(ICON)
Prudential
Municipal
Series Fund
Ohio Series
SEMI
ANNUAL
REPORT
Feb. 29, 1996
(LOGO)
<PAGE>
Prudential Municipal Series Fund
Ohio Series
Performance At A Glance.
Lower interest rates and subdued inflation lifted tax-free municipal bond
prices higher over the past six months, continuing a trend that has been in
place for some time now. For the most recent six-month period ended February
29, 1996 the Prudential Municipal Series Fund -- Ohio Series performed roughly
in line with the average Ohio municipal fund, as measured by Lipper Analytical
Services.
<TABLE>
<CAPTION>
Cumulative Total Returns1 As of 2/29/96
Six One Five Ten Since
Months Year Years Years
Inception2
<S> <C> <C> <C> <C> <C>
Class A 4.8% 9.8% 47.1% N/A
60.2%
Class B 4.6 9.4 44.4 89.9% 150.5
Class C 4.4 9.1 N/A N/A 11.8
Lipper OH Muni Avg3 4.8 9.5 46.8 105.4 166.7
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns1 As of
3/31/96
<S> <C> <C> <C>
One Five Ten
Since
Year Years Years
Inception2
Class A 3.5% 6.9% N/A
7.0%
Class B 1.2 7.0 6.3% 8.1
Class C 5.0 N/A N/A 5.6
(5.5)4
</TABLE>
<TABLE>
<CAPTION>
Dividends
& Yields
As of
2/29/96 Taxable Equivalent
Yield5
Total Dividends 30-Day At Tax Rates Of
Paid for Six Mos. SEC Yield 36%
39.6%
<S> <C> <C> <C> <C>
Class A $0.31 4.25% (4.20)4 7.18% (7.09)4
7.61% (7.52)4
Class B $0.29 3.97 (3.92)4 6.71 (6.62)4
7.11 (7.02)4
Class C $0.27 3.71 (3.67)4 6.27 (6.20)4
6.64 (6.57)4
</TABLE>
Past performance is not a guarantee of future results. Principal and investment
return will fluctuate so that an investors 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 charge. The Series charges
a maximum front-end sales load of 3% for Class A shares and a declining
contingent deferred sales charge (CDSC) 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; 9/20/84, Class B; 8/1/94 Class C.
3The Lipper Ohio Municipal Bond fund average includes 55 funds for six months,
50 funds for one year, 19 funds for five years, six funds for 10 years and two
funds since inception of the Class B shares on 9/20/84.
4Without waivers and expense subsidies the Series average annual total
return/30-day SEC yield would have been lower, as indicated in parentheses ( ).
5Taxable equivalent yields reflect federal and applicable state tax rates.
How Investments Compared.
(As of 2/29/96)
(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. The returns assume the reinvestment of
dividends.
U.S. Growth Funds will fluctuate a great deal. Investors have received
higher historical total returns from stocks than from most other investments.
Smaller capitalization stocks offer greater potential for long-term growth but
may be more volatile than larger capitalization stocks.
General Bond Funds provide more income than stock funds, which can help smooth
out their total returns year by year. But their prices still fluctuate
(sometimes significantly) and their returns have been historically lower than
those of stock funds.
General Municipal Debt Funds invest in bonds issued by state governments,
state agencies and/or municipalities. This investment provides income that is
usually exempt from federal and state income taxes.
Money Market Funds attempt to preserve a constant share value; they don't
fluctuate much in price but historically their returns have been generally
among the lowest of the major investment categories.
*19 years for General Muni Debt Funds.
<PAGE>
Christian Smith, Fund Manager
(PHOTO)
Portfolio
Manager's Report
The Series invests primarily in carefully-selected, long-term municipal bonds
that offer a high level of income that is exempt from Ohio state and federal
income taxes, while still attempting to preserve capital. Certain shareholders
may be subject to the federal alternative minimum tax, however. There can be no
assurance that the Series will achieve its objective.
Strategy Session.
Our strategy over the past six months was to take maximum advantage of falling
interest rates (and rising bond prices). And for most of the past six months,
conditions couldn't have been much better for municipal bonds. Sluggish national
economic growth pushed inflation lower and interest rates down by nearly a half
a percentage point, as measured by The Bond Buyer Revenue Bond Index. Also,
concern about tax reform that held back price gains earlier in 1995 has now
diminished. Conditions for municipal bond investors were quite healthy in Ohio
as well.
The state has a stable, high grade credit rating, with an economy that
continues to move away from traditional manufacturing as the service sector
expands. Ohio's economy grew somewhat faster than the nation as a whole in 1995.
Personal income growth is also slightly ahead of average.
The state's bonds generally represent good value for fiscal reasons, too. Ohio
has been committed to sound financial practices for many years. Debt is a modest
2.7% of personal income, well below the 50 states' average of 4.7%. Ohio's
Budget Stabilization Fund is now in excess of $800 million.
Sector Breakdown.
Prudential Municipal Series Fund
Ohio Series as of 2/29/96
(CHART)
Insured Bonds.
More new tax-free municipal bonds are being insured these days, because buyers
are increasingly concerned about credit quality. In 1995, 43% of all new bonds
issued nationally were insured. Your Series followed this trend and as a result,
insured bonds are now 58% of assets. Insured bonds benefit the investor, because
payment of both interest and principal of a bond is guaranteed by an insurance
company, although at a reduced yield. Of course, no insurance is available to
prevent the market value (price) of bonds, and bond funds, from fluctuating
from day to day.
<PAGE>
What Went Well.
You Can Call Us,
But Not Our Bonds.
Our investment in non-callable bonds was 22% of net assets as of February 29,
1996 and helped performance. When interest rates fall, municipalities often
prefer to "call" their bonds or repay the principal value of their bonds early,
so that they can refinance them at the now-lower rates. That leaves
income-hungry investors in the lurch -- with only newly-issued lower coupon
bonds to replace their called higher-yielding holdings. We had intentionally
been focusing investments in non-callable bonds because their prices tend to
rise more than callable bond prices when interest rates fall.
As The Market Rallied,
We Lengthened Duration.
As part of our strategy to take maximum advantage of falling interest rates, we
also bought long-term bonds. Their prices rose dramatically when rates fell. By
buying these bonds late last summer, we substantially lengthened our duration
(a measure of sensitivity to interest rates). Duration ended at approximately
8.9 years on February 29, 1996, up from 7.6 years on August 31, 1995. As a
result, the Series benefited from the bond market rally.
And Not So Well.
Not Lengthening Sooner.
Looking back, something we did right -- lengthening duration late last
summer-- was also something we could have done sooner. If we had lengthened
earlier -- when the municipal bond rally began in the spring of 1995 -- our
performance would have been better. Why did we wait? We were wary of municipal
market volatility at the time. Tax-reform plans that would have eliminated the
tax exemption for municipal bond income were the talk of Washington. If enacted,
the longest-term municipal bonds would have suffered most.
Puerto Rico Swap.
Puerto Rico bonds typically yield as much as a tenth of a percentage point less
than Ohio bonds. (Puerto Rico bonds are usually more expensive than Ohio bonds
because they are tax exempt in all states.) So when Puerto Rico prices fell,
we sold some Ohio bonds and bought them, thinking that the Puerto Rico bonds
would soon appreciate. We were wrong. They haven't bounced back as quickly as
we anticipated.
Five Largest Issuers.
7.3% Puerto Rico Public
Buildings Authority
5.3% Puerto Rico Highway
& Transportation
4.3% Lucas County
Toledo Hospital
4.1% University of
Puerto Rico
3.7% Ohio State Air
Quality Authority
Edison Project
Expressed as a percentage of total net assets as of 2/29/96.
Looking Ahead.
The Ohio municipal market looks good to us in 1996. Ohio's strong economy and
low interest rates and subdued inflation nationally make municipal bonds quite
attractive.
What could go wrong? This is a presidential election year and resurfacing talk
of flat taxes and other types of income tax reform could roil the municipal bond
market. Volatility and election year politics seem to go hand-in-hand.
1
<PAGE>
President's Letter April 5, 1996
(PHOTO)
Dear Shareholder:
For many investors, 1995 was a profitable year -- most stock and bond funds
enjoyed healthy returns from the U.S. markets. While climbing returns can
tempt even the most skittish investors to start buying again, it is important
to remember that the stock and bond markets go down just as they go up. At times
like these, remember the importance of working with your Financial Advisor or
Registered Representative to help you find investments that are consistent with
your risk tolerance and time horizon. Your Financial Advisor or Registered
Representative can help you maintain realistic expectations about both the
potential performance and risks associated with your investments.
Shareholder Legislative Action Program.
From time to time we've been informing you about significant legislation before
Congress, such as the American Dream Savings Account, that may potentially
impact mutual fund investors. We want to make it easier for you to share your
views with your Congressional member. So, beginning in 1996, whenever Congress
is considering legislation that would affect you, we'll send you postage-paid
message cards that you simply drop in the mail if you want to let your senator
or representative know how you want him or her to vote.
Fund Profiles.
Over the past year, we've worked to make your shareholder reports more
interesting, informative and easy to read. This year, we'll be considering
"fund profiles." Some mutual fund companies now offer one to shareholders
along with a full prospectus. The purpose of a fund profile is to provide a
very brief, reader-friendly summary of a fund's objective, investments, risks
and expenses. Would you like to see fund profiles from us? Please call your
Financial Advisor or Registered Representative to share your views.
As always, thank you for your confidence in Prudential Mutual Funds.
Sincerely,
Richard A. Redeker
President
2
<PAGE>
Portfolio of Investments
as of February 29, 1996 PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) OHIO SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
LONG-TERM INVESTMENTS--98.7%
- -----------------------------------------------------------------------------
- -------------------------------------------------
Akron, Bath & Copley Twnshps., Hosp. Dist. Rev., Summa
Health, Systems Proj., Ser. A A
5.75% 11/15/08 $ 3,465 $ 3,523,974
Akron, Gen. Oblig. A
10.50 12/01/04 200 282,982
Akron, Gen. Oblig., F.S.A. Aaa
4.50 12/01/12 645 582,132
Allen Cnty. Wtr. & Swr. Dist., A.M.B.A.C. Aaa
7.80 12/01/08 1,000(d)(f) 1,121,930
Bellefontaine City Sch. Dist.,
A.M.B.A.C. Aaa
Zero 12/01/06 495 293,198
A.M.B.A.C. Aaa
Zero 12/01/07 485 270,160
A.M.B.A.C. Aaa
Zero 12/01/08 485 253,548
A.M.B.A.C. Aaa
Zero 12/01/09 390 190,940
A.M.B.A.C. Aaa
Zero 12/01/10 390 178,437
A.M.B.A.C. Aaa
Zero 12/01/11 465 201,122
Canton, Water Works Sys., Gen. Oblig., A.M.B.A.C. Aaa
5.85 12/01/15 700 722,771
Carroll Cnty. Econ. Dev. Rev., Great Trail Lake Ctr.,
F.H.A. NR
11.75 8/01/14 670 771,900
Cleveland City Sch. Dist., Gen. Oblig.,
Sch. Impvt., Ser. B, F.G.I.C. Aaa
Zero 6/01/05 490 316,173
Sch. Impvt., Ser. B, F.G.I.C. Aaa
Zero 6/01/06 400 243,008
Sch. Impvt., Ser. B, F.G.I.C. Aaa
Zero 6/01/07 315 179,887
Sch. Impvt., Ser. B, F.G.I.C. Aaa
Zero 12/01/08 550 287,529
Columbus Citation Hsg. Dev. Corp., Mtge. Rev., F.H.A. AA(b)
7.625 1/01/22 1,885 (d) 2,363,884
Columbus, Gen. Oblig., Mun. Arpt. No. 32 Aaa
7.15 7/15/06 435 481,245
Cuyahoga Cnty. Hosp. Rev., Meridia Health Sys. A1
6.25 8/15/24 1,500 1,548,285
Dayton, Gen. Oblig., M.B.I.A Aaa
7.00 12/01/07 480 574,459
Dover Mun. Elec. Sys. Rev., F.G.I.C. Aaa
5.95 12/01/14 1,000 1,039,370
Dublin City Sch. Dist., Franklin, Delaware & Union Co.,
A.M.B.A.C. Aaa
Zero 12/01/05 1,000 630,160
East Cleveland Rev., Local Gov't. Fund Notes NR
7.90 12/01/97 595 627,999
Franklin Cnty. Hosp. Rev.,
Doctors Hosp Rev. A
5.875 12/01/13 1,550 1,522,208
Doctors Hosp Rev. A
5.875 12/01/23 500 481,750
Holy Cross Hlth. Sys., Ser. B, A.M.B.A.C. Aaa
7.65 6/01/10 2,500 (d) 2,877,750
Franklin Cnty. Pub. Impvt., Ser. 93 Aaa
5.375 12/01/20 1,690 1,699,278
Gahanna Jefferson City Sch. Dist., Gen. Oblig., A.M.B.A.C. Aaa
Zero 12/01/09 445 217,868
Greene Cnty. Swr. Sys. Rev., A.M.B.A.C. Aaa
Zero 12/01/08 450 235,251
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3 -----
<PAGE>
Portfolio of Investments
as of February 29, 1996 PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) OHIO SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Guam Pwr. Auth. Rev., Ser. A BBB(b)
6.75% 10/01/24 $ 3,110 $ 3,275,701
Hamilton Cnty. Gas Sys. Rev., Ser. A, M.B.I.A. Aaa
4.75 10/15/23 3,250 2,901,372
Hilliard Sch. Dist., Cap Apprec. Impvt.,
Ser. A, F.G.I.C. Aaa
Zero 12/01/09 2,855 1,397,780
Ser. A, F.G.I.C. Aaa
Zero 12/01/10 2,855 1,306,248
Indian Lake Local Sch. Dist., Cap. Apprec., Constr. &
Impvt., F.G.I.C. Aaa
Zero 12/01/12 640 261,229
Logan Hocking Local Sch. Dist., Hocking, Perry & Vinton
Co.,
Gen. Oblig., A.M.B.A.C. Aaa
Zero 12/01/09 650 318,234
Lucas Cnty. Hosp. Rev., Toledo Hosp.,
Impvt. & Ref., M.B.I.A. Aaa
5.00 11/15/13 1,000 942,700
Impvt. & Ref., M.B.I.A. Aaa
5.00 11/15/22 4,250 3,914,972
Marysville Village Sch. Dist., M.B.I.A. Aaa
Zero 12/01/15 865 293,313
Montgomery Cnty. Solid Waste Rev., M.B.I.A. Aaa
5.35 11/01/10 750 758,775
Montgomery Cnty. Swr. Sys. Rev., Greater Moraine,
Beaver Creek, F.G.I.C. Aaa
Zero 9/01/05 1,000 637,660
Beaver Creek, F.G.I.C. Aaa
Zero 9/01/07 500 282,000
Mount Vernon City Sch. Dist., Gen. Oblig., F.G.I.C. Aaa
7.50 12/01/14 500 592,125
Newark Ltd. Tax Gen. Oblig., Wtr. Impvt., A.M.B.A.C. Aaa
Zero 12/01/06 805 476,818
Ohio St. Air Quality Dev. Auth. Rev., Poll. Ctrl.,
Cleveland Co., Proj., F.G.I.C. Aaa
8.00 12/01/13 2,500 2,998,475
Edison Proj., Ser. A, F.G.I.C. Aaa
7.45 3/01/16 3,750 4,186,275
Ohio St. Bldg. Auth.,
Columbus St. Bldg. Proj., Ser. A A
7.75 10/01/07 750(d) 836,160
Das Data Ctr. Proj. A
6.00 10/01/08 615 675,541
St. Correctional Facs. A
5.90 10/01/07 2,450 2,655,530
St. Correctional Facs., Ser. A Aaa
8.00 8/01/06 600(d) 658,128
St. Correctional Facs., Ser. A Aaa
8.00 8/01/08 500(d) 548,440
Workers Comp. - W. Green Bldg. A A
4.75 4/01/14 2,740 2,503,319
Ohio St. Higher Edl. Fac. Comn. Rev.,
Case Western Resv. Univ., Ser. A Aa
7.70 10/01/18 965(d) 1,029,462
Case Western Resv. Univ., Ser. B Aa
7.70 10/01/18 35 37,338
Case Western Resv. Univ., Ser. B Aa
6.50 10/01/20 750 866,025
Oberlin Coll. NR
7.375 10/01/14 1,000(d) 1,124,430
Ohio St. Mtge. Rev., Ser. A, F.H.A. AAA(b)
8.15 8/01/17 3,500 3,746,190
Ohio St. Wtr. Dev. Auth. Rev., Ser. I Aaa
7.50 12/01/08 1,200(d) 1,318,152
</TABLE>
- --------------------------------------------------------------------------------
- ----- 4 See Notes to Financial Statements.
<PAGE>
Portfolio of Investments
as of February 29, 1996 PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) OHIO SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Ottawa Cnty. San. Sew. Sys. Rev., Danbury Proj.,
A.M.B.A.C. Aaa
7.375% 10/01/14 $ 1,000(d) $ 1,127,300
Oxford Hosp. Facs. Rev., 1st Mtge., McCullough Hyde Mem. NR
8.00 5/01/17 1,445 1,477,339
Pickerington Local Sch. Dist.,
Gen. Oblig., A.M.B.A.C. Aaa
Zero 12/01/08 890 465,274
Gen. Oblig., A.M.B.A.C. Aaa
Zero 12/01/09 935 457,767
Gen. Oblig., A.M.B.A.C. Aaa
Zero 12/01/13 525 202,083
Puerto Rico Comnwlth., Aqueduct & Swr. Auth. Rev., Ser. A Baa
7.875 7/01/17 1,000(d) 1,110,520
Puerto Rico Comnwlth., Hwy. & Trans. Auth. Rev. Baa1
5.50 7/01/15 5,000 4,976,050
Puerto Rico Comnwlth., Hwy. & Trans. Auth. Rev., Ser. W Baa1
5.25 7/01/20 1,005 934,308
Puerto Rico Comnwlth., Pub. Impvt., M.B.I.A. Aaa
5.375 7/01/22 2,000 1,954,400
Puerto Rico Comnwlth., Reg. Linked Bonds, M.B.I.A. Aaa
5.782(e) 7/01/08 2,000 2,099,700
Puerto Rico Elec. Pwr. Auth. Rev., Ser. O Baa1
5.00 7/01/12 1,720 1,586,081
Puerto Rico Ind. Tourist Edu. Med. & Envir. Ctrl. Facs. Aaa
6.25 7/01/24 2,500 2,676,650
Puerto Rico Pub. Bldgs. Auth. Rev.,
Gtd. Pub. Ed. & Hlth. Facs., Ser. J Baa1
Zero 7/01/06 3,000 1,766,280
Gtd. Gov't Facs., Ser. A, A.M.B.A.C. Aaa
5.50 7/01/25 6,500 6,434,090
Richland Cnty. Madison Swr. Impvt., A.M.B.A.C. Aaa
6.95 12/01/11 500 578,145
Rural Lorain Cnty. Wtr. Auth. Res. Rev., A.M.B.A.C. Aaa
7.70 10/01/08 2,000(d) 2,227,300
Scioto Cnty. Hosp. Fac. Rev., Portsmouth Proj., Ser. B,
M.B.I.A. Aaa
7.625 5/15/08 2,290 2,486,367
Sugarcreek Local Sch. Dist., F.G.I.C. Aaa
Zero 12/01/08 500 261,390
Summit Cnty. Ind. Dev. Rev., Century Products, Gerber
Foods A1
7.75 11/01/05 3,250 3,413,247
Trumbull Cnty., Cap. Apprec.,
A.M.B.A.C. Aaa
Zero 12/01/08 1,250 653,475
A.M.B.A.C. Aaa
Zero 12/01/09 1,250 611,988
Univ. of Puerto Rico Revs., Ref. Ser. M, M.B.I.A. Aaa
5.25 6/01/25 3,045 2,926,062
Univ. of Puerto Rico Revs., Cap. Apprec. Ref. Ser. N,
M.B.I.A. Aaa
Zero 6/01/13 4,245 1,678,515
Univ. of Toledo, Gen. Receipts, M.B.I.A. Aaa
7.70 6/01/18 1,000(d) 1,102,750
Virgin Islands Pub. Fin. Auth. Rev., Ref. Matching Loan
Notes, Ser. A NR
7.25 10/01/18 1,000 1,077,840
Virgin Islands Terr., Hugo Ins. Claims Fund Prog., Ser. 91 NR
7.75 10/01/06 415 452,093
Virgin Islands Wtr. & Pwr. Auth., Elec. Sys. Rev., Ser. A NR
7.40 7/01/11 1,000 1,078,580
Woodmore Indpt. Sch. Dist., Gen. Oblig.,
A.M.B.A.C. Aaa
Zero 12/01/05 490 308,778
A.M.B.A.C. Aaa
Zero 12/01/06 480 284,314
------------
Total long-term investments (cost $102,224,863)
110,670,276
------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5 -----
<PAGE>
Portfolio of Investments
as of February 29, 1996 PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) OHIO SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
SHORT-TERM INVESTMENT--0.1%
Cuyahoga Cnty., Cleveland Univ. Hosp., Ser. 85, F.R.D.D.
(cost $100,000) VMIG1
3.40% 3/01/96 $ 100 $ 100,000
------------
Total Investments--98.8%
(cost $102,324,863; Note 4)
110,770,276
Other assets in excess of liabilities--1.2%
1,302,058
------------
Net Assets--100%
$112,072,334
------------
------------
</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 Corporation.
(b) Standard & Poor's Rating.
(c) 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.
(d) Prefunded 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) 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.
- --------------------------------------------------------------------------------
- ----- 6 See Notes to Financial Statements.
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) OHIO SERIES
- --------------------------------------------------------------------------------
<TABLE>
<S>
<C>
Assets
February 29, 1996
Investments, at value (cost
$102,324,863)................................................................
$ 110,770,276
Cash.........................................................................
............................ 47,869
Interest
receivable...................................................................
................... 1,579,080
Receivable for Series shares
sold........................................................................
65,270
Due from broker - variation
margin.......................................................................
8,000
Deferred expenses and other
assets.......................................................................
2,105
-----------------
Total
assets.......................................................................
................... 112,472,600
-----------------
Liabilities
Payable for Series shares
reacquired.....................................................................
227,479
Dividends
payable......................................................................
.................. 67,134
Management fee
payable......................................................................
............. 40,835
Accrued expenses and other
liabilities...................................................................
33,941
Distribution fee
payable......................................................................
........... 28,557
Deferred trustee's
fees.........................................................................
......... 2,320
-----------------
Total
liabilities..................................................................
................... 400,266
-----------------
Net
Assets.......................................................................
........................ $ 112,072,334
-----------------
-----------------
Net assets were comprised of:
Shares of beneficial interest, at
par................................................................. $
92,605
Paid-in capital in excess of
par......................................................................
103,376,809
-----------------
103,469,414
Accumulated net realized gain on
investments..........................................................
501,507
Net unrealized appreciation on
investments............................................................
8,101,413
-----------------
Net assets, February 29,
1996............................................................................
$ 112,072,334
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($51,687,959 / 4,272,481 shares of beneficial interest issued and
outstanding)..................... $12.10
Maximum sales charge (3.0% of offering
price).........................................................
.37
Maximum offering price to
public......................................................................
$12.47
Class B:
Net asset value, offering price and redemption price per share
($60,246,820 / 4,976,645 shares of beneficial interest issued and
outstanding)..................... $12.11
Class C:
Net asset value, offering price and redemption price per share
($137,555 / 11,363 shares of beneficial interest issued and
outstanding)........................... $12.11
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7 -----
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
OHIO SERIES
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Six Months
Ended
Net Investment Income February 29, 1996
-----------------
Income
Interest................................ $ 3,415,221
-----------------
Expenses
Management fee.......................... 283,997
Distribution fee--Class A............... 25,823
Distribution fee--Class B............... 154,539
Distribution fee--Class C............... 511
Transfer agent's fees and expenses...... 35,000
Custodian's fees and expenses........... 32,000
Reports to shareholders................. 27,000
Registration fees....................... 17,000
Audit fees and expenses................. 5,300
Legal fees and expenses................. 5,000
Trustees' fees.......................... 1,700
Miscellaneous........................... 5,878
-----------------
Total expenses....................... 593,748
Less: Management fee waiver............. (28,400)
Custodian fee credit................. (6,903)
-----------------
Net expenses......................... 558,445
-----------------
Net investment income...................... 2,856,776
-----------------
Realized and Unrealized Gain
(Loss) on Investments
Net realized gain (loss) on:
Investment transactions................. 990,545
Financial futures transactions.......... (172,259)
-----------------
818,286
-----------------
Net change in unrealized appreciation
(depreciation) on:
Investments............................. 1,774,092
Financial futures contracts............. (252,125)
-----------------
1,521,967
-----------------
Net gain on investments.................... 2,340,253
-----------------
Net Increase in Net Assets
Resulting from Operations.................. $ 5,197,029
-----------------
-----------------
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
OHIO SERIES
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) February 29, August 31,
in Net Assets 1996 1995
----------------- ---------------
<S> <C> <C>
Operations
Net investment income........ $ 2,856,776 $ 6,137,178
Net realized gain on
investment transactions... 818,286 807,146
Net change in unrealized
appreciation of
investments............... 1,521,967 868,206
----------------- ---------------
Net increase in net assets
resulting from
operations................ 5,197,029 7,812,530
----------------- ---------------
Dividends and distributions
(Note 1)
Dividends to shareholders
from net investment income
Class A................... (1,355,151) (1,643,462)
Class B................... (1,498,493) (4,490,813)
Class C................... (3,132) (2,903)
----------------- ---------------
(2,856,776) (6,137,178)
----------------- ---------------
Distributions from net
realized gains
Class A................... (301,130) --
Class B................... (344,409) --
Class C................... (787) --
----------------- ---------------
(646,326) --
----------------- ---------------
Series share transactions (net
of share conversions) (Note
5)
Net proceeds from shares
sold...................... 2,110,460 6,780,605
Net asset value of shares
issued in reinvestment of
dividends and
distributions............. 2,077,559 3,526,725
Cost of shares reacquired.... (7,872,809) (20,943,985)
----------------- ---------------
Net decrease in net assets
from Series share
transactions.............. (3,684,790) (10,636,655)
----------------- ---------------
Total decrease.................. (1,990,863) (8,961,303)
Net Assets
Beginning of period............. 114,063,197 123,024,500
----------------- ---------------
End of period................... $ 112,072,334 $ 114,063,197
----------------- ---------------
----------------- ---------------
</TABLE>
- --------------------------------------------------------------------------------
- ----- 8 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) 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
fourteen 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 objectives of obtaining the maximum amount of income
exempt from federal and applicable state and city income taxes with the minimum
of risk by investing primarily 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 preparation of its financial statements.
Security 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 services, 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 Net 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. Expenses
are recorded on the accrual basis which may require the use of certain estimates
by management.
Net investment income (other than distribution fees) and unrealized and realized
gains or losses are allocated daily to each class of shares based upon the
relative proportion of net assets of each class at the beginning of the day.
Federal Income Taxes: 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.
Custody Fee Credits: The Fund has an arrangement with its custodian bank,
whereby uninvested monies earn credits which reduce the fees charged by the
custodian.
- --------------------------------------------------------------------------------
9 -----
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) OHIO 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, 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. PMF has agreed
to waive a portion (.05 of 1% of the Series' average daily net assets) of its
management fee, which amounted to $28,400 ($0.003 per share) for the six months
ended February 29, 1996. The series is not required to reimburse PMF for such
waiver.
The Fund had a distribution agreement with Prudential Mutual Fund Distributors,
Inc. (``PMFD''), which acted as the distributor of the Class A shares of the
Fund through January 1, 1996. Effective January 2, 1996, Prudential Securities
Incorporated (``PSI'') became distributor of the Class A shares of the Fund and
is serving the Fund under the same terms and conditions as under the arrangement
with PMFD. PSI is also the distributor of the Class B and Class C shares of the
Fund. The Fund compensated PMFD and PSI for distributing and servicing the
Fund's Class A, Class B, and Class C shares, pursuant to plans of distribution,
(the ``Class A, B and C plans'') regardless of expenses actually incurred by
them. The distribution fees are accrued daily payable monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates PSI, and PMFD for
the period September 1, 1995 through January 1, 1996 with respect to Class A
shares, for distribution-related activities at an annual rate of up to .30 of
1%, .50 of 1% and 1% of the average daily net assets of the Class A, B, and C
shares, respectively. Such expenses under the Plans were .10 of 1%, .50 of 1%
and .75 of 1% of the average daily net assets of the Class A, B and C shares,
respectively, for the six months ended February 29, 1996.
PMFD and PSI have advised the Series that they have received approximately $900
in front-end sales charges resulting from sales of Class A shares during the six
months ended February 29, 1996. From these fees, PMFD and PSI paid such sales
charges to Pruco Securities Corporation, an affiliated broker-dealer, which in
turn paid commissions to sales-persons and incurred other distribution costs.
PSI has advised the Series that for the six months ended February 29, 1996, it
received approximately $56,400 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 six months ended February
29, 1996, the Series incurred fees of approximately $25,700 for the services of
PMFS. As of February 29, 1996 approximately $4,300 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 six months ended February 29, 1996 were $16,127,692 and
$17,547,619, respectively.
The cost basis of investments for federal income tax purposes at February 29,
1996, was substantially the same as for financial reporting purposes and,
accordingly, net unrealized appreciation of investments for federal income tax
purposes was $8,445,413 (gross unrealized appreciation--$8,554,862; gross
unrealized depreciation--$109,449).
At February 29, 1996 the Series purchased 64 financial futures contracts on U.S.
Treasury Bonds which expire in March 1996. The value at purchase of such
contracts was $7,694,000. The value of such contracts on February 29, 1996 was
$7,350,000, thereby resulting in an unrealized loss of $344,000.
- ------------------------------------------------------------
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%. 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.
- --------------------------------------------------------------------------------
- ----- 10
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) OHIO SERIES
- --------------------------------------------------------------------------------
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 six months ended February
29, 1996 and the fiscal year ended August 31, 1995 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------------ ---------- ------------
<S> <C> <C>
Six months ended February 29, 1996:
Shares sold......................... 14,343 $ 172,858
Shares issued in reinvestment of
dividends
and distributions................. 79,167 960,699
Shares reacquired................... (309,056) (3,750,028)
---------- ------------
Net decrease in shares outstanding
before conversion................. (215,546) (2,616,471)
Shares issued upon conversion from
Class B........................... 199,016 2,455,857
---------- ------------
Net decrease in shares
outstanding....................... (16,530) $ (160,614)
---------- ------------
---------- ------------
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
---------- ------------
---------- ------------
<CAPTION>
Class B Shares Amount
- ------------------------------------ ---------- ------------
<S> <C> <C>
Six months ended February 29, 1996:
Shares sold......................... 158,691 $ 1,927,602
Shares issued in reinvestment of
dividends
and distributions................. 91,908 1,116,027
Shares reacquired................... (339,548) (4,121,342)
---------- ------------
Net decrease in shares outstanding
before conversion................. (88,949) (1,077,713)
Shares reacquired upon conversion
into Class A...................... (199,177) (2,455,857)
---------- ------------
Net decrease in shares
outstanding....................... (288,126) $ (3,533,570)
---------- ------------
---------- ------------
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)
---------- ------------
---------- ------------
<CAPTION>
Class C
- ------------------------------------
<S> <C> <C>
Six months ended February 29, 1996:
Shares sold......................... 832 $ 10,000
Shares issued in reinvestment of
dividends
and distributions................. 69 833
Shares reacquired................... (118) (1,439)
---------- ------------
Net increase in shares
outstanding....................... 783 $ 9,394
---------- ------------
---------- ------------
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
---------- ------------
---------- ------------
</TABLE>
- --------------------------------------------------------------------------------
11 -----
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) OHIO SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
- --------------------------------------------------------------------
Six Months
Ended Year Ended
August 31,
February 29,
- ---------------------------------------------------
1996 1995 1994
1993 1992 1991
------------ ------- ------
- ------ ------ ------
<S> <C> <C> <C>
<C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period........................... $ 11.92 $ 11.72 $12.38
$11.69 $11.17 $10.71
------------ ------- ------
- ------ ------ ------
Income from investment
operations
Net investment income............... .31(a) .65(a) .66
.69 .70 .70
Net realized and unrealized gain
(loss) on investment
transactions..................... .25 .20 (.66)
.69 .52 .46
------------ ------- ------
- ------ ------ ------
Total from investment
operations.................... .56 .85 --
1.38 1.22 1.16
------------ ------- ------
- ------ ------ ------
Less distributions
Dividends from net investment
income........................... (.31) (.65) (.66)
(.69) (.70) (.70)
Distributions from net realized
gains (.07) -- --
-- -- --
------------ ------- ------
- ------ ------ ------
Total distributions.............. (.38) (.65) (.66)
(.69) (.70) (.70)
------------ ------- ------
- ------ ------ ------
Net asset value, end of period...... $ 12.10 $ 11.92 $11.73
$12.38 $11.69 $11.17
------------ ------- ------
- ------ ------ ------
------------ ------- ------
- ------ ------ ------
TOTAL RETURN(b):.................... 4.78% 7.59% (0.01)%
12.12% 12.60% 11.06%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..... $ 51,688 $51,132 $4,749
$4,647 $2,095 $ 923
Average net assets (000)............ $ 51,930 $29,904 $4,733
$2,904 $1,289 $ 615
Ratios to average net assets:
Expenses, including distribution
fees.......................... .78%(a)/(c) .83%(a) .84%
.84% .81% .93%
Expenses, excluding distribution
fees.......................... .68%(a)/(c) .73%(a) .74%
.74% .71% .83%
Net investment income............ 5.25%(a)/(c) 5.50%(a) 5.45%
5.73% 6.34% 6.34%
Portfolio turnover rate.......... 15% 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 period reported and includes reinvestment of dividends and
distributions. Total return for periods of less than a full year are not
annualized.
(c) Annualized.
- --------------------------------------------------------------------------------
- ----- 12 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) OHIO SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class
B
- ------------------------------------------------------------------------------
Six Months
Ended Year
Ended August 31,
February 29,
- ----------------------------------------------------------
1996 1995 1994
1993 1992 1991
<S> <C> <C> <C>
<C> <C> <C>
------------ ------- --------
-------- -------- -------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period........................... $ 11.93 $ 11.73 $ 12.38
$ 11.70 $ 11.18 $ 10.71
------------ ------- --------
-------- -------- -------
Income from investment operations
Net investment income............... .29(a) .60(a) .61
.65 .65 .65
Net realized and unrealized gain
(loss) on investment
transactions..................... .25 .20 (.65)
.68 .52 .47
------------ ------- --------
-------- -------- -------
Total from investment
operations.................... .54 .80 (.04)
1.33 1.17 1.12
------------ ------- --------
-------- -------- -------
Less distributions
Dividends from net investment
income........................... (.29) (.60) (.61)
(.65) (.65) (.65)
Distributions from net realized
gains............................ (.07) -- --
-- -- --
------------ ------- --------
-------- -------- -------
Total distributions.............. (.36) (.60) (.61)
(.65) (.65) (.65)
------------ ------- --------
-------- -------- -------
Net asset value, end of period...... $ 12.11 $ 11.93 $ 11.73
$ 12.38 $ 11.70 $ 11.18
------------ ------- --------
-------- -------- -------
------------ ------- --------
-------- -------- -------
TOTAL RETURN(b):.................... 4.57% 7.16% (0.33)%
11.58% 10.79% 10.47%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..... $ 60,247 $62,805 $118,270
$121,937 $102,199 $92,572
Average net assets (000)............ $ 62,155 $85,410 $121,365
$110,053 $ 96,178 $90,437
Ratios to average net assets:
Expenses, including distribution
fees.......................... 1.18%(a)/(c) 1.22%(a) 1.24%
1.24% 1.21% 1.33%
Expenses, excluding distribution
fees.......................... .68%(a)/(c) .72%(a) .74%
.74% .71% .83%
Net investment income............ 4.85%(a)/(c) 5.27%(a) 5.05%
5.33% 5.73% 5.94%
Portfolio turnover rate............. 15% 38% 20%
28% 37% 37%
- ---------------
<CAPTION>
Class C
August 1,
Six Months Year 1994(d)
Ended Ended Through
February 29, August 31, August 31,
1996 1995 1994
<S> <C> <C> <C>
<C>
------------ ---------- ----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period........................... $11.93 $11.73 $11.75
----- ----- -----
Income from investment operations
Net investment income............... .27(a) .57(a) .05
Net realized and unrealized gain
(loss) on investment
transactions..................... .25 .20 (.02)
----- ----- -----
Total from investment
operations.................... .52 .77 .03
----- ----- -----
Less distributions
Dividends from net investment
income........................... (.27) (.57) (.05)
Distributions from net realized
gains............................ (.07) -- --
----- ----- -----
Total distributions.............. (.34) (.57) (.05)
----- ----- -----
Net asset value, end of period...... $12.11 $11.93 $11.73
----- ----- -----
----- ----- -----
TOTAL RETURN(b):.................... 4.44% 6.89% 0.18%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..... $138 $126 $5
Average net assets (000)............ $137 $ 61 $2
Ratios to average net assets:
Expenses, including distribution
fees.......................... 1.43%(a)/(c) 1.49%(a)
2.28%(c)
Expenses, excluding distribution
fees.......................... .68%(a)/(c) .74%(a)
1.53%(c)
Net investment income............ 4.60%(a)/(c) 4.76%(a)
4.73%(c)
Portfolio turnover rate............. 15% 38% 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 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. 13 -----
<PAGE>
Getting The Most
From Your Prudential
Mutual Fund
How many times have you read these letters -- or other financial materials
- -- and stumbled across a word that you don't understand?
Many shareholders have run into the same problem. We'd like to help. So we'll
use this space from time to time to explain some of the words you might have
read, but not understood. And if you have a favorite word that no one can
explain to your satisfaction, please write to us.
Basis Point: One 1/100th of 1%. For example, one half of one percentage point
is 50 basis points.
Call Option: A contract giving the holder a right to buy stocks or bonds at a
predetermined price (called the strike price) before a predetermined expiration
date. A buyer of a call option generally expects to benefit from a rise in the
price of the stock or bond.
Capital Gain/Capital Loss: The difference between the cost of a capital asset
(for example, a stock, bond or mutual fund share) and its selling price. Under
current law the federal income tax rate for individuals on a long-term capital
gain is 28%.
Collateralized Mortgage Obligations (CMOs): Pools of mortgage-backed securities
sliced in maturity ranges that bear differing interest rates. These instruments
are sensitive to changes in interest rates and homeowner refinancing activity.
They are subject to prepayment and maturity extension risk.
Derivatives: Securities that derive their value from another security. The rate
of return of these financial products rises and falls -- sometimes very suddenly
- -- in response to changes in some specific interest rate, currency, stock or
other variable.
Discount Rate: The interest rate charged by the Federal Reserve on loans to
banks and other depository institutions.
Federal Funds Rate: The interest rate charged by one bank to another on
overnight loans.
Futures Contract: An agreement to deliver a specific amount of a commodity or
financial instruments at a set price at a stipulated time in the future.
Leverage: The use of borrowed assets to enhance return on equity. The
expectation is that the interest rate charged will be lower than the return
on the investment. While leverage can increase profits, it can also magnify
losses.
Liquidity: The ease with which a financial instrument (or mutual fund) can be
bought or sold (converted into cash) in the financial markets.
Option: An agreement to buy or sell something, such as shares of stock, by a
certain time for a specified price. An option need not be exercised. In fact,
most expire unexercised.
Price/Earnings Ratio: The price of a share of stock divided by the earnings
per share for a 12-month period.
Spread: The difference between two values; most often used to describe the
difference between prices bid and asked for a security.
Yankee Bond: A bond denominated in U.S. dollars but sold by a foreign company
or government in the U.S. market.
<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>
How Does Your State Stack Up?
Economic conditions vary from state to state. While one region may be
experiencing strong fiscal management and prosperity, another may languish
under the weight of declining industry or chronic state budget problems.
State economic conditions, fiscal management and interest rates play dominant
roles in the performance of individual municipal bonds. A strong economy
generally leads to higher tax revenues and other income sources for the state,
enabling it to more easily repay its debts. Additionally, sound state financial
management often results in high ratings from bond rating agencies. High ratings
are attractive to investors and can help bonds retain value in the market.
California
- - World's 8th largest economy.
- - Entertainment jobs growing.
- - Recovery continues, but growth is expected to be below the national average.
- - Increasing tax revenues may not cover soaring Medicaid costs.
Hawaii
- - Tourism provides 60% of jobs.
- - Strong financial management.
- - Slow recovery from early-1990s U.S. and Japanese recessions, which bit into
tourism and real estate.
- - Government eliminated 1,100 state jobs.
Ohio
- - Shift from manufacturing to service trades.
- - Economic and personal income growth ahead of national averages.
- - Debt is low.
Pennsylvania
- - Slowly rebuilding economy, but needs new engine of growth.
- - Debt as a percentage of personal income is half the national average.
- - Sound financial management.
Michigan
- - Economic growth is 3.5%, higher than national average.
- - Once car capital of the world, now more diversified.
- - Strengthening fiscal management.
Massachusetts
- - Painful cuts in defense and health care eliminated jobs.
- - Slowly rebuilding economy.
- - Personal income is high.
New York
- - High taxes restrain growth.
- - Personal income remains high.
- - Debt level is high.
- - Federal budget Medicaid reform impasses threaten planned budget savings.
Maryland
- - One of wealthiest states.
- - Personal income 115% ofnational average, but income growth has stabilized.
- - Good financial controls.
Florida
- - Economy and personal income growing much faster than national rate.
- - Unemployment and debt are low.
- - Ended 1995 with a budget surplus for the third year in a row.
Connecticut
- - Nation's wealthiest citizens.- Economically weak from defense cuts.
- - Slow growth -- recovery may take years.
- - Attempts at "quick fixes" won't provide permanent relief.
New Jersey
- - Broad-based economy and high personal wealth.
- - Economic growth slowing.
- - "Pro-business" tactics siphoned revenue, but may spur more growth.
North Carolina
- - Robust, model economy.
- - Personal income quicklygrowing.
- - Unemployment well below national average.
- - New jobs from financial services, research and high technology.
- - Strong financial management.
Source: Prudential Investment Corporation. Selected states are those for which
Prudential Mutual Fund Management manages a state-specific municipal bond mutual
fund
Revised: April, 1996
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
Internet Address:
http:\\www.prudential.com
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 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 Auditor
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
The views expressed in this report and information about the Series' portfolio
holdings are for the period covered by this report and are subject to change
thereafter.
The accompanying financial statements as of February 29, 1996 were not audited
and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
<PAGE>
Prudential Mutual Funds BULK RATE
One Seaport Plaza U.S. POSTAGE
New York, NY 10292 PAID
Toll Free (800) 225-1852 Permit 6807
New York,
NY
74435M838
74435M846 MF123E2
74435M499 Cat# 6425315
(ICON)
Prudential
Municipal
Series Fund
- ------------
New Jersey
Money Market Series
(LOGO)
SEMI Annual Report
Feb. 29, 1996
<PAGE>
Prudential Municipal Series Fund
New Jersey Money Market Series
Performance At A Glance.
Despite declining short-term interest rates over the past six months, the
Prudential Municipal Series Fund -- New Jersey Money Market Series provided
competitive, tax-free income. The Series' 7-day Current Yield on February 29,
1996 was 2.68%, which was equivalent to a taxable yield of 4.75% for individuals
in the highest federal income tax bracket. The yield equalled the 2.68% reported
by the average tax-free New Jersey municipal bond money market fund tracked by
IBC/Donoghue.
<TABLE>
Fund Facts As
of 2/29/96
<CAPTION>
7-Day Net Asset Taxable Equivalent Yield1 Weighted
Total Net
Current Yld. Value @31% @36% @39.6% Avg.Mat.
Assets (mil.)
<S> <C> <C> <C> <C> <C> <C>
<C>
NJ Money
Market Series 2.68% $1.00 4.16% 4.48% 4.75% 46 Days
$199.0
IBC/Donoghue
NJ Tax-exempt 2.68 1.00 3.88 4.18 4.43 54 Days
N/A
Fund Average2
</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.
1Some investors may be subject to the federal alternative minimum tax and/or
state and local taxes. Taxable equivalent yields reflect federal and applicable
state tax rates.
2This 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 February 29, 1996.
How Investments Compared.
(As of 2/29/96)
(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. The returns assume the reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors have received higher
historical total returns from stocks than from most other investments. Smaller
capitalization stocks offer greater potential for long-term growth but may be
more volatile than larger capitalization stocks.
General Bond Funds provide more income than stock funds, which can help smooth
out their total returns year by year. But their prices still fluctuate
(sometimes significantly) and their returns have been historically lower than
those of stock funds.
General Municipal Debt Funds invest in bonds issued by state governments, state
agencies and/or municipalities. This investment provides income that is usually
exempt from federal and state income taxes.
U.S. 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,
historically, their returns have been generally among the lowest of the major
investment categories.
*19 years for General Muni Debt Funds.
*18 years for Tax-Free Money Market Funds.
<PAGE>
Ken Potts, Fund Manager
Portfolio
Manager's Report
The Prudential Municipal Series Fund -- New Jersey Money Market Series seeks
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 intends to invest
in a portfolio of short-term municipal securities with maturities of 13 months
or less from the State of New Jersey, its municipalities, local governments
and other qualifying issuers (such as Puerto Rico, Guam and the U.S. Virgin
Islands).
Strategy Session.
Providing A Competitive
Tax-Free Yield.
Our strategy over the past six months was to provide a competitive tax-free
yield in a declining interest rate environment without sacrificing credit
quality. This was a challenge particularly when considering that New Jersey
short-term municipal securities are sometimes scarce. However, seasonal
fluctuations in supply can also provide investment opportunities, which
may appear unusual during a period of declining interest rates. For example,
throughout most of the reporting period, interest rates were falling.
Nevertheless, we believed tax-exempt yields were not that attractive
relative to taxable yields. This led us to position the portfolio shorter
than we would have otherwise.
The Garden State's economy was sluggish during the reporting period. Large
corporate layoffs, such as those by AT&T and others, do not bode well for
improvement in 1996. State finances appear on track with a surplus possible
for the current fiscal year. In fiscal year 1997, legislators in Trenton were
hoping for federal relief for ballooning Medicaid and welfare payments. If
none is forthcoming, the new state budget could face a shortfall of up to $250
million. Currently the state's credit rating is Aa1 by Moody's Investors
Service.
Interest Rates Trended Lower.
(GRAPH)
Federal Funds Rate vs. One-Year Bond Buyer Index
This chart shows how interest rates for short-term taxable securities (Federal
Funds Rate) and tax-free securities (One-Year Bond Buyer Index) have moved
lower over the past 12 months.
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>
What Went Well.
Shopping For Value.
We shopped for value during the reporting period by investing in AMT paper
(so-called because it is subject to the federal alternative minimum tax).
AMT paper comes with yields that may be 10 to 15 basis points (a basis point
is 1/100 of a percentage point) higher than non-AMT investments. It was a
useful tool for us and comprised between 9% and 25% of the portfolio during
the reporting period.
And Not So Well.
Hindsight Is 20/20.
Looking back, we would have liked to have lengthened the Series' weighted
average maturity sooner. If we had done so in November, rather than waiting
until year-end, we would have been able to lock in higher yields, which would
have paid more tax-free income. However, we had to maintain a higher level of
liquidity to meet the anticipated seasonal surge in Series redemptions
(investors redeem to have cash available for holiday purchases or for income
tax reasons).
Looking Ahead.
As we went to press, economic news continued to be mixed, with some reports
indicating a strengthening U.S. economy while others a sluggish one. Until the
Federal Reserve gets a clearer picture of where the economy is headed, we can
expect a period (perhaps several months) of unchanged monetary policy.
Accordingly, we shall keep the Series' weighted average maturity neutral to a
few days longer than the average tax-free money fund. It will give us the
flexibility to respond to changing market conditions while providing you with
tax-free income.
A Word
About Quality.
Your Series will typically 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 Series'
investment adviser. Although there is never a guarantee that the share price
of the New Jersey Money Market Series will stay at $1, we emphasize a
conservative, quality-oriented approach.
1
<PAGE>
President's Letter April 5, 1996
(PICTURE)
Dear Shareholder:
For many investors, 1995 was a profitable year -- most stock and bond funds
enjoyed healthy returns from the U.S. markets. While climbing returns can tempt
even the most skittish investors to start buying again, it is important to
remember that the stock and bond markets go down just as they go up. At times
like these, remember the importance of working with your Financial Advisor or
Registered Representative to help you find investments that are consistent with
your risk tolerance and time horizon. Your Financial Advisor or Registered
Representative can help you maintain realistic expectations about both the
potential performance and risks associated with your investments.
Shareholder Legislative Action Program.
From time to time we've been informing you about significant legislation before
Congress, such as the American Dream Savings Account, that may potentially
impact mutual fund investors. We want to make it easier for you to share your
views with your Congressional member. So, beginning in 1996, whenever Congress
is considering legislation that would affect you, we'll send you postage-paid
message cards that you simply drop in the mail if you want to let your senator
or representative know how you want him or her to vote.
Fund Profiles.
Over the past year, we've worked to make your shareholder reports more
interesting, informative and easy to read. This year, we'll be considering "fund
profiles." Some mutual fund companies now offer one to shareholders along with
a
full prospectus. The purpose of a fund profile is to provide a very brief,
reader-friendly summary of a fund's objective, investments, risks and
expenses. Would you like to see fund profiles from us? Please call your
Financial Advisor or Registered Representative to share your views.
As always, thank you for your confidence in Prudential Mutual Funds.
Sincerely,
Richard A. Redeker
President
2
<PAGE>
<TABLE>
Portfolio of Investments as of February 29, 1996 PRUDENTIAL MUNICIPAL
SERIES FUND
(Unaudited) NEW JERSEY MONEY MARKET
SERIES
- --------------------------------------------------------------------------------
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Atlantic Cnty. Impvt. Auth. Rev., Ser. 86, F.R.W.D. VMIG1
3.00% 3/06/96 $ 1,300 $ 1,300,000
Butler County, Ks., Solid Waste Disp. & Cogen. Rev., Ser.
B, F.R.D.D. P1
3.65 3/01/96 1,100 1,100,000
Cumberland County, Ser. 95, B.A.N. NR
4.00 5/17/96 4,000 4,002,488
Gloucester Cnty. Ind. Poll. Ctrl. Fin. Auth. Rev.,
Mobil Corp. Proj., F.R.W.D. P1
2.80 3/06/96 4,610 4,610,000
Monsanto Co. Proj., Ser.92, F.R.W.D. P1
3.20 3/06/96 3,120 3,120,000
Hudson Cnty. Impvt. Auth. Rev., Ser.86, F.R.W.D. A-1(c)
3.15 3/07/96 4,445 4,445,000
Jackson Cnty. Ms. Indl. Service Facs. Rev. Ser. 94,
F.R.D.D. P1
3.55 3/01/96 800 800,000
Jersey City, B.A.N. P1
4.25 9/27/96 7,000 7,015,913
King George County Va., Ind. Dev. Auth., Ser. 94B,
F.R.D.D. A-1+(c)
3.55 3/01/96 1,900 1,900,000
New Jersey St. Econ. Dev. Auth.,
Applewood Ctr. for Aging, Ser. 89, F.R.W.D. A-1(c)
3.25 3/07/96 8,950 8,950,000
Catholic Cmnty. Svcs Proj., Ser. 93, F.R.W.D. VMIG1
3.25 3/07/96 6,000 6,000,000
Catholic Cmnty. Svcs Proj., Ser. 95, F.R.W.D. VMIG1
3.25 3/07/96 1,250 1,250,000
Chambers Cogen. Ltd., Ser. 91, T.E.C.P. VMIG1
3.30 3/27/96 4,400 4,400,000
Chambers Cogen. Ltd., Ser. 91, T.E.C.P. VMIG1
3.20 5/22/96 3,000 3,000,000
Dow Chemical, Ser. 84A, F.R.D.D. P1
3.10 3/01/96 3,100 3,100,000
East Meadow Corp., Ser. 86A, F.R.W.D. VMIG1
3.30 3/06/96 2,675 2,675,000
Econ. Growth Bds., Ser. 94B, F.R.W.D. A-1+(c)
3.15 3/07/96 2,000 2,000,000
Fellowship Village Proj., Ser. 95, F.R.W.D. VMIG1
3.30 3/07/96 7,000 7,000,000
Franciscan Oaks Proj., Ser. 92B, F.R.W.D. A-1(c)
3.15 3/06/96 1,600 1,600,000
General Motors Proj., Ser. 95, F.R.W.D. VMIG2
3.20 3/05/96 7,350 7,350,000
Hillcrest Health Svcs. Sys. Proj., Ser. 95, F.R.W.D. P-1
3.40 3/06/96 8,000 8,000,000
Hoffman La-Roche Inc. Proj., Ser. 93, F.R.D.D. Aaa
3.10 3/01/96 5,000 5,000,000
Kent Place, Ser. 92L, F.R.W.D. VMIG1
3.20 3/07/96 1,930 1,930,000
Keystone Proj., Ser. 92, T.E.C.P. VMIG1
3.30 3/27/96 1,500 1,500,000
Keystone Proj., Ser. 92, T.E.C.P. VMIG1
3.60 4/08/96 2,600 2,600,000
Marriot Corp. Proj., Ser. 84, F.R.W.D. P1
2.90 3/06/96 6,700 6,700,000
Michael Shalit Proj., Ser. 93, F.R.D.D. Aa3
3.10 3/01/96 1,750 1,750,000
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)(e)
4.00 7/01/96 5,455 5,455,000
Office Court Assoc. Proj., F.R.W.D. A-1+(c)
3.20 3/06/96 1,850 1,850,000
Peddie Sch. Proj., Ser.94B, F.R.W.D. A-1(c)
3.35 3/07/96 3,000 3,000,000
Public Serv. Elec & Gas Co., Ser. 95A, T.E.C.P. VMIG1
3.20 4/09/96 5,600 5,600,000
RJB Associates Ltd., F.R.W.D. A-1(c)
3.35 3/07/96 1,580 1,580,000
Russ Berrie & Co., Ser. 83, F.R.W.D. A-1(c)
3.00 3/06/96 200 200,000
Thermal Energy Ltd., Ser. 95, S.A.O.T. NR
3.70 4/30/96 2,000 2,000,000
New Jersey St. Hsg. Fin. Agcy., Ser. 92A, Q.T.P.O.T. AA+(c)
3.35 5/01/96 4,000 4,000,000
Newark Healthcare Facs. Rev., Ser. 95A, F.R.W.D. A-1(c)
3.40 3/07/96 2,955 2,955,000
Passaic County B.A.N. NR
5.00 4/05/96 4,000 4,002,196
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3 -----
<PAGE>
<TABLE>
Portfolio of Investments as of February 29, 1996 PRUDENTIAL MUNICIPAL
SERIES FUND
(Unaudited) NEW JERSEY MONEY MARKET
SERIES
- --------------------------------------------------------------------------------
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Port Auth. of New York & New Jersey,
Ser. 93, F.R.D.D. VMIG1
3.10% 3/01/96 $ 9,400 $ 9,400,000
Ser. 93-1, F.R.D.D. VMIG1
3.25 3/01/96 700 700,000
Ser. 93-2, F.R.W.D. NR
3.297 3/05/96 8,000 8,000,000
KIAC Partners, Ser. 93-2, F.R.D.D. VMIG1
3.10 3/06/96 3,900 3,900,000
Puerto Rico Commwlth.,
Gov't. Dev. Bank, Ser. 85, F.R.W.D. VMIG1
2.80 3/06/96 900 900,000
Gov't. Dev. Bank, Ser. 95, T.E.C.P. A-1+(c)
3.65 3/08/96 3,000 3,000,000
Gov't. Dev. Bank, Ser. 95, T.E.C.P. A-1+(c)
3.35 4/11/96 4,000 4,000,000
Gov't. Dev. Bank, Ser. 95, T.E.C.P. A-1+(c)
3.35 5/15/96 2,000 2,000,000
Puerto Rico Comnwlth. Hwy. & Trans. Auth. Rev., Ser. 85
F.R.W.D. VMIG1
2.80 3/06/96 200 200,000
Puerto Rico Public Bldgs. Auth. Rev., Ser. 34-G, F.R.W.D. A-1+(c)
3.10 3/07/96 5,330 5,330,000
Randolph Twnshp., B.A.N. NR
4.25 9/06/96 3,593 3,597,854
Rockaway Twnshp.,
B.A.N. NR
3.67 7/31/96 2,600 2,600,407
B.A.N. NR
3.92 7/31/96 4,899 4,899,711
Salt Lake Cnty., Ut. Poll. Ctrl. Rev., Service Station
Hldgs Proj., Ser. 94, F.R.D.D. P-1
3.45 3/01/96 600 600,000
So. Carolina Jobs Econ. Dev. Auth. Rev., Wellman Inc.
Proj., Ser.92, F.R.D.D. Aa2
3.50 3/01/96 2,600 2,600,000
Sussex County, B.A.N. NR
4.50 9/13/96 5,000 5,015,438
West Orange Cnty., B.A.N. NR
3.75 10/03/96 3,951 3,956,689
------------
Total Investments--99.6% (amortized cost $198,320,696;(d))
198,320,696
Other assets in excess of liabilities--0.4%
697,635
------------
Net Assets--100%
$199,018,331
------------
------------
</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.
(e) This security has been deemed to be comparable in quality and security to
an
eligible investment.
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>
Statement of Assets and Liabilities PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) NEW JERSEY MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
February 29, 1996
-----------------
<S>
<C>
Investments, at amortized cost which approximates market
value........................................... $ 198,320,696
Cash.........................................................................
............................ 222,511
Receivable for Series shares
sold........................................................................
5,345,508
Interest
receivable...................................................................
................... 1,304,776
Deferred expenses and other
assets.......................................................................
2,769
-----------------
Total
assets.......................................................................
................... 205,196,260
-----------------
Liabilities
Payable for Series shares
reacquired.....................................................................
6,003,461
Management fee
payable......................................................................
............. 78,383
Dividends
payable......................................................................
.................. 60,882
Accrued expenses and other
liabilities...................................................................
22,691
Distribution fee
payable......................................................................
........... 10,192
Deferred Trustees'
fees.........................................................................
......... 2,320
-----------------
Total
liabilities..................................................................
................... 6,177,929
-----------------
Net
Assets.......................................................................
........................ $ 199,018,331
-----------------
-----------------
Net assets were comprised of:
Shares of beneficial interest, at $.01 par
value...................................................... $ 1,990,183
Paid-in capital in excess of
par......................................................................
197,028,148
-----------------
Net assets, February 29,
1996............................................................................
$ 199,018,331
-----------------
-----------------
Net asset value, offering price and redemption price per share ($199,018,331 /
199,018,331 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 (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Six Months
Ended
Net Investment Income February 29, 1996
-----------------
Income
Interest and discount earned.............. $ 3,763,701
-----------------
Expenses
Management fee............................ 504,251
Distribution fee.......................... 126,063
Transfer agent's fees and expenses........ 48,000
Custodian's fees and expenses............. 25,000
Registration fees......................... 12,000
Reports to shareholders................... 12,000
Audit fee and expenses.................... 5,000
Legal fees and expenses................... 5,000
Deferred organization expenses............ 2,000
Directors' fees and expenses.............. 1,700
Miscellaneous............................. 2,366
-----------------
Total expenses......................... 743,380
Less: Management fee waiver............... (85,123)
Custodian fee credit................... (693)
-----------------
Net expenses........................... 657,564
-----------------
Net investment income........................ 3,106,137
-----------------
Net Increase in Net Assets
Resulting from Operations................. $ 3,106,137
-----------------
-----------------
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW JERSEY MONEY MARKET SERIES
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) February 29, August 31,
in Net Assets 1996 1995
------------- -------------
<S> <C> <C>
Operations
Net investment income....... $ 3,106,137 $ 5,328,982
------------- -------------
Net increase in net assets
resulting from
operations............... 3,106,137 5,328,982
------------- -------------
Dividends to shareholders...... (3,106,137) (5,328,982)
------------- -------------
Series share transactions
(at $1 per share)
Net proceeds from shares
subscribed............... 394,828,079 621,173,812
Net asset value of shares
issued to shareholders in
reinvestment of
dividends................ 3,030,116 5,178,490
Cost of shares reacquired... (381,292,656) (602,179,432)
------------- -------------
Net increase in net assets
from Series share
transactions............. 16,565,539 24,172,870
------------- -------------
Total increase................. 16,565,539 24,172,870
Net Assets
Beginning of period............ 182,452,792 158,279,922
------------- -------------
End of period.................. $ 199,018,331 $ 182,452,792
------------- -------------
------------- -------------
</TABLE>
- --------------------------------------------------------------------------------
- ----- 6 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) 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 Net 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. Expenses are recorded on the accrual basis which may require the
use of certain estimates by management.
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 was deferred and is being amortized
over a period of 60 months ended December 1995.
Custody Fee Credits: The Fund has an arrangement with its custodian bank,
whereby uninvested monies earn credits which reduce the fees charged by the
custodian.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential 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. During the four
month period ended December 31, 1995, PMF waived 25% of its management fee. The
amount of such fees waived for the six months ended February 29, 1996 amounted
to $85,123 ($.0004 per share; .084% of average net assets). Effective January
1,
1996 PMF ceased waiving any portion of its management fee.
The Fund had a distribution agreement with Prudential Mutual Fund Distributors,
Inc. (``PMFD''), which acted as the distributor of the Fund through January 1,
1996. Effective January 2, 1996. Prudential Securities Incorporated (``PSI'')
became the distributor of the Fund and is serving the Fund under the same terms
and conditions as under the arrangement with PMFD. The Series reimbursed PMFD
and PSI for distributing and servicing the Series' shares pursuant to the plan
of distribution at an annual rate of .125 of 1% of the Series average daily net
assets. The distribution fee is accrued daily and payable monthly.
