Prudential
Municipal
Series Fund
- - -----------------
Maryland Series
SEMI
ANNUAL
REPORT
Feb. 28, 1997
<PAGE>
Prudential Municipal Series Fund
Maryland Series
Performance At A Glance.
The six-months ending in February were rewarding ones
for municipal bond investors. Bond prices rose as talk of
higher interest rates subsided (at least temporarily) and
inflation levels remained low. For the six-month reporting
period ended February 28, 1997, we're pleased to report that
the Prudential Municipal Series Fund -- Maryland Series
provided attractive tax-free yields. Our total returns were
in line with the average Maryland tax-free municipal bond
fund, as measured by Lipper Analytical Services.
<TABLE>
Cumulative Total Returns1
As of 2/28/97
<CAPTION>
Six One
Five Ten Since
Months Year
Years Years Inception2
<S> <C> <C> <C>
<C> <C>
Class A 5.1% (4.4)4 4.3% (4.2)4 36.1%
(36.0)4 N/A 60.3% (60.1)4
Class B 4.9 (4.3)4 3.9 (3.8)4 33.5
(33.4)4 76.5%(75.4)4 128.4 (124.4)4
Class C 4.7 (4.1)4 3.6 (3.5)4 N/A
N/A 15.4 (15.3)4
Lipper MD Muni Avg.3 4.3 4.3 38.4
84.3 ***
</TABLE>
<TABLE>
Average Annual Total Returns1
As of 3/31/97
<CAPTION>
One Five Ten
Since
Year Years Years
Inception2
<S> <C> <C> <C> <C>
Class A 1.4% (1.3)4 5.4% N/A 6.1%
Class B -0.9 (-1.0)4 5.5 (5.4)4 5.7% 6.9
(6.7)4
Class C 2.9 (2.8)4 N/A N/A 5.0
(4.9)4
</TABLE>
<TABLE>
<CAPTION>
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>
Dividends
& Yields Class A $0.26 4.49% 7.38%
(7.30)4 7.83% (7.74)4
As of Class B $0.24 4.22 6.94
(6.86)4 7.35 (7.27)4
2/28/97 Class C $0.22 3.96 6.51
(6.43)4 6.90 (6.81)4
</TABLE>
Past performance is not indicative of future results.
Principal and
investment return will fluctuate so that an investor's
shares, when
redeemed, may be worth more or less than their original
cost.
1Source: Prudential Mutual Fund Management and Lipper
Analytical
Services. The cumulative total returns do not take into
account
sales charges. The average annual returns do take into
account
applicable sales charges. The Fund charges a maximum front-
end
sales load of 3% for Class A shares and a 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 34
funds
for six months; 32 funds for one year; 13 funds for five
years and
four funds for 10 years.
4Without waiver of management fees and/or expense
subsidization,
the Series' average annual return and yields would have been
lower,
as indicated in parentheses ( ).
5Taxable equivalent yields reflect federal and applicable
state tax rates.
***The Lipper Since Inception category return for Class A
shares is
63.8%, which includes eight funds; for Class B is 135.9% for
two
funds; and for Class C is 17.3% for 24 funds.
How Investments Compared.
(As of 2/28/97)
(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
included
historical 20-year average annual returns. These returns
assume
the reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors
have
received higher historical total returns from stocks than
from
most other invest-ments. 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.
Taxable 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.
<PAGE>
James M. Murphy, Fund Manager
(PICTURE)
Portfolio Manager's
Report
The Series invests in carefully-selected long-term municipal
bonds that offer a high level of current income exempt from
Maryland state and federal income taxes, consistent with
preservation of capital. Some bonds are AMT-eligible and
certain shareholders may be subject to the federal
alternative minimum tax, however. There can be no assurance
the Series will achieve its investment objective.
New Manager
Named.
In January 1997, James M. Murphy was named the new portfolio
manager
of the Maryland Series Fund. Jim joined Prudential in 1989
and
brings to the position extensive experience as a municipal
bond
trader and credit analyst.
Strategy Session.
The municipal bond market moved in cycles during the
reporting
period: Bond prices rallied on news of slower economic
growth
and low inflation; then sold off when reports indicated the
opposite. For example, in the third quarter of 1996, bond
prices
rallied. Municipal bond interest rates were 6.01% on October
24
and gradually declined to 5.80% in November, according to
the
Bond Buyer's Revenue Bond Index, a widely-watched industry
barometer. The start of 1997 brought news that the economy
was accelerating. Fourth quarter Gross Domestic Product (GDP
is the total value of all the goods and services produced by
the economy and a generally accepted measure of economic
growth)
surged 3.8%. Yet inflation remained low. Interest rates then
began a steady climb upward as bond prices fell slightly.
Interest rates ended the reporting period at 5.93%.
Portfolio Breakdown.
Expressed as a percentage of
total investments as of2/28/97.
(PIE CHART)
As you know, bond prices rise when interest rates fall, and
vice
versa. Our strategy over the past six months was to adjust
the Series'
duration in order to help it respond more effectively to
interest
rate movements. When the municipal bond market rallied last
fall,
we lengthened duration. This allowed your Series to profit
as bond
prices rose. Conversely, as the bond market slowed at year-
end,
we shortened the Series' duration. This protected assets as
interest rates rose.
As the end of the reporting period neared, we shortened
Series'
duration even more to match or be slightly shorter than, the
average Maryland tax-free municipal bond fund. We did not
want
to be caught off guard if the Federal Reserve raised short-
term
interest rates.
<PAGE>
What Went Well.
A Prudent Move.
We shortened Series' duration as the reporting period ended
in
February in anticipation of a possible increase in interest
rates
by the Federal Reserve. It was a prudent move. On March 25,
1997,
the central bank raised the federal funds rate (what banks
charge
each other for overnight loans) one-quarter of a
percentage point to 5.50%. It was the first increase in two
years.
The Federal Reserve explained it was acting to quell
"inflationary
imbalances" that could undermine the country's six-year
economic
expansion. The action was widely expected by investors.
Indeed,
Federal Reserve Chairman Alan Greenspan had been saying he
would
not rule out a "pre-emptive" strike against inflationary
pressures
for several weeks prior to the actual rate increase.
And Not So Well.
Market Concerns.
While there were more new bonds issued over the past six
months ending
in February, the increase was not dramatic. The overall
trend for
municipal bond supply has been downward for a couple of
years now.
That's because municipalities are receiving more revenue --
thanks
to stronger local economies -- and thus there is less need
to market
new bonds. Unfortunately, that also means fewer investment
opportunities for your Series.
Portfolio Breakdown.
Expressed as a percentage of
total investments as of 2/28/97.
(PIE CHART)
Bond insurance has been another concern. Why? Because as
more bonds
are issued with insurance, it means less uninsured bonds
were
available. In past years, uninsured bonds offered us the
opportunity to buy good quality credits (usually rated A to
BBB) at attractive prices and yields. As this pool shrinks,
so too does the opportunity for your Fund to purchase bonds
that could further enhance yield.
Five Largest
Issuers.
5.9% Commonwealth
of Puerto Rico
5.3% Montgomery County
5.1% Maryland Transportation
Authority
4.9% Maryland Health &
Higher Education
Mercy Medical Center
4.8% Prince George County
Expressed as a percentage of total net
assets as of 2/28/97.
Looking Ahead.
The Federal Reserve has raised short-term interest rates
once
in 1997. Will there be more increases in short-term interest
rates? Probably. Experience tells us that changes in
Federal
Reserve monetary policy are rarely one-shot deals. Given
present
economic conditions, we believe one or two additional rate
increases will most likely occur later this year. Of course,
no one knows for sure. We have positioned the Series'
duration
to be closer to, or slightly shorter than, the average
Maryland
tax-free municipal bond fund. This will give us the
flexibility
to respond if -- or more likely when -- the Federal Reserve
acts to increase interest rates.
1
<PAGE>
President's Letter
April 10, 1997
(PICTURE)
We're On Your Side.
Dear Shareholder:
The first three months of the year were not good ones for
most U.S.
stock and bond investors. The Dow Jones Industrial Average
was down
considerably from its record high set in mid-March, and long-
term
interest rates were at their highest levels in six months.
Not
surprisingly, in the first quarter of 1997 the average stock
and
bond mutual fund had negative returns (for stock funds, it
was
the first time since 1994).
The reasons behind the recent market decline have been
well-publicized -- higher interest rates and inflationary
pressures. And while we are watching market developments
closely, we are also very concerned about you and how you're
dealing with events. We realize that staying the course
toward
your long-term investment goals isn't easy during such times
of uncertainty. Here are a few thoughts that may help --
- - -- Keep Your Expectations Realistic. The best investors
know that financial
markets rise and fall -- and so too, will the value of their
investments.
Over time, however, stocks have been shown to produce very
attractive
returns that were well ahead of inflation.
- - -- Remember Your Time Horizon. If your investment goals are
long
term (several years or more), so should your time horizon.
During
this period, it's not unusual for stocks and bonds to
experience
several periods of market uncertainty.
- - -- We're On Your Side. Your Prudential Securities Financial
Advisor or
Prudential Registered Representative can help you understand
what's
happening in the financial markets. They can assist you in
making
informed decisions based upon a thorough knowledge of your
financial
needs and long-term goals. Call him or her today.
Thank you for your continued confidence in Prudential mutual
funds.
We'll do everything we can to keep you informed and to earn
your trust.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
2
<PAGE>
Portfolio of Investments
as of February 28, 1997 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--100.6%
- - ------------------------------------------------------------
- - ------------------------------------------------------------
- - ------
Baltimore Conv. Ctr. Rev., F.G.I.C.
Aaa 5.75% 9/01/08 $ 1,075 $
1,119,494
Baltimore Econ. Dev. Lease Rev., Armistead Partnership
BBB+(c) 7.00 8/01/11 1,000
1,068,660
Baltimore Rev., Ref. Wastewater Proj., Ser. A, F.G.I.C.
Aaa 5.50 7/01/26 1,100
1,074,854
Calvert Cnty. Poll. Cntrl. Rev. Ref. Baltimore Gas & Elec
Co.
Proj.
A2 5.55 7/15/14 1,000
995,520
Charles Cnty.
Aa 5.50 3/01/05 665
698,350
Charles Cnty.
Aa 5.50 3/01/06 695
728,686
Gaithersburg Hosp. Fac. Rev., Ref. Impvt. Shady Grove
Adventist Hosp., F.S.A.
Aaa 5.50 9/01/15 1,000
989,700
Gaithersburg Nursing Home Rev., Ref. Shady Grove Adventist
Hosp., F.S.A.
Aaa 5.50 9/01/15 1,000
989,700
Harford Cnty.
Aa 5.50 3/01/06 1,500
1,573,815
Kent Cnty., Coll. Rev. Proj. & Ref., Washington Coll. Proj.
Baa 7.70 7/01/18 500
540,770
Maryland St. & Local Facs.,
First Ser.
Aaa 5.00 3/01/07 750 (e)
758,243
Second Ser.
Aaa 5.125 10/15/10 750 (e)
746,610
Maryland St. Hlth. & Higher Edl. Facs., Auth. Rev.,
Doctor's Comn. Hosp.
Baa 5.50 7/01/24 1,000
905,840
Howard Cnty. Gen. Hosp.
Baa1 5.50 7/01/21 1,000
914,530
Proj. & Ref. Mercy Medical Center, F.S.A.
Aaa 5.75 7/01/26 1,800
1,789,740
Maryland St. Hsg. & Cmnty. Dev. Admin.,
Sngl. Fam. Mtge. Rev. Prog., Sixth Ser.
Aa 7.125 4/01/14 695
719,325
Sngl. Fam. Mtge. Rev. Prog., Third Ser.
Aa 8.00 4/01/18 750
761,100
Maryland St. Ind. Dev. Fin. Auth. Rev., Amer. Ctr. For
Physics
BBB(c) 6.625 1/01/17 1,000
1,026,410
Maryland St. Trans. Auth., Baltimore Washington Int'l.
Airport, F.G.I.C.
Aaa 6.25 7/01/14 1,750 (e)
1,848,648
Maryland Wtr. Quality Fin. Admin., Revolving Loan Fund Rev.,
Ser. A
Aa 5.90 9/01/04 565
609,104
Montgomery Cnty.,
Cons. Pub. Impvt.
Aaa 9.75 6/01/01 450
543,712
Cons. Pub. Impvt., Ser. A
Aaa 5.75 10/01/07 1,300 (e)
1,388,829
Northeast Waste Disp. Auth., Baltimore City Sludge Proj.
NR 7.25 7/01/07 904
940,956
Ocean City,
M.B.I.A.
Aaa 5.40 10/01/11 200
200,502
M.B.I.A.
Aaa 5.50 10/01/15 1,235
1,229,245
Prince Georges Cnty.,
Cons. Pub. Impvt., M.B.I.A.
Aaa 5.25 1/01/15 750
732,127
Dimensions Hlth Corp. Ref. & Proj.
A3 5.375 7/01/14 1,000
951,730
Hosp. Rev., Dimensions Hlth. Corp.
A3 5.30 7/01/24 750
688,275
Pollution Control Rev., Ref. Potomac Elec. Proj.,
M.B.I.A. Aaa 5.75 3/15/10 1,100
1,153,570
Ref. Cons. Pub. Impvt.
A1 5.25 10/01/11 1,000
995,920
Stormwater Mgmt.
Aa 6.50 3/15/03 1,140
1,254,445
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments
as of February 28, 1997 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 $
1,093,430
Gen. Oblig., F.S.A.
Aaa 8.132 (d) 7/01/20 1,000 (d)(e)
1,025,000
Puerto Rico Tel. Auth. Rev., Ser. I, M.B.I.A.
Aaa 7.057 (d) 1/16/15 1,000 (d)(e)
967,500
Takoma Park Hosp. Facs. Rev., Ref. Impvt., Washington
Adventist Hosp., F.S.A.
Aaa 6.50 9/01/12 1,000 (e)
1,123,550
Washington Dist. of Columbia, Metro. Area Transit Auth.
Rev.,
F.G.I.C.
Aaa 6.00 7/01/08 1,000 (e)
1,079,390
- - -----------
Total Long-Term investments (cost $33,948,248)
35,227,280
- - -----------
SHORT-TERM INVESTMENTS--1.4%
Maryland St Energy Fin. Admn. Ltd. Oblig. Rev.
P1 3.40 3/06/97 500
500,000
- - -----------
Total Short-Term investments (cost $500,000)
500,000
- - -----------
Total Investments--102.0%
(cost $34,448,248; Note 4)
35,727,280
Liabilities in excess of other assets--(2.0)%
(697,114)
- - -----------
Net Assets--100%
$35,030,166
- - -----------
- - -----------
</TABLE>
- - ---------------
(a) The following abbreviations are used in portfolio
descriptions:
A.M.B.A.C.--American Municipal Bond Assurance
Corporation.
F.G.I.C.--Financial Guaranty Insurance Company.
F.H.A.--Federal Housing Administration.
F.R.D.D.--Floating Rate (Daily) Demand Note (b).
F.R.W.D.--Floating Rate (Weekly) Demand Note (b).
G.N.M.A.--Government National Mortgage Association.
M.B.I.A.--Municipal Bond Insurance Association.
R.I.B.S.--Residual Interest Bonds.
S.A.V.R.S.--Select Auction Variable Rate Securities.
(b) For purposes of amortized cost valuation, the maturity
date of Floating Rate
Demand Notes is considered to be the later of the next
date on which the
security can be redeemed at par, or the next date on
which the rate of
interest is adjusted.
(c) Standard & Poor's Rating.
