224).
At August 31, 1995 the Series sold 25 financial futures
contracts on the
Municipal Bond Index expiring September 1995. The value at
disposition of such
contracts was $2,803,906. The value of such contracts on
August 31, 1995 was
$2,860,937 thereby resulting in an unrealized loss of
$57,031.
For federal income tax purposes, the Series has a capital
loss carryforward as
of August 31, 1995 of approximately $1,452,000 which expires
in 2003.
Accordingly, no capital gains distribution is expected to be
paid to
shareholders until net gains have been realized in excess of
such carryforward.
- - ------------------------------------------------------------
- - --------------------
11
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements PENNSYLVANIA
SERIES
- - ------------------------------------------------------------
- - --------------------
The Series will elect to treat net capital losses of
approximately $231,500
incurred in the ten month period ended August 31, 1995 as
being incurred in the
next fiscal year.
- - ------------------------------------------------------------
Note 5. Capital
The Series offers both Class A, Class B and Class C shares.
Class A shares are
sold with a front-end sales charge of up to 3%. Class B
shares are sold with a
contingent deferred sales charge which declines from 5% to
zero depending on the
period of time the shares are held. Class C shares are sold
with a contingent
deferred sales charge of 1% during the first year. Class B
shares will
automatically convert to Class A shares on a quarterly basis
approximately seven
years after purchase.
The Fund has authorized an unlimited number of shares of
beneficial interest of
each class at $.01 par value per share. Transactions in
shares of beneficial
interest for the fiscal years ended August 31, 1995 and
August 31, 1994 were as
follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- - ----------------------------------- ---------- --------
- - ----
<S> <C> <C>
Year ended August 31, 1995:
Shares sold........................ 299,314 $
3,060,202
Shares issued in reinvestment of
dividends........................ 94,611
981,883
Shares reacquired.................. (429,242)
(4,432,346)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................ (35,317)
(390,261)
Shares issued upon conversion from
Class B.......................... 3,820,038
39,180,753
---------- --------
- - ----
Net increase in shares
outstanding...................... 3,784,721 $
38,790,492
---------- --------
- - ----
---------- --------
- - ----
Year ended August 31, 1994:
Shares sold........................ 319,034 $
3,481,332
Shares issued in reinvestment of
dividends and distributions...... 36,716
396,391
Shares reacquired.................. (167,304)
(1,791,755)
---------- --------
- - ----
Net increase in shares
outstanding...................... 188,446 $
2,085,968
---------- --------
- - ----
---------- --------
- - ----
<CAPTION>
Class B Shares
Amount
- - ----------------------------------- ---------- --------
- - ----
<S> <C> <C>
Year ended August 31, 1995
Shares sold........................ 1,556,154 $
15,906,587
Shares issued in reinvestment of
dividends........................ 676,394
6,911,570
Shares reacquired.................. (3,929,313)
(39,845,757)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................ (1,696,765)
(17,027,600)
Shares reacquired upon conversion
into Class A..................... (3,820,038)
(39,180,753)
---------- --------
- - ----
Net decrease in shares
outstanding...................... (5,516,803)
$(56,208,353)
---------- --------
- - ----
---------- --------
- - ----
Year ended August 31, 1994:
Shares sold........................ 3,979,725 $
43,382,782
Shares issued in reinvestment of
dividends and distributions...... 879,774
9,506,821
Shares reacquired.................. (3,665,816)
(39,199,030)
---------- --------
- - ----
Net increase in shares
outstanding...................... 1,193,683 $
13,690,573
---------- --------
- - ----
---------- --------
- - ----
<CAPTION>
Class C
- - -----------------------------------
<S> <C> <C>
Year ended August 31, 1995:
Shares sold........................ 28,444 $
293,253
Shares issued in reinvestment of
dividends........................ 926
9,534
Shares reacquired.................. (6,201)
(64,404)
---------- --------
- - ----
Net increase in shares
outstanding...................... 23,169 $
238,383
---------- --------
- - ----
---------- --------
- - ----
August 1, 1994(a) through
August 31, 1994:
Shares sold........................ 8,669 $
90,200
---------- --------
- - ----
---------- --------
- - ----
</TABLE>
- - ---------------
(a) Commencement of offering of Class C shares.