- --------------------------------------------------------------------------------
7 -----
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) NEW JERSEY MONEY MARKET 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 six months ended February
29, 1996, the Series incurred fees of approximately $40,000 for the services of
PMFS. As of February 29, 1996, approximately $6,700 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.
- --------------------------------------------------------------------------------
- ----- 8
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) NEW JERSEY MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 3,
Six Months
1990(a)
Ended
Year Ended August 31, Through
February 29,
- ----------------------------------------------- August 31,
1996 1995
1994 1993 1992 1991
------------ --------
-------- -------- -------- -----------
<S> <C> <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 $ 1.00
Net investment income and net realized
gains(c)................................... .02 .03
.02 .02 .04 .03
Dividends and distributions................... (.02) (.03)
(.02) (.02) (.04) (.03)
------------ --------
-------- -------- -------- -----------
Net asset value, end of period................ $ 1.00 $ 1.00
$ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ --------
-------- -------- -------- -----------
------------ --------
-------- -------- -------- -----------
TOTAL RETURN(d):.............................. 1.54% 3.15%
1.90% 2.31% 3.48% 3.55%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $199,018 $182,453
$158,280 $163,087 $164,092 $ 117,460
Average net assets (000)...................... $202,809 $171,223
$169,123 $170,103 $155,915 $ 89,273
Ratios to average net assets(c):
Expenses, including distribution fee....... .65%(b) .64%
.68% .64% .32% .13%(b)
Expenses, excluding distribution fee....... .52%(b) .51%
.55% .51% .19% .00%(b)
Net investment income...................... 3.08%(b) 3.11%
1.87% 2.02% 3.33% 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>
Getting
The Most
From Your
Prudential
Mutual
Fund
How many times have you read these letters -- or other financial materials --
and stumbled across a word that you don't understand?
Many shareholders have run into the same problem. We'd like to help. So we'll
use this space from time to time to explain some of the words you might have
read, but not understood. And if you have a favorite word that no one can
explain to your satisfaction, please write to us.
Basis Point: One 1/100th of 1%. For example, one half of one percentage point
is 50 basis points.
Call Option: A contract giving the holder a right to buy stocks or bonds at a
predetermined price (called the strike price) before a predetermined expiration
date. A buyer of a call option generally expects to benefit from a rise in the
price of the stock or bond.
Capital Gain/Capital Loss: The difference between the cost of a capital asset
(for example, a stock, bond or mutual fund share) and its selling price. Under
current law the federal income tax rate for individuals on a long-term capital
gain is 28%.
Collateralized Mortgage Obligations (CMOs): Pools of mortgage-backed securities
sliced in maturity ranges that bear differing interest rates. These instruments
are sensitive to changes in interest rates and homeowner refinancing activity.
They are subject to prepayment and maturity extension risk.
Derivatives: Securities that derive their value from another security. The rate
of return of these financial products rises and falls -- sometimes very suddenly
- -- in response to changes in some specific interest rate, currency, stock or
other variable.
Discount Rate: The interest rate charged by the Federal Reserve on loans to
banks and other depository institutions.
Federal Funds Rate: The interest rate charged by one bank to another on
overnight loans.
Futures Contract: An agreement to deliver a specific amount of a commodity or
financial instruments at a set price at a stipulated time in the future.
Leverage: The use of borrowed assets to enhance return on equity. The
expectation is that the interest rate charged will be lower than the return on
the investment. While leverage can increase profits, it can also magnify losses.
Liquidity: The ease with which a financial instrument (or mutual fund) can be
bought or sold (converted into cash) in the financial markets.
Option: An agreement to buy or sell something, such as shares of stock, by a
certain time for a specified price. An option need not be exercised. In fact,
most expire unexercised.
Price/Earnings Ratio: The price of a share of stock divided by the earnings per
share for a 12-month period.
Spread: The difference between two values; most often used to describe the
difference between prices bid and asked for a security.
Yankee Bond: A bond denominated in U.S. dollars but sold by a foreign company
or government in the U.S. market.
<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>
How Does Your State Stack Up?
Economic conditions vary from state to state. While one region may be
experiencing strong fiscal management and prosperity, another may languish
under the weight of declining industry or chronic state budget problems.
State economic conditions, fiscal management and interest rates play dominant
roles in the performance of individual municipal bonds. A strong economy
generally leads to higher tax revenues and other income sources for the state,
enabling it to more easily repay its debts. Additionally, sound state financial
management often results in high ratings from bond rating agencies. High ratings
are attractive to investors and can help bonds retain value in the market.
California
- - World's 8th largest economy.
- - Entertainment jobs growing.
- - Recovery continues, but growth
is expected to be below the
national average.
- - Increasing tax revenues may
not cover soaring Medicaid costs.
Hawaii
- - Tourism provides 60% of jobs.
- - Strong financial management.
- - Slow recovery from early-1990s
U.S. and Japanese recessions,
which bit into tourism and real estate.
- - Government eliminated 1,100 state jobs.
Ohio
- - Shift from manufacturing to service trades.
- - Economic and personal income growth ahead of national averages.
- - Debt is low.
Pennsylvania
- - Slowly rebuilding economy, but needs new engine of growth.
- - Debt as a percentage of personal income is half the national average.
- - Sound financial management.
Michigan
- - Economic growth is 3.5%, higher than national average.
- - Once car capital of the world, now more diversified.
- - Strengthening fiscal management.
Massachusetts
- - Painful cuts in defense and health care eliminated jobs.
- - Slowly rebuilding economy.
- - Personal income is high.
New York
- - High taxes restrain growth.
- - Personal income remains high.
- - Debt level is high.
- - Federal budget Medicaid reform impasses threaten planned budget savings.
Maryland
- - One of wealthiest states.
- - Personal income 115% ofnational average, but income growth has stabilized.
- - Good financial controls.
Florida
- - Economy and personal income growing much faster than national rate.
- - Unemployment and debt are low.
- - Ended 1995 with a budget surplus for the third year in a row.
Connecticut
- - Nation's wealthiest citizens.- Economically weak from defense cuts.
- - Slow growth -- recovery may take years.
- - Attempts at quick fixes won't provide permanent relief.
New Jersey
- - Broad-based economy and high personal wealth.
- - Economic growth slowing.
- - Pro-business tactics siphoned revenue, but may spur more growth.
North Carolina
- - Robust, model economy.
- - Personal income quicklygrowing.
- - Unemployment well below national average.
- - New jobs from financial services, research and high technology.
- - Strong financial management.
Source: Prudential Investment Corporation. Selected states are those for
which Prudential Mutual Fund Management manages a state-specific municipal
bond mutual fund
Revised: April, 1996
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
Internet Address:
http:\\www.prudential.com
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 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 Auditor
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
The views expressed in this report and information about the Series' portfolio
holdings are for the period covered by this report and are subject to change
thereafter.
The accompanying financial statements as of February 29, 1996 were not audited
and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
<PAGE>
(LOGO)
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
BULK RATE
U.S. POSTAGE
PAID
Permit 6807
New York, NY
74435M762 MF147E2
Cat# 444355Z
(ICON)
Prudential
Municipal
Series Fund
New York Series
SEMI
ANNUAL
REPORT
Feb. 29, 1996
(LOGO)
<PAGE>
Prudential Municipal Series Fund
New York Series
Performance At A Glance.
Lower interest rates and subdued inflation lifted tax-free municipal bond prices
higher over the past six months, continuing a trend that has been in place for
some time now. In fact, 1995 was a terrific year for municipal bonds, which
provided their best total return in nine years, as measured by Lehman Brothers.
We're pleased to report that for the six months ended February 29, 1996 the
Prudential Municipal Series Fund -- New York Series performed better than the
average New York municipal fund, as measured by Lipper Analytical Services.
<TABLE>
<CAPTION>
Cumulative Total Returns1 As of 2/29/96
Six One Five Ten Since
Months Year Years Years Inception2
<S> <C> <C> <C> <C> <C>
Class A 5.3% 10.1% 50.9% N/A 62.1%
Class B 5.1 9.8 48.0 92.6% 158.2
Class C 5.0 9.5 N/A N/A 12.4
Lipper NY Muni Avg3 4.8 9.7 48.6 105.0 175.1
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns1 As of 3/31/96
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A 4.0% 7.4% N/A 7.3%
Class B 1.9 7.5 6.6%(6.5)4 8.4
Class C 5.6 N/A N/A 6.1(6.0)4
</TABLE>
<TABLE>
<CAPTION>
Dividends
& Yields
As of
2/29/96 Taxable Equivalent Yield5
Total Dividends 30-Day At Tax Rates Of
Paid for Six Mos. SEC Yield 36% 39.6%
<S> <C> <C> <C> <C>
Class A $0.32 4.60% (4.55)4 7.80% (7.72)4 8.27%
(8.18)4
Class B $0.29 4.34 (4.29)4 7.36 (7.28)4 7.80
(7.71)4
Class C $0.28 4.09 (4.04)4 6.94 (6.85)4 7.35
(7.26)4
</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 declining
contingent deferred sales charge (CDSC) 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 98 funds for six
months, 91 funds for one year, 41 funds for five years, 16 funds for 10 years
and 12 funds since inception of the Class B shares on 9/13/84.
4Without waivers and expense subsidies the Series' average annual total
return/30-day SEC yield would have been lower, as indicated in parentheses ( ).
5Taxable equivalent yields reflect federal and applicable state tax rates.
How Investments Compared.
(As of 2/29/96)
(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. The returns assume the reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors have received higher
historical total returns from stocks than from most other investments. Smaller
capitalization stocks offer greater potential for long-term growth but may be
more volatile than larger capitalization stocks.
General Bond Funds provide more income than stock funds, which can help smooth
out their total returns year by year. But their prices still fluctuate
(sometimes significantly) and their returns have been historically lower
than those of stock funds.
General Municipal Debt Funds invest in bonds issued by state governments, state
agencies and/or municipalities. This investment provides income that is usually
exempt from federal and state income taxes.
Money Market Funds attempt to preserve a constant share value; they don't
fluctuate much in price but historically their returns have been generally
among the lowest of the major investment categories.
*19 years for General Muni Debt Funds.
<PAGE>
Peter J. Allegrini and Christian Smith, Fund Managers
(PHOTO)
Portfolio
Managers' Report
(PHOTO)
The Series invests primarily in carefully-selected, long-term municipal bonds
that offer a high level of income that is exempt from New York state, New York
City, and federal income taxes, while still attempting to preserve capital.
Certain shareholders may be subject to the federal alternative minimum tax,
however. There can be no assurance that the Series will achieve its investment
objective.
Strategy Session.
Our strategy over the past six months was to take advantage of falling interest
rates (and rising bond prices). And for most of the past six months, conditions
couldn't have been much better for municipal bonds. First, sluggish national
economic growth pushed inflation lower and interest rates down by nearly a
half a percentage point, as measured by The Bond Buyer Revenue Bond Index.
Second, concern about tax reform that held back price gains had diminished,
allowing municipal bonds to appreciate in recent months.
While economic conditions over the past six months were ideal nationally for
municipal bonds, they were not quite as rosy in New York. The Empire State's
historically high tax burden on both individuals and corporations restricted
economic growth in recent years. The state's economy grew by less than 2% in
1995 and is expected to grow even more slowly this year, at a rate well below
the average of other states. But New York is still very wealthy. Even though
personal income growth in the last three years here has been an anemic 3.2%,
New York still ranks among the wealthiest states in terms of personal income.
And wealthy individuals combined with high taxes generates demand for tax-exempt
municipal bonds. Fortunately for these bond owners, New York pays a relatively
high rate of interest (when compared with other states) because it has
substantial borrowing needs.
Gov. George Pataki has vowed to promote growth in New York and to reduce the
cost of government. But making it happen won't be easy. His proposed 1997 budget
relies on Medicaid reforms that are caught up in the budget-balancing debate in
Washington. If Congress and the president can agree, the state stands to save
$2 billion. Should New York fail to get its way in Washington, the state will
have a serious budget imbalance on its hands, and that could hurt its municipal
bond prices.
New Management Team.
In April, an experienced, new team began managing the New York Series -- Peter
J. Allegrini and Christian Smith. Allegrini oversees the municipal bond team at
Prudential Mutual Funds and also manages the Prudential Municipal Bond Fund/High
Yield Series. Smith manages several other state-specific municipal bond
portfolios. As co-managers, they share responsibility for the day-to-day bond
selection and management of the New York Series.
Sector Breakdown.
Prudential Municipal Series Fund
New York Series as of 2/29/96
(CHART)
<PAGE>
What Went Well.
You Can Call Us,
But Not Our Bonds.
Our investment in non-callable bonds (bonds which cannot be prepaid ahead of
maturity by their issuers), 47% of net assets as of February 29, 1996, helped
performance. We had intentionally focused investments in non-callable bonds
because they tend to perform better than callable bonds when interest rates
fall (because they can't be refunded ahead of schedule by their issuers). When
interest rates fall, municipalities often prefer to call, or repay the principal
value of their bonds, so that they can refinance at lower rates. That leaves
investors in the lurch -- with only lower coupon bonds to replace their called
holdings.
As The Market Rallied,
We Lengthened.
As part of our strategy to take maximum advantage of falling interest rates,
we also bought long-term bonds. Their prices rose dramatically when rates fell.
Late last summer we substantially lengthened our duration (a measure of
sensitivity to interest rates) to 9.3 years on December 31, 1995 from 7.4
years on September 30, 1995. Early in 1996, as the bond rally began to fade,
we tried to protect our gains by shortening our duration to 8.3 years as of
February 29, 1996.
And Not So Well.
Not Lengthening Sooner.
Looking back, something we did right -- lengthening duration -- was also
something we could have done sooner. We began lengthening our duration late
last summer. If we had lengthened earlier -- when the municipal bond rally
began in the spring of 1995 -- the Series' performance would have been better.
Why did we wait? We were wary of municipal market volatility at the time.
Tax-reform plans that would have hurt the municipal bond market were the talk
of Washington. If enacted, the longest-term municipal bonds would have suffered
most.
Five Largest Issuers.
8.9% NY State Urban
Development
7.9% NYS Dormitory Auth.
City University
6.7% NY City
General Obligation
4.9% Puerto Rico
General Obligation
4.9% NY State Local
Gov't Assist. Corp.
Expressed as a percentage of total net assets as of 2/29/96.
Looking Ahead.
The municipal bond market looks good to us in 1996. Low interest rates and
inflation nationally may make local municipal bonds quite attractive. We also
believe that the Federal Reserve will be inclined to lower interest rates
somewhat further this year if the country's economic weakness continues. This
could also help New York's bond prices.
What could go wrong? This is a presidential election year and resurfacing talk
of flat taxes and other types of tax reform could roil the municipal bond
market. Volatility and election year politics seem to go hand-in-hand.
1
<PAGE>
President's Letter April 5, 1996
(PHOTO)
Dear Shareholder:
For many investors, 1995 was a profitable year -- most stock and bond funds
enjoyed healthy returns from the U.S. markets. While climbing returns can
tempt even the most skittish investors to start buying again, it is important
to remember that the stock and bond markets go down just as they go up. At times
like these, remember the importance of working with your Financial Advisor or
Registered Representative to help you find investments that are consistent with
your risk tolerance and time horizon. Your Financial Advisor or Registered
Representative can help you maintain realistic expectations about both the
potential performance and risks associated with your investments.
Shareholder Legislative Action Program.
From time to time we've been informing you about significant legislation before
Congress, such as the American Dream Savings Account, that may potentially
impact mutual fund investors. We want to make it easier for you to share your
views with your Congressional member. So, beginning in 1996, whenever Congress
is considering legislation that would affect you, we'll send you postage-paid
message cards that you simply drop in the mail if you want to let your senator
or representative know how you want him or her to vote.
Fund Profiles.
Over the past year, we've worked to make your shareholder reports more
interesting, informative and easy to read. This year, we'll be considering "fund
profiles." Some mutual fund companies now offer one to shareholders along with
a
full prospectus. The purpose of a fund profile is to provide a very brief,
reader-friendly summary of a fund's objective, investments, risks and expenses.
Would you like to see fund profiles from us? Please call your Financial Advisor
or Registered Representative to share your views.
As always, thank you for your confidence in Prudential Mutual Funds.
Sincerely,
Richard A. Redeker
President
2
<PAGE>
Portfolio of Investments as
of February 29, 1996 PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) NEW YORK SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
LONG-TERM INVESTMENTS--92.9%
- -----------------------------------------------------------------------------
- -------------------------------------------------
City of New Rochelle Ind. Dev. Agcy.,
Coll. of New Rochelle BBB-(c)
6.625% 7/01/12 $ 500 $ 528,950
Coll. of New Rochelle BBB-(c)
6.75 7/01/22 2,000 2,125,380
Dutchess Cnty. Res. Rec. Agcy. Rev., Solid Waste Mgmt.,
Ser. A, F.G.I.C. Aaa
7.50 1/01/09 1,150 1,274,177
Islip Res. Rec., Ser. B, A.M.B.A.C. Aaa
7.20 7/01/10 1,745 2,082,727
Jefferson Cnty. Ind. Dev. Agcy., Solid Waste Disp. Rev. Baa1
7.20 12/01/20 1,500 1,630,050
Met. Trans. Auth. Facs. Rev.,
Commuter Facs., Ser. 7 Baa1
Zero 7/01/08 8,760 4,431,421
Commuter Facs., Ser. 7 Baa1
Zero 7/01/09 4,445 2,100,351
Commuter Facs., Ser. N, F.G.I.C. Aaa
Zero 7/01/12 5,575 2,324,998
Commuter Facs., Ser. N, F.G.I.C. Aaa
Zero 7/01/13 4,000 1,574,560
Commuter Facs., Ser. O Baa1
5.50 7/01/17 2,500 2,426,500
Trans. Facs., Ser. O Baa1
5.75 7/01/08 2,740 2,790,718
Trans. Facs., Ser. O Baa1
5.75 7/01/13 1,975 1,987,778
New York City Ind. Dev. Agcy., Spec. Fac. Rev.,
American Airlines Proj. Baa2
6.90 8/01/24 12,000 12,962,400
Term. One Group Assoc. Proj. A
6.125 1/01/24 12,500 12,499,625
U.S.T.A. National Tennis Center Proj., F.S.A. Aaa
6.375 11/15/14 1,000 1,080,110
Y.M.C.A. Of Greater N.Y. Proj. NR
8.00 8/01/16 1,350 1,470,947
New York City, Gen. Oblig.,
Ser. A BBB+(c)
7.75 3/15/03 1,740 (d) 1,991,673
Ser. A NR
7.75 3/15/03 1,760 1,921,656
Ser. A Aaa
5.75 8/01/09 2,715 2,828,813
Ser. B Aaa
8.00 6/01/99 330 (d) 369,353
Ser. B Baa1
8.00 6/01/99 690 754,218
Ser. B Baa1
7.50 2/01/01 4,000 4,385,720
Ser. D Baa1
8.00 8/01/03 2,500 2,837,525
Ser. D Baa1
7.70 2/01/09 3,040 3,420,152
Ser. F Baa1
8.20 11/15/03 3,000 3,450,510
New York St. Dorm. Auth. Rev.,
City Univ., Ser. A Baa1
5.75 7/01/13 3,500 3,420,900
City Univ., Refunding Bonds Baa1
6.00 7/01/14 6,500 6,704,490
City Univ. Sys. Cons., Ser. A Baa1
8.125 7/01/07 3,435 3,758,818
City Univ. Sys. Cons., Ser. A Baa1
5.625 7/01/16 5,600 5,542,656
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3 -----
<PAGE>
Portfolio of Investments as
of February 29, 1996 PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) NEW YORK SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
New York St. Dorm. Auth. Rev., (cont'd)
City Univ. Sys. Cons., Ser. C, F.G.I.C. Aaa
7.50% 7/01/10 $ 3,500 $ 4,330,445
City Univ. Sys. Cons., Ser. D Baa1
7.00 7/01/09 1,880 2,136,244
Coll. & Univ. Ed., M.B.I.A. Aaa
Zero 7/01/04 2,255 1,504,784
Episcopal Hlth. Svcs., G.N.M.A. AAA(c)
7.55 8/01/29 3,000 3,292,770
Insured Mount Sinai Med. Sch., Ser. A, M.B.I.A. Aaa
5.00 7/01/13 2,945 2,816,421
Long Island Med. Ctr., Ser. A, F.H.A. Aa
7.625 8/15/08 2,595 2,778,363
Long Island Med. Ctr., Ser. A, F.H.A. Aa
7.75 8/15/27 4,100 4,399,218
Spec. Act. Sch. Districts, F.G.I.C. Aaa
7.00 7/01/13 3,050 3,389,892
St. Univ. Edl. Facs., Ser. A Baa1
5.25 5/15/15 8,600 8,131,730
St. Univ. Edl. Facs., Ser. B Baa1
7.50 5/15/11 4,660 5,547,357
New York St. Energy Resch. & Dev. Auth. Rev.,
Brooklyn Union Gas Co., M.B.I.A. Aaa
6.75 2/01/24 2,000 2,175,940
Brooklyn Union Gas Co., Ser. D, M.B.I.A. Aaa
7.549 (e) 7/08/26 2,000 1,887,500
Con. Edison Co. Aa3
7.50 7/01/25 6,735 7,314,143
Con. Edison Co. Aa3
7.50 1/01/26 4,775 5,210,623
New York St. Environ. Facs. Corp.,
Occidental Pet. Corp. Proj. Baa3
5.70 9/01/28 3,000 2,896,860
Occidental Pet. Corp. Proj. Baa3
6.10 11/01/30 10,000 9,943,200
Poll. Ctrl. Rev., St. Wtr. Revolving Fund, Ser. B Aa
7.50 3/15/11 1,300 1,421,368
Poll. Ctrl. Rev., St. Wtr. Revolving Fund, Ser. E Aa
6.50 6/15/14 1,000 1,080,920
New York St. Hsg. Fin. Agcy. Rev., Ser. A,
Multifamily Hsg. Aa
7.05 8/15/24 1,000 1,057,970
St. Univ. Constr. Aaa
8.00 5/01/11 3,600 (d) 4,577,976
New York St. Local Gov't. Assistance Corp.,
Ser. C A
Zero 4/01/14 11,882 4,453,017
Ser. C A
5.50 4/01/17 2,800 2,806,804
Ser. E A
6.00 4/01/14 4,000 4,265,120
Ser. E A
5.25 4/01/16 4,500 4,369,320
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 2,998,325
New York Hosp., Ser. A, A.M.B.A.C., F.H.A. Aaa
6.50 8/15/29 3,000 3,250,350
Mental Hlth. Svcs., M.B.I.A. Aaa
6.00 8/15/02 3,000 3,270,870
Mental Hlth. Svcs., Ser. A Baa1
7.50 8/15/07 815 912,075
St. Francis Hosp., Proj. A, F.G.I.C. Aaa
7.60 11/01/08 2,350 2,580,511
</TABLE>
- --------------------------------------------------------------------------------
- ----- 4 See Notes to Financial Statements.
<PAGE>
Portfolio of Investments as
of February 29, 1996 PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) NEW YORK SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
New York St. Mtge. Agcy. Rev.,
Ser. A Aa
5.375% 10/01/17 $ 2,000 $ 1,924,540
Homeowner Mtge., Ser. A Aa
8.05 10/01/21 3,110 3,309,040
New York St. Mun. Bond Bank Agcy., Spec. Proj. Rev., Ser.
A A+(c)
6.75 3/15/11 3,000 3,261,990
New York St. Pwr. Auth. Rev. & Gen. Purp., Ser. Y Aa
6.75 1/01/18 3,500 3,877,405
New York St. Thrwy. Auth. Svc. Contract Rev., Local
Highway & Bridge Baa1
6.45 4/01/15 1,000 1,057,590
New York St. Urban Dev. Corp. Rev.,
Correctional Cap. Facs. Baa1
Zero 1/01/08 10,000 5,170,500
Correctional Cap. Facs. Baa1
5.25 1/01/21 2,960 2,710,590
Correctional Cap. Facs., Ser. A, F.S.A. Aaa
6.50 1/01/11 5,000 5,616,200
Correctional Cap. Facs., Ser. A Baa1
5.50 1/01/16 4,000 3,805,040
Correctional Cap. Facs., Ser. 5 Baa1
6.00 1/01/04 4,415 4,602,152
St. Facs. Baa1
5.75 4/01/12 4,000 3,983,160
St. Facs. Baa1
5.60 4/01/15 2,000 1,976,800
Port Auth. of New York & New Jersey, Ser. 70 A1
7.25 8/01/25 1,000 1,087,560
Puerto Rico Comnwlth., Gen Oblig.,
A.M.B.A.C. Aaa
7.00 7/01/10 6,500 7,759,440
Pub. Impvt. Ref., M.B.I.A. Aaa
7.00 7/01/10 1,250 1,492,200
Ser. B, M.B.I.A. Aaa
6.50 7/01/15 6,000 6,723,660
Puerto Rico Elec. Pwr. Auth. Rev.,
Cap. Apprec., Ser. O Baa1
Zero 7/01/17 10,000 2,891,600
M.B.I.A. Aaa
Zero 7/01/04 11,895 8,134,039
Puerto Rico Hsg. Fin. Auth. Rev., Sngl. Fam. Baa
5.25 12/01/06 2,000 1,958,040
Puerto Rico Hwy. & Trans. Auth., Hwy. Rev., Ser. W Baa1
5.50 7/01/13 11,000 10,735,120
Puerto Rico Pub. Bldgs. Auth. Rev. Gtd., Gov't. Facs.,
Ser. A, A.M.B.A.C. Aaa
6.25 7/01/15 2,050 2,286,304
Puerto Rico Tel. Auth. Rev.,
Ser. I, M.B.I.A. Aaa
6.748 (e) 1/25/07 7,875 8,219,531
Ser. I, M.B.I.A. Aaa
6.931 (e) 1/16/15 900 878,625
Suffolk Cnty. Ind. Dev. Agcy., Southwest Swr. Sys. Rev.,
F.G.I.C. Aaa
6.00 2/01/07 1,000 1,103,720
Suffolk Cnty. Wtr. Auth. Rev., Ser. W AAA(c)
6.80 6/01/12 1,740 (d) 2,029,136
Suffolk Cnty. Wtr. Auth., Waterworks Rev., M.B.I.A. Aaa
6.00 6/01/09 5,160 5,681,624
Triborough Bridge & Tunl. Auth. Rev., Ser. A, M.B.I.A. Aaa
6.00 1/01/10 2,000 2,185,300
------------
Total long-term investments (cost $287,957,371)
303,938,198
------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5 -----
<PAGE>
Portfolio of Investments as
of February 29, 1996 PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) NEW YORK SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
SHORT-TERM INVESTMENTS--0.7%
New York St. Energy Resch. & Dev. Auth. Rev.,
Niagara Mohawk Pwr. Corp., Ser. 85A, F.R.D.D. A-1+(c)
3.50% 3/01/96 $ 600 $ 600,000
Niagara Mohawk Pwr. Corp., Ser. 85B, F.R.D.D. P-1
3.40 3/01/96 900 900,000
Niagara Mohawk Pwr. Corp., Ser. 86A, F.R.D.D. P-1
3.50 3/01/96 200 200,000
Port Auth. of New York & New Jersey, Ser. 93, F.R.D.D. VMIG1
3.10 3/01/96 400 400,000
------------
Total short-term investments (cost $2,100,000)
2,100,000
------------
Total Investments--93.6%
(cost $290,057,371; Note 4)
306,038,198
Other assets in excess of liabilities--6.4%
21,045,403
------------
Net Assets--100%
$327,083,601
------------
------------
</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 Corporation.
(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) 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.
NR--Not Rated by Moody's or Standard & Poor's.
- --------------------------------------------------------------------------------
- ----- 6 See Notes to Financial Statements.
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) NEW YORK SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
February 29, 1996
-----------------
<S>
<C>
Investments, at value (cost
$290,057,371)................................................................
$ 306,038,198
Cash.........................................................................
............................ 58,571
Receivable for investments
sold..........................................................................
18,996,112
Interest
receivable...................................................................
................... 3,274,580
Receivable for Series shares
sold........................................................................
218,899
Prepaid expenses and other
assets........................................................................
6,978
-----------------
Total
assets.......................................................................
................... 328,593,338
-----------------
Liabilities
Payable for Series shares
reacquired.....................................................................
1,064,572
Dividends
payable......................................................................
.................. 202,415
Management fee
payable......................................................................
............. 118,632
Distribution fee
payable......................................................................
........... 77,219
Accrued
expenses.....................................................................
.................... 44,579
Deferred trustee's
fees.........................................................................
......... 2,320
-----------------
Total
liabilities..................................................................
................... 1,509,737
-----------------
Net
Assets.......................................................................
........................ $ 327,083,601
-----------------
-----------------
Net assets were comprised of:
Shares of beneficial interest, at
par................................................................. $
268,985
Paid-in capital in excess of
par......................................................................
301,727,374
-----------------
301,996,359
Accumulated net realized gain on
investments..........................................................
9,106,415
Net unrealized appreciation on
investments............................................................
15,980,827
-----------------
Net assets, February 29,
1996............................................................................
$ 327,083,601
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($169,319,533 / 13,926,433 shares of beneficial interest issued and
outstanding)................... $12.16
Maximum sales charge (3% of offering
price)...........................................................
.38
-----------------
Maximum offering price to
public......................................................................
$12.54
-----------------
-----------------
Class B:
Net asset value, offering price and redemption price per share
($157,141,494 / 12,920,884 shares of beneficial interest issued and
outstanding)................... $12.16
-----------------
-----------------
Class C:
Net asset value, offering price and redemption price per share
($622,574 / 51,191 shares of beneficial interest issued and
outstanding)........................... $12.16
-----------------
-----------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7 -----
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW YORK SERIES
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income February 29, 1996
-----------------
<S> <C>
Income
Interest and discount earned............ $ 9,827,833
-----------------
Expenses
Management fee.......................... 821,951
Distribution fee--Class A............... 83,452
Distribution fee--Class B............... 403,329
Distribution fee--Class C............... 2,045
Transfer agent's fees and expenses...... 90,000
Custodian's fees and expenses........... 57,000
Registration fees....................... 22,000
Reports to shareholders................. 17,000
Legal fees and expenses................. 10,000
Audit fees and expenses................. 5,300
Trustees' fees.......................... 1,700
Miscellaneous........................... 6,482
-----------------
Total expenses....................... 1,520,259
Less: Management fee waiver............. (82,195)
Custodian fee credit................. (7,311)
-----------------
Net expenses......................... 1,430,753
-----------------
Net investment income...................... 8,397,080
-----------------
Realized and Unrealized Gain (Loss)
on Investments
Net realized gain on:
Investment transactions................. 10,847,054
Financial futures transactions.......... 606,156
-----------------
11,453,210
Net change in unrealized appreciation
(depreciation) on:
Investments............................. (3,261,531)
-----------------
Net gain on investments.................... 8,191,679
-----------------
Net Increase in Net Assets
Resulting from Operations.................. $16,588,759
-----------------
-----------------
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW YORK SERIES
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) February 29, August 31,
in Net Assets 1996 1995
------------ ------------
<S> <C> <C>
Operations
Net investment income.......... $ 8,397,080 $ 17,632,805
Net realized gain (loss) on
investment transactions..... 11,453,210 (425,049)
Net change in unrealized
appreciation (depreciation)
of investments.............. (3,261,531) 5,023,826
------------ ------------
Net increase in net assets
resulting from operations... 16,588,759 22,231,582
------------ ------------
Dividends and distributions (Note
1)
Dividends from net investment
income
Class A..................... (4,427,065) (5,367,852)
Class B..................... (3,957,305) (12,248,452)
Class C..................... (12,710) (16,501)
------------ ------------
(8,397,080) (17,632,805)
------------ ------------
Distributions from net realized
gains
Class A..................... (701,061) --
Class B..................... (645,835) --
Class C..................... (2,246) --
------------ ------------
(1,349,142) --
------------ ------------
Series share transactions (net of
share conversions) (Note 5)
Net proceeds from shares
sold........................ 9,983,020 18,761,553
Net asset value of shares
issued in reinvestment of
dividends and
distributions............... 5,848,395 10,361,213
Cost of shares reacquired...... (22,157,251) (52,939,335)
------------ ------------
Net decrease in net assets from
Series share transactions... (6,325,836) (23,816,569)
------------ ------------
Total increase (decrease)......... 516,701 (19,217,792)
Net Assets
Beginning of period............... 326,566,900 345,784,692
------------ ------------
End of period..................... $327,083,601 $326,566,900
------------ ------------
------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
- ----- 8 See Notes to Financial Statements.
<PAGE>
Notes to Financial Statements PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) 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
fourteen 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 February 29, 1996.
Securities Transactions and Net 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. Expenses
are recorded on the accrual basis which may require the use of certain estimates
by management.
Net investment income (other than distribution fees), and unrealized and
realized gains or losses are allocated daily to each class of shares based upon
the relative proportion of net assets of each class at the beginning of the day.
Federal Income Taxes: 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.
Custody Fee Credits: The Fund has an arrangement with its custodian bank,
whereby uninvested monies earn credits which reduce the fees charged by the
custodian.
- --------------------------------------------------------------------------------
9 -----
<PAGE>
Notes to Financial Statements PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) 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. PMF has agreed
to waive a portion (.05 of 1% of the Series' average daily net assets) of its
management fee, which amounted to $82,195 ($0.003 per share for the six months
ended February 29, 1996). The Series is not required to reimburse PMF for such
waiver.
The Fund had a distribution agreement with Prudential Mutual Fund Distributors,
Inc. (``PMFD''), which acted as the distributor of the Class A shares of the
Fund through January 1, 1996. Effective January 2, 1996, Prudential Securities
Incorporated (``PSI'') became distributor of the Class A shares of the Fund and
is serving the Fund under the same terms and conditions as under the arrangement
with PMFD. PSI is also the distributor of the Class B and Class C shares of the
Fund. The Fund compensated PMFD and PSI for distributing and servicing the
Fund's Class A, Class B, and Class C shares, pursuant to plans of distribution,
(the ``Class A, B and C plans'') regardless of expenses actually incurred by
them. The distribution fees are accrued daily and payable monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates PSI, and PMFD for
the period September 1, 1995 through January 1, 1996 with respect to Class A
shares, for distribution-related activities at an annual rate of up to .30 of
1%, .50 of 1% and 1%, of the average daily net assets of the Class A, B and C
shares, respectively. Such expenses under the Plans were .10 of 1%, .50 of 1%
and .75 of 1% of the average daily net assets of the Class A, B and C shares,
respectively, for the six months ended February 29, 1996.
PMFD and PSI have advised the Series that they have received approximately
$21,500 in front-end sales charges resulting from sales of Class A shares during
the six months ended February 29, 1996. From these fees, PMFD and PSI paid such
sales charges to Pruco Securities Corporation, an affiliated broker-dealer,
which in turn paid commissions to salespersons and incurred other distribution
costs.
PSI has advised the Series that for the six months ended February 29, 1996, it
received approximately $174,900 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 six months ended February
29, 1996, the Series incurred fees of approximately $64,600 for the services of
PMFS. As of February 29, 1996, approximately $10,700 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 six months ended February 29, 1996 were $168,356,817 and
$172,039,744, respectively.
The cost basis of investments for federal income tax purposes at February 29,
1996 was substantially the same as for financial reporting purposes and,
accordingly, net unrealized appreciation on investments for federal income tax
purposes was $15,980,827 (gross unrealized appreciation--$16,924,912, gross
unrealized depreciation--$944,085).
The Series utilized its capital loss carryforward of approximately $1,041,800
to
offset the Series net taxable gains realized and recognized during the six
months ended February 29, 1996.
- --------------------------------------------------------------------------------
- ----- 10
<PAGE>
Notes to Financial Statements PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) NEW YORK SERIES
- --------------------------------------------------------------------------------
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%. 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 six months ended February
29, 1996 and the year ended August 31, 1995 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ---------------------------------- ----------- -------------
<S> <C> <C>
Six months ended February 29,
1996:
Shares sold....................... 135,890 $ 1,650,942
Shares issued in reinvestment of
dividends and distributions..... 258,850 3,149,064
Shares reacquired................. (788,697) (9,596,543)
----------- -------------
Net decrease in shares outstanding
before conversion............... (393,957) (4,796,537)
Shares issued upon conversion from
Class B......................... 630,825 7,828,214
----------- -------------
Net increase in shares
outstanding..................... 236,868 $ 3,031,677
----------- -------------
----------- -------------
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
----------- -------------
----------- -------------
<CAPTION>
Class B Shares Amount
- ---------------------------------- ----------- -------------
<S> <C> <C>
Six months ended February 29,
1996:
Shares sold....................... 677,476 $ 8,260,433
Shares issued in reinvestment of
dividends and distributions..... 220,825 2,686,294
Shares reacquired................. (1,031,317) (12,558,579)
----------- -------------
Net decrease in shares outstanding
before conversion............... (133,016) (1,611,852)
Shares issued upon conversion into
Class A......................... (630,825) (7,828,214)
----------- -------------
Net decrease in shares
outstanding..................... (763,841) $ (9,440,066)
----------- -------------
----------- -------------
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)
----------- -------------
----------- -------------
<CAPTION>
Class C
- ----------------------------------
<S> <C> <C>
Six months ended February 29,
1996:
Shares sold....................... 5,850 $ 71,645
Shares issued in reinvestment of
dividends and distributions..... 1,071 13,037
Shares reacquired................. (174) (2,129)
----------- -------------
Net increase in shares
outstanding..................... 6,747 $ 82,553
----------- -------------
----------- -------------
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
----------- -------------
----------- -------------
</TABLE>
- --------------------------------------------------------------------------------
11 -----
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) NEW YORK SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
- -----------------------------------------------------------------------
Six Months
Ended Year Ended
August 31,
February 29,
- ------------------------------------------------------
1996 1995 1994 1993
1992 1991
------------ -------- -------
- ------- ------ ------
<S> <C> <C> <C> <C>
<C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period................ $ 11.91 $ 11.71 $ 12.54 $
11.75 $11.08 $10.62
------------ -------- -------
- ------- ------ ------
Income from investment
operations
Net investment income....... .32(a) .66(a) .67
.70 .71 .72
Net realized and unrealized
gain (loss) on investment
transactions............. .32 .20 (.83)
.79 .67 .46
------------ -------- -------
- ------- ------ ------
Total from investment
operations............ .64 .86 (.16)
1.49 1.38 1.18
------------ -------- -------
- ------- ------ ------
Less distributions
Dividends from net
investment income........ (.32) (.66) (.67)
(.70) (.71) (.72)
Distributions from net
realized gains........... (.07) -- --
- -- -- --
------------ -------- -------
- ------- ------ ------
Total distributions...... (.39) (.66) (.67)
(.70) (.71) (.72)
------------ -------- -------
- ------- ------ ------
Net asset value, end of
period................... $ 12.16 $ 11.91 $ 11.71 $
12.54 $11.75 $11.08
------------ -------- -------
- ------- ------ ------
------------ -------- -------
- ------- ------ ------
TOTAL RETURN(b):............ 5.26% 7.70% (1.38)%
13.06% 12.73% 11.49%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).................... $169,320 $163,025 $13,661
$11,821 $6,057 $2,729
Average net assets (000).... $167,820 $ 95,024 $13,454 $
8,755 $4,024 $1,579
Ratios to average net
assets:
Expenses, including
distribution fees..... .68%(a)/(c) .69%(a) .74%
.74% .74% .71%
Expenses, excluding
distribution fees..... .58%(a)/(c) .59%(a) .64%
.64% .64% .61%
Net investment income.... 5.31%(a)/(c) 5.65%(a) 5.46%
5.78% 6.19% 6.61%
Portfolio turnover rate..... 54% 57% 49%
44% 45% 78%
</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 revenues for periods of less than a full year are not annualized.
(c) Annualized.
- --------------------------------------------------------------------------------
- ----- 12 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) NEW YORK SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
Class B
------------
- --------------------------------------------------------------------------------
Six Months
Six Months
Ended Year Ended
August 31, Ended
February 29,
- ------------------------------------------------------------ February 29,
1996 1995 1994
1993 1992 1991 1996
------------ -------- --------
- -------- -------- -------- ----------
<S> <C> <C> <C> <C>
<C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period................ $ 11.91 $ 11.71 $ 12.54 $
11.75 $ 11.08 $ 10.62 $11.91
------------ -------- --------
- -------- -------- -------- ----------
Income from investment
operations
Net investment income....... .29(a) .61(a) .62
.65 .66 .67 .28(a)
Net realized and unrealized
gain (loss) on investment
transactions............. .32 .20 (.83)
.79 .67 .46 .32
------------ -------- --------
- -------- -------- -------- ----------
Total from investment
operations............ .61 .81 (.21)
1.44 1.33 1.13 .60
------------ -------- --------
- -------- -------- -------- ----------
Less distributions
Dividends from net
investment income........ (.29) (.61) (.62)
(.65) (.66) (.67) (.28)
Distributions from net
realized gains........... (.07) -- --
-- -- -- (.07)
------------ -------- --------
- -------- -------- -------- ----------
Total distributions (.36) (.61) (.62)
(.65) (.66) (.67) (.35)
------------ -------- --------
- -------- -------- -------- ----------
Net asset value, end of
period................... $ 12.16 $ 11.91 $ 11.71 $
12.54 $ 11.75 $ 11.08 $12.16
------------ -------- --------
- -------- -------- -------- ----------
------------ -------- --------
- -------- -------- -------- ----------
TOTAL RETURN(b):............ 5.13% 7.27% (1.77)%
12.61% 12.32% 10.96% 5.00%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).................... $157,141 $163,013 $331,982
$358,607 $316,472 $293,942 $ 623
Average net assets (000).... $162,218 $230,033 $350,564
$330,823 $303,016 $295,285 $ 548
Ratios to average net
assets:
Expenses, including
distribution fees..... 1.08%(a)/(c) 1.11%(a) 1.14%
1.14% 1.14% 1.11% 1.33%(a)/(c)
Expenses, excluding
distribution fees..... .58%(a)/(c) .61%(a) .64%
.64% .64% .61% .58%(a)/(c)
Net investment income.... 4.91%(a)/(c) 5.30%(a) 5.06%
5.38% 5.79% 6.21% 4.66%(a)/(c)
Portfolio turnover rate..... 54% 57% 49%
44% 45% 78% 54%
<CAPTION>
August 1,
Year 1994(d)
Ended Through
August 31, August 31,
1995 1994
<S> <C> <C>
----- -----
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning
of period................ $11.71 $11.74
----- -----
Income from investment
operations
Net investment income....... .58(a) .04
Net realized and unrealized
gain (loss) on investment
transactions............. .20 (.03)
----- -----
Total from investment
operations............ .78 .01
----- -----
Less distributions
Dividends from net
investment income........ (.58) (.04)
Distributions from net
realized gains........... -- --
----- -----
Total distributions (.58) (.04)
----- -----
Net asset value, end of
period................... $11.91 $11.71
----- -----
----- -----
TOTAL RETURN(b):............ 7.01% 0.06%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).................... $ 529 $ 142
Average net assets (000).... $ 325 $ 42
Ratios to average net
assets:
Expenses, including
distribution fees..... 1.36%(a) 1.62%(c)
Expenses, excluding
distribution fees..... .61%(a) .87%(c)
Net investment income.... 5.05%(a) 5.17%(c)
Portfolio turnover rate..... 57% 49%
</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.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 13 -----
<PAGE>
Getting The Most From Your Prudential Mutual Fund
How many times have you read these letters -- or other financial materials
- -- and stumbled across a word that you don't understand?
Many shareholders have run into the same problem. We'd like to help. So we'll
use this space from time to time to explain some of the words you might have
read, but not understood. And if you have a favorite word that no one can
explain to your satisfaction, please write to us.
Basis Point: One 1/100th of 1%. For example, one half of one percentage point
is 50 basis points.
Call Option: A contract giving the holder a right to buy stocks or bonds at a
predetermined price (called the strike price) before a predetermined expiration
date. A buyer of a call option generally expects to benefit from a rise in the
price of the stock or bond.
Capital Gain/Capital Loss: The difference between the cost of a capital asset
(for example, a stock, bond or mutual fund share) and its selling price. Under
current law the federal income tax rate for individuals on a long-term capital
gain is 28%.
Collateralized Mortgage Obligations (CMOs): Pools of mortgage-backed securities
sliced in maturity ranges that bear differing interest rates. These instruments
are sensitive to changes in interest rates and homeowner refinancing activity.
They are subject to prepayment and maturity extension risk.
Derivatives: Securities that derive their value from another security. The rate
of return of these financial products rises and falls -- sometimes very
suddenly -- in response to changes in some specific interest rate, currency,
stock or other variable.
Discount Rate: The interest rate charged by the Federal Reserve on loans to
banks and other depository institutions.
Federal Funds Rate: The interest rate charged by one bank to another on
overnight loans.
Futures Contract: An agreement to deliver a specific amount of a commodity or
financial instruments at a set price at a stipulated time in the future.
Leverage: The use of borrowed assets to enhance return on equity. The
expectation is that the interest rate charged will be lower than the return on
the investment. While leverage can increase profits, it can also magnify losses.
Liquidity: The ease with which a financial instrument (or mutual fund) can be
bought or sold (converted into cash) in the financial markets.
Option: An agreement to buy or sell something, such as shares of stock, by a
certain time for a specified price. An option need not be exercised. In fact,
most expire unexercised.
Price/Earnings Ratio: The price of a share of stock divided by the earnings
per share for a 12-month period.
Spread: The difference between two values; most often used to describe the
difference between prices bid and asked for a security.
Yankee Bond: A bond denominated in U.S. dollars but sold by a foreign company
or government in the U.S. market.
<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>
How Does Your State Stack Up?
Economic conditions vary from state to state. While one region may be
experiencing strong fiscal management and prosperity, another may languish
under the weight of declining industry or chronic state budget problems.
State economic conditions, fiscal management and interest rates play dominant
roles in the performance of individual municipal bonds. A strong economy
generally leads to higher tax revenues and other income sources for the state,
enabling it to more easily repay its debts. Additionally, sound state financial
management often results in high ratings from bond rating agencies. High ratings
are attractive to investors and can help bonds retain value in the market.
California
- - World's 8th largest economy.
- - Entertainment jobs growing.
- - Recovery continues, but growth is expected to be below the national average.
- - Increasing tax revenues may not cover soaring Medicaid costs.
Hawaii
- - Tourism provides 60% of jobs.
- - Strong financial management.
- - Slow recovery from early-1990s U.S. and Japanese recessions, which bit into
tourism and real estate.
- - Government eliminated 1,100 state jobs.
Ohio
- - Shift from manufacturing to service trades.
- - Economic and personal income growth ahead of national averages.
- - Debt is low.
Pennsylvania
- - Slowly rebuilding economy, but needs new engine of growth.
- - Debt as a percentage of personal income is half the national average.
- - Sound financial management.
Michigan
- - Economic growth is 3.5%, higher than national average.
- - Once car capital of the world, now more diversified.
- - Strengthening fiscal management.
Massachusetts
- - Painful cuts in defense and health care eliminated jobs.
- - Slowly rebuilding economy.
- - Personal income is high.
New York
- - High taxes restrain growth.
- - Personal income remains high.
- - Debt level is high.
- - Federal budget Medicaid reform impasses threaten planned budget savings.
Maryland
- - One of wealthiest states.
- - Personal income 115% ofnational average, but income growth has stabilized.
- - Good financial controls.
Florida
- - Economy and personal income growing much faster than national rate.
- - Unemployment and debt are low.
- - Ended 1995 with a budget surplus for the third year in a row.
Connecticut
- - Nation's wealthiest citizens.
- - Economically weak from defense cuts.
- - Slow growth -- recovery may take years.
- - Attempts at "quick fixes" won't provide permanent relief.
New Jersey
- - Broad-based economy and high personal wealth.
- - Economic growth slowing.
- - "Pro-business" tactics siphoned revenue, but may spur more growth.
North Carolina
- - Robust, model economy.
- - Personal income quicklygrowing.
- - Unemployment well below national average.
- - New jobs from financial services, research and high technology.
- - Strong financial management.
Source: Prudential Investment Corporation. Selected states are those for which
Prudential Mutual Fund Management manages a state-specific municipal bond
mutual fund
Revised: April, 1996
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
Internet Address:http:\\www.prudential.com
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 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 15005New Brunswick, NJ 08906
Independent Auditor
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
The views expressed in this report and information about the Series' portfolio
holdings are for the period covered by this report and are subject to change
thereafter.
The accompanying financial statements as of February 29, 1996 were not audited
and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
<PAGE>
(LOGO) BULK RATE
U.S. POSTAGE
Prudential Mutual Funds PAID
One Seaport Plaza Permit 6807
New York, NY 10292 New York, NY
Toll Free (800) 225-1852
74435M747
74435M754 MF122E2
74435M523 Cat# 6423327
(ICON)
Prudential
Municipal
Series
Fund
- ------------------
Michigan Series
SEMI
ANNUAL
REPORT
Feb. 29, 1996
(LOGO)
<PAGE>
Prudential Municipal Series Fund
Michigan Series
Performance At A Glance.
Lower interest rates and subdued inflation lifted tax-free municipal bond
prices higher over the past six months, continuing a trend that has been
in place for some time now. We're pleased to report that for the most
recent six-month period ended February 29, 1996 the Prudential Municipal
Series Fund -- Michigan Series performed better than the average Michigan
municipal bond fund, as measured by Lipper Analytical Services.
<TABLE>
Cumulative Total Returns1 As of 2/29/96
<CAPTION>
Six One Five Ten Since
Months Year Years Years Inception2
<S> <C> <C> <C> <C> <C>
Class A 5.7% 9.8% 47.7% N/A 59.4%
Class B 5.5 9.2 44.6 98.5% 161.0
Class C 5.4 9.0 N/A N/A 12.1
Lipper MI Muni Avg3 5.2 9.7 47.4 108.9 175.4
</TABLE>
<TABLE>
Average Annual Total Returns1 As of 3/31/96
<CAPTION>
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A 3.5% 6.9% N/A 6.9%
Class B 1.3 7.0 6.8% (6.7)4 8.5 (8.4)4
Class C 5.0 N/A N/A 5.7 (5.6)4
</TABLE>
<TABLE>
<CAPTION>
Dividends Taxable Equivalent
Yield5
& Yields Total Dividends 30-Day At Tax Rates Of
As of Paid for Six Mos. SEC Yield 36%
39.6%
2/29/96
<S> <C> <C> <C> <C>
Class A $0.31 4.43% (4.38)4 7.24% (7.16)4 7.67%
(7.59)4
Class B $0.29 4.16 (4.11)4 6.80 (6.72)4 7.20
(7.12)4
Class C $0.27 3.91 (3.86)4 6.39 (6.31)4 6.77
(6.68)4
</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 declining contingent deferred sales charge (CDSC) 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; 9/19/84, Class B; 8/1/94 Class C.
3The Lipper Michigan Municipal Bond fund average includes 48 funds for
six months, 40 funds for one year, 13 funds for five years, five funds
for 10 years and two funds since inception of the Class B shares on 9/19/84.
4Without waivers and expense subsidies the Series' average annual total
return/30-day SEC yield would have been lower, as indicated in
parentheses ( ).
5Taxable equivalent yields reflect federal and applicable state tax rates.
How Investments Compared.
(As of 2/29/96)
(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. The
returns assume the reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors have received
higher historical total returns from stocks than from most other
investments. Smaller capitalization stocks offer greater potential
for long-term growth but may be more volatile than larger capitalization
stocks.
General Bond Funds provide more income than stock funds, which can help
smooth out their total returns year by year. But their prices still
fluctuate (sometimes significantly) and their returns have been
historically lower than those of stock funds.
General Municipal Debt Funds invest in bonds issued by state governments,
state agencies and/or municipalities. This investment provides income that
is usually exempt from federal and state income taxes.
Money Market Funds attempt to preserve a constant share value; they
don't fluctuate much in price but historically their returns have
been generally among the lowest of the major investment categories.
*19 years for General Muni Debt Funds.
<PAGE>
Christian Smith, Fund Manager (PICTURE)
Portfolio
Manager's Report
The Series invests primarily in carefully-selected, long-term municipal
bonds that offer a high level of income that is exempt from Michigan
state and federal income taxes, while still attempting to preserve
capital. Certain shareholders may be subject to the federal alternative
minimum tax, however. There can be no assurance that the Series'
objective will be achieved.
Manager Named.
Christian Smith was appointed portfolio manager of the Prudential
Municipal Series Fund: Michigan Series in January. Chris manages nearly
$600 million in municipal portfolios, including two series of the
Prudential California Municipal Fund. He previously managed the
Michigan Series from 1991 to 1994.
Strategy Session.
Our strategy over the past six months was to take maximum advantage of
falling interest rates (and rising bond prices). And for most of the
past six months, conditions couldn't have been much better for municipal
bonds. Sluggish national economic growth pushed inflation lower and
interest rates down by nearly a half a percentage point, as measured
by The Bond Buyer Revenue Bond Index. Also, concern about tax reform
that held back price gains earlier in 1995 has now diminished.
While conditions over the past six months were ideal nationally for
municipal bonds, they were strong in Michigan as well. In fact,
recognizing improving conditions here in 1995, Moody's Investors
Service upgraded the state's credit rating to Aa from A1. Economic
growth in 1995 was a stunning 3.5%, well ahead of the national
average. Once known only as the home of the auto industry, Michigan's
economy today is truly diversified -- nearly 26% of its jobs are now
in the service sector.
The State of Michigan's financial performance has been impressive -- so
good that the government here is going to give its taxpayers a credit
on next year's income tax return. The state's Budget Stabilization Fund
(its savings account for a rainy day) is now approaching $1 billion.
And debt service as a percentage of personal income here is nearly a
third of the national average.
Sector Breakdown.
(PIE CHART)
<PAGE>
What Went Well.
You Can Call Us,
But Not Our Bonds.
Our investment in non-callable bonds was 16% of net assets and it
helped performance. When interest rates fall, municipalities often
prefer to "call" their bonds or repay the principal value of their
bonds early, so that they can refinance them at the now-lower rates.
That leaves income-hungry investors in the lurch -- with only
newly-issued lower coupon bonds to replace their called higher-yielding
holdings.
We had intentionally been focusing investments in non-callable bonds
because their prices tend to rise more than callable bond prices
when interest rates fall.
As The Market Rallied,
We Lengthened.
As part of our strategy to take maximum advantage of falling interest
rates, we also bought long-term bonds. Their prices rose dramatically
when rates fell. By buying these bonds late last summer, we substantially
lengthened our duration (a measure of sensitivity to interest rates).
Duration ended at 9.1 years on February 29, 1996, up from 7.8 years
on August 31, 1995. As a result, the Series benefited from the bond
market rally.
And Not So Well.
Not Lengthening Sooner.
Looking back, something we did right -- lengthening duration -- was
also something we could have done sooner. We began lengthening our
duration late last summer. If we had lengthened earlier -- when the
municipal bond rally began in the spring of 1995 -- our performance
would have been better. Why did we wait? We were wary of municipal
market volatility at the time. Tax-reform plans that would have
eliminated the tax exemption for municipal bond income were the
talk of Washington. If enacted, the longest-term municipal bonds
would have suffered most.
Five Largest Issuers.
5.0% Detroit Water Supply System
3.4% Michigan Trunk Line
3.3% Wyandotte Electric Revenue
3.3% Monroe County Pollution Control
3.2% Chippewa Valley Schools
Expressed as a percentage of total net assets as of 2/29/96.
Looking Ahead.
The Michigan municipal market looks good to us in 1996. Michigan's
strong credit rating and healthy economy, plus low interest rates
and subdued inflation nationally, make municipal bonds here quite
attractive.
What could go wrong? This is a presidential election year and resurfacing
talk of flat taxes and other types of income tax reform could roil the
municipal bond market. Volatility and election year politics seem to
go hand-in-hand.
1
<PAGE>
President's Letter April 5, 1996
(PICTURE)
Dear Shareholder:
For many investors, 1995 was a profitable year -- most stock and bond
funds enjoyed healthy returns from the U.S. markets. While climbing
returns can tempt even the most skittish investors to start buying
again, it is important to remember that the stock and bond markets go
down just as they go up. At times like these, remember the importance
of working with your Financial Advisor or Registered Representative to
help you find investments that are consistent with your risk tolerance
and time horizon. Your Financial Advisor or Registered Representative
can help you maintain realistic expectations about both the potential
performance and risks associated with your investments.
Shareholder Legislative Action Program.
From time to time we've been informing you about significant legislation
before Congress, such as the American Dream Savings Account, that may
potentially impact mutual fund investors. We want to make it easier
for you to share your views with your Congressional member. So,
beginning in 1996, whenever Congress is considering legislation
that would affect you, we'll send you postage-paid message cards
that you simply drop in the mail if you want to let your senator or
representative know how you want him or her to vote.
Fund Profiles.
Over the past year, we've worked to make your shareholder reports more
interesting, informative and easy to read. This year, we'll be
considering "fund profiles." Some mutual fund companies now offer one
to shareholders along with a full prospectus. The purpose of a fund
profile is to provide a very brief, reader-friendly summary of a fund's
objective, investments, risks and expenses. Would you like to see fund
profiles from us? Please call your Financial Advisor or Registered
Representative to share your views.
As always, thank you for your confidence in Prudential Mutual Funds.
Sincerely,
Richard A. Redeker
President
2
<PAGE>
<TABLE>
Portfolio of Investments as of February 29, 1996 PRUDENTIAL MUNICIPAL
SERIES FUND
(Unaudited) MICHIGAN SERIES
- --------------------------------------------------------------------------------
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
LONG-TERM INVESTMENTS--97.9%
- -----------------------------------------------------------------------------
- -------------------------------------------------
Adams Twnshp. Michigan Sch. Dist. Gen. Oblig., A.M.B.A.C. Aaa
6.60% 5/01/24 $ 1,000 $ 1,107,790
Arpt. Michigan Comm. Sch. Dist., A.M.B.A.C. Aaa
5.125 5/01/22 1,535 1,441,365
Breitung Twnshp. Sch. Dist. Rev., Gen. Oblig., M.B.I.A. Aaa
6.30 5/01/15 250 267,570
Canton Charter Twnshp. Bldg. Auth.,
Wayne Cnty. Golf Course, F.S.A. Aaa
4.75 1/01/11 450 421,240
Wayne Cnty. Golf Course, F.S.A. Aaa
4.75 1/01/12 450 418,190
Wayne Cnty. Golf Course, F.S.A. Aaa
4.75 1/01/13 500 460,675
Wayne Cnty. Golf Course, F.S.A. Aaa
4.75 1/01/14 500 457,155
Central Michigan Univ. Rev. A
7.00 10/01/10 700 (f) 792,883
Chippewa Valley Sch. Dist., F.G.I.C. Aaa
5.00 5/01/21 2,400 2,218,872
Detroit Econ. Dev. Corp., Res. Rec. Rev., Ser. A, F.S.A. Aaa
6.875 5/01/09 1,000 1,099,930
Detroit Sewage Disp. Rev.,
Ser. 1993 A, F.G.I.C. Aaa
7.567 (d) 7/01/23 1,000 975,000
Ser. A, M.B.I.A. Aaa
5.00 7/01/25 1,335 1,229,148
Detroit St. Aid, Gen. Oblig., Baa
5.625 5/01/97 1,500 1,529,445
Detroit Wtr. Supply Sys. Rev.,
F.G.I.C. Aaa
4.75 7/01/19 1,000 895,960
F.G.I.C. Aaa
5.00 7/01/23 1,250 1,153,762
Ser. A, M.B.I.A. Aaa
5.55 7/01/12 325 333,067
Ser. B, M.B.I.A. Aaa
5.55 7/01/12 1,000 1,024,820
Dickinson Cnty. Mem. Hosp. Sys. Rev. Ba1
8.00 11/01/14 1,000 1,069,880
Ferris St. Univ. Gen. Rev., A.M.B.A.C. Aaa
5.80 10/01/05 440 476,758
Grand Ledge Public Sch. Dist., M.B.I.A. Aaa
5.375 5/01/24 1,480 1,441,135
Grand Rapids San. Swr. Sys. Rev. A1
7.00 1/01/16 500 545,150
Guam Pwr. Auth. Rev., Ser. A BBB(c)
6.625 10/01/14 1,000 1,039,650
Holland Sch. Dist., A.M.B.A.C. Aaa
Zero 5/01/15 2,400 818,712
Huron Valley Sch. Dist., Gen. Oblig., F.G.I.C. Aaa
Zero 5/01/10 3,500 1,611,120
Jackson Cnty., Hosp. Fin. Auth. Rev., Ser. A, F.G.I.C. Aaa
5.25 6/01/23 1,500 1,414,935
Kent Hosp. Fac. Fin. Auth. Rev., Blodgette Mem. Med. Ctr.,
Ser. A A
7.25 7/01/05 500 541,265
Kirtland Comm. College Dist., Gen. Oblig., M.B.I.A. Aaa
4.625 5/01/16 1,025 918,738
Mason Public Sch. Dist., Gen. Oblig., F.G.I.C. Aaa
5.40 5/01/21 2,000 1,956,760
Michigan Higher Ed., Student Loan Auth. Rev., Ser. XIII-A,
M.B.I.A. Aaa
7.55 10/01/08 500 528,310
Michigan Pub. Pwr. Agcy. Rev.,
Belle River Proj., Ser. A A1
5.00 1/01/19 1,000 914,710
Belle River Proj., Ser. B A1
5.25 1/01/18 1,250 1,187,613
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3 -----
<PAGE>
<PAGE>
<TABLE>
Portfolio of Investments as of February 29, 1996 PRUDENTIAL MUNICIPAL
SERIES FUND
(Unaudited) MICHIGAN SERIES
- --------------------------------------------------------------------------------
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Michigan St. Hosp. Fin. Auth. Rev.,
Bay Med. Ctr., Ser. A Baa1
8.25% 7/01/12 $ 2,000 $ 2,159,340
Henry Ford Hosp. Aaa
9.00 5/01/08 2,340 (f) 3,092,591
Hosp. Genesys Hlth. Sys. Baa
8.125 10/01/21 1,000 1,106,030
Hosp. Genesys Hlth. Sys. Baa
7.50 10/01/27 500 525,935
Hosp. Pontiac Osteopathic, Ser. A Baa1
6.00 2/01/24 900 820,314
Michigan St. Hsg. Dev. Auth. Rev.,
Multifamily Mtge. Insured Hsg., Ser. A A+(c)
7.15 4/01/10 810 859,175
Multifamily Mtge. Insured Hsg., Ser. A A+(c)
7.70 4/01/23 500 533,495
Sngl. Fam. Mtge., Ser. A AA+(c)
7.70 12/01/16 370 387,793
Michigan St. Strategic Fund Ltd. Obligated Rev., Waste
Mgmt. Inc. Proj., A1
6.625 12/01/12 2,000 2,158,340
Michigan St. Trunk Line Hwy.,
Ser. A, A.M.B.A.C. Aaa
Zero 10/01/05 2,600 1,613,196
Ser. A, A.M.B.A.C. Aaa
Zero 10/01/06 1,250 730,337
Michigan St. Univ. Rev. Ser. A, A.M.B.A.C. Aaa
5.125 2/15/16 1,000 959,550
Monroe Cnty. Poll. Ctrl. Rev., Detroit Edison Co., F.G.I.C. Aaa
7.65 9/01/20 2,000 (e) 2,248,640
Mt. Pleasant Wtr. Rev., Wtr. & Swr.,
M.B.I.A. Aaa
5.00 2/01/22 520 480,912
M.B.I.A. Aaa
4.00 2/01/23 550 431,557
M.B.I.A. Aaa
4.00 2/01/24 585 457,031
Oak Park, Gen. Oblig.,
A.M.B.A.C. Aaa
7.00 5/01/11 375 (f) 432,128
A.M.B.A.C. Aaa
7.00 5/01/12 400 (f) 460,936
Oakland Univ. Rev., Gen. Oblig., M.B.I.A. Aaa
5.75 5/15/26 1,400 1,412,530
Pine River Area Schs. Aa
5.70 5/01/21 500 505,725
Posen Cons. Sch. Dist., Sch. Dist. No. 9, M.B.I.A. Aaa
6.75 5/01/22 1,000 (f) 1,149,430
Puerto Rico Commonwlth. Hwy. Auth. Rev.,
Ser. Q Baa1
7.75 7/01/16 1,500(e)(f) 1,741,290
Puerto Rico Commonwlth. Gen. Oblig., M.B.I.A. Aaa
7.884 (d) 7/01/08 1,000 1,098,750
Puerto Rico Elec. Pwr. Auth. Rev., Ser. N Baa1
7.125 7/01/14 920 1,005,017
Puerto Rico Ind., Tourist, Edu., Med. & Envir. Ctrl. Facs.,
M.B.I.A. Aaa
6.25 7/01/24 1,000 1,070,660
Saginaw Valley St. Univ. Gen. Rev., M.B.I.A. Aaa
5.375 7/01/16 790 773,205
St. Clair Cnty., Wtr. Supply Sys. No. VII, IRA Township,
A.M.B.A.C. Aaa
5.25 7/01/15 1,000 971,540
Univ. of Michigan Rev.,
Ser. A Aa1
6.00 4/01/05 745 821,146
Ser. B Aa1
6.00 4/01/05 275 303,108
Pkg. Sys. Rfdg. Aa
5.00 6/01/15 500 477,925
</TABLE>
- --------------------------------------------------------------------------------
- ----- 4 See Notes to Financial Statements.