(d) Inverse floating rate bond. The coupon is inversely
indexed to a floating
interest rate. The rate shown is the rate at year end.
(e) Pledged as initial margin on financial futures
contracts.
NR - Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information
contains a description of
Moody's and Standard & Poor's ratings.
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 4
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL
MUNICIPAL SERIES FUND
(Unaudited) MARYLAND SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Assets
February 28, 1997
<S> <C>
Investments, at value (cost
$34,448,248)................................................
................. $35,727,280
Interest
receivable..................................................
.................................... 590,984
Receivable for Series shares
sold........................................................
................ 1,343
Other
assets......................................................
....................................... 859
- - -----------------
Total
assets......................................................
.................................... 36,320,466
- - -----------------
Liabilities
Bank
overdraft...................................................
........................................ 95,800
Payable for investments
purchased...................................................
..................... 761,128
Payable for Series shares
reacquired..................................................
................... 296,872
Accrued
expenses....................................................
..................................... 96,947
Dividends
payable.....................................................
................................... 14,328
Management fee
payable.....................................................
.............................. 12,276
Distribution fee
payable.....................................................
............................ 7,802
Deferred trustees'
fees........................................................
.......................... 2,959
Due to broker - variation
margin......................................................
................... 2,188
- - -----------------
Total
liabilities.................................................
.................................... 1,290,300
- - -----------------
Net
Assets......................................................
.........................................
$35,030,166
- - -----------------
- - -----------------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
........ $ 32,342
Paid-in capital in excess of
par.........................................................
............. 33,782,534
- - -----------------
33,814,876
Accumulated net realized loss on
investments.................................................
......... (87,086)
Net unrealized appreciation on
investments.................................................
........... 1,302,376
- - -----------------
Net assets, February 28,
1997........................................................
.................... $35,030,166
- - -----------------
- - -----------------
Class A:
Net asset value and redemption price per share
($18,833,519 / 1,739,852 shares of beneficial interest
issued and outstanding).....................
$10.82
Maximum sales charge (3% of offering
price)......................................................
..... .33
- - -----------------
Maximum offering price to
public......................................................
................ $11.15
- - -----------------
- - -----------------
Class B:
Net asset value, offering price and redemption price per
share
($16,155,042 / 1,490,574 shares of beneficial interest
issued and outstanding).....................
$10.84
- - -----------------
- - -----------------
Class C:
Net asset value, offering price and redemption price per
share
($41,605 / 3,839 shares of beneficial interest issued
and outstanding).............................
$10.84
- - -----------------
- - -----------------
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 5
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MARYLAND SERIES
Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income February 28,
1997
<S> <C>
Income
Interest................................ $ 1,033,189
--------------
- - ---
Expenses
Management fee.......................... 90,182
Distribution fee--Class A............... 9,492
Distribution fee--Class B............... 42,601
Distribution fee--Class C............... 181
Custodian's fees and expenses........... 32,000
Reports to shareholders................. 21,500
Registration fees....................... 17,500
Transfer agent's fees and expenses...... 15,000
Legal fees and expenses................. 5,500
Audit fees and expenses................. 5,000
Trustees' fees and expenses............. 1,800
Miscellaneous........................... 5,480
--------------
- - ---
Total expenses....................... 246,236
Less: Management fee waiver.............
(9,018)
Custodian fee credit................
(3,554)
--------------
- - ---
Net expenses......................... 233,664
--------------
- - ---
Net investment income...................... 799,525
--------------
- - ---
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions................. 76,207
Financial futures transactions..........
(149,361)
--------------
- - ---
(73,154)
--------------
- - ---
Net change in unrealized
appreciation/depreciation of:
Investments............................. 788,156
Financial futures contracts............. 23,344
--------------
- - ---
811,500
--------------
- - ---
Net gain on investments.................... 738,346
--------------
- - ---
Net Increase in Net Assets
Resulting from Operations.................. $ 1,537,871
--------------
- - ---
--------------
- - ---
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
MARYLAND SERIES
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended
Increase (Decrease) February 28,
August 31,
in Net Assets 1997
1996
<S> <C> <C>
Operations
Net investment income........ $ 799,525 $
1,725,293
Net realized gain (loss) on
investment transactions... (73,154)
992,267
Net change in unrealized
appreciation/depreciation
of investments............ 811,500
(673,563)
----------------- -----
- - ----------
Net increase in net assets
resulting from
operations................ 1,537,871
2,043,997
----------------- -----
- - ----------
Dividends and distributions
(Note 1):
Dividends from net investment
income
Class A................... (438,924)
(867,743)
Class B................... (359,647)
(855,800)
Class C................... (954)
(1,750)
----------------- -----
- - ----------
(799,525)
(1,725,293)
----------------- -----
- - ----------
Distributions in excess of
net investment income
Class A................... (10,676)
- - --
Class B................... (9,184)
- - --
Class C................... (28)
- - --
----------------- -----
- - ----------
(19,888)
- - --
----------------- -----
- - ----------
Distributions from net
realized gains
Class A................... (229,546)
- - --
Class B................... (197,458)
- - --
Class C................... (596)
- - --
----------------- -----
- - ----------
(427,600)
- - --
----------------- -----
- - ----------
Series share transactions (net
of share conversions) (Note
5):
Net proceeds from shares
sold...................... 368,385
2,762,194
Net asset value of shares
issued in reinvestment of
dividends and
distributions............. 863,959
1,114,649
Cost of shares reacquired.... (3,390,836)
(6,489,419)
----------------- -----
- - ----------
Net decrease in net assets
from Series share
transactions.............. (2,158,492)
(2,612,576)
----------------- -----
- - ----------
Total decrease.................. (1,867,634)
(2,293,872)
Net Assets
Beginning of period............. 36,897,800
39,191,672
----------------- -----
- - ----------
End of period................... $35,030,166
$36,897,800
----------------- -----
- - ----------
----------------- -----
- - ----------
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 6
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements (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.
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.
Securities Transactions and Investment Income: Securities
transactions are
recorded on the trade date. Realized gains and losses on
sales of securities are
calculated on the identified cost basis. Interest income is
recorded on the
accrual basis. The Series amortizes premiums and original
issue discount paid on
purchases of portfolio securities as adjustments to interest
income. Expenses
are recorded on the accrual basis which may require the use
of certain estimates
by management.
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7
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) MARYLAND
SERIES
- - ------------------------------------------------------------
- - --------------------
Net investment income (other than distribution fees) and
unrealized and realized
gains or losses are allocated daily to each class of shares
based upon the
relative proportion of net assets of each class at the
beginning of the day.
Reclassification of Capital Accounts: The Fund accounts and
reports for
distributions to shareholders in accordance with Statement
of Position 93-2:
Determination, Disclosure, and Financial Statement
Presentation of Income,
Capital Gain, and Return of Capital Distributions by
Investment Companies. The
effect of applying this statement was to increase
undistributed net investment
income and increase accumulated net realized loss by
$19,888, due to the sale of
securities purchased with market discount. Net investment
income, net realized
gains and net assets were not affected by this change.
Federal Income Taxes: 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 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 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 LLC
('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
service, 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 $9,018 ($0.003 per share)
for the six months
ended February 28, 1997.
The Fund has a distribution agreement with Prudential
Securities Incorporated
('PSI'), which acts as the distributor of the Class A, Class
B and Class C
shares of the Fund. The Fund compensates 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 PSI.
The distribution fees are accrued daily and payable monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates
PSI 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 28, 1997.
PSI has advised the Series that it has received
approximately $600 in front-end
sales charges resulting from sales of Class A shares during
the six months ended
February 28, 1997. From these fees, PSI paid such sales
charges to affiliated
broker-dealers, which in turn paid commissions to
salespersons and incurred
other distribution costs.
PSI has advised the Series that during the six months ended
February 28, 1997,
it received approximately $11,600 and $100 in contingent
deferred sales charges
imposed upon certain redemptions by Class B and Class C
shareholders,
respectively.
PSI, PMF and PIC are indirect, wholly-owned subsidiaries of
The Prudential
Insurance Company of America.
The Series, along with other affiliated registered
investment companies (the
'Funds'), entered into a credit agreement (the 'Agreement')
on December 31, 1996
with an unaffiliated lender. The maximum commitment under
the Agreement is
$200,000,000. The Agreement expires on December 30, 1997.
Interest on any such
borrowings outstanding will be at market rates. The purpose
of the Agreement is
to serve as an alternative source of funding for capital
share redemptions. The
Series has not borrowed any amounts pursuant to the
Agreement as of February 28,
1997. The Funds pay a commitment fee at an annual rate of
.055 of 1% on the
unused portion of the credit facility. The commitment fee is
accrued and paid
quarterly on a pro-rata basis by the Funds.
- - ------------------------------------------------------------
- - --------------------
-----
8
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) MARYLAND
SERIES
- - ------------------------------------------------------------
- - --------------------
Note 3. Other Transactions With Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly-owned
subsidiary of PMF,
serves as the Fund's transfer agent. During the six months
ended February 28,
1997, the Series incurred fees of approximately $11,500 for
the services of
PMFS. As of February 28, 1997, approximately $1,900 of such
fees were due to
PMFS. Transfer agent fees and expenses in the Statement of
Operations include
certain out-of-pocket expenses paid to non-affiliates.
- - ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of portfolio securities of the Series,
excluding short-term
investments, for the six months ended February 28, 1997 were
$2,677,458 and
$3,545,186, respectively.
The cost basis of investments for federal income tax
purposes at February 28,
1997, was $34,448,248 and accordingly, net unrealized
appreciation of
investments for federal income tax purposes is $1,279,032
(gross unrealized
appreciation--$1,374,014; gross unrealized depreciation
$94,982).
At February 28, 1997, the Portfolio sold 14 financial
futures contracts on the
Municipal Bond Index which expires in March 1997. The value
at disposition of
such contracts is $1,552,687. The value of such contracts on
February 28, 1997
was $1,576,031, thereby resulting in an unrealized gain of
$23,344.
- - ------------------------------------------------------------
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
28, 1997 and fiscal year ended August 31, 1996 were as
follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- - ----------------------------------- ---------- --------
- - ----
<S> <C> <C>
Six months ended February 28, 1997
Shares sold........................ 6,232 $
67,571
Shares issued in reinvestment of
dividends........................ 44,187
478,352
Shares reacquired.................. (172,476)
(1,871,480)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................ (122,057) $
(1,325,557)
Shares issued upon conversion from
Class B.......................... 154,656
1,678,314
---------- --------
- - ----
Net increase in shares
outstanding...................... 32,599 $
352,757
---------- --------
- - ----
---------- --------
- - ----
Year ended August 31, 1996:
Shares sold........................ 58,783 $
649,434
Shares issued in reinvestment of
dividends........................ 53,117
575,999
Shares reacquired.................. (308,466)
(3,328,355)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................ (196,566)
(2,102,922)
Shares issued upon conversion from
Class B.......................... 240,370
2,604,069
---------- --------
- - ----
Net increase in shares
outstanding...................... 43,804 $
501,147
---------- --------
- - ----
---------- --------
- - ----
<CAPTION>
Class B
- - -----------------------------------
<S> <C> <C>
Six months ended February 28, 1997:
Shares sold........................ 26,911 $
291,814
Shares issued in reinvestment of
dividends........................ 35,472
384,556
Shares reacquired.................. (138,647)
(1,503,369)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................ (76,264)
(826,999)
Shares reacquired upon conversion
into Class A..................... (154,460)
(1,678,314)
---------- --------
- - ----
Net decrease in shares
outstanding...................... (230,724) $
(2,505,313)
---------- --------
- - ----
---------- --------
- - ----
Year ended August 31, 1996:
Shares sold........................ 192,644 $
2,088,999
Shares issued in reinvestment of
dividends and distributions...... 49,517
537,616
Shares reacquired.................. (287,898)
(3,130,338)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................ (45,737)
(503,723)
Shares reacquired upon conversion
into Class A..................... (240,066)
(2,604,069)
---------- --------
- - ----
Net decrease in shares
outstanding...................... (285,803) $
(3,107,792)
---------- --------
- - ----
---------- --------
- - ----
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
9
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) MARYLAND SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class C Shares
Amount
- - ----------------------------------- ---------- --------
- - ----
Six months ended February 28, 1997:
<S> <C> <C>
Shares sold........................ 834 $
9,000
Shares issued in reinvestment of
dividends........................ 97
1,051
Shares reacquired.................. (1,479)
(15,987)
---------- --------
- - ----
Net decrease in shares
outstanding...................... (548) $
(5,936)
---------- --------
- - ----
---------- --------
- - ----
Year ended August 31, 1996:
Shares sold........................ 2,200 $
23,761
Shares issued in reinvestment of
dividends........................ 96
1,034
Shares reacquired.................. (2,795)
(30,726)
---------- --------
- - ----
Net decrease in shares
outstanding...................... (499) $
(5,931)
---------- --------
- - ----
---------- --------
- - ----
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
10
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) MARYLAND SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class A
----------
- - ------------------------------------------------------------
Six
Months
Ended
Year Ended August 31,
February
28, ----------------------------------------------------
- - -
1997
1996 1995 1994 1993 1992
----------
- - -- ------- ------- ------- ------ ------
<S> <C>
<C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............ $ 10.74
$ 10.66 $ 10.66 $ 11.64 $11.11 $10.67
------
- - ------- ------- ------- ------ ------
Income from investment operations
Net investment income...........................
.25(b) .51(b) .53(b) .57 .62
.63
Net realized and unrealized gain (loss) on
investment transactions...................... .22
.08 .10 (.77) .65 .44
------
- - ------- ------- ------- ------ ------
Total from investment operations............. .47
.59 .63 (.20) 1.27 1.07
------
- - ------- ------- ------- ------ ------
Less distributions
Dividends from net investment income............
(.25) (.51) (.53) (.57) (.62)
(.63)
Distributions paid in excess of net investment
income.......................................
(.01) -- -- -- --
- - --
Distributions from net realized gains...........
(.13) -- (.10) (.21) (.12)
- - --
------
- - ------- ------- ------- ------ ------
Total distributions..........................
(.39) (.51) (.63) (.78) (.74)
(.63)
------
- - ------- ------- ------- ------ ------
Net asset value, end of period.................. $ 10.82
$ 10.74 $ 10.66 $ 10.66 $11.64 $11.11
------
- - ------- ------- ------- ------ ------
------
- - ------- ------- ------- ------ ------
TOTAL RETURN(c):................................
5.08% 5.58% 6.32% (1.75)% 11.89%
10.35%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)................. $ 18,833
$18,339 $17,726 $ 2,709 $2,930 $1,335
Average net assets (000)........................ $ 19,141
$18,484 $11,341 $ 2,877 $2,068 $1,080
Ratios to average net assets:
Expenses, including distribution fees........
1.11%(a)(b) 1.10%(b) 1.30%(b) .95% .96%
.96%
Expenses, excluding distribution fees........
1.01%(a)(b) 1.00%(b) 1.20%(b) .85% .86%
.86%
Net investment income........................
4.62%(a)(b) 4.69%(b) 4.96%(b) 5.18% 5.51%
5.80%
For Class A, B and C shares:
Portfolio turnover rate(d)...................
8% 42% 49% 40% 41%
34%
</TABLE>
- - ---------------
(a) Annualized.
(b) Net of fee waiver.
(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 year reported and includes reinvestment
of dividends and
distributions. Total returns for periods of less than a
full year are not
annualized.
(d) Portfolio turnover is calculated on the basis of the
Fund as a whole without
distinguishing between the classes of shares issued.