- - ------------------------------------------------------------
- - --------------------
12
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights PENNSYLVANIA
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class A
- - ----------------------------------------------------
<S> <C>
<C> <C>
<C> <C>
Year Ended August
31,
- - ----------------------------------------------------
1995
1994 1993
1992 1991
-------
- - ------- ------
------ ------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............ $ 10.42
$ 11.21 $10.55
$ 9.96 $ 9.60
-------
- - ------- ------
------ ------
Income from investment operations
Net investment income......................... .60(a)
.59 .62
.62 .62(a)
Net realized and unrealized gain (loss) on
investment transactions.................... .13
(.68) .70
.59 .39
-------
- - ------- ------
------ ------
Total from investment operations........... .73
(.09) 1.32
1.21 1.01
-------
- - ------- ------
------ ------
Less distributions
Dividends from net investment income.......... (.60)
(.59) (.62)
(.62) (.62)
Distributions from net realized gains......... --
(.11) (.04)
-- (.03)
-------
- - ------- ------
------ ------
Total distributions........................ (.60)
(.70) (.66)
(.62) (.65)
-------
- - ------- ------
------ ------
Net asset value, end of year.................. $ 10.55
$ 10.42 $11.21
$10.55 $ 9.96
-------
- - ------- ------
------ ------
-------
- - ------- ------
------ ------
TOTAL RETURN(b):.............................. 7.35%
(.82)% 12.86%
12.44% 10.82%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................. $50,696
$10,651 $9,342
$5,908 $3,521
Average net assets (000)...................... $30,092
$10,315 $7,354
$4,439 $2,366
Ratios to average net assets:
Expenses, including distribution fees...... .80%(a)
.75% .78%
.81% .83%(a)
Expenses, excluding distribution fees...... .70%(a)
.65% .68%
.71% .74%(a)
Net investment income...................... 5.76%(a)
5.52% 5.69%
5.99% 6.32%(a)
Portfolio turnover rate....................... 19%
22% 13%
25% 62%
</TABLE>
- - ---------------
(a) Net of expense subsidy/management fee waiver.
(b) Total return does not consider the effects of sales
loads. Total return is
calculated assuming a purchase of shares on the first
day and a sale on
the last day of each year reported and includes
reinvestment dividends
and distributions.
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements.
13
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights PENNSYLVANIA
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class
B
- - ---------------------------------------------------
Year
Year Ended
August 31, Ended
- - ------------------------------------------------------------
August 31,
1995
1994 1993
1992 1991 1995
<S> <C>
<C> <C>
<C> <C> <C>
--------
- - --------
- - -------- -------- -------- ------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 10.42
$ 11.21 $
10.54 $ 9.96 $ 9.60 $10.42
--------
- - --------
- - -------- -------- -------- ------
Income from investment operations
Net investment income......................... .56(a)
.55
.57 .58 .58(a) .53(a)
Net realized and unrealized gain (loss) on
investment transactions.................... .13
(.68)
.71 .58 .39 .13
--------
- - --------
- - -------- -------- -------- ------
Total from investment operations........... .69
(.13)
1.28 1.16 .97 .66
--------
- - --------
- - -------- -------- -------- ------
Less distributions
Dividends from net investment income.......... (.56)
(.55)
(.57) (.58) (.58) (.53)
Distributions from net realized gains......... --
(.11)
(.04) -- (.03) --
--------
- - --------
- - -------- -------- -------- ------
Total distributions........................ (.56)
(.66)
(.61) (.58) (.61) (.53)
--------
- - --------
- - -------- -------- -------- ------
Net asset value, end of period................ $ 10.55
$ 10.42 $
11.21 $ 10.54 $ 9.96 $10.55
--------
- - --------
- - -------- -------- -------- ------
--------
- - --------
- - -------- -------- -------- ------
TOTAL RETURN(b):.............................. 6.92%
(1.22)%
12.54% 11.92% 10.39% 6.65%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $202,633
$257,732
$263,752 $206,028 $170,162 $ 336
Average net assets (000)...................... $223,082
$266,594
$229,955 $186,113 $146,591 $ 223
Ratios to average net assets:
Expenses, including distribution fees...... 1.17%(a)
1.15%
1.18% 1.21% 1.23%(a) 1.44%(a)
Expenses, excluding distribution fees...... .67%(a)
.65%
.68% .71% .74%(a) .69%(a)
Net investment income...................... 5.44%(a)