<PAGE>
<TABLE>
Portfolio of Investments as of February 29, 1996 PRUDENTIAL MUNICIPAL
SERIES FUND
(Unaudited) MICHIGAN SERIES
- --------------------------------------------------------------------------------
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Virgin Islands Wtr. & Pwr. Auth., Elec. Sys. Rev., Ser. A NR
7.40% 7/01/11 $ 500 $ 539,290
Warren Cons. Sch. Dist., Consolidated Sch. Dist., Ser. II,
F.G.I.C. Aaa
5.25 5/01/21 1,000 955,580
Wayne Cnty. Arpt. Rev., M.B.I.A. Aaa
6.125 12/01/24 500 517,265
Wayne Cnty. Bldg. Auth., Ser. A Baa
8.00 3/01/17 1,250(e)(f) 1,495,675
Western Michigan Univ. Gen. Rev., F.G.I.C. Aaa
5.00 7/15/21 500 460,855
Wyandotte Elec. Rev., M.B.I.A. Aaa
6.25 10/01/08 2,000 2,259,380
-----------
Total long-term investments (cost $62,694,988)
67,307,279
SHORT-TERM INVESTMENTS--2.5%
Michigan Strategic Fund Ltd. Obligation Rev. F.R.D.D.,
Ser.92 P1
3.70 3/01/96 1,100 1,100,000
Michigan Strategic Fund Poll. Ctrl. Rev., Consumers Pwr.
Proj., F.R.D.D., Ser. 88A P1
3.35 3/01/96 100 100,000
Midland Cnty. Econ. Dev. Auth., Dow Chemical Co. Proj.,
F.R.D.D., Ser. 93A P1
3.50 3/01/96 500 500,000
-----------
Total short-term investments (cost $1,700,000)
1,700,000
-----------
Total Investments--100.4%
(cost $64,394,988; Note 4)
69,007,279
Liabilities in excess of other assets--(0.4)%
(244,466)
-----------
Net Assets--100%
$68,762,813
-----------
-----------
</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 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 Corporation.
(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 period end.
(e) Pledged as initial margin on financial futures contracts.
(f) Prerefunded issues are secured by escrowed cash and/or direct U.S.
guaranteed obligations.
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>
Statement of Assets and Liabilities PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) MICHIGAN SERIES
- --------------------------------------------------------------------------------
<TABLE>
<S>
<C>
Assets
February 29, 1996
Investments, at value (cost
$64,394,988)..................................................................
$69,007,279
Cash.........................................................................
............................. 82,078
Interest
receivable...................................................................
.................... 1,038,436
Receivable for Fund shares
sold...........................................................................
1,087
Other
assets.......................................................................
....................... 1,234
-----------------
Total
assets.......................................................................
.................... 70,130,114
-----------------
Liabilities
Payable for investments
purchased....................................................................
..... 966,080
Payable for Fund shares
reacquired...................................................................
..... 257,425
Accrued
expenses.....................................................................
..................... 58,375
Dividends
payable......................................................................
................... 39,532
Management fee
payable......................................................................
.............. 24,876
Distribution fee
payable......................................................................
............ 18,693
Deferred trustee's
fees.........................................................................
.......... 2,320
-----------------
Total
liabilities..................................................................
.................... 1,367,301
-----------------
Net
Assets.......................................................................
......................... $68,762,813
-----------------
-----------------
Net assets were comprised of:
Shares of beneficial interest, at
par..................................................................
$ 56,858
Paid-in capital in excess of
par.......................................................................
63,795,445
-----------------
63,852,303
Accumulated net realized gain on
investments...........................................................
298,219
Net unrealized appreciation on
investments.............................................................
4,612,291
-----------------
Net assets, February 29,
1996.........................................................................
.... $68,762,813
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($27,870,668 / 2,303,563 shares of beneficial interest issued and
outstanding)...................... $12.10
Maximum sales charge (3% of offering
price)............................................................
.37
-----------------
Maximum offering price to
public.......................................................................
$12.47
-----------------
-----------------
Class B:
Net asset value, offering price and redemption price per share
($40,795,982 / 3,374,282 shares of beneficial interest issued and
outstanding)...................... $12.09
-----------------
-----------------
Class C:
Net asset value, offer price and redemption price per share
($96,163 / 7,954 shares of beneficial interest issued and
outstanding).............................. $12.09
-----------------
-----------------
</TABLE>
- --------------------------------------------------------------------------------
- ----- 6 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MICHIGAN SERIES
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Six Months
Ended
February 29,
Net Investment Income 1996
---------------
Income
Interest................................. $ 2,083,216
---------------
Expenses
Management fee........................... 171,947
Distribution fee--Class A................ 13,694
Distribution fee--Class B................ 103,277
Distribution fee--Class C................ 303
Custodian's fees and expenses............ 44,500
Transfer agent's fees and expenses....... 33,000
Registration fees........................ 19,000
Reports to shareholders.................. 15,000
Audit fees and expenses.................. 5,300
Legal fees and expenses.................. 5,000
Trustees' fees and expenses.............. 1,700
Miscellaneous............................ 3,319
---------------
Total expenses........................ 416,040
Less: Management fee waiver.............. (17,195)
Custodian fee credit................. (2,908)
---------------
Net expenses.......................... 395,937
---------------
Net investment income....................... 1,687,279
---------------
Realized and Unrealized
Gain on Investments
Net realized gain on:
Investment transactions.................. 555,126
Financial futures contract
transactions.......................... 11,375
---------------
566,501
---------------
Net change in unrealized appreciation on:
Investments.............................. 1,499,514
Financial futures contracts.............. 17,500
---------------
1,517,014
---------------
Net gain on investments..................... 2,083,515
---------------
>Net Increase in Net Assets
Resulting from Operations................... $ 3,770,794
---------------
---------------
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
MICHIGAN SERIES
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) February 29, August 31,
in Net Assets 1996 1995
<S> <C> <C>
Operations
Net investment income...... $ 1,687,279 $ 3,534,666
Net realized gain on
investment
transactions............ 566,501 845,031
Net change in unrealized
appreciation/depreciation
of investments.......... 1,517,014 (108,362)
----------------- ------------
Net increase in net assets
resulting from
operations.............. 3,770,794 4,271,335
----------------- ------------
Dividends and distributions
(Note 1):
Dividends from net
investment income
Class A................. (704,718) (898,307)
Class B................. (980,750) (2,633,512)
Class C................. (1,811) (2,847)
----------------- ------------
(1,687,279) (3,534,666)
----------------- ------------
Distributions from net
realized gains
Class A................. (352,641) (12,146)
Class B................. (514,059) (177,027)
Class C................. (412) (43)
----------------- ------------
(867,112) (189,216)
----------------- ------------
Series share transactions (net
of share conversions) (Note
5):
Net proceeds from shares
sold.................... 1,366,523 4,796,012
Net asset value of shares
issued in reinvestment
of dividends and
distributions........... 1,659,514 2,351,573
Cost of shares
reacquired.............. (4,063,240) (13,930,082)
----------------- ------------
Net decrease in net assets
from Series share
transactions............ (1,037,203) (6,782,497)
----------------- ------------
Total increase (decrease)..... 179,200 (6,235,044)
Net Assets
Beginning of period........... 68,583,613 74,818,657
----------------- ------------
End of period................. $68,762,813 $ 68,583,613
----------------- ------------
----------------- ------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7 -----
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) 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
fourteen 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 Net 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 accretes original issue
discount on portfolio securities as adjustments to interest income. Expenses are
recorded on the accrual basis which may require the use of certain estimates by
management.
Net investment income (other than distribution fees) and unrealized and realized
gains or losses are allocated daily to each class of shares based upon the
relative proportion of net assets of each class at the beginning of the day.
Federal Income Taxes: 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, 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.
Custody Fee Credits: The Fund has an arrangement with its custodian bank,
whereby uninvested monies earn credits which reduce the fees charged by the
custodian.
- --------------------------------------------------------------------------------
- ----- 8
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) MICHIGAN 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. PMF has agreed
to waive a portion (.05 of 1% of the Series' average daily net assets) of its
management fee, which amounted to $17,195 ($0.003 per share for Class A, B and
C
shares; .02% of average net assets) until further notice. The Series is not
required to reimburse PMF for such waiver.
The Fund had a distribution agreement with Prudential Mutual Fund Distributors,
Inc. (``PMFD''), which acted as the distributor of the Class A shares of the
Fund through January 1, 1996. Effective January 2, 1996, Prudential Securities
Incorporated (``PSI''), became the distributor of the Class A shares of the Fund
and is serving the Fund under the same terms and conditions as under the
arrangement with PMFD. PSI is also the distributor of the Class B and Class C
shares of the Fund. The Fund compensated PMFD and PSI for distributing and
servicing the Fund's Class A, Class B and Class C shares, pursuant to plans of
distribution (the ``Class A, B and C Plans'') regardless of expenses actually
incurred by them. The distribution fees are accrued daily and payable monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates PSI, and PMFD for
the period September 1, 1995 through January 1, 1996 with respect to Class A
shares, for distribution-related activities at an annual rate of up to .30 of
1%, .50 of 1% and 1%, of the average daily net assets of the Class A, B and C
shares, respectively. Such expenses under the Plans were .10 of 1%, .50 of 1%
and .75 of 1% of the average daily net assets of the Class A, B and C shares,
respectively, for the six months ended February 29, 1996.
PMFD and PSI has advised the Series that it has received approximately $4,800
in
front-end sales charges resulting from sales of Class A shares during the six
months ended February 29, 1996. From these fees, PMFD and PSI paid such sales
charges to 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 six months ended February 29, 1996, it
received approximately $29,800 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 six months ended February
29, 1996, the Series incurred fees of approximately $18,600 for the services of
PMFS. As of February 29, 1996, 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 six months ended February 29, 1996 were $9,344,502 and
$10,613,414, respectively.
The cost basis of investments for federal income tax purposes is substantially
the same as for financial reporting purposes and, accordingly, as of February
29, 1996, net unrealized appreciation for federal income tax purposes was
$4,612,291 (gross unrealized appreciation--$4,673,909; gross unrealized
depreciation--$61,618).
- ------------------------------------------------------------
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. A special exchange privilege is also available for
shareholders who qualify to purchase Class A shares at net asset value.
- --------------------------------------------------------------------------------
9 -----
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) MICHIGAN 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 six months ended February 29, 1996 and the fiscal year ended
August 31, 1995 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------------ ---------- ------------
<S> <C> <C>
Six months ended February 29, 1996:
Shares sold......................... 21,112 $ 257,086
Shares issued in reinvestment of
dividends
and distributions................. 55,653 675,041
Shares reacquired................... (143,629) (1,738,455)
---------- ------------
Net decrease in shares outstanding
before conversion................. (66,864) (806,328)
Shares issued upon conversion from
Class B........................... 96,872 1,199,282
---------- ------------
Net increase in shares
outstanding....................... 30,008 $ 392,954
<CAPTION>
---------- ------------
---------- ------------
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>
Class B Shares Amount
- ------------------------------------ ---------- ------------
<S> <C> <C>
Six months ended February 29, 1996:
Shares sold......................... 85,979 $ 1,046,336
Shares issued in reinvestment of
dividends
and distributions................. 81,054 982,351
Shares reacquired................... (186,368) (2,252,862)
---------- ------------
Net decrease in shares outstanding
before conversion................. (19,335) (224,175)
Shares reacquired upon conversion
into Class A...................... (96,872) (1,199,282)
---------- ------------
Net decrease in shares
outstanding....................... (116,207) $ (1,423,457)
---------- ------------
---------- ------------
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)
---------- ------------
---------- ------------
<CAPTION>
Class C
- ------------------------------------
<S> <C> <C>
Six months ended February 29, 1996:
Shares sold......................... 5,181 $ 63,101
Shares issued in reinvestment of
dividends
and distributions................. 175 2,122
Shares reacquired................... (5,809) (71,923)
---------- ------------
Net decrease in shares
outstanding....................... (453) $ (6,700)
---------- ------------
---------- ------------
Year ended August 31, 1995:
Shares sold......................... 8,149 $ 93,001
Shares issued in reinvestment of
dividends and distributions....... 241 2,836
---------- ------------
Increase in shares outstanding...... 8,390 $ 95,837
---------- ------------
---------- ------------
</TABLE>
- --------------------------------------------------------------------------------
- ----- 10
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) MICHIGAN SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
- --------------------------------------------------------------------
Six Months
Ended Year Ended
August 31,
February 29,
- ---------------------------------------------------
1996 1995 1994
1993 1992 1991
------------ ------- ------
- ------ ------ ------
<S> <C> <C> <C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period......................... $ 11.89 $ 11.75 $12.51
$11.90 $11.30 $10.81
-------- ------- ------
- ------ ------ ------
Income from investment operations
Net investment income............. .31(a) .64(a) .64
.67 .68 .67
Net realized and unrealized gain
(loss) on investment
transactions................... .36 .17 (.69)
.71 .60 .49
-------- ------- ------
- ------ ------ ------
Total from investment
operations.................. .67 .81 (.05)
1.38 1.28 1.16
-------- ------- ------
- ------ ------ ------
Less distributions
Dividends from net investment
income......................... (.31) (.64) (.64)
(.67) (.68) (.67)
Distributions from net realized
gains.......................... (.15) (.03) (.07)
(.10) -- --
-------- ------- ------
- ------ ------ ------
Total distributions............ (.46) (.67) (.71)
(.77) (.68) (.67)
-------- ------- ------
- ------ ------ ------
Net asset value, end of period.... $ 12.10 $ 11.89 $11.75
$12.51 $11.90 $11.30
-------- ------- ------
- ------ ------ ------
-------- ------- ------
- ------ ------ ------
TOTAL RETURN(b):.................. 5.71% 7.13% (0.38)%
11.95% 11.63% 11.04%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)... $27,871 $27,024 $4,706
$3,814 $1,618 $835
Average net assets (000).......... $27,537 $16,932 $4,505
$2,285 $1,235 $694
Ratios to average net assets:
Expenses, including
distribution fees........... .92%(a)(c) 1.02%(a) .91%
.96% .98% 1.09%
Expenses, excluding
distribution fees........... .82%(a)(c) .92%(a) .81%
.86% .88% .99%
Net investment income.......... 5.15%(a)(c) 5.31%(a) 5.27%
5.51% 5.82% 6.09%
Portfolio turnover rate........... 14% 33% 12%
14% 30% 62%
</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.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 11 -----
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) MICHIGAN SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
Class B
------------
- ---------------------------------------------------------------------------
Six Months
Six Months
Ended Year
Ended August 31, Ended
February 29,
- ------------------------------------------------------- February 29,
1996 1995 1994
1993 1992 1991 1996
------------ ------- -------
------- ------- ------- ------------
<S> <C> <C> <C>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period......................... $ 11.88 $ 11.75 $ 12.51
$ 11.90 $ 11.30 $ 10.81 $ 11.88
-------- ------- -------
------- ------- ------- --------
Income from investment operations
Net investment income............. .29(a) .59(a) .59
.62 .63 .63 .27(a)
Net realized and unrealized gain
(loss) on investment
transactions................... .36 .16 (.69)
.71 .60 .49 .36
-------- ------- -------
------- ------- ------- --------
Total from investment
operations.................. .65 .75 (.10)
1.33 1.23 1.12 .63
-------- ------- -------
------- ------- ------- --------
Less distributions
Dividends from net investment
income......................... (.29) (.59) (.59)
(.62) (.63) (.63) (.27)
Distributions from net realized
gains.......................... (.15) (.03) (.07)
(.10) -- -- (.15)
-------- ------- -------
------- ------- ------- --------
Total distributions............ (.44) (.62) (.66)
(.72) (.63) (.63) (.42)
-------- ------- -------
------- ------- ------- --------
Net asset value, end of period.... $ 12.09 $ 11.88 $ 11.75
$ 12.51 $ 11.90 $ 11.30 $ 12.09
-------- ------- -------
------- ------- ------- --------
-------- ------- -------
------- ------- ------- --------
TOTAL RETURN(b):.................. 5.50% 6.60% (0.78)%
11.51% 11.18% 10.60% 5.36%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)... $40,796 $41,459 $70,112
$70,302 $56,095 $59,400 $96
Average net assets (000).......... $41,538 $52,216 $72,095
$61,548 $52,137 $50,809 $81
Ratios to average net assets:
Expenses, including
distribution fees........... 1.32%(a)(c) 1.37%(a) 1.31%
1.36% 1.38% 1.49% 1.57%(a)(c)
Expenses, excluding
distribution fees........... .82%(a)(c) .87%(a) .81%
.86% .88% .99% .82%(a)(c)
Net investment income.......... 4.75%(a)(c) 5.04%(a) 4.87%
5.11% 5.42% 5.66% 4.48%(a)(c)
Portfolio turnover rate........... 14% 33% 12%
14% 30% 62% 14%
<CAPTION>
August 1,
Year 1994(d)
Ended through
August 31, August 31,
1995 1994
---------- ----------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period......................... $11.75 $11.78
----- -----
Income from investment operations
Net investment income............. .56(a) .04
Net realized and unrealized gain
(loss) on investment
transactions................... .16 (.03)
----- -----
Total from investment
operations.................. .72 .01
----- -----
Less distributions
Dividends from net investment
income......................... (.56) (.04)
Distributions from net realized
gains.......................... (.03) --
----- -----
Total distributions............ (.59) (.04)
----- -----
Net asset value, end of period.... $11.88 $11.75
----- -----
----- -----
TOTAL RETURN(b):.................. 6.29% 0.06%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)... $100 $200(e)
Average net assets (000).......... $61 $199(e)
Ratios to average net assets:
Expenses, including
distribution fees........... 1.68%(a) 2.15%(c)
Expenses, excluding
distribution fees........... .93%(a) 1.39%(c)
Net investment income.......... 4.66%(a) 4.56%(c)
Portfolio turnover rate........... 33% 12%
</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.
- --------------------------------------------------------------------------------
- ----- 12 See Notes to Financial Statements.
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
Internet Address:
http:\\www.prudential.com
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 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 Auditor
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
The views expressed in this report and information about the Series'
portfolio holdings are for the period covered by this report and are
subject to change thereafter.
The accompanying financial statements as of February 29, 1996 were not
audited and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective
investors unless preceded or accompanied by a current prospectus.
<PAGE>
(LOGO) BULK RATE
U.S. POSTAGE
PAID
Permit 6807
New York, NY
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
74435M671
74435M689 MF120E2
74435M556 Cat# 642742Y
(ICON)
Prudential
Municipal
Series
Fund
- ----------------------
New York
Money Market Series
SEMI
ANNUAL
REPORT
Feb. 29, 1996
(LOGO)
<PAGE>
Prudential Municipal Series Fund
New York Money Market Series
Performance At A Glance.
Despite falling short-term interest rates over the past six months,
the Prudential Municipal Series Fund -- New York Money Market Series
provided competitive, tax-free income. The Series' 7-day current yield
on February 29, 1996 was 2.82%, which was equivalent to a taxable yield
of 5.07% for individuals in the highest federal income tax bracket.
The yield was also higher than the 2.77% reported by the average
tax-free New York municipal money market fund tracked by IBC/Donoghue.
<TABLE>
Fund Facts As of 2/29/96
<CAPTION>
7-Day Net Asset Taxable Equivalent Yield1
Weighted Total Net
Current Yld. Value @31% @36% @39.6%
Avg. Mat. Assets (mil.)
<S> <C> <C> <C> <C> <C> <C>
<C>
NY Money
Market Series 2.82% $1.00 4.44% 4.78% 5.07%
58 Days $358.5
IBC/Donoghue
NY Tax-exempt 2.77 1.00 4.36 4.70 4.98
46 Days N/A
Fund Average2
</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.
1Some investors may be subject to the federal alternative minimum tax
and/or state and local taxes.Taxable equivalent yields reflect federal
and applicable state tax rates.
2This is the average 7-day current yield, NAV and WAM of 37 funds in the
International Business Communications/Donoghue New York tax-exempt money
market fund category as of February 29, 1996.
How Investments Compared.
(As of 2/29/96)
(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. The returns assume
the reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors have received
higher historical total returns from stocks than from most other
investments. Smaller capitalization stocks offer greater potential
for long-term growth but may be more volatile than larger capitalization
stocks.
General Bond Funds provide more income than stock funds, which can help
smooth out their total returns year by year. But their prices still
fluctuate (sometimes significantly) and their returns have been
historically lower than those of stock funds.
General Municipal Debt Funds invest in bonds issued by state governments,
state agencies and/or municipalities. This investment provides income
that is usually exempt from federal and state income taxes.
U.S. 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, historically, their returns have been generally among the lowest
of the major investment categories.
* 19 years for General Muni Debt Funds.
* 18 years for Tax-Free Money Market Funds.
<PAGE>
Colleen Meehan, Fund Manager
Portfolio
Manager's Report
The Prudential Municipal Series Fund -- New York Money Market Series
seeks current income that is exempt from federal and 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 intends to invest in a portfolio of short-term
municipal securities with maturities of 13 months or less from the State
of New York, its municipalities, local governments and other qualifying
issuers (such as Puerto Rico, Guam and the U.S. Virgin Islands).
Strategy Session.
Providing A Competitive Tax-Free Yield.
Our strategy over the past six months was to provide a competitive tax-free
yield in a declining interest rate environment without sacrificing credit
quality. We accomplished this by purchasing more longer term securities
than the average New York tax-free money market fund, which sustained
a higher yield longer as market rates fell.
The Empire State's economy grew slowly over the reporting period. In
1996, the economy is projected to expand by about 1.5% according to
DRI/McGraw-Hill, an economic research firm. This is a full percentage
point below the national projection of 2.5%, and is generally reflective
of sluggish economic growth in the New York tri-state region. In Albany,
Governor George Pataki's new budget relies heavily upon Medicaid
restructuring from Washington. If federal aid is not forthcoming, the state
budget will face a spending gap of about $2 billion. Mayor Rudolph
Giuliani must also close a budget gap of several hundred million dollars
in New York City by June 30. Like the state, the city is also relying
upon federal dollars to help alleviate its Medicaid burden. Otherwise
further municipal layoffs and cutbacks in services will be all but
unavoidable. The state's credit rating was A on February 29, 1996
according to Moody's Investors Service.
Interest Rates Trended Lower.
(GRAPH)
Federal Funds Rate vs. One-Year Bond Buyer Index
This chart shows how interest rates for short-term taxable securities
(Federal Funds Rate) and tax-free securities (One-Year Bond Buyer Index)
have moved lower over the past 12 months.
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>
What Went Well.
Extending Maturity and
Shopping For Value.
As interest rates fell last summer and fall, we extended the Series'
weighted average maturity. The weighted average maturity reflects
a money market fund's sensitivity to changes in interest rates.
The longer it is, the longer a money fund can sustain a higher yield
when interest rates are otherwise falling which, in turn, means
more tax-free income for investors.
In our last report to you on August 31, 1995, the Series' weighted
average maturity was 64 days compared to 57 days for the average New
York tax-free money fund. Since then we have positioned the Series
about five to seven days longer than the average of competing funds
with similar investment criteria.
During the reporting period we also shopped for value. The price was
right so we purchased short-term pre-refunded bonds that were trading
favorably compared to Treasurys. Pre-refunded bonds are backed by the
U.S. government and are rated Aaa, by Moody's Investors Service or
AAA by Standard and Poor's. We also invested in AMT paper (so-called
because for some investors the income is subject to the federal
alternative minimum tax). AMT paper comes with attractive yields --
sometimes 10 to 15 basis points (a basis point is 1/100 of a percentage
point) higher than non-AMT investments. It was a useful tool for us
and comprised between 15% and 25% of the portfolio during the
reporting period.
And Not So Well.
Hindsight Is 20/20.
Looking back, we would have liked to have lengthened the Series' weighted
average maturity sooner. If we had done so, we would have been able to
lock in higher yields, which would have paid more tax-free income.
Unfortunately, supply was a major consideration. The available securities
were not of sufficient credit quality for the Series to purchase.
Furthermore we had to maintain a higher level of liquidity to meet
the anticipated seasonal surge in Series redemptions in December (investors
redeem to have cash available for holiday purchases or for income
tax reasons).
A Word
About Quality.
Your Series will typically 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 Series' investment adviser. Although there is never
a guarantee that the share price of the New York Money Market Series
will stay at $1, we emphasize a conservative, quality-oriented approach.
Looking Ahead.
As we went to press, economic news continued to be mixed, with some
reports indicating a strengthening U.S. economy while others a sluggish
one. Until the Federal Reserve gets a clearer picture of where the
economy is headed, we can expect a period (perhaps several months)
of unchanged monetary policy. Accordingly, we shall keep the Series'
weighted average maturity neutral to a few days longer than the
average tax-free money fund. It will give us the flexibility to
respond to changing market conditions while providing you with
tax-free income.
1
<PAGE>
President's Letter April 5, 1996
(PICTURE)
Dear Shareholder:
For many investors, 1995 was a profitable year -- most stock and bond
funds enjoyed healthy returns from the U.S. markets. While climbing
returns can tempt even the most skittish investors to start buying again,
it is important to remember that the stock and bond markets go down just
as they go up. At times like these, remember the importance of working
with your Financial Advisor or Registered Representative to help you
find investments that are consistent with your risk tolerance and time
horizon. Your Financial Advisor or Registered Representative can help
you maintain realistic expectations about both the potential performance
and risks associated with your investments.
Shareholder Legislative Action Program.
From time to time we've been informing you about significant
legislation before Congress, such as the American Dream Savings
Account, that may potentially impact mutual fund investors. We want
to make it easier for you to share your views with your
Congressional member. So, beginning in 1996, whenever Congress is
considering legislation that would affect you, we'll send you
postage-paid message cards that you simply drop in the mail if
you want to let your senator or representative know how
you want him or her to vote.
Fund Profiles.
Over the past year, we've worked to make your shareholder reports
more interesting, informative and easy to read. This year, we'll
be considering "fund profiles." Some mutual fund companies now offer
one to shareholders along with a full prospectus. The purpose of a
fund profile is to provide a very brief, reader-friendly summary of
a fund's objective, investments, risks and expenses. Would you like
to see fund profiles from us? Please call your Financial Advisor or
Registered Representative to share your views.
As always, thank you for your confidence in Prudential Mutual Funds.
Sincerely,
Richard A. Redeker
President
2
<PAGE>
Portfolio of Investments as
of February 29, 1996 PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) NEW YORK MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
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 $ 2,000,559
Albany Cnty., Ser. 96B, B.A.N. NR
3.50 2/19/97 6,525 6,546,446
Amherst Ind. Dev. Agcy. Rev., Gen. Accident Ins. Co., Ser. 85,
S.E.M.O.T. A-1+(c)
4.00 5/01/96 3,100 3,100,000
Babylon, Ser. 95, R.A.N. NR
3.85 10/30/96 4,500 4,512,273
Babylon Ind. Dev. Agcy. Rev., Res. Rec. Rev., Ser. 89,
F.R.D.D. A-1+(c)
3.45 3/01/96 8,500 8,500,000
Battery Park Auth. Rev., Ser. 90, F.R.W.D. A-1(c)
3.45 3/06/96 5,000 5,000,000
Brazos, Texas River Harbor Nav. Dist., Dow Chemical Co. Proj.,
Ser. 93, F.R.D.D. P-1
3.60 3/01/96 800 800,000
Buffalo, Ser. 95-96A, R.A.N. MIG1
4.20 7/16/96 2,700 2,707,931
California, Ser. 94C, R.A.W., F.G.I.C. AAA
5.75 4/25/96 2,200 2,207,716
Clinton Cnty. Ind. Dev. Agcy Rev., Ser. 96A, F.R.W.D. A-1(c)
3.35 3/07/96 3,500 3,500,000
Commack Union Free Sch. Dist., Ser. 95-96, T.A.N. NR
4.25 6/28/96 2,500 2,503,920
East Islip Union Free Sch. Dist., Ser. 95, T.A.N. NR
4.50 6/28/96 7,110 7,123,802
Erie Cnty., Ser. 95, R.A.N. MIG1
4.50 9/20/96 1,800 1,806,247
Farmingdale Union Free Sch. Dist., Ser. 95, T.A.N. NR
4.25 6/27/96 3,675 3,678,663
Hurley, New Mexico, Poll. Ctrl. Rev., Ser. 85, F.R.D.D. P-1
3.45 3/01/96 2,800 2,800,000
Metropolitan Trans. Auth., Ser. F AAA
8.375 7/01/96 750 (e) 775,516
Monroe Cnty. Ind. Dev. Agcy. Rev., Gen. Accident Ins. Co.,
Ser. 84, S.E.M.O.T. A-1+(c)
3.33 9/01/96 7,000 7,000,000
Mt. Pleasant Ind. Dev. Agcy. Rev., Poll. Ctrl. Rev.,
Gen. Motors Corp. Proj., F.R.W.D. VMIG2
3.30 3/05/96 6,095 6,095,000
Nassau Cnty.,
Gen. Oblig., Ser. 95B, R.A.N. SP-1(c)
4.25 3/15/96 4,000 4,000,746
Ser. 95F, B.A.N. MIG1
4.50 3/15/96 4,980 4,981,025
New York City, Gen. Oblig.,
Ser. 95B-9, T.E.C.P. NR
3.27 8/16/96 2,900 2,900,000
Ser. 95F-3, F.R.W.D. VMIG1
3.45 3/06/96 6,300 6,300,000
Ser. 96B, R.A.N. MIG1
4.75 6/28/96 5,000 5,011,856
Ser. H6, T.E.C.P. VMIG1
3.65 4/11/96 1,000 1,000,000
New York City Hsg. Dev. Corp.,
400 West 59th St. Proj., Ser. 95A-1, F.R.W.D. A-1(c)
3.35 3/06/96 11,900 11,900,000
400 West 59th St. Proj., Ser. 95A-2, F.R.W.D. A-1(c)
3.30 3/06/96 5,000 5,000,000
E.17th St. Property, Ser. 93A, F.R.D.D. A-1(c)
3.35 3/01/96 3,200 3,200,000
James Tower Proj., Ser. 94A, F.R.W.D. A-1(c)
3.10 3/06/96 4,200 4,200,000
New York City Ind. Dev. Agcy. Rev.,
Japan Airlines, Ser. 91, F.R.D.D. A-1+(c)
3.45 3/01/96 15,700 15,700,000
New York City Mun. Water Fin. Auth., Water & Sew. Rev.,
Ser. 9-3, T.E.C.P. P-1
3.30 3/04/96 4,000 4,000,000
Ser. 9-3, T.E.C.P. P-1
3.25 4/26/96 13,000 13,000,000
Ser. A AAA
7.00 6/15/96 3,400 (e) 3,499,672
New York City Trust Cultural Res. Rev.,
Soloman R. Guggenheim Proj., Ser. 90B, F.R.D.D. VMIG1
3.40 3/01/96 1,700 1,700,000
The Jewish Museum Proj., Ser. 92, F.R.W.D. VMIG1
3.40 3/06/96 3,900 3,900,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3 -----
<PAGE>
Portfolio of Investments as
of February 29, 1996 PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) NEW YORK MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
New York St., Gen. Oblig.,
Ser. N, T.E.C.P. P-1
3.25% 5/01/96 $ 5,900 $ 5,900,000
New York St. Dorm. Auth. Rev.,
Cornell Univ., Ser. 90B, F.R.D.D. VMIG1
3.40 3/01/96 1,800 1,800,000
Mem. Sloan Kettering, T.E.C.P.,
Ser. 89A VMIG1
3.45 4/10/96 1,000 1,000,000
Ser. 89B VMIG1
3.45 4/10/96 1,000 1,000,000
Rockefeller Univ., Ser. 91A, F.R.W.D. AAA
3.40 3/06/96 13,600 13,600,000
St. Francis Center at the Knolls, F.R.D.D. VMIG1
3.30 3/01/96 6,500 6,500,000
New York St. Energy Res. & Dev. Auth.,
Long Island Ltg. Co. Proj.,
Ser. 85A, A.N.N.M.T. VMIG1
3.25 3/01/96 5,000 5,000,000
Ser. 95A, F.R.W.D. VMIG1
3.25 3/06/96 5,000 5,000,000
Niagara Mohawk Pwr. Corp.,
Ser. 85A, F.R.D.D. A-1+(c)
3.50 3/01/96 4,500 4,500,000
Ser. 85B, F.R.D.D. P-1
3.40 3/01/96 5,600 5,600,000
Ser. 85C, F.R.D.D. P-1
3.40 3/01/96 1,850 1,850,000
Ser. 86A, F.R.D.D. P-1
3.50 3/01/96 5,800 5,800,000
New York St. Environ. Facs. Corp., Solid Waste Disp. Rev.,
Ser. 92A, T.E.C.P. P-1
3.50 4/05/96 3,250 3,250,000
New York St. Hsg. Fin. Auth., Liberty View Apts.,
Ser. 85A, F.R.W.D. VMIG1
3.15 3/06/96 5,300 5,300,000
New York St. Job Dev. Auth., F.R.M.D.,
Ser. 84D VMIG1
3.65 3/01/96 1,470 1,470,000
Ser. 84E VMIG1
3.65 3/01/96 3,445 3,445,000
Ser. 84F VMIG1
3.65 3/01/96 1,350 1,350,000
Ser. 86C VMIG1
3.80 3/01/96 1,105 1,105,000
New York St. Local Gov't Assistance Corp.,
Ser. 95E, F.R.W.D. VMIG1
3.15 3/06/96 11,000 11,000,000
New York St. Power Auth. Rev.,
Ser. SG4, F.R.W.D. A-1+(c)
3.30 3/07/96 5,000 5,000,000
T.E.C.P. P-1
3.30 4/25/96 3,000 3,000,000
S.E.M.O.T. VMIG1
3.25 9/01/96 9,500 9,500,000
New York St. Thruway Auth. Rev., Ser. C, F.R.W.D., F.G.I.C. NR
3.30 3/07/96 7,000 7,000,000
Niagara Cnty. Ind. Dev. Agcy. Rev., Gen. Abrasive Treibacher,
Ser. 91, F.R.W.D. P-1
3.30 3/06/96 4,600 4,600,000
Oswego Cnty. Ind. Dev. Agcy. Rev., Phillip Morris Co., Ser.
92, F.R.W.D. P-1
3.20 3/01/96 6,300 6,300,000
Port Auth. of New York & New Jersey,
Kiac Partners,
Ser. 3-2, F.R.W.D. VMIG1
3.10 3/06/96 5,200 5,200,000
Ser. 3-3, F.R.W.D. VMIG1
3.10 3/06/96 4,500 4,500,000
Spec. Oblig. Rev.,
Ser. 1, F.R.D.D. VMIG1
3.25 3/01/96 5,100 5,100,000
Ser. 2, F.R.D.D. VMIG1
3.05 3/01/96 900 900,000
Ser. 93-1, F.R.W.D. CPS1
3.297 3/05/96 12,000 12,000,000
</TABLE>
- --------------------------------------------------------------------------------
- ----- 4 See Notes to Financial Statements.
<PAGE>
Portfolio of Investments as
of February 29, 1996 PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) NEW YORK MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Puerto Rico Commwlth., Gov't. Dev. Bank, Ser. 95, T.E.C.P. A1+(c)
3.65% 3/08/96 $ 5,400 $ 5,400,000
Rochester Cnty., Ser. I, B.A.N. NR
4.25 10/31/96 5,000 5,015,116
Rockland Cnty., Ser. 95, B.A.N. NR
5.50 3/08/96 2,000 2,000,342
San Antonio, Texas Water Systems, Ser. 95, T.E.C.P. NR
3.20 5/17/96 4,000 4,000,000
Sayville Union Free Sch. Dist., Ser. 95, T.A.N. MIG1
4.25 6/27/96 6,500 6,510,506
Southampton Cnty., Virginia Ind. Dev. Auth. Rev.,
Ser. 90A, F.R.D.D. VMIG1
3.50 3/01/96 2,400 2,400,000
St. Lawrence Cnty. Ind. Dev. Agcy. Rev.,
Clarkson Univ. Proj., Ser. 90, F.R.W.D. VMIG1
3.55 3/07/96 2,480 2,480,000
Reynolds Metals, F.R.D.D. P-1
3.35 3/01/96 200 200,000
Syracuse., Ser. 95, B.A.N. NR
4.00 12/20/96 8,000 8,021,646
United Nations Dev. Corp. Rev., Phase 2 & 3 Sr. Lien, Ser. 86A AAA
7.875 7/01/96 4,000 4,130,510
Washington St. Hsg. Fin. Commission, Ser. 91, F.R.D.D. VMIG1
3.45 3/01/96 2,420 2,420,000
Yates Cnty. Ind. Dev. Agcy. Rev., Clearplass Containers Inc.,
Ser. 92A, F.R.W.D. A-1(c)
3.35 3/07/96 1,455 1,455,000
------------
Total Investments--98.3%
(cost $352,554,492; (d))
352,554,492
Other assets in excess of liabilities--1.7%
5,955,643
------------
Net Assets--100%
$358,510,135
------------
------------
</TABLE>
- ---------------
(a) The following abbreviations are used in portfolio descriptions:
A.N.N.M.T.--Annual Mandatory Tender.
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 Corporation.
S.E.M.O.T.--Semi-Annual Optional Tender.
R.A.N.--Revenue Anticipation Note.
R.A.W.--Revenue Anticipation Warrant.
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 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) The cost of securities for federal income tax purposes is substantially the
same as for financial reporting purposes.
(e) Prerefunded issues are secured by escrowed cash and/or direct U.S.
guaranteed obligations.
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>
Statement of Assets and Liabilities PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) NEW YORK MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<S>
<C>
Assets
February 29, 1996
Investments, at amortized cost which approximates market
value........................................... $ 352,554,492
Receivable for investments
sold..........................................................................
20,763,750
Receivable for Series shares
sold........................................................................
3,798,802
Interest
receivable...................................................................
................... 2,653,673
Deferred expenses and other
assets.......................................................................
4,658
-----------------
Total
assets.......................................................................
................... 379,775,375
-----------------
Liabilities
Payable for investments
purchased....................................................................
.... 14,500,000
Payable for Series shares
reacquired.....................................................................
6,306,744
Management fee
payable......................................................................
............. 138,963
Dividends
payable......................................................................
.................. 115,767
Accrued expenses and other
liabilities...................................................................
86,839
Bank
overdraft....................................................................
....................... 80,257
Distribution fee
payable......................................................................
........... 34,350
Deferred trustee's
fee..........................................................................
......... 2,320
-----------------
Total
liabilities..................................................................
................... 21,265,240
-----------------
Net
Assets.......................................................................
........................ $ 358,510,135
-----------------
-----------------
Net assets were comprised of:
Shares of beneficial interest, at $.01 par
value...................................................... $ 3,585,101
Paid-in capital in excess of
par......................................................................
354,925,034
-----------------
Net assets, February 29,
1996............................................................................
$ 358,510,135
-----------------
-----------------
Net asset value, offering price and redemption price per share ($358,510,135 /
358,510,135
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 (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Six Months
Ended
Net Investment Income February 29, 1996
Income
Interest.................................. $ 6,265,757
-----------------
Expenses
Management fee............................ 818,551
Distribution fee.......................... 204,638
Transfer agent's fees and expenses........ 68,000
Custodian's fees and expenses............. 40,000
Reports to shareholders................... 17,000
Registration fees......................... 14,000
Audit fees and expenses................... 5,000
Legal fees and expenses................... 5,000
Trustees' fees............................ 1,700
Miscellaneous............................. 5,027
-----------------
Total expenses......................... 1,178,916
Less: custodian fee credit................ (712)
-----------------
Net expenses........................... 1,178,204
-----------------
Net investment income........................ 5,087,553
Net realized gain on investments............. 1,956
-----------------
Net Increase in Net Assets
Resulting from Operations.................... $ 5,089,509
-----------------
-----------------
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW YORK MONEY MARKET SERIES
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) February 29, August 31,
in Net Assets 1996 1995
<S> <C> <C>
Operations
Net investment income....... $ 5,087,553 $ 8,853,758
Net realized gain on
investments.............. 1,956 --
------------- ---------------
Net increase in net assets
resulting from
operations............... 5,089,509 8,853,758
------------- ---------------
Dividends and distributions to
shareholders................ (5,089,509) (8,853,758)
------------- ---------------
Series share transactions
(at $1 per share)
Net proceeds from shares
sold..................... 550,317,047 1,099,424,608
Net asset value of shares
issued
to shareholders in
reinvestment of dividends
and distributions........ 4,942,342 8,564,122
Cost of shares reacquired... (521,446,871) (1,052,364,310)
------------- ---------------
Net increase in net assets
from Series share
transactions............. 33,812,518 55,624,420
------------- ---------------
Total increase................. 33,812,518 55,624,420
Net Assets
Beginning of period............ 324,697,617 269,073,197
------------- ---------------
End of period.................. $ 358,510,135 $ 324,697,617
------------- ---------------
------------- ---------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7 -----
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) 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
fourteen 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 Net 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. Expenses are recorded on the accrual basis which may require the
use of certain estimates by management.
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.
Custody Fee Credits: The Fund has an arrangement with its custodian bank,
whereby uninvested monies earn credits which reduce the fees charged by the
custodian.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential 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 had a distribution agreement with Prudential Mutual Fund Distributors,
Inc. (``PMFD''), which acted as the distributor of the Fund through January 1,
1996. Effective January 2, 1996, Prudential Securities Incorporated (``PSI'')
became the distributor of the Fund and is serving the Fund under the same terms
and conditions as under the arrangement with PMFD. The Series reimbursed PMFD
and PSI for distributing and servicing the Series' shares pursuant to the plan
of distribution at an annual rate of .125 of 1% of the Series' average daily net
assets. The distribution fee is accrued daily and payable monthly.
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 six months ended February
29, 1996, the Series incurred fees of approximately $61,200 for the services of
PMFS. As of February 29, 1996, approximately $10,400 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 (Unaudited) NEW YORK MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six
Months
Ended
Year Ended August 31,
February
29, ----------------------------------
1996
1995 1994 1993
- ------------ -------- -------- --------
<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.......................
.02 .03 .02 .02
Dividends and distributions to shareholders........................
(.02) (.03) (.02) (.02)
- ------------ -------- -------- --------
Net asset value, end of period..................................... $
1.00 $ 1.00 $ 1.00 $ 1.00
- ------------ -------- -------- --------
- ------------ -------- -------- --------
TOTAL RETURN(a):...................................................
1.62% 3.06% 1.80% 1.80%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)....................................
$358,510 $324,698 $269,073 $286,304
Average net assets (000)...........................................
$329,219 $292,763 $280,492 $275,640
Ratios to average net assets:
Expenses, including distribution fee............................
.72%(b) .73% .77% .75%
Expenses, excluding distribution fee............................
.59%(b) .61% .64% .63%
Net investment income...........................................
3.11%(b) 3.02% 1.78% 1.75%
<CAPTION>
1992
1991
--------
--------
<S> <C>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............................... $ 1.00
$ 1.00
Net investment income and net realized gains....................... .03
.04
Dividends and distributions to shareholders........................ (.03)
(.04)
--------
--------
Net asset value, end of period..................................... $ 1.00
$ 1.00
--------
--------
--------
--------
TOTAL RETURN(a):................................................... 2.93%
4.37%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).................................... $249,785
$236,361
Average net assets (000)........................................... $248,557
$245,494
Ratios to average net assets:
Expenses, including distribution fee............................ .76%
.79%
Expenses, excluding distribution fee............................ .63%
.66%
Net investment income........................................... 2.83%
4.23%
</TABLE>
- ---------------
(a) Total return includes reinvestment of dividends and distributions. Total
return for periods of less than one year are not annualized.
(b) Annualized.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 9 -----
<PAGE>
Getting The Most From Your Prudential Mutual Fund
How many times have you read these letters -- or other financial
materials -- and stumbled across a word that you don't understand?
Many shareholders have run into the same problem. We'd like to help.
So we'll use this space from time to time to explain some of the words
you might have read, but not understood. And if you have a favorite
word that no one can explain to your satisfaction, please write to us.
Basis Point: One 1/100th of 1%. For example, one half of one percentage
point is 50 basis points.
Call Option: A contract giving the holder a right to buy stocks or
bonds at a predetermined price (called the strike price) before a
predetermined expiration date. A buyer of a call option generally
expects to benefit from a rise in the price of the stock or bond.
Capital Gain/Capital Loss: The difference between the cost of a
capital asset (for example, a stock, bond or mutual fund share)
and its selling price. Under current law the federal income tax
rate for individuals on a long-term capital gain is 28%.
Collateralized Mortgage Obligations (CMOs): Pools of mortgage-backed
securities sliced in maturity ranges that bear differing interest rates.
These instruments are sensitive to changes in interest rates and
homeowner refinancing activity. They are subject to prepayment and
maturity extension risk.
Derivatives: Securities that derive their value from another security.
The rate of return of these financial products rises and falls -- sometimes
very suddenly -- in response to changes in some specific interest rate,
currency, stock or other variable.
Discount Rate: The interest rate charged by the Federal Reserve on loans
to banks and other depository institutions.
Federal Funds Rate: The interest rate charged by one bank to another
on overnight loans.
Futures Contract: An agreement to deliver a specific amount of a
commodity or financial instruments at a set price at a stipulated
time in the future.
Leverage: The use of borrowed assets to enhance return on equity.
The expectation is that the interest rate charged will be lower than
the return on the investment. While leverage can increase profits, it
can also magnify losses.
Liquidity: The ease with which a financial instrument (or mutual fund)
can be bought or sold (converted into cash) in the financial markets.
Option: An agreement to buy or sell something, such as shares of stock,
by a certain time for a specified price. An option need not be exercised.
In fact, most expire unexercised.
Price/Earnings Ratio: The price of a share of stock divided by the
earnings per share for a 12-month period.
Spread: The difference between two values; most often used to describe
the difference between prices bid and asked for a security.
Yankee Bond: A bond denominated in U.S. dollars but sold by a foreign
company or government in the U.S. market.
<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>
How Does Your State Stack Up?
Economic conditions vary from state to state. While one region may
be experiencing strong fiscal management and prosperity, another may
languish under the weight of declining industry or chronic state
budget problems.
State economic conditions, fiscal management and interest rates play
dominant roles in the performance of individual municipal bonds. A
strong economy generally leads to higher tax revenues and other income
sources for the state, enabling it to more easily repay its debts.
Additionally, sound state financial management often results in high
ratings from bond rating agencies. High ratings are attractive to
investors and can help bonds retain value in the market.
California
- -- World's 8th largest economy.
- -- Entertainment jobs growing.
- -- Recovery continues, but growth is expected to be below
the national average.
- -- Increasing tax revenues may not cover soaring Medicaid costs.
Hawaii
- -- Tourism provides 60% of jobs.
- -- Strong financial management.
- -- Slow recovery from early-1990s U.S. and Japanese recessions, which
bit into tourism and real estate.
- -- Government eliminated 1,100 state jobs.
Ohio
- -- Shift from manufacturing to service trades.
- -- Economic and personal income growth ahead of national averages.
- -- Debt is low.
Pennsylvania
- -- Slowly rebuilding economy, but needs new engine of growth.
- -- Debt as a percentage of personal income is half the national average.
- -- Sound financial management.
Michigan
- -- Economic growth is 3.5%, higher than national average.
- -- Once car capital of the world, now more diversified.
- -- Strengthening fiscal management.
Massachusetts
- -- Painful cuts in defense and health care eliminated jobs.
- -- Slowly rebuilding economy.
- -- Personal income is high.
New York
- -- High taxes restrain growth.
- -- Personal income remains high.
- -- Debt level is high.
- -- Federal budget Medicaid reform impasses threaten planned budget savings.
Maryland
- -- One of wealthiest states.
- -- Personal income 115% ofnational average, but income growth has stabilized.
- -- Good financial controls.
Florida
- -- Economy and personal income growing much faster than national rate.
- -- Unemployment and debt are low.
- -- Ended 1995 with a budget surplus for the third year in a row.
Connecticut
- -- Nation's wealthiest citizens.
- -- Economically weak from defense cuts.
- -- Slow growth -- recovery may take years.
- -- Attempts at "quick fixes" won't provide permanent relief.
New Jersey
- -- Broad-based economy and high personal wealth.
- -- Economic growth slowing.
- -- "Pro-business" tactics siphoned revenue, but may spur more growth.
North Carolina
- -- Robust, model economy.
- -- Personal income quicklygrowing.
- -- Unemployment well below national average.
- -- New jobs from financial services, research and high technology.
- -- Strong financial management.
Source: Prudential Investment Corporation. Selected states are those
for which Prudential Mutual Fund Management manages a state-specific
municipal bond mutual fund
Revised: April, 1996
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
Internet Address:
http:\\www.prudential.com
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 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 Auditor
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
The views expressed in this report and information about the
Series' portfolio holdings are for the period covered by this
report and are subject to change thereafter.
The accompanying financial statements as of February 29, 1996
were not audited and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective
investors unless preceded or accompanied by a current prospectus.
<PAGE>
(LOGO)
Prudential Mutual Funds BULK RATE
One Seaport Plaza U.S. POSTAGE
New York, NY 10292 PAID
Toll Free (800) 225-1852 Permit 6807
New York, NY
74435M721 MF127E2
Cat# 642420A
(ICON)
Prudential
Municipal
Series Fund
- --------------------
Hawaii Income Series
SEMI
ANNUAL
REPORT
Feb. 29, 1996
Prudential Mutual Funds
Building Your Future (LOGO)
On Our Strengthsm
<PAGE>
Prudential Municipal Series Fund
Hawaii Income Series
Performance At A Glance.
Lower interest rates and subdued inflation lifted tax-free municipal bond prices
higher over the past six months, continuing a trend that has been in place for
some time now. For the six months ended February 29, 1996 the Prudential
Municipal Series Fund -- Hawaii Income Series performed in line with the
average Hawaii municipal bond fund, as measured by Lipper Analytical Services.
<TABLE>
Cumulative Total Returns1 As of 2/29/96
<CAPTION>
Six One Since
Months Year Inception2
<S> <C> <C> <C>
Class A 4.7% 10.1% 14.6%
Class B 4.5 9.6 13.9
Class C 4.4 9.4 13.5
Lipper HI Muni Avg3 4.7 9.7 13.7
</TABLE>
<TABLE>
Average Annual Total Returns1 As of 3/31/96
<CAPTION>
One Since
Year Inception2
<S> <C> <C>
Class A 3.8% (2.6)4 5.8% (4.5)4
Class B 1.6 (0.4)4 45.0 (3.7)4
Class C 5.4 (4.1)4 7.2 (5.9)4
</TABLE>
<TABLE>
<CAPTION>
Dividends
& Yields Taxable Equivalent Yield5
As of Total Dividends 30-Day At Tax Rates Of
2/29/96 Paid for Six Mos. SEC Yield 36% 39.6%
<S> <C> <C> <C> <C>
Class A $0.33 4.94% (3.66)4 48.58% (8.49)4 49.09%
(9.00)4
Class B $0.30 4.69 (3.37)4 48.14 (8.06)4 48.63
(8.54)4
Class C $0.29 4.43 (3.11)4 47.69 (7.60)4 48.15
(8.06)4
</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 declining
contingent deferred sales charge (CDSC) 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 15 funds for six months,
14 funds for one year and 10 funds since inception of the Class B shares on
9/19/94.
4Without waivers and expense subsidies the Series' average annual total
return/30-day SEC yield would have been lower, as indicated in parentheses ( ).
5Taxable equivalent yields reflect federal and applicable state tax rates.
How Investments Compared.
(As of 2/29/96)
(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. The returns assume the reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors have received higher
historical total returns from stocks than from most other investments. Smaller
capitalization stocks offer greater potential for long-term growth but may be
more volatile than larger capitalization stocks.
General Bond Funds provide more income than stock funds, which can help smooth
out their total returns year by year. But their prices still fluctuate
(sometimes significantly) and their returns have been historically lower than
those of stock funds.
General Municipal Debt Funds invest in bonds issued by state governments, state
agencies and/or municipalities. This investment provides income that is usually
exempt from federal and state income taxes.
Money Market Funds attempt to preserve a constant share value; they don't
fluctuate much in price but historically their returns have been generally
among the lowest of the major investment categories.
*19 years for General Muni Debt Funds.
<PAGE>
Christian Smith, Fund Manager (PICTURE)
Portfolio
Manager's Report
The Series invests primarily in carefully-selected, long-term municipal bonds
that offer a high level of income that is exempt from Hawaii state and federal
income taxes, while still attempting to preserve capital. Certain shareholders
may be subject to the federal alternative minimum tax, however. There can be no
assurance that the Series' objective will be achieved.
Strategy Session.
Our strategy over the past six months was to take advantage of falling interest
rates (and rising bond prices). And for most of the past six months, conditions
couldn't have been much better for municipal bonds. Sluggish national economic
growth pushed inflation lower and interest rates down by nearly a half a
percentage point, as measured by The Bond Buyer Revenue Bond Index. Also,
concern about tax reform that held back price gains earlier in 1995 had
diminished.
While conditions for municipal bonds were nearly ideal nationally, local
conditions were not as buoyant. Hawaii is slow in recovering from the U.S.
recession of the early 1990s and the Japanese recession that followed it.
The state's economy is dominated by tourism, which supports six of every 10
jobs. As a result, growth here is largely determined by that of the U.S. as a
whole and Japan, neither of which have been strong lately. What's more, as a
result of the prolonged, severe recession in Japan, investors there sold
Hawaiian real estate, further complicating recovery here. Still, we are
optimistic that a bottom is near and that the Hawaiian economy will grow
considerably faster in 1996. Hawaiians fortunately have a strong tradition of
sound financial management. While economic activity has crimped state revenue
growth, the government has contained spending. In fact, over 1,100 jobs in
state government have been eliminated. Despite this action, the state's surplus
is expected to fall about 40% in 1996 from 1995, to $54 million.
A Word About Quality.
All Hawaii obligations purchased by the Series were considered investment grade,
meaning that they were of the four highest quality grades determined by Moody's
Investors Service (Aaa, Aa, A or Baa), by Standard & Poor's Ratings Group (AAA,
AA, A or BBB), or if unrated, considered comparable in the view of our analysts.
Sector Breakdown.
Prudential Municipal Series Fund
Hawaii Income Series as of 2/29/96
(GRAPH)
<PAGE>
What Went Well.
We Found Hawaiian
Bonds.
It was, and continues to be, difficult to buy Hawaiian tax-free municipal bonds,
because supply has been contracting. In fact, new bond issuance was down 12% in
1995. As a result, we held a sizable amount of our assets in bonds issued by
Puerto Rico, the Virgin Islands or Guam. (These bonds are tax-exempt federally
and in virtually all states, including Hawaii).
In the last six months, we were able to reduce our emphasis on non-Hawaiian
bonds to 46% of net assets on February 29, 1996.
As The Market Rallied,
We Lengthened Duration.
As part of our strategy to take maximum advantage of falling interest rates, we
also bought long-term bonds. Their prices rose dramatically as rates fell. By
buying these bonds late last summer, we substantially lengthened our duration
(a measure of sensitivity to interest rates). Duration ended at 8.5 years on
February 29, 1996, up from 7.6 years on August 31, 1995.
As a result of this strategy, the Series benefited more from the bond market
rally.
And Not So Well.
Not Lengthening Sooner.
Looking back, something we did right -- lengthening duration -- was also
something we could have done sooner. We began lengthening our duration late
last summer. If we had lengthened earlier -- when the municipal bond rally
began in the spring of 1995 -- our performance would have been better. Why
did we wait? We were wary of municipal market volatility at the time.
Tax-reform plans that would have eliminated the tax exemption for municipal
bond income were the talk of Washington. If enacted, the longest-term municipal
bonds would have suffered most.
We Wanted More
Local Bonds.
We'd liked to have bought more local bonds, but frankly, high quality bonds with
the right specifications were not always available at reasonable prices. We
were, however, able to purchase some Hawaiian bonds at attractive prices: City
and County of Honolulu General Obligation bonds, Hawaii State Department of
Budget & Finance -- Queens Medical Center Project, University of Hawaii Faculty
Housing bonds and the Hawaii Housing Finance and Development Corp.
Five Largest
Issuers.
12.6% Hawaii Department of
Budget & Finance
9.0% Puerto Rico Industrial
8.4% Hawaii Housing Finance
& Development
6.7% Puerto Rico
Telephone Authority
6.3% Honolulu City & County
Expressed as a percentage of total net assets as of 2/29/96.
Looking Ahead.
The Hawaiian municipal market looks attractive to us in 1996. We expect Hawaii's
economy to strengthen. That, plus low interest rates and subdued inflation
nationally, make municipal bonds here quite promising.
What could go wrong? This is a presidential election year and resurfacing talk
of flat taxes and other types of income tax reform could roil the municipal
bond market. Volatility and election year politics seem to go hand-in-hand.
1
<PAGE>
President's Letter April 5, 1996
(PICTURE)
Dear Shareholder:
For many investors, 1995 was a profitable year -- most stock and bond funds
enjoyed healthy returns from the U.S. markets. While climbing returns can
tempt even the most skittish investors to start buying again, it is important
to remember that the stock and bond markets go down just as they go up. At times
like these, remember the importance of working with your Financial Advisor or
Registered Representative to help you find investments that are consistent with
your risk tolerance and time horizon. Your Financial Advisor or Registered
Representative can help you maintain realistic expectations about both the
potential performance and risks associated with your investments.
Shareholder Legislative Action Program.
From time to time we've been informing you about significant legislation before
Congress, such as the American Dream Savings Account, that may potentially
impact mutual fund investors. We want to make it easier for you to share your
views with your Congressional member. So, beginning in 1996, whenever Congress
is considering legislation that would affect you, we'll send you postage-paid
message cards that you simply drop in the mail if you want to let your senator
or representative know how you want him or her to vote.
Fund Profiles.
Over the past year, we've worked to make your shareholder reports more
interesting, informative and easy to read. This year, we'll be considering
"fund profiles." Some mutual fund companies now offer one to shareholders
along with a full prospectus. The purpose of a fund profile is to provide a
very brief, reader-friendly summary of a fund's objective, investments, risks
and expenses. Would you like to see fund profiles from us? Please call your
Financial Advisor or Registered Representative to share your views.