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 11
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) MARYLAND SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class B
----------
- - ------------------------------------------------------------
- - --
Six
Months
Ended
Year Ended August 31,
February
28, ----------------------------------------------------
- - ---
1997
1996 1995 1994 1993 1992
----------
- - -- ------- ------- ------- ------- -----
- - --
<S> <C>
<C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............ $ 10.75
$ 10.67 $ 10.67 $ 11.65 $ 11.12 $ 10.68
----------
- - -- ------- ------- ------- ------- -----
- - --
Income from investment operations
Net investment income...........................
.23(b) .47(b) .49(b) .53 .58
.59
Net realized and unrealized gain (loss) on
investment transactions...................... .23
.08 .10 (.77) .65 .44
----------
- - -- ------- ------- ------- ------- -----
- - --
Total from investment operations............. .46
.55 .59 (.24) 1.23 1.03
----------
- - -- ------- ------- ------- ------- -----
- - --
Less distributions
Dividends from net investment income............
(.23) (.47) (.49) (.53) (.58)
(.59)
Distributions paid in excess of net investment
income.......................................
(.01) -- -- -- --
- - --
Distributions from net realized gains...........
(.13) -- (.10) (.21) (.12)
- - --
----------
- - -- ------- ------- ------- ------- -----
- - --
Total distributions..........................
(.37) (.47) (.59) (.74) (.70)
(.59)
----------
- - -- ------- ------- ------- ------- -----
- - --
Net asset value, end of period.................. $ 10.84
$ 10.75 $ 10.67 $ 10.67 $ 11.65 $ 11.12
----------
- - -- ------- ------- ------- ------- -----
- - --
----------
- - -- ------- ------- ------- ------- -----
- - --
TOTAL RETURN(c):................................
4.86% 5.16% 5.88% (2.13)% 11.43%
9.90%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)................. $ 16,155
$18,512 $21,414 $51,198 $57,598 $51,313
Average net assets (000)........................ $ 17,182
$19,898 $33,497 $55,223 $53,780 $50,970
Ratios to average net assets:
Expenses, including distribution fees........
1.51%(a)(b) 1.50%(b) 1.55%(b) 1.35% 1.36%
1.37%
Expenses, excluding distribution fees........
1.01%(a)(b) 1.00%(b) 1.05%(b) .85% .86%
.87%
Net investment income........................
4.22%(a)(b) 4.30%(b) 4.84%(b) 4.77% 5.11%
5.42%
</TABLE>
- - ---------------
(a) Annualized.
(b) Net of fee waiver.
(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 and
distributions. Total returns for periods of less than a
full year are not
annualized.
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 12
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) MARYLAND SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class C
--------
- - ----------------------------------------------------
Six
Months
Ended
Year Ended August 31,
February
28, ------------------------------------
1997
1996 1995
--------
- - ---- ------------ ------------
<S> <C>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............ $
10.75 $10.67 $ 10.67
--------
- - ---- ----- ------
Income from investment operations
Net investment income...........................
.21(b) .44(b) .47(b)
Net realized and unrealized gain (loss) on
investment transactions......................
.23 .08 .10
--------
- - ---- ----- ------
Total from investment operations.............
.44 .52 .57
--------
- - ---- ----- ------
Less distributions
Dividends from net investment income............
(.21) (.44) (.47)
Distributions paid in excess of net investment
income.......................................
(.01) -- --
Distributions from net realized gains...........
(.13) -- (.10)
--------
- - ---- ----- ------
Total distributions..........................
(.35) (.44) (.57)
--------
- - ---- ----- ------
Net asset value, end of period.................. $
10.84 $10.75 $ 10.67
--------
- - ---- ----- ------
--------
- - ---- ----- ------
TOTAL RETURN(c):................................
4.73% 4.90% 5.62%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)................. $
42 $ 47 $ 52
Average net assets (000)........................ $
49 $ 43 $ 58
Ratios to average net assets:
Expenses, including distribution fees........
1.75%(a)(b) 1.75%(b) 1.82%(b)
Expenses, excluding distribution fees........
1.00%(a)(b) 1.00%(b) 1.07%(b)
Net investment income........................
3.96%(a)(b) 4.05%(b) 4.55%(b)
<CAPTION>
August 1,
1994(d)
through
August 31,
1994
----------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............ $ 10.70
----------
Income from investment operations
Net investment income........................... .05
Net realized and unrealized gain (loss) on
investment transactions...................... (.03)
----------
Total from investment operations............. .02
----------
Less distributions
Dividends from net investment income............ (.05)
Distributions paid in excess of net investment
income....................................... --
Distributions from net realized gains........... --
----------
Total distributions.......................... (.05)
----------
Net asset value, end of period.................. $ 10.67
----------
----------
TOTAL RETURN(c):................................ .07%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)................. $ 102
Average net assets (000)........................ $ 31
Ratios to average net assets:
Expenses, including distribution fees........
2.21%(a)
Expenses, excluding distribution fees........
1.47%(a)
Net investment income........................
4.75%(a)
</TABLE>
- - ---------------
(a) Annualized.
(b) Net of fee waiver.
(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 and
distributions. Total returns for periods of less than a
full year are not
annualized.
(d) Commencement of offering of Class C shares.
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 13
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Supplemental Proxy Information MARYLAND SERIES
- - ------------------------------------------------------------
- - --------------------
A Meeting of Shareholders of the Prudential Municipal
Series Fund was held on
Wednesday, October 30, 1996 at the offices of Prudential
Securities
Incorporated, One Seaport Plaza, New York, New York. The
meeting was held for
the following purposes:
(1) To elect Trustees as follows: Edward D. Beach, Eugene C.
Dorsey, Delayne
Dedrick Gold, Robert F. Gunia, Harry A. Jacobs, Jr.,
Donald D. Lennox,
Mendel A. Melzer, Thomas T. Mooney, Thomas H. O'Brien,
Richard A. Redeker,
Nancy H. Teeters and Louis A. Weil, III.
(2) Approval of an amendment to the Fund's investment
restrictions to permit an
increase in the borrowing capabilities of the Fund.
The results of the proxy solicitation on the above
matters were as follows:
<TABLE>
<CAPTION>
Trustee/Matter
Votes for Votes against Abstentions
- - ----------- ------------- -----------
<S> <C>
<C> <C> <C>
(1) Edward D. Beach
370,817,756 0 16,169,234
Eugene C. Dorsey
371,804,474 0 15,182,516
Delayne Dedrick Gold
371,782,816 0 15,204,174
Robert F. Gunia
371,639,995 0 15,346,995
Harry A. Jacobs, Jr.
371,395,066 0 15,591,924
Donald D. Lennox
371,150,974 0 15,836,016
Mendel A. Melzer
371,811,918 0 15,175,072
Thomas T. Mooney
371,607,874 0 15,379,116
Thomas H. O'Brien
371,328,875 0 15,658,115
Richard A. Redeker
371,876,756 0 15,110,234
Nancy H. Teeters
371,775,376 0 15,211,614
Louis A. Weil, III
371,777,517 0 15,209,473
(2) Amendment relating to borrowing capabilities
259,440,223 31,557,793 17,488,974
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
14
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Robert F. Gunia
Harry A. Jacobs, Jr.
Donald D. Lennox
Mendel A. Melzer
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Louis A. Weil, III
Officers
Richard A. Redeker, President
Susan C. Cote, Vice President
Thomas Early, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Mutual Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
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 LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Auditors
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, NY 10022
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 28,
1997
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
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
74435M705
74435M804 MF125E2
74435M572 Cat# 6420935
(ICON)
Prudential
Municipal
Series Fund
- - --------------
Florida Series
SEMI
ANNUAL
REPORT
Feb. 28, 1997
<PAGE>
Prudential Municipal Series Fund
Florida Series
Performance At A Glance.
The six-months ending in February were rewarding ones for
municipal
bond investors. Bond prices rose as talk of higher interest
rates
subsided (at least temporarily) and inflation levels
remained low.
For the six-month reporting period ended February 28, 1997,
we're
pleased to report that the Prudential Municipal Series Fund
- - -- Florida
Series provided attractive tax-free yields. Our total
returns were
very competitive with the average Florida tax-free municipal
bond
fund, as measured by Lipper Analytical Services.
<TABLE>
Cumulative Total Returns1 As of
2/28/97
<CAPTION>
Six One
Five Since
Months Year
Years Inception2
<S> <C> <C> <C>
<C>
Class A 4.7% (4.6)4 4.4% (4.1)4
43.0% (39.2)4 61.0% (55.9)4
Class B 4.6 (4.5)4 4.1 (3.8)4
N/A 18.8 (17.7)4
Class C 4.5 (4.4)4 3.9 (3.5)4
N/A 18.9 (16.9)4
Class Z N/A N/A
N/A 0.8
Lipper FL Muni Avg.3 4.6 4.3
40.5 ***
</TABLE>
<TABLE>
Average Annual Total Returns1 As of
3/31/97
<CAPTION>
One Five Since
Year Years
Inception2
<S> <C> <C> <C>
Class A 1.8% (1.5)4 6.5% (5.9)4 7.2%
(6.6)4
Class B -0.4 (-0.7)4 N/A 5.1
(4.7)4
Class C 3.3 (3.0)4 N/A 4.4
(3.9)4
</TABLE>
<TABLE>
<CAPTION>
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> <C>
Dividends Class A $0.27 5.02% (4.82)4
7.84% (7.53)4 8.31% (7.98)4
& Yields Class B $0.25 4.77 (4.57)4
7.45 (7.14)4 7.90 (7.57)4
As of Class C $0.24 4.51 (4.31)4
7.05 (6.73)4 7.47 (7.14)4
2/28/97 Class Z $0.03 5.27 (5.07)4
8.23 (7.92)4 8.73 (8.39)4
</TABLE>
Past performance is not indicative of future results.
Principal and
investment return will fluctuate so that an investor's
shares, when
redeemed, may be worth more or less than their original
cost.
1Source: Prudential Mutual Fund Management and Lipper
Analytical
Services. The cumulative total returns do not take into
account
sales charges. The average annual returns do take into
account
applicable sales charges. The Fund charges a maximum
front-end sales load of 3% for Class A shares and a
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. Class Z shares have no service or 12b-1 fee. Class Z
shares
have been in existence for less than one year, and therefore
no
average annual returns are presented.
2Inception dates: 12/28/90 for Class A; 8/1/94 for Class B;
7/26/93
for Class C; and 12/2/96 for Class Z.
3The Lipper Florida Municipal Bond fund average includes 79
funds
for six months; 78 funds for one year, and 19 funds for 5
years.
4Without waiver of management fees and/or expense
subsidization,
the Series' average annual return and yields would have been
lower,
as indicated in parentheses ( ).
5Taxable equivalent yields reflect federal and applicable
state tax
rates.
***The Lipper Since Inception category return for Class A
shares is
56.3%, which includes 11 funds; for Class B is 18.5% for 60
funds and
for Class C is 19.3% for 35 funds.
How Investments Compared.
(As of 2/28/97)
(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 included historical 20-year average annual returns.
These
returns assume the reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors
have
received higher historical total returns from stocks than
from
most other invest-ments. 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.
Taxable 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.
<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
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 will achieve its investment objective.
High Yield Bonds.
The Trustees adopted a new policy
which permits your Series to invest
up to 30% of total investments in
bonds rated below investment grade
by Moody's and S&P. High yield bonds,
also known as "junk bonds," are subject
to greater market and credit
risks than investment grade bonds.
Prudential maintains a large and
experienced credit group which evaluates
new purchases and existing holdings. By
purchasing these securities, we seek to
broaden our investment pool and enhance
the Series' returns for you.
Strategy Session.
The municipal bond market moved in cycles during the
reporting
period: Bond prices rallied on news of slower economic
growth
and low inflation; then sold off when reports indicated the
opposite. For example, in the third quarter of 1996, bond
prices
rallied. Municipal bond interest rates were 6.01% on October
24 and gradually declined to 5.80% in November, according
to
the Bond Buyer's Revenue Bond Index, a widely-watched
industry
barometer. The start of 1997 brought news that the economy
was
accelerating. Fourth quarter Gross Domestic Product (GDP is
the
total value of all the goods and services produced by the
economy
and a generally accepted measure of economic growth) surged
3.8%.
Yet inflation remained low. Interest rates then began a
steady
climb upward as bond prices fell slightly. Interest rates
ended the reporting period at 5.93%.
Portfolio Breakdown.
Expressed as a percentage of
total investments as of 2/28/97.
(PIE CHART)
As you know, bond prices rise when interest rates fall, and
vice
versa. Our strategy over the past six months was to adjust
the
Series' duration in order to help it respond more
effectively
to interest rate movements. When the municipal bond market
rallied last fall, we lengthened duration. This allowed your
Series to profit as bond prices rose. Conversely, as the
bond
market slowed at year-end, we shortened the Series'
duration.
This protected assets as interest rates rose.
As the end of the reporting period neared, we shortened
Series'
duration even more to match or be slightly shorter than, the
average Florida tax-free municipal bond fund. We did not
want
to be caught off guard if the Federal Reserve raised
short-term interest rates.
<PAGE>
What Went Well.
A Prudent Move.
We shortened Series' duration as the reporting period ended
in February in anticipation of a possible increase in
interest
rates by the Federal Reserve. It was a prudent move. On
March
25, 1997, the central bank raised the federal funds rate
(what
banks charge each other for overnight loans) one-quarter of
a
percentage point to 5.50%. It was the first increase in two
years.
The Federal Reserve explained it was acting to quell
"inflationary
imbalances" that could undermine the country's six-year
economic
expansion. The action was widely expected by investors.
Indeed,
Federal Reserve Chairman Alan Greenspan had been
saying he would not rule out a "pre-emptive" strike against
inflationary pressures for several weeks prior to the actual
rate increase.
Portfolio Breakdown.
Expressed as a percentage of
total investments as of 2/28/97.
(PIE CHART)
Trimming Callables.
During the reporting period, we've continued to sell bonds
that are callable in less than eight years, and replacing
them with either non-callable bonds or those that are
callable
in 10 years or more. In this way we'll be able to better
manage the
risks we face when interest rates rise or fall suddenly, as
they
have been apt to do in recent years.
Five Largest
Issuers.
5.5% Lakeland County
4.3% Commonwealth
of Puerto Rico
4.2% Puerto Rico Electric
Power Authority
3.5% Florida State Board
of Education
3.1% Dade County
School District
Expressed as a percentage of total net assets as of 2/28/97.
And Not So Well.
Is There Too
Much Insurance?
The increasing use of bond insurance in the municipal market
is
becoming a concern of ours. Why? Because as more bonds are
issued
with insurance, it means fewer uninsured bonds are
available.
In past years, uninsured bonds offered us the
opportunity to buy good quality credits (usually rated A to
BBB) at attractive prices and yields. As this pool shrinks,
so too does the opportunity for your Series to purchase
bonds
that could further enhance yield.
Looking Ahead.
The Federal Reserve has raised short-term interest rates
once in 1997. Will there be more increases in short-term
interest rates? Probably. Experience tells us that changes
in Federal Reserve monetary policy are rarely one-shot
deals.
Given present economic conditions, we believe one or two
additional rate increases will most likely occur later this
year. Of course, no one knows for sure. We have positioned
the Series' duration to be closer to, or slightly shorter
than, the average Florida tax-free municipal bond fund.
This will give us the flexibility to respond if -- or more
likely when -- the Federal Reserve acts to increase
interest rates.
1
<PAGE>
President's Letter April
10, 1997
(PICTURE)
We're On Your Side.