5.11%
5.29% 5.59% 5.94%(a) 5.14%(a)
Portfolio turnover rate....................... 19%
22%
13% 25% 62% 19%
<CAPTION>
August 1,
Through
August 31,
1994
<S> <C>
----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $10.44
-----
Income from investment operations
Net investment income......................... .04
Net realized and unrealized gain (loss) on
investment transactions.................... (.02)
-----
Total from investment operations........... .02
-----
Less distributions
Dividends from net investment income.......... (.04)
Distributions from net realized gains......... --
-----
Total distributions........................ (.04)
-----
Net asset value, end of period................ $10.42
-----
-----
TOTAL RETURN(b):.............................. .14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $ 90
Average net assets (000)...................... $ 1
Ratios to average net assets:
Expenses, including distribution fees...... 2.00%(c)
Expenses, excluding distribution fees...... 1.25%(c)
Net investment income...................... 8.51%(c)
Portfolio turnover rate....................... 22%
</TABLE>
- - ---------------
(a) Net of expense subsidy/management fee waiver.
(b) Total return does not consider the effects of sales
loads. Total return is
calculated assuming a purchase of shares on the first
day and a sale on
the last day of each year reported and includes
reinvestment dividends and
distributions. Total returns for periods of less than a
full year are not
annualized.
(c) Annualized.
(d) Commencement of offering of Class C shares.
- - ------------------------------------------------------------
- - --------------------
14 See Notes to
Financial Statements.
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Independent Auditors' Report PENNSYLVANIA
SERIES
- - ------------------------------------------------------------
- - --------------------
The Shareholders and Board of Trustees
Prudential Municipal Series Fund, Pennsylvania Series
We have audited the accompanying statement of assets and
liabilities, including
the portfolio of investments, of Prudential Municipal Series
Fund, Pennsylvania
Series, as of August 31, 1995, the related statements of
operations for the year
then ended and of changes in 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. These financial statements and financial
highlights are the
responsibility of the Fund's management. Our responsibility
is to express an
opinion on these financial statements and financial
highlights based on our
audits.
We conducted our audits in accordance with generally
accepted auditing
standards. Those standards require that we plan and perform
the audit to obtain
reasonable assurance about whether the financial statements
and financial
highlights are free of material misstatement. An audit
includes examining, on
a
test basis, evidence supporting the amounts and disclosures
in the financial
statements. Our procedures included confirmation of the
securities owned as of
August 31, 1995 by correspondence with the custodian and
brokers; where replies
were not received from brokers, we performed other auditing
procedures. An audit
also includes assessing the accounting principles used and
significant estimates
made by management, as well as evaluating the overall
financial statement
presentation. We believe that our audits provide a
reasonable basis for our
opinion.
In our opinion, such financial statements and financial
highlights present
fairly, in all material respects, the financial position of
Prudential Municipal
Series Fund, Pennsylvania Series, as of August 31, 1995, the
results of its
operations, the changes in its net assets, and its financial
highlights for the
respective stated periods in conformity with generally
accepted accounting
principles.
DELOITTE & TOUCHE LLP
New York, New York
October 16, 1995
PRUDENTIAL
MUNICIPAL SERIES FUND
Federal Income Tax Information PENNSYLVANIA
SERIES
- - ------------------------------------------------------------
- - --------------------
We are required by the Internal Revenue Code to advise you
within 60 days of the
Series' fiscal year end (August 31, 1995) as to the federal
tax status of
dividends and distributions paid by the Series during such
fiscal year.
Accordingly, we are advising you that in the fiscal year
ended August 31, 1995,
dividends paid from net investment income of $.60 per share
for Class A shares,
$.56 per share for Class B shares and $.53 per share for
Class C shares were all
federally tax-exempt interest dividends.