As always, thank you for your confidence in Prudential Mutual Funds.
Sincerely,
Richard A. Redeker
President
2
<PAGE>
Portfolio of Investments as
of February 29, 1996 PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) HAWAII INCOME SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
LONG-TERM INVESTMENTS--95.4%
- -----------------------------------------------------------------------------
- -------------------------------------------------
Guam Gov't., Gen. Oblig., Ser. A BBB(c)
5.90% 9/01/05 $ 500 $ 515,770
Guam Pwr. Auth. Rev.,
Ser. A BBB(c)
6.625 10/01/14 250 259,912
Ser. A BBB(c)
6.75 10/01/24 525 552,972
Hawaii St. Arpt. Sys. Rev.. A
7.00 7/01/18 365 395,109
Hawaii St. Arpt. Sys. Rev., 2nd Ser. 90, F.G.I.C. Aaa
7.50 7/01/20 500 557,280
Hawaii St. Dept. Budget & Fin.,
Kapiolani Hlth. Care Sys. A
6.30 7/01/08 500 523,655
Mtg. Rev., Hawaiian Elec. Co., Ser. C, M.B.I.A. Aaa
7.375 12/01/20 500 555,985
Queens Med. Ctr. Proj., F.G.I.C. Aaa
5.90 7/01/07 230 243,634
Queens Med. Ctr. Proj., F.G.I.C. Aaa
6.125 7/01/11 500 526,095
Hawaii St., Gen. Oblig., Ser. CJ Aa
6.25 1/01/15 650 686,966
Hawaii St. Harbor Cap. Impvt. Rev.,
F.G.I.C. Aaa
6.25 7/01/10 250 (e) 267,463
F.G.I.C. Aaa
6.25 7/01/15 500 527,610
Hawaii St. Hsg. Fin. & Dev. Corp. Rev.,
Affordable Rental Hsg. Proj., Ser. A A1
6.05 7/01/22 725 724,927
Univ. of Hawaii Fac. Hsg. Proj., A.M.B.A.C. Aaa
5.65 10/01/16 500 504,545
Hawaii St. Hsg. Fin. & Dev. Corp., Sngl. Fam. Mtge. Rev.,
Ser. B, F.N.M.A. Aa
5.85 7/01/17 500 502,650
Honolulu Hawaii City & Cnty., Ref. & Impvt. Ser. B,
F.G.I.C. Aaa
5.50 10/01/11 900 924,669
Maui Cnty., Ref., F.G.I.C. Aaa
5.125 12/15/10 250 244,505
Puerto Rico Comnwlth., Gen. Oblig. Baa1
6.45 7/01/17 500 540,340
Puerto Rico Elec. Pwr. Auth. Rev., Ser. O Baa1
5.00 7/01/12 600 553,284
Puerto Rico Hwy. & Trans. Auth. Rev., Ser. V Baa1
6.375 7/01/08 500 534,795
Puerto Rico Ind., Tourist, Edu., Med. & Env. Ctrl. Facs.,
Doctor Pila Hosp. Proj., F.H.A. AAA(c)
6.125 8/01/25 500 517,805
Hosp. Auxilio Mutuo Oblig. Grp. Proj., M.B.I.A. Aaa
6.25 7/01/16 500 537,035
Hosp. Auxilio Mutuo Oblig. Grp. Proj., M.B.I.A. Aaa
6.25 7/01/24 250 267,665
Puerto Rico Mun. Fin. Agcy., Ser. A, F.S.A. Aaa
6.00 7/01/14 250 262,755
Puerto Rico Tel. Auth. Rev., Ser. I, M.B.I.A. Aaa
5.449(d) 1/16/15 1,000 988,210
Puerto Rico Univ., Sys. Rev., Ser. M, M.B.I.A. Aaa
5.25 6/01/25 750 720,705
Virgin Islands Pub. Fin. Auth. Rev.,
Gov't. Dev. Proj., Ser. B BBB-(c)
7.375 10/01/10 300 332,457
Ref. Matching Loan Notes, Ser. A NR
7.25 10/01/18 250 269,460
-----------
Total long-term investments (cost $13,280,139)
14,038,258
-----------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3 -----
<PAGE>
Portfolio of Investments as
of February 29, 1996 PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) HAWAII INCOME SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
SHORT-TERM INVESTMENTS--2.0%
Puerto Rico Comnwlth., Gov't. Dev. Bank, Ser. 85, F.R.W.D.
(cost $300,000) VMIG1
2.80% 3/06/96 $ 300 $ 300,000
-----------
Total Investments--97.4 %
(cost $13,580,139; Note 5 )
14,338,258
Other assets in excess of liabilities--2.6%
385,005
-----------
Net Assets--100%
$14,723,263
-----------
-----------
</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(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 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
period end.
(e) 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.
- --------------------------------------------------------------------------------
- ----- 4 See Notes to Financial Statements.
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) HAWAII INCOME SERIES
- --------------------------------------------------------------------------------
<TABLE>
<S>
<C>
Assets
February 29, 1996
Investments, at value (cost
$13,580,139).................................................................
$ 14,338,258
Cash.........................................................................
............................ 109,829
Interest
receivable...................................................................
................... 196,140
Receivable for Fund shares
sold..........................................................................
76,795
Other
assets.......................................................................
...................... 74,497
Due from
Manager......................................................................
................... 21,661
Due from broker - variation margin
receivable............................................................
1,250
-----------------
Total
assets.......................................................................
................... 14,818,430
-----------------
Liabilities
Accrued
expenses.....................................................................
.................... 53,763
Payable for Fund shares
reacquired...................................................................
.... 25,595
Dividends
payable......................................................................
.................. 9,619
Distribution fee
payable......................................................................
........... 4,880
Deferred trustee's
fees.........................................................................
......... 1,310
-----------------
Total
liabilities..................................................................
................... 95,167
-----------------
Net
Assets.......................................................................
........................ $ 14,723,263
-----------------
-----------------
Net assets were comprised of:
Shares of beneficial interest, at
par................................................................. $
11,981
Paid-in capital in excess of
par......................................................................
13,970,671
-----------------
13,982,652
Accumulated net realized gain on
investments..........................................................
39,523
Net unrealized appreciation on
investments............................................................
701,088
-----------------
Net assets, February 29,
1996............................................................................
$ 14,723,263
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($3,671,855 / 298,785 shares of beneficial interest issued and
outstanding)........................ $12.29
Maximum sales charge (3.0% of offering
price).........................................................
.38
Maximum offering price to
public......................................................................
$12.67
Class B:
Net asset value, offering price and redemption price per share
($9,900,513 / 805,623 shares of beneficial interest issued and
outstanding)........................ $12.29
Class C:
Net asset value, offering price and redemption price per share
($1,150,895 / 93,653 shares of beneficial interest issued and
outstanding)......................... $12.29
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5 -----
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
HAWAII INCOME SERIES
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Six Months
Ended
Net Investment Income February 29, 1996
-----------------
Income
Interest................................ $ 400,199
-----------------
Expenses
Management fee.......................... 34,569
Distribution fee--Class A............... 1,743
Distribution fee--Class B............... 23,432
Distribution fee--Class C............... 3,633
Custodian's fees and expenses........... 33,000
Registration fees....................... 24,000
Reports to shareholders................. 15,000
Amortization of organization expenses... 10,430
Audit fee and expenses.................. 5,300
Legal fees and expenses................. 5,000
Transfer agent's fees and expenses...... 2,000
Trustees' fees and expenses............. 1,800
Miscellaneous........................... 1,816
-----------------
Total expenses....................... 161,723
-----------------
Less: Management fee waiver............. (3,457)
Expense subsidy...................... (105,258)
-----------------
Net expenses......................... 53,008
-----------------
Net investment income...................... 347,191
-----------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions................. 44,353
Financial futures contract
transactions......................... (11,721)
-----------------
32,632
-----------------
Net change in unrealized appreciation/depreciation on:
Investments............................. 262,471
Financial futures contracts............. (42,500)
-----------------
219,971
-----------------
Net gain on investments.................... 252,603
-----------------
Net Increase in Net Assets
Resulting from Operations.................. $ 599,794
-----------------
-----------------
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
HAWAII INCOME SERIES
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) February 29, August 31,
in Net Assets 1996 1995
----------------- -----------
<S> <C> <C>
Operations
Net investment income....... $ 347,191 $ 457,043
Net realized gain on
investment
transactions............. 32,632 94,967
Net change in unrealized
appreciation of
investments.............. 219,971 481,117
----------------- -----------
Net increase in net assets
resulting from
operations............... 599,794 1,033,127
----------------- -----------
Dividends and distributions
(Note 1):
Dividends from net
investment income
Class A.................. (93,074) (140,503)
Class B.................. (231,401) (299,569)
Class C.................. (22,716) (16,971)
----------------- -----------
(347,191) (457,043)
----------------- -----------
Distributions from net
realized gains
Class A.................. (22,739) --
Class B.................. (58,916) --
Class C.................. (6,421) --
----------------- -----------
(88,076) --
----------------- -----------
Series share transactions (net
of share conversions) (Note
6):
Net proceeds from shares
sold..................... 1,861,938 13,508,423
Net asset value of shares
issued
in reinvestment of
dividends
and distributions........ 234,818 199,822
Cost of shares reacquired... (617,234) (1,205,115)
----------------- -----------
Net increase in net assets
from Series share
transactions............. 1,479,522 12,503,130
----------------- -----------
Total increase................. 1,644,049 13,079,214
Net Assets
Beginning of period............ 13,079,214 0
----------------- -----------
End of period.................. $14,723,263 $13,079,214
----------------- -----------
----------------- -----------
</TABLE>
- --------------------------------------------------------------------------------
- ----- 6 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) 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
fourteen 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 Net 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. Expenses
are recorded on the accrual basis which may require the use of certain estimates
by management.
Net investment income (other than distribution fees) and unrealized and realized
gains or losses are allocated daily to each class of shares based upon the
relative proportion of net assets of each class at the beginning of the day.
Federal Income Taxes: 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>
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) 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 $3,457
($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 had a distribution agreement with Prudential Mutual Fund Distributors,
Inc. (``PMFD''), which acted as the distributor of the Class A shares of the
Fund through January 1, 1996. Effective January 2, 1996, Prudential Securities
Incorporated (``PSI'') became the distributor of the Class A shares of the Fund
and is serving the Fund under the same terms and conditions as under the
arrangement with PMFD. PSI is also the distributor of the Class B and Class C
shares of the Fund. The Fund compensates PMFD and PSI for distributing and
servicing the Fund's Class A, Class B and Class C shares, pursuant to plans of
distribution (the ``Class A, B and C Plans''), regardless of expenses actually
incurred by them. The distribution fees are accrued daily and payable monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates PSI, and PMFD for
the period September 1, 1995 through January 1, 1996 with respect to Class A
shares, for distribution-related activities at an annual rate of up to .30 of
1%, .50 of 1% and 1%, of the average daily net assets of the Class A, B and C
shares, respectively. Such expenses under the Plans were .10 of 1%, .50 of 1%
and .75 of 1% of the average daily net assets of the Class A, B and C shares,
respectively, for the period ended February 29, 1996.
PMFD and PSI have advised the Series that they have received approximately
$3,700 in front-end sales charges resulting from sales of Class A shares during
the six months ended February 29, 1996. From these fees, PMFD and PSI paid such
sales charges to Pruco Securities Corporation, an affiliated broker-dealer,
which in turn paid commissions to sales persons and incurred other distribution
costs.
PSI has advised the Series that for the period ended February 29, 1996, it
received approximately $22,700 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 period ended February 29,
1996, the Series incurred fees of approximately $2,000 for the services of PMFS.
As of February 29, 1996, approximately $400 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 February 29, 1996, PMF subsidized $105,258 ($.09 per share for
Class A, B and C shares; 1.52% 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 February 29, 1996 were $2,657,594 and
$1,779,422, respectively.
At February 29, 1996, the Series bought 10 financial futures contracts on the
U.S. Treasury Index which expire in March 1996. The value at disposition of such
contracts is $1,205,469. The value of such contracts on February 29, 1996 was
$1,148,438, thereby resulting in an unrealized loss of $57,031.
The cost basis of investments for federal income tax purposes is substantially
the same as for financial reporting purposes and, accordingly, as of February
29, 1996, net unrealized appreciation for federal income tax
- --------------------------------------------------------------------------------
- ----- 8
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) HAWAII INCOME SERIES
- --------------------------------------------------------------------------------
purposes was $758,119 (gross unrealized appreciation--$769,679; gross unrealized
depreciation--$11,560).
- ------------------------------------------------------------
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. A special exchange privilege is also available for
shareholders who qualify 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. Of the 1,198,061 shares of beneficial
interest issued and outstanding at February 29, 1996, PMF owned 171,851 shares.
Transactions in shares of beneficial interest for the six months ended February
29, 1996 and the fiscal year ended August 31, 1995 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- --------------------------------------- -------- ----------
<S> <C> <C>
Six months ended February 29, 1996:
Shares sold............................ 19,100 $ 236,157
Shares issued in reinvestment of
dividends and distributions.......... 1,994 24,610
Shares reacquired...................... (673) (8,287)
-------- ----------
Net increase in shares outstanding
before conversion.................... 20,421 252,480
Shares issued upon conversion from
Class B.............................. 3,544 44,407
-------- ----------
Net increase in shares outstanding..... 23,965 $ 296,887
-------- ----------
-------- ----------
September 19, 1994* through
August 31, 1995:
Shares sold............................ 279,870 $3,255,106
Shares issued in reinvestment of
dividends............................ 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
-------- ----------
-------- ----------
Class B Shares Amount
- --------------------------------------- -------- ----------
Six months ended February 29, 1996:
Shares sold............................ 104,912 $1,297,597
Shares issued in reinvestment of
dividends and distributions.......... 15,283 188,537
Shares reacquired...................... (48,868) (603,650)
-------- ----------
Net increase in shares outstanding
before conversion.................... 71,327 882,484
Shares reacquired upon conversion into
Class A.............................. (3,544) (44,407)
-------- ----------
Net increase in shares outstanding..... 67,783 $ 838,077
<CAPTION>
-------- ----------
-------- ----------
September 19, 1994* through
August 31, 1995:
Shares sold............................ 816,861 $9,471,988
Shares issued in reinvestment of
dividends............................ 14,410 171,145
Shares reacquired...................... (89,345) (1,066,264)
-------- ----------
Net increase in shares outstanding
before conversion.................... 741,926 8,576,869
Shares reacquired upon conversion into
Class A.............................. (4,086) (49,084)
-------- ----------
Net increase in shares outstanding..... 737,840 $8,527,785
-------- ----------
-------- ----------
<CAPTION>
Class C
- ---------------------------------------
<S> <C> <C>
Six months ended February 29, 1996:
Shares sold............................ 26,587 $ 328,184
Shares issued in reinvestment of
dividends and distributions.......... 1,756 21,671
Shares reacquired...................... (423) (5,297)
-------- ----------
Net increase in shares outstanding..... 27,920 $ 344,558
-------- ----------
-------- ----------
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
-------- ----------
-------- ----------
- ---------------
* Commencement of investment operations.
</TABLE>
- --------------------------------------------------------------------------------
9 -----
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) HAWAII INCOME SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
Class B Class C
------------------------------
------------------------------ ------------
September 19,
September 19,
Six Months 1994(b)
Six Months 1994(b) Six Months
Ended Through
Ended Through Ended
February 29, August 31,
February 29, August 31, February 29,
1996 1995
1996 1995 1996
----- -----
----- ----- -----
<S> <C> <C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $12.13 $ 11.64
$12.13 $ 11.64 $12.13
----- -----
----- ----- -----
Income from investment operations
Net investment income(d)...................... .33 .58
.30 .54 .29
Net realized and unrealized gain on investment
transactions............................... .24 .49
.24 .49 .24
----- -----
----- ----- -----
Total from investment operations........... .57 1.07
.54 1.03 .53
----- -----
----- ----- -----
Less distributions
Dividends from net investment income.......... (.33) (.58)
(.30) (.54) (.29)
Distributions from net realized gains......... (.08) --
(.08) -- (.08)
----- -----
----- ----- -----
Total distributions....................... (.41) (.58)
(.38) (.54) (.37)
----- -----
----- ----- -----
Net asset value, end of period................ $12.29 $ 12.13
$12.29 $ 12.13 $12.29
----- -----
----- ----- -----
----- -----
----- ----- -----
TOTAL RETURN(c):.............................. 4.69% 9.42%
4.49% 9.03% 4.36%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $3,672 $ 3,333
$9,901 $ 8,949 $1,151
Average net assets (000)...................... $3,505 $ 2,778
$9,424 $ 6,270 $ 974
Ratios to average net assets:(a)/(d)
Expenses, including distribution fees...... .45% .46%
.85% .86% 1.10%
Expenses, excluding distribution fees...... .35% .36%
.35% .36% .35%
Net investment income...................... 5.34% 5.32%
4.94% 5.03% 4.69%
Portfolio turnover rate....................... 13% 75%
13% 75% 13%
<CAPTION>
September 19,
1994(b)
Through
August 31,
1995
-----
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 11.64
-----
Income from investment operations
Net investment income(d)...................... .51
Net realized and unrealized gain on investment
transactions............................... .49
-----
Total from investment operations........... 1.00
-----
Less distributions
Dividends from net investment income.......... (.51)
Distributions from net realized gains......... --
-----
Total distributions....................... (.51)
-----
Net asset value, end of period................ $ 12.13
-----
-----
TOTAL RETURN(c):.............................. 8.78%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $ 797
Average net assets (000)...................... $ 373
Ratios to average net assets:(a)/(d)
Expenses, including distribution fees...... 1.11%
Expenses, excluding distribution fees...... .36%
Net investment income...................... 4.79%
Portfolio turnover rate....................... 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>
Getting
The Most
From Your
Prudential
Mutual
Fund
How many times have you read these letters -- or other financial materials --
and stumbled across a word that you don't understand?
Many shareholders have run into the same problem. We'd like to help. So we'll
use this space from time to time to explain some of the words you might have
read, but not understood. And if you have a favorite word that no one can
explain to your satisfaction, please write to us.
Basis Point: One 1/100th of 1%. For example, one half of one percentage point
is 50 basis points.
Call Option: A contract giving the holder a right to buy stocks or bonds at a
predetermined price (called the strike price) before a predetermined expiration
date. A buyer of a call option generally expects to benefit from a rise in the
price of the stock or bond.
Capital Gain/Capital Loss: The difference between the cost of a capital asset
(for example, a stock, bond or mutual fund share) and its selling price. Under
current law the federal income tax rate for individuals on a long-term capital
gain is 28%.
Collateralized Mortgage Obligations (CMOs): Pools of mortgage-backed securities
sliced in maturity ranges that bear differing interest rates. These instruments
are sensitive to changes in interest rates and homeowner refinancing activity.
They are subject to prepayment and maturity extension risk.
Derivatives: Securities that derive their value from another security. The rate
of return of these financial products rises and falls -- sometimes very suddenly
- -- in response to changes in some specific interest rate, currency, stock or
other variable.
Discount Rate: The interest rate charged by the Federal Reserve on loans to
banks and other depository institutions.
Federal Funds Rate: The interest rate charged by one bank to another on
overnight loans.
Futures Contract: An agreement to deliver a specific amount of a commodity or
financial instruments at a set price at a stipulated time in the future.
Leverage: The use of borrowed assets to enhance return on equity. The
expectation is that the interest rate charged will be lower than the return
on the investment. While leverage can increase profits, it can also magnify
losses.
Liquidity: The ease with which a financial instrument (or mutual fund) can be
bought or sold (converted into cash) in the financial markets.
Option: An agreement to buy or sell something, such as shares of stock, by a
certain time for a specified price. An option need not be exercised. In fact,
most expire unexercised.
Price/Earnings Ratio: The price of a share of stock divided by the earnings per
share for a 12-month period.
Spread: The difference between two values; most often used to describe the
difference between prices bid and asked for a security.
Yankee Bond: A bond denominated in U.S. dollars but sold by a foreign company
or government in the U.S. market.
<PAGE>
How Does Your State Stack Up?
Economic conditions vary from state to state. While one region may be
experiencing strong fiscal management and prosperity, another may languish
under the weight of declining industry or chronic state budget problems.
State economic conditions, fiscal management and interest rates play
dominant roles in the performance of individual municipal bonds. A strong
economy generally leads to higher tax revenues and other income sources for
the state, enabling it to more easily repay its debts. Additionally, sound
state financial management often results in high ratings from bond rating
agencies. High ratings are attractive to investors and can help bonds retain
value in the market.
California
- - World's 8th largest economy.
- - Entertainment jobs growing.
- - Recovery continues, but growth
is expected to be below the
national average.
- - Increasing tax revenues may not cover soaring Medicaid costs.
Hawaii
- - Tourism provides 60% of jobs.
- - Strong financial management.
- - Slow recovery from early-1990s U.S. and Japanese recessions, which bit into
tourism and real estate.
- - Government eliminated 1,100 state jobs.
Ohio
- - Shift from manufacturing to service trades.
- - Economic and personal income growth ahead of national averages.
- - Debt is low.
Pennsylvania
- - Slowly rebuilding economy, but needs new engine of growth.
- - Debt as a percentage of personal income is half the national average.
- - Sound financial management.
Michigan
- - Economic growth is 3.5%, higher than national average.
- - Once car capital of the world, now more diversified.
- - Strengthening fiscal management.
Massachusetts
- - Painful cuts in defense and health care eliminated jobs.
- - Slowly rebuilding economy.
- - Personal income is high.
New York
- - High taxes restrain growth.
- - Personal income remains high.
- - Debt level is high.
- - Federal budget Medicaid reform impasses threaten planned budget savings.
Maryland
- - One of wealthiest states.
- - Personal income 115% ofnational average, but income growth has stabilized.
- - Good financial controls.
Florida
- - Economy and personal income growing much faster than national rate.
- - Unemployment and debt are low.
- - Ended 1995 with a budget surplus for the third year in a row.
Connecticut
- - Nation's wealthiest citizens.- Economically weak from defense cuts.
- - Slow growth -- recovery may take years.
- - Attempts at "quick fixes" won't provide permanent relief.
New Jersey
- - Broad-based economy and high personal wealth.
- - Economic growth slowing.
- - "Pro-business" tactics siphoned revenue, but may spur more growth.
North Carolina
- - Robust, model economy.
- - Personal income quicklygrowing.
- - Unemployment well below national average.
- - New jobs from financial services, research and high technology.
- - Strong financial management.
Source: Prudential Investment Corporation. Selected states are those for
which Prudential Mutual Fund Management manages a state-specific municipal
bond mutual fund
Revised: April, 1996
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
Internet Address:
http:\\www.prudential.com
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 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 Auditor
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
The views expressed in this report and information about the Series' portfolio
holdings are for the period covered by this report and are subject to change
thereafter.
The accompanying financial statements as of February 29, 1996 were not audited
and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
<PAGE>
Prudential Mutual Funds
Building Your Future (LOGO)
On Our Strengthsm
BULK RATE
U.S. POSTAGE
PAID
Permit 6807
New York, NY
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
74435M473
74435M465 MF165E2
74435M457 Cat# 42M061Y
(ICON)
Prudential
Municipal
Series Fund
- ------------------------
Massachusetts Series
SEMI
ANNUAL
REPORT
Feb. 29, 1996
(LOGO)
<PAGE>
Prudential Municipal Series Fund
Massachusetts Series
Performance At A Glance.
Lower interest rates and subdued inflation lifted tax-free municipal
bond prices higher over the past six months, continuing a trend that
has been in place for some time. For the six-month period ending
February 29, 1996 the Prudential Municipal Series Fund -- Massachusetts
Series performed in line with the average Massachusetts municipal fund,
as measured by Lipper Analytical Services.
<TABLE>
Cumulative Total Returns1 As of 2/29/96
<CAPTION>
Six One Five Ten Since
Months Year Years Years Inception2
<S> <C> <C> <C> <C> <C>
Class A 5.2% 10.1% 49.2% N/A 61.0%
Class B 5.0 9.6 46.0 94.0% 146.7
Class C 4.9 9.4 N/A N/A 12.7
Lipper MA Muni Avg3 4.9 9.6 48.2 100.6 166.2
</TABLE>
<TABLE>
Average Annual Total Returns1 As of 3/31/96
<CAPTION>
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A 4.4% 7.3% N/A 7.2%
Class B 2.2 7.3 6.6% 8.0(7.9)4
Class C 5.9 N/A N/A 6.4(6.3)4
</TABLE>
<TABLE>
<CAPTION>
Dividends
& Yields Taxable
Equivalent Yield5
As of Total Dividends 30-Day At Tax Rates
Of
2/29/96 Paid for Six Mos. SEC Yield 36%
39.6%
<S> <C> <C> <C>
<C>
Class A $0.30 4.18% (4.13)4 7.42% (7.33)4
7.86% (7.77)4
Class B $0.28 3.90 (3.85)4 6.92 (6.84)4
7.34 (7.24)4
Class C $0.26 3.64 (3.59)4 6.46 (6.37)4
6.85 (6.75)4
</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 declining contingent deferred sales charge (CDSC) 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 51 funds
for six months, 48 funds for one year, 19 funds for five years, seven
funds for 10 years and four funds since inception of the Class B
shares on 9/25/84.
4Without waivers and expense subsidies the Series' average annual
total return/30-day SEC yield would have been lower, as indicated
in parentheses ( ).
5Taxable equivalent yields reflect federal and applicable state
tax rates.
How Investments Compared.
(As of 2/29/96)
(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. The returns assume the reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors have received
higher historical total returns from stocks than from most other
investments. Smaller capitalization stocks offer greater potential
for long-term growth but may be more volatile than larger
capitalization stocks.
General Bond Funds provide more income than stock funds, which can
help smooth out their total returns year by year. But their prices
still fluctuate (sometimes significantly) and their returns have been
historically lower than those of stock funds.
General Municipal Debt Funds invest in bonds issued by state governments.
state agencies and/or municipalities. This investment provides income that
is usually exempt from federal and state income taxes.
Money Market Funds attempt to preserve a constant share value; they don't
fluctuate much in price but, historically, their returns have been generally
among the lowest of the major investment categories.
*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 Massachusetts
state and federal income taxes consistent with preservation of capital.
Certain shareholders may be subject to the federal alternative minimum
tax, however. There can be no assurance that the Series' investment
objective will be achieved.
Strategy Session.
Our strategy over the past six months was to take advantage of falling
interest rates (and rising bond prices) while keeping an eye out for
any shift to higher rates. And for most of the past six months, conditions
couldn't have been much better for municipal bonds. Sluggish economic
growth nationwide pushed inflation lower and interest rates down by
nearly a half a percentage point, as measured by The Bond Buyer Revenue
Bond Index. Second, the concern about tax reform that had held back price
gains diminished, allowing municipal bonds to rise in value in recent months.
Conditions for tax-free municipal bond investors in Massachusetts were
not quite as rosy. While the Commonwealth's financial management is
favorable, its economy is still undergoing major changes. The state's
important healthcare industry has been reorganized (and downsized) to
save costs, and the same downsizing has shrunk Massachusetts' defense
industry. Fortunately, though, the large service sector helped the
state's economy grow by 2.8% in 1995, and personal income is still the
fourth-highest in the nation.
Massachusetts' revenues and expenditures remain in a good balance -- an
important accomplishment given the economic climate that has dogged
the state in recent times. But the state is paying 8.3% of personal
income to pay off its debts (vs. a 4.7% national average), money that
could be earmarked for future capital spending for roads, education
and other public necessities. The governor is now attempting to cut
state programs and expenses -- which hopefully will reduce taxes and
encourage business expansion.
Sector Breakdown.
Prudential Municipal Series Fund
Massachusetts Series as of 2/29/96
(PIE CHART)
Insured Bonds.
More new tax-free municipal bonds are being insured these days,
because buyers are concerned about credit quality. In 1995, 43%
of all new bonds issued nationally were insured. Following this
national trend, insured bonds in your Series were 48% of
assets. Although insuring a bond reduces its yield, it benefits
the investor in that payment of both interest and principal are
then guaranteed. Of course, no insurance is available to prevent
the daily market value of bonds, and bond funds, from
fluctuating.
<PAGE>
What Went Well.
We Searched For Special Qualities.
We combed the market for bonds with special qualities like a
premium (high coupon), an intermediate maturity (8 to 12 years)
and that were non-callable. This type of bond helps the Series
appreciate when interest rates fall, limits losses when
interest rates rise, and provides a healthy income. How? This
bond's intermediate maturity makes it less volatile than others
as interest rates rise and fall. If interest rates rise, this bond
won't fall so quickly. But if interest rates fall, this
bond will appreciate faster than others because it can't be refunded
before it matures. And non-callable bonds? They guarantee that our
duration and yield will remain as expected.
So did we find any bonds with these special qualities? Yes, and
that's why we performed as well as we did.
You Can Call Us,But Not Our Bonds.
Our investment in non-callable bonds was 19.4% of net assets as of
February 29, 1996. That helped performance.
When interest rates fall, municipalities often "call" bonds, or repay
the principal value of their bonds early, so that they can reissue them
at the now-lower rates. That leaves investors in the lurch -- with only
newly-issued lower coupon bonds to replace their called higher-yielding
holdings. So, we intentionally focus on non-callable bonds because
income-hungry investors like them and their prices tend to rise more
than callable bond prices when interest rates fall.
And Not So Well.
Lengthening Sooner.
Looking back, something we did right -- lengthening duration -- was also
something we could have done sooner. We began lengthening our duration
late last summer. If we had lengthened earlier -- like when the
municipal bond rally began in the spring of 1995 -- the Series'
performance would have been better.
Why did we wait? We were wary of municipal market volatility. Tax-reform
plans that would have eliminated the tax exemption for municipal bond
income were the talk of Washington. If enacted, the longest-term municipal
bonds would have suffered most.
A Word About Holyoke.
In February, our Holyoke Hospital bonds were suddenly downgraded by
Moody's -- due to a pending lawsuit relating to a merger with another
Massachusetts hospital. As a result, their prices fell and their yield
rose to 7.2% from 6.5%. We believe the market overreacted. We've
decided to hold these bonds because they now offer a high yield and
we believe they are of investment-grade credit quality.
Looking Ahead.
The Massachusetts municipal bond market remains attractive to us in
1996 because of the state's improving economic situation. The state's
stable economy and the country's low interest rates and inflation make
municipal bonds here a sound investment for those looking for
tax-free income.
What could go wrong? This is a presidential election year and
resurfacing talk of flat taxes and other types of income tax
reform could roil the municipal bond market. Volatility and election
year politics seem to go hand-in-hand.
Five Largest Issuers.
6.3% Puerto Rico
Commonwealth
5.5% Massachusetts GO
4.0% State Water Pollution
Abatement
3.8% Health & Education
Facility -- Newton
3.7% City of Gloucester
Expressed as a percentage of total net assets as of 2/29/96.
1
<PAGE>
President's Letter April 5, 1996
(PICTURE)
Dear Shareholder:
For many investors, 1995 was a profitable year -- most stock and bond
funds enjoyed healthy returns from the U.S. markets. While climbing
returns can tempt even the most skittish investors to start buying
again, it is important to remember that the stock and bond markets
go down just as they go up. At times like these, remember the
importance of working with your Financial Advisor or Registered
Representative to help you find investments that are consistent
with your risk tolerance and time horizon. Your Financial Advisor
or Registered Representative can help you maintain realistic
expectations about both the potential performance and risks
(ICON)
Prudential
Municipal
Series Fund
Pennsylvania Series
SEMI
ANNUAL
REPORT
Feb. 29, 1996
(LOGO)
<PAGE>
Prudential Municipal Series Fund
Pennsylvania Series
Performance At A Glance.
Lower interest rates and subdued inflation lifted tax-free municipal bond
prices higher over the past six months, continuing a trend that has been in
place for over a year now. For the six months ended February 29, 1996 the
Prudential Municipal Series Fund -- Pennsylvania Series performed roughly in
line with the average Pennsylvania municipal fund, as measured by Lipper
Analytical Services.
<TABLE>
<CAPTION>
Cumulative Total Returns1 As of 2/29/96
Six One Five Since
Months Year Years Inception2
<S> <C> <C> <C> <C>
Class A 5.1% 10.2% 48.9% 59.6
Class B 4.8 9.6 45.9 85.2
Class C 4.7 9.4 N/A 11.8
Lipper PA Muni Avg3 5.0 10.1 48.5 87.6
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns1 As of 3/31/96
One Five Since
Year Years Inception2
<S> <C> <C> <C>
Class A 4.4% 7.3% 7.0%
Class B 2.2 7.4 6.9
Class C 5.9 N/A 5.9
</TABLE>
<TABLE>
<CAPTION>
Dividends & Yields
As of 2/29/96
Taxable Equivalent Yield5
Total Dividends 30-Day At Tax Rates Of
Paid for Six Mos. SEC Yield 36% 39.6%
<S> <C> <C> <C> <C>
Class A $0.29 4.55% (4.50)4 7.31% (7.23)4 7.75%(7.66)4
Class B $0.27 4.29 (4.24)4 6.90 (6.82)4 7.31 (7.22)4
Class C $0.26 4.04 (3.99)4 6.49 (6.41)4 6.88 (6.80)4
</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 declining
contingent deferred sales charge (CDSC) 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; 4/3/87, Class B; 8/1/94 Class C.
3The Lipper Pennsylvania Municipal Bond fund average includes 64 funds for six
months, 57 funds for one year, 22 funds for five years and eight funds since
inception of the Class B shares on 4/3/87.
4Without waivers and expense subsidies the Series' average annual total return/
30-day SEC yield would have been lower, as indicated in parentheses ( ).
5Taxable equivalent yields reflect federal and applicable state tax rates.
How Investments Compared.
(As of 2/29/96)
(GRAPH)
U.S. General General U.S.
Growth Bond Muni Debt Taxable
Funds Funds Funds Money Funds
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. The returns assume the reinvestment
of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors have received higher
historical total returns from stocks than from most other investments. Smaller
capitalization stocks offer greater potential for long-term growth but may be
more volatile than larger capitalization stocks.
General Bond Funds provide more income than stock funds, which can help smooth
out their total returns year by year. But their prices still fluctuate
(sometimes significantly) and their returns have been historically lower than
those of stock funds.
General Municipal Debt Funds invest in bonds issued by state governments, state
agencies and/or municipalities. This investment provides income that is usually
exempt from federal and state income taxes.
Money Market Funds attempt to preserve a constant share value; they don't
fluctuate much in price but historically their returns have been generally
among the lowest of the major investment categories.
*19 years for General Muni Debt Funds.
<PAGE>
Peter Allegrini, Fund Manager
Portfolio
Manager's Report
(PHOTO)
The Series invests primarily in carefully-selected, long-term municipal bonds
that offer a high level of income exempt from Pennsylvania state and federal
income taxes, while still attempting to preserve capital. Certain shareholders
may be subject to the federal alternative minimum tax, however. There can be
no assurance that the Series will achieve its objective.
Strategy Session.
Our strategy over the past six months was to take maximum advantage of falling
interest rates (and rising bond prices). For most of the past six months,
conditions couldn't have been much better for municipal bonds. Sluggish
national economic growth pushed inflation lower and interest rates down by
nearly a half a percentage point, as measured by The Bond Buyer Revenue Bond
Index. Also, concern about tax reform that held back price gains earlier in
1995 has now diminished.
Conditions for investing in municipal bonds were not quite as rosy in
Pennsylvania. While slow economic growth nationally keeps interest rates low,
slow economic growth locally constrains tax revenues. Economic growth was
slower in Pennsylvania than in other states in 1995, and the situation is not
expected to improve in 1996. Pennsylvania is in the process of restructuring
its economy, but it needs a new engine of growth.
Fortunately, Pennsylvania's state government has historically responded
promptly to financial challenges. Since it incurred a deficit in 1991, the
commonwealth has slowly worked its way back to the black. Through this period,
Pennsylvania has been able to maintain a good credit rating because of its
sound financial management. One other factor has helped -- state debt as a
percentage of personal income is nearly half the average of other states.
Insured Bonds.
More new tax-free municipal bonds are being insured these days, because buyers
are increasingly concerned about credit quality. In 1995, 43% of all new bonds
issued nationally were insured. Our Series followed this trend and as a result,
insured bonds are now 48% of assets. Insured bonds benefit the investor,
because payment of both interest and principal of a bond are guaranteed. Of
course, no insurance is available to prevent the market value (price) of bonds,
and bond funds, from fluctuating from day to day.
Sector Breakdown.
Prudential Municipal Series Fund
Pennsylvania Series as of 2/29/96
(GRAPH)
<PAGE>
What Went Well.
You Can Call Us, But Not Our Bonds.
Our investment in non-callable bonds (which can't be refunded ahead of schedule
by their issuers), was 17% of net assets. This helped lift performance. (Only
about a third of the market is not callable). When interest rates fall,
municipalities often prefer to "call" their bonds or repay the principal value
of their bonds early, so that they can refinance them at the now-lower rates.
That leaves income-hungry investors in the lurch -- with only newly-issued
lower coupon bonds to replace their called higher-yielding holdings.
We had intentionally been focusing investments in non-callable bonds because
their prices tend to rise more than callable bond prices when interest rates
fall.
As The Market Rallied, We Lengthened.
As part of our strategy to take maximum advantage of falling interest rates,
we also bought long-term bonds. Their prices rose dramatically when rates fell.
By buying these bonds late last summer, we substantially lengthened our
duration (a measure of sensitivity to interest rates) to 9.0 years on December
31, 1995 from 7.0 years on February 28, 1995. Early in 1996, as the bond rally
began to fade, we tried to protect our gains by shortening our duration to 7.5
years as of February 29, 1996.
And Not So Well.
Not Lengthening Sooner.
Looking back, something we did right -- lengthening duration -- was also
something we could have done sooner. We began lengthening our duration late
last summer. If we had lengthened earlier -- when the municipal bond rally
began in the spring of 1995 -- our performance would have been better. Why did
we wait? We were wary of municipal market volatility at the time. Tax-reform
plans that would have eliminated the tax exemption for municipal bond income
were the talk of Washington. If enacted, the longest-term municipal bonds
would have suffered most.
Five Largest Issuers.
10.2% Puerto Rico
Commonwealth
4.5% Cambria Cnty.
Industrial Auth.
3.5% Philadelphia Water
& Sewer Rev.
2.5% Emmaus General
Authority Rev.
2.5% Luzerne Cnty.
Industrial Auth. Rev.
Expressed as a percentage of total net assets as of 2/29/96.
Looking Ahead.
The municipal bond market looks good to us in 1996. Low interest rates and
subdued inflation nationally make municipal bonds quite attractive.
What could go wrong? This is a presidential election year and resurfacing talk
of flat taxes and other types of income tax reform could roil the municipal
bond market. We don't expect this to happen, but volatility and election year
politics seem to go hand-in-hand.
- ------------------------------------------------------------------------------
1
<PAGE>
President's Letter
(PHOTO)
April 5, 1996
Dear Shareholder:
For many investors, 1995 was a profitable year -- most stock and bond funds
enjoyed healthy returns from the U.S. markets. While climbing returns can
tempt even the most skittish investors to start buying again, it is important
to remember that the stock and bond markets go down just as they go up. At
times like these, remember the importance of working with your Financial
Advisor or Registered Representative to help you find investments that are
consistent with your risk tolerance and time horizon. Your Financial Advisor
or Registered Representative can help you maintain realistic expectations
about both the potential performance and risks associated with your
investments.
Shareholder Legislative Action Program.
From time to time we've been informing you about significant legislation
before Congress, such as the American Dream Savings Account, that may
potentially impact mutual fund investors. We want to make it easier for you to
share your views with your Congressional member. So, beginning in 1996,
whenever Congress is considering legislation that would affect you, we'll send
you postage-paid message cards that you simply drop in the mail if you want to
let your senator or representative know how you want him or her to vote.
Fund Profiles.
Over the past year, we've worked to make your shareholder reports more
interesting, informative and easy to read. This year, we'll be considering
"fund profiles." Some mutual fund companies now offer one to shareholders
along with a full prospectus. The purpose of a fund profile is to provide a
very brief, reader-friendly summary of a fund's objective, investments, risks
and expenses. Would you like to see fund profiles from us? Please call your
Financial Advisor or Registered Representative to share your views.
As always, thank you for your confidence in Prudential Mutual Funds.
Sincerely,
Richard A. Redeker
President
- ------------------------------------------------------------------------------
2
Revised: April, 1996
<PAGE>
Portfolio of Investments
as of February 29, 1996 PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) PENNSYLVANIA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
LONG-TERM INVESTMENTS--98.9%
- -----------------------------------------------------------------------------
- -------------------------------------------------
Allegheny Cnty. Arpt. Rev.,
Greater Pittsburgh Int'l. Arpt., Ser. A, F.S.A. Aaa
6.60% 1/01/04 $ 1,000 $ 1,105,250
Greater Pittsburgh Int'l. Arpt., F.S.A. Aaa
5.625 1/01/23 1,230 1,199,152
Allegheny Cnty. Higher Ed. Bldg. Auth. Rev.,
Robert Morris Coll., M.B.I.A. Aaa
7.00 6/15/08 1,000 1,094,100
Allegheny Cnty. Hosp. Dev. Auth. Rev.,
Allegheny Gen. Hosp., Ser. A, M.B.I.A. Aaa
6.25 9/01/20 1,750 1,865,412
Magee Womens Hosp., F.G.I.C. Aaa
Zero 10/01/14 2,000 701,020
Magee Womens Hosp., F.G.I.C. Aaa
Zero 10/01/16 2,000 620,020
Magee Womens Hosp., F.G.I.C. Aaa
Zero 10/01/18 2,000 535,420
Magee Womens Hosp., F.G.I.C. Aaa
Zero 10/01/19 4,000 1,010,160
Presbyterian Univ. Hosp., Ser. C, M.B.I.A. Aaa
7.625 7/01/15 1,100 1,199,088
West Penn. Hosp. Hlth. Ctr. NR
8.50 1/01/20 2,000 2,211,780
Allegheny Cnty. Ind. Dev. Auth., USX Proj., Ser. A Baa3
6.70 12/01/20 4,500 4,633,875
Allegheny Cnty. Residential Fin. Auth., Mtge. Rev.,
G.N.M.A.,
Ser. F Aaa
9.00 6/01/17 375 397,283
Ser. Q Aaa
7.40 12/01/22 970 1,032,778
Allegheny Cnty. San. Auth. Swr. Rev.,
F.G.I.C. Aaa
Zero 12/01/05 2,620 1,616,802
Ser. A, F.G.I.C. Aaa
Zero 6/01/06 1,640 977,473
Allegheny Cnty., Ser. C-37, M.B.I.A. Aaa
7.30 12/01/10 1,500 (c) 1,700,505
Allentown, A.M.B.A.C.,
Gtd. Wtr. Impvt. Aaa
5.65 7/15/10 775 817,199
Impvt. Aaa
5.65 7/15/10 325 342,696
Ref. Gtd. Wtr. Aaa
5.65 7/15/10 330 347,969
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 1,280,111
Berks Cnty. Ind. Dev. Auth. Rev., Lutheran Home Proj. NR
6.875 1/01/23 1,500 1,503,045
Berks Cnty. Mun. Auth. Hosp. Rev., Reading Hosp.
Med. Ctr. Proj., M.B.I.A. Aaa
5.70 10/01/14 1,250 1,280,275
Bethlehem Auth. Wtr. Rev., M.B.I.A. Aaa
5.20 11/15/21 3,000 2,841,150
Boyertown Area Sch. Dist., Ser. B, A.M.B.A.C. Aaa
5.25 2/01/17 2,000 1,907,160
Bucks Cnty. Wtr. & Swr. Auth. Rev.,
Neshaminy Interceptor Swr. Sys., F.G.I.C. Aaa
Zero 12/01/15 2,175 720,708
Butler Cnty. Hosp. Auth. Rev., North Hills,
Passavant Hosp., Ser. A, C.G.I.C. Aaa
7.00 6/01/22 1,000 1,114,140
Cambria Cnty. Ind. Dev. Auth., Poll. Ctrl. Rev.,
Elec. Co. Proj., M.B.I.A.,
Ser. A Aaa
5.35 11/01/10 8,360 8,517,920
Ser. B Aaa
6.05 11/01/25 3,000 3,083,190
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3 -----
<PAGE>
Portfolio of Investments
as of February 29, 1996 PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) PENNSYLVANIA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Chester Cnty., Gen. Oblig. Ser. B Aa
5.625% 11/15/16 $ 2,090 $ 2,116,313
Chester Upland Sch. Auth., Sch. Rev. A(b)
6.375 9/01/21 1,000 1,031,880
Dauphin Cnty. Gen. Auth. Rev., B.I.G Aaa
7.40 1/01/06 1,000 1,041,790
Delaware Cnty. Auth Rev.,
Crozer Chester Med. Ctr., Ser. A,B,C, M.B.I.A. Aaa
7.15 12/15/05 2,550 2,918,756
Delaware Cnty. Gen. Oblig. Aa
5.50 10/01/15 3,000 3,004,260
Delaware Cnty. Ind. Dev. Auth. Rev., Res. Recovery Proj.,
Ser. A Aa3
8.10 12/01/13 2,000 2,087,880
Delaware River Jt. Toll Bridge Comn. Rev., F.G.I.C. Aaa
6.00 7/01/18 5,500 5,680,620
Delaware River Port Auth., PA & NJ Rev., F.G.I.C. Aaa
5.50 1/01/26 2,000 1,968,140
Doylestown Hosp. Auth. Rev., Pine Run Retirement, Ser. A NR
7.20 7/01/23 3,180 3,217,206
Emmaus Gen. Auth. Rev., Local Gov't Bond, B.I.G.,
Ser. B Aaa
8.00 5/15/18 1,000(e) 1,090,700
Ser. C Aaa
7.90 5/15/18 1,250 1,371,112
Ser. E Aaa
7.90 5/15/18 2,000 2,193,780
Ser. F Aaa
7.90 5/15/18 1,600 1,755,024
Erie Higher Ed. Bldg. Auth., College Rev.,
Mercyhurst Coll. Proj. AAA(b)
7.85 9/15/19 1,000(c) 1,124,270
Mercyhurst Coll. Proj., Ser. B BBB(b)
5.75 3/15/23 3,250 2,937,545
Great Valley Sch. Dist., Chester Cnty. Aa1
5.10 2/15/16 2,000 1,906,060
Greencastle Antrim Sch. Dist., M.B.I.A.,
Capital Appreciation, Ser. B Aaa
Zero 1/01/12 1,000 412,480
Capital Appreciation, Ser. B Aaa
Zero 1/01/13 1,000 386,870
Harrisburg Auth. Lease Rev., Green Cnty. Prison Proj.,
F.G.I.C. Aaa
6.625 6/01/13 1,500 1,648,365
Harrisburg Redev. Auth. Rev., Cap. Impvt., Ser. A,
F.G.I.C. Aaa
7.875 11/02/16 900 957,843
Lancaster Cnty. Solid Waste Mgmt. Auth. Rev.,
Res. Rec. Sys. Landfill Rev. A
7.75 12/15/04 750 782,363
Res. Rec. Sys. Landfill Rev. A
7.875 12/15/09 500 522,995
Res. Rec. Sys. Rev., Ser. A A
8.375 12/15/04 1,000 1,061,990
Langhorne Manor Boro. Higher Ed. & Hlth. Auth Rev.,
Lower Bucks Hosp. Ba1
7.35 7/01/22 2,975 2,725,576
Latrobe Ind. Dev. Auth. Coll. Rev.,
St. Vincent Coll. Proj. Baa1
6.75 5/01/14 1,800 1,869,804
St. Vincent Coll. Proj. Baa1
6.75 5/01/24 1,500 1,536,375
Lehigh Cnty. Gen. Purpose Auth. Revs.,
Horizon Hlth. Sys. Inc., Ser. A NR
8.25 7/01/13 500 555,685
St. Lukes Hosp. of Bethlehem Proj., A.M.B.A.C. Aaa
5.30 11/15/06 750 778,193
St. Lukes Hosp. of Bethlehem Proj., A.M.B.A.C. Aaa
5.30 11/15/07 1,000 1,024,170
Lower Pottsgrove Township Auth. Swr. Rev.,
Montgomery Cnty., A.M.B.A.C.,
Ser. A Aaa
Zero 11/01/13 1,155 429,995
Ser. A Aaa
Zero 11/01/15 1,185 394,498
Luzerne Cnty. Ind. Dev. Auth. Rev., Gas & Water, Ser. B Baa3
7.125 12/01/22 6,000 6,369,840
</TABLE>
- --------------------------------------------------------------------------------
- ----- 4 See Notes to Financial Statements.
<PAGE>
Portfolio of Investments
as of February 29, 1996 PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) PENNSYLVANIA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Montgomery Cnty. Higher Ed. & Hlth. Auth. Hosp. Rev.,
Jeanes Hlth. Sys. Proj. NR
8.625% 7/01/07 $ 4,000(c) $ 4,753,040
Montgomery Cnty. Ind. Dev. Auth. Rev., Poll Ctrl.,
Philadelphia Elec. Co., Ser. A Baa1
7.60 4/01/21 1,000 1,087,680
Res. Recovery A(b)
7.50 1/01/12 2,000 2,170,700
Montgomery Cnty. Redev. Auth., Multifamily Hsg., Ser. A NR
6.50 7/01/25 1,400 1,376,438
Northampton Cnty. Higher Ed. Auth. Rev.,
Lehigh Univ., M.B.I.A. Aaa
7.10 11/15/09 1,500 1,657,770
Moravian Coll. AAA(b)
8.20 6/01/11 2,095(c) 2,515,571
Moravian Coll., A.M.B.A.C. Aaa
6.25 7/01/11 2,195 2,426,529
Northeastern Hosp. & Ed. Auth. Coll. Rev., Kings Coll.
Proj., Ser. B BBB(b)
6.00 7/15/18 3,235 3,137,982
Northumberland Cnty. Ind. Dev. Auth. Rev., Roaring Creek
Wtr. NR
6.375 10/15/23 1,000 949,630
Penn Hills, Ser. B, A.M.B.A.C. Aaa
Zero 12/01/18 1,360 364,575
Penn Hills Township, Gen. Oblig., A.M.B.A.C.,
Ser. A Aaa
Zero 12/01/09 1,530 728,295
Ser. A Aaa
Zero 6/01/10 1,535 706,300
Pennsylvania Econ. Dev. Auth.,
Macmillan Ltd. Partnership Proj. Baa2
7.60 12/01/20 3,000 3,379,140
Wastewater Treatment Rev., Sun Co. R & M Proj., Ser. A Baa1
7.60 12/01/24 4,500 5,031,315
Pennsylvania Hsg. Fin. Agcy.,
Sngl. Fam. Mtge. Aa
7.80 10/01/20 2,930 3,111,689
Sngl. Fam. Mtge. Aa
8.111(d) 4/01/25 1,050 1,063,125
Sngl. Fam. Mtge., Ser. X Aa
8.10 10/01/10 780 812,737
Pennsylvania St. Cert. of Part., F.S.A. Aaa
6.25 11/01/06 1,900 2,063,286
Pennsylvania St. Higher Edl. Facs. Auth. Rev.,
Allegheny Coll., Ser. B BBB+(b)
6.00 11/01/22 2,000 1,920,760
Hahnemann Univ. Proj., M.B.I.A. Aaa
7.20 7/01/09 1,500 1,650,480
La Salle Univ., M.B.I.A. Aaa
7.70 5/01/10 1,100 1,196,976
Med. Coll. of Penn., Ser. A Baa
8.375 3/01/11 355 384,685
Med. Coll. of Penn., Ser. A Baa
7.50 3/01/14 2,350 2,437,397
St. Sys., Ser. J, A.M.B.A.C. Aaa
5.625 6/15/19 1,520 1,507,186
Philadelphia Arpt. Rev., Philadelphia Arpt. Sys. Baa1
9.00 6/15/15 2,000 2,067,420
Philadelphia Gas Wks. Rev. Baa1
7.70 6/15/11 215 252,137
Philadelphia Gas Wks. Rev.,
Ser. 13 Baa1
7.20 6/15/98 500 531,315
Ser. 13 Baa1
7.30 6/15/99 625 671,044
Ser. 13 Aaa
7.70 6/15/21 3,430 (c) 4,036,767
Philadelphia Gen. Oblig. Aaa
5.00 5/15/15 4,640 4,361,322
Philadelphia Hosps. & Higher Ed. Fac. Auth. Rev.,
Childrens' Hosp. Proj., Ser. A Aa
5.00 2/15/21 2,000 1,783,300
Childrens' Seashore House, Ser. A A-(b)
7.00 8/15/12 1,000 1,072,090
Childrens' Seashore House, Ser. A A-(b)
7.00 8/15/17 1,000 1,066,930
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5 -----
<PAGE>
Portfolio of Investments
as of February 29, 1996 PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) PENNSYLVANIA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Philadelphia Hosps. & Higher Ed. Fac. Auth. Rev., (cont'd)
Grad. Hlth. Systems Baa1
7.25% 7/01/18 $ 2,750 $ 2,872,732
Grad. Hlth. Systems, Ser. A Baa1
6.25 7/01/18 1,000 958,170
Philadelphia Ind. Dev. Auth. Rev.,
Inst. For Cancer Research Proj., Ser. B AA-(b)
7.25 7/01/10 5,770 6,294,781
Nat'l. Brd. of Med. Examiners Proj. A+(b)
6.75 5/01/12 5,000 5,421,800
Philadelphia Pkg. Auth. Rev., Arpt. Pkg., A.M.B.A.C. Aaa
7.375 9/01/18 2,200 2,400,816
Philadelphia Redev. Auth. Rev., Home Impvt. Loan, Ser. A A1
7.40 6/01/08 295 315,119
Philadelphia Wtr. & Swr. Rev., M.B.I.A. Aaa
6.25 8/01/08 2,000 2,241,000
Philadelphia Wtr. & Swr. Rev., M.B.I.A.,
Ser. 15 Aaa
Zero 10/01/02 7,900 5,831,938
Ser. 15 Aaa
6.875 10/01/06 700 767,900
Pittsburgh Gen. Oblig., Ser. A, F.G.I.C. Aaa
5.25 3/01/11 3,000 2,960,190
Pittsburgh Stadium Auth. Rev., F.G.I.C. Aaa
7.50 10/15/01 500 522,775
Pittsburgh Urban Redev. Auth., Mtge. Rev., Ser. B A1
8.30 4/01/17 795 841,205
Pittsburgh Wtr. & Swr., Ser. A, F.G.I.C. Aaa
5.60 9/01/22 3,000 2,975,430
Pottsgrove Sch. Dist., Gen. Oblig., Ser. A, A.M.B.A.C. Aaa
5.30 10/15/14 2,000 1,935,500
Pottstown Boro. Auth., Swr. Rev., F.G.I.C. Aaa
Zero 11/01/03 1,200 836,436
Puerto Rico Comnwlth.,
Gen. Oblig., M.B.I.A. Aaa
5.40 7/01/07 1,500 1,579,770
Gen. Oblig., M.B.I.A. Aaa
5.50 7/01/08 3,340 3,530,013
Gen. Oblig., M.B.I.A. Aaa
7.00 7/01/10 720 859,507
Gen. Oblig., A.M.B.A.C. Aaa
7.00 7/01/10 4,030 4,810,853
Gen. Oblig. AAA(b)
7.70 7/01/20 5,250 (c) 6,084,173
Gen. Oblig., F.S.A. Aaa
7.725(d) 7/01/20 4,250 4,414,687
Gen. Oblig. Baa1
5.40 7/01/25 5,000 4,773,350
Puerto Rico Elec. Pwr. Auth., Pwr. Rev., Ser. S Baa1
7.00 7/01/06 1,800 2,089,314
Sayre Hlth. Care Facs. Auth. Rev., A.M.B.A.C.,
Cap. Asset Fin. Prog. C Aaa
7.70 12/01/13 500 555,910
Cap. Asset Fin. Prog. C Aaa
7.625 12/01/15 1,000 1,132,160
Scranton Pkg. Auth. Rev. A(b)
8.125 9/15/14 1,600 1,763,424
Scranton-Lackawanna Hlth. & Welfare Auth. Rev.,
Univ. of Scranton Proj., Ser. C A-(b)
7.50 6/15/06 1,000 (c) 1,142,950
Univ. of Scranton Proj., Ser. C A-(b)
6.50 3/01/15 2,250 2,389,635
So. Fork Mun. Auth. Hosp. Rev., Lee Hosp. Proj., Ser. A A-(b)
5.50 7/01/23 2,500 2,355,175
Unity Township Mun. Auth., Gtd. Swr. Rev., A.M.B.A.C.,
Capital Appreciation Aaa
Zero 11/01/11 1,035 437,536
Capital Appreciation Aaa
Zero 11/01/12 1,035 410,802
Capital Appreciation Aaa
Zero 11/01/13 1,035 385,320
Virgin Islands Pub. Fin. Auth. Rev.,
Hwy. Trans. Trust Fund BBB(b)
7.70 10/01/04 1,000 1,094,700
Ref. Matching Loan Notes, Ser. A NR
7.25 10/01/18 1,950 2,101,788
</TABLE>
- --------------------------------------------------------------------------------
- ----- 6 See Notes to Financial Statements.
<PAGE>
Portfolio of Investments
as of February 29, 1996 PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) PENNSYLVANIA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Virgin Islands Terr., Hugo Ins. Claims Fund Proj., Ser. 91 NR
7.75% 10/01/06 $ 1,000 $ 1,089,380
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) 3,343,090
Washington Cnty. Hosp. Auth. Rev., Monongahela Valley
Hosp. A
6.75 12/01/08 2,750 2,911,590
York Cnty. Solid Waste & Refuse Auth. Ind. Dev. Rev., Res.
Rec. Proj., Ser. C A
8.20 12/01/14 1,000 1,075,070
------------
Total long-term investments (cost $234,926,546)
252,339,659
OUTSTANDING CALL OPTION PURCHASED--0.1%
Contracts
---------
U.S. Treasury Bond Futures, Dec. '96 expiring 11/16/96 @
$122.00
(cost $264,830)
250 238,281
------------
Total Investments--99.0%
(cost $235,191,376; Note 4)
252,577,940
Other assets in excess of liabilities--1.0%
2,556,544
------------
Net Assets--100%
$255,134,484
------------
------------
</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.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.
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>
Statement of Assets and Liabilities PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) PENNSYLVANIA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<S>
<C>
Assets
February 29, 1996
Investments, at value (cost
$235,191,376)................................................................
$ 252,577,940
Interest
receivable...................................................................
................... 4,002,332
Receivable for Series shares
sold........................................................................
136,254
Deferred expenses and other
assets.......................................................................
8,312
-----------------
Total
assets.......................................................................
................... 256,724,838
-----------------
Liabilities
Bank
overdraft....................................................................
....................... 685,618
Payable for Series shares
reacquired.....................................................................
448,926
Dividends
payable......................................................................
.................. 154,857
Accrued
expenses.....................................................................
.................... 118,883
Management fee
payable......................................................................
............. 92,371
Distribution fee
payable......................................................................
........... 84,219
Due to broker-variation
margin.......................................................................
.... 3,160
Deferred trustee's
fees.........................................................................
......... 2,320
-----------------
Total
liabilities..................................................................
................... 1,590,354
-----------------
Net
Assets.......................................................................
........................ $ 255,134,484
-----------------
-----------------
Net assets were comprised of:
Shares of beneficial interest, at
par................................................................. $
236,585
Paid-in capital in excess of
par......................................................................
236,391,245
-----------------
236,627,830
Accumulated net realized gain on
investments..........................................................
1,135,996
Net unrealized appreciation on
investments............................................................
17,370,658
-----------------
Net assets, February 29,
1996............................................................................
$ 255,134,484
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($57,859,265 / 5,364,782 shares of beneficial interest issued and
outstanding)..................... $10.79
Maximum sales charge (3.0% of offering
price).........................................................
.33
Maximum offering price to
public......................................................................
$11.12
Class B:
Net asset value, offering price and redemption price per share
($196,365,553 / 18,209,352 shares of beneficial interest issued and
outstanding)................... $10.78
Class C:
Net asset value, offering price and redemption price per share
($909,666 / 84,351 shares of beneficial interest issued and
outstanding)........................... $10.78
</TABLE>
- --------------------------------------------------------------------------------
- ----- 8 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
PENNSYLVANIA SERIES
Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Six Months
Ended
Net Investment Income February 29, 1996
-----------------
Income
Interest.................................. $ 8,002,542
-----------------
Expenses
Management fee............................ 638,981
Distribution fee--Class A................. 26,986
Distribution fee--Class B................. 502,613
Distribution fee--Class C................. 2,158
Transfer agent's fees and expenses........ 110,000
Reports to shareholders................... 62,000
Custodian's fees and expenses............. 51,000
Registration fees......................... 29,000
Audit fees and expenses................... 5,300
Legal fees and expenses................... 5,000
Trustees' fees............................ 1,700
Miscellaneous............................. 4,017
-----------------
Total expenses......................... 1,438,755
Less: Management fee waiver............... (63,898)
Custodian fee credit.................. (18,518)
-----------------
Net expenses........................... 1,356,339
-----------------
Net investment income........................ 6,646,203
-----------------
Realized and Unrealized
Gain on Investments
Net realized gain on:
Investment transactions................... 2,053,700
Financial futures contracts............... 874,484
-----------------
2,928,184
-----------------
Net change in unrealized appreciation on:
Investments............................... 2,746,906
Financial futures contracts............... 41,125
-----------------
2,788,031
-----------------
Net gain on investments...................... 5,716,215
-----------------
Net Increase in Net Assets
Resulting from Operations.................... $12,362,418
-----------------
-----------------
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
PENNSYLVANIA SERIES
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) February 29, August 31,
in Net Assets 1996 1995
------------ ------------
<S> <C> <C>
Operations
Net investment income........ $ 6,646,203 $ 13,870,072
Net realized gain (loss) on
investment transactions... 2,928,184 (508,005)
Net change in unrealized
appreciation of
investments............... 2,788,031 2,878,813
------------ ------------
Net increase in net assets
resulting from
operations................ 12,362,418 16,240,880
------------ ------------
Dividends and distributions (Note 1)
Dividends to shareholders
from net investment income
Class A................... (1,488,866) (1,734,468)
Class B................... (5,143,180) (12,124,140)
Class C................... (14,157) (11,464)
------------ ------------
(6,646,203) (13,870,072)
------------ ------------
Series share transactions (net
of share conversions) (Note
5)
Net proceeds from shares
sold...................... 8,673,404 19,260,042
Net asset value of shares
issued in reinvestment of
dividends and
distributions............. 3,728,947 7,902,987
Cost of shares reacquired.... (16,649,571) (44,342,507)
------------ ------------
Net decrease in net assets
from Series share
transactions.............. (4,247,220) (17,179,478)
------------ ------------
Total increase (decrease)....... 1,468,995 (14,808,670)
Net Assets
Beginning of period............. 253,665,489 268,474,159
------------ ------------
End of period................... $255,134,484 $253,665,489
------------ ------------
------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 9 -----
<PAGE>
Notes to Financial Statements PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) 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
fourteen 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.