Dear Shareholder:
The first three months of the year were not good ones for
most
U.S. stock and bond investors. The Dow Jones Industrial
Average
was down considerably from its record high set in mid-March,
and long-term interest rates were at their highest levels in
six months. Not surprisingly, in the first quarter of 1997
the
average stock and bond mutual fund had negative returns (for
stock funds, it was the first time since 1994).
The reasons behind the recent market decline have been
well-publicized -- higher interest rates and inflationary
pressures. And while we are watching market developments
closely, we are also very concerned about you and how you're
dealing with events. We realize that staying the course
toward
your long-term investment goals isn't easy during such times
of uncertainty. Here are a few thoughts that may help --
- - --Keep Your Expectations Realistic. The best investors know
that
financial markets rise and fall -- and so too, will the
value of
their investments. Over time, however, stocks have been
shown to
produce very attractive returns that were well ahead of
inflation.
- - --Remember Your Time Horizon. If your investment goals are
long term (several years or more), so should your time
horizon. During this period, it's not unusual for stocks
and bonds to experience several periods of market
uncertainty.
- - --We're On Your Side. Your Prudential Securities Financial
Advisor or Prudential Registered Representative can help you
understand what's happening in the financial markets. They
can assist you in making informed decisions based upon a
thorough
knowledge of your financial needs and long-term goals. Call
him or her today.
Thank you for your continued confidence in Prudential mutual
funds. We'll do everything we can to keep you informed and
to earn your trust.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
2
<PAGE>
Portfolio of Investments
as of February 28, 1997 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--97.6%
- - ------------------------------------------------------------
- - ------------------------------------------------------------
- - ------
Alachua Cnty. Hlth. Facs. Auth. Rev.,
Santa Fe Healthcare Facs. Proj.
AAA(c) 7.60% 11/15/13 $ 1,750 (f) $
1,977,290
Alachua Cnty. Ind. Dev. Auth. Rev., HB Fuller Co. Proj.
NR 7.75 11/01/16 3,000
3,148,260
Brevard Cnty. Edl. Facs. Auth. Rev. Ref., Florida Inst.
of Tech.
BBB(c) 6.875 11/01/22 1,500
1,571,175
Brevard Cnty. Sch. Brd. Ctfs. of Part., Ser. A,
A.M.B.A.C.
Aaa 6.50 7/01/12 3,500 (f)
3,892,875
Broward Cnty. Edl. Facs. Auth. Rev., Nova Univ. Dorm.
Proj.,
Ser. A
NR 7.50 4/01/17 1,500 (f)
1,695,000
Broward Cnty. Hlth. Facs. Auth., North Beach Hosp.,
M.B.I.A.
Aaa 6.75 8/15/06 1,000
1,098,340
Clay Cnty. Hsg. Fin. Auth. Rev., Sngl. Fam. Mtge., Ser.
A, G.N.M.A.
Aaa 7.45 9/01/23 375
394,766
Coral Springs Impvt. Dist., Wtr. & Swr. Ref., M.B.I.A.
Aaa 6.00 6/01/10 1,000
1,081,850
Dade Cnty. Aviation Dept. Rev.,
Ser. B, M.B.I.A.
Aaa 6.00 10/01/24 1,500
1,524,585
Ser. E, A.M.B.A.C.
Aaa 5.50 10/01/10 1,000
1,020,880
Dade Cnty. Edl. Facs. Auth. Rev. Ref., Univ. Miami,
Ser. A, M.B.I.A.
Aaa 5.625 4/01/06 2,015
2,124,072
Dade Cnty. Hlth. Facs. Auth. Rev., Baptist Hosp. of
Miami Proj.,
Ser. A, E.T.M., M.B.I.A.
Aaa 6.75 5/01/08 500
559,965
Dade Cnty. Hsg. Fin. Auth. Rev.,
Sngl. Fam. Mtge., Ser. B, G.N.M.A.
Aaa 7.25 9/01/23 360 (e)
377,251
Sngl. Fam. Mtge., Ser. C, G.N.M.A.
Aaa 7.75 9/01/22 775
817,586
Dade Cnty. Pub. Facs. Ref., Jackson Mem. Hosp., Ser. A,
M.B.I.A.
Aaa 4.875 6/01/15 2,500
2,275,550
Dade Cnty. Sch. Dist., Gen. Oblig., M.B.I.A.
Aaa 6.00 7/15/06 3,500
3,805,760
Dade Cnty. Spl. Oblig., Metro Dade Fire & Rescue Svc.,
F.G.I.C.
Aaa 6.00 4/01/05 2,800
3,024,924
Dade Cnty.,
Pub. Impvt. J & K Seaport, M.B.I.A.
Aaa 6.50 10/01/07 1,220
1,380,808
Pub. Impvt. J & K Seaport, M.B.I.A.
Aaa 6.50 10/01/10 1,555
1,759,934
Duval Cnty. Hsg. Fin. Auth. Rev., Sngl. Fam. Mtge.,
G.N.M.A.
AAA(c) 8.375 12/01/14 440
469,863
Enterprise Cmnty. Dev. Dist., Osceola Co. Spec.
Assmnt., M.B.I.A.
Aaa 6.00 5/01/10 2,320
2,434,260
Escambia Cnty. Hlth. Facs. Auth. Rev., Baptist Hosp.
Inc., Ser. A
BBB+(c) 8.70 10/01/14 1,830
1,957,167
Escambia Cnty. Poll. Ctrl. Rev., Champion Int'l. Corp.
Proj.
Baa1 6.90 8/01/22 3,500
3,733,660
Escambia Cnty. Sch. Brd. Cert., Ser. 2, M.B.I.A.
Aaa 5.50 2/01/22 2,000
1,941,840
Escambia Cnty. Utils. Auth. Util. Sys. Rev., F.G.I.C.
Aaa 5.625 1/01/27 2,000
1,969,960
Florida St. Brd. of Ed. Cap. Outlay,
Ser. A, F.G.I.C.
Aaa 5.00 1/01/15 1,000
948,990
Ref. Pub. Ed., Ser. D
Aa 4.75 6/01/22 4,985 (g)
4,366,710
Florida St. Mun. Pwr. Agcy. Ref., Stanton II Proj.,
A.M.B.A.C.
Aaa 4.50 10/01/27 2,000
1,632,040
Hillsborough Cnty.,
Cnty. Ctr. Proj., M.B.I.A.
Aaa 5.00 7/01/15 1,560
1,479,114
Ref. Cnty. Ctr. Proj., M.B.I.A.
Aaa 6.00 7/01/06 1,605
1,744,731
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments
as of February 28, 1997 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>
- - ------------------------------------------------------------
- - ------------------------------------------------------------
- - ------
Hillsborough Cnty. Ind. Dev. Auth. Poll. Ctrl. Rev.,
Tampa Elec. Proj., Ser. 9
Aa3 8.00% 5/01/22 $ 1,750 $
2,033,133
Indian Rvr. Cnty., Wtr. & Swr. Rev., F.G.I.C.
Aaa 5.50 9/01/26 2,500
2,428,975
Jacksonville Elec. Auth. Rev., St. Johns Rvr. Pwr. Park
Issue 2, Ser. 7
Aa1 Zero 10/01/10 3,000
1,457,970
Jacksonville Hlth. Facs. Auth. Hosp. Rev.,
Nat'l. Ben. Assoc.
Baa1 7.00 12/01/22 1,825
1,906,194
St. Lukes Hosp. Assoc. Proj.
AA+(c) 7.125 11/15/20 1,000
1,095,600
Jacksonville Sewage & Solid Waste Disp. Facs. Rev.
A1 5.875 2/01/36 1,000
996,150
Jacksonville Wtr. & Swr. Dev. Rev., Suburban Utils.
A3 6.75 6/01/22 1,000
1,066,790
Jacksonville Wtr. & Swr. Rev., United Wtr. Proj.,
A.M.B.A.C.
Aaa 6.35 8/01/25 1,500
1,578,165
Lake Cnty. Res. Rec. Ind. Dev. Rev., Ser. A
Baa 5.95 10/01/13 1,035
1,017,498
Lakeland Elec. & Wtr. Rev.
Aa 5.50 10/01/26 2,000
1,934,680
Lakeland Elec. & Wtr. Rev.
Aa 5.625 10/01/36 5,000
4,849,450
Leon Cnty. Hsg. Fin. Auth. Rev., Sngl. Fam. Mtge., Ser.
A., G.N.M.A.
Aaa 7.30 4/01/21 385
402,417
Martin Cnty. Ind. Dev. Auth. Rev., Indiantown Cogen
Proj.
Baa3 7.875 12/15/25 1,200
1,374,276
Miami Hlth. Facs. Auth. Rev. Ref., Mercy Hosp.
A3 8.125 8/01/11 1,000
1,065,050
Miami Spec. Oblig.,
Admn. Bldg. Acquis. Proj., F.G.I.C.
Aaa 6.00 2/01/16 1,500
1,556,415
Admn. Bldg. Acquis. Proj., F.G.I.C.
Aaa 6.00 2/01/25 500
516,805
Miramar Wstwtr. Impvt. Assmt., F.G.I.C.
Aaa 6.75 10/01/16 2,500
2,782,225
North Broward Hosp. Dist. Rev. Ref. & Impvts., M.B.I.A.
Aaa 5.25 1/15/17 1,000
951,380
Okaloosa Cnty. Cap. Impvt. Rev., M.B.I.A.
Aaa Zero 12/01/06 450
278,451
Orange Cnty. Hlth. Facs. Auth. Rev., Adventist Hlth.
Sys., A.M.B.A.C.
Aaa 5.25 11/15/20 1,000
941,780
Orange Cnty. Hsg. Fin. Auth. Mtge. Rev., Ser. A,
G.N.M.A.
AAA(c) 7.375 9/01/24 420
443,075
Orange Cnty. Hsg. Fin. Auth. Rev.,
MultiFam. Ashley Point Apts.
BBB+(c) 6.85 10/01/16 1,200
1,232,880
MultiFam. Ashley Point Apts.
BBB+(c) 7.10 10/01/24 855
879,060
Orlando Util. Comm., Wtr. & Elec. Rev., Ser. D
Aa 6.75 10/01/17 2,200 (g)
2,572,328
Palm Beach Cnty. Hlth. Facs. Auth. Rev., Good Samaritan
Hlth. Sys.
A+(c) 6.30 10/01/22 1,000
1,032,030
Pensacola Hlth. Facs. Auth., Daughters of Charity,
M.B.I.A.
Aaa 5.25 1/01/11 1,600
1,561,472
Polk Cnty. Ind. Dev. Auth., Solid Wst. Disp. Fac. Rev.,
Tampa Elec. Co. Proj.
Aa2 5.85 12/01/30 1,500
1,472,115
Puerto Rico Comnwlth., Gen. Oblig., F.S.A.
Aaa 8.132(d) 7/01/20 3,000 (g)
3,075,000
Puerto Rico Comnwlth.,
Gen. Oblig.
Baa1 6.45 7/01/17 1,400
1,492,540
Gen. Oblig.
Baa1 6.50 7/01/23 650
697,353
Puerto Rico Elec. Pwr. Auth. Rev., Ser. R
Baa1 6.25 7/01/17 5,000
5,193,000
Puerto Rico Ind. Tour. Edl. Hosp. Auxil., Mut. Oblig.
Grp. Proj., M.B.I.A.
Aaa 6.25 7/01/24 2,635
2,789,595
Puerto Rico Tel. Auth. Rev., Ser. I, M.B.I.A.
Aaa 7.057(d) 1/16/15 2,250
2,176,875
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments
as of February 28, 1997 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>
- - ------------------------------------------------------------
- - ------------------------------------------------------------
- - ------
Sarasota Wtr. & Swr. Util. Ref., Ser. C, F.G.I.C.
Aaa 4.50% 10/01/16 $ 1,000 $
862,610
St. Petersburg Hlth. Facs. Auth. Rev., Allegheny Hlth.
Proj., M.B.I.A.
Aaa 7.00 12/01/15 1,000
1,112,990
Tampa Gtd. Entitlement Rev., A.M.B.A.C.
Aaa 7.05 10/01/07 2,000
2,224,280
Tampa Sports Auth. Rev., M.B.I.A.
Aaa 5.75 10/01/20 1,000
1,035,450
Virgin Islands Terr., Hugo Ins. Claims Fund Proj., Ser.
91
NR 7.75 10/01/06 1,185
1,288,119
Volusia Cnty. Edl. Fac. Auth. Rev., Embry Riddle Univ.
AAA(c) 6.625 10/15/22 1,000
1,081,140
Volusia Cnty. Hlth. Facs. Auth. Rev., Mem. Hlth. Sys,
Proj.
BBB+(c) 8.25 6/01/20 2,000 (f)
2,264,240
- - ------------
Total long-term investments (cost $116,244,783)
120,928,762
- - ------------
SHORT-TERM INVESTMENTS--0.9%
Martin Cnty. Solid Waste Disp. Rev., Variable Pwr. &
Lt. Co. Proj., F.R.D.D. (cost $1,100,000)
A-1+(c) 3.50 3/03/97 1,100
1,100,000
- - ------------
Expiration
OUTSTANDING CALL OPTION PURCHASED(h)
Date Contracts(i)
- - --------- ---------
U.S. Treasury Bond Futures, expiring Mar. '97 @ $116.00
(cost $11,600)
3/22/97 40 625
- - ------------
Total Investments--98.5%
(cost $117,356,383; Note 4)
122,029,387
Other assets in excess of liabilities--1.5%
1,848,801
- - ------------
Net Assets--100%
$123,878,188
- - ------------
- - ------------
</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.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.
(g) Represents when-issued or extended settlement security.
(h) Non-income producing security.
(i) One contract equals $1,000 face value.
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 28, 1997
Investments, at value (cost
$117,356,383)...............................................
................. $ 122,029,387
Cash........................................................
.............................................
195,331
Interest
receivable..................................................
.................................... 1,990,926
Receivable for Series shares
sold........................................................
................ 123,250
Receivable for investments
sold........................................................
.................. 55,209
Other
assets......................................................
....................................... 2,814
- - -----------------
Total
assets......................................................
.................................... 124,396,917
- - -----------------
Liabilities
Payable for Series shares
reacquired..................................................
................... 356,512
Dividends
payable.....................................................
................................... 58,417
Accrued
expenses....................................................
..................................... 53,114
Management fee
payable.....................................................
.............................. 28,674
Distribution fee
payable.....................................................
............................ 19,053
Deferred trustees'
fees........................................................
.......................... 2,959
- - -----------------
Total
liabilities.................................................
.................................... 518,729
- - -----------------
Net
Assets......................................................
......................................... $
123,878,188
- - -----------------
- - -----------------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
........ $ 120,212
Paid-in capital in excess of
par.........................................................
............. 120,677,809
- - -----------------
120,798,021
Accumulated net realized loss on
investments.................................................
......... (1,592,837)
Net unrealized appreciation on
investments.................................................
........... 4,673,004
- - -----------------
Net assets, February 28,
1997........................................................
.................... $ 123,878,188
- - -----------------
- - -----------------
Class A:
Net asset value and redemption price per share
($97,358,771 / 9,447,896 shares of beneficial interest
issued and outstanding).....................
$10.30
Maximum sales charge (3% of offering
price)......................................................
..... .32
- - -----------------
Maximum offering price to
public......................................................
................ $10.62
- - -----------------
- - -----------------
Class B:
Net asset value, offering price and redemption price per
share
($18,938,802 / 1,837,700 shares of beneficial interest
issued and outstanding).....................
$10.31
- - -----------------
- - -----------------
Class C:
Net asset value, offering price and redemption price per
share
($7,545,226 / 732,156 shares of beneficial interest
issued and outstanding)........................