- - ------------------------------------------------------------
- - --------------------
15
<PAGE>
Getting The Most From Your Prudential Mutual Fund
When you invest through Prudential Mutual Funds, you receive
financial advice
through a Prudential Securities financial advisor or
Prudential/Pruco
Securities registered representative. Your advisor or
representative
can provide you with the following services.
There's No Reward Without Risk; But Is This Risk Worth It?
Your financial adviser or registered representative can help
you match
the reward you seek with the risk you can tolerate. And risk
can be
difficult to gauge --sometimes even the simplest investments
bear
surprising risks. The educated investor knows that markets
seldom
move in just one direction -- there are times when a market
sector
or asset class will lose value or provide little in the way
of total
return. Managing your own expectations is easier with help
from someone
who understands the markets and who knows you!
Keeping Up With The Joneses.
A financial adviser or registered representative can help
you wade through
the numerous mutual funds available to find the ones that
fit your own
individual investment profile and risk tolerance. While the
newspapers
and popular magazines are full of advice about investing,
they are aimed
at generic groups of people or representative individuals,
not at you
personally. Your financial advisor or registered
representative will review
your investment objectives with you. This means you can make
financial
decisions based on the assets and liabilities in your
current portfolio
and your risk tolerance -- not just based on the current
investment fad.
Buy Low, Sell High.
Buying at the top of a market cycle and selling at the
bottom are among the
most common investor mistakes. But sometimes it's difficult
to hold on to
an investment when it's losing value every month. Your
financial adviser or
registered representative can answer questions when you're
confused or
worried about your investment, and remind you that you're
investing for
the long haul.
- - -Prudential Municipal Series Fund: Pennsylvania Series
- - --Lehman Bros. General Municipal Debt Index
The Prudential Municipal Series Fund: Pennsylvania Series
and the Lehman Bros. Index: Comparing a $10,000 Investment.
Class A
(CHART)
Class B
(CHART)
Class C
(CHART)
Past performance is no guarantee of future results.
Investment
return and principal value will fluctuate so an investor's
shares, when
redeemed, will be worth more or less than their original
cost. The charts
on the right are designed to give you an idea how much the
Series' returns
can fluctuate from year to year by measuring the best and
worst years in
terms of total annual return since inception of each share
class.
These graphs are furnished to you in accordance with SEC
regulations. They
compare a $10,000 investment in the Prudential Municipal
Series Fund:
Pennsylvania Series (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 the most recent reporting
period (August 31),
as measured on a quarterly basis, beginning in 1990 for
Class A Shares,
1987 for Class B shares and 1994 for Class C shares. For
purposes of the
graphs, and unless otherwise indicated, in the accompanying
tables it has
been assumed (a) that the maximum applicable front-end sales
charge was
deducted from the initial $10,000 investment in Class A
shares; (b) the
maximum applicable contingent deferred sales charge was
deducted from the
value of the investment in Class B and Class C shares,
assuming full
redemption on August 31, 1995; (c) all recurring fees
(including management
fees) were deducted; and (d) all dividends and distributions
were reinvested.
Class B shares automatically convert to Class A shares, on a
quarterly basis,
approximately seven years after purchase. This conversion
feature is not
reflected in the graph.The graph and accompanying tables
reflect the past subsidy and/or waiver of expenses, and/or
management fees.
*Without waivers and expense subsidies the value of the
$10,000 investment
in the Series and the Series' average annual total return,
as illustrated
above, would have been lower, as indicated in parentheses (
).
The Index is a weighted index comprised 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. It is an unmanaged index that
includes the
reinvestment of all dividends, but does not reflect the
transaction costs
and advisory fees paid by the Series's investors. The
Index's holdings differ
from the Series's portfolio. The Index is not the only one
that may be used to
characterize performance of bond funds and other indices may
portray
different comparative performance.
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
(LOGO)
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy Hays Teeters
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Grace Torres, Treasurer
S. Jane Rose, Secretary
Stephen M. Ungerman, Assistant Treasurer
Ronald Amblard, Assistant Secretary
Deborah A. Docs, 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
Distributor
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
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
This report is not authorized for distribution to
prospective investors
unless preceded or accompanied by a current prospectus.
74435M879 MF132E
74435M481 Cat. #642130F
74435M887