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 with respect to securities which the Fund currently
owns or intends to purchase. The Series' principal reason for writing options
is
to realize, through receipt of premiums, a greater current return than would be
realized on the underlying security alone. When the 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 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 a writer of an option, may have no control over whether the
underlying securities 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 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. As of February 29, 1996, the Fund did not have any
open written options.
Securities Transactions and Net 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
- --------------------------------------------------------------------------------
- ----- 10
<PAGE>
Notes to Financial Statements PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) PENNSYLVANIA SERIES
- --------------------------------------------------------------------------------
recorded on the accrual basis. The Series amortizes premiums and original issue
discount paid on purchases of portfolio securities as adjustments to interest
income. Expenses are recorded on the accrual basis which may require the use of
certain estimates by management.
Net investment income (other than distribution fees) and unrealized and realized
gains or losses are allocated daily to each class of shares based upon the
relative proportion of net assets of each class at the beginning of the day.
Federal Income Taxes: 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.
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. PMF has agreed
to waive a portion (.05 of 1% of the Series' average daily net assets) of its
management fee, which amounted to $63,898 ($0.003 per share for Class A, B and
C
shares: .02% of average net assets). The Series is not required to reimburse PMF
for such waiver.
The Fund had a distribution agreement with Prudential Mutual Fund Distributors,
Inc. (``PMFD''), which acted as the distributor of the Class A shares of the
Fund through January 1, 1996. Effective January 2, 1996, Prudential Securities
Incorporated (``PSI'') became the distributor of the Class A shares of the Fund
and is serving the Fund under the same terms and conditions as under the
arrangement with PMFD. PSI is also the distributor of the Class B and Class C
shares of the Fund. The Fund compensated PMFD and PSI for distributing and
servicing the Fund's Class A, Class B and Class C shares, pursuant to plans of
distribution (the ``Class A, B and C Plans''), regardless of expenses actually
incurred by them. The distribution fees are accrued daily and payable monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates PSI, and PMFD for
the period September 1, 1995 through January 1, 1996 with respect to Class A
shares, for distribution-related activities at an annual rate of up to .30 of
1%, .50 of 1% and 1%, of the average daily net assets of the Class A, B and C
shares, respectively. Such expenses under the Plans were .10 of 1%, .50 of 1%
and .75 of 1% of the average daily net assets of the Class A, B and C shares,
respectively, for the six months ended February 29, 1996.
PMFD and PSI have advised the Series that they have received approximately
$12,000 in front-end sales charges resulting from sales of Class A shares during
the six months ended February 29, 1996. From these fees, PMFD and PSI paid such
sales charges Pruco Securities Corporation, an affiliated broker-dealer, which
in turn paid commissions to salespersons and incurred other distribution costs.
PSI has advised the Series that for the six months ended February 29, 1996, it
received approximately $128,000 in contingent deferred sales charges imposed
upon certain redemptions by Class B and Class 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 six months
- --------------------------------------------------------------------------------
11 -----
<PAGE>
Notes to Financial Statements PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) PENNSYLVANIA SERIES
- --------------------------------------------------------------------------------
ended February 29, 1996, the Series incurred fees of approximately $61,900 for
the services of PMFS. As of February 29, 1996, approximately $10,300 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 six months ended February 29, 1996 were $30,892,265 and
$35,257,014, respectively.
The cost basis of investments for federal income tax purposes was substantially
the same as for reporting purposes and, accordingly, as of February 29, 1996 net
unrealized appreciation of investments for federal income tax purposes is
$17,386,564 (gross unrealized appreciation--$18,250,450; gross unrealized
depreciation--$863,886).
At February 29, 1996 the Series sold 25 financial futures contracts on the
Municipal Bond Index expiring March 1996. The value at disposition of such
contracts was $2,871,094. The value of such contracts on February 29, 1996 was
$2,887,000 thereby resulting in an unrealized loss of $15,906.
For federal income tax purposes, the Series had 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.
The Series will elect to treat net capital losses of approximately $1,202,900
incurred in the ten month period ended August 31, 1995 as being incurred in the
current fiscal year.
- ------------------------------------------------------------
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%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Class C shares are sold with a contingent
deferred sales charge of 1% during the first year. Class B shares will
automatically convert to Class A shares on a quarterly basis approximately seven
years after purchase. A special exchange privilege is also available for
shareholders who qualify to purchase Class A shares at net asset value.
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 six months ended February 29, 1996 and the year ended August
31, 1995 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ----------------------------------- ---------- ------------
<S> <C> <C>
Six months ended February 29, 1996:
Shares sold........................ 61,182 $ 659,200
Shares issued in reinvestment of
dividends........................ 78,389 842,713
Shares reacquired.................. (302,613) (3,253,378)
---------- ------------
Net decrease in shares outstanding
before conversion................ (163,042) (1,751,465)
Shares issued upon conversion from
Class B.......................... 721,172 7,853,563
---------- ------------
Net increase in shares
outstanding...................... 558,130 $ 6,102,098
---------- ------------
---------- ------------
Year ended August 31, 1995:
Shares sold........................ 299,314 $ 3,060,202
Shares issued in reinvestment of
dividends and distributions...... 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
---------- ------------
---------- ------------
<CAPTION>
Class B
- -----------------------------------
<S> <C> <C>
Six months ended February 29, 1996:
Shares sold........................ 693,047 $ 7,443,509
Shares issued in reinvestment of
dividends........................ 267,913 2,878,085
Shares reacquired.................. (1,243,665) (13,386,289)
---------- ------------
Net decrease in shares outstanding
before conversion................ (282,705) (3,064,695)
Shares reacquired upon conversion
into Class A..................... (721,172) (7,853,563)
---------- ------------
Net decrease in shares
outstanding...................... (1,003,877) $(10,918,258)
---------- ------------
---------- ------------
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)
---------- ------------
---------- ------------
</TABLE>
- --------------------------------------------------------------------------------
- ----- 12
<PAGE>
Notes to Financial Statements PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) PENNSYLVANIA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C Shares Amount
- ----------------------------------- ---------- ------------
Six months ended February 29, 1996:
<S> <C> <C>
Shares sold........................ 52,672 $ 570,695
Shares issued in reinvestment of
dividends........................ 757 8,149
Shares reacquired.................. (916) (9,904)
---------- ------------
Net increase in shares
outstanding...................... 52,513 $ 568,940
---------- ------------
---------- ------------
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
---------- ------------
---------- ------------
</TABLE>
- --------------------------------------------------------------------------------
13 -----
<PAGE>
Notes to Financial Statements PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) PENNSYLVANIA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
- ---------------------------------------------------------------------
Six Months
Ended Year Ended
August 31,
February 29,
- ----------------------------------------------------
1996 1995 1994
1993 1992 1991
------------ ------- -------
- ------ ------ ------
<S> <C> <C> <C>
<C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period........................ $ 10.55 $ 10.42 $ 11.21
$10.55 $ 9.96 $ 9.60
------------ ------- -------
- ------ ------ ------
Income from investment operations
Net investment income............ .29(a) .60(a) .59
.62 .62 .62(a)
Net realized and unrealized gain
(loss) on investment
transactions.................. .24 .13 (.68)
.70 .59 .39
------------ ------- -------
- ------ ------ ------
Total from investment
operations................. .53 .73 (.09)
1.32 1.21 1.01
------------ ------- -------
- ------ ------ ------
Less distributions
Dividends from net investment
income........................ (.29) (.60) (.59)
(.62) (.62) (.62)
Distributions from net realized
gains......................... -- -- (.11)
(.04) -- (.03)
------------ ------- -------
- ------ ------ ------
Total distributions........... (.29) (.60) (.70)
(.66) (.62) (.65)
------------ ------- -------
- ------ ------ ------
Net asset value, end of period... $ 10.79 $ 10.55 $ 10.42
$11.21 $10.55 $ 9.96
------------ ------- -------
- ------ ------ ------
------------ ------- -------
- ------ ------ ------
TOTAL RETURN(b):................. 5.11% 7.35% (.82)%
12.86% 12.44% 10.82%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)......................... $ 57,859 $50,696 $10,651
$9,342 $5,908 $3,521
Average net assets (000)......... $ 54,268 $30,092 $10,315
$7,354 $4,439 $2,366
Ratios to average net assets:
Expenses, including
distribution fees.......... .76%(a)/(c) .80%(a) .75%
.78% .81% .83%(a)
Expenses, excluding
distribution fees.......... .66%(a)/(c) .70%(a) .65%
.68% .71% .74%(a)
Net investment income......... 5.52%(a)/(c) 5.76%(a) 5.52%
5.69% 5.99% 6.32%(a)
Portfolio turnover rate.......... 12% 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 period reported
and includes reinvestment dividends and distributions. Total
returns for periods of less than a full year are not annualized.
(c) Annualized.
- --------------------------------------------------------------------------------
- ----- 14 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) PENNSYLVANIA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
- ----------------------------------------------------------------------------
Class C
Six
----------
Months
Six Months
Ended
Ended
February Year Ended
August 31, February
29,
- ------------------------------------------------------------ 29,
1996 1995 1994
1993 1992 1991 1996
<S> <C> <C> <C> <C>
<C> <C> <C>
--------- -------- --------
- -------- -------- -------- ----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period........................ $ 10.55 $ 10.42 $ 11.21 $
10.54 $ 9.96 $ 9.60 $ 10.55
--------- -------- --------
- -------- -------- -------- ----------
Income from investment operations
Net investment income............ .27 (a) .56(a) .55
.57 .58 .58(a) .26(a)
Net realized and unrealized gain
(loss) on investment
transactions.................. .23 .13 (.68)
.71 .58 .39 .23
--------- -------- --------
- -------- -------- -------- ----------
Total from investment
operations................. .50 .69 (.13)
1.28 1.16 .97 .49
--------- -------- --------
- -------- -------- -------- ----------
Less distributions
Dividends from net investment
income........................ (.27 ) (.56) (.55)
(.57) (.58) (.58) (.26)
Distributions from net realized
gains......................... -- -- (.11)
(.04) -- (.03) --
--------- -------- --------
- -------- -------- -------- ----------
Total distributions........... (.27 ) (.56) (.66)
(.61) (.58) (.61) (.26)
--------- -------- --------
- -------- -------- -------- ----------
Net asset value, end of period... $ 10.78 $ 10.55 $ 10.42 $
11.21 $ 10.54 $ 9.96 $ 10.78
--------- -------- --------
- -------- -------- -------- ----------
--------- -------- --------
- -------- -------- -------- ----------
TOTAL RETURN(b):................. 4.80 % 6.92% (1.22)%
12.54% 11.92% 10.39% 4.68%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)......................... $196,366 $202,633 $257,732
$263,752 $206,028 $170,162 $ 910
Average net assets (000)......... $202,150 $223,082 $266,594
$229,955 $186,113 $146,591 $ 579
Ratios to average net assets:
Expenses, including
distribution fees.......... 1.16%(a)/(c) 1.17%(a) 1.15%
1.18% 1.21% 1.23%(a) 1.41%(a)/(c)
Expenses, excluding
distribution fees.......... .66%(a)/(c) .67%(a) .65%
.68% .71% .74%(a) .66%(a)/(c)
Net investment income......... 5.12%(a)/(c) 5.44%(a) 5.11%
5.29% 5.59% 5.94%(a) 4.92%(a)/(c)
Portfolio turnover rate.......... 12% 19% 22%
13% 25% 62% 12%
<CAPTION>
August 1,
Year 1994(d)
Ended Through
August 31, August 31,
1995 1994
<S> <C> <C>
---------- ----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period........................ $10.42 $10.44
----- -----
Income from investment operations
Net investment income............ .53(a) .04
Net realized and unrealized gain
(loss) on investment
transactions.................. .13 (.02)
----- -----
Total from investment
operations................. .66 .02
----- -----
Less distributions
Dividends from net investment
income........................ (.53) (.04)
Distributions from net realized
gains......................... -- --
----- -----
Total distributions........... (.53) (.04)
----- -----
Net asset value, end of period... $10.55 $10.42
----- -----
----- -----
TOTAL RETURN(b):................. 6.65% .14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)......................... $ 336 $ 90
Average net assets (000)......... $ 223 $ 1
Ratios to average net assets:
Expenses, including
distribution fees.......... 1.44%(a) 2.00%(c)
Expenses, excluding
distribution fees.......... .69%(a) 1.25%(c)
Net investment income......... 5.14%(a) 8.51%(c)
Portfolio turnover rate.......... 19% 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 period 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.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 15 -----
<PAGE>
How Does Your State Stack Up?
Economic conditions vary from state to state. While one region may be
experiencing strong fiscal management and prosperity, another may languish
under the weight of declining industry or chronic state budget problems.
State economic conditions, fiscal management and interest rates play dominant
roles in the performance of individual municipal bonds. A strong economy
generally leads to higher tax revenues and other income sources for the state,
enabling it to more easily repay its debts. Additionally, sound state
financial management often results in high ratings from bond rating agencies.
High ratings are attractive to investors and can help bonds retain value in
the market.
California
- - World's 8th largest economy.
- - Entertainment jobs growing.
- - Recovery continues, but growth is expected to be below the national average.
- - Increasing tax revenues may not cover soaring Medicaid costs.
Hawaii
- - Tourism provides 60% of jobs.
- - Strong financial management.
- - Slow recovery from early-1990s U.S. and Japanese recessions, which bit into
tourism and real estate.
- - Government eliminated 1,100 state jobs.
Ohio
- - Shift from manufacturing to service trades.
- - Economic and personal income growth ahead of national averages.
- - Debt is low.
Pennsylvania
- - Slowly rebuilding economy, but needs new engine of growth.
- - Debt as a percentage of personal income is half the national average.
- - Sound financial management.
Michigan
- - Economic growth is 3.5%, higher than national average.
- - Once car capital of the world, now more diversified.
- - Strengthening fiscal management.
Massachusetts
- - Painful cuts in defense and health care eliminated jobs.
- - Slowly rebuilding economy.
- - Personal income is high.
New York
- - High taxes restrain growth.
- - Personal income remains high.
- - Debt level is high.
- - Federal budget Medicaid reform impasses threaten planned budget savings.
Maryland
- - One of wealthiest states.
- - Personal income 115% of national average, but income growth has stabilized.
- - Good financial controls.
Florida
- - Economy and personal income growing much faster than national rate.
- - Unemployment and debt are low.
- - Ended 1995 with a budget surplus for the third year in a row.
Connecticut
- - Nation's wealthiest citizens.
- - Economically weak from defense cuts.
- - Slow growth -- recovery may take years.
- - Attempts at "quick fixes" won't provide permanent relief.
New Jersey
- - Broad-based economy and high personal wealth.
- - Economic growth slowing.
- - "Pro-business" tactics siphoned revenue, but may spur more growth.
North Carolina
- - Robust, model economy.
- - Personal income quickly growing.
- - Unemployment well below national average.
- - New jobs from financial services, research and high technology.
- - Strong financial management.
Source: Prudential Investment Corporation. Selected states are those for
which Prudential Mutual Fund Management manages a state-specific municipal
bond mutual fund
Revised: April, 1996
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
Internet Address:
http:\\www.prudential.com
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
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 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 Auditor
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
The views expressed in this report and information about the Series' portfolio
holdings are for the period covered by this report and are subject to change
thereafter.
The accompanying financial statements as of February 29, 1996 were not audited
and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
<PAGE>
BULK RATE
U.S. POSTAGE
PAID
Permit 6807
New York, NY
(LOGO)
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
74435M879
74435M887 MF132E2
74435M481 Cat# 642131D
associated with your investments.
Shareholder Legislative Action Program.
From time to time we've been informing you about significant
legislation before Congress, such as the American Dream Savings
Account, that may potentially impact mutual fund investors. We want
to make it easier for you to share your views with your
Congressional member. So, beginning in 1996, whenever Congress is
considering legislation that would affect you, we'll send you
postage-paid message cards that you simply drop in the mail if
you want to let your senator or representative know how
you want him or her to vote.
Fund Profiles.
Over the past year, we've worked to make your shareholder reports
more interesting, informative and easy to read. This year, we'll be
considering "fund profiles." Some mutual fund companies now offer
one to shareholders along with a full prospectus. The purpose of a
fund profile is to provide a very brief, reader-friendly summary of
a fund's objective, investments, risks and expenses. Would you like
to see fund profiles from us? Please call your Financial Advisor or
Registered Representative to share your views.
As always, thank you for your confidence in Prudential Mutual Funds.
Sincerely,
Richard A. Redeker
President
2
<PAGE>
Portfolio of Investments
as of February 29, 1996 PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) MASSACHUSETTS SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
LONG-TERM INVESTMENTS--94.7%
- -----------------------------------------------------------------------------
- -------------------------------------------------
Attleboro Mass., A.M.B.A.C. Aaa
5.125% 12/01/15 $ 1,000 $ 952,760
Boston Ind. Dev. Fin. Auth., Swr. Fac. Rev.,
Harbor Elec. Energy Co. Proj. Baa1
7.375 5/15/15 1,500 1,630,560
Boston Mass. Rev., Boston City Hosp., F.H.A. Aa
5.75 2/15/23 2,000 1,970,300
Brockton Mass. Baa1
6.125 6/15/18 1,030 1,045,553
Gloucester Mass., Gen. Oblig., F.S.A. Aaa
5.50 11/15/13 2,000 2,014,300
Holyoke, Gen. Oblig., Sch. Proj., M.B.I.A. Aaa
8.10 6/15/05 700 845,271
Lowell, Gen.Oblig. Aaa
7.625 2/15/10 750(e) 879,660
Lynn Wtr. & Swr. Comn., Gen. Rev., Ser. A, M.B.I.A. Aaa
7.25 12/01/10 2,100(e) 2,410,737
Mass. Bay Trans. Auth., Gen. Trans. Ser. B, A.M.B.A.C. Aaa
5.375 3/01/25 1,000 963,750
Mass. St. Gen. Oblig.,
Ser. A A1
Zero 8/01/06 665 400,623
Ser. A, A.M.B.A.C. Aaa
5.00 7/01/12 1,000 970,600
Ser. C, F.G.I.C. Aaa
6.00 8/01/09 1,500 1,640,700
Mass. St. Hlth. & Edl. Facs. Auth. Rev.,
Beth Israel Hosp. A.M.B.A.C Aaa
8.624 7/01/25 1,500(d) 1,590,000
Dana Farber Cancer Project Series G/1 A1
6.25 12/01/22 625 635,337
Faulkner Hosp., Ser. C Baa1
6.00 7/01/23 1,500 1,399,110
Holyoke Hosp. Rev. Baa1
6.50 7/01/15 1,500 1,391,850
Jordan Hosp. A-(c)
6.875 10/01/22 1,350 1,415,367
Med Academic & Scientific A A-(c)
6.625 1/01/15 1,000 1,041,890
Newton-Wellesley Hosp., M.B.I.A. Aaa
5.875 7/01/15 1,000 1,025,300
Newton-Wellesley Hosp., M.B.I.A. Aaa
6.00 7/01/18 1,000 1,034,850
Valley Regl. Hlth. Sys. AAA(c)
7.00 7/01/10 825 964,549
Valley Regl. Hlth. Sys., Ser. B Aaa
8.00 7/01/18 1,000(e) 1,167,220
Winchester Hosp. AAA(c)
5.75 7/01/24 2,000 1,999,820
Mass. St. Hsg. Fin. Agcy. Hsg. Rev., Sngl. Fam. Mtge., Ser.
6 Aa
8.10 12/01/14 1,755 1,871,655
Mass. St. Ind. Fin. Agcy. Rev.,
Brooks Sch. A
5.95 7/01/23 640 648,166
Cape Cod Hlth. Sys. Aaa
8.50 11/15/20 2,000(e) 2,399,680
Mass. St. Industrial Fin. Agcy. Rev. Phillips Academy Aa1
5.375 9/01/23 1,695 1,641,794
Mass. St. Mun. Wholesale Ele. Co. Pwr. Supply Sys. Rev.,
Ser. A, A.M.B.A.C. Aaa
5.00 7/01/14 1,500 1,410,645
Mass. St. Port Auth. Rev., Ser. B Aa
5.00 7/01/18 1,000 925,180
Mass. St. Water Poll. Abatement., Trust Water Poll. Rev. Aa
6.00 8/01/05 1,000 1,095,610
Mass. St. Water Poll. Abatement., Trust Water Poll. Rev. Aa
6.375 2/01/15 1,000 1,074,090
Mass. St. Wtr. Res. Auth., Ser. B, M.B.I.A. Aaa
6.25 12/01/11 1,000 1,115,330
Palmer, Gen. Oblig., Ser. F, A.M.B.A.C. Aaa
7.30 3/01/10 500(e) 565,660
Plymouth Cnty. Corr. Facs. Proj., Cert. of Part., Ser. A A-(c)
7.00 4/01/22 500 555,285
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3 -----
<PAGE>
Portfolio of Investments
as of February 29, 1996 PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) MASSACHUSETTS SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Puerto Rico Aqueduct & Swr. Auth. Rev. Aaa
10.25% 7/01/09 $ 400 (e) $ 566,064
Puerto Rico Comnwlth., Aqueduct & Swr Auth. Rev., M.B.I.A. Aaa
6.00 7/01/07 1,000 1,100,240
Puerto Rico Comnwlth.,
Gen. Oblig. Baa1
5.25 7/01/18 1,000 935,090
Gen. Oblig. F.S.A. Aaa
7.982 7/01/20 1,250 (d) 1,298,438
Gen. Oblig., A.M.B.A.C. Aaa
7.00 7/01/10 1,000 1,193,760
Puerto Rico Comnwlth., Hwy. & Trans. Auth. Rev. Ser. T Baa1
6.625 7/01/18 1,380 1,515,557
Puerto Rico Ele. Pwr. Auth. Pwr. Rev., Ser. T Baa1
6.375 7/01/24 1,000 1,073,920
Puerto Rico Elec. Pwr. Auth. Pwr. Rev. Ser. S Baa1
7.00 7/01/06 450 522,329
Quabbin Regl. Sch. Dist. Jr.-Sr. High Sch. Pj., M.B.I.A. Aaa
5.50 6/15/06 1,045 1,102,924
-----------
Total long-term investments (cost $47,605,790)
52,001,524
-----------
SHORT-TERM INVESTMENTS--4.4%
Mass. St. Hlth. & Edl. Facs. Auth. Rev., Cap. Asset Prog.,
Ser. D, F.R.D.D. VMIG1
3.30 3/01/96 1,400 1,400,000
Mass. St. Port Auth. Rev., Multi Modal Amt. Ref., Ser.
95-B, F.R.D.D. VMIG1
3.55 3/01/96 1,000 1,000,000
-----------
Total short-term investments (cost $2,400,000)
2,400,000
-----------
Total Investments--99.1%
(cost $50,005,790; Note 4)
54,401,524
Other assets in excess of liabilities--0.9%
513,913
-----------
Net Assets--100%
$54,915,437
-----------
-----------
</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.
M.B.I.A.--Municipal Bond Insurance Corporation.
(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 period end.
(e) Prerefunded issues are secured by escrowed cash and/or direct U.S.
guaranteed obligations.
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>
Statement of Assets and Liabilities PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) MASSACHUSETTS SERIES
- --------------------------------------------------------------------------------
<TABLE>
<S>
<C>
Assets
February 29, 1996
Investments, at value (cost
$50,005,790).................................................................
$54,401,524
Cash.........................................................................
............................ 57,782
Interest
receivable...................................................................
................... 658,554
Deferred expenses and other
assets.......................................................................
1,260
Receivable for Fund shares
sold..........................................................................
121
-----------------
Total
assets.......................................................................
................... 55,119,241
-----------------
Liabilities
Payable for Fund shares
reacquired...................................................................
.... 111,052
Dividends
payable......................................................................
.................. 30,886
Accrued
expenses.....................................................................
.................... 24,457
Management fee
payable......................................................................
............. 19,886
Distribution fee
payable......................................................................
........... 12,978
Deferred Trustee's
fees.........................................................................
......... 2,320
Due to broker - variation
margin.........................................................................
2,225
-----------------
Total
liabilities..................................................................
................... 203,804
-----------------
Net
Assets.......................................................................
........................ $54,915,437
-----------------
-----------------
Net assets were comprised of:
Shares of beneficial interest, at
par................................................................. $
46,330
Paid-in capital in excess of
par......................................................................
50,087,107
-----------------
50,133,437
Accumulated net realized gain on
investments..........................................................
386,266
Net unrealized appreciation on
investments............................................................
4,395,734
-----------------
Net assets, February 29,
1996............................................................................
$54,915,437
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($28,324,724 / 2,388,919 shares of beneficial interest issued and
outstanding)..................... $11.86
Maximum sales charge (3% of offering
price)...........................................................
0.37
-----------------
Maximum offering price to
public......................................................................
$12.23
-----------------
-----------------
Class B:
Net asset value, offering price and redemption price per share
($26,540,736 / 2,239,871 shares of beneficial interest issued and
outstanding)..................... $11.85
-----------------
-----------------
Class C:
Net asset value, offering price and redemption price per share
($49,977 / 4,218 shares of beneficial interest issued and
outstanding)............................. $11.85
-----------------
-----------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5 -----
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MASSACHUSETTS SERIES
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Six Months
Ended
Net Investment Income February 29, 1996
-----------------
Income
Interest.................................. $ 1,701,752
-----------------
Expenses
Management fee............................ 138,979
Distribution fee--Class A................. 13,973
Distribution fee--Class B................. 69,025
Distribution fee--Class C................. 132
Reports to shareholders................... 47,000
Registration fees......................... 30,000
Custodian's fees and expenses............. 27,000
Transfer agent's fees and expenses........ 16,000
Audit fee and expenses.................... 5,300
Legal fees and expenses................... 5,000
Trustees' fees and expenses............... 1,700
Miscellaneous............................. 2,131
-----------------
Total expenses......................... 356,240
Less: Management fee waiver............ (13,898)
Custodian fee credit................ (4,246)
-----------------
Net expenses........................... 338,096
-----------------
Net investment income........................ 1,363,656
-----------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions................... 890,353
Financial futures contract transactions... (60,794)
-----------------
829,559
-----------------
Net change in unrealized
appreciation/depreciation on:
Investments............................... 560,971
-----------------
Net gain on investments...................... 1,390,530
-----------------
Net Increase in Net Assets
Resulting from Operations.................... $ 2,754,186
-----------------
-----------------
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
MASSACHUSETTS SERIES
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) February 29, August 31,
in Net Assets 1996 1995
------------ -----------
<S> <C> <C>
Operations
Net investment income............ $ 1,363,656 $ 3,002,835
Net realized gain on investment
transactions.................. 829,559 294,358
Net change in unrealized
appreciation/depreciation of
investments................... 560,971 871,511
------------ -----------
Net increase in net assets
resulting from operations..... 2,754,186 4,168,704
------------ -----------
Dividends and distributions (Note 1):
Dividends from net investment
income
Class A....................... (713,162) (884,881)
Class B....................... (649,709) (2,117,251)
Class C....................... (785) (703)
------------ -----------
(1,363,656) (3,002,835)
------------ -----------
Distributions from net realized
gains
Class A....................... (162,429) --
Class B....................... (151,088) --
Class C....................... (241) --
------------ -----------
(313,758) --
------------ -----------
Series share transactions (net of
share conversions) (Note 5):
Net proceeds from shares sold.... 1,071,163 3,105,413
Net asset value of shares issued
in reinvestment of
dividends..................... 997,168 1,755,219
Cost of shares reacquired........ (4,135,599) (7,833,814)
------------ -----------
Net decrease in net assets from
Series share transactions..... (2,067,268) (2,973,182)
------------ -----------
Total decrease...................... (990,496) (1,807,313)
Net Assets
Beginning of period................. 55,905,933 57,713,246
------------ -----------
End of period....................... $ 54,915,437 $55,905,933
------------ -----------
------------ -----------
</TABLE>
- --------------------------------------------------------------------------------
- ----- 6 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) 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
fourteen 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.
Securities Transactions and Net 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. Expenses
are recorded on the accrual basis which may require the use of certain estimates
by management.
Net investment income (other than distribution fees) and unrealized and realized
gains or losses are allocated daily to each class of shares based upon the
relative proportion of net assets of each class at the beginning of the day.
Federal Income Taxes: 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.
Custody Fee Credits: The Fund has an arrangement with its custodian bank,
whereby uninvested monies earn credits which reduce the fees charged by the
custodian.
- --------------------------------------------------------------------------------
7 -----
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) MASSACHUSETTS 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. PMF has agreed
to waive a portion (.05 of 1% of the Series' average daily net assets) of its
management fee, which amounted to $13,898 ($0.005 per share; .05% of average net
assets, annualized). The Series is not required to reimburse PMF for such
waiver.
The Fund had a distribution agreement with Prudential Mutual Fund Distributors,
Inc. (``PMFD''), which acted as the distributor of the Class A shares of the
Fund through January 1, 1996. Effective January 2, 1996, Prudential Securities
Incorporated (``PSI''), became the distributor of the Class A shares of the Fund
and is serving the Fund under the same terms and conditions as under the
arrangement with PMFD. PSI is also distributor of the Class B and Class C shares
of the Fund. The Fund compensated PMFD and PSI for distributing and servicing
the Fund's Class A, Class B and Class C shares, pursuant to plans of
distribution, (the ``Class A, B and C Plans''), regardless of expenses actually
incurred by them. The distribution fees are accrued daily and payable monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates PSI and PMFD for
the period September 1, 1995 through January 1, 1996 with respect to Class A
shares for distribution-related activities at an annual rate of up to .30 of 1%,
.50 of 1% and 1%, of the average daily net assets of the Class A, B and C
shares, respectively. Such expenses under the Plans were .10 of 1%, .50 of 1%
and .75 of 1% of the average daily net assets of the Class A, B and C shares,
respectively, for the six months ended February 29, 1996.
PMFD and PSI have advised the Series that they have received approximately
$4,300 in front-end sales charges resulting from sales of Class A shares during
the six months ended February 29, 1996. From these fees, PMFD and PSI paid such
sales charges to Pruco Securities Corporation, an affiliated broker-dealer,
which in turn paid commissions to sales persons and incurred other distribution
costs.
PSI has advised the Series that for the six months ended February 29, 1996, it
received approximately $22,300 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 six months ended
February 29, 1996, the Series incurred fees of approximately $12,800 for the
services of PMFS. As of February 29, 1996, 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 six months ended February 29, 1996, were $9,435,421 and
$11,667,317, respectively.
The cost basis of investments for federal income tax purposes, at February 29,
1996, was $50,114,619 and, accordingly, net unrealized appreciation of
investments for federal income tax purposes was $4,286,905 (gross unrealized
appreciation--$4,318,268, gross unrealized depreciation--$31,363).
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 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 shares are sold with a
contingent deferred sales charge of 1% during the first year. Class B shares
will automatically convert to Class A shares on a quarterly basis approximately
seven years after purchase. A special
- --------------------------------------------------------------------------------
- ----- 8
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) MASSACHUSETTS SERIES
- --------------------------------------------------------------------------------
exchange privilege is also available for shareholders who qualify 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 six months ended February
29, 1996 and fiscal year ended August 31, 1995 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------------ ---------- ------------
<S> <C> <C>
Six months ended February 29, 1996:
Shares sold......................... 21,502 $ 257,123
Shares issued in reinvestment of
dividends and distributions....... 44,582 528,886
Shares reacquired................... (171,372) (2,031,705)
---------- ------------
Net decrease in shares outstanding
before conversion................. (105,288) (1,245,696)
Shares issued upon conversion from
Class B........................... 127,936 1,542,904
---------- ------------
Net increase in shares
outstanding....................... 22,648 $ 297,208
---------- ------------
---------- ------------
Year ended August 31, 1995:
Shares sold......................... 32,229 $ 365,268
Shares issued in reinvestment of
dividends and distributions....... 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
---------- ------------
---------- ------------
</TABLE>
<TABLE>
<CAPTION>
Class B Shares Amount
- ------------------------------------ ---------- ------------
<S> <C> <C>
Six months ended February 29, 1996:
Shares sold......................... 64,973 $ 774,085
Shares issued in reinvestment of
dividends and distributions....... 39,424 467,277
Shares reacquired................... (176,759) (2,098,218)
---------- ------------
Net decrease in shares outstanding
before conversion................. (72,362) (856,856)
Shares reacquired upon conversion
into Class A...................... (127,936) (1,542,904)
---------- ------------
Net decrease in shares
outstanding....................... (200,298) $ (2,399,760)
---------- ------------
---------- ------------
Year ended August 31, 1995:
Shares sold......................... 241,751 $ 2,725,137
Shares issued in reinvestment of
dividends and distributions....... 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)
---------- ------------
---------- ------------
<CAPTION>
Class C
- ------------------------------------
<S> <C> <C>
Six months ended February 29, 1996:
Shares sold......................... 3,369 $ 39,955
Shares issued in reinvestment of
dividends and distributions....... 84 1,005
Shares reacquired................... (473) (5,676)
---------- ------------
Net increase in shares
outstanding....................... 2,980 $ 35,284
---------- ------------
---------- ------------
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
---------- ------------
---------- ------------
</TABLE>
- --------------------------------------------------------------------------------
9 -----
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) MASSACHUSETTS SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
- --------------------------------------------------------------------
Six Months
Ended Year Ended
August 31,
February 29,
- ---------------------------------------------------
1996 1995 1994
1993 1992 1991
------------ ------- ------
- ------ ------ ------
PER SHARE OPERATING PERFORMANCE:
<S> <C> <C> <C>
<C> <C> <C>
Net asset value, beginning of
period........................... $ 11.63 $ 11.37 $12.17
$11.50 $10.94 $10.44
------------ ------- ------
- ------ ------ ------
Income from investment operations
Net investment income............... .30(a) .65(a) .67
.68 .69 .70
Net realized and unrealized gain
(loss) on investment
transactions..................... .30 .26 (.73)
.67 .56 .50
------------ ------- ------
- ------ ------ ------
Total from investment
operations.................... .60 .91 (.06)
1.35 1.25 1.20
------------ ------- ------
- ------ ------ ------
Less distributions
Dividends from net investment
income........................... (.30) (.65) (.67)
(.68) (.69) (.70)
Distributions from net realized
gains............................ (.07) -- (.07)
-- -- --
------------ ------- ------
- ------ ------ ------
Total distributions.............. (.37) (.65) (.74)
(.68) (.69) (.70)
------------ ------- ------
- ------ ------ ------
Net asset value, end of period...... $ 11.86 $ 11.63 $11.37
$12.17 $11.50 $10.94
------------ ------- ------
- ------ ------ ------
------------ ------- ------
- ------ ------ ------
TOTAL RETURN(b):.................... 5.19% 8.33% (.58)%
12.10% 11.76% 11.81%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..... $ 28,325 $27,525 $2,293
$2,325 $ 903 $ 665
Average net assets (000)............ $ 28,100 $15,837 $2,578
$1,336 $ 770 $ 344
Ratios to average net assets:
Expenses, including distribution
fees.......................... 1.03%(a)(c) .97%(a) .87%
.95% .99% 1.05%
Expenses, excluding distribution
fees.......................... .93%(a)(c) .87%(a) .77%
.85% .89% .95%
Net investment income............ 5.10%(a)(c) 5.59%(a) 5.60%
5.79% 6.14% 6.53%
Portfolio turnover rate............. 17% 36% 33%
56% 32% 34%
</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.
- --------------------------------------------------------------------------------
- ----- 10 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) MASSACHUSETTS SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
Class C
- ------------------------------------------------------------------------
- ------------
Six Months
Six Months
Ended Year
Ended August 31, Ended
February 29,
- ------------------------------------------------------- February 29,
1996 1995 1994
1993 1992 1991 1996
------------ ------- -------
- ------- ------- ------- ------------
PER SHARE OPERATING PERFORMANCE:
<S> <C> <C> <C>
<C> <C> <C> <C>
Net asset value, beginning of
period........................... $ 11.62 $ 11.36 $ 12.17
$ 11.49 $ 10.94 $ 10.44 $ 11.62
------------ ------- -------
- ------- ------- ------- ------------
Income from investment operations
Net investment income............... .28(a) .60(a) .61
.63 .64 .65 .26(a)
Net realized and unrealized gain
(loss) on investment
transactions..................... .30 .26 (.74)
.68 .55 .50 .30
------------ ------- -------
- ------- ------- ------- ------------
Total from investment
operations.................... .58 .86 (.13)
1.31 1.19 1.15 .56
------------ ------- -------
- ------- ------- ------- ------------
Less distributions
Dividends from net investment
income........................... (.28) (.60) (.61)
(.63) (.64) (.65) (.26)
Distributions from net realized
gains............................ (.07) -- (.07)
-- -- -- (.07)
------------ ------- -------
- ------- ------- ------- ------------
Total distributions.............. (.35) (.60) (.68)
(.63) (.64) (.65) (.33)
------------ ------- -------
- ------- ------- ------- ------------
Net asset value, end of period...... $ 11.85 $ 11.62 $ 11.36
$ 12.17 $ 11.49 $ 10.94 $ 11.85
------------ ------- -------
- ------- ------- ------- ------------
------------ ------- -------
- ------- ------- ------- ------------
TOTAL RETURN(b):.................... 4.98 7.90% (1.15)%
11.77% 11.23% 11.38% 4.85
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..... $ 26,541 $28,367 $55,420
$61,121 $53,449 $49,641 $ 50
Average net assets (000)............ $ 27,762 $39,455 $59,544
$55,965 $50,607 $49,083 $ 35
Ratios to average net assets:
Expenses, including distribution
fees.......................... 1.43%(a)(c) 1.34%(a) 1.27%
1.35% 1.39% 1.45% 1.68%(a)(c)
Expenses, excluding distribution
fees.......................... .93%(a)(c) .84%(a) .77%
.85% .89% .95% .93%(a)(c)
Net investment income............ 4.71%(a)(c) 5.37%(a) 5.20%
5.39% 5.74% 6.13% 4.46%(a)(c)
Portfolio turnover rate............. 17% 36% 33%
56% 32% 34% 17%
<CAPTION>
<S> <C> <C>
August 1,
1994(d)
Year Ended through
August 31, August 31,
1995 1994
----- -----
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period........................... $11.36 $11.41
----- -----
Income from investment operations
Net investment income............... .57(a) .04
Net realized and unrealized gain
(loss) on investment
transactions..................... .26 (.05)
----- -----
Total from investment
operations.................... .83 (.01)
----- -----
Less distributions
Dividends from net investment
income........................... (.57) (.04)
Distributions from net realized
gains............................ -- --
----- -----
Total distributions.............. (.57) (.04)
----- -----
Net asset value, end of period...... $11.62 $11.36
----- -----
----- -----
TOTAL RETURN(b):.................... 7.60% (0.27)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..... $ 14 $ 216(e)
Average net assets (000)............ $ 14 $ 15(e)
Ratios to average net assets:
Expenses, including distribution
fees.......................... 1.60%(a) 1.57%(c)
Expenses, excluding distribution
fees.......................... .85%(a) .82%(c)
Net investment income............ 5.07%(a) 5.06%(c)
Portfolio turnover rate............. 36% 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) Amounts are actual and not rounded to the nearest thousand.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 11 -----
<PAGE>
How Does Your State Stack Up?
Economic conditions vary from state to state. While one region may
be experiencing strong fiscal management and prosperity, another may
languish under the weight of declining industry or chronic state
budget problems.
State economic conditions, fiscal management and interest rates play
dominant roles in the performance of individual municipal bonds. A
strong economy generally leads to higher tax revenues and other income
sources for the state, enabling it to more easily repay its debts.
Additionally, sound state financial management often results in high
ratings from bond rating agencies. High ratings are attractive to
investors and can help bonds retain value in the market.
California
- -- World's 8th largest economy.
- -- Entertainment jobs growing.
- -- Recovery continues, but growth is expected to be below
the national average.
- -- Increasing tax revenues may not cover soaring Medicaid costs.
Hawaii
- -- Tourism provides 60% of jobs.
- -- Strong financial management.
- -- Slow recovery from early-1990s U.S. and Japanese recessions,
which bit into tourism and real estate.
- -- Government eliminated 1,100 state jobs.
Ohio
- -- Shift from manufacturing to service trades.
- -- Economic and personal income growth ahead of national averages.
- -- Debt is low.
Pennsylvania
- -- Slowly rebuilding economy, but needs new engine of growth.
- -- Debt as a percentage of personal income is half the national average.
- -- Sound financial management.
Michigan
- -- Economic growth is 3.5%, higher than national average.
- -- Once car capital of the world, now more diversified.
- -- Strengthening fiscal management.
Massachusetts
- -- Painful cuts in defense and health care eliminated jobs.
- -- Slowly rebuilding economy.
- -- Personal income is high.
New York
- -- High taxes restrain growth.
- -- Personal income remains high.
- -- Debt level is high.
- -- Federal budget Medicaid reform impasses threaten planned budget savings.
Maryland
- -- One of wealthiest states.
- -- Personal income 115% ofnational average, but income growth has stabilized.
- -- Good financial controls.
Florida
- -- Economy and personal income growing much faster than national rate.
- -- Unemployment and debt are low.
- -- Ended 1995 with a budget surplus for the third year in a row.
Connecticut
- -- Nation's wealthiest citizens.-- Economically weak from defense cuts.
- -- Slow growth -- recovery may take years.
- -- Attempts at "quick fixes" won't provide permanent relief.
New Jersey
- -- Broad-based economy and high personal wealth.
- -- Economic growth slowing.
- -- "Pro-business" tactics siphoned revenue, but may spur more growth.
North Carolina
- -- Robust, model economy.
- -- Personal income quicklygrowing.
- -- Unemployment well below national average.
- -- New jobs from financial services, research and high technology.
- -- Strong financial management.
Source: Prudential Investment Corporation. Selected states are those
for which Prudential Mutual Fund Management manages a state-specific
municipal bond mutual fund
Revised: April, 1996
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
Internet Address:
http:\\www.prudential.com
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 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
The views expressed in this report and information about the Series'
portfolio holdings are for the period covered by this report and are
subject to change thereafter.
The accompanying financial statements as of February 29, 1996 were
not audited and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors
unless preceded or accompanied by a current prospectus.
<PAGE>
(LOGO)
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
BULK RATE
U.S. POSTAGE
PAID
Permit 6807
New York, NY
74435M655
74435M663 MF119E2
74435M564 Cat# 642985K
(ICON)
Prudential
Municipal
Series Fund
North Carolina Series
SEMI
ANNUAL
REPORT
Feb. 29, 1996
(LOGO)
<PAGE>
Prudential Municipal Series Fund
North Carolina Series
Performance At A Glance.
Lower interest rates and subdued inflation lifted tax-free municipal bond prices
higher over the past six months continuing a trend that has been in place for
over a year now. We're pleased to report that for the six-month period ended
February 29, 1996 the Prudential Municipal Series Fund -- North Carolina Series
performed better than the average North Carolina municipal fund, as measured by
Lipper Analytical Services.
Cumulative Total Returns1 As of 2/29/96
<TABLE>
<CAPTION>
Six One Five Ten Since
Months Year Years Years Inception2
<S> <C> <C> <C> <C> <C>
Class A 5.7% 9.6% 44.9% N/A 56.5%
Class B 5.5 9.1 42.0 89.1% 128.7
Class C 5.3 8.9 N/A N/A 11.9
Lipper NC Muni Avg3 5.2 9.7 43.4 93.1 142.0
</TABLE>
Average Annual Total Returns1 As of 3/31/96
<TABLE>
<CAPTION>
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A 3.1% 6.5% N/A 6.6%
Class B 0.7 6.6 6.2% 7.5 (7.4)4
Class C 4.5 N/A N/A 5.4 (5.3)4
</TABLE>
<TABLE>
<CAPTION>
Dividends Taxable Equivalent
Yield5
& Yields Total Dividends 30-Day At Tax Rates Of
As of Paid for Six Mos. SEC Yield 36%
39.6%
2/29/96
<S> <C> <C> <C> <C>
Class A $0.27 4.28% (4.23)4 7.25% (7.16)4
7.68% (7.59)4
Class B $0.25 4.00 (3.95)4 6.78 (6.69)4
7.18 (7.09)4
Class C $0.23 3.75 (3.70)4 6.35 (6.27)4
6.73 (6.64)4
</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 declining
contingent deferred sales charge (CDSC) 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 34 funds for
six months, 32 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.
4Without waivers and expense subsidies the Series' average annual total
return/30-day SEC yield would have been lower, as indicated in parentheses ( ).
5Taxable equivalent yields reflect federal and applicable state tax rates.
How Investments Compared.
(As of 2/29/96)
(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. The returns assume the reinvestment
of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors have received higher
historical total returns from stocks than from most other investments. Smaller
capitalization stocks offer greater potential for long-term growth but may be
more volatile than larger capitalization stocks.
General Bond Funds provide more income than stock funds, which can help smooth
out their total returns year by year. But their prices still fluctuate
(sometimes significantly) and their returns have been historically lower than
those of stock funds.
General Municipal Debt Funds invest in bonds issued by state governments. state
agencies and/or municipalities. This investment provides income that is usually
exempt from federal and state income taxes.
Money Market Funds attempt to preserve a constant share value; they don't
fluctuate much in price but, historically, their returns have been generally
among the lowest of the major investment categories.
*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. Some bonds are
AMT-eligible and certain shareholders may be subject to the federal alternative
minimum tax, however. There can be no assurance that the Series' investment
objective will be achieved.
Insured Bonds.
More new tax-free municipal bonds are being insured these days, because buyers
are concerned about credit quality. In 1995, 43% of all new bonds issued
nationally were insured. Following this national trend, insured bonds in your
Series are now 43% of assets. Although insuring a bond reduces its yield, it
benefits the investor in that payment of both interest and principal is then
guaranteed. Of course, no insurance is available to prevent the daily market
value of bonds, and bond funds, from fluctuating.
Strategy Session.
Our strategy over the past six months was to take maximum advantage of falling
interest rates (and rising bond prices) while keeping an eye out for any shift
to higher rates. And for most of the past six months, conditions couldn't have
been much better for municipal bonds. Sluggish economic growth nationwide
pushed inflation lower and interest rates down by nearly a half of a percentage
point, as measured by The Bond Buyer Revenue Bond Index. Second, the concern
about tax reform that had held back price gains diminished, allowing municipal
bonds to rise in value in recent months.
Conditions for tax-free municipal bond investors were ideal for North Carolina,
as well. In fact, North Carolina's economy could serve as a model for other
states. Unemployment remains almost two percentage points below the national
average, powered by employment gains in financial services, research and high
technology. And, North Carolina continues to demonstrate excellent financial
management -- its bonds have a AAA debt rating from both of the major ratings
agencies.
Personal income in North Carolina is also growing rapidly. Although it is 90%
of the national average, it is growing 25% faster -- evidence of a robust
economy with low unemployment. The state's debt service for outstanding
municipal bonds is a mere 0.8% of personal income, well below the national
average of 4.7%. It seems clear that North Carolina is in excellent condition
to handle its growing economy.
Sector Breakdown.
(PIE CHART)
<PAGE>
What Went Well.
You Can Call Us,
But Not Our Bonds.
Our investment in non-callable bonds was 19.3% of net assets as of February
29, 1996. That helped lift performance. When interest rates fall,
municipalities often call bonds, or repay the principal value of their
bonds early, so that they can reissue them at the now-lower rates. That leaves
investors in the lurch -- with only newly-issued lower coupon bonds to replace
their called higher-yielding holdings. So, we intentionally focus on
non-callable bonds because income-hungry investors like them and their prices
tend to rise more than callable bond prices when interest rates fall.
We Searched For Special Qualities.
We combed the market for bonds with special qualities like a premium (high
coupon), an intermediate maturity (8 to 12 years) and that were non-callable.
This type of bond helps the Series appreciate when interest rates fall, limits
losses when interest rates rise, and provides a healthy income. How? This
bond's intermediate maturity makes it less volatile than others as interest
rates rise and fall. If interest rates rise, this bond won't fall so quickly.
But if interest rates fall, this bond will appreciate faster than others
because it can't be refunded before it matures. And non-callable bonds? They
guarantee that our duration will be what we expected and also help us to
ensure that our yield will remain high when new bonds will offer lower coupons.
So did we find any bonds with these special qualities? Yes, and that's why we
performed as well as we did.
And Not So Well.
Not Lengthening Sooner.
Looking back, something we did right -- lengthening duration -- was also
something we could have done sooner. We began lengthening our duration late
last summer. If we had lengthened earlier -- like when the municipal bond rally
began in the spring of 1995 -- the Series' performance would have been better.
Why did we wait? We were wary of municipal market volatility at the time.
Tax-reform plans that would have eliminated the tax exemption for municipal
bond income were the talk of Washington. If enacted, the longest-term municipal
bonds would have suffered most.
Five Largest Issuers.
6.9% Puerto Rico Commonwealth
6.7% North CarolinaMunicipal Power Agency
6.5% Charlotte Convention Facility Project
4.9% Eastern MunicipalPower Agency
4.6% Durham County
Expressed as a percentage of total net assets as of 2/29/96.
Looking Ahead.
The North Carolina municipal bond market looks attractive to us in 1996. The
state's growing economy and the country's low interest rates and inflation make
municipal bonds here a sound investment for those looking for tax-free income.
What could go wrong? This is a presidential election year and resurfacing talk
of flat taxes and other types of income tax reform could roil the municipal
bond market. Volatility and election year politics seem to go hand-in-hand.
1
<PAGE>
President's Letter April 5, 1996
(PICTURE)
Dear Shareholder:
For many investors, 1995 was a profitable year -- most stock and bond funds
enjoyed healthy returns from the U.S. markets. While climbing returns can tempt
even the most skittish investors to start buying again, it is important to
remember that the stock and bond markets go down just as they go up. At times
like these, remember the importance of working with your Financial Advisor or
Registered Representative to help you find investments that are consistent with
your risk tolerance and time horizon. Your Financial Advisor or Registered
Representative can help you maintain realistic expectations about both the
potential performance and risks associated with your investments.
Shareholder Legislative Action Program.
From time to time we've been informing you about significant legislation before
Congress, such as the American Dream Savings Account, that may potentially
impact mutual fund investors. We want to make it easier for you to share your
views with your Congressional member. So, beginning in 1996, whenever Congress
is considering legislation that would affect you, we'll send you postage-paid
message cards that you simply drop in the mail if you want to let your senator
or representative know how you want him or her to vote.
Fund Profiles.
Over the past year, we've worked to make your shareholder reports more
interesting, informative and easy to read. This year, we'll be considering
"fund profiles." Some mutual fund companies now offer one to shareholders along
with a full prospectus. The purpose of a fund profile is to provide a very
brief, reader-friendly summary of a fund's objective, investments, risks and
expenses. Would you like to see fund profiles from us? Please call your
Financial Advisor or Registered Representative to share your views.
As always, thank you for your confidence in Prudential Mutual Funds.
Sincerely,
Richard A. RedekerPresident
2
<PAGE>
Portfolio of Investments
as of February 29, 1996 PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) NORTH CAROLINA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
LONG-TERM INVESTMENTS--98.1%
- -----------------------------------------------------------------------------
- -------------------------------------------------
Buncombe Cnty., Pub. Impvt. Bonds Aa
6.90% 3/01/09 $ 1,000 (e) $ 1,099,110
City of Greensboro Enterprise Sys. Rev., Comb Ser. A A1
5.30 6/01/15 1,000 976,340
Charlotte Mecklenberg Hosp., Hlth. Care Sys. Rev. Aa
6.25 1/01/20 750 777,630
Charlotte Pub. Impvt. Aaa
5.40 4/01/15 1,500 1,509,900
Charlotte Wtr. & Swr. Aaa
6.20 6/01/17 1,500 (e) 1,676,865
Charlotte Wtr. & Swr. Aaa
5.90 2/01/19 1,000 1,049,310
Charlotte, Cert. of Part.,
Conv. Fac. Proj., A.M.B.A.C. Aaa
Zero 12/01/09 3,000 1,422,300
Conv. Fac. Proj., A.M.B.A.C. Aaa
5.00 12/01/21 3,000 2,740,590
Cleveland Cnty., Ser. 1993, F.G.I.C. Aaa
5.10 6/01/07 2,500 2,551,350
Concord Util. Sys. Rev., M.B.I.A. Aaa
5.50 12/01/14 1,000 1,002,480
Dare Cnty., Util. Sys. Rev., M.B.I.A. Aaa
5.75 6/01/14 500 514,720
Davidson Cnty. Aa
5.40 6/01/14 800 805,112
Durham, Gen. Oblig. Aa1
5.10 2/01/15 1,000 966,970
Durham Cnty., Pub. Impvt. Aaa
4.60 5/01/04 2,000 2,027,100
Fayetteville, Cert. of Part., San. Swr. & Pub. Impvt.,
A.M.B.A.C. Aaa
6.875 12/01/08 1,750 1,924,790
Gastonia, Gen. Oblig., Wtr. Sys. & St. Impvt., F.G.I.C. Aaa
5.25 4/01/09 1,625 1,644,890
Guilford Cnty., Pub. Impvt. Aa1
5.40 4/01/09 500 518,960
Haywood Cnty., Ind. Facs. & Poll. Ctrl.,
Fin. Auth. Environ. Impvt. Rev., Championship Int'l.
Proj. Baa1
5.75 12/01/25 1,000 970,800
Fin. Auth. Environ. Impvt. Rev., Championship Int'l.
Proj. Baa1
6.25 9/01/25 750 772,328
Lincoln County No. Carolina Ref., F.G.I.C. Aaa
5.10 6/01/09 1,170 1,174,387
Martin Cnty. Ind. Facs. & Poll. Ctrl. Fin. Auth. Rev.,
Weyerhaueser Co. Proj. A2
8.50 6/15/99 200 224,806
Mecklenberg Cnty., Pub. Impvt. Aaa
5.00 4/01/08 1,000 1,010,820
Mecklenburg Cnty., Pub. Impvt. Aaa
4.80 3/01/06 1,050 1,065,845
New Hanover Cnty. Hosp. Rev., Regl. Med. Ctr. Proj.,
A.M.B.A.C. Aaa
4.75 10/01/23 1,600 1,416,112
No. Carolina Eastn. Mun. Pwr. Agcy.,
Pwr. Sys. Rev., A.M.B.A.C. Aaa
6.00 1/01/18 1,000 1,070,970
Pwr. Sys. Rev. Aaa
6.50 1/01/18 1,995(e) 2,395,776
Pwr. Sys. Rev. A
6.50 1/01/18 1,005 1,090,083
Pwr. Sys. Rev. Aaa
6.00 1/01/26 650(e) 712,601
Pwr. Sys. Rev. Ser. A A
6.40 1/01/21 1,000 1,016,070
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3 -----
<PAGE>
Portfolio of Investments
as of February 29, 1996 PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) NORTH CAROLINA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
No. Carolina Gen. Oblig. Cap. Impvt., Ser. A Aaa
4.70% 2/01/10 $ 1,200 $ 1,159,488
No. Carolina Hsg. Fin. Agcy., Sngl. Fam. Mtge. Rev., Ser. G Aa
7.80 3/01/21 750 794,333
No. Carolina Med. Care Comn., Hlth. Care Facs. Rev.,
Stanley Mem. Hosp. Proj. Baa1
7.80 10/01/19 650 694,044
No. Carolina Med. Care Comn., Hosp. Rev.,
Annie Pen Mem. Hosp. Proj. Baa
7.50 8/15/21 1,000 1,045,260
Baptist Hosp. Proj. Aa
6.00 6/01/22 1,000 1,008,300
Rex Hosp. Proj. A1
6.25 6/01/17 1,750 1,862,297
No. Carolina Mun. Pwr. Agcy.,
No. 1 Catawba Elec. Rev., A.M.B.A.C. Aaa
5.25 1/01/09 1,000 1,019,600
No. 1 Catawba Elec. Rev. A
6.00 1/01/10 1,250 1,364,512
No. 1 Catawba Elec. Rev., M.B.I.A. Aaa
6.82 1/01/12 2,000 (d) 1,930,000
Northern Hosp. Dist. Surry Cnty. Hlth.
Care Facs. Rev., No. Carolina Hosp. Ba1
7.875 10/01/21 1,500 1,586,505
Pitt Cnty. Rev., Pitt Cnty. Mem. Hosp. Aa
5.25 12/01/21 1,500 1,422,855
Puerto Rico Comnwlth.,
Gen. Oblig., Ser. A, M.B.I.A. Aaa
6.25 7/01/10 1,240 1,339,634
Gen. Oblig., M.B.I.A. Aaa
5.50 7/01/13 1,750 1,765,120
Gen. Oblig., F.S.A. Aaa
7.982 7/01/20 1,300 (d) 1,350,375
Puerto Rico Elec. Pwr. Rev. Baa1
5.50 7/01/20 1,520 1,456,981
Puerto Rico Ind. Med. & Environ. Poll. Ctrl. Facs., Upjohn
Co. Proj. Aa3
7.50 12/01/23 500 548,250
Puerto Rico Tel. Auth. Rev., Ser. I, M.B.I.A. Aaa
6.748 1/25/07 1,000 (d) 1,043,750
Robeson Cnty. Aaa
7.80 6/01/09 500 (e) 553,020
Union Cnty. Gen. Oblig. A1
6.50 4/01/07 850 927,061
Univ. of Puerto Rico Sys. Rev., Ser. M, M.B.I.A. Aaa
5.25 6/01/25 1,000 960,940
Virgin Islands Terr., Hugo Ins. Claims Fund Proj., Ser. 91 NR
7.75 10/01/06 415 452,093
Wake Cnty. Hosp. Rev., M.B.I.A. Aaa
5.125 10/01/26 1,500 1,396,185
Winston Salem, Sngl. Fam. Mtge. Rev. A1
8.00 9/01/07 425 445,736
Winston Salem, Wtr. & Swr., Sys. Rev., Ser. B Aa
5.70 6/01/17 1,000 1,018,200
-----------
Total long-term investments (cost $60,003,457 )
63,273,554
-----------
SHORT-TERM INVESTMENTS--2.3%
Halifax Cnty. Ind. Facs. & Poll. Ctrl.,
Fin. Auth. Rev., Ser. 91, F.R.D.D. CPSI
3.45 3/01/96 900 900,000
Fin. Auth. Rev., Ser. 93, F.R.D.D. A-1+(c)
3.55 3/01/96 500 500,000
</TABLE>
- --------------------------------------------------------------------------------
- ----- 4 See Notes to Financial Statements.
<PAGE>
Portfolio of Investments
as of February 29, 1996 PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) NORTH CAROLINA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Puerto Rico Comnwlth., Gov't. Dev. Bank, Ser. 85, F.R.W.D. VMIG
2.80% 3/06/96 $ 100 $ 100,000
-----------
Total short-term investments (cost $1,500,000)
1,500,000
-----------
Total Investments--100.4%
(cost $61,503,457; Note 4 )
64,773,554
Liabilities in excess of other assets--(0.4)%
(240,668)
-----------
Net Assets--100%
$64,532,886
-----------
-----------
</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 (b).
F.R.W.D.--Floating Rate (Weekly) Demand Note (b).
F.S.A.--Financial Security Assurance.
M.B.I.A.--Municipal Bond Insurance Corporation.
(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 period end.
(e) Prerefunded issues are secured by escrowed cash and/or direct
U.S. guaranteed obligations.
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>
Statement of Assets and Liabilities PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) NORTH CAROLINA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<S>
<C>
Assets
February 29, 1996
Investments, at value (cost
$61,503,457).................................................................
$ 64,773,554
Cash.........................................................................
............................ 16,975
Interest
receivable...................................................................
................... 911,291
Receivable for Fund shares
sold..........................................................................
56,825
Receivable for investments
sold..........................................................................
20,000
Deferred expenses and other
assets.......................................................................
1,328
-----------------
Total
assets.......................................................................
................... 65,779,973
-----------------
Liabilities
Payable for investments
purchased....................................................................
.... 1,069,380
Accrued
expenses.....................................................................
.................... 56,187
Payable for Fund shares
reacquired...................................................................
.... 43,017
Dividends
payable......................................................................
.................. 35,721
Management
payable......................................................................
................. 23,386
Distribution fee
payable......................................................................
........... 17,076
Deferred Trustees
fees.........................................................................
.......... 2,320
-----------------
Total
liabilities..................................................................
................... 1,247,087
-----------------
Net
Assets.......................................................................
........................ $ 64,532,886
-----------------
-----------------
Net assets were comprised of:
Shares of beneficial interest, at
par................................................................. $
56,448
Paid-in capital in excess of
par......................................................................