$10.31
- - -----------------
- - -----------------
Class Z:
Net asset value, offering price and redemption price per
share
($35,389 / 3,436 shares of beneficial interest issued
and outstanding).............................
$10.30
- - -----------------
- - -----------------
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 6
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
FLORIDA SERIES
Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Six Months
Ended
Net Investment Income February 28,
1997
Income
Interest................................ $ 3,697,181
--------------
- - ---
Expenses
Management fee.......................... 309,651
Distribution fee--Class A............... 49,827
Distribution fee--Class B............... 41,241
Distribution fee--Class C............... 28,884
Custodian's fees and expenses........... 40,000
Transfer agent's fees and expenses...... 21,000
Registration fees....................... 17,000
Reports to shareholders................. 15,000
Legal fees and expenses................. 5,500
Audit fees and expenses................. 5,000
Trustees' fees.......................... 1,800
Miscellaneous........................... 2,102
--------------
- - ---
Total expenses....................... 537,005
Less: Management fee waiver (Note 2)....
(123,861)
Custodian fee credit.................
(1,252)
--------------
- - ---
Net expenses......................... 411,892
--------------
- - ---
Net investment income...................... 3,285,289
--------------
- - ---
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions................. 190,846
Financial futures transactions..........
(386,751)
--------------
- - ---
(195,905)
--------------
- - ---
Net change in unrealized appreciation on:
Investments............................. 2,601,205
--------------
- - ---
Net gain on investments.................... 2,405,300
--------------
- - ---
Net Increase in Net Assets
Resulting from Operations.................. $ 5,690,589
--------------
- - ---
--------------
- - ---
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
FLORIDA SERIES
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year
Ended
Increase (Decrease) February 28, August
31,
in Net Assets 1997
1996
<S> <C> <C>
Operations
Net investment income...... $ 3,285,289 $
7,299,648
Net realized gain (loss) on
investment
transactions............ (195,905)
3,421,861
Net change in unrealized
appreciation/depreciation
of investments.......... 2,601,205
(2,644,962)
----------------- -------
- - -----
Net increase in net assets
resulting from
operations.............. 5,690,589
8,076,547
----------------- -------
- - -----
Dividends and Distributions
(Note 1):
Dividends from net
investment income
Class A................. (2,688,968)
(6,244,938)
Class B................. (413,308)
(647,226)
Class C................. (182,775)
(407,484)
Class Z................. (238)
- - --
----------------- -------
- - -----
(3,285,289)
(7,299,648)
----------------- -------
- - -----
Distributions in excess of
net investment income
Class A................. (57,916)
- - --
Class B................. (10,023)
- - --
Class C................. (4,473)
- - --
----------------- -------
- - -----
(72,412)
- - --
----------------- -------
- - -----
Series share transactions (net
of share conversions) (Note
6):
Net proceeds from shares
sold.................... 9,660,382
15,332,603
Net asset value of shares
issued in reinvestment
of dividends and
distributions........... 1,435,733
3,085,406
Cost of shares
reacquired.............. (14,040,405)
(33,022,261)
----------------- -------
- - -----
Net decrease in net assets
from Series share
transactions............ (2,944,290)
(14,604,252)
----------------- -------
- - -----
Total decrease................ (611,402)
(13,827,353)
Net Assets
Beginning of period........... 124,489,590
138,316,943
----------------- -------
- - -----
End of period................. $ 123,878,188
$124,489,590
----------------- -------
- - -----
----------------- -------
- - -----
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 7
<PAGE>
Notes to Financial Statements PRUDENTIAL
MUNICIPAL SERIES FUND
(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 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.
Reclassification of Capital Accounts: The Fund accounts for
and reports
distributions to shareholders in accordance with American
Institute of Certified
Public Accountants (AICPA) Statement of Position 93-2:
Determination,
Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and
Return of Capital Distributions by Investment Companies. The
effect of applying
this statement was to increase undistributed net investment
income and decrease
paid-in capital in excess of par by $72,412, due to the sale
of securities
purchased with market discount. Net investment income, net
realized gains and
net assets were not affected by these changes.
Note 2. Agreements
The Fund has a management agreement with Prudential Mutual
Fund Management LLC
('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 28, 1997, PMF waived 40% of its
management fee. The amount
of fees waived during the six months ended February 28, 1997
amounted to
$123,861 ($.01 per share) for the six months ended February
28, 1997. The Series
is not required to reimburse PMF for such waiver.
The Fund has a distribution agreement with Prudential
Securities Incorporated
('PSI'), which acts as the distributor of the Class A, Class
B, Class C and
Class Z shares of the Fund. The Fund compensates 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.
No distribution or service fees are paid to PSI as
distributor for Class Z
shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensates
PSI 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 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 28, 1997.
PSI has advised the Series that they have received
approximately $37,300 in
front-end sales charges resulting from sales of Class A
shares during the six
months ended February 28, 1997. From these fees, PSI paid
such sales charges to
affiliated broker-dealers, which in turn paid commissions to
salespersons and
incurred other distribution costs.
- - ------------------------------------------------------------
- - --------------------
-----
9
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) FLORIDA
SERIES
- - ------------------------------------------------------------
- - --------------------
PSI has advised the Series that for the six months ended
February 28, 1997, it
received approximately $31,200 and $200 in contingent
deferred sales charges
imposed upon certain redemptions by Class B and C
shareholders, respectively.
PSI, PMF and PIC are indirect, wholly-owned subsidiaries of
The Prudential
Insurance Company of America.
The Series, along with other affiliated registered
investment companies (the
'Funds'), entered into a credit agreement (the 'Agreement')
on December 31, 1996
with an unaffiliated lender. The maximum commitment under
the Agreement is
$200,000,000. The Agreement expires on December 30, 1997.
Interest on any such
borrowings outstanding will be at market rates. The purpose
of the Agreement is
to serve as an alternative source of funding for capital
share redemptions. The
Series has not borrowed any amounts pursuant to the
Agreement as of February 28,
1997. The Funds pay a commitment fee at an annual rate of
.055 of 1% on the
unused portion of the credit facility. The commitment fee is
accrued and paid
quarterly on a pro-rata basis by the Funds.
- - ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned
subsidiary of PMF,
serves as the Fund's transfer agent. During the six months
ended February 28,
1997, the Series incurred fees of approximately $17,400 for
the services of
PMFS. As of February 28, 1997, approximately $2,900 of such
fees were due to
PMFS. Transfer agent fees and expenses in the Statement of
Operations include
certain out-of-pocket expenses paid to non-affiliates.
- - ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of portfolio securities of the Series,
excluding short-term
investments, for the six months ended February 28, 1997 were
$16,793,879 and
$20,646,640, respectively.
The cost basis of investments for federal income tax
purposes at February 28,
1997, was $117,357,633 and accordingly, net unrealized
appreciation of
investments for federal income tax purposes was $4,671,754
(gross unrealized
appreciation--$5,430,444; gross unrealized depreciation--
$758,690).
For federal income tax purposes, the Series has a capital
loss carryforward as
of August 31, 1996 of approximately $1,463,000 which expires
2003. Accordingly,
no capital gains distribution is expected to be paid until
net gains have been
realized in excess of the carryforward.
Note 5. Capital
The Series offers Class A, Class B, Class C and Class Z
shares. Class A shares
are sold with a front-end sales charge of up to 3%. Class B
shares are sold with
a contingent deferred sales charge which declines from 5% to
zero depending on
the period of time the shares are held. Class C shares,
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. Special
exchange privileges are also available for shareholders who
qualify to purchase
Class A shares at net asset value. Effective December 6,
1996 the Series
commenced offering Class Z shares. Class Z shares are not
subject to any sales
or redemption charge and are offered exclusively for sale to
a limited group of
investors.
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 28, 1997 and the
fiscal year ended
August 31, 1996 were as follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- - ------------------------------------ ---------- --------
- - ----
<S> <C> <C>
Six months ended February 28, 1997:
Shares sold......................... 293,844 $
3,019,350
Shares issued in reinvestment of
dividends......................... 112,453
1,155,752
Shares reacquired................... (1,082,636)
(11,117,817)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................. (676,339)
(6,942,715)
Shares issued upon conversion from
Class B........................... 38,663
395,894
---------- --------
- - ----
Net decrease in shares
outstanding....................... (637,676) $
(6,546,821)
---------- --------
- - ----
---------- --------
- - ----
Year ended August 31, 1996:
Shares sold......................... 512,938 $
5,271,777
Shares issued in reinvestment of
dividends......................... 251,003
2,571,304
Shares reacquired................... (2,770,938)
(28,334,987)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................. (2,006,997)
(20,491,906)
Shares issued upon conversion from
Class B........................... 66,824
684,012
---------- --------
- - ----
Net decrease in shares
outstanding....................... (1,940,173)
$(19,807,894)
---------- --------
- - ----
---------- --------
- - ----
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
10
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) FLORIDA SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class B Shares
Amount
- - ------------------------------------ ---------- --------
- - ----
<S> <C> <C>
Six months ended February 28, 1997:
Shares sold......................... 586,151 $
6,031,059
Shares issued in reinvestment of
dividends......................... 16,798
172,685
Shares reacquired................... (179,811)
(1,848,349)
---------- --------
- - ----
Net increase in shares outstanding
before conversion................. 423,138
4,355,395
Shares reacquired upon conversion
into Class A...................... (38,663)
(395,894)
---------- --------
- - ----
Net increase in shares
outstanding....................... 384,475 $
3,959,501
---------- --------
- - ----
---------- --------
- - ----
Year ended August 31, 1996:
Shares sold......................... 895,444 $
9,260,865
Shares issued in reinvestment of
dividends......................... 27,459
281,193
Shares reacquired................... (230,552)
(2,340,629)
---------- --------
- - ----
Net increase in shares outstanding
before conversion................. 692,351
7,201,429
Shares reacquired upon conversion
into Class A...................... (66,824)
(684,012)
---------- --------
- - ----
Net increase in shares
outstanding....................... 625,527 $
6,517,417
---------- --------
- - ----
---------- --------
- - ----
<CAPTION>
Class C
- - ------------------------------------
<S> <C> <C>
Six months ended February 28, 1997:
Shares sold......................... 55,703 $
574,973
Shares issued in reinvestment of
dividends......................... 10,419
107,077
Shares reacquired................... (104,325)
(1,074,239)
---------- --------
- - ----
Net decrease in shares
outstanding....................... (38,203) $
(392,189)
---------- --------
- - ----
---------- --------
- - ----
Year ended August 31, 1996:
Shares sold......................... 76,922 $
799,961
Shares issued in reinvestment of
dividends......................... 22,738
232,909
Shares reacquired................... (226,860)
(2,346,645)
---------- --------
- - ----
Net decrease in shares
outstanding....................... (127,200) $
(1,313,775)
---------- --------
- - ----
---------- --------
- - ----
Class Z
- - ------------------------------------
December 6, 1996 *through
February 28, 1997:
Shares sold......................... 3,415 $
35,000
Shares issued in reinvestment of
dividends......................... 21
219
Shares reacquired................... --
- - --
---------- --------
- - ----
Net increase in shares
outstanding....................... 3,436 $
35,219
---------- --------
- - ----
---------- --------
- - ----
</TABLE>
- - ------------------
* Commencement of offering of Class Z shares.
- - ------------------------------------------------------------
- - --------------------
-----
11
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) FLORIDA SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class A
----
- - ------------------------------------------------------------
<S> <C>
<C> <C> <C> <C>
Six
Months
Ended Year Ended August 31,
February 28, -------------------------------------------
- - ----
1997 1996 1995 1994 1993
- - ------ -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................ $
10.11 $ 10.06 $ 9.91 $ 10.87 $ 10.27
- - ------ -------- -------- -------- --------
Income from investment operations
Net investment income(a)............................
.27 .57 .59 .59 .57
Net realized and unrealized gain (loss) on
investment transactions..........................
.20 .05 .15 (.76) .73
- - ------ -------- -------- -------- --------
Total from investment operations.................
.47 .62 .74 (.17) 1.30
- - ------ -------- -------- -------- --------
Less distributions
Dividends from net investment income................
(.27) (.57) (.59) (.59) (.57)
Distributions in excess of net investment income....
(.01) -- -- -- --
Distributions from net realized gains...............
- - -- -- -- (.20) (.13)
- - ------ -------- -------- -------- --------
Total distributions..............................
(.28) (.57) (.59) (.79) (.70)
- - ------ -------- -------- -------- --------
Net asset value, end of period...................... $
10.30 $ 10.11 $ 10.06 $ 9.91 $ 10.87
- - ------ -------- -------- -------- --------
- - ------ -------- -------- -------- --------
TOTAL RETURN(b):....................................
4.74% 6.20% 7.85% (1.69)% 13.78%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).....................
$97,359 $101,999 $120,963 $134,849
$148,900
Average net assets (000)............................
$100,479 $112,266 $124,259 $146,489
$123,820
Ratios to average net assets(a):
Expenses, including distribution fees............
.57%(c) .37% .24% .20% .20%
Expenses, excluding distribution fees............
.47%(c) .27% .17% .20% .20%
Net investment income............................
5.40%(c) 5.56% 6.04% 5.67% 5.94%
For Class A, B and C shares:
Portfolio turnover rate..........................
14% 68% 65% 75% 68%
<CAPTION>
<S> <C>
1992
------
- - --
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................ $
9.76
------
- - --
Income from investment operations
Net investment income(a)............................
.65
Net realized and unrealized gain (loss) on
investment transactions..........................
.51
------
- - --
Total from investment operations.................
1.16
------
- - --
Less distributions
Dividends from net investment income................
(.65)
Distributions in excess of net investment income....
- - --
Distributions from net realized gains...............
- - --
------
- - --
Total distributions..............................
(.65)
------
- - --
Net asset value, end of period...................... $
10.27
------
- - --
------
- - --
TOTAL RETURN(b):....................................
12.26%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).....................
$104,335
Average net assets (000)............................ $
82,893
Ratios to average net assets(a):
Expenses, including distribution fees............
.09%
Expenses, excluding distribution fees............
.09%
Net investment income............................
6.41%
For Class A, B and C shares:
Portfolio turnover rate..........................
56%
</TABLE>
- - ---------------
(a) Net of expense subsidy and 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. 12
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) FLORIDA SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class B
----
- - ----------------------------------------------
August 1,
Six
Months Year Ended August 1994(c)
Ended 31, through
February 28, ------------------ August 31,
1997 1996 1995 1994
----
- - -------- ------- ------ ----------
<S> <C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................ $
10.11 $ 10.06 $ 9.91 $ 9.95
- - ------ ------- ------ -----
Income from investment operations
Net investment income(a)............................
.25 .53 .55 .04
Net realized and unrealized gain (loss) on
investment transactions..........................
.21 .05 .15 (.04)
- - ------ ------- ------ -----
Total from investment operations.................
.46 .58 .70 --
- - ------ ------- ------ -----
Less distributions
Dividends from net investment income................
(.25) (.53) (.55) (.04)
Distributions in excess of net investment income....
(.01) -- -- --
- - ------ ------- ------ -----
Total distributions..............................
(.26) (.53) (.55) (.04)
- - ------ ------- ------ -----
Net asset value, end of period...................... $
10.31 $ 10.11 $10.06 $ 9.91
- - ------ ------- ------ -----
- - ------ ------- ------ -----
TOTAL RETURN(b):....................................
4.63% 5.79% 7.39% (0.05)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).....................
$18,939 $14,699 $8,326 $582
Average net assets (000)............................
$16,633 $12,570 $4,699 $118
Ratios to average net assets(a):
Expenses, including distribution fees............