60,894,008
-----------------
60,950,456
Accumulated net realized gain on
investments..........................................................
312,333
Net unrealized appreciation on
investments............................................................
3,270,097
-----------------
Net assets, February 29,
1996............................................................................
$ 64,532,886
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($27,620,440 / 2,416,610 shares of beneficial interest issued and
outstanding)..................... $11.43
Maximum sales charge (3% of offering
price)...........................................................
.35
-----------------
Maximum offering price to
public......................................................................
$11.78
-----------------
-----------------
Class B:
Net asset value, offering price and redemption price per share
($36,845,120 / 3,222,320 shares of beneficial interest issued and
outstanding)..................... $11.43
-----------------
-----------------
Class C:
Net asset value, offering price and redemption price per share
($67,326 / 5,888 shares of beneficial interest issued and
outstanding)............................. $11.43
-----------------
-----------------
</TABLE>
- --------------------------------------------------------------------------------
- ----- 6 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NORTH CAROLINA SERIES
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Six Months
Ended
Net Investment Income February 29, 1996
-----------------
Income
Interest................................ $ 1,882,526
-----------------
Expenses
Management fee.......................... 163,579
Distribution fee--Class A............... 13,559
Distribution fee--Class B............... 95,621
Distribution fee--Class C............... 244
Custodian's fees and expenses........... 45,000
Reports to shareholders................. 45,000
Transfer agent's fees and expenses...... 22,500
Registration fees....................... 17,000
Audit fee and expenses.................. 5,300
Legal fees and expenses................. 5,000
Directors' fees and expenses............ 1,700
Miscellaneous........................... 5,517
-----------------
Total expenses....................... 420,020
-----------------
Less: Management fee waiver.......... (16,358)
Custodian fee credit................. (2,999)
-----------------
Net expenses......................... 400,663
-----------------
Net investment income...................... 1,481,863
-----------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions................. 563,204
Financial futures contract
transactions......................... (95,519)
-----------------
467,685
-----------------
Net change in unrealized
appreciation/depreciation on:
Investments............................. 1,670,488
Financial futures contract.............. (52,187)
-----------------
1,618,301
-----------------
Net gain on investments.................... 2,085,986
-----------------
Net Increase in Net Assets
Resulting from Operations.................. $ 3,567,849
-----------------
-----------------
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
NORTH CAROLINA SERIES
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) February 29, August 31,
in Net Assets 1996 1995
----------------- ------------
<S> <C> <C>
Operations
Net investment income...... $ 1,481,863 $ 3,451,275
Net realized gain on
investment
transactions............ 467,685 675,725
Net change in unrealized
appreciation/depreciation
of investments.......... 1,618,301 (130,375)
----------------- ------------
Net increase in net assets
resulting from
operations.............. 3,567,849 3,996,625
----------------- ------------
Dividends and distributions
(Note 1):
Dividends from net
investment income
Class A................. (645,994) (800,554)
Class B................. (834,523) (2,649,245)
Class C................. (1,346) (1,476)
----------------- ------------
(1,481,863) (3,451,275)
----------------- ------------
Distributions from net
realized gains
Class A................. (283,245) --
Class B................. (369,288) --
Class C................. (674) --
----------------- ------------
(653,207) --
----------------- ------------
Series share transactions (net
of share conversions) (Note
5):
Net proceeds from shares
sold.................... 1,539,773 4,576,741
Net asset value of shares
issued in reinvestment
of dividends and
distributions........... 1,173,560 1,814,783
Cost of shares
reacquired.............. (6,304,657) (11,959,150)
----------------- ------------
Net decrease in net assets
from Series share
transactions............ (3,591,324) (5,567,626)
----------------- ------------
Total decrease................ (2,158,545) (5,022,276)
Net Assets
Beginning of period........... 66,691,431 71,713,707
----------------- ------------
End of period................. $ 64,532,886 $ 66,691,431
----------------- ------------
----------------- ------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7 -----
<PAGE>
Notes to Financial Statements PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) 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
fourteen 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 Net 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. Expenses
are recorded on the accrual basis which may require the use of certain estimates
made by management.
Net investment income (other than distribution fees) and unrealized and realized
gains or losses are allocated daily to each class of shares based upon the
relative proportion of net assets of each class at the beginning of the day.
Federal Income Taxes: 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.
Custody Fee Credits: The Fund has an arrangement with its custodian bank,
whereby uninvested monies earn credits which reduce the fees charged by the
custodian.
- --------------------------------------------------------------------------------
- ----- 8
<PAGE>
Notes to Financial Statements PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) 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 cost of the subadviser's
services, 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. PMF has agreed
to waive a portion (.05 of 1% of the Series' average daily net assets) of its
management fee, which amounted to $16,358 ($0.003 per share for Class A, B and
C
shares; .05% of average net assets, annualized). The Series is not required to
reimburse PMF for such waiver.
The Fund had a distribution agreement with Prudential Mutual Fund Distributors,
Inc. (``PMFD''), which acted as the distributor of the Class A shares of the
Fund through January 1, 1996. Effective January 2, 1996 Prudential Securities
Incorporated (``PSI'') became the distributor of the Class A shares of the Fund
and is serving the Fund under the same terms and conditions as under the
arrangement with PMFD. PSI is also the distributor of the Class B and Class C
shares of the Fund. The Fund compensated PMFD and PSI for distributing and
servicing the Fund's Class A, Class B and Class C shares, pursuant to plans of
distribution (the ``Class A, B and C Plans''), regardless of expenses actually
incurred by them. The distribution fees are accrued daily and payable monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates PSI and PMFD for
the period September 1, 1995 through January 1, 1996 with respect to Class A
shares, for distribution-related activities at an annual rate of up to .30 of
1%, .50 of 1% and 1%, of the average daily net assets of the Class A, B and C
shares, respectively. Such expenses under the Plans were .10 of 1%, .50 of 1%
and .75 of 1% of the average daily net assets of the Class A, B and C shares,
respectively, for the six months ended February 29, 1996.
PMFD and PSI have advised the Series that they have received approximately
$1,800 in front-end sales charges resulting from sales of Class A shares during
the six months ended February 29, 1996. From these fees, PMFD and PSI paid such
sales charges to Pruco Securities Corporation, an affiliated broker-dealer,
which in turn paid commissions to sales persons and incurred other distribution
costs.
PSI has advised the Series that for the six months ended February 29, 1996, it
received approximately $79,100 in contingent deferred sales charges imposed upon
certain redemptions by Class B and Class 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 and during the six months ended
February 29, 1996, the Series incurred fees of approximately $13,600 for the
services of PMFS. As of February 29, 1996, 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 six months ended February 29, 1996 were $10,064,608 and
$11,558,249, respectively.
The cost basis of investments for federal income tax purposes was substantially
the same as for financial reporting purposes and, accordingly, as of February
29, 1996, net unrealized appreciation for federal income tax purposes was
$3,270,097 (gross unrealized appreciation--$3,502,165; gross unrealized
depreciation--$232,068).
- ------------------------------------------------------------
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. A special exchange privilege is also available for
shareholders who qualify to purchase Class A shares at net asset value.
- --------------------------------------------------------------------------------
9 -----
<PAGE>
Notes to Financial Statements PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) NORTH CAROLINA 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 six months ended February
29, 1996 and the fiscal year ended August 31, 1995, were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------------ ---------- ------------
<S> <C> <C>
Six months ended February 29, 1996:
Shares sold......................... 4,623 $ 52,891
Shares issued in reinvestment of
dividends and distributions....... 45,392 518,993
Shares reacquired................... (167,847) (1,921,737)
---------- ------------
Net decrease in shares outstanding
before conversion................. (117,832) (1,349,853)
Shares issued upon conversion from
Class B........................... 163,622 1,909,469
---------- ------------
Net increase in shares
outstanding....................... 45,790 $ 559,616
---------- ------------
---------- ------------
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
---------- ------------
---------- ------------
<CAPTION>
Class B Shares Amount
<S> <C> <C>
Six months ended February 29, 1996:
Shares sold......................... 128,574 $ 1,475,865
Shares issued in reinvestment of
dividends and distributions....... 57,138 653,215
Shares reacquired................... (384,968) (4,382,920)
---------- ------------
Net decrease in shares outstanding
before conversion................. (199,256) (2,253,840)
Shares issued upon conversion from
Class B........................... (163,482) (1,909,469)
---------- ------------
Net decrease in shares
outstanding....................... (362,738) $ (4,163,309)
---------- ------------
---------- ------------
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)
---------- ------------
---------- ------------
<CAPTION>
Class C
<S> <C> <C>
Six months ended February 29, 1996:
Shares sold......................... 979 $ 11,017
Shares issued in reinvestment of
dividends......................... 118 1,352
Shares reacquired................... -- --
---------- ------------
Net increase in shares
outstanding....................... 1,097 $ 12,369
---------- ------------
---------- ------------
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
---------- ------------
---------- ------------
</TABLE>
- --------------------------------------------------------------------------------
- ----- 10
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) NORTH CAROLINA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
- --------------------------------------------------------------------
Six Months
Ended Year Ended
August 31,
February 29,
- ---------------------------------------------------
1996 1995 1994
1993 1992 1991
------------ ------- ------
- ------ ------ ------
<S> <C> <C> <C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period........................... $ 11.19 $ 11.06 $12.04
$11.37 $10.86 $10.45
------------ ------- ------
- ------ ------ ------
Income from investment operations
Net investment income............... .27(a) .60(a) .61
.65 .67 .67
Net realized and unrealized gain
(loss) on investment
transactions..................... .36 .13 (.76)
.67 .51 .41
------------ ------- ------
- ------ ------ ------
Total from investment
operations.................... .63 .73 (.15)
1.32 1.18 1.08
------------ ------- ------
- ------ ------ ------
Less distributions
Dividends from net investment
income........................... (.27) (.60) (.61)
(.65) (.67) (.67)
Distributions from net realized
gains............................ (.12) -- (.22)
-- -- --
------------ ------- ------
- ------ ------ ------
Total distributions.............. (.39) (.60) (.83)
(.65) (.67) (.67)
------------ ------- ------
- ------ ------ ------
Net asset value, end of period...... $ 11.43 $ 11.19 $11.06
$12.04 $11.37 $10.86
------------ ------- ------
- ------ ------ ------
------------ ------- ------
- ------ ------ ------
TOTAL RETURN(b):.................... 5.66% 6.86% (1.35)%
11.99% 11.12% 10.63%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)....... $ 27,620 $26,519 $2,256
$1,777 $ 917 $ 362
Average net assets (000)............ $ 27,267 $15,244 $2,067
$1,316 $ 612 $ 246
Ratios to average net assets:
Expenses, including distribution
fees.......................... 1.00%(a)(c) .98%(a) .88%
.87% .91% .99%
Expenses, excluding distribution
fees.......................... .90%(a)(c) .88%(a) .78%
.77% .81% .89%
Net investment income............ 4.76%(a)(c) 5.25%(a) 5.31%
5.55% 5.90% 6.24%
Portfolio turnover rate............. 16% 28% 17%
38% 36% 27%
</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.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 11 -----
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) NORTH CAROLINA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
Class C
- ------------------------------------------------------------------------
- ------------
Six Months
Six Months
Ended Year
Ended August 31, Ended
February 29,
- ------------------------------------------------------- February 29,
1996 1995 1994
1993 1992 1991 1996
------------ ------- -------
- ------- ------- ------- ------------
PER SHARE OPERATING PERFORMANCE:
<S> <C> <C> <C>
<C> <C> <C> <C>
Net asset value, beginning of
period........................... $ 11.19 $ 11.06 $ 12.05
$ 11.37 $ 10.86 $ 10.45 $ 11.19
------------ ------- -------
- ------- ------- ------- ------------
Income from investment operations
Net investment income............... .25(a) .55(a) .56
.60 .62 .63 .23
Net realized and unrealized gain
(loss) on investment
transactions..................... .36 .13 (.77)
.68 .51 .41 .36
------------ ------- -------
- ------- ------- ------- ------------
Total from investment
operations.................... .61 .68 (.21)
1.28 1.13 1.04 .59
------------ ------- -------
- ------- ------- ------- ------------
Less distributions
Dividends from net investment
income........................... (.25) (.55) (.56)
(.60) (.62) (.63) (.23)
Distributions from net realized
gains............................ (.12) -- (.22)
-- -- -- (.12)
------------ ------- -------
- ------- ------- ------- ------------
Total distributions.............. (.37) (.55) (.78)
(.60) (.62) (.63) (.35)
------------ ------- -------
- ------- ------- ------- ------------
Net asset value, end of period...... $ 11.43 $ 11.19 $ 11.06
$ 12.05 $ 11.37 $ 10.86 $ 11.43
------------ ------- -------
- ------- ------- ------- ------------
------------ ------- -------
- ------- ------- ------- ------------
TOTAL RETURN(b):.................... 5.45% 6.44% (1.82)%
11.62% 10.64% 10.17% 5.32%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..... $ 36,845 $40,119 $69,448
$75,515 $63,573 $59,875 $ 67
Average net assets (000)............ $ 38,459 $51,963 $73,606
$67,997 $60,751 $59,071 $ 66
Ratios to average net assets:
Expenses, including distribution
fees.......................... 1.40%(a)(c) 1.34%(a) 1.28%
1.27% 1.31% 1.39% 1.65%(a)(c)
Expenses, excluding distribution
fees.......................... .90%(a)(c) .84%(a) .78%
.77% .81% .89% .90%(a)(c)
Net investment income............ 4.36%(a)(c) 5.10%(a) 4.89%
5.18% 5.58% 5.88% 4.13%(a)(c)
Portfolio turnover rate............. 16% 28% 17%
38% 36% 27% 16%
<CAPTION>
<S> <C> <C>
August 1,
Year 1994(d)
Ended through
August 31, August 31,
1995 1994
----- -----
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period........................... $11.06 $11.09
----- -----
Income from investment operations
Net investment income............... .52(a) .04(c)
Net realized and unrealized gain
(loss) on investment
transactions..................... .13 (.03)
----- -----
Total from investment
operations.................... .65 .01
----- -----
Less distributions
Dividends from net investment
income........................... (.52) (.04)
Distributions from net realized
gains............................ -- --
----- -----
Total distributions.............. (.52) (.04)
----- -----
Net asset value, end of period...... $11.19 $11.06
----- -----
----- -----
TOTAL RETURN(b):.................... 6.17% .02%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..... $ 53 $ 10
Average net assets (000)............ $ 32 $ 5
Ratios to average net assets:
Expenses, including distribution
fees.......................... 1.63%(a) 1.67%(c)
Expenses, excluding distribution
fees.......................... .88%(a) .92%(c)
Net investment income............ 4.59%(a) 5.06%(c)
Portfolio turnover rate............. 28% 17%
</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.
- --------------------------------------------------------------------------------
- ----- 12 See Notes to Financial Statements.
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
Internet Address:
http:\\www.prudential.com
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 PlazaNew York, NY 10292
Investment Adviser
The Prudential Investment Corporation
Prudential PlazaNewark, NJ 07101
Distributor
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Auditor
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
The views expressed in this report and information about the Series'
portfolio holdings are for the period covered by this report and are
subject to change thereafter.
The accompanying financial statements as of February 29, 1996 were not
audited and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective
investors unless preceded or accompanied by a current prospectus.
<PAGE>
(LOGO) BULK RATE
U.S. POSTAGE
PAID
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New York, NY
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
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(ICON)
Prudential
Municipal
Series Fund
Maryland Series
SEMI
ANNUAL
REPORT
Feb. 29, 1996
<PAGE>
Prudential Municipal Series Fund
Maryland Series
Performance At A Glance.
Lower interest rates and subdued inflation lifted tax-free municipal bond prices
higher over the past six months, continuing a trend that has been in place for
over a year now. We're pleased to report that for the six months ended February
29, 1996 the Prudential Municipal Series Fund -- Maryland Series performed much
better than the average Maryland municipal fund, as measured by Lipper
Analytical Services. Your Fund's total return surpassed the average Maryland
municipal bond fund by three-quarters of a percentage point (Class A and Class
B
shares).
<TABLE>
<CAPTION>
Cumulative Total Returns1 As of 2/29/96
Six One Five Ten Since
Months Year Years Years
Inception2
<S> <C> <C> <C> <C> <C>
Class A 5.6% 10.4% 41.9% N/A
53.6%
Class B 5.5 9.9 39.3 86.2%
119.8
Class C 5.4 9.6 N/A N/A
11.4
Lipper MD Muni Avg3 4.7 9.7 44.0 96.0
127.2
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns1 As of
3/31/96
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A 4.7% 6.3% N/A 6.4%
Class B 2.4 6.4 6.2% (6.1)4 7.1
(7.0)4
Class C 6.1 N/A N/A 5.6
</TABLE>
<TABLE>
<CAPTION>
Dividends
& Yields
As of
2/29/96 Taxable Equivalent
Yield5
Total Dividends 30-Day At Tax Rates Of
Paid for Six Mos. SEC Yield 36%
39.6%
<S> <C> <C> <C> <C>
Class A $0.26 4.33% (4.28)4 7.20% (7.11)4
7.63% (7.54)4
Class B $0.24 4.05 (4.00)4 6.73 (6.65)4 7.13
(7.05)4
Class C $0.22 3.80 (3.75)4 6.32 (6.23)4 6.69
(6.60)4
</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 declining
contingent deferred sales charge (CDSC) 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 32 funds for six
months, 30 funds for one year, nine funds for five years, three funds for 10
years and two funds since inception of the Class B shares on 1/22/85.
4Without waivers and expense subsidies the Series' average annual total
return/30-day SEC yield would have been lower, as indicated in parentheses ( ).
5Taxable equivalent yields reflect federal and applicable state tax rates.
How Investments Compared.
(As of 2/29/96)
(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. The returns assume the reinvestment of
dividends.
U.S. Growth Funds will fluctuate a great deal. Investors have received higher
historical total returns from stocks than from most other investments. Smaller
capitalization stocks offer greater potential for long-term growth but may be
more volatile than larger capitalization stocks.
General Bond Funds provide more income than stock funds, which can help smooth
out their total returns year by year. But their prices still fluctuate
(sometimes significantly) and their returns have been historically lower than
those of stock funds.
General Municipal Debt Funds invest in bonds issued by state governments,
state agencies and/or municipalities. This investment provides income that is
usually exempt from federal and state income taxes.
Money Market Funds attempt to preserve a constant share value; they don't
fluctuate much in price but, historically, their returns have been generally
among the lowest of the major investment categories.
*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 Maryland state and federal income
taxes, consistent with preservation of capital. Some bonds are AMT-eligible and
certain shareholders may be subject to the federal alternative minimum tax,
however. There is no assurance that the Series' investment objective will be
achieved.
Strategy Session.
Our strategy over the past six months was to take advantage of falling interest
rates (and rising bond prices) while keeping an eye out for any shift to higher
rates. And for most of the past six months, conditions couldn't have been much
better for municipal bonds. Sluggish economic growth nationwide pushed
inflation lower and interest rates down by nearly a half a percentage point,
as measured by The Bond Buyer Revenue Bond Index. Second, the concern about
tax reform that had held back price gains diminished, allowing municipal bonds
to rise in value in recent months.
Conditions for tax-free municipal bond investors were good in Maryland, mainly
for two reasons. First, the state has a record of sound financial management.
Second, Maryland remains one of the wealthiest states in the nation, with its
personal income level at 115% of the national average. This is so despite
cutbacks by the Federal government, its leading employer.
Of course, Maryland has felt some effects of government downsizing: personal
income growth was below the national average over the last three years. Maryland
state officials have always acted swiftly to correct deficits in the General
Fund. The Budget Reserve Fund -- set at 5% of General Fund revenues -- is
expected to achieve its mandated $370 million level soon.
Insured Bonds.
More new tax-free municipal bonds are being insured these days, because buyers
are concerned about credit quality. In 1995, 43% of all new bonds issued
nationally were insured. Following this national trend, insured bonds in your
Series are now 41% of assets. Although insuring a bond reduces its yield, it
benefits the investor in that payment of both interest and principal is then
guaranteed by an insurance company. Of course, no insurance is available to
prevent the daily market value of bonds, and bond funds, from fluctuating.
Sector Breakdown.
Prudential Municipal Series Fund
Maryland Series as of 2/29/96
(CHART)
<PAGE>
What Went Well.
We Profited On Housing,
And Joined In A Rally.
We pared our 9% investment in housing bonds, held up to mid-1995, down to 6%,
which was a good move. With the continuing drop in interest rates, homeowners
will be refinancing mortgages, and that eventually leads to issuers calling in
housing bonds. Since we bought many of these bonds years ago when prices were
low and the supply was high, your Series captured a profit.
We also benefited from 1995's historic bond rally. As part of our strategy to
take advantage of falling interest rates, we lengthened duration. The longer a
fund's duration, the better its performance as interest rates fall. Late last
summer, we substantially lengthened our duration to 8.4 years from 7.5 years
in July. Early in 1996, as the bond rally began to fade, we shortened duration
to help protect our gains.
We Searched For Special Qualities.
We had other criteria as well. In fact, we combed the market for bonds with
special qualities like a premium (high coupon), an intermediate maturity (8 to
12 years) and that were non-callable (one that can't be redeemed before its
maturity). This type of bond helps the Series appreciate when interest rates
fall, limits losses when interest rates rise, and provides a healthy income.
So did we find any bonds with these special qualities? Yes, and that's why we
performed as well as we did.
And Not So Well.
Not Lengthening Sooner.
Looking back, something we did right -- lengthening duration -- was also
something we could have done sooner. We began lengthening our duration late last
summer. If we had lengthened earlier -- like when the municipal bond rally began
in the spring of 1995 -- the Series' performance would have been better. Why did
we wait? We were wary of municipal market volatility at the time. Tax-reform
plans that would have eliminated the tax exemption for municipal bond income
were the talk of Washington. If enacted, the longest-term municipal bonds would
have suffered most.
Five Largest Issuers.
9.5% Prince Georges County
8.4% Northeast Waste
Disposal Authority
6.1% MD State Higher Ed.
Facility
5.1% Montgomery County
4.7% MD State Transportation
Authority
Expressed as a percentage of total net assets as of 2/29/96.
Looking Ahead.
The Maryland municipal bond market looks attractive to us in 1996. The state's
stable economy and the country's low interest rates and subdued inflation make
municipal bonds here a sound investment for those looking for tax-free income.
What could go wrong? This is a presidential election year and resurfacing talk
of flat taxes and other types of income tax reform could roil the municipal bond
market. Volatility and election year politics seem to go hand-in-hand.
1
<PAGE>
President's Letter April 5, 1996
(PHOTO)
Dear Shareholder:
For many investors, 1995 was a profitable year -- most stock and bond funds
enjoyed healthy returns from the U.S. markets. While climbing returns can tempt
even the most skittish investors to start buying again, it is important to
remember that the stock and bond markets go down just as they go up. At times
like these, remember the importance of working with your Financial Advisor or
Registered Representative to help you find investments that are consistent with
your risk tolerance and time horizon. Your Financial Advisor or Registered
Representative can help you maintain realistic expectations about both the
potential performance and risks associated with your investments.
Shareholder Legislative Action Program.
From time to time we've been informing you about significant legislation before
Congress, such as the American Dream Savings Account, that may potentially
impact mutual fund investors. We want to make it easier for you to share your
views with your Congressional member. So, beginning in 1996, whenever Congress
is considering legislation that would affect you, we'll send you postage-paid
message cards that you simply drop in the mail if you want to let your senator
or representative know how you want him or her to vote.
Fund Profiles.
Over the past year, we've worked to make your shareholder reports more
interesting, informative and easy to read. This year, we'll be considering
"fund profiles." Some mutual fund companies now offer one to shareholders along
with a full prospectus. The purpose of a fund profile is to provide a very
brief, reader-friendly summary of a fund's objective, investments, risks and
expenses. Would you like to see fund profiles from us? Please call your
Financial Advisor or Registered Representative to share your views.
As always, thank you for your confidence in Prudential Mutual Funds.
Sincerely,
Richard A. Redeker
President
2
<PAGE>
<PAGE>
Portfolio of Investments as
of February 29, 1996 PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) MARYLAND SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
LONG-TERM INVESTMENTS--98.0%
- -----------------------------------------------------------------------------
- -------------------------------------------------
Baltimore Conv. Ctr. Rev., F.G.I.C. Aaa
5.75% 9/01/08 $ 1,075 $ 1,126,514
Baltimore Econ. Dev. Lease Rev., Armistead Partnership BBB+(c)
7.00 8/01/11 1,000 1,074,090
Charles Cnty. Aa
5.50 3/01/05 665 707,208
Charles Cnty. Aa
5.50 3/01/06 695 736,700
Gaithersburg Econ. Dev. Rev., Asbury Methodist NR
5.50 1/01/20 1,000 909,300
Gaithersburg Hosp. Facs. Rev., Ref. Impvt., Shady Grove
Adventist Hosp., F.S.A. Aaa
5.50 9/01/15 1,000 985,890
Gaithersburg Nursing Home Rev., Ref., Shady Grove Adventist
Hosp., F.S.A. Aaa
5.50 9/01/15 1,000 983,560
Harford Cnty. Aa
5.50 3/01/06 1,500 1,596,135
Kent Cnty., Coll. Rev. Proj. & Ref., Washington Coll. Proj. Baa
7.70 7/01/18 750 823,965
Maryland St. & Local Facs., Second Ser. Aaa
5.125 10/15/10 1,500 (e) 1,499,145
Maryland St. Hlth. & Higher Edl. Facs., Auth. Rev.,
Doctor's Comn. Hosp. Baa
5.50 7/01/24 1,000 861,060
Good Samaritan Hosp. A
5.75 7/01/19 620 616,007
Howard Cnty. Gen. Hosp. Baa1
5.50 7/01/21 1,000 901,630
Maryland St. Hsg. & Cmnty. Dev. Admin.,
Sngl. Fam. Mtge. Rev. Proj., Sixth Ser. Aa
7.125 4/01/14 770 798,251
Sngl. Fam. Mtge. Rev. Proj., Third Ser. Aa
8.00 4/01/18 750 793,755
Maryland St. Ind. Dev. Fin. Auth. Rev., Amer. Ctr. For
Physics BBB(c)
6.625 1/01/17 1,000 1,023,020
Maryland St. Trans. Auth., Baltimore Washington Int'l.
Airport, F.G.I.C. Aaa
6.25 7/01/14 1,750 1,846,635
Maryland Wtr. Quality Fin. Admin., Revolving Loan Fund
Rev.,
Ser. A Aa
5.90 9/01/04 565 619,133
Montgomery Cnty. Hsg. Opportunities Comn., Multiple Fam.
Mtge. Rev., F.H.A. AAA(c)
6.25 7/01/25 850 863,719
Montgomery Cnty.,
Cons. Pub. Impvt. Aaa
9.75 6/01/01 450 566,509
Cons. Pub. Impvt., Ser. A Aaa
5.75 10/01/07 1,300 1,408,264
Northeast Waste Disp. Auth.,
Baltimore City Sludge Proj. NR
7.25 7/01/07 957 997,950
Montgomery Cnty. Proj. A
6.30 7/01/16 2,200 (e) 2,292,730
Ocean City, M.B.I.A. Aaa
5.40 10/01/11 500 501,085
Ocean City, M.B.I.A. Aaa
5.50 10/01/15 1,235 1,226,157
Prince Georges Cnty. Pollution Control Rev., Ref. Potomac
Elec. Proj., M.B.I.A. Aaa
5.75 3/15/10 1,100 1,165,373
Prince Georges Cnty.,
Cons. Pub. Impvt., M.B.I.A. Aaa
5.25 1/01/15 750 731,550
Hosp. Rev., Dimensions Hlth. Corp. A
5.30 7/01/24 750 689,310
Ref. Cons. Pub. Impvt. A1
5.25 10/01/11 1,000 996,790
Stormwater Mgmt. Aa
6.50 3/15/03 1,140 1,279,240
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3 -----
<PAGE>
Portfolio of Investments as
of February 29, 1996 PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) MARYLAND SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Puerto Rico Comnwlth., Aqueduct & Swr Auth. Rev., M.B.I.A. Aaa
6.00% 7/01/07 $ 1,000 $ 1,100,240
Puerto Rico Comnwlth., Gen. Oblig., F.S.A. Aaa
7.982 (d) 7/01/20 1,000 1,038,750
Puerto Rico Ind. Tourist, Edl. Med. & Envir. Hosp.,
M.B.I.A. Aaa
6.25 7/01/24 1,250 1,338,325
Puerto Rico Tel. Auth. Rev., Ser. I, M.B.I.A. Aaa
6.931 (d) 1/16/15 1,000 976,250
Takoma Park Hosp. Facs. Rev., Ref. Impvt., Washington
Adventist Hosp., F.S.A. Aaa
6.50 9/01/12 1,000 1,119,160
Washington Dist. Of Columbia, Metro. Area Transit Auth.
Rev., F.G.I.C. Aaa
6.00 7/01/08 1,000 1,092,140
Washington Suburban San. Dist., Water Supply Aa1
5.25 6/01/14 950 934,591
-----------
Total long-term investments (cost $36,726,031)
38,220,131
-----------
SHORT-TERM INVESTMENTS--2.3%
Puerto Rico Comnwlth., Gov't. Dev. Bank, Gov't. Dev. Bank.,
F.R.W.D., Ser. 85 (cost $900,000) VMIG1
2.80 3/06/96 900 900,000
-----------
Total Investments--100.3%
(cost $37,626,031; Note 4)
39,120,131
Liabilities in excess of other assets--(0.3)%
(118,537)
-----------
Net Assets--100%
$39,001,594
-----------
-----------
</TABLE>
- ---------------
(a) The following abbreviations are used in portfolio descriptions:
F.G.I.C.--Financial Guaranty Insurance Company.
F.H.A.--Federal Housing Administration.
F.R.W.D.--Floating Rate (Weekly) Demand Note (b).
F.S.A.--Financial Security Assurance.
M.B.I.A.--Municipal Bond Insurance Corporation.
(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 period 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>
Statement of Assets and Liabilities PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) MARYLAND SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
February 29, 1996
-----------------
<S>
<C>
Investments, at value (cost
$37,626,031).................................................................
$39,120,131
Cash.........................................................................
............................ 1,033,071
Receivable for investments
sold..........................................................................
1,437,986
Interest
receivable...................................................................
................... 586,881
Other
assets.......................................................................
...................... 1,269
-----------------
Total
assets.......................................................................
................... 42,179,338
-----------------
Liabilities
Payable for investments
purchased....................................................................
.... 3,049,103
Accrued
expenses.....................................................................
.................... 51,454
Payable for Fund shares
reacquired...................................................................
.... 23,640
Dividends
payable......................................................................
.................. 20,264
Management fee
payable......................................................................
............. 14,088
Distribution fee
payable......................................................................
........... 9,581
Due to broker - variation
margin.........................................................................
7,294
Deferred trustee's
fees.........................................................................
......... 2,320
-----------------
Total
liabilities..................................................................
................... 3,177,744
-----------------
Net
Assets.......................................................................
........................ $39,001,594
-----------------
-----------------
Net assets were comprised of:
Shares of beneficial interest, at
par................................................................. $
35,425
Paid-in capital in excess of
par......................................................................
37,098,478
-----------------
37,133,903
Accumulated net realized gain on
investments..........................................................
273,279
Net unrealized appreciation on
investments............................................................
1,594,412
-----------------
Net assets, February 29,
1996............................................................................
$39,001,594
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($18,921,956 / 1,719,685 shares of beneficial interest issued and
outstanding)..................... $11.00
Maximum sales charge (3.0% of offering
price).........................................................
.34
-----------------
Maximum offering price to
public......................................................................
$11.34
-----------------
-----------------
Class B:
Net asset value, offering price and redemption price per share
($20,044,692 / 1,819,591 shares of beneficial interest issued and
outstanding)..................... $11.02
-----------------
-----------------
Class C:
Net asset value, offering price and redemption price per share
($34,946 / 3,172 shares of beneficial inerest issued and
outstanding).............................. $11.02
-----------------
-----------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5 -----
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MARYLAND SERIES
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Six Months
Ended
Net Investment Income February 29, 1996
-----------------
Income
Interest.................................. $ 1,127,234
-----------------
Expenses
Management fee............................ 97,757
Distribution fee--Class A................. 9,117
Distribution fee--Class B................. 52,047
Distribution fee--Class C................. 186
Custodian`s fees and expenses............. 32,800
Reports to shareholders................... 20,000
Registration fees......................... 19,900
Transfer agent`s fees and expenses........ 17,900
Audit fee and expenses.................... 5,300
Legal fees and expenses................... 5,000
Trustees' fees and expenses............... 1,700
Miscellaneous............................. 5,315
-----------------
Total expenses......................... 267,022
Less: Management fee waiver............... (9,776)
Custodian fee credit................... (15,422)
-----------------
Net expenses........................... 241,824
-----------------
Net investment income........................ 885,410
-----------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain(loss) on:
Investment transactions................... 868,437
Financial futures contract transactions... (36,447)
-----------------
831,990
-----------------
Net change in unrealized appreciation of:
Investments............................... 325,441
Financial futures contracts............... 104,532
-----------------
429,973
-----------------
Net gain on investments...................... 1,261,963
-----------------
Net Increase in Net Assets
Resulting from Operations.................... $ 2,147,373
-----------------
-----------------
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
MARYLAND SERIES
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) February 29, August 31,
in Net Assets 1996 1995
------------ ------------
<S> <C> <C>
Operations
Net investment income.......... $ 885,410 $ 2,185,896
Net realized gain (loss) on
investment transactions..... 831,990 (429,571)
Net change in unrealized
appreciation of
investments................. 429,973 442,801
------------ ------------
Net increase in net assets
resulting from operations... 2,147,373 2,199,126
------------ ------------
Dividends and distributions (Note
1):
Dividends from net investment
income
Class A..................... (432,034) (561,997)
Class B..................... (452,365) (1,621,246)
Class C..................... (1,011) (2,653)
------------ ------------
(885,410) (2,185,896)
------------ ------------
Distributions from net realized
gains
Class A..................... -- (21,234)
Class B..................... -- (419,138)
Class C..................... -- (255)
------------ ------------
-- (440,627)
------------ ------------
Series share transactions (net of
share conversions) (Note 5):
Net proceeds from shares
sold........................ 739,926 2,121,739
Net asset value of shares
issued in reinvestment of
dividends and
distributions............... 574,292 1,744,018
Cost of shares reacquired...... (2,766,259) (18,256,314)
------------ ------------
Net decrease in net assets from
Series share transactions... (1,452,041) (14,390,557)
------------ ------------
Total decrease.................... (190,078) (14,817,954)
Net Assets
Beginning of period............... 39,191,672 54,009,626
------------ ------------
End of period..................... $ 39,001,594 $ 39,191,672
------------ ------------
------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
- ----- 6 See Notes to Financial Statements.
<PAGE>
Notes to Financial Statements PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) 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
fourteen 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. Expenses are recorded on the accrual basis which may require the
use of certain estimates by management. 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.
Custody Fee Credits: The Fund has an arrangement with its custodian bank,
whereby uninvested monies earn credits which reduce the fees charged by the
custodian.
- --------------------------------------------------------------------------------
7 -----
<PAGE>
Notes to Financial Statements PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) MARYLAND 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
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 $15,422
($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 had a distribution agreement with Prudential Mutual Fund Distributors,
Inc. (``PMFD''), which acted as the distributor of the Class A shares of the
Fund through January 1, 1996. Effective January 2, 1996, Prudential Securities
Incorporated (``PSI'') became the distributor of the Class A shares of the Fund
and is serving the Fund under the same terms and conditions as under the
arrangement with PMFD. PSI is also the distributor of the Class B and Class C
shares of the Fund. The Fund compensates PMFD and PSI for distributing and
servicing the Fund's Class A, Class B and Class C shares, pursuant to plans of
distribution (the ``Class A, B and C Plans'') regardless of expenses actually
incurred by them. The distribution fees are accrued daily and payable monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates PSI, and PMFD for
the period September 1, 1995 through January 1, 1996 with respect to Class A
shares, for distribution-related activities at an annual rate of up to .30 of
1%, .50 of 1% and 1%, of the average daily net assets of the Class A, B and C
shares, respectively. Such expenses under the Plans were .10 of 1%, .50 of 1%
and .75 of 1% of the average daily net assets of the Class A, B and C shares,
respectively, for the six months ended February 29, 1996.
PMFD and PSI have advised the Series that they have received approximately
$2,900 in front-end sales charges resulting from sales of Class A shares during
the six months ended February 29, 1996. From these fees, PMFD and PSI paid such
sales charges to Pruco Securities Corporation, an affiliated broker-dealer,
which in turn paid commissions to salespersons and incurred other distribution
costs.
PSI has advised the Series that for the six months ended February 29, 1996, it
received approximately $16,300 in contingent deferred sales charges imposed upon
certain redemptions by Class B and Class 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 six months ended February
29, 1996, the Series incurred fees of approximately $12,100 for the services of
PMFS. As of February 29, 1996, approximately $2,000 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 six months ended February 29, 1996 were $18,102,078 and
$17,713,896, respectively.
At February 29, 1996, the Fund sold 30 financial futures contracts on the
Municipal Bond Index expiring in 1996. The value at disposition of such
contracts is $3,641,250. The value of such contracts on February 29, 1996 was
$3,540,938, thereby resulting in an unrealized gain of $100,312.
The cost basis of investments for federal income tax purposes is substantially
the same as for financial reporting purposes and, accordingly, as of February
29, 1996, net unrealized appreciation of investments for federal income tax
purposes is $1,494,100 (gross unrealized appreciation--$1,578,466; gross
unrealized depreciation $84,366).
- ------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
- ----- 8
<PAGE>
Notes to Financial Statements PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) MARYLAND SERIES
- --------------------------------------------------------------------------------
Class B shares will automatically convert to Class A shares on a quarterly basis
approximately seven years after purchase. A special exchange privilege is also
available for shareholders who qualify to purchase Class A shares at net asset
value.
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 six months ended February 29, 1996 and the fiscal year ended
August 31, 1995 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ----------------------------------- ---------- ------------
<S> <C> <C>
Six months ended February 29, 1996:
Shares sold........................ 26,566 $ 294,733
Shares issued in reinvestment of
dividends........................ 26,518 289,818
Shares reacquired.................. (111,618) (1,222,057)
---------- ------------
Net decrease in shares outstanding
before conversion................ (58,534) (637,506)
Shares issued upon conversion from
Class B.......................... 114,770 1,275,094
---------- ------------
Net increase in shares
outstanding...................... 56,236 $ 637,588
---------- ------------
---------- ------------
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
---------- ------------
---------- ------------
</TABLE>
<TABLE>
<CAPTION>
Class B Shares Amount
- ----------------------------------- ---------- ------------
<S> <C> <C>
Six months ended February 29, 1996:
Shares sold........................ 39,414 $ 434,193
Shares issued in reinvestment of
dividends........................ 25,956 283,859
Shares reacquired.................. (138,007) (1,513,476)
---------- ------------
Net decrease in shares outstanding
before conversion................ (72,637) (795,424)
Shares issued upon conversion from
Class A.......................... (114,873) (1,275,094)
---------- ------------
Net decrease in shares
outstanding...................... (187,510) $ (2,070,518)
---------- ------------
---------- ------------
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)
---------- ------------
---------- ------------
</TABLE>
<TABLE>
<CAPTION>
Class C
- -----------------------------------------
<S> <C> <C>
Six months ended February 29, 1996:
Shares sold.............................. 1,025 $11,000
Shares issued in reinvestment of
dividends.............................. 56 615
Shares reacquired........................ (2,795) (30,726 )
------ --------
Net decrease in shares outstanding....... (1,714) $(19,111)
------ --------
------ --------
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)
------ --------
------ --------
</TABLE>
- --------------------------------------------------------------------------------
9 -----
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) MARYLAND SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
- ---------------------------------------------------------------------
Six Months
Ended Year Ended
August 31,
February 29,
- ----------------------------------------------------
1996 1995 1994
1993 1992 1991
------------ ------- -------
- ------ ------ ------
<S> <C> <C> <C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period........................... $ 10.66 $ 10.66 $ 11.64
$11.11 $10.67 $10.23
------------ ------- -------
- ------ ------ ------
Income from investment operations
Net investment income............... .26(a) .53(a) .57
.62 .63 .67
Net realized and unrealized gain
(loss) on investment
transactions..................... .34 .10 (.77)
.65 .44 .44
------------ ------- -------
- ------ ------ ------
Total from investment
operations.................... .60 .63 (.20)
1.27 1.07 1.11
------------ ------- -------
- ------ ------ ------
Less distributions
Dividends from net investment
income........................... (.26) (.53) (.57)
(.62) (.63) (.67)
Distributions from net realized
gains............................ -- (.10) (.21)
(.12) -- --
------------ ------- -------
- ------ ------ ------
Total distributions.............. (.26) (.63) (.78)
(.74) (.63) (.67)
------------ ------- -------
- ------ ------ ------
Net asset value, end of period...... $ 11.00 $ 10.66 $ 10.66
$11.64 $11.11 $10.67
------------ ------- -------
- ------ ------ ------
------------ ------- -------
- ------ ------ ------
TOTAL RETURN(b):.................... 5.63% 6.32% (1.75)%
11.89% 10.35% 10.84%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..... $ 18,922 $17,726 $ 2,709
$2,930 $1,335 $ 804
Average net assets (000)............ $ 18,335 $11,341 $ 2,877
$2,068 $1,080 $ 518
Ratios to average net assets:
Expenses, including distribution
fees.......................... 1.10%(a)(c) 1.30%(a) .95%
.96% .96% 1.10%
Expenses, excluding distribution
fees.......................... 1.00%(a)(c) 1.20%(a) .85%
.86% .86% 1.00%
Net investment income............ 4.74%(a)(c) 4.96%(a) 5.18%
5.51% 5.80% 6.07%
Portfolio turnover rate............. 48% 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 period reported and includes
reinvestment of dividends and distributions. Total returns for
periods of less than a full year are not annualized.
(c) Annualized
- --------------------------------------------------------------------------------
- ----- 10 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) MARYLAND SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
Class B
------------
- ------------------------------------------------------------------------
Six Months
Six Months
Ended Year
Ended August 31, Ended
February 29,
- ------------------------------------------------------- February 29,
1996 1995 1994
1993 1992 1991 1996
<S> <C> <C> <C>
<C> <C> <C> <C>
------------ ------- -------
- ------- ------- ------- ------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period........................... $ 10.67 $ 10.67 $ 11.65
$ 11.12 $ 10.68 $ 10.23 $10.67
------------ ------- -------
- ------- ------- ------- ------------
Income from investment operations
Net investment income............... .24(a) .49(a) .53
.58 .59 .63 .22(a)
Net realized and unrealized gain
(loss) on investment
transactions..................... .35 .10 (.77)
.65 .44 .45 .35
------------ ------- -------
- ------- ------- ------- ------------
Total from investment
operations.................... .59 .59 (.24)
1.23 1.03 1.08 .57
------------ ------- -------
- ------- ------- ------- ------------
Less distributions
Dividends from net investment
income........................... (.24) (.49) (.53)
(.58) (.59) (.63) (.22)
Distributions from net realized
gains............................ -- (.10) (.21)
(.12) -- -- --
------------ ------- -------
- ------- ------- ------- ------------
Total distributions.............. (.24) (.59) (.74)
(.70) (.59) (.63) (.22)
------------ ------- -------
- ------- ------- ------- ------------
Net asset value, end of period...... $ 11.02 $ 10.67 $ 10.67
$ 11.65 $ 11.12 $ 10.68 $11.02
------------ ------- -------
- ------- ------- ------- ------------
------------ ------- -------
- ------- ------- ------- ------------
TOTAL RETURN(b):.................... 5.51% 5.88% (2.13)%
11.43% 9.90% 10.49% 5.38%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..... $ 20,045 $21,414 $51,198
$57,598 $51,313 $51,110 $ 35
Average net assets (000)............ $ 20,933 $33,497 $55,223
$53,780 $50,970 $48,422 $ 50
Ratios to average net assets:
Expenses, including distribution
fees.......................... 1.50%(a)(c) 1.55%(a) 1.35%
1.36% 1.37% 1.49% 1.75%(a)(c)
Expenses, excluding distribution
fees.......................... 1.00%(a)(c) 1.05%(a) .85%
.86% .87% .99% 1.00%(a)(c)
Net investment income............ 4.34%(a)(c) 4.84%(a) 4.77%
5.11% 5.42% 5.70% 4.09%(a)(c)
Portfolio turnover rate............. 48% 49% 40%
41% 34% 18% 48%
<CAPTION>
August 1,
Year 1994(d)
Ended through
August 31, August 31,
1995 1994
<S> <C> <C>
------------ ----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period........................... $ 10.67 $ 10.70
------------ ----------
Income from investment operations
Net investment income............... .47(a) .05
Net realized and unrealized gain
(loss) on investment
transactions..................... .10 (.03)
------------ ----------
Total from investment
operations.................... .57 .02
------------ ----------
Less distributions
Dividends from net investment
income........................... (.47) (.05)
Distributions from net realized
gains............................ (.10) --
------------ ----------
Total distributions.............. (.57) (.05)
------------ ----------
Net asset value, end of period...... $ 10.67 $ 10.67
------------ ----------
------------ ----------
TOTAL RETURN(b):.................... 5.62% .07%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..... $ 52 $ 102
Average net assets (000)............ $ 58 $ 31
Ratios to average net assets:
Expenses, including distribution
fees.......................... 1.82%(a) 2.21%(c)
Expenses, excluding distribution
fees.......................... 1.07%(a) 1.47%(c)
Net investment income............ 4.55%(a) 4.75%(c)
Portfolio turnover rate............. 49% 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>
How Does Your State Stack Up?
Economic conditions vary from state to state. While one region may be
experiencing strong fiscal management and prosperity, another may languish
under the weight of declining industry or chronic state budget problems.
State economic conditions, fiscal management and interest rates play dominant
roles in the performance of individual municipal bonds. A strong economy
generally leads to higher tax revenues and other income sources for the state,
enabling it to more easily repay its debts. Additionally, sound state financial
management often results in high ratings from bond rating agencies. High ratings
are attractive to investors and can help bonds retain value in the market.
California
- - World's 8th largest economy.
- - Entertainment jobs growing.
- - Recovery continues, but growth is expected to be below the national average.
- - Increasing tax revenues may not cover soaring Medicaid costs.
Hawaii
- - Tourism provides 60% of jobs.
- - Strong financial management.
- - Slow recovery from early-1990s U.S. and Japanese recessions, which bit into
tourism and real estate.
- - Government eliminated 1,100 state jobs.
Ohio
- - Shift from manufacturing to service trades.
- - Economic and personal income growth ahead of national averages.
- - Debt is low.
Pennsylvania
- - Slowly rebuilding economy, but needs new engine of growth.
- - Debt as a percentage of personal income is half the national average.
- - Sound financial management.
Michigan
- - Economic growth is 3.5%, higher than national average.
- - Once car capital of the world, now more diversified.
- - Strengthening fiscal management.
Massachusetts
- - Painful cuts in defense and health care eliminated jobs.
- - Slowly rebuilding economy.
- - Personal income is high.
New York
- - High taxes restrain growth.
- - Personal income remains high.
- - Debt level is high.
- - Federal budget Medicaid reform impasses threaten planned budget savings.
Maryland
- - One of wealthiest states.
- - Personal income 115% ofnational average, but income growth has stabilized.
- - Good financial controls.
Florida
- - Economy and personal income growing much faster than national rate.
- - Unemployment and debt are low.
- - Ended 1995 with a budget surplus for the third year in a row.
Connecticut
- - Nation's wealthiest citizens.
- - Economically weak from defense cuts.
- - Slow growth -- recovery may take years.
- - Attempts at "quick fixes" won't provide permanent relief.
New Jersey
- - Broad-based economy and high personal wealth.
- - Economic growth slowing.
- - "Pro-business" tactics siphoned revenue, but may spur more growth.
North Carolina
- - Robust, model economy.
- - Personal income quicklygrowing.
- - Unemployment well below national average.
- - New jobs from financial services, research and high technology.
- - Strong financial management.
Source: Prudential Investment Corporation. Selected states are those for which
Prudential Mutual Fund Management manages a state-specific municipal bond
mutual fund
Revised: April, 1996
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
Internet Address:
http:\\www.prudential.com
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 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 Auditor
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
The views expressed in this report and information about the Series' portfolio
holdings are for the period covered by this report and are subject to change
thereafter.
The accompanying financial statements as of February 29, 1996 were not audited
and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
<PAGE>
(LOGO) BULK RATE
U.S. POSTAGE
Prudential Mutual Funds PAID
One Seaport Plaza Permit 6807
New York, NY 10292 New York,
NY
Toll Free (800) 225-1852
74435M705
74435M804 MF125E2
74435M572 Cat# 6420935
(ICON)
Prudential
Municipal
Series Fund
Florida Series
SEMI
ANNUAL
REPORT
Feb. 29, 1996
(LOGO)
<PAGE>
Prudential Municipal Series Fund
Florida Series
Performance At A Glance.
Lower interest rates and subdued inflation lifted tax-free municipal bond
prices higher over the past six months, continuing a trend that has been in
place for over a year now. We're pleased to report that for the six months
ended February 29, 1996 the Prudential Municipal Series Fund -- Florida Series
performed much better than the average Florida municipal fund, as measured by
Lipper Analytical Services. Your Fund's Class A and Class B shares' total
returns surpassed the average Florida municipal bond fund by a full percentage
point or more.
<TABLE>
<CAPTION>
Cumulative Total Returns1 As of 2/29/96
Six One Five Since
Months Year Years Inception2
<S> <C> <C> <C> <C>
Class A 6.5% 11.2% 52.1% 54.2%
Class B 6.3 10.8 N/A 14.1
Class C 6.2 10.5 N/A 14.5
Lipper PA Muni Avg3 5.3 9.8 49.1 49.8
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns1 As of 3/31/96
One Five Since
Year Years Inception2
<S> <C> <C> <C>
Class A 5.3% (4.8)4 7.7% (7.2)4 7.6% (7.1)4
Class B 3.1 (2.6)4 N/A 4.8 (4.4)4
Class C 6.8 (6.3)4 N/A 4.5 (4.0)4
</TABLE>
<TABLE>
<CAPTION>
Dividends & Yields
As of 2/29/96
Taxable Equivalent
Yield5
Total Dividends 30-Day At Tax Rates Of
Paid for Six Mos. SEC Yield 36%
39.6%
<S> <C> <C> <C> <C>
Class A $0.29 4.92% (4.58)4 7.69% (7.16)4 8.15%
(7.58)4
Class B $0.27 4.67 (4.32)4 7.30 (6.75)4 7.73
(7.15)4
Class C $0.26 4.41 (4.07)4 6.89 (6.36)4 7.30
(6.74)4
</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 declining
contingent deferred sales charge (CDSC) 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 81 funds for six
months, 73 funds for one year, 10 funds for five years and 10 funds since
inception of the Class A shares on 12/28/90.
4Without waivers and expense subsidies the Series' average annual total return/
30-day SEC yield would have been lower, as indicated in parentheses ( ).
5Taxable equivalent yields reflect federal and applicable state tax rates.
How Investments Compared.
(As of 2/29/96)
(GRAPH)
U.S. General General U.S.
Growth Bond Muni Debt Taxable
Funds Funds Funds Money Funds
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. The returns assume the reinvestment
of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors have received higher
historical total returns from stocks than from most other investments. Smaller
capitalization stocks offer greater potential for long-term growth but may be
more volatile than larger capitalization stocks.
General Bond Funds provide more income than stock funds, which can help smooth
out their total returns year by year. But their prices still fluctuate
(sometimes significantly) and their returns have been historically lower than
those of stock funds.
General Municipal Debt Funds invest in bonds issued by state governments,
state agencies and/or municipalities. This investment provides income that is
usually exempt from federal and state income taxes.
Money Market Funds attempt to preserve a constant share value; they don't
fluctuate much in price but, historically, their returns have been generally
among the lowest of the major investment categories.
*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 invests 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. There can be no assurance that the Series' investment
objective will be achieved.
Strategy Session.
Our strategy over the past six months was to take maximum advantage of falling
interest rates (and rising bond prices) while keeping an eye out for any shift
to higher rates. And for most of the past six months, conditions couldn't have
been much better for municipal bonds. Sluggish economic growth nationwide
pushed inflation lower and interest rates down by nearly a half a percentage
point, as measured by The Bond Buyer Revenue Bond Index. Second, the concern
about tax reform that had held back price gains diminished, allowing municipal
bonds to rise in value in recent months.
Florida's economy in 1995 grew at a much faster rate than the national average--
4.1% versus 3.1%. And, we believe 1996 growth will be significantly greater than
the national average, too. Not surprisingly, unemployment last year was below
the national average while personal incomes grew 21.6% from 1992-1995, much
faster than the national rate.
The state's treasury is also in a good position. State debt, at 3.1% of
personal income, is well below the 4.7% average of other states. Florida
relies on a sales tax for government funding, and its revenues are rising
faster than states that rely solely on income taxes. Because of this, Florida's
General Fund will finish the year with its third-in-a-row surplus and the
state's budget stabilization reserve fund is expected to climb to $260 million
by mid-year, more than twice its level last year.
Insured Bonds.
More new tax-free municipal bonds are being insured these days, because buyers
are concerned about credit quality. In 1995, 43% of all new bonds issued
nationally were insured. Following this national trend, insured bonds in your
Series are now 51% of assets. Although insuring a bond reduces its yield, it
benefits the investor in that payment of both interest and principal is then
guaranteed. Of course, no insurance is available to prevent the daily market
value of bonds, and bond funds, from fluctuating.
Sector Breakdown.
Prudential Municipal Series Fund
Florida Series as of 2/29/96
(GRAPH)
<PAGE>
What Went Well.
You Can Call Us, But Not Our Bonds.
Our investment in non-callable bonds was 13% of net assets as of February 29,
1996. We also purchased bonds with 10-year call protection features. When
interest rates fall, municipalities often "call" bonds, or repay the principal
value of their bonds early, so that they can reissue them at the now-lower
rates. That leaves investors in the lurch -- with only newly-issued lower
coupon bonds to replace their called higher-yielding holdings. So, we
intentionally focused on these bonds because income-hungry investors like them
and their prices tend to rise more than callable bond prices when interest
rates fall.
We Searched For Special Qualities.
We combed the market for bonds with special qualities like a premium (high
coupon), an intermediate maturity (8 to 12 years) and that were non-callable.
This type of bond helps the Series appreciate when interest rates fall, limits
losses when interest rates rise, and provides a healthy income. How? This
bond's intermediate maturity makes it less volatile than others as interest
rates rise and fall. If interest rates rise, this bond's price won't fall so
quickly. But if interest rates fall, this bond will appreciate faster than
others because it can't be refunded before it matures. And non-callable bonds?
They guarantee that our duration (a measure of interest rate sensitivity) will
be what we expected and also help us ensure our yield will remain high when
new bonds will offer lower coupons.
So did we find any bonds with these special qualities? Yes, and that's why we
performed as well as we did.
And Not So Well.
Not Lengthening Sooner.
Looking back, something we did right -- lengthening duration -- was also
something we could have done sooner. We began lengthening our duration late
last summer. If we had lengthened earlier -- like when the municipal bond
rally began in the spring of 1995 -- the Series' performance would have been
better. Why did we wait? We were wary of municipal market volatility at the
time. Tax-reform plans that would have eliminated the tax exemption for
municipal bond income were the talk of Washington. If enacted, the longest-
term municipal bonds would have suffered most.
Five Largest Issuers.
5.5% Puerto Rico
Commonwealth
5.2% Puerto Rico Power
Authority
3.6% Orlando Florida Utilities
3.3% Florida State Board Of
Education
2.8% Dade County School
District
Expressed as a percentage of total net assets as of 2/29/96.
Looking Ahead.
The Florida municipal bond market looks attractive to us in 1996. The state's
growing economy and the country's low interest rates and inflation make
municipal bonds here a sound investment for those looking for tax-free income,
even though there is no state income tax.
What could go wrong? This is a presidential election year and resurfacing talk
of flat taxes and other types of income tax reform could roil the municipal
bond market. Volatility and election year politics seem to go hand-in-hand.
- ------------------------------------------------------------------------------
1
<PAGE>
President's Letter
(PHOTO)
April 5, 1996
Dear Shareholder:
For many investors, 1995 was a profitable year -- most stock and bond funds
enjoyed healthy returns from the U.S. markets. While climbing returns can
tempt even the most skittish investors to start buying again, it is important
to remember that the stock and bond markets go down just as they go up. At
times like these, remember the importance of working with your Financial
Advisor or Registered Representative to help you find investments that are
consistent with your risk tolerance and time horizon. Your Financial Advisor
or Registered Representative can help you maintain realistic expectations
about both the potential performance and risks associated with your
investments.
Shareholder Legislative Action Program.
From time to time we've been informing you about significant legislation
before Congress, such as the American Dream Savings Account, that may
potentially impact mutual fund investors. We want to make it easier for you to
share your views with your Congressional member. So, beginning in 1996,
whenever Congress is considering legislation that would affect you, we'll
send you postage-paid message cards that you simply drop in the mail if you
want to let your senator or representative know how you want him or her to vote.
Fund Profiles.
Over the past year, we've worked to make your shareholder reports more
interesting, informative and easy to read. This year, we'll be considering "fund
profiles." Some mutual fund companies now offer one to shareholders along with
a
full prospectus. The purpose of a fund profile is to provide a very brief,
reader-friendly summary of a fund's objective, investments, risks and expenses.
Would you like to see fund profiles from us? Please call your Financial Advisor
or Registered Representative to share your views.
As always, thank you for your confidence in Prudential Mutual Funds.
Sincerely,
Richard A. Redeker
President
- ------------------------------------------------------------------------------
2
<PAGE>
Portfolio of Investments as
of February 29, 1996 PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) FLORIDA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
LONG-TERM INVESTMENTS--94.8%
- -----------------------------------------------------------------------------
- -------------------------------------------------
Alachua Cnty. Hlth. Facs. Auth. Rev.,
Santa Fe Healthcare Facs. Proj. Baa1
7.60% 11/15/13 $ 1,750 $ 2,020,760
Alachua Cnty. Ind. Dev. Rev., Auth. Rev., HB Fuller Co.
Proj. NR
7.75 11/01/16 3,000 3,166,830
Brevard Cnty. Edl. Facs. Auth. Rev., Florida Inst. of
Tech. BBB(c)
6.875 11/01/22 1,500 1,527,705
Brevard Cnty. Sch. Brd. Ctfs. of Part., Ser. A,
A.M.B.A.C. Aaa
6.50 7/01/12 3,500 3,861,270
Broward Cnty. Edl. Facs. Auth. Rev.,
Nova Univ. Dorm. Proj., Ser. A NR
7.50 4/01/17 1,500 (f) 1,737,645
Broward Cnty. Hlth. Facs. Auth., North Beach Hosp.,
M.B.I.A. Aaa
6.75 8/15/06 1,000 1,115,280
City Of Miami Beach, Wtr. & Swr. Rev., F.S.A. Aaa
5.375 9/01/15 3,000 2,920,500
Clay Cnty. Hsg. Fin. Auth. Rev., Sngl. Fam. Mtge.,
Ser. A, G.N.M.A. Aaa
7.45 9/01/23 375 396,518
Coral Springs Impvt. Dist., Wtr. & Swr. Rfdg., M.B.I.A. Aaa
6.00 6/01/10 1,000 1,095,630
Dade Cnty.,
Pub. Impvt. J & K Seaport, M.B.I.A. Aaa
6.50 10/01/07 1,220 1,406,172
Pub. Impvt. J & K Seaport, M.B.I.A. Aaa
6.50 10/01/10 1,555 1,783,974
Dade Cnty. Aviation Dept. Rev.,
Ser. B, M.B.I.A. Aaa
6.00 10/01/24 1,500 1,551,855
Ser. E, A.M.B.A.C. Aaa
5.50 10/01/10 1,000 1,030,210
Dade Cnty. Hlth. Facs. Auth. Rev., Baptist Hosp. of
Miami Proj.,
Ser. A, M.B.I.A. Aaa
6.75 5/01/08 500 (f) 555,630
Dade Cnty. Hsg. Fin. Auth. Rev.,
Sngl. Fam. Mtge. Ser. B, G.N.M.A. Aaa
7.25 9/01/23 360 (e) 377,057
Sngl. Fam. Mtge. Ser. C, G.N.M.A. Aaa
7.75 9/01/22 870 921,260
Dade Cnty. Pub. Facs. Rev., Jackson Mem. Hosp., Ser. A,
M.B.I.A. Aaa
4.875 6/01/15 3,000 2,768,700
Dade Cnty. Sch. Dist., Gen. Oblig., M.B.I.A. Aaa
6.00 7/15/06 3,500 3,873,135
Dade Cnty. Wtr. & Swr. Sys., F.G.I.C. Aaa
5.75 10/01/22 3,000 3,063,480
Duval Cnty. Hsg. Fin. Auth. Rev., Sngl. Fam. Mtge.,
G.N.M.A. AAA(c)
8.375 12/01/14 585 622,709
Enterprise Cmnty. Dev. Dist., Osceola Co. Spl. Assmnt.,
M.B.I.A. Aaa
6.00 5/01/10 2,320 2,466,021
Escambia Cnty. Hlth. Facs. Auth. Rev., Baptist Hosp.
Inc., Ser. A BBB+(c)
8.70 10/01/14 1,830 (f) 2,032,398
Escambia Cnty. Poll. Ctrl. Rev., Champion Int'l. Corp.
Proj. Baa1
6.90 8/01/22 3,500 3,746,855
Florida St. Board. of Ed. Aa
4.75 6/01/22 4,985 4,468,404
Florida St. Dept. of Trans., St. Tpk. Rev., Ser. A,
F.G.I.C. Aaa
5.625 7/01/25 1,500 1,498,800
Florida St. Mun. Pwr. Agcy., Stanton II Proj.,
A.M.B.A.C. Aaa
4.50 10/01/27 2,500 2,104,325
Gainesville Utils. Sys. Rev., Ser. A Aa
5.20 10/01/22 2,500 2,372,350
Hillsborough Cnty.,
Cnty. Ctr. Proj., M.B.I.A. Aaa
5.00 7/01/15 1,560 1,469,504
Ref. Cnty. Ctr. Proj., M.B.I.A. Aaa
6.00 7/01/06 1,605 1,775,580
Hillsborough Cnty. Ind. Dev. Auth., Poll. Ctrl. Rev.,
Tampa Elec. Proj., Ser. 9 Aa3
8.00 5/01/22 1,750 2,080,925
Jacksonville Elec. Auth. Rev., St. Johns Rvr. Pwr. Park Aa1
Zero 10/01/10 3,000 1,345,980
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3 -----
<PAGE>
<PAGE>
Portfolio of Investments as
of February 29, 1996 PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) FLORIDA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Jacksonville Gator Bowl Proj., A.M.B.A.C. Aaa
5.50% 10/01/19 $ 1,000 $ 983,090
Jacksonville Hlth. Facs. Auth. Hosp. Rev.,
Nat'l. Ben. Assoc. Baa1
7.00 12/01/22 1,825 1,891,722
St. Lukes Hosp. Assoc. Proj. AA+(c)
7.125 11/15/20 1,000 1,092,760
Jacksonville Wtr. & Swr. Dev. Rev., Suburban Utils. A2
6.75 6/01/22 1,000 1,094,020
Jacksonville Wtr. & Swr. Rev., United Wtr. Florida
Proj., A.M.B.A.C. Aaa
6.35 8/01/25 1,500 1,595,205
Lake Cnty. Res. Rec., Ind. Dev. Rev., Ser. A Baa
5.95 10/01/13 1,035 998,868
Leon Cnty. Hsg. Fin. Auth. Rev., Sngl. Fam. Mtge., Ser.
A, G.N.M.A. Aaa
7.30 4/01/21 430 451,246
Martin Cnty. Ind. Dev. Auth. Rev., Indiantown Cogen
Proj. Baa3
7.875 12/15/25 1,200 1,372,356
Martin Cnty., Ref., A.M.B.A.C. Aaa
4.50 2/01/09 1,575 1,486,312
Miami Hlth. Facs. Auth. Rev., Mercy Hosp. A
8.125 8/01/11 1,000 1,087,430
Miami Special Oblig.,
Admn. Bldg. Acquis. Proj., F.G.I.C. Aaa
6.00 2/01/16 1,500 1,578,525
Admn. Bldg. Acquis. Proj., F.G.I.C. Aaa
6.00 2/01/25 500 525,300
Miramar Wstwtr. Impvt. Assmt., F.G.I.C. Aaa
6.75 10/01/16 2,500 2,811,225
Okaloosa Cnty. Cap. Impvt. Rev., M.B.I.A. Aaa
Zero 12/01/06 450 262,382
Orange Cnty. Hlth. Facs. Auth. Rev., Adventist Hlth.
Sys., A.M.B.A.C. Aaa
5.25 11/15/20 3,000 2,848,590
Orange Cnty. Hsg. Fin. Auth. Mtge. Rev., Ser. A,
G.N.M.A. AAA(c)
7.375 9/01/24 420 444,263
Orange Cnty. Hsg. Fin. Auth. Rev.,
MultiFam. Ashley Point Apts. BBB+(c)
6.85 10/01/16 1,200 1,235,052
MultiFam. Ashley Point Apts. BBB+(c)
7.10 10/01/24 855 882,993
Orlando & Orange Cnty. Expwy. Auth. Rev., Jr. Lien A-(c)
5.95 7/01/23 1,750 1,774,727
Orlando Utils. Commn., Wtr. & Elec., Ser. D Aa
6.75 10/01/17 4,200 4,965,282
Palm Beach Cnty. Arpt. Sys. Rev., M.B.I.A. Aaa
7.75 10/01/10 1,000 1,166,440
Palm Beach Cnty. Hlth. Facs. Auth. Rev.,
Good Samaritan Hlth. Sys. A+(c)
6.30 10/01/22 1,000 1,023,030
Pensacola Hlth. Facs. Auth., Daughters of Charity,
M.B.I.A. Aaa
5.25 1/01/11 1,600 1,575,584
Polk Cnty. Hsg. Fin. Auth., Sngle. Fam. Mtge., Ser. A,
G.N.M.A. Aaa
7.875 9/01/22 1,330 1,412,673
Puerto Rico Comnwlth.,
Gen. Oblig. Baa1
6.45 7/01/17 1,400 1,512,952
Gen. Oblig. Baa1
6.50 7/01/23 2,650 2,872,626
Gen. Oblig., FS.A. Aaa
8.132(d) 7/01/20 3,000 3,116,250
Puerto Rico Elec. Pwr. Auth. Rev.,
Ser. R Baa1
6.25 7/01/17 5,000 5,254,500
Ser. X Baa1
5.50 7/01/25 2,000 1,918,420
Puerto Rico Ind. Tour. Edl. Hosp. Auxil., Mut. Oblig.
Grp. Proj., M.B.I.A. Aaa
6.25 7/01/24 2,635 2,821,189
</TABLE>
- --------------------------------------------------------------------------------
- ----- 4 See Notes to Financial Statements.
<PAGE>
Portfolio of Investments as
of February 29, 1996 PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) FLORIDA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Puerto Rico Tel. Auth. Rev., Ser. I, M.B.I.A. Aaa
6.931%(d) 1/16/15 $ 2,250 $ 2,196,562
Sarasota Wtr. & Swr. Util. Rfdg., Ser. C, F.G.I.C. Aaa
4.50 10/01/16 1,000 881,000
St. Petersburg Hlth. Facs. Auth. Rev., Allegheny Hlth.
Proj., M.B.I.A. Aaa
7.00 12/01/15 1,000 1,126,780
Tampa Gtd. Entitlement Rev., A.M.B.A.C. Aaa
7.05 10/01/07 2,000 2,264,680
Tampa Sports Auth. Rev., M.B.I.A. Aaa
5.75 10/01/20 1,000 1,051,480
Univ. of Puerto Rico Sys. Rev., Ser. M, M.B.I.A. Aaa
5.25 6/01/25 3,000 2,882,820
Venice Hlth. Facs. Rev., Venice Hosp. Proj. A
5.75 12/01/24 1,250 (f) 1,370,288
Virgin Islands Territory., Hugo Ins. Claims Fund Proj.,
Ser. 91 NR
7.75 10/01/06 1,265 1,378,066
Volusia Cnty. Edl. Facs. Auth. Rev., AAA(c)
6.625 10/15/22 1,000 1,083,790
Volusia Cnty. Hlth. Facs. Auth. Rev., Mem. Hlth. Sys.
Proj. BBB+(c)
8.25 6/01/20 2,000 (f) 2,335,700
------------
Total long-term investments (cost $123,301,240)
129,783,640
------------
SHORT-TERM INVESTMENTS--6.7%
Dade Cnty. Indl. Dev. Auth., Pwr. & Lt., F.R.D.D. VMIG1
3.45 3/01/96 4,800 4,800,000
Palm Beach Cnty. Wtr. & Swr. Rev., F.R.D.D. VMIG1
3.40 3/01/96 500 500,000
Pinellas Cnty. Hlth. Facs. Auth., Pooled Hosp. Loan
Proj., F.R.D.D. VMIG1
3.40 3/01/96 2,100 2,100,000
St. Lucie Cnty., Pwr. & Lt., F.R.D.D. VMIG1
3.55 3/01/96 1,800 1,800,000
------------
Total short-term investments (cost $9,200,000)
9,200,000
------------
Total Investments--101.5%
(cost $132,501,240; Note 5)
138,983,640
Liabilities in excess of other assets--(1.5)%
(2,010,332)
------------
Net Assets--100%
$136,973,308
------------
------------
</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 (b).
F.S.A.--Financial Security Assurance.
G.N.M.A.--Government National Mortgage Association.
M.B.I.A.--Municipal Bond Insurance Corporation.
(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
period end.
(e) Pledged as initial margin on financial futures contracts.
(f) Prerefunded issues are secured by escrowed cash and direct U.S.
guaranteed obligations.
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>
Statement of Assets and Liabilities PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) FLORIDA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<S>
<C>
Assets
February 29, 1996
Investments, at value (cost
$132,501,240)................................................................
$ 138,983,640
Cash.........................................................................
............................ 22,783
Receivable for investments
sold..........................................................................
3,065,944
Interest
receivable...................................................................
................... 2,085,014
Receivable for Fund shares
sold..........................................................................
85,150
Prepaid expenses and other
assets........................................................................
1,538
-----------------
Total
assets.......................................................................
................... 144,244,069
-----------------
Liabilities
Payable for investments
purchased....................................................................
.... 6,864,992
Payable for Fund shares
reacquired...................................................................
.... 230,205
Accrued expenses and other
liabilities...................................................................
82,495
Dividends
payable......................................................................
.................. 42,171
Distribution fee
payable......................................................................
........... 19,871
Management fee
payable......................................................................
............. 16,551
Due to broker - variation margin
payable.................................................................
12,156
Deferred trustee's
fees.........................................................................
......... 2,320
-----------------
Total
liabilities..................................................................
................... 7,270,761
-----------------
Net
Assets.......................................................................
........................ $ 136,973,308
-----------------
-----------------
Net assets were comprised of:
Shares of beneficial interest, at
par................................................................. $
131,445
Paid-in capital in excess of
par......................................................................
132,134,433
-----------------
132,265,878
Accumulated net realized loss on
investments..........................................................
(1,942,157 )
Net unrealized appreciation on
investments............................................................
6,649,587
-----------------
Net assets, February 29,
1996............................................................................
$ 136,973,308
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($114,184,615 / 10,957,737 shares of beneficial interest issued and
outstanding)................... $10.42
Maximum sales charge (3.0% of offering
price).........................................................
.32
-----------------
Maximum offering price to
public......................................................................
$10.74
-----------------
-----------------
Class B:
Net asset value, offering price and redemption price per share
($14,690,438 / 1,409,689 shares of beneficial interest issued and
outstanding)..................... $10.42
-----------------
-----------------
Class C:
Net asset value, offering price and redemption price per share
($8,098,255 / 777,114 shares of beneficial interest issued and
outstanding)........................ $10.42
-----------------
-----------------
</TABLE>
- --------------------------------------------------------------------------------
- ----- 6 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
FLORIDA SERIES
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income February 29, 1996
-----------------
<S> <C>
Income
Interest................................ $ 4,085,460
-----------------
Expenses
Management fee.......................... 307,808
Distribution fee--Class A............... 58,549
Distribution fee--Class B............... 27,247
Distribution fee--Class C............... 32,824
Custodian's fees and expenses........... 55,000
Transfer agent's fees and expenses...... 24,000
Reports to shareholders................. 20,000
Registration fees....................... 10,000
Audit fee and expenses.................. 5,300
Legal fees and expenses................. 5,000
Trustees' fees and expenses............. 1,700
Miscellaneous........................... 1,776
-----------------
Total expenses....................... 549,204
Less: Management fee waiver............. (205,205)
Expense subsidy...................... (86,788)
Custodian fee credit................. (1,037)
-----------------
Net expenses......................... 256,174
-----------------
Net investment income...................... 3,829,286
-----------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions................. 3,002,817
Financial futures contract
transactions......................... (126,181)
-----------------
2,876,636
-----------------
Net change in unrealized appreciation on:
Investments............................. 1,718,763
Financial futures contracts............. 214,063
-----------------
1,932,826
-----------------
Net gain on investments.................... 4,809,462
-----------------
Net Increase in Net Assets
Resulting from Operations.................. $ 8,638,748
-----------------
-----------------
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
FLORIDA SERIES
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) February 29, August 31,
in Net Assets 1996 1995
<S> <C> <C>
Operations
Net investment income...... $ 3,829,286 $ 8,313,464
Net realized gain (loss) on
investment
transactions............ 2,876,636 (4,155,474)
Net change in unrealized
appreciation of
investments............. 1,932,826 6,025,242
----------------- ------------
Net increase in net assets
resulting from
operations.............. 8,638,748 10,183,232
----------------- ------------
Dividends from net
investment income (Note
1)
Class A................. (3,321,829) (7,502,100)
Class B................. (287,794) (262,158)
Class C................. (219,663) (549,206)
----------------- ------------
(3,829,286) (8,313,464)
----------------- ------------
Series share transactions (net
of share conversions) (Note
6)
Net proceeds from shares
sold.................... 10,181,304 26,011,068
Net asset value of shares
issued in reinvestment
of dividends............ 1,636,415 3,653,143
Cost of shares
reacquired.............. (17,970,816) (39,832,414)
----------------- ------------
Net decrease in net assets
from Series share
transactions............ (6,153,097) (10,168,203)
----------------- ------------
Total decrease................ (1,343,635) (8,298,435)
Net Assets
Beginning of period........... 138,316,943 146,615,378
----------------- ------------
End of period................. $ 136,973,308 $138,316,943
----------------- ------------
----------------- ------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7 -----
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) 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
fourteen 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.
- --------------------------------------------------------------------------------
- ----- 8
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) FLORIDA SERIES
- --------------------------------------------------------------------------------
Securities Transactions and Net 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 accretes original issue
discount on portfolio securities as adjustments to interest income. Expenses are
recorded on the accrual basis which may require the use of certain estimates by
management.
Net investment income (other than distribution fees) and unrealized and realized
gains or losses are allocated daily to each class of shares based upon the
relative proportion of net assets of each class at the beginning of the day.
Federal Income Taxes: 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 amortized
over a period of 60 months ending December 1995.
Custody Fee Credits: The Fund has an arrangement with its custodian bank,
whereby uninvested monies earn credits which reduce the fees charged by the
custodian.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential 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 six
months ended February 29, 1996, PMF waived 67% of its management fee. The amount
of fees waived during the six months ended February 29, 1996 amounted to
$205,205 ($.02 per share for Class A, B and C shares; .15% of average net
assets). The Series is not required to reimburse PMF for such waiver.
The Fund had a distribution agreement with Prudential Mutual Fund Distributors,
Inc. (``PMFD''), which acted as the distributor of the Class A shares of the
Fund through January 1, 1996. Prudential Securities Incorporated (``PSI'')
became the distributor of the Class A shares of the Fund effective January 2,
1996 and is serving the Fund under the same terms and conditions as under the
arrangement with PMFD and continues as the distributor of the Class B and Class
C shares of the Fund. The Fund compensates PMFD and PSI for distributing and
servicing the Fund's Class A, Class B and Class C shares, pursuant to plans of
distribution (the ``Class A, B and C Plans'') regardless of expenses actually
incurred by them. The distribution fees are accrued daily and payable monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates PSI, and PMFD for
the period September 1, 1995 through January 1, 1996 with respect to Class A
shares, 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. Such expenses under the Class A, B and C Plans were
.10 of 1%, .50 of 1% and .75 of 1% of the average daily net assets,
respectively, for the six months ended February 29, 1996.
PMFD and PSI have advised the Series that they have received approximately
$55,000 in front-end sales charges resulting from sales of Class A shares during
the six months ended February 29, 1996. From these fees, PMFD and PSI paid such
sales charges to Pruco Securities Corporation, an affiliated broker-dealer,
which in turn paid commissions to salespersons and incurred other distribution
costs.
PSI has advised the Series that for the six months ended February 29, 1996, it
received approximately $9,800 and $200 in contingent deferred sales charges
imposed upon certain redemptions by Class B and C shareholders, respectively.
- --------------------------------------------------------------------------------
9 -----
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) 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 six months ended February
29, 1996, the Series incurred fees of approximately $19,100 for the services of
PMFS. As of February 29, 1996, 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 January 1, 1996. For the four months ended December 31, 1995, PMF
subsidized $86,788 ($.007 per share for Class A, B and C shares; .19% 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 six months ended February 29, 1996 were $67,082,407 and $71,556,996,
respectively.
The cost basis of investments for federal income tax purposes as of February 29,
1996 was $132,501,240 and, accordingly, net unrealized appreciation was
$6,482,400 (gross unrealized appreciation--$7,074,439; gross unrealized
depreciation--$592,039).
The Series has a capital loss carryforward of $1,988,000, which expires in 2003.
The Series elected 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 February 29, 1996 the Series sold 50 financial futures contracts on the
Municipal Bond Index expiring in March 1996. The value at disposition of such
contracts is $6,068,750. The value of such contracts on February 29, 1996 was
$5,901,563, thereby resulting in an unrealized gain of $167,187.
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. A
special exchange privilege is also available for shareholders who qualify 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 six months ended February 29, 1996 and the fiscal year ended
August 31, 1995 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------------ ---------- ------------
<S> <C> <C>
Six months ended February 29, 1996:
Shares sold......................... 284,774 $ 2,957,818
Shares issued in reinvestment of
dividends......................... 133,579 1,380,350
Shares reacquired................... (1,505,889) (15,519,611)
---------- ------------
Net decrease in shares outstanding
before conversion................. (1,087,536) (11,181,443)
Shares issued upon conversion from
Class B........................... 19,528 205,432
---------- ------------
Net decrease in shares
outstanding....................... (1,068,008) $(10,976,011)
---------- ------------
---------- ------------
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)
---------- ------------
---------- ------------
<CAPTION>
Class B
- ------------------------------------
<S> <C> <C>
Six months ended February 29, 1996:
Shares sold......................... 637,434 $ 6,647,411
Shares issued in reinvestment of
dividends......................... 12,664 131,130
Shares reacquired................... (48,579) (502,645)
---------- ------------
Net increase in shares outstanding
before conversion................. 601,519 6,275,896
Shares reacquired upon conversion
into Class A...................... (19,528) (205,432)
---------- ------------
Net increase in shares
outstanding....................... 581,991 $ 6,070,464
---------- ------------
---------- ------------
</TABLE>
- --------------------------------------------------------------------------------
- ----- 10
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) FLORIDA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Shares Amount
- ------------------------------------ ---------- ------------
Year ended August 31, 1995:
<S> <C> <C>
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
---------- ------------
---------- ------------
Class C
- ------------------------------------
Six months ended February 29, 1996:
Shares sold......................... 55,085 $ 576,075
Shares issued in reinvestment of
dividends......................... 12,092 124,935
Shares reacquired................... (187,622) (1,948,560)
---------- ------------
Net decrease in shares
outstanding....................... (120,445) $ (1,247,550)
---------- ------------
---------- ------------
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)
---------- ------------
---------- ------------
</TABLE>
- --------------------------------------------------------------------------------
11 -----
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) FLORIDA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
- ----------------------------------------------------------------
Six Months
Ended
Year Ended August 31,
February 29,
- -----------------------------------------------
1996 1995
1994 1993 1992
------------
- -------- -------- -------- --------
<S> <C> <C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................ $ 10.06 $
9.91 $ 10.87 $ 10.27 $ 9.76
------------
- -------- -------- -------- --------
Income from investment operations
Net investment income(c)............................ .29
.59 .59 .57 .65
Net realized and unrealized gain (loss) on
investment transactions.......................... .36
.15 (.76) .73 .51
------------
- -------- -------- -------- --------
Total from investment operations................. .65
.74 (.17) 1.30 1.16
------------
- -------- -------- -------- --------
Less distributions
Dividends from net investment income................ (.29)
(.59) (.59) (.57) (.65)
Distributions from net realized gains............... --
- -- (.20) (.13) --
------------
- -------- -------- -------- --------
Total distributions.............................. (.29)
(.59) (.79) (.70) (.65)
------------
- -------- -------- -------- --------
Net asset value, end of period...................... $ 10.42 $
10.06 $ 9.91 $ 10.87 $ 10.27
------------
- -------- -------- -------- --------
------------
- -------- -------- -------- --------
TOTAL RETURN(d):.................................... 6.54%
7.85% (1.69)% 13.78% 12.26%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..................... $114,185
$120,963 $134,849 $148,900 $104,335
Average net assets (000)............................ $117,795
$124,259 $146,489 $123,820 $ 82,893
Ratios to average net assets(c):
Expenses, including distribution fees............ .30%(b)
.24% .20% .20% .09%
Expenses, excluding distribution fees............ .20%(b)
.17% .20% .20% .09%
Net investment income............................ 5.67%(b)
6.04% 5.67% 5.94% 6.41%
Portfolio turnover rate............................. 50%
65% 75% 68% 56%
<CAPTION>
<S> <C>
December 28,
1990(a)
through
August 31,
1991
------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................ $ 9.55
------
Income from investment operations
Net investment income(c)............................ .44
Net realized and unrealized gain (loss) on
investment transactions.......................... .21
------
Total from investment operations................. .65
------
Less distributions
Dividends from net investment income................ (.44)
Distributions from net realized gains............... --
------
Total distributions.............................. (.44)
------
Net asset value, end of period...................... $ 9.76
------
------
TOTAL RETURN(d):.................................... 6.90%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..................... $63,929
Average net assets (000)............................ $41,528
Ratios to average net assets(c):
Expenses, including distribution fees............ 0
Expenses, excluding distribution fees............ 0
Net investment income............................ 6.68%(b)
Portfolio turnover rate............................. 39%
</TABLE>
- ---------------
(a) Commencement of investment operations.
(b) Annualized.
(c) Net of expense subsidy and fee waiver.
(d) 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.
- --------------------------------------------------------------------------------
- ----- 12 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) FLORIDA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class
B Class C
- ------------------------------------------- ------------------------
Year
August 1, Ended
Six Months
1994(a) Six Months August
Ended Year
Ended through Ended 31,
February 29, August
31, August 31, February 29, -------
1996 1995
1994 1996 1995
------------
- ----------- ---------- ------------ -------
<S> <C> <C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................ $ 10.06 $
9.91 $ 9.95 $ 10.06 $ 9.91
------------
- ----------- ---------- ------------ -------
Income from investment operations
Net investment income(c)............................ .27
.55 .04 .26 .53
Net realized and unrealized gain (loss) on
investment transactions.......................... .36
.15 (.04) .36 .15
------------
- ----------- ---------- ------------ -------
Total from investment operations................. .63
.70 -- .62 .68
------------
- ----------- ---------- ------------ -------
Less distributions
Dividends from net investment income................ (.27)
(.55) (.04) (.26) (.53)
Distributions from net realized gains............... --
-- -- -- --
------------
- ----------- ---------- ------------ -------
Total distributions.............................. (.27)
(.55) (.04) (.26) (.53)
------------
- ----------- ---------- ------------ -------
Net asset value, end of period...................... $ 10.42 $
10.06 $ 9.91 $ 10.42 $ 10.06
------------
- ----------- ---------- ------------ -------
------------
- ----------- ---------- ------------ -------
TOTAL RETURN(d):.................................... 6.33%
7.39% (0.05)% 6.19% 7.12%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..................... $14,690
$8,326 $582 $8,098 $9,028
Average net assets (000)............................ $10,959
$4,699 $118 $8,801 $10,265
Ratios to average net assets(c):
Expenses, including distribution fees............ .70%(b)
.67% .70%(b) .95%(b) .92%
Expenses, excluding distribution fees............ .20%(b)
.17% .20%(b) .20%(b) .17%
Net investment income............................ 5.27%(b)
5.56% 6.21%(b) 5.02%(b) 5.35%
Portfolio turnover rate............................. 50%
65% 75% 50% 65%
<CAPTION>
July 26,
1993(e)
through
August 31,
1994 1993
---------- ----------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................ $ 10.87 $10.58
---------- ----------
Income from investment operations
Net investment income(c)............................ .48 .03
Net realized and unrealized gain (loss) on
investment transactions.......................... (.76) .29
---------- ----------
Total from investment operations................. (.28) .32
---------- ----------
Less distributions
Dividends from net investment income................ (.48) (.03)
Distributions from net realized gains............... (.20) --
---------- ----------
Total distributions.............................. (.68) (.03)
---------- ----------
Net asset value, end of period...................... $ 9.91 $10.87
---------- ----------
---------- ----------
TOTAL RETURN(d):.................................... (2.40)% 3.14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..................... $11,185 $3,132
Average net assets (000)............................ $ 9,280 $1,038
Ratios to average net assets(c):
Expenses, including distribution fees............ .95%
.95%(b)
Expenses, excluding distribution fees............ .20%
.20%(b)
Net investment income............................ 4.99%
5.19%(b)
Portfolio turnover rate............................. 75% 68%
</TABLE>
- ---------------
(a) Commencement of offering of Class B shares.
(b) Annualized.
(c) Net of expense subsidy and fee waiver.
(d) 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.
(e) Commencement of offering of Class C shares. Prior to August 1, 1994, Class
C
shares were called Class D shares.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 13 -----
<PAGE>
Getting The Most From Your Prudential Mutual Fund
How many times have you read these letters -- or other financial materials --
and stumbled across a word that you don't understand?
Many shareholders have run into the same problem. We'd like to help. So we'll
use this space from time to time to explain some of the words you might have
read, but not understood. And if you have a favorite word that no one can
explain to your satisfaction, please write to us.
Basis Point: One 1/100th of 1%. For example, one half of one percentage point
is 50 basis points.
Call Option: A contract giving the holder a right to buy stocks or bonds at a
predetermined price (called the strike price) before a predetermined
expiration date. A buyer of a call option generally expects to benefit from a
rise in the price of the stock or bond.
Capital Gain/Capital Loss: The difference between the cost of a capital asset
(for example, a stock, bond or mutual fund share) and its selling price. Under
current law the federal income tax rate for individuals on a long-term capital
gain is 28%.
Collateralized Mortgage Obligations (CMOs): Pools of mortgage-backed securities
sliced in maturity ranges that bear differing interest rates. These instruments
are sensitive to changes in interest rates and homeowner refinancing activity.
They are subject to prepayment and maturity extension risk.
Derivatives: Securities that derive their value from another security. The
rate of return of these financial products rises and falls -- sometimes very
suddenly -- in response to changes in some specific interest rate, currency,
stock or other variable.
Discount Rate: The interest rate charged by the Federal Reserve on loans to
banks and other depository institutions.
Federal Funds Rate: The interest rate charged by one bank to another on
overnight loans.
Futures Contract: An agreement to deliver a specific amount of a commodity or
financial instruments at a set price at a stipulated time in the future.
Leverage: The use of borrowed assets to enhance return on equity. The
expectation is that the interest rate charged will be lower than the return on
the investment. While leverage can increase profits, it can also magnify
losses.
Liquidity: The ease with which a financial instrument (or mutual fund) can be
bought or sold (converted into cash) in the financial markets.
Option: An agreement to buy or sell something, such as shares of stock, by a
certain time for a specified price. An option need not be exercised. In fact,
most expire unexercised.
Price/Earnings Ratio: The price of a share of stock divided by the earnings
per share for a 12-month period.
Spread: The difference between two values; most often used to describe the
difference between prices bid and asked for a security.
Yankee Bond: A bond denominated in U.S. dollars but sold by a foreign company
or government in the U.S. market.
<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>
How Does Your State Stack Up?
Economic conditions vary from state to state. While one region may be
experiencing strong fiscal management and prosperity, another may languish
under the weight of declining industry or chronic state budget problems.
State economic conditions, fiscal management and interest rates play dominant
roles in the performance of individual municipal bonds. A strong economy
generally leads to higher tax revenues and other income sources for the state,
enabling it to more easily repay its debts. Additionally, sound state financial
management often results in high ratings from bond rating agencies. High
ratings are attractive to investors and can help bonds retain value in the
market.
California
- - World's 8th largest economy.
- - Entertainment jobs growing.
- - Recovery continues, but growth is expected to be below the national average.
- - Increasing tax revenues may not cover soaring Medicaid costs.
Hawaii
- - Tourism provides 60% of jobs.
- - Strong financial management.
- - Slow recovery from early-1990s U.S. and Japanese recessions, which bit into
tourism and real estate.
- - Government eliminated 1,100 state jobs.
Ohio
- - Shift from manufacturing to service trades.
- - Economic and personal income growth ahead of national averages.
- - Debt is low.
Pennsylvania
- - Slowly rebuilding economy, but needs new engine of growth.
- - Debt as a percentage of personal income is half the national average.
- - Sound financial management.
Michigan
- - Economic growth is 3.5%, higher than national average.
- - Once car capital of the world, now more diversified.
- - Strengthening fiscal management.
Massachusetts
- - Painful cuts in defense and health care eliminated jobs.
- - Slowly rebuilding economy.
- - Personal income is high.
New York
- - High taxes restrain growth.
- - Personal income remains high.
- - Debt level is high.
- - Federal budget Medicaid reform impasses threaten planned budget savings.
Maryland
- - One of wealthiest states.
- - Personal income 115% of national average, but income growth has stabilized.
- - Good financial controls.
Florida
- - Economy and personal income growing much faster than national rate.
- - Unemployment and debt are low.
- - Ended 1995 with a budget surplus for the third year in a row.
Connecticut
- - Nation's wealthiest citizens.
- - Economically weak from defense cuts.
- - Slow growth -- recovery may take years.
- - Attempts at "quick fixes" won't provide permanent relief.
New Jersey
- - Broad-based economy and high personal wealth.
- - Economic growth slowing.
- - "Pro-business" tactics siphoned revenue, but may spur more growth.
North Carolina
- - Robust, model economy.
- - Personal income quickly growing.
- - Unemployment well below national average.
- - New jobs from financial services, research and high technology.
- - Strong financial management.
Source: Prudential Investment Corporation. Selected states are those for
which Prudential Mutual Fund Management manages a state-specific municipal
bond mutual fund
Revised: April, 1996
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
Internet Address:
http:\\www.prudential.com
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 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 Auditor
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
The views expressed in this report and information about the Series' portfolio
holdings are for the period covered by this report and are subject to change
thereafter.
The accompanying financial statements as of February 29, 1996 were not audited
and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
<PAGE>
BULK RATE
U.S. POSTAGE
PAID
Permit 6807
New York, NY
(LOGO)
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
74435M507
74435M606 MF148E2
74435M614 Cat# 4443533
(ICON)
Prudential
Municipal
Series Fund
Connecticut
Money Market Series
SEMI
ANNUAL
REPORT
Feb. 29, 1996
(LOGO)
<PAGE>
Prudential Municipal Series Fund
Connecticut Money Market Series
Performance At A Glance.
Despite falling short-term interest rates over the last six months, the
Prudential Municipal Series Fund -- Connecticut Money Market Series provided
competitive tax-free income. The Series' 7-day current yield on February 29,
1996 was 2.92%, which was equivalent to a taxable yield of 5.06% for
individuals in the highest federal income tax bracket. The yield was also
higher than the 2.71% reported by the average tax-free Connecticut municipal
money market fund tracked by IBC/Donoghue.
<TABLE>
<Caption
Fund Facts
As of 2/29/96
<S> <C> <C> <C> <C>
7-Day Net Asset Taxable Equivalent Yield1
Weighted Total Net
Current Yld. Value @31% @36% @39.6% Avg.
Mat. Assets (mil.)
CT Money
Market Series 2.92% $1.00 4.43% 4.78% 5.06% 67
Days $82.7
(2.55%)2 (3.86%)2 (4.16%)2 (4.41%)2
IBC/Donoghue
CT Tax-exempt 2.71 1.00 4.11 4.43 4.70 49
Days N/A
Fund Average 3
</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.
1 Some investors may be subject to the federal alternative minimum tax and/or
state and local taxes. Taxable equivalent yields reflect federal and
applicable state tax rates.
2 Without waiver of management fees and/or expense subsidization, the Series'
yields would have been lower as indicated in parentheses ().
3 This is the average 7-day current yield, NAV and WAM of 10 funds in the
International Business Communications/Donoghue Massachusetts tax-exempt money
market fund category as of February 29, 1996.
How Investments Compared.
(As of 2/29/96)
(GRAPH)
U.S. General General U.S.
Growth Bond Muni Debt Tax-Exempt
Funds Funds Funds Money Funds
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. The returns assume the reinvestment
of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors have received higher
historical total returns from stocks than from most other investments. Smaller
capitalization stocks offer greater potential for long-term growth but may be
more volatile than larger capitalization stocks.
General Bond Funds provide more income than stock funds, which can help smooth
out their total returns year by year. But their prices still fluctuate
(sometimes significantly) and their returns have been historically lower than
those of stock funds.
General Municipal Debt Funds invest in bonds issued by state governments,
state agencies and/or municipalities. This investment provides income that is
usually exempt from federal and state income taxes.
U.S. 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,
historically, their returns have been generally among the lowest of the major
investment categories.
* 19 years for General Muni Debt Funds.
* 18 years for Tax-Free Money Market Funds.
<PAGE>
Richard S. Lynes, Fund Manager
Portfolio
Manager's Report
(PHOTO)
The Prudential Municipal Series Fund -- Connecticut Money Market Series seeks
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 intends to invest in a
portfolio of short-term municipal securities with maturities of 13 months or
less from the State of Connecticut, its municipalities, local governments and
other qualifying issuers (such as Puerto Rico, Guam and the U.S. Virgin
Islands).
Strategy Session.
Providing A Competitive Tax-Free Yield.
Our strategy over the past six months was to provide a competitive tax-free
yield in a declining interest rate environment without sacrificing credit
quality. This was a challenge particularly when considering that Connecticut
short-term municipal securities are sometimes scarce. However, seasonal
fluctuations in supply can also provide investment opportunities, which may
appear unusual during a period of declining interest rates. For example,
throughout most of the reporting period, interest rates were falling.
Nevertheless, we believed tax-exempt yields were not that attractive relative
to taxable yields. This led us to position the portfolio shorter than we would
have otherwise.
Connecticut's economy continued to slow over the past six months. Economic
growth was measured at only 1.6% in 1995 compared to a national average of
3.1%. It was the weakest growth level in the New York tri-state region. The
outlook for 1996 isn't much better. The state's level of growth is projected
to be far below the national average of 2.5%. More substantive growth is
unlikely for another two years as local economies adjust to cutbacks in
defense-related industries.
Interest Rates Trended Lower.
(GRAPH)
Federal Funds Rate vs. One Year Bond Buyer Index
This chart shows how interest rates for short-term taxable securities (Federal
Funds Rate) and tax-free securities (One-Year Bond Buyer Index) have moved
lower over the past 12 months.
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>
What Went Well.
We Bought Variable Rate Securities.
We increased our holdings of variable rate securities during the reporting
period. These securities, whose interest rates reset daily, weekly or monthly,
were an advantageous investment through the third and fourth quarters of 1995.
The short-term municipal securities market had anticipated that the Federal
Reserve would continue to aggressively lower interest rates. As a result, the
yield curve was flat and, at times, inverted during the reporting period --
meaning that shorter-term bonds were paying more income than those with longer
maturities. Therefore, we did not have to extend the portfolio's weighted
average maturity to earn high relative yields.
And Not So Well.
Too Little Supply.
We try to provide you with tax-free income by investing in short-term municipal
securities within the State of Connecticut.
Unfortunately, supply was hard to come by particularly in November and
December. Many of the new bonds that did come to market were either too small
for us, overpriced, or both. This forced us to invest in other qualified
issuers, such as "territorial paper" from Puerto Rico, which remained free from
state tax. We also bought some issues from other states, the income from which
is not free from Connecticut state income tax, but is free from federal income
tax.
Hindsight Is Always 20/20.
Looking back, we would have liked to have lengthened the Series' weighted
average maturity sooner. If we had done so in November, rather than waiting
until year-end, we would have been able to lock in higher yields, which would
have paid more tax-free income. However, we had to maintain a higher level of
liquidity to meet the anticipated seasonal surge in Series redemptions
(investors redeem to have cash available for holiday purchases or for income
tax reasons).
A Word About Quality.
Your Series will typically 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, A-1+ or A-2 by Standard
& Poor's or, if not rated, deemed to be of comparable quality by the Series'
investment adviser. Although there is never a guarantee that the share price of
the Connecticut Money Market Series will stay at $1, we emphasize a
conservative, quality-oriented approach.
Looking Ahead.
As we went to press, economic news continued to be mixed, with some reports
indicating a strengthening U.S. economy while others a sluggish one. Until the
Federal Reserve gets a clearer picture of where the economy is headed, we can
expect a period (perhaps several months) of unchanged monetary policy.
Accordingly, we shall keep the Series' weighted average maturity neutral to a
few days longer than the average tax-free money fund. It will give us the
flexibility to respond to changing market conditions while providing you with
tax-free income.
- ------------------------------------------------------------------------------
1
<PAGE>
President's Letter
(PHOTO)
April 5, 1996
Dear Shareholder:
For many investors, 1995 was a profitable year -- most stock and bond funds
enjoyed healthy returns from the U.S. markets. While climbing returns can tempt
even the most skittish investors to start buying again, it is important to
remember that the stock and bond markets go down just as they go up. At times
like these, remember the importance of working with your Financial Advisor or
Registered Representative to help you find investments that are consistent with
your risk tolerance and time horizon. Your Financial Advisor or Registered
Representative can help you maintain realistic expectations about both the
potential performance and risks associated with your investments.
Shareholder Legislative Action Program.
From time to time we've been informing you about significant legislation before
Congress, such as the American Dream Savings Account, that may potentially
impact mutual fund investors. We want to make it easier for you to share your
views with your Congressional member. So, beginning in 1996, whenever Congress
is considering legislation that would affect you, we'll send you postage-paid
message cards that you simply drop in the mail if you want to let your senator
or representative know how you want him or her to vote.
Fund Profiles.
Over the past year, we've worked to make your shareholder reports more
interesting, informative and easy to read. This year, we'll be considering
"fund profiles." Some mutual fund companies now offer one to shareholders along
with a full prospectus. The purpose of a fund profile is to provide a very
brief, reader-friendly summary of a fund's objective, investments, risks and
expenses. Would you like to see fund profiles from us? Please call your
Financial Advisor or Registered Representative to share your views.
As always, thank you for your confidence in Prudential Mutual Funds.
Sincerely,
Richard A. Redeker
President
- ------------------------------------------------------------------------------
2
<PAGE>
Portfolio of Investments
as of February 29, 1996 PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) CONNECTICUT MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Avon Connecticut, B.A.N. NR
3.75% 7/15/96 $ 1,800 $ 1,802,495
Chicago Illinois O'Hare Int'l. Apt. Rev., American
Airlines, Ser. 83C, F.R.D.D. P1
3.55 3/01/96 800 800,000
Connecticut St. Dev. Auth.,
Conco Proj., Ser. 85, F.R.W.D. P1
3.25 3/07/96 1,700 1,700,000
Ind. Dev., Shelton Inn L.P., Ser. 86, F.R.M.D. P1
3.75 3/01/96 1,000 1,000,000
Jewish Cmnty. Ctr. of New Haven, Ser. 92, F.R.M.D. A1(d)
3.40 3/01/96 1,550 1,550,000
Lt. & Pwr. Co. Proj., Ser. 93B, F.R.W.D. VMIG1
3.40 3/06/96 3,200 3,200,000
Poll. Ctrl. Rev., W. Mass. Elec. Co., Ser. 93A, F.R.W.D. VMIG1
3.20 3/06/96 3,200 3,200,000
Rand Whitney Container Bd., Ser. 93, F.R.W.D. P1
2.90 3/06/96 2,500 2,500,000
SHW Inc. Proj., Ser. 90, F.R.W.D. NR
3.40 3/06/96 3,600 3,600,000
Water Facs. Rev., Bridgeport Hydrolic Co. Proj., Ser.
95, F.R.W.D. VMIG1
2.80 3/06/96 2,000 2,000,000
Connecticut St. Gen. Oblig., Ser. 92B Aa
5.20 5/15/96 1,000 1,003,875
Connecticut St. Hlth. & Edl. Facs. Auth. Rev.,
Charlotte-Hungerford, Ser. B, F.R.W.D. NR
3.10 3/07/96 1,600 1,600,000
Pomfret School Issue, Ser. A, F.R.W.D. VMIG1
3.05 3/06/96 1,000 1,000,000
Yale Univ., Ser. L, T.E.C.P. VMIG1
3.25 4/12/96 1,100 1,100,000
Yale Univ., Ser. N, T.E.C.P. VMIG1
3.25 4/12/96 1,500 1,500,000
Connecticut St. Hsg. Fin. Auth.,
Mtge. Fin. Prog., VMIG1
3.75 6/10/96 760 760,000
Mtge. Fin. Prog., Ser. 95G, F.R.W.D. VMIG1
3.20 3/07/96 2,000 2,000,000
Connecticut St. Mun. Elec. Engy., Pwr. Supply Sys. Rev.,
Ser. 95A, T.E.C.P. P1
3.20 5/02/96 1,600 1,600,000
Connecticut St. Spec. Assmt.,
Unemployment Comp., Ser. 93B, F.R.W.D. VMIG1
3.50 3/06/96 3,500 3,500,000
Unemployment Comp., Ser. 93C, A.M.T. VMIG1
3.90 7/01/96 2,500 2,500,000
Connecticut St. Spec. Tax Oblig., Trans. Infrastructure
Rev., Ser. 90I, F.R.W.D. VMIG1
3.20 3/06/96 3,700 3,700,000
Dist. of Columbia Rev.,
Gen. Oblig., Ser. 92A-3, F.R.D.D. VMIG1
3.50 3/01/96 100 100,000
Gen. Oblig., Ser. 92A-6, F.R.D.D. VMIG1
3.50 3/01/96 200 200,000
East Hartford Connecticut, B.A.N. NR
3.75 1/27/97 2,000 2,007,006
Fairfield Connecticut, B.A.N. NR
3.75 1/15/97 1,680 1,684,964
Gulf Coast Waste Disposal Auth., Texas Poll. Ctrl. Rev.,
Amoco Oil Co., Ser. 94, F.R.D.D. VMIG1
3.55 3/01/96 500 500,000
Hartford Connecticut Redev. Agcy. MultiFamily Mtge.,
Underwood Twrs. Proj., Ser. 90, F.R.W.D. Aaa
3.35 3/07/96 2,800 2,800,000
Hurley New Mexico Poll. Ctrl. Rev., Ser. 85, F.R.D.D. P1
3.45 3/01/96 200 200,000
Litchfield Connecticut, B.A.N. NR
4.00 10/24/96 943 944,525
New York St. Engy. Resch. & Dev. Auth., Poll. Ctrl. Rev.,
Niagara Mohawk Pwr. Corp., Ser. 87B, F.R.D.D. A1+(d)
3.60 3/01/96 900 900,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3 -----
<PAGE>
Portfolio of Investments
as of February 29, 1996 PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) CONNECTICUT MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Plaquemines Parish Louisiana Environ. Rev., Expl. & Oil
Proj., Ser. 94, F.R.D.D. P1
3.60% 3/01/96 $ 200 $ 200,000
Puerto Rico Comnwlth.,
Gov't. Dev. Bank, Ser. 85, F.R.W.D. VMIG1
2.80 3/06/96 4,200 4,200,000
Gov't. Dev. Bank, Ser. 95, T.E.C.P. A1+(d)
3.65 3/08/96 2,000 2,000,000
Puerto Rico Hsg. Fin. Corp., MultiFamily Mtge. Rev.,
Portfolio A,
Ser. 90I, M.O.T. Aa
3.30 3/15/96 2,455 2,455,000
Puerto Rico Ind. Med. & Environ. Facs.,
Ana G. Mendez Ed. Fndtn., Ser. 85, F.R.W.D. A1(d)
3.35 3/06/96 65 65,000
Inter Amer. Proj., Ser. 88, T.E.C.P. VMIG1
3.05 3/18/96 2,700 2,700,000
Reynolds Metal Co. Proj., Ser. 83A, A.O.T. P1
3.75 9/01/96 3,000 2,998,656
Schering-Plough Corp., Ser. 83A, A.O.T. NR
3.80 12/01/96 2,500 2,500,000
Puerto Rico Public Bldgs. Auth. Rev., Ser. SG34, F.R.W.D. A1+(d)
3.10 3/07/96 3,000 3,000,000
Southwestern Illinois Dev. Auth., Solid Waste Disp. Rev.,
Wood River Proj., Ser. 92, F.R.D.D. VMIG1
3.55 3/01/96 600 600,000
Stamford Connecticut Hsg. Auth. Rev., Morgan Street Proj.,
Ser. 94, F.R.W.D. VMIG1
3.25 3/06/96 1,400 1,400,000
West Baton Rouge Parish Louisiana Ind. Dist. No. 3 Rev.,
Dow Chemical Co. Proj., Ser. 93, F.R.D.D. P1
3.60 3/01/96 1,900 1,900,000
Dow Chemical Co. Proj., Ser. 95, F.R.D.D. P1
3.65 3/01/96 300 300,000
West Hartford Connecticut, Ser. 96, B.A.N. MIG1
3.33 7/18/96 3,000 3,000,893
Windham Connecticut, B.A.N. NR
3.50 12/17/96 3,700 3,705,985
-----------
Total Investments--99.2%
(amortized cost--$81,978,399 (c))
81,978,399
Other assets in excess of liabilities--0.8%
672,720
-----------
Net Assets--100%
$82,651,119
-----------
-----------
</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.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.
(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>
Statement of Assets and Liabilities PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) CONNECTICUT MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<S>
<C>
Assets
February 29, 1996
Investments, at amortized cost which approximates market
value............................................ $ 81,978,399
Receivable for Series shares
sold.........................................................................
785,577
Interest
receivable...................................................................
.................... 412,382
Deferred
expenses.....................................................................
.................... 6,743
-----------------
Total
assets.......................................................................
.................... 83,183,101
-----------------
Liabilities
Payable for Series shares
reacquired......................................................................
432,651
Accrued expenses and other
liabilities....................................................................
57,771
Dividends
payable......................................................................
................... 27,086
Management fee
payable......................................................................
.............. 7,959
Distribution fee
payable......................................................................
............ 4,195
Deferred trustee's
fees.........................................................................
.......... 2,320
-----------------
Total
liabilities..................................................................
.................... 531,982
-----------------
Net
Assets.......................................................................
......................... $ 82,651,119
-----------------
-----------------
Net assets were comprised of:
Shares of beneficial interest, at $.01 par
value....................................................... $
826,511
Paid-in capital in excess of
par.......................................................................
81,824,608
-----------------
Net assets, February 29,
1996.........................................................................
.... $ 82,651,119
-----------------
-----------------
Net asset value, offering price and redemption price per share ($82,651,119 /
82,651,119 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 (Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Six Months
Ended
Net Investment Income February 29, 1996
-----------------
Income
Interest and discount earned.............. $ 1,354,995
-----------------
Expenses
Management fee............................ 181,413
Distribution fee.......................... 45,353
Custodian's fees and expenses............. 22,000
Transfer agent's fees and expenses........ 17,000
Registration fees......................... 13,000
Amortization of organization expense...... 7,546
Reports to shareholders................... 7,500
Legal fees and expenses................... 5,000
Audit fee and expenses.................... 5,000
Trustees' fees............................ 1,700
Miscellaneous............................. 1,977
-----------------
Total expenses......................... 307,489
Less: Management fee waiver.................. (136,060)
Custodian fee credit..................... (6,558)
-----------------
Net expenses........................... 164,871
-----------------
Net investment income........................ 1,190,124
-----------------
Net Increase in Net Assets
Resulting from Operations.................... $ 1,190,124
-----------------
-----------------
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
CONNECTICUT MONEY MARKET SERIES
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) in February 29, August 31,
Net Assets 1996 1995
<S> <C> <C>
Operations
Net investment income..... $ 1,190,124 $ 1,812,631
Net realized gain on
investment
transactions........... -- 714
----------------- -------------
Net increase in net assets
resulting from
operations............. 1,190,124 1,813,345
----------------- -------------
Dividends and distributions
to shareholders........... (1,190,124) (1,813,345)
----------------- -------------
Series share transactions (at
$1 per share)
Net proceeds from shares
sold................... 167,813,076 234,075,262
Net asset value of shares
issued to shareholders
in reinvestment of
dividends and
distributions.......... 1,153,093 1,751,916
Cost of shares
reacquired............. (149,181,835) (227,262,566)
----------------- -------------
Net increase in net assets
from Series share
transactions........... 19,784,334 8,564,612
----------------- -------------
Total increase............... 19,784,334 8,564,612
Net Assets
Beginning of period.......... 62,866,785 54,302,173
----------------- -------------
End of period................ $ 82,651,119 $ 62,866,785
----------------- -------------
----------------- -------------
</TABLE>
- --------------------------------------------------------------------------------
- ----- 6 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) 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
fourteen 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 Net 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. Expenses are recorded on the accrual basis which may require the
use of certain estimates by management.
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 six
months ended February 29, 1996, PMF voluntarily waived 75% of its management
fee. The amount of fees waived for the six months ended February 29, 1996
amounted to $136,060 ($.002 per share; .375% of average net assets, annualized).
The Fund had a distribution agreement with Prudential Mutual Fund Distributors,
Inc. (``PMFD''), which acted as the distributor of the Fund through January 1,
1996. Effective January 2, 1996, Prudential Securities Incorporated (``PSI'')
became the distributor of the Fund and is serving the Fund under the same terms
and conditions as under the arrangement with PMFD. The Series reimbursed PMFD
and PSI for distributing and servicing the Series' shares pursuant to the plan
of distribution at an annual rate of .125 of 1% of the Series' average daily net
assets. The distribution fee is accrued daily and payable monthly.
- --------------------------------------------------------------------------------
7 -----
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) CONNECTICUT MONEY MARKET 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 subsidary of
PMF, serves as the Fund's transfer agent. During the six months ended February
29, 1996, the Series incurred fees of approximately $16,000 for the services of
PMFS. As of February 29, 1996, approximately $3,000 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 (Unaudited) CONNECTICUT MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
August 5,
Six Months
1991(a)
Ended
Year Ended August 31, through
February 29,
- ------------------------------------------- August 31,
1996 1995
1994 1993 1992 1991
------------ -------
- ------- ------- ------- ----------
PER SHARE OPERATING PERFORMANCE:
<S> <C> <C>
<C> <C> <C> <C>
Net asset value, beginning of period.......... $ 1.00 $ 1.00
$ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income and realized gains(c)... .016 .032
.020 .022 .034 .003
Dividends and distributions to shareholders... (.016) (.032)
(.020) (.022) (.034) (.003)
------------ -------
- ------- ------- ------- ----------
Net asset value, end of period................ $ 1.00 $ 1.00
$ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ -------
- ------- ------- ------- ----------
------------ -------
- ------- ------- ------- ----------
TOTAL RETURN(d):.............................. 1.64% 3.16%
2.02% 2.20% 3.42% .30%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $ 82,651 $62,867
$54,302 $57,794 $40,480 $ 10,904
Average net assets (000)...................... $ 72,964 $57,103
$60,594 $53,152 $33,964 $ 6,730
Ratios to average net assets(c):
Expenses, including distribution fee........ .472%(b) .581%
.542% .387% .125% .125%(b)
Expenses, excluding distribution fee........ .347%(b) .456%
.417% .262% .00% .00%(b)
Net investment income....................... 3.28%(b) 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>
Getting The Most From Your Prudential Mutual Fund
How many times have you read these letters -- or other financial materials --
and stumbled across a word that you don't understand?
Many shareholders have run into the same problem. We'd like to help. So we'll
use this space from time to time to explain some of the words you might have
read, but not understood. And if you have a favorite word that no one can
explain to your satisfaction, please write to us.
Basis Point: One 1/100th of 1%. For example, one half of one percentage point
is 50 basis points.
Call Option: A contract giving the holder a right to buy stocks or bonds at a
predetermined price (called the strike price) before a predetermined expiration
date. A buyer of a call option generally expects to benefit from a rise in the
price of the stock or bond.
Capital Gain/Capital Loss: The difference between the cost of a capital asset
(for example, a stock, bond or mutual fund share) and its selling price. Under
current law the federal income tax rate for individuals on a long-term capital
gain is 28%.
Collateralized Mortgage Obligations (CMOs): Pools of mortgage-backed securities
sliced in maturity ranges that bear differing interest rates. These instruments
are sensitive to changes in interest rates and homeowner refinancing activity.
They are subject to prepayment and maturity extension risk.
Derivatives: Securities that derive their value from another security. The rate
of return of these financial products rises and falls -- sometimes very
suddenly -- in response to changes in some specific interest rate, currency,
stock or other variable.
Discount Rate: The interest rate charged by the Federal Reserve on loans to
banks and other depository institutions.
Federal Funds Rate: The interest rate charged by one bank to another on
overnight loans.
Futures Contract: An agreement to deliver a specific amount of a commodity or
financial instruments at a set price at a stipulated time in the future.
Leverage: The use of borrowed assets to enhance return on equity. The
expectation is that the interest rate charged will be lower than the return on
the investment. While leverage can increase profits, it can also magnify
losses.
Liquidity: The ease with which a financial instrument (or mutual fund) can be
bought or sold (converted into cash) in the financial markets.
Option: An agreement to buy or sell something, such as shares of stock, by a
certain time for a specified price. An option need not be exercised. In fact,
most expire unexercised.
Price/Earnings Ratio: The price of a share of stock divided by the earnings per
share for a 12-month period.
Spread: The difference between two values; most often used to describe the
difference between prices bid and asked for a security.
Yankee Bond: A bond denominated in U.S. dollars but sold by a foreign company
or government in the U.S. market.
<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>
How Does Your State Stack Up?
Economic conditions vary from state to state. While one region may be
experiencing strong fiscal management and prosperity, another may languish
under the weight of declining industry or chronic state budget problems.
State economic conditions, fiscal management and interest rates play dominant
roles in the performance of individual municipal bonds. A strong economy
generally leads to higher tax revenues and other income sources for the state,
enabling it to more easily repay its debts. Additionally, sound state financial
management often results in high ratings from bond rating agencies. High
ratings are attractive to investors and can help bonds retain value in the
market.
California
- - World's 8th largest economy.
- - Entertainment jobs growing.
- - Recovery continues, but growth is expected to be below the national average.
- - Increasing tax revenues may not cover soaring Medicaid costs.
Hawaii
- - Tourism provides 60% of jobs.
- - Strong financial management.
- - Slow recovery from early-1990s U.S. and Japanese recessions, which bit into
tourism and real estate.
- - Government eliminated 1,100 state jobs.
Ohio
- - Shift from manufacturing to service trades.
- - Economic and personal income growth ahead of national averages.
- - Debt is low.
Pennsylvania
- - Slowly rebuilding economy, but needs new engine of growth.
- - Debt as a percentage of personal income is half the national average.
- - Sound financial management.
Michigan
- - Economic growth is 3.5%, higher than national average.
- - Once car capital of the world, now more diversified.
- - Strengthening fiscal management.
Massachusetts
- - Painful cuts in defense and health care eliminated jobs.
- - Slowly rebuilding economy.
- - Personal income is high.
New York
- - High taxes restrain growth.
- - Personal income remains high.
- - Debt level is high.
- - Federal budget Medicaid reform impasses threaten planned budget savings.
Maryland
- - One of wealthiest states.
- - Personal income 115% ofnational average, but income growth has stabilized.
- - Good financial controls.
Florida
- - Economy and personal income growing much faster than national rate.
- - Unemployment and debt are low.
- - Ended 1995 with a budget surplus for the third year in a row.
Connecticut
- - Nation's wealthiest citizens.- Economically weak from defense cuts.
- - Slow growth -- recovery may take years.
- - Attempts at "quick fixes" won't provide permanent relief.
New Jersey
- - Broad-based economy and high personal wealth.
- - Economic growth slowing.
- - "Pro-business" tactics siphoned revenue, but may spur more growth.
North Carolina
- - Robust, model economy.
- - Personal income quickly growing.
- - Unemployment well below national average.
- - New jobs from financial services, research and high technology.
- - Strong financial management.
Source: Prudential Investment Corporation. Selected states are those for which
Prudential Mutual Fund Management manages a state-specific municipal bond
mutual fund
Revised: April, 1996
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
Internet Address:http:\\www.prudential.com
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 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 Auditor
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
The views expressed in this report and information about the Series' portfolio
holdings are for the period covered by this report and are subject to change
thereafter.
The accompanying financial statements as of February 29, 1996, were not audited
and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
<PAGE>
BULK RATE
U.S. POSTAGE
PAID
Permit 6807
New York, NY
(LOGO)
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
74435M648 MF154E2
Cat# 444515Z
(ICON)
Prudential
Municipal
Series Fund
Massachusetts
Money Market Series
SEMI
ANNUAL
REPORT
Feb. 29, 1996
(LOGO)
<PAGE>
Prudential Municipal Series Fund
Massachusetts Money Market Series
Performance At A Glance.
Despite falling interest rates over the past six months, the Prudential
Municipal Series Fund -- Massachusetts Money Market Series has provided
competitive, tax-free income. The Series' 7-day Current Yield on February 29,
1996 was 2.99%, which was equivalent to a taxable yield of 5.63% for individuals
in the highest federal income tax bracket. The yield was also higher than the
2.80% reported by the average tax-free Massachusetts municipal money market
fund tracked by IBC/Donoghue.
<TABLE>
<CAPTION>
Fund Facts As of
2/29/96
7-Day Net Asset Taxable Equivalent Yield1 Weighted
Total Net
Current Yld. Value @31% @36% @39.6% Avg. Mat.
Assets (mil.)
<S> <C> <C> <C> <C> <C> <C>
<C>
MA Money
Market Series 2.99% $1.00 4.92% 5.31% 5.63% 50 Days
$58.4
(2.62%)2 (4.31%)2 (4.64%)2 (4.92%)2
IBC/Donoghue
MA Tax-exempt 2.80 1.00 4.61 4.97 5.27 55 Days
N/A
Fund Average 3
</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.
1 Some investors may be subject to the federal alternative minimum tax and/or
state and local taxes.Taxable equivalent yields reflect federal and applicable
state tax rates.
2 Without waiver of management fees and/or expense subsidization, the Series'
yields would have been lower as indicated in parentheses ().
3This is the average 7-day current yield, NAV and WAM of 10 funds in the
International Business Communications/Donoghue Massachusetts tax-exempt money
market fund category as of February 29, 1996.
How Investments Compared.
(As of 2/29/96)
(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. The returns assume the reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors have received higher
historical total returns from stocks than from most other investments. Smaller
capitalization stocks offer greater potential for long-term growth but may be
more volatile than larger capitalization stocks.
General Bond Funds provide more income than stock funds, which can help smooth
out their total returns year by year. But their prices still fluctuate
(sometimes significantly) and their returns have been historically lower than
those of stock funds.
General Municipal Debt Funds invest in bonds issued by state governments,
state agencies and/or municipalities. This investment provides income that is
usually exempt from federal and state income taxes.
U.S. 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,
historically, their returns have been generally among the lowest of the major
investment categories.
* 19 years for General Muni Debt Funds.
* 18 years for Tax-Free Money Market Funds.
<PAGE>
Colleen Meehan, Fund Manager
Portfolio
Manager's Report
The Prudential Municipal Series Fund -- Massachusetts Money Market Series seeks
current income that is exempt from federal and Massachusetts state income taxes,
consistent with liquidity, the preservation of capital, and maintenance of a
stable net asset value of $1 per share. The Series intends to invest in a
portfolio of short-term municipal securities with maturities of 13 months or
less from the State of Massachusetts, its municipalities, local governments and
other qualifying issuers (such as Puerto Rico, Guam and the U.S. Virgin
Islands).
Strategy Session.
Providing A Competitive
Tax-Free Yield.
Our strategy over the past six months was to provide a competitive tax-free
yield in a declining interest rate environment without sacrificing credit
quality. This was a challenge, particularly when considering that Massachusetts
short-term municipal securities are sometimes scarce. However, seasonal
fluctuations in supply can also provide investment opportunities, which may
appear contrary during a period of declining interest rates. For example,
throughout most of the reporting period, interest rates were falling.
Nevertheless, we believed tax-exempt yields were not that attractive relative
to taxable yields. This led us to position the portfolio shorter than we would
have otherwise.
While it is fair to say that the Commonwealth's economic recovery is continuing,
it did slow during the reporting period. Overall growth fell to 1.2% in 1995,
which was well below the national average. The savings would be used to reduce
taxes. The state's spending discipline and adherence to reasonable revenue
assumptions over the past four years have produced balanced financial
operations, according to Moody's Investors Service, which gave Massachusetts a
credit rating of A1.
Interest Rates Trended Lower.
(CHART)
Federal Funds Rate vs. One-Year Bond Buyer Index
This chart shows how interest rates for short-term taxable securities (Federal
Funds Rate) and tax-free securities (One-Year Bond Buyer Index) have moved lower
over the past 12 months.
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>
What Went Well.
Shopping for Value.
One way of maximizing tax-free income is by shopping for value. The price was
right so we purchased short-term, pre-refunded bonds that were trading favorably
compared to Treasurys. As you may know, pre-refunded bonds are backed by the
U.S. government and are rated Aaa by Moody's Investors Service or AAA by
Standard & Poor's. We also invested in AMT paper (so-called because it is
subject to the federal alternative minimum tax). AMT paper comes with yields
that can be 10 to 15 basis points (a basis point is 1/100 of a percentage point)
higher than non-AMT investments. It was a useful tool for us and comprised about
11% of the portfolio at the end of the reporting period.
What Could Have Gone Better.
Hindsight Is Always 20/20.
Looking back, we would have liked to have lengthened the Series' weighted
average maturity sooner. If we had done so, we would have been able to lock in
higher yields, which would have paid more tax-free income. However, we had to
maintain a higher level of liquidity to meet the anticipated seasonal surge in
Series redemptions in December (investors redeem to have cash available for
holiday purchases or for income tax reasons).
Looking Ahead.
As we went to press, economic news continued to be mixed, with some reports
indicating a strengthening U.S. economy while others a sluggish one. Until the
Federal Reserve gets a clearer picture of where the economy is headed, we can
expect a period (perhaps several months) of unchanged monetary policy.