.97%(d) .77% .67% .70%(d)
Expenses, excluding distribution fees............
.47%(d) .27% .17% .20%(d)
Net investment income............................
5.01%(d) 5.16% 5.56% 6.21%(d)
</TABLE>
- - ---------------
(a) Net of expense subsidy and fee waiver.
(b) Total return does not consider the effects of sales
loads. Total return is
calculated assuming a purchase of shares on the first
day and a sale on the
last day of each period reported and includes
reinvestment of dividends and
distributions. Total returns for periods of less than a
full year are not
annualized.
(c) Commencement of offering of Class B shares.
(d) Annualized.
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 13
<PAGE>
PRUDENTIAL MUNICIPAL
SERIES FUND
Financial Highlights (Unaudited) FLORIDA SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class C
----
- - ----------------------------------------------------------
July 26,
Six
Months 1993(d)
Ended Year Ended August 31, through
February 28, ------------------------------ August
31,
1997 1996 1995 1994 1993
----
- - -------- ------ ------- ------- ----------
<S> <C>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................ $
10.11 $10.06 $ 9.91 $ 10.87 $ 10.58
- - ------ ------ ------- ------- ----------
Income from investment operations
Net investment income(a)............................
.24 .50 .53 .48 .03
Net realized and unrealized gain (loss) on
investment transactions..........................
.21 .05 .15 (.76) .29
- - ------ ------ ------- ------- ----------
Total from investment operations.................
.45 .55 .68 (.28) .32
- - ------ ------ ------- ------- ----------
Less distributions
Dividends from net investment income................
(.24) (.50) (.53) (.48) (.03)
Distributions from net realized gains...............
- - -- -- -- (.20) --
Distributions in excess of net investment income....
(.01) -- -- -- --
- - ------ ------ ------- ------- ----------
Total distributions..............................
(.25) (.50) (.53) (.68) (.03)
- - ------ ------ ------- ------- ----------
Net asset value, end of period...................... $
10.31 $10.11 $ 10.06 $ 9.91 $ 10.87
- - ------ ------ ------- ------- ----------
- - ------ ------ ------- ------- ----------
TOTAL RETURN(b):....................................
4.50% 5.52% 7.12% (2.40)% 3.14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).....................
$7,545 $7,792 $9,028 $11,185 $3,132
Average net assets (000)............................
$7,766 $8,293 $10,265 $ 9,280 $1,038
Ratios to average net assets(a):
Expenses, including distribution fees............
1.22%(c) 1.02% .92% .95% .95%(c)
Expenses, excluding distribution fees............
.47%(c) .27% .17% .20% .20%(c)
Net investment income............................
4.75%(c) 4.91% 5.35% 4.99% 5.19%(c)
<CAPTION>
Class Z
------
- - ------
December 6,
1996(e)
through
February 28,
1997
------
- - ------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................ $
10.36
--
- - ----
Income from investment operations
Net investment income(a)............................
.14
Net realized and unrealized gain (loss) on
investment transactions..........................
(.05)
--
- - ----
Total from investment operations.................
.09
--
- - ----
Less distributions
Dividends from net investment income................
(.14)
Distributions from net realized gains...............
- - --
Distributions in excess of net investment income....
(.01)
--
- - ----
Total distributions..............................
(.15)
--
- - ----
Net asset value, end of period...................... $
10.30
--
- - ----
--
- - ----
TOTAL RETURN(b):....................................
3.34%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).....................
$35
Average net assets (000)............................
$17
Ratios to average net assets(a):
Expenses, including distribution fees............
.47%(c)
Expenses, excluding distribution fees............
.47%(c)
Net investment income............................
5.91%(c)
</TABLE>
- - ---------------
(a) Net of expense subsidy and 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. Prior to
August 1, 1994, Class C
shares were called Class D shares.
(e) Commencement of offering of Class Z shares.
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 14
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Supplemental Proxy Information FLORIDA SERIES
- - ------------------------------------------------------------
- - --------------------
A Meeting of Shareholders of the Prudential Municipal
Series Fund was held on
Wednesday, October 30, 1996 at the offices of Prudential
Securities
Incorporated, One Seaport Plaza, New York, New York. The
meeting was held for
the following purposes:
(1) To elect Trustees as follows: Edward D. Beach, Eugene C.
Dorsey, Delayne
Dedrick Gold, Robert F. Gunia, Harry A. Jacobs, Jr.,
Donald D. Lennox,
Mendel A. Melzer, Thomas T. Mooney, Thomas H. O'Brien,
Richard A. Redeker,
Nancy H. Teeters and Louis A. Weil, III.
(2) Approval of an amendment to the Fund's investment
restrictions to permit an
increase in the borrowing capabilities of the Fund.
The results of the proxy solicitation on the above
matters were as follows:
<TABLE>
<CAPTION>
Trustee/Matter
Votes for Votes against Abstentions
- - ----------- ------------- -----------
<S> <C>
<C> <C> <C>
(1) Edward D. Beach
370,817,756 0 16,169,234
Eugene C. Dorsey
371,804,474 0 15,182,516
Delayne Dedrick Gold
371,782,816 0 15,204,174
Robert F. Gunia
371,639,995 0 15,346,995
Harry A. Jacobs, Jr.
371,395,066 0 15,591,924
Donald D. Lennox
371,150,974 0 15,836,016
Mendel A. Melzer
371,811,918 0 15,175,072
Thomas T. Mooney
371,607,874 0 15,379,116
Thomas H. O'Brien
371,328,875 0 15,658,115
Richard A. Redeker
371,876,756 0 15,110,234
Nancy H. Teeters
371,775,376 0 15,211,614
Louis A. Weil, III
371,777,517 0 15,209,473
(2) Amendment relating to borrowing capabilities
259,440,223 31,557,793 17,488,974
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
15
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Robert F. Gunia
Harry A. Jacobs, Jr.
Donald D. Lennox
Mendel A. Melzer
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Louis A. Weil, III
Officers
Richard A. Redeker, President
Susan C. Cote, Vice President
Thomas Early, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Mutual Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
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 LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Auditors
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, NY 10022
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 28,
1997 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
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
74435M507
74435M606 MF148E2
74435M614 Cat#4443533
74435M424
(ICON)
Prudential
Municipal
Series Fund
- - -------------
Ohio Series
SEMI
ANNUAL
REPORT
Feb. 28, 1997
(LOGO)
<PAGE>
Prudential Municipal Series Fund
Ohio Series
Performance At A Glance.
The six-months ending in February were rewarding ones for
municipal bond
investors. Bond prices rose as talk of higher interest rates
subsided (at
least temporarily) and inflation levels remained low. For
the six-month
reporting period ended February 28, 1997, we're pleased to
report that the
Prudential Municipal Series Fund -- Ohio Series provided
attractive tax-free
yields. Our total returns were also competitive with the
average Ohio tax-free
municipal bond fund, as measured by Lipper Analytical
Services.
<TABLE>
<CAPTION>
Cumulative Total Returns1
As of 2/28/97
Six One Five
Ten Since
Months Year Years
Years Inception2
<S> <C> <C> <C>
<C> <C>
Class A 4.7% (4.6)4 3.9% (3.8)4 39.2%
(38.0)4 N/A 66.4% (65.2)4
Class B 4.5 (4.4)4 3.5 (3.4)4 36.6
(35.3)4 78.1% (76.6)4 159.3 (157.2)4
Class C 4.3 3.3 (3.2)4 N/A
N/A 15.5 (14.2)4
Lipper OH Muni Avg.3 4.6 4.7 40.0
91.6 ***
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns1
As of 3/31/97
One Five
Ten Since
Year Years
Years Inception2
<S> <C> <C>
<C> <C>
Class A 1.6% (1.5)4 5.9%
N/A 6.7%
Class B -0.6 (-0.7)4 6.0
5.9% 7.8
Class C 3.2 (3.1)4 N/A
N/A 5.0
</TABLE>
<TABLE>
<CAPTION>
Dividends &
Yields
As of 2/28/97
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 $0.34 4.33%
7.28% 7.72%
Class B $0.31 4.06
6.82 7.23
Class C $0.30 3.81
6.40 6.78
</TABLE>
Past performance is not indicative of future results.
Principal and investment
return will fluctuate so that an investor's shares, when
redeemed, may be worth
more or less than their original cost.
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
(CDSC). The Fund
charges a maximum front-end sales load of 3% for Class A
shares and a declining
contingent deferred sales charge of 5%, 4%, 3%, 2%, 1% and
1% for six years,
for Class B shares. Class C shares have a 1% CDSC for one
year. Class B shares
automatically convert to Class A shares on a quarterly
basis, after
approximately seven years.
2Inception dates: 1/22/90 Class A; 9/20/84 Class B; 8/1/94
Class C.
3The Lipper Ohio Municipal Bond fund average includes 63
funds for six months,
63 funds for one year, 24 funds for five years, and 7 funds
for 10 years.
4Without waiver of management fees and/or expense
subsidization, the Series'
average annual return and yields would have been lower, as
indicated in
parentheses ( ).
5Taxable equivalent yields reflect federal and applicable
state tax rates.
***The Lipper Since Inception category return for Class A
shares is 67.2%,
which includes 14 funds; for Class B is 156.1% for two
funds; and for Class C
is 17.8% for 43 funds.
How Investments Compared.
(As of 2/28/97)
(CHART)
U.S. General General Taxable
Growth Bond Muni Debt Money
Funds Funds Funds Mkt 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 included
historical 20-year average annual returns. These returns
assume the
reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors
have received higher
historical total returns from stocks than from most other
invest-ments. 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.
Taxable 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.
<PAGE>
Christian Smith, 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 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.
High Yield Bonds.
The Trustees adopted a new policy which permits your Series
to invest up to 30%
of total investments in bonds rated below investment grade
by Moody's and S&P.
High yield bonds, also known as "junk bonds," are subject to
greater market and
credit risks than investment grade bonds. Prudential
maintains a large and
experienced credit group which evaluates new purchases and
existing holdings.
By purchasing these securities, we seek to broaden our
investment pool and
enhance the Series' returns for you.
Strategy Session.
The municipal bond market moved in cycles during the
reporting period: Bond
prices rallied on news of slower economic growth and low
inflation; then sold
off when reports indicated the opposite. For example, in the
third quarter of
1996, bond prices rallied. Municipal bond interest rates
were 6.01% on October
24 and gradually declined to 5.80% in November, according to
the Bond Buyer's
Revenue Bond Index, a widely-watched industry barometer. The
start of 1997
brought news that the economy was accelerating. Fourth
quarter Gross Domestic
Product (GDP is the total value of all the goods and
services produced by the
economy and a generally accepted measure of economic growth)
surged 3.8%. Yet
inflation remained low. Interest rates then began a steady
climb upward as
bond prices fell slightly. Interest rates ended the
reporting period at 5.93%.
As you know, bond prices rise when interest rates fall, and
vice versa. Our
strategy over the past six months was to adjust the Series'
duration in order
to help it respond more effectively to interest rate
movements. When the
municipal bond market rallied last fall, we lengthened
duration. This allowed
your Series to profit as bond prices rose. Conversely, as
the bond market
slowed at year-end, we shortened the Series' duration. This
protected assets
as interest rates rose.
As the end of the reporting period neared, we shortened
Series' duration even
more to match or be slightly shorter than, the average Ohio
tax-free municipal
bond fund. We did not want to be caught off guard if the
Federal Reserve raised
short-term interest rates.
Portfolio Breakdown.
Expressed as a percentage of
total investments as of 2/28/97.
(PIE CHART)
<PAGE>
What Went Well.
A Prudent Move.
We shortened Series' duration as the reporting period ended
in February in
anticipation of a possible increase in interest rates by the
Federal Reserve.
It was a prudent move. On March 25, 1997, the central bank
raised the federal
funds rate (what banks charge each other for overnight
loans) one-quarter of a
percentage point to 5.50%. It was the first increase in two
years.
The Federal Reserve explained it was acting to quell
"inflationary imbalances"
that could undermine the country's six-year economic
expansion. The action was
widely expected by investors. Indeed, Federal Reserve
Chairman Alan Greenspan
had been saying he would not rule out a "pre-emptive" strike
against
inflationary pressures for several weeks prior to the actual
rate increase.
And Not So Well.
Market Concerns.
While there were more new bonds issued over the past six
months ending in
February, the increase was not dramatic. The overall trend
for municipal bond
supply has been downward for a couple of years now. That's
because
municipalities have more revenue coming in -- thanks to
stronger local
economies -- and thus have less need to market new bonds.
Unfortunately, that
also meansless investment opportunity for your Series.
Bond insurance has been another concern. Why? Because as
more bonds are issued
with insurance, it means less uninsured bonds are available.
In past years,
uninsured bonds offered us the opportunity to buy good
quality credits
(usually rated A to BBB) at attractive prices and yields. As
this pool shrinks,
so too does the opportunity for your Series to purchase
bonds that could
further enhance yield.
Looking Ahead.
The Federal Reserve has raised short-term interest rates
once in 1997. Will
there be more increases in short-term interest rates?
Probably. Experience
tells us that changes in Federal Reserve monetary policy are
rarely one-shot
deals. Given present economic conditions, we believe one or
two additional
rate increases will most likely occur later this year. Of
course, no one knows
for sure. We have positioned the Series' duration to be
closer to, or slightly
shorter than, the average Ohio tax-free municipal bond fund.
This will give us
the flexibility to respond if -- or more likely when -- the
Federal Reserve
acts to increase interest rates.
Five Largest Issuers.
5.2% Puerto Rico Highway &
Transportation Authority
4.2% Ohio St. Air Quality
Development Authority
Edison Project
4.1% Akron, Bath &
Copley Townships
Health Systems Project
3.8% Cleveland Public
Power System
3.4% Summit County
Industrial Development
Expressed as a percentage of total net assets as of 2/28/97.
Portfolio Breakdown.
Expressed as a percentage of
total investments as of 2/28/97.
(PIE CHART)
- - ------------------------------------------------------------
- - -------------------
1
<PAGE>
President's Letter
April 10, 1997
We're On Your Side.
Dear Shareholder:
The first three months of the year were not good ones for
most U.S. stock and
bond investors. The Dow Jones Industrial Average was down
considerably from
its record high set in mid-March, and long-term interest
rates were at their
highest levels in six months. Not surprisingly, in the first
quarter of 1997
the average stock and bond mutual fund had negative returns
(for stock funds,
it was the first time since 1994).
The reasons behind the recent market decline have been well-
publicized --
higher interest rates and inflationary pressures. And while
we are watching
market developments closely, we are also very concerned
about you and how
you're dealing with events. We realize that staying the
course toward your
long-term investment goals isn't easy during such times of
uncertainty. Here
are a few thoughts that may help --
- - - Keep Your Expectations Realistic. The best investors know
that financial
markets rise and fall -- and so too, will the value of
their investments.
Over time, however, stocks have been shown to produce
very attractive
returns that were well ahead of inflation.
- - - Remember Your Time Horizon. If your investment goals are
long term (several
years or more), so should your time horizon. During this
period, it's not
unusual for stocks and bonds to experience several
periods of market
uncertainty.
- - - We're On Your Side. Your Prudential Securities Financial
Advisor or
Prudential Registered Representative can help you
understand what's
happening in the financial markets. They can assist you
in making informed
decisions based upon a thorough knowledge of your
financial needs and long-
term goals. Call him or her today.
Thank you for your continued confidence in Prudential mutual
funds. We'll do
everything we can to keep you informed and to earn your
trust.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuitiesx
- - ------------------------------------------------------------
- - -------------------
2
<PAGE>
Portfolio of Investments as
of February 28, 1997 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--97.7%
- - ------------------------------------------------------------
- - ------------------------------------------------------------
- - ------
Akron, Bath & Copley Twnshps., Hosp. Dist. Rev., Summa
Health,
Systems Proj., Ser. A
A2 5.75% 11/15/08 $ 4,015 $ 4,033,710
Akron, Gen. Oblig.
A 10.50 12/01/04 200 273,326
Akron, Gen. Oblig., F.S.A.
Aaa 4.50 12/01/12 645 576,295
Allen Cnty. Wtr. & Swr. Dist., A.M.B.A.C.
Aaa 7.80 12/01/08 1,000 (d) 1,085,760
Brecksville Broadview Heights City Sch. Dist., F.G.I.C.
Aaa 6.50 12/01/16 1,000 1,112,160
Canton Water Works Sys., Gen. Oblig., A.M.B.A.C.
Aaa 5.85 12/01/15 700 721,805
Carroll Cnty. Econ. Dev. Rev., Great Trail Lake Ctr., F.H.A.
NR 11.75 8/01/14 650 722,495
Cleveland Pub. Pwr. Sys. Rev., Ref., 1st Mtge., Ser. 96-1,
M.B.I.A.
Aaa 5.00 11/15/20 4,000 3,691,680
Cleveland City Sch. Dist., Gen. Oblig.,
Sch. Impvt., Ser. B, F.G.I.C.
Aaa Zero 6/01/05 490 331,725
Sch. Impvt., Ser. B, F.G.I.C.
Aaa Zero 6/01/06 400 255,976
Sch. Impvt., Ser. B, F.G.I.C.
Aaa Zero 6/01/07 315 190,178
Sch. Impvt., Ser. B, F.G.I.C.
Aaa Zero 12/01/08 550 304,920
Columbus Citation Hsg. Dev. Corp., Mtge. Rev., F.H.A.
AA(c) 7.625 1/01/22 1,885 (d) 2,274,234
Columbus, Gen. Oblig., Mun. Arpt. No. 32
Aaa 7.15 7/15/06 435 472,153
Cuyahoga Cnty. Hosp. Rev., Meridia Health Sys.
A1 6.25 8/15/24 1,500 1,527,615
Dayton, Gen. Oblig., M.B.I.A.
Aaa 7.00 12/01/07 480 563,899
Dover Mun. Elec. Sys. Rev., F.G.I.C.
Aaa 5.95 12/01/14 1,000 1,042,430
Dublin City Sch. Dist., Franklin, Delaware & Union Co.,
A.M.B.A.C
Aaa Zero 12/01/05 1,000 661,180
Franklin Cnty. Hosp. Rev., Holy Cross Hlth. Sys., Ser. B,
A.M.B.A.C.
Aaa 7.65 6/01/10 2,500 (d) 2,797,825
Franklin Cnty. Pub. Impvt., Ser. 93
Aaa 5.375 12/01/20 1,690 1,648,899
Gahanna Jefferson City Sch. Dist., Gen. Oblig., A.M.B.A.C.
Aaa Zero 12/01/09 445 231,738
Greene Cnty. Swr. Sys. Rev.,
A.M.B.A.C.
Aaa Zero 12/01/08 450 249,480
Wtr. Sys. Rev., Ser. A, F.G.I.C.
Aaa 6.125 12/01/21 1,000 1,053,840
Guam Pwr. Auth. Rev., Ser. A
BBB(c) 6.75 10/01/24 3,110 3,264,132
Hamilton Cnty. Gas Sys. Rev., Ser. A, M.B.I.A.
Aaa 4.75 10/15/23 3,250 2,789,767
Hilliard City Sch. Dist., Cap. Apprec. Impvt.,
Ser. A, F.G.I.C.
Aaa Zero 12/01/09 2,855 1,486,770
Ser. A, F.G.I.C.
Aaa Zero 12/01/10 2,855 1,393,839
Logan Hocking Local Sch. Dist., Hocking, Perry & Vinton Co.,
Gen. Oblig., A.M.B.A.C.
Aaa Zero 12/01/09 650 338,494
Lorain Cnty. Hosp. Rev., Ref. Mtge., Elyria United Methodist
Village
NR 6.875 6/01/22 2,000 2,026,600
Lucas Cnty. Hlth. Fac. Rev., Ref., Ohio Presbyterian
Retirement
Svcs.
NR 6.625 7/01/14 1,750 1,760,343
Lucas Cnty. Hosp. Rev., Promedica Healthcare Oblig., Ser.
96,
M.B.I.A.
Aaa 5.75 11/15/09 3,000 3,135,090
Marion Cnty. Hosp. Impvt. Rev., Ref., Comn. Hosp., Ser. 96
BBB+(c) 6.375 5/15/11 2,000 2,030,980
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as
of February 28, 1997 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>
- - ------------------------------------------------------------
- - ------------------------------------------------------------
- - ------
Marysville Village Sch. Dist., Gen. Oblig., Sch. Impvt.,
M.B.I.A.
Aaa Zero 12/01/15 $ 865 $ 313,753
Miami Cnty. Hosp. Fac. Rev., Ref. & Impvt., Upper Valley
Med.
Ctr.
Baa 6.375% 5/15/26 1,000 1,013,470
Montgomery Cnty. Swr. Sys. Rev.,
Greater Moraine, Beaver Creek, F.G.I.C.
Aaa Zero 9/01/05 1,000 669,040
Greater Moraine, Beaver Creek, F.G.I.C.
Aaa Zero 9/01/07 500 298,180
Mount Vernon City Sch. Dist., Gen. Oblig., F.G.I.C.
Aaa 7.50 12/01/14 500 580,470
Newark, Ltd. Tax Gen. Oblig., Wtr. Impvt., A.M.B.A.C.
Aaa Zero 12/01/06 805 502,884
Ohio St. Air Quality Dev. Auth. Rev., Poll. Ctrl.,
Cleveland Elec. Co. Proj., F.G.I.C.
Aaa 8.00 12/01/13 2,500 2,915,850
Edison Proj., Ser. A, F.G.I.C
Aaa 7.45 3/01/16 3,750 4,116,937
Ohio St. Bldg. Auth.,
Columbus St. Bldg. Proj., Ser. A
A 7.75 10/01/07 750 (d) 809,670
Das Data Ctr. Proj.
A1 6.00 10/01/08 615 668,013
St. Correctional Facs., Ser. A
Aaa 8.00 8/01/06 600 (d) 635,310
St. Correctional Facs., Ser. A
Aaa 8.00 8/01/08 500 (d) 529,425
Workers Comp. - W. Green Bldg. A
A2 4.75 4/01/14 2,740 2,497,044
Ohio St. Higher Edl. Fac. Comn. Rev.,
Case Western Resv. Univ., Ser. A
Aa 7.70 10/01/18 965 1,004,526
Case Western Resv. Univ., Ser. B
Aa 7.70 10/01/18 35 36,320
Case Western Resv. Univ., Ser. B
Aa3 6.50 10/01/20 750 845,183
Oberlin Coll.
NR 7.375 10/01/14 1,000 (d) 1,096,920
Ohio St. Mtge. Rev., Ser. A, F.H.A.
AAA(c) 8.15 8/01/17 3,500 (d) 3,670,625
Ohio St. Wtr. Dev. Auth. Rev., Ser. I
Aaa 7.50 12/01/08 1,200 (d) 1,278,168
Ottawa Cnty. San. Sew. Sys. Rev., Danbury Proj., A.M.B.A.C.
Aaa 7.375 10/01/14 1,000 (d) 1,099,260
Pickerington Local Sch. Dist.,
Gen. Oblig., A.M.B.A.C.
Aaa Zero 12/01/08 890 493,416
Gen. Oblig., A.M.B.A.C.
Aaa Zero 12/01/09 935 486,910
Gen. Oblig., A.M.B.A.C.
Aaa Zero 12/01/13 525 215,665
Puerto Rico Aqueduct & Swr. Auth. Rev., Ser. A
Baa 7.875 7/01/17 1,000 (d) 1,074,430
Puerto Rico Elec. Pwr. Auth. Rev., Ser. O
Baa1 5.00 7/01/12 1,720 1,594,509
Puerto Rico Hwy. & Trans. Auth. Rev., M.B.I.A.
Aaa 5.50 7/01/15 5,000 5,074,850
Puerto Rico Pub. Bldgs. Auth. Rev., Gtd. Pub. Ed. & Hlth.
Facs.,
Ser. J
Baa1 Zero 7/01/06 3,000 1,896,480
Richland Cnty., Madison Swr. Impvt., A.M.B.A.C.
Aaa 6.95 12/01/11 500 569,160
Rural Lorain Cnty. Wtr. Auth. Res. Rev., A.M.B.A.C.
Aaa 7.70 10/01/08 2,000 (d) 2,156,280
Scioto Cnty. Hosp. Fac. Rev., Portsmouth Proj., Ser. B,
M.B.I.A.
Aaa 7.625 5/15/08 2,290 (d) 2,439,216
Sugarcreek Local Sch. Dist., Cap. Apprec., F.G.I.C.
Aaa Zero 12/01/08 500 277,200
Summit Cnty. Ind. Dev. Rev., Century Products, Gerber Foods
Aa1 7.75 11/01/05 3,250 3,359,265
Trumbull Cnty., Correctional Facs.,
Cap. Apprec., A.M.B.A.C.
Aaa Zero 12/01/08 1,250 693,000
Cap. Apprec., A.M.B.A.C.
Aaa Zero 12/01/09 1,250 650,950
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as
of February 28, 1997 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>
- - ------------------------------------------------------------
- - ------------------------------------------------------------
- - ------
Univ. of Puerto Rico Revs., Cap. Apprec. Ref., Ser. N,
M.B.I.A. Aaa Zero 6/01/13 $ 4,245
$ 1,804,932
Univ. of Toledo, Gen. Receipts, M.B.I.A.
Aaa 7.70% 6/01/18 1,000 (d) 1,067,570
Virgin Islands Pub. Fin. Auth. Rev., Ref., Matching Loan
Notes,
Ser. A
NR 7.25 10/01/18 1,000 1,081,860
Virgin Islands Terr., Hugo Ins. Claims Fund Proj., Ser. 91
NR 7.75 10/01/06 390 423,938
Virgin Islands Wtr. & Pwr. Auth., Elec. Sys. Rev., Ser. A
NR 7.40 7/01/11 1,000 1,064,220
Woodmore Indpt. Sch. Dist., Gen. Oblig., A.M.B.A.C.
Aaa Zero 12/01/06 480 299,856
- - -----------
Total long-term investments (cost $88,765,879)
95,354,093
- - -----------
SHORT-TERM INVESTMENTS--0.6%
East Cleveland Rev., Local Gov't. Fund Notes
NR 7.90 12/01/97 310 318,041
Ohio St. Air Quality Dev. Auth. Rev., Ref., Cin. Gas &
Elec.,
Ser. B, F.R.D.D.
VMIG1 3.15 3/03/97 300 300,000
- - -----------
Total short-term investments (cost $610,000)
618,041
- - -----------
Total Investments--98.3%
(cost $89,375,879; Note 4)
95,972,134
Other assets in excess of liabilities--1.7%
1,595,487
- - -----------
Net Assets--100%
$97,567,621
- - -----------
- - -----------
</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 Association.
(b) For purposes of amortized cost valuation, the maturity
date of Floating Rate
Demand Notes is considered to be the later of the next
date on which the
security can be redeemed at par, or the next date on
which the rate of
interest is adjusted.
(c) Standard & Poor's Rating.
(d) 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) OHIO SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<S>
<C>
Assets
February 28, 1997
Investments, at value (cost
$89,375,879)................................................
.................. $ 95,972,134
Cash........................................................
..............................................
306,809
Interest
receivable..................................................
..................................... 1,463,339
Receivable for Series shares
sold........................................................
................. 34,408
Other
assets......................................................
........................................ 2,283
- - ---------------
Total
assets......................................................
..................................... 97,778,973
- - ---------------
Liabilities
Accrued expenses and other
liabilities.................................................
................... 84,416
Dividends
payable.....................................................
.................................... 44,755
Management fee
payable.....................................................
............................... 33,877
Payable for Series shares
reacquired..................................................
.................... 23,668
Distribution fee
payable.....................................................
............................. 21,677
Deferred trustees'
fees........................................................
........................... 2,959
- - ---------------
Total
liabilities.................................................
..................................... 211,352
- - ---------------
Net
Assets......................................................
.......................................... $
97,567,621
- - ---------------
- - ---------------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
......... $ 81,936
Paid-in capital in excess of
par.........................................................
.............. 90,857,352
- - ---------------
90,939,288
Accumulated net realized gain on
investments.................................................
.......... 32,078
Net unrealized appreciation on
investments.................................................
............ 6,596,255
- - ---------------
Net assets, February 28,
1997........................................................
..................... $ 97,567,621
- - ---------------
- - ---------------
Class A:
Net asset value and redemption price per share
($51,655,787 / 4,339,424 shares of beneficial interest
issued and outstanding)......................
$11.90
Maximum sales charge (3% of offering
price)......................................................
...... .37
- - ---------------
Maximum offering price to
public......................................................
................. $12.27
- - ---------------
- - ---------------
Class B:
Net asset value, offering price and redemption price per
share
($45,855,599 / 3,849,467 shares of beneficial interest
issued and outstanding)......................
$11.91
- - ---------------
- - ---------------
Class C:
Net asset value, offering price and redemption price per
share
($56,235 / 4,721 shares of beneficial interest issued
and outstanding)..............................
$11.91
- - ---------------
- - ---------------
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 6
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
OHIO SERIES
Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Six Months
Ended
Net Investment Income February 28,
1997
Income
Interest................................ $ 3,069,558
--------------
- - ---
Expenses
Management fee.......................... 247,523
Distribution fee--Class A............... 25,730
Distribution fee--Class B............... 118,724
Distribution fee--Class C............... 221
Custodian's fees and expenses........... 42,000
Transfer agent's fees and expenses...... 36,000
Reports to shareholders................. 22,000
Registration fees....................... 20,000
Legal fees and expenses................. 5,500
Audit fees and expenses................. 5,000
Trustees' fees.......................... 1,800
Miscellaneous........................... 1,670
--------------
- - ---
Total expenses....................... 526,168
Less: Management fee waiver.............
(24,752)
Custodian fee credit.................