Accordingly, we shall keep the Series' weighted average maturity neutral to a
few days longer than the average tax-free money fund. It will give us the
flexibility to respond to changing market conditions while providing you with
tax-free income.
A Word
About Quality.
Your Series will typically 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 Series'
investment adviser. Although there is never a guarantee that the share price
of the Massachusetts Money Market Series will stay at $1, we emphasize a
conservative, quality-oriented approach.
1
<PAGE>
President's Letter April 5, 1996
(PHOTO)
Dear Shareholder:
For many investors, 1995 was a profitable year -- most stock and bond funds
enjoyed healthy returns from the U.S. markets. While climbing returns can tempt
even the most skittish investors to start buying again, it is important to
remember that the stock and bond markets go down just as they go up. At times
like these, remember the importance of working with your Financial Advisor or
Registered Representative to help you find investments that are consistent with
your risk tolerance and time horizon. Your Financial Advisor or Registered
Representative can help you maintain realistic expectations about both the
potential performance and risks associated with your investments.
Shareholder Legislative Action Program.
From time to time we've been informing you about significant legislation before
Congress, such as the American Dream Savings Account, that may potentially
impact mutual fund investors. We want to make it easier for you to share your
views with your Congressional member. So, beginning in 1996, whenever Congress
is considering legislation that would affect you, we'll send you postage-paid
message cards that you simply drop in the mail if you want to let your senator
or representative know how you want him or her to vote.
Fund Profiles.
Over the past year, we've worked to make your shareholder reports more
interesting, informative and easy to read. This year, we'll be considering "fund
profiles." Some mutual fund companies now offer one to shareholders along with
a full prospectus. The purpose of a fund profile is to provide a very brief,
reader-friendly summary of a fund's objective, investments, risks and expenses.
Would you like to see fund profiles from us? Please call your Financial Advisor
or Registered Representative to share your views.
As always, thank you for your confidence in Prudential Mutual Funds.
Sincerely,
Richard A. Redeker
President
2
<PAGE>
<TABLE>
Portfolio of Investments as of February 29, 1996 PRUDENTIAL MUNICIPAL
SERIES FUND
(Unaudited) MASSACHUSETTS MONEY
MARKET SERIES
- --------------------------------------------------------------------------------
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Boston Wtr. & Swr. Comm., Ser. 94A, F.R.W.D. VMIG1
2.90% 3/06/96 $ 2,300 $ 2,300,000
Burke Cnty. Ga., Dev. Auth., Poll. Ctrl. Pwr. Plant Co.,
Vogtle Proj., Ser. 94-9, F.R.D.D. VMIG1
3.50 3/01/96 2,400 2,400,000
Butler Cnty., Ks., Solid Waste Disp. & Congeneration Rev.,
Texaco Refining & Mkg. Proj., Ser. B, F.R.D.D. P-1
3.65 3/01/96 700 700,000
California St., Ser. 94C, R.A.N. Aaa
5.75 4/25/96 1,000 1,003,507
Fitchburg Mass., Ser. 96, A.M.B.A.C. Aaa
5.50 3/01/97 1,200 1,225,152
Holyoke Poll. Ctrl. Rev., Ser. 88, F.R.W.D. A-1+(c)
2.95 3/06/96 700 700,000
King George Cnty. Va., Ind. Dev. Auth. Exempt Fac. Rev.,
Birchwood Pwr. Partners, Ser. 94B, F.R.D.D. A-1+(c)
3.55 3/01/96 300 300,000
Mashantucket Ct., Western Ser. 96, T.E.C.P. P-1
3.35 5/24/96 1,000 1,000,000
Mass. Bay Trans. Auth., T.E.C.P. P-1
3.25 3/06/96 1,500 1,500,000
Mass. Comnwlth., Ser. B, T.E.C.P. P-1
3.40 3/05/96 1,200 1,200,000
Mass. Edl. Loan Auth., Ser. 95A, F.R.W.D. A-1+(c)
2.90 3/06/96 1,500 1,500,000
Mass. Mun. Whsl. Elec. Co., Pwr. Supply Sys. Rev., Ser.
94C, F.R.W.D. VMIG1
3.05 3/06/96 1,500 1,500,000
Mass. St. College Bldg., Ref. Rev., Ser. 86A, M.B.I.A. AAA(c)
7.25 5/01/96 1,000 1,026,209
Mass. St. Hlth. & Edl. Facs. Auth. Rev.,
Boston Univ., Ser. 85H, T.E.C.P. VMIG1
3.20 5/16/96 2,000 2,000,000
Cap. Asset Prog., Ser. D, F.R.D.D. VMIG1
3.30 3/01/96 2,200 2,200,000
Harvard Univ., Ser. 89L, T.E.C.P. VMIG1
3.70 3/08/96 1,100(d) 1,100,000
Harvard Univ., Ser. 89L, T.E.C.P. VMIG1
3.50 4/10/96 1,000(d) 1,000,000
Harvard Univ., Ser. 89L, T.E.C.P. VMIG1
3.20 6/07/96 1,000(d) 1,000,000
Mass. St. Hsg. Fin. Agcy. Rev.,
Multi-family, Ser. A, F.R.W.D. A-1+(c)
3.10 3/06/96 1,000 1,000,000
Multi-family, Ser. 94A, A.M.B.A.C. VMIG1
3.45 3/07/96 1,000 1,000,000
Sngl. Fam. Hsg. Rev., F.R.W.D.S NR
3.25 3/07/96 945 945,000
Mass. St. Ind. Fin. Agcy. Ind. Rev.,
Bradford College, Ser. 95A, F.R.W.D. VMIG1
3.25 3/06/96 1,500 1,500,000
Edgewood Retirement Ctr., Ser. 95C, F.R.W.D. VMIG1
3.35 3/01/96 2,500 2,500,000
Goddard House, Ser. 95, F.R.W.D. A-1(c)
3.45 3/07/96 2,000 2,000,000
New England Pwr. Co., T.E.C.P. VMIG1
3.30 4/30/96 2,500 2,500,000
Ocean Spray Cranberries Inc., Ser. 84, A.N.N.O.T. A+(c)
3.95 10/15/96 1,400 1,400,000
Riverdale Mills, Ser. 95, F.R.W.D.S. A-2(c)
3.35 3/07/96 1,500 1,500,000
United Med. Corp., Ser. 92, F.R.W.D. P-1
3.25 3/06/96 800 800,000
Mass. St. Ind. Fin. Agcy. Res. Rec. Rev., Ogden Haverhill
Proj.,
Ser. 92A, F.R.W.D. VMIG1
2.80 3/06/96 1,000 1,000,000
Mass. St. Port. Auth. Rev., Multi Modal Amt. Ref., Ser.
95B, F.R.D.D. VMIG1
3.55 3/01/96 1,900 1,900,000
Mass. St. Wtr. Res. Auth., F.R.W.D.S. A-1+(c)
3.35 3/07/96 1,940 1,940,000
Peabody Mass., Gen. Oblig., Ser. 95 Aa1
5.40 7/15/96 650 653,916
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3 -----
<PAGE>
<TABLE>
Portfolio of Investments as of February 29, 1996 PRUDENTIAL MUNICIPAL
SERIES FUND
(Unaudited) MASSACHUSETTS MONEY
MARKET SERIES
- --------------------------------------------------------------------------------
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Puerto Rico Comnwlth., Gov't. Dev. Bank,
Ser. 85, F.R.W.D. VMIG1
2.70% 3/06/96 $ 100 $ 100,000
Ser. 95, T.E.C.P. A-1+(c)
3.65 3/08/96 2,000 2,000,000
Puerto Rico Ind. Med. & Environ. Poll. Ctrl. Fac. Fin.
Auth. Rev.,
Reynolds Metal Co. Proj., Ser. 83A, A.N.N.O.T. P-1
3.75 9/01/96 2,000 1,997,557
Schering-Plough Corp., Ser. 83A, A.N.N.O.T. AAA(c)
3.80 12/01/96 2,000 2,000,000
Revere Hsg. Auth., Wtrs. Edge Proj., Ser. 91C, F.R.W.D. A-1(c)
3.95 3/01/96 1,990 1,990,000
Salt Lake Cnty. Utah Poll. Ctrl. Rev., Service Station
Hldgs. Proj.,
Ser. 94, F.R.D.D. P-1
3.45 3/01/96 1,900 1,900,000
San Antonio Texas Water Systems, Ser. 95, T.E.C.P. NR
3.20 5/17/96 2,300 2,300,000
-----------
Total Investments--96.8%
(cost $56,581,341 (e))
56,581,341
Other assets in excess of liabilities--3.2%
1,865,118
-----------
Net Assets--100%
$58,446,459
-----------
-----------
</TABLE>
- ---------------
(a) The following abbreviations are used in portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance Corporation.
A.N.N.O.T.--Annual Optional Tender.
F.R.D.D.--Floating Rate (Daily) Demand Note (b).
F.R.W.D.--Floating Rate (Weekly) Demand Note (b).
F.R.W.D.S.--Floating Rate (Weekly) Demand Note Synthetic (b).
M.B.I.A.--Municipal Bond Insurance Corporation.
R.A.N.--Revenue Anticipation Note.
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) Standard & Poor's Rating.
(d) Prerefunded issues are secured by escrowed cash and/or direct
U.S. guaranteed obligations.
(e) 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>
Statement of Assets and Liabilities PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) MASSACHUSETTS MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<S>
<C>
Assets
February 29, 1996
Investments, at amortized cost which approximates market
value........................................... $56,581,341
Receivable for investments
sold..........................................................................
3,561,517
Receivable for Fund shares
sold..........................................................................
323,999
Interest
receivable...................................................................
................... 323,941
Deferred expenses and other
assets.......................................................................
5,486
-----------------
Total
assets.......................................................................
................... 60,796,284
-----------------
Liabilities
Bank
overdraft....................................................................
....................... 22,771
Payable for investments
purchased....................................................................
.... 1,226,985
Payable for Fund shares
reacquired...................................................................
.... 1,012,312
Accrued
expenses.....................................................................
.................... 57,484
Dividends
payable......................................................................
.................. 19,016
Management fee
payable......................................................................
............. 6,014
Distribution fee
payable......................................................................
........... 2,923
Deferred Trustee's
fees.........................................................................
......... 2,320
-----------------
Total
liabilities..................................................................
................... 2,349,825
-----------------
Net
Assets.......................................................................
........................ $58,446,459
-----------------
-----------------
Net assets were comprised of:
Shares of beneficial interest, at $.01 par
value...................................................... $ 584,465
Paid-in capital in excess of
par......................................................................
57,861,994
-----------------
Net assets, February 29,
1996............................................................................
$58,446,459
-----------------
-----------------
Net asset value, offering price and redemption price per share ($58,446,459 /
58,446,459 shares of
beneficial interest issued and outstanding; unlimited number of shares
authorized).................... $1.00
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5 -----
<PAGE>
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MASSACHUSETTS MONEY MARKET SERIES
Statement of Operations (Unaudited)
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income February 29, 1996
-----------------
<S> <C>
Income
Interest................................ $ 1,075,285
-----------------
Expenses
Management fee.......................... 143,049
Distribution fee........................ 35,762
Custodian's fees and expenses........... 33,000
Transfer agent's fees and expenses...... 18,000
Reports to shareholders................. 10,000
Registration fees....................... 8,000
Amortization of organization expenses... 6,059
Audit fees and expenses................. 5,000
Legal fees and expenses................. 5,000
Trustees' fees and expenses............. 1,700
Miscellaneous........................... 4,941
-----------------
Total expenses....................... 270,511
Less: Management fee waiver................ (107,287)
Custodian fee credit.................... (2,411)
-----------------
Net expenses......................... 160,813
-----------------
Net investment income...................... 914,472
-----------------
Net Increase in Net Assets
Resulting from Operations.................. $ 914,472
-----------------
-----------------
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
MASSACHUSETTS MONEY MARKET SERIES
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months
Increase Ended Year Ended
in Net Assets February 29, 1996 August 31, 1995
<S> <C> <C>
Operations
Net investment income........ $ 914,472 $ 1,349,006
Net realized loss on
investment transactions... -- (663)
----------------- ---------------
Net increase in net assets
resulting from
operations................ 914,472 1,348,343
----------------- ---------------
Dividends to shareholders (Note
1)........................... (914,472) (1,348,343)
----------------- ---------------
Series share transactions
(at $1 per share)
Net proceeds from shares
sold......................... 114,533,303 209,358,640
Net asset value of shares
issued to shareholders in
reinvestment of
dividends................. 901,683 1,276,924
Cost of shares reacquired.... (113,810,340) (191,091,855)
----------------- ---------------
Net increase in net assets
from Series share
transactions.............. 1,624,646 19,543,709
----------------- ---------------
Total increase.................. 1,624,646 19,543,709
Net Assets
Beginning of period............. 56,821,813 37,278,104
----------------- ---------------
End of period................... $ 58,446,459 $ 56,821,813
----------------- ---------------
----------------- ---------------
</TABLE>
- --------------------------------------------------------------------------------
- ----- 6 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) 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
fourteen 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 Net 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.The Fund amortizes premiums and accretes original issue discount
on portfolio securities as adjustments to interest income. Expenses are recorded
on the accrual basis which may require the use of certain estimates by
management.
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, 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 Fund has an arrangement with its custodian bank,
whereby uninvested monies earn credits which reduce the fees charged by the
custodian.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential 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
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 six
months ended February 29, 1996, PMF voluntarily waived 75% of its management
fee. The amount of fees waived for the six months ended February 29, 1996
amounted to $107,287 ($.002 per share; .375% of average net assets).
The Fund had a distribution agreement with Prudential Mutual Fund Distributors,
Inc. (``PMFD''), which acted as the distributor of the Fund through January 1,
1996. Effective January 2, 1996, Prudential Securities Incorporated (``PSI'')
became the distributor of the Fund and is serving the Fund under the same terms
and conditions as under the arrangement with PMFD. The Fund reimbursed PMFD for
distributing and servicing the Fund's shares pursuant to the plan of
distribution at an annual rate of .125 of 1% of the Fund's average daily net
assets. The distribution fee is accrued daily and payable monthly.
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 six months ended February
29, 1996, the Series incurred fees of approximately $11,500 for the services of
PMFS. As of February 29, 1996, 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.
- --------------------------------------------------------------------------------
7 -----
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) MASSACHUSETTS MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended August 31,
February 29,
-------------------------------------------
1996
1995 1994 1993 1992
------------
------- ------- ------- -------
<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)................. .016
.031 .019 .021 .034
Dividends and distributions to shareholders................. (.016)
(.031) (.019) (.021) (.034)
------------
------- ------- ------- -------
Net asset value, end of period.............................. $ 1.00
$ 1.00 $ 1.00 $ 1.00 $ 1.00
------------
------- ------- ------- -------
------------
------- ------- ------- -------
TOTAL RETURN(d):............................................ 1.62%
3.10% 1.89% 2.17% 3.44%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............................. $ 58,446
$56,822 $37,278 $36,608 $18,019
Average net assets (000).................................... $ 57,534
$42,919 $42,427 $32,246 $15,477
Ratios to average net assets:(c)
Expenses, including distribution fees.................... .571%(b)
.627% .620% .365% .125%
Expenses, excluding distribution fees.................... .446%(b)
.502% .495% .240% .00%
Net investment income.................................... 3.20%(b)
3.14% 1.86% 2.11% 3.20%
<CAPTION>
August 5,
through
August 31,
1991
<S> <C>
-----
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........................ $ 1.00
Net investment income and realized gains(c)................. .003
Dividends and distributions to shareholders................. (.003)
-----
Net asset value, end of period.............................. $ 1.00
-----
-----
TOTAL RETURN(d):............................................ 0.29%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............................. $6,365
Average net assets (000).................................... $3,200
Ratios to average net assets:(c)
Expenses, including distribution fees.................... .125%(b)
Expenses, excluding distribution fees.................... .00%(b)
Net investment income.................................... 4.46%(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.
- --------------------------------------------------------------------------------
- ----- 8 See Notes to Financial Statements.
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
Internet Address:
http:\\www.prudential.com
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 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 Auditor
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
The views expressed in this report and information about the Series' portfolio
holdings are for the period covered by this report and are subject to change
thereafter.
The accompanying financial statements as of February 29, 1996 were not audited
and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
<PAGE>
(LOGO)
Prudential Mutual Funds BULK RATE
One Seaport Plaza U.S. POSTAGE
New York, NY 10292 PAID
Toll Free (800) 225-1852 Permit 6807
New York, NY
74435M630 MF153E2
Cat# 444525Y
(ICON)
Prudential
Municipal
Series Fund
- -------------------
New Jersey Series
SEMI
ANNUAL
REPORT
Feb. 29, 1996
(LOGO)
<PAGE>
Prudential Municipal Series Fund
New Jersey Series
Performance At A Glance.
Lower interest rates and subdued inflation lifted tax-free municipal bond
prices higher over the past six months, continuing a trend that has been
in place for over a year now. In fact, 1995 was a terrific year for
municipal bonds, which provided their best total return in nine years,
as measured by Lehman Brothers. We're pleased to report that for the
six-month period ended February 29, 1996 the Prudential Municipal
Series Fund -- New Jersey Series performed better than the average
New Jersey municipal fund, as measured by Lipper Analytical Services.
<TABLE>
<CAPTION>
Cumulative Total Returns1 As of 2/29/96
Six One Five Since
Months Year Years Inception2
<S> <C> <C> <C> <C>
Class A 4.9% 9.8% 46.7% 62.0%
Class B 4.8 9.4 43.9 86.8
Class C 4.7 9.1 N/A 12.0
Lipper NJ Muni Avg3 4.6 9.5 45.7 92.2
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns1 As of 3/31/96
One Five Since
Year Years Inception2
<S> <C> <C> <C>
Class A 3.9% (3.6)4 7.0% (6.8)4 7.3% (7.0)4
Class B 1.6 (1.4)4 7.1 (6.9)4 7.8 (7.6)4
Class C 5.4 (5.2)4 N/A 5.9 (5.7)4
</TABLE>
<TABLE>
<CAPTION>
Dividends
& Yields Taxable Equivalent
Yield5
As of Total Dividends 30-Day At Tax Rates Of
2/29/96 Paid for Six Mos. SEC Yield 36%
39.6%
<S> <C> <C> <C> <C>
Class A $0.29 4.49% (4.44)4 7.51% (7.43)4 7.96%
(7.87)4
Class B $0.27 4.23 (4.18)4 7.07 (6.99)4 7.50
(7.41)4
Class C $0.25 3.92 (3.87)4 6.56 (6.47)4 6.95
(6.86)4
</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 declining contingent deferred sales charge (CDSC)
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; 3/4/88, Class B; 8/1/94 Class C.
3The Lipper New Jersey Municipal Bond fund average includes 51 funds for
six months, 45 funds for one year, 15 funds for five years and 5 funds
since inception of the Class B shares on 3/4/88.
4Without waivers and expense subsidies the Series' average annual
total return/30-day SEC yield would have been lower, as indicated
in parentheses ( ).
5Taxable equivalent yields reflect federal and applicable state
tax rates.
How Investments Compared.
(As of 2/29/96)
(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. The returns assume the reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors have received
higher historical total returns from stocks than from most other
investments. Smaller capitalization stocks offer greater potential
for long-term growth but may be more volatile than larger capitalization
stocks.
General Bond Funds provide more income than stock funds, which can help
smooth out their total returns year by year. But their prices still
fluctuate (sometimes significantly) and their returns have been
historically lower than those of stock funds.
General Municipal Debt Funds invest in bonds issued by state governments,
state agencies and/or municipalities. This investment provides income
that is usually exempt from federal and state income taxes.
Money Market Funds attempt to preserve a constant share value; they
don't fluctuate much in price but historically their returns have
been generally among the lowest of the major investment categories.
*19 years for General Muni Debt Funds.
<PAGE>
Marie Conti, Fund Manager (PICTURE)
Portfolio
Manager's Report
The Series invests primarily in selected long-term municipal bonds
that offer a high level of current income that is exempt from New
Jersey state and federal income taxes, while still attempting to
preserve capital. Certain shareholders may be subject to the federal
alternative minimum tax, however. There can be no assurance that the
Series' investment objective will be achieved.
Strategy Session.
Our strategy over the past six months was to take advantage of falling
interest rates (and rising bond prices) while keeping an eye out for
any shift to higher rates.
And for most of the past six months, conditions couldn't have been
much better for municipal bonds. First, sluggish national economic
growth pushed inflation lower and interest rates down by nearly a
half a percentage point, as measured by The Bond Buyer Revenue Bond
Index. Second, concern about tax reform that held back price gains
has now diminished, allowing municipal bonds to appreciate generally
faster than taxable bonds in recent months.
Conditions for municipal bond investors were good in New Jersey as
well. Fiscally, New Jersey's state government is in transition. To
encourage economic growth, the current administration has cut taxes
and restrained expenditures to limit the growth of government. The
1997 budget calls for elimination of another 1,200 state jobs,
bringing the total number of job reductions to 5,000 since January,
1994. In fact, total state spending in 1997 is expected to decline
by nearly one percent, if the governor's budget is adopted.
Sector Breakdown.
Prudential Municipal Series Fund
New Jersey Series as of 2/29/96
(PIE CHART)
Insured Bonds.
More new tax-free municipal bonds are being insured these days,
because buyers are concerned about credit quality. In 1995, 43%
of all new bonds issued nationally were insured. As a result, insured
bonds in our fund are now 55% of assets. This benefits the investor,
because payment of both interest and principal of a bond are guaranteed.
Of course, no insurance is available to prevent the price of bonds, and
bond funds, from fluctuating from day to day.
<PAGE>
What Went Well.
We Lengthened Duration.
To take maximum advantage of falling interest rates, we lengthened duration,
which is a measure of a fund's sensitivity to changes in interest rates.
The longer a fund's duration, the better its performance as interest
rates fall. Late last summer, we substantially lengthened duration to
8.2 years. Early in 1996, as the bond rally began to fade, we shortened
duration to 8.0 years as of February 29, 1996 to help protect our gains.
We Searched For
Special Qualities.
We combed the market for bonds with special qualities like a premium
(high coupon), an intermediate maturity (8 to 12 years) and were
non-callable (one that can't be redeemed before its maturity). This
type of bond helps the fund appreciate when interest rates fall, limits
losses when interest rates rise, and provides a healthy income. How?
This bond's intermediate maturity makes it less volatile than others
as interest rates rise and fall. If interest rates rise, this bond
won't fall so quickly in price because its coupon is higher than what's
available in the current market. But if interest rates fall, this bond
will appreciate faster than others because it can't be refunded before
it matures. And non-callable bonds? They guarantee that our duration
will be what we expected and also help us ensure our yield will remain
high when new bonds will offer lower coupons.
So did we find any bonds with these special qualities? Yes, and that's
why we performed as well as we did.
And Not So Well.
An Act Of Congress
Would Have Helped.
Trash is a burning issue in New Jersey, where we own 3% of assets in
solid waste disposal facilities. These bonds have suffered since the
U.S. Supreme Court in 1994 ruled that local trash haulers could not be
required to dump refuse locally. The ruling threatened the guaranteed
revenue stream (dumping fees) that solid waste facilities used to repay
their bonds. Prices fell as a result. We expect that Congress will
eventually pass a law protecting the old agreements. But until it does, we
believe our exposure is limited. Most of our investment in this area
is in Union County's facility, which is among the most competitive in
New Jersey because the cost of trucking refuse out of state is simply
too high.
Looking Ahead.
The New Jersey municipal bond market looks attractive to us in 1996.
The state's stable economy and the country's low interest rates and
inflation make municipal bonds here a sound investment for those looking
for tax-free income.
What could go wrong? This is a presidential election year and resurfacing
talk of flat taxes and other types of income tax reform could roil the
municipal bond market. Volatility and election year politics seem to go
hand-in-hand.
Five Largest Issuers.
8.4% Puerto Rico
Electric Power Authority
6.4% NJ Transportation
Trust Fund
3.6% New Jersey
Education Facility
2.9% Union County Utilities Authority
Solid Waste
2.9% Delaware River Port Authority
Expressed as a percentage of
total net assets as of 2/29/96.
1
<PAGE>
President's Letter April 5, 1996
(PICTURE)
Dear Shareholder:
For many investors, 1995 was a profitable year -- most stock and bond
funds enjoyed healthy returns from the U.S. markets. While climbing
returns can tempt even the most skittish investors to start buying again,
it is important to remember that the stock and bond markets go down just
as they go up. At times like these, remember the importance of working
with your Financial Advisor or Registered Representative to help you find
investments that are consistent with your risk tolerance and time
horizon. Your Financial Advisor or Registered Representative can help
you maintain realistic expectations about both the potential performance
and risks associated with your investments.
Shareholder Legislative Action Program.
From time to time we've been informing you about significant legislation
before Congress, such as the American Dream Savings Account, that may
potentially impact mutual fund investors. We want to make it easier
for you to share your views with your Congressional member. So,
beginning in 1996, whenever Congress is considering legislation
that would affect you, we'll send you postage-paid message cards
that you simply drop in the mail if you want to let your senator
or representative know how you want him or her to vote.
Fund Profiles.
Over the past year, we've worked to make your shareholder reports
more interesting, informative and easy to read. This year, we'll be
considering "fund profiles." Some mutual fund companies now offer one
to shareholders along with a full prospectus. The purpose of a fund
profile is to provide a very brief, reader-friendly summary of a
fund's objective, investments, risks and expenses. Would you like
to see fund profiles from us? Please call your Financial Advisor or
Registered Representative to share your views.
As always, thank you for your confidence in Prudential Mutual Funds.
Sincerely,
Richard A. Redeker
President
2
<PAGE>
Portfolio of Investments
as of February 29, 1996 PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) NEW JERSEY SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
LONG-TERM INVESTMENTS--93.6%
- -----------------------------------------------------------------------------
- -------------------------------------------------
Atlantic City, Gen. Oblig., Ser. A AA(c)
Zero 11/01/06 $ 1,490 $ 877,148
Atlantic City Mun. Utils. Auth. Rev., Wtr. System A-(c)
7.75% 5/01/17 2,000 (f) 2,298,440
Bergen Cnty., Utils. Auth.,
Wtr. Poll. Ctrl. Rev., F.G.I.C., Ser. B Aaa
5.75 12/15/05 1,000 1,088,960
Wtr. Poll. Ctrl. Rev., F.G.I.C., Ser. B Aaa
Zero 12/15/08 4,750 2,478,312
Camden Cnty New Jersey Mun. Utility Auth. Refunding,
F.G.I.C. Aaa
6.00 7/15/06 2,500 2,744,950
Camden Cnty. Fin. Auth., F.S.A. Aaa
Zero 2/15/03 1,550 1,116,403
Cape May Cnty. Ind. Poll. Ctrl., Fin. Auth. Rev., M.B.I.A. Aaa
6.80 3/01/21 2,615 3,118,126
Cinnaminson Sewage Auth. Rev. NR
7.40 2/01/15 1,600 (f) 1,812,352
Delaware River Port Auth. Pennsylvania & New Jersey Rev.,
F.G.I.C. Aaa
5.50 1/01/26 8,500 8,364,595
Edison Twnshp., Gen. Oblig., A.M.B.A.C. Aaa
6.00 1/01/08 5,390 5,932,719
Egg Harbor Twnshp. Sch. Dist., F.S.A. Aaa
4.75 2/15/09 1,010 980,478
Egg Harbor Twnshp. Sch. Dist., Cert. of Part., M.B.I.A. Aaa
7.40 4/01/02 1,000 (f) 1,113,970
Essex Cnty. New Jersey Refunding Series A-1, A.M.B.A.C. Aaa
5.375 9/01/10 2,500 2,526,725
Essex Cnty. Impvt. Auth. Series A, A.M.B.A.C. Aaa
5.50 9/01/15 5,000 4,988,150
Evesham Mun. Utils. Auth. Rev., Ser. B, M.B.I.A. Aaa
7.00 7/01/10 2,000 2,189,980
Hammonton, Gen. Oblig., A.M.B.A.C. Aaa
6.85 8/15/03 500 576,495
Hammonton, Gen. Oblig., A.M.B.A.C. Aaa
6.85 8/15/04 500 581,150
Hammonton, Gen. Oblig., A.M.B.A.C. Aaa
6.85 8/15/05 500 585,085
Howell Twnshp. Mun. Utils. Auth. Rev., 2nd Ser. NR
8.60 1/01/14 750 (f) 840,990
Hudson Cnty. Impvt. Auth., Solid Waste Sys. Rev. BBB-(c)
7.10 1/01/20 2,050 2,004,388
Hudson Cnty. Impvt. Auth., Solid Waste Sys. Rev. A+(c)
6.10 7/01/20 1,500 1,558,125
Jackson Twnshp. Sch. Dist., F.G.I.C. Aaa
6.60 6/01/04 1,020 1,170,807
Jackson Twnshp. Sch. Dist., F.G.I.C. Aaa
6.60 6/01/05 940 1,084,929
Jackson Twnshp. Sch. Dist., F.G.I.C. Aaa
6.60 6/01/10 1,600 1,851,488
Jackson Twnshp. Sch. Dist., F.G.I.C. Aaa
6.60 6/01/11 1,600 1,844,768
Jersey City, Gen. Oblig., Ser. A, F.S.A. Aaa
9.25 5/15/04 4,310 5,686,269
Jersey City, Redev. Auth. Rev., Red Dixon Mill Apts.
Proj., F.N.M.A. AAA(c)
6.10 5/01/12 2,000 2,080,240
Lakewood Twnshp., Gen. Oblig., F.G.I.C. Aaa
6.60 12/01/04 450 517,023
Lakewood Twnshp., Gen. Oblig., F.G.I.C. Aaa
6.60 12/01/05 445 513,908
Lenape Regl. High Sch. Dist., Gen. Oblig., M.B.I.A. Aaa
7.625 1/01/12 400 504,268
Mercer Cnty. Impvt. Auth. Rev. Aa1
Zero 4/01/06 2,500 1,531,600
Middle Twnshp. Sch. Dist., F.G.I.C. Aaa
7.00 7/15/05 1,200 1,416,288
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3 -----
<PAGE>
Portfolio of Investments
as of February 29, 1996 PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) NEW JERSEY SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Middlesex Cnty. New Jersey Utils. Auth. Sewer Rev.
Refunding Series A, F.G.I.C. Aaa
5.375% 9/15/15 $ 3,750 $ 3,698,587
Millburn Twnshp. Sch. Dist., Brd. of Ed. Aaa
5.35 7/15/13 1,140 1,149,701
Millburn Twnshp. Sch. Dist., Brd. of Ed. Aaa
5.35 7/15/14 1,135 1,140,743
Millburn Twnshp. Sch. Dist., Brd. of Ed. Aaa
5.35 7/15/16 1,150 1,149,080
Millburn Twnshp. Sch. Dist., Brd. of Ed. Aaa
5.35 7/15/17 1,150 1,149,057
Monmouth Cnty. Impvt. Auth. Rev.,
Govt. Loan, F.S.A. Aaa
5.25 7/15/08 1,900 1,952,174
Govt. Loan, F.S.A. Aaa
5.35 7/15/10 1,980 2,016,887
Nat'l Auth. Rev. AA(c)
6.55 7/01/12 4,065 4,451,175
Water & Sewage Facs. Rev., M.B.I.A. Aaa
5.00 2/01/13 1,600 1,532,944
Wtr. Treatment Fac., M.B.I.A. Aaa
6.875 8/01/12 750 843,622
Morris Cnty. Gen'l. Impt. & Park Aaa
5.00 7/15/14 3,180 3,054,199
Morris Cnty. Gen'l. Impt. & Park Aaa
5.00 7/15/15 3,180 3,031,812
New Jersey St. Bldg. Auth. Rev., Garden St. Svg. Bonds,
Ser. A Aa
Zero 6/15/03 890 635,549
New Jersey St. Econ. Dev. Auth. Rev.,
Clara Maass Health Sys. Project, F.S.A. Aaa
5.00 7/01/25 2,000 1,852,300
Ed. Testing Service, Ser. A, M.B.I.A. Aaa
5.90 5/15/15 2,000 2,071,180
Nat'l. Assoc. of Accountants NR
7.50 7/01/01 1,050 1,110,144
Nat'l. Assoc. of Accountants NR
7.65 7/01/09 950 1,007,162
New Jersey St. Econ. Dev. Auth. Wtr. Fac. Rev. NR
8.211 11/01/29 5,000(d) 5,112,500
New Jersey St. Econ. Dist. Heating & Cool., Trigen Trenton
Proj. BBB-(c)
6.20 12/01/10 600 613,140
New Jersey St. Econ. Dist. Heating & Cool., Trigen Trenton
Proj., Ser. B BBB-(c)
6.20 12/01/07 2,725 2,886,238
New Jersey Institute of Technology
New Jersey St Edl. Facs. Auth. Rev., M.B.I.A. Aaa
5.375 7/01/25 4,270 4,155,991
New Jersey St Edl. Facs. Auth. Rev., Series E, M.B.I.A. Aaa
5.375 7/01/20 6,290 6,135,266
Princeton Univ. Inst. For Adv. Study Baa1
7.00 7/01/21 2,000 2,187,340
Seton Hall Univ. Proj., Ser. D Aaa
6.35 7/01/21 5,620 5,987,211
New Jersey St. Hlth. Care Facs. Fin. Auth. Rev.,
Atlantic City Med. Ctr., Ser. C A
6.80 7/01/11 3,900 4,247,256
East Orange Gen. Hosp., Ser. B BBB+(c)
7.75 7/01/20 2,250 2,403,180
Helene Fuld Med. Ctr., Ser. C A(c)
8.00 7/01/08 2,700 2,923,290
Helene Fuld Med. Ctr., Ser. C A(c)
8.125 7/01/13 500 542,710
Intercare Hlth. Systems-JFK Ctr. A
7.50 7/01/07 1,000 1,069,280
</TABLE>
- --------------------------------------------------------------------------------
- ----- 4 See Notes to Financial Statements.
<PAGE>
Portfolio of Investments
as of February 29, 1996 PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) NEW JERSEY SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Intercare Hlth. Systems-JFK Ctr. A
7.625% 7/01/18 $ 945 $ 1,013,040
Jersey Shore Med. Ctr. A.M.B.A.C. Aaa
6.00 7/01/09 1,465 1,568,590
Jersey Shore Med. Ctr., A.M.B.A.C. Aaa
6.25 7/01/21 1,500 1,598,655
Kensington Cmnty. Med. Ctr., M.B.I.A. Aaa
7.00 7/01/20 3,450 3,808,559
Rahway Hospital, Ser. B Baa1
7.75 7/01/14 4,740 4,956,571
Warren Hosp. AA(c)
5.25 7/01/14 2,985 2,852,794
New Jersey St. Hsg. & Mtge. Fin. Agcy., Ser. D, M.B.I.A. Aaa
7.70 10/01/29(e) 4,750 4,967,977
New Jersey St. Hsg. & Mtge. Fin. Agcy., Tiffany Manor,
Ser. B A+(c)
6.75 11/01/11 2,190 2,281,389
New Jersey St. Hwy. Auth., Garden St. Pkwy. Gen. Rev. A1
6.20 1/01/10 3,035 3,353,736
New Jersey St. Tpke. Auth. Rev., Ser. C, M.B.I.A. Aaa
6.50 1/01/16 5,835 6,602,361
New Jersey St. Tpke. Auth. Rev., Tpke. Ser. C, M.B.I.A. Aaa
6.50 1/01/09 1,000 1,143,850
New Jersey St. Trans. Trust Fund Auth.
Trans. Sys., Ser. A, M.B.I.A. Aaa
6.00 12/15/06 5,000 5,518,200
Trans. Sys. Ser. A, M.B.I.A. Aaa
5.00 6/15/15 2,000 1,895,500
Trans. Sys. Ser. B, M.B.I.A. Aaa
5.75 6/15/14 5,000 5,137,550
Trans. Sys., Ser. B, M.B.I.A. Aaa
6.50 6/15/11 5,000 5,702,250
North Brunswick Twnshp.,
Brd. of Ed., Gen. Oblig Aa(c)
6.80 6/15/06 350 410,036
Brd. of Ed., Gen. Oblig Aa(c)
6.80 6/15/07 350 410,784
Rict Hosp. Rev., Gen. Oblig Aa
6.40 5/15/10 1,250 1,367,763
Northfield New Jersey Brd. Ed., F.S.A. Aaa
5.375 7/15/14 1,390 1,391,154
Northfield New Jersey Brd. Ed., F.S.A. Aaa
5.375 7/15/15 1,470 1,462,900
Paterson Cnty., F.S.A. Aaa
6.50 2/15/05 2,000 2,193,840
Pennsauken Twnshp., Brd. of Ed., Cert. of Part., B.I.G. Aaa
7.70 7/15/09 1,030 1,148,831
Port Auth. New York & New Jersey, Ser. 94 A1
5.80 12/01/13 2,500 2,572,325
Port Auth. New York & New Jersey,
Ser. 96, F.G.I.C. Aaa
6.60 10/01/23 2,750 2,997,582
Puerto Rico Elec. Pwr. Auth., Rev. Baa1
6.125 7/01/08 2,300 2,511,531
Puerto Rico Elec. Pwr. Auth. Rev. Baa1
6.00 7/01/12 3,295 3,409,831
Puerto Rico Elec. Pwr. Auth. Rev., Ser. R Baa1
6.25 7/01/17 2,800 2,942,520
Puerto Rico Elec. Pwr. Auth. Rev., Ser. T Baa1
6.375 7/01/24 7,900 8,483,968
Puerto Rico Elec. Pwr. Auth. Rev. Baa1
5.50 7/01/25 7,000 6,714,470
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5 -----
<PAGE>
Portfolio of Investments
as of February 29, 1996 PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) NEW JERSEY SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Puerto Rico Hwy. Auth. Rev.,
Ser. R Baa1
6.75% 7/01/05 $ 1,000 $ 1,097,130
Ser. S Baa1
6.50 7/01/22 750 (f) 849,683
Puerto Rico Indus. Tourist Edl. Hosp. Auxilio Mutuo Oblig.
Grp A, M.B.I.A. Aaa
6.25 7/01/24 3,000 3,211,980
Puerto Rico Public Bldgs Auth. Rev. Guaranteed Gov't. Fac.
Ser. A, A.M.B.A.C. Aaa
5.50 7/01/21 1,600 1,584,752
Puerto Rico Tel. Auth. Rev., Ser. I, M.B.I.A. Aaa
6.748 1/25/07 7,875 (d) 8,219,531
Rutgers St. Univ. Rev., Ser. A A1
6.40 5/01/13 2,000 2,241,020
Salem Cnty. New Jersey Indus. Poll. Cntrl. Fin. Auth.
Rev., A.M.B.I.A. Aaa
5.55 11/01/33 1,750 1,719,988
South Brunswick Twnshp.,
Wtr. & Swr. Utils., Gen. Impvt. NR
6.90 8/01/05 850 (f) 956,224
Wtr. & Swr. Utils., Gen. Impvt. NR
6.90 8/01/06 850 (f) 956,225
South River Sch. Dist., F.G.I.C. Aaa
5.00 12/01/13 1,300 1,252,485
South River Sch. Dist., F.G.I.C. Aaa
5.00 12/01/14 1,300 1,243,476
South River Sch. Dist., F.G.I.C. Aaa
5.00 12/01/15 1,230 1,167,725
Union City New Jersey, Sch. Impvt., F.S.A. Aaa
6.375 11/01/08 1,545 1,750,284
Union Cnty. Utils. Auth.,
Solid Waste Rev. A-(c)
7.10 6/15/06 1,255 1,295,223
Solid Waste Rev. A-(c)
7.20 6/15/14 6,850 7,078,790
Virgin Islands Territory, Hugo Ins. Claims Fund Proj.,
Ser. 91 NR
7.75 10/01/06 1,865 2,031,694
West Morris Regl. High Sch. Dist., Cert. of Part., B.I.G. Aaa
7.50 3/15/09 1,500 1,637,790
West New York & New Jersey
Mun. Util. Auth. Swr. Rev. Refunding, F.G.I.C. Aaa
5.125 12/15/17 2,050 1,947,910
West Windsor Regional Sch. Dist., F.G.I.C. Aaa
5.50 12/01/13 2,600 2,628,938
West Windsor Regional Sch. Dist., F.G.I.C. Aaa
5.50 12/01/14 2,700 2,718,360
------------
Total long-term investments (cost $259,009,748)
272,096,612
------------
</TABLE>
- --------------------------------------------------------------------------------
- ----- 6 See Notes to Financial Statements.
<PAGE>
Portfolio of Investments
as of February 29, 1996 PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) NEW JERSEY SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
SHORT-TERM INVESTMENTS--3.9%
Port Auth. of New York & New Jersey,
F.R.D.D., Ser. 93 VMIG1
3.10% 3/01/96 $ 5,000 $ 5,000,000
F.R.D.D., Ser. 93-1 VMIG1
3.25 3/01/96 2,400 2,400,000
Spec. Oblig. Rev., F.R.D.D. Ser. 2 VMIG1
3.05 3/01/96 3,600 3,600,000
Puerto Rico Comnwlth. Hwy. & Trans. Auth. Rev., Ser. 85
F.R.W.D. VMIG1
2.80 3/06/96 300 300,000
------------
Total short-term investments (cost $11,300,000)
11,300,000
------------
Total Investments--97.5%
(cost $270,309,748; Note 4)
283,396,612
Other assets in excess of liabilities--2.5%
7,135,429
------------
Net Assets--100%
$290,532,041
------------
------------
</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.N.M.A.--Federal National Mortgage Association.
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 Corporation.
(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 period end.
(e) Pledged as initial margin on financial futures contracts.
(f) Prerefunded issues are secured by escrowed cash and/or direct U.S.
guaranteed obligations.
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>
Statement of Assets and Liabilities PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) NEW JERSEY SERIES
- --------------------------------------------------------------------------------
<TABLE>
<S>
<C>
Assets
February 29, 1996
Investments, at value (cost
$270,309,748)................................................................
$ 283,396,612
Cash.........................................................................
............................ 30,340
Receivable for investments
sold..........................................................................
5,894,711
Interest
receivable...................................................................
................... 3,718,742
Receivable for Fund shares
sold..........................................................................
250,496
Deferred expenses and other
assets.......................................................................
15,938
-----------------
Total
assets.......................................................................
................... 293,306,839
-----------------
Liabilities
Payable for investments
purchased....................................................................
.... 1,975,967
Payable for Fund shares
reacquired...................................................................
.... 424,717
Dividends
payable......................................................................
.................. 157,957
Management fee
payable......................................................................
............. 105,310
Distribution fee
payable......................................................................
........... 98,452
Due to broker-variation margin
payable...................................................................
10,075
Deferred Trustee's
fees.........................................................................
......... 2,320
-----------------
Total
liabilities..................................................................
................... 2,774,798
-----------------
Net
Assets.......................................................................
........................ $ 290,532,041
-----------------
-----------------
Net assets were comprised of:
Shares of beneficial interest, at
par................................................................. $
259,800
Paid-in capital in excess of
par......................................................................
272,770,754
-----------------
273,030,554
Accumulated net realized gain on
investments..........................................................
4,314,311
Net unrealized appreciation on
investments............................................................
13,187,176
-----------------
Net assets, February 29,
1996............................................................................
$ 290,532,041
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($58,698,750 / 5,249,546 shares of beneficial interest issued and
outstanding)..................... $11.18
Maximum sales charge (3.0% of offering
price).........................................................
.35
-----------------
Maximum offering price to
public......................................................................
$11.53
-----------------
-----------------
Class B:
Net asset value, offering price and redemption price per share
($230,071,052 / 20,572,885 shares of beneficial interest issued and
outstanding)................... $11.18
-----------------
-----------------
Class C:
Net asset value, offering price and redemption price per share
($1,762,239 / 157,579 shares of beneficial interest issued and
outstanding)........................ $11.18
-----------------
-----------------
</TABLE>
- --------------------------------------------------------------------------------
- ----- 8 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW JERSEY SERIES
Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Six Months
Ended
Net Investment Income February 29, 1996
-----------------
Income
Interest................................ $ 8,622,964
-----------------
Expenses
Management fee.......................... 738,458
Distribution fee--Class A............... 27,065
Distribution fee--Class B............... 599,257
Distribution fee--Class C............... 5,816
Reports to shareholders................. 71,000
Transfer agent's fees and expenses...... 61,000
Custodian's fees and expenses........... 45,000
Registration fees....................... 30,000
Audit fee and expenses.................. 5,300
Legal fees and expenses................. 5,000
Trustee's fees.......................... 1,700
Miscellaneous........................... 4,532
-----------------
Total expenses....................... 1,594,128
Less: Management fee waiver.......... (197,761)
Custodian fee credit............. (30,829)
-----------------
Net expenses..................... 1,365,538
-----------------
Net investment income...................... 7,257,426
-----------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions................. 7,640,827
Financial futures contract
transactions......................... (420,094)
-----------------
7,220,733
-----------------
Net change in unrealized
appreciation/depreciation on:
Investments............................. (725,099)
Financial futures contracts............. 140,781
-----------------
(584,318)
-----------------
Net gain on investments.................... 6,636,415
-----------------
Net Increase in Net Assets
Resulting from Operations.................. $13,893,841
-----------------
-----------------
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW JERSEY SERIES
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) February 29, August 31,
in Net Assets 1996 1995
----------------- ------------
<S> <C> <C>
Operations
Net investment income...... $ 7,257,426 $ 16,331,296
Net realized gain on
investment
transactions............ 7,220,733 1,258,159
Net change in unrealized
appreciation/depreciation
of investments.......... (584,318) 1,997,149
----------------- ------------
Net increase in net assets
resulting from
operations.............. 13,893,841 19,586,604
----------------- ------------
Dividends and distributions (Note 1):
Dividends from net
investment income
Class A................. (1,416,751) (1,712,625)
Class B................. (5,805,054) (14,579,222)
Class C................. (35,621) (39,449)
----------------- ------------
(7,257,426) (16,331,296)
----------------- ------------
Distributions from net
realized gains
Class A................. (241,413) --
Class B................. (912,215) --
Class C................. (5,692) --
----------------- ------------
(1,159,320) --
----------------- ------------
Series share transactions (net
of share conversions) (Note
5):
Net proceeds from shares
sold.................... 6,108,906 18,110,094
Net asset value of shares
issued in reinvestment
of dividends and
distributions........... 5,090,039 9,760,545
Cost of shares
reacquired.............. (23,513,946) (71,846,422)
----------------- ------------
Net decrease in net assets
from Series share
transactions............ (12,315,001) (43,975,783)
----------------- ------------
Total decrease................ (6,837,906) (40,720,475)
Net Assets
Beginning of period........... 297,369,947 338,090,422
----------------- ------------
End of period................. $ 290,532,041 $297,369,947
----------------- ------------
----------------- ------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 9 -----
<PAGE>
Notes to Financial Statements PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) 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
fourteen 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 February 29, 1996.
Securities Transactions and Net 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. Expenses
are recorded on the accrual basis which may require the use of certain estimates
by management.
Net investment income (other than distribution fees) and unrealized and realized
gains or losses are allocated daily to each class of shares based upon the
relative proportion of net assets of each class at the beginning of the day.
Federal Income Taxes: For federal income tax purposes, each series in the Fund
is treated as a separate taxpaying entity. It is the intent of the Series
- --------------------------------------------------------------------------------
- ----- 10
<PAGE>
Notes to Financial Statements PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) NEW JERSEY 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.
Custody Fee Credits: The Fund has an arrangement with its custodian bank,
whereby uninvested monies earn credits which reduce the fees charged by the
custodian.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential 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 subadvisor'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 twelve
months ended December, 1995, PMF waived 35% of its management fee. For the two
months ended February 29, 1996, PMF waived 10% of its management fee. The amount
of fees waived for the six months ended February 29, 1996, amounted to $197,761
($0.008 per share for Class A, B and C shares; 0.13% of average net assets,
annualized). The Series is not required to reimburse PMF for such waiver.
The Fund had a distribution agreement with Prudential Mutual Fund Distributors,
Inc. (``PMFD''), which acted as the distributor of the Class A shares of the
Fund through January 1, 1996. Effective January 2, 1996, Prudential Securities
Incorporated (``PSI''), became the distributor of the Class A shares of the Fund
and is serving the Fund under the same terms and conditions as under the
arrangement with PMFD. PSI is also the distributor of the Class B and Class C
shares of the Fund. The Fund compensated PMFD and PSI for distributing and
servicing the Fund's Class A, Class B and Class C shares, pursuant to plans of
distribution, (the ``Class A, B and C Plans'') regardless of expenses actually
incurred by them. The distribution fees are accrued daily and payable monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates PSI and PMFD for
the period September 1, 1995 through January 1, 1996 with respect to Class A
shares for distribution-related activities at an annual rate of up to .30 of 1%,
.50 of 1% and 1%, of the average daily net assets of the Class A, B and C
shares, respectively. Such expenses under the Plans were .10 of 1%, .50 of 1%
and .75 of 1% of the average daily net assets of the Class A, B and C shares,
respectively, for the six months ended February 29, 1996.
PMFD and PSI have advised the Series that they have received approximately
$8,000 in front-end sales charges resulting from sales of Class A shares during
the six months ended February 29, 1996. From these fees, PMFD and PSI paid such
sales charges to Pruco Securities Corporation, an affiliated broker-dealer,
which in turn paid commissions to sales persons and incurred other distribution
costs.
PSI has advised the Series that for the six months ended February 29, 1996, it
received approximately $187,800 in contingent deferred sales charges imposed
upon certain redemptions by Class B and Class 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 and during the six months ended
February 29, 1996, the Series incurred fees of approximately $52,000 for the
services of PMFS. As of February 29, 1996, approximately $8,700 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.
- --------------------------------------------------------------------------------
11 -----
<PAGE>
<PAGE>
Notes to Financial Statements PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) NEW JERSEY SERIES
- --------------------------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of portfolio securities of the Series, excluding short-term
investments, for the six months ended February 29, 1996, were $118,273,579 and
$146,314,204, respectively.
At February 29, 1996 the Series sold 30 financial futures contracts on U.S.
Treasury Bonds which expire in March 1996. The value at disposition of such
contracts was $3,641,250. The value of such contracts on February 29, 1996 was
$3,540,938, thereby resulting in an unrealized gain of $100,312.
The cost basis of investments for federal income tax purposes was substantially
the same as the basis for financial reporting purposes and, accordingly, as of
February 29, 1996 net unrealized appreciation of investments for federal income
tax purposes was $13,086,864 (gross unrealized appreciation--$14,111,656; gross
unrealized depreciation--$1,024,792).
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%. Class B shares are sold with
a contingent deferred sales charge which declines from 5% to zero depending on
the period of time the shares are held. Class C shares are sold with a
contingent deferred sales charge of 1% during the first year. Class B shares
will automatically convert to Class A shares on a quarterly basis approximately
seven years after purchase. A special exchange privilege is also available for
shareholders who qualify to purchase Class A shares at net asset value.
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 six months ended February
29, 1996 and fiscal year ended August 31, 1995 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------------ ---------- ------------
<S> <C> <C>
Six months ended February 29, 1996:
Shares sold......................... 74,181 $ 832,498
Shares issued in reinvestment
of dividends and distributions.... 93,098 1,042,164
Shares reacquired................... (581,303) (6,513,918)
---------- ------------
Net decrease in shares outstanding
before conversion................. (414,024) (4,639,256)
Shares issued upon conversion from
Class B........................... 1,140,407 12,966,424
---------- ------------
Net increase in shares
outstanding....................... 726,383 $ 8,327,168
---------- ------------
---------- ------------
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 into
Class A........................... 3,553,656 38,072,569
---------- ------------
Net increase in shares
outstanding....................... 3,156,400 $ 33,781,988
---------- ------------
---------- ------------
<CAPTION>
Class B
- ------------------------------------
<S> <C> <C>
Six months ended February 29, 1996:
Shares sold......................... 436,157 $ 4,887,619
Shares issued in reinvestment
of dividends and distributions.... 358,688 4,013,466
Shares reacquired................... (1,502,255) (16,812,028)
---------- ------------
Net decrease in shares outstanding
before conversion................. (707,410) (7,910,943)
Shares reacquired upon conversion
into Class A...................... (1,140,407) (12,966,424)
---------- ------------
Net decrease in shares
outstanding....................... (1,847,817) $(20,877,367)
---------- ------------
---------- ------------
</TABLE>
- --------------------------------------------------------------------------------
- ----- 12
<PAGE>
Notes to Financial Statements PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) NEW JERSEY SERIES
- --------------------------------------------------------------------------------
<TABLE>
<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)
---------- ------------
---------- ------------
<CAPTION>
Class C
- ------------------------------------
<S> <C> <C>
Six months ended February 29, 1996:
Shares sold......................... 34,493 $ 388,789
Shares issued in reinvestment
of dividends and distributions.... 3,074 34,409
Shares reacquired................... (16,804) (188,000)
---------- ------------
Net increase in shares
outstanding....................... 20,763 $ 235,198
---------- ------------
---------- ------------
Year 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
---------- ------------
---------- ------------
</TABLE>
- --------------------------------------------------------------------------------
13 -----
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) NEW JERSEY SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
- -----------------------------------------------------------------------
Six Months
Ended Year
Ended August 31,
February 29,
- ------------------------------------------------------
1996 1995 1994
1993 1992 1991
------------ ------- -------
------- ------- ------
PER SHARE OPERATING PERFORMANCE:
<S> <C> <C> <C>
<C> <C> <C>
Net asset value, beginning of period. $ 10.98 $ 10.81 $ 11.74
$ 11.15 $ 10.73 $10.16
------------ ------- -------
------- ------- ------
Income from investment operations
Net investment income(a)............. .29 .61 .61
.64 .67 .69
Net realized and unrealized gain
(loss) on investment
transactions...................... .24 .17 (.75)
.71 .51 .59
------------ ------- -------
------- ------- ------
Total from investment
operations..................... .53 .78 (.14)
1.35 1.18 1.28
------------ ------- -------
------- ------- ------
Less distributions
Dividends from net investment
income............................ (.29) (.61) (.61)
(.64) (.67) (.69)
Distributions from net realized gains
on investment transactions........ (.04) -- (.18)
(.12) (.09) (.02)
------------ ------- -------
------- ------- ------
Total distributions............... (.33) (.61) (.79)
(.76) (.76) (.71)
------------ ------- -------
------- ------- ------
Net asset value, end of period....... $ 11.18 $ 10.98 $ 10.81
$ 11.74 $ 11.15 $10.73
------------ ------- -------
------- ------- ------
------------ ------- -------
------- ------- ------
TOTAL RETURN(b):..................... 4.92% 7.55% (1.27)%
12.57% 11.35% 12.96%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...... $ 58,699 $49,666 $14,774
$15,501 $11,941 $8,041
Average net assets (000)............. $ 54,427 $30,290 $15,334
$13,444 $ 9,759 $5,637
Ratios to average net assets:(a)
Expenses, including distribution
fees........................... .62%(c) .55% .58%
.61% .48% .29%
Expenses, excluding distribution
fees........................... .52%(c) .45% .48%
.51% .38% .19%
Net investment income............. 5.23%(c) 5.65% 5.42%
5.63% 6.14% 6.58%
Portfolio turnover rate.............. 40% 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. Total returns for periods of less than a full year are not
annualized.
(c) Annualized.
- --------------------------------------------------------------------------------
- ----- 14 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) NEW JERSEY SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class
B Class C
- -----------------------------------------------------------------------------
------------
Six Months
Six Months
Ended Year
Ended August 31, Ended
February 29,
- ------------------------------------------------------------ February 29,
1996 1995 1994
1993 1992 1991 1996
------------ -------- --------
-------- -------- -------- ------------
<S> <C> <C> <C>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 10.98 $ 10.81 $ 11.74
$ 11.15 $ 10.73 $ 10.16 $10.98
------------ -------- --------
-------- -------- -------- ------------
Income from investment operations
Net investment income(a)............. .27 .57 .56
.59 .63 .65 .25
Net realized and unrealized gain
(loss) on investment
transactions...................... .24 .17 (.75)
.71 .51 .59 .24
------------ -------- --------
-------- -------- -------- ------------
Total from investment
operations..................... .51 .74 (.19)
1.30 1.14 1.24 .49
------------ -------- --------
-------- -------- -------- ------------
Less distributions
Dividends from net investment
income............................ (.27) (.57) (.56)
(.59) (.63) (.65) (.25)
Distributions from net realized gains
on investment transactions........ (.04) -- (.18)
(.12) (.09) (.02) (.04)
------------ -------- --------
-------- -------- -------- ------------
Total distributions............... (.31) (.57) (.74)
(.71) (.72) (.67) (.29)
------------ -------- --------
-------- -------- -------- ------------
Net asset value, end of period....... $ 11.18 $ 10.98 $ 10.81
$ 11.74 $ 11.15 $ 10.73 $11.18
------------ -------- --------
-------- -------- -------- ------------
------------ -------- --------
-------- -------- -------- ------------
TOTAL RETURN(b):..................... 4.80% 7.12% (1.67)%
12.12% 10.93% 12.52% 4.68%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...... $230,071 $246,202 $323,077
$351,878 $295,781 $244,322 $1,762
Average net assets (000)............. $241,020 $274,995 $343,941
$316,372 $269,318 $208,893 $1,559
Ratios to average net assets:(a)
Expenses, including distribution
fees........................... 1.02%(c) .95% .98%
1.01% .88% .69% 1.27%(c)
Expenses, excluding distribution
fees........................... .52%(c) .45% .48%
.51% .38% .19% .52%(c)
Net investment income............. 4.84%(c) 5.30% 5.02%
5.23% 5.74% 6.18% 4.59%(c)
Portfolio turnover rate.............. 40% 37% 34%
32% 38% 116% 40%
- ---------------
<CAPTION>
August 1,
Year 1994(d)
Ended through
August 31, August 31,
1995 1994
---------- ----------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $10.81 $10.83
----- -----
Income from investment operations
Net investment income(a)............. .54 .04
Net realized and unrealized gain
(loss) on investment
transactions...................... .17 (.02)
----- -----
Total from investment
operations..................... .71 .02
----- -----
Less distributions
Dividends from net investment
income............................ (.54) (.04)
Distributions from net realized gains
on investment transactions........ -- --
----- -----
Total distributions............... (.54) (.04)
----- -----
Net asset value, end of period....... $10.98 $10.81
----- -----
----- -----
TOTAL RETURN(b):..................... 6.86% 0.14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...... $1,502 $ 240
Average net assets (000)............. $ 790 $ 11
Ratios to average net assets:(a)
Expenses, including distribution
fees........................... 1.20% 1.29%(c)
Expenses, excluding distribution
fees........................... .45% .54%(c)
Net investment income............. 4.99% 5.06%(c)
Portfolio turnover rate.............. 37% 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.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 15 -----
<PAGE>
How Does Your State Stack Up?
Economic conditions vary from state to state. While one region may
be experiencing strong fiscal management and prosperity, another may
languish under the weight of declining industry or chronic state
budget problems.
State economic conditions, fiscal management and interest rates play
dominant roles in the performance of individual municipal bonds. A
strong economy generally leads to higher tax revenues and other income
sources for the state, enabling it to more easily repay its debts.
Additionally, sound state financial management often results in high
ratings from bond rating agencies. High ratings are attractive to
investors and can help bonds retain value in the market.
California
- -- World's 8th largest economy.
- -- Entertainment jobs growing.
- -- Recovery continues, but growth is expected to be below the
national average.
- -- Increasing tax revenues may not cover soaring Medicaid costs.
Hawaii
- -- Tourism provides 60% of jobs.
- -- Strong financial management.
- -- Slow recovery from early-1990s U.S. and Japanese recessions,
which bit into tourism and real estate.
- -- Government eliminated 1,100 state jobs.
Ohio
- -- Shift from manufacturing to service trades.
- -- Economic and personal income growth ahead of national averages.
- -- Debt is low.
Pennsylvania
- -- Slowly rebuilding economy, but needs new engine of growth.
- -- Debt as a percentage of personal income is half the national average.
- -- Sound financial management.
Michigan
- -- Economic growth is 3.5%, higher than national average.
- -- Once car capital of the world, now more diversified.
- -- Strengthening fiscal management.
Massachusetts
- -- Painful cuts in defense and health care eliminated jobs.
- -- Slowly rebuilding economy.
- -- Personal income is high.
New York
- -- High taxes restrain growth.
- -- Personal income remains high.
- -- Debt level is high.
- -- Federal budget Medicaid reform impasses threaten planned budget savings.
Maryland
- -- One of wealthiest states.
- -- Personal income 115% ofnational average, but income growth has stabilized.
- -- Good financial controls.
Florida
- -- Economy and personal income growing much faster than national rate.
- -- Unemployment and debt are low.
- -- Ended 1995 with a budget surplus for the third year in a row.
Connecticut
- -- Nation's wealthiest citizens.-- Economically weak from defense cuts.
- -- Slow growth -- recovery may take years.
- -- Attempts at "quick fixes" won't provide permanent relief.
New Jersey
- -- Broad-based economy and high personal wealth.
- -- Economic growth slowing.
- -- "Pro-business" tactics siphoned revenue, but may spur more growth.
North Carolina
- -- Robust, model economy.
- -- Personal income quicklygrowing.
- -- Unemployment well below national average.
- -- New jobs from financial services, research and high technology.
- -- Strong financial management.
Source: Prudential Investment Corporation. Selected states are those for
which Prudential Mutual Fund Management manages a state-specific municipal
bond mutual fund
Revised: April, 1996
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
Internet Address:
http:\\www.prudential.com
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 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 Accountant
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
The views expressed in this report and information about the Series'
portfolio holdings are for the period covered by this report and
are subject to change thereafter.
The accompanying financial statements as of February 29, 1996 were
not audited and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective
investors unless preceded or accompanied by a current prospectus.
<PAGE>
(LOGO)
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
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