(3,485)
--------------
- - ---
Net expenses......................... 497,931
--------------
- - ---
Net investment income...................... 2,571,627
--------------
- - ---
Realized and Unrealized Gain
(Loss) on Investments
Net realized gain on:
Investment transactions................. 249,021
Financial futures transactions.......... 83,793
--------------
- - ---
332,814
Net change in unrealized appreciation on:
Investments............................. 1,572,315
--------------
- - ---
Net gain on investments.................... 1,905,129
--------------
- - ---
Net Increase in Net Assets
Resulting from Operations.................. $ 4,476,756
--------------
- - ---
--------------
- - ---
</TABLE>
<TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
OHIO SERIES
Statement of Changes in Net Assets (Unaudited)
<CAPTION>
Six Months
Ended
Year Ended
Increase (Decrease) February 28,
August 31,
in Net Assets 1997
1996
<S> <C> <C>
Operations
Net investment income........ $ 2,571,627 $
5,518,931
Net realized gain on
investment
transactions.............. 332,814
174,866
Net change in unrealized
appreciation of
investments............... 1,572,315
(1,555,506)
----------------- -----
- - ----------
Net increase in net assets
resulting from
operations................ 4,476,756
4,138,291
----------------- -----
- - ----------
Dividends and distributions
(Note 1):
Dividends from net investment
income
Class A................... (1,386,862)
(2,697,227)
Class B................... (1,183,367)
(2,817,228)
Class C................... (1,398)
(4,476)
----------------- -----
- - ----------
(2,571,627)
(5,518,931)
----------------- -----
- - ----------
Distributions in excess of
net investment income
Class A................... (8,880)
- - --
Class B................... (7,822)
- - --
Class C................... (16)
- - --
----------------- -----
- - ----------
(16,718)
- - --
----------------- -----
- - ----------
Distributions from net
realized gains
Class A................... (75,480)
(301,130)
Class B................... (66,492)
(344,409)
Class C................... (133)
(787)
----------------- -----
- - ----------
(142,105)
(646,326)
----------------- -----
- - ----------
Series share transactions (net
of share conversions) (Note
5):
Net proceeds from shares
sold...................... 2,358,652
4,188,171
Net asset value of shares
issued in reinvestment of
dividends and
distributions............. 1,642,325
3,659,786
Cost of shares reacquired.... (9,072,734)
(18,991,116)
----------------- -----
- - ----------
Net decrease in net assets
from Series share
transactions.............. (5,071,757)
(11,143,159)
----------------- -----
- - ----------
Total decrease.................. (3,325,451)
(13,170,125)
Net Assets
Beginning of period............. 100,893,072
114,063,197
----------------- -----
- - ----------
End of period................... $ 97,567,621 $
100,893,072
----------------- -----
- - ----------
----------------- -----
- - ----------
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 7
<PAGE>
Notes to Financial Statements PRUDENTIAL
MUNICIPAL SERIES FUND
(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.
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 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.
There were no futures contracts outstanding at February 28,
1997.
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 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.
- - ------------------------------------------------------------
- - --------------------
-----
8
<PAGE>
Notes to Financial Statements PRUDENTIAL
MUNICIPAL SERIES FUND
(Unaudited) OHIO SERIES
- - ------------------------------------------------------------
- - --------------------
Reclassification of Capital Accounts: The Fund accounts and
reports for
distributions to shareholders in accordance with the
American Institute of
Certified Public Accountants' Statement of Position 93-2:
Determination,
Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and
Return of Capital Distributions by Investment Companies. The
effect of applying
this statement was to increase undistributed net investment
income and decrease
accumulated net realized gain by $16,718, due to the sale of
securities
purchased with market discount. Net investment income, net
realized gains and
net assets were not affected by this change.
- - ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential Mutual
Fund Management LLC
('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 and employees 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 $24,752 ($.003 per share)
for the six months
ended February 28, 1997. The Series is not required to
reimburse PMF for such
waiver.
The Fund has a distribution agreement with Prudential
Securities Incorporated
('PSI') which acts as the distributor of the Class A, Class
B and Class C shares
of the Fund. The Fund compensates 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 PSI. The
distribution fees are accrued daily and payable monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates
PSI 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 28, 1997.
PSI has advised the Series that it has received
approximately $2,700 in
front-end sales charges resulting from sales of Class A
shares during the six
months ended February 28, 1997. From these fees, PSI paid
such sales charges to
affiliated broker-dealers, 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 28, 1997, it
received approximately $79,000 in contingent deferred sales
charges imposed upon
certain redemptions by Class B shareholders.
PSI, PMF, and PIC are indirect, wholly-owned subsidiaries of
The Prudential
Insurance Company of America.
The Series, along with other affiliated registered
investment companies (the
'Funds'), entered into a credit agreement (the 'Agreement')
on December 31, 1996
with an unaffiliated lender. The maximum commitment under
the Agreement is
$200,000,000. The agreement expires on December 30, 1997.
Interest on any such
borrowings outstanding will be at market rates. The purpose
of the Agreement is
to serve as an alternative source of funding for capital
share redemptions. The
Series has not borrowed any amounts pursuant to the
Agreement as of February 28,
1997. The Funds pay a commitment fee at an annual rate of
.055 of 1% on the
unused portion of the credit facility. The commitment fee is
accrued and paid
quarterly on a pro-rata basis by the Funds.
- - ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly-owned
subsidiary of PMF,
serves as the Fund's transfer agent. During the six months
ended February 28,
1997, the Series incurred fees of approximately $24,000 for
the services of
PMFS. As of February 28, 1997, approximately $3,900 of such
fees were due to
PMFS. Transfer agent fees and expenses in the Statement of
Operations include
certain out-of-pocket expenses paid to non-affiliates.
- - ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of portfolio securities of the Series,
excluding short-term
investments, for the six months ended February 28, 1997 were
$10,525,593 and
$16,542,097, respectively.
The cost basis of investments for federal income tax
purposes at February 28,
1997, was substantially the same as for financial reporting
purposes
- - ------------------------------------------------------------
- - --------------------
-----
9
<PAGE>
Notes to Financial Statements PRUDENTIAL
MUNICIPAL SERIES FUND
(Unaudited) OHIO SERIES
- - ------------------------------------------------------------
- - --------------------
and accordingly, net unrealized appreciation of investments
for federal income
tax purposes was $6,596,255 (gross unrealized appreciation--
$6,721,637; gross
unrealized depreciation--$125,382).
- - ------------------------------------------------------------
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
28, 1997 and the fiscal year ended August 31, 1996 were as
follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- - -------------------------------------- -------- --------
- - ----
<S> <C> <C>
Six months ended February 28, 1997:
Shares sold........................... 33,490 $
395,611
Shares issued in reinvestment of
dividends
and distributions................... 75,846
900,067
Shares reacquired..................... (367,978)
(4,367,089)
-------- --------
- - ----
Net decrease in shares outstanding
before conversion................... (258,642)
(3,071,411)
Shares issued upon conversion from
Class B............................. 336,351
3,983,388
-------- --------
- - ----
Net increase in shares outstanding.... 77,709 $
911,977
-------- --------
- - ----
-------- --------
- - ----
Year ended August 31, 1996:
Shares sold........................... 43,750 $
514,430
Shares issued in reinvestment of
dividends
and distributions................... 146,362
1,749,925
Shares reacquired..................... (808,263)
(9,588,893)
-------- --------
- - ----
Net decrease in shares outstanding
before conversion................... (618,151)
(7,324,538)
Shares issued upon conversion from
Class B............................. 590,855
7,039,782
-------- --------
- - ----
Net decrease in shares outstanding.... (27,296) $
(284,756)
-------- --------
- - ----
-------- --------
- - ----
<CAPTION>
Class B Shares
Amount
- - -------------------------------------- -------- --------
- - ----
<S> <C> <C>
Six months ended February 28, 1997:
Shares sold........................... 163,862 $
1,951,863
Shares issued in reinvestment of
dividends
and distributions................... 62,402
740,911
Shares reacquired..................... (396,701)
(4,705,590)
-------- --------
- - ----
Net decrease in shares outstanding
before conversion................... (170,437)
(2,012,816)
Shares reacquired upon conversion into
Class A............................. (336,636)
(3,983,388)
-------- --------
- - ----
Net decrease in shares outstanding.... (507,073) $
(5,996,204)
-------- --------
- - ----
-------- --------
- - ----
Year ended August 31, 1996:
Shares sold........................... 304,364 $
3,636,646
Shares issued in reinvestment of
dividends
and distributions................... 159,308
1,908,271
Shares reacquired..................... (780,551)
(9,284,600)
-------- --------
- - ----
Net decrease in shares outstanding
before conversion................... (316,879)
(3,739,683)
Shares reacquired upon conversion into
Class A............................. (591,352)
(7,039,782)
-------- --------
- - ----
Net decrease in shares outstanding.... (908,231)
$(10,779,465)
-------- --------
- - ----
-------- --------
- - ----
<CAPTION>
Class C
- - --------------------------------------
<S> <C> <C>
Six months ended February 28, 1997:
Shares sold........................... 872 $
11,178
Shares issued in reinvestment of
dividends
and distributions................... 113
1,347
Shares reacquired..................... (5)
(55)
-------- --------
- - ----
Net increase in shares outstanding.... 980 $
12,470
-------- --------
- - ----
-------- --------
- - ----
Year ended August 31, 1996:
Shares sold........................... 3,157 $
37,095
Shares issued in reinvestment of
dividends
and distributions................... 133
1,590
Shares reacquired..................... (10,129)
(117,623)
-------- --------
- - ----
Net decrease in shares outstanding.... (6,839) $
(78,938)
-------- --------
- - ----
-------- --------
- - ----
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
10
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) OHIO SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class A
---------
- - ------------------------------------------------------------
Six
Months
Ended
Year Ended August 31,
February
28, ----------------------------------------------------
1997
1996 1995 1994 1993 1992
---------
- - --- ------- ------- ------ ------ ------
<S> <C>
<C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............. $
11.70 $ 11.92 $ 11.72 $12.38 $11.69
$11.17
-----
- - - ------- ------- ------ ------ ------
Income from investment operations
Net investment income............................
.32(a) .63(a) .65(a) .66 .69
.70
Net realized and unrealized gain (loss) on
investment transactions.......................
.22 (.15) .20 (.66) .69
.52
-----
- - - ------- ------- ------ ------ ------
Total from investment operations..............
.54 .48 .85 -- 1.38
1.22
-----
- - - ------- ------- ------ ------ ------
Less distributions
Dividends from net investment income.............
(.32) (.63) (.65) (.66) (.69)
(.70)
Distributions from net realized gains............
(.02) (.07) -- -- --
- - --
-----
- - - ------- ------- ------ ------ ------
Total distributions...........................
(.34) (.70) (.65) (.66) (.69)
(.70)
-----
- - - ------- ------- ------ ------ ------
Net asset value, end of period................... $
11.90 $ 11.70 $ 11.92 $11.72 $12.38
$11.69
-----
- - - ------- ------- ------ ------ ------
-----
- - - ------- ------- ------ ------ ------
TOTAL RETURN(b):.................................
4.66% 4.02% 7.59% (0.01)% 12.12%
12.60%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).................. $
51,656 $49,851 $51,132 $4,749 $4,647
$2,095
Average net assets (000)......................... $
51,887 $51,205 $29,904 $4,733 $2,904
$1,289
Ratios to average net assets:
Expenses, including distribution fees.........
.82%(a)/(c) .80%(a) .83%(a) .84% .84%
.81%
Expenses, excluding distribution fees.........
.72%(a)/(c) .70%(a) .73%(a) .74% .74%
.71%
Net investment income.........................
5.38%(a)/(c) 5.27%(a) 5.50%(a) 5.45% 5.73%
6.34%
For Class A, B and C shares:
Portfolio turnover rate.......................
11% 35% 38% 20% 28%
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 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) OHIO SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class B
-------
- - ------------------------------------------------------------
- - --------
Six
Months
Ended Year Ended August 31,
February 28, -------------------------------------------
- - ---------------
1997 1996 1995 1994 1993
1992
-------
- - ----- ------- ------- -------- --------
- - --------
<S> <C>
<C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............. $
11.71 $ 11.93 $ 11.73 $ 12.38 $ 11.70
$ 11.18
---
- - --- ------- ------- -------- --------
- - --------
Income from investment operations
Net investment income............................
.29(a) .58(a) .60(a) .61 .65
.65
Net realized and unrealized gain (loss) on
investment transactions.......................
.22 (.15) .20 (.65) .68
.52
---
- - --- ------- ------- -------- --------
- - --------
Total from investment operations..............
.51 .43 .80 (.04) 1.33
1.17
---
- - --- ------- ------- -------- --------
- - --------
Less distributions
Dividends from net investment income.............
(.29) (.58) (.60) (.61) (.65)
(.65)
Distributions from net realized gains............
(.02) (.07) -- -- --
- - --
---
- - --- ------- ------- -------- --------
- - --------
Total distributions...........................
(.31) (.65) (.60) (.61) (.65)
(.65)
---
- - --- ------- ------- -------- --------
- - --------
Net asset value, end of period................... $
11.91 $ 11.71 $ 11.93 $ 11.73 $ 12.38
$ 11.70
---
- - --- ------- ------- -------- --------
- - --------
---
- - --- ------- ------- -------- --------
- - --------
TOTAL RETURN(b):.................................
4.45% 3.61% 7.16% (0.33)% 11.58%
10.79%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).................. $
45,856 $50,998 $62,805 $118,270 $121,937
$102,199
Average net assets (000)......................... $
47,883 $57,909 $85,410 $121,365 $110,053
$ 96,178
Ratios to average net assets:
Expenses, including distribution fees.........
1.22%(a)/(c) 1.20%(a) 1.22%(a) 1.24% 1.24%
1.21%
Expenses, excluding distribution fees.........
.72%(a)/(c) .70%(a) .72%(a) .74% .74%
.71%
Net investment income.........................
4.98%(a)/(c) 4.87%(a) 5.27%(a) 5.05% 5.33%
5.73%
</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.
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 12
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) OHIO SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class C
-------
- - ----------------------------------------------------
August 1,
Six
Months 1994(d)
Ended Year Ended August 31, Through
February 28, --------------------------- August 31,
1997 1996 1995 1994
-------
- - ----- ------------ ---------- ----------
<S> <C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.............
$11.71 $11.93 $11.73 $11.75
---
- - -- ----- ----- -----
Income from investment operations
Net investment income............................
.28(a) .55(a) .57(a) .05
Net realized and unrealized gain (loss) on
investment transactions.......................
.22 (.15) .20 (.02)
---
- - -- ----- ----- -----
Total from investment operations..............
.50 .40 .77 .03
---
- - -- ----- ----- -----
Less distributions
Dividends from net investment income.............
(.28) (.55) (.57) (.05)
Distributions from net realized gains............
(.02) (.07) -- --
---
- - -- ----- ----- -----
Total distributions...........................
(.30) (.62) (.57) (.05)
---
- - -- ----- ----- -----
Net asset value, end of period...................
$11.91 $11.71 $11.93 $11.73
---
- - -- ----- ----- -----
---
- - -- ----- ----- -----
TOTAL RETURN(b):.................................
4.32% 3.36% 6.89% 0.18%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).................. $
56 $44 $126 $5
Average net assets (000)......................... $
60 $97 $ 61 $2
Ratios to average net assets:
Expenses, including distribution fees.........
1.47%(a)/(c) 1.45%(a) 1.49%(a) 2.28%(c)
Expenses, excluding distribution fees.........
.72%(a)/(c) .70%(a) .74%(a) 1.53%(c)
Net investment income.........................
4.73%(a)/(c) 4.62%(a) 4.76%(a) 4.73%(c)
</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>
PRUDENTIAL
MUNICIPAL SERIES FUND
Supplemental Proxy Information OHIO SERIES
- - ------------------------------------------------------------
- - --------------------
A Meeting of Shareholders of the Prudential Municipal
Series Fund was held on
Wednesday, October 30, 1996 at the offices of Prudential
Securities
Incorporated, One Seaport Plaza, New York, New York. The
meeting was held for
the following purposes:
(1) To elect Trustees as follows: Edward D. Beach, Eugene C.
Dorsey, Delayne
Dedrick Gold, Robert F. Gunia, Harry A. Jacobs, Jr.,
Donald D. Lennox,
Mendel A. Melzer, Thomas T. Mooney, Thomas H. O'Brien,
Richard A. Redeker,
Nancy H. Teeters and Louis A. Weil, III.
(2) Approval of an amendment to the Fund's investment
restrictions to permit an
increase in the borrowing capabilities of the Fund.
The results of the proxy solicitation on the above
matters were as follows:
Trustee/Matter Votes for Votes
against Abstentions
----------- ---------
- - ---- -----------
[S] [C] [C] [C]
[C]
(1) Edward D. Beach 370,817,756
0 16,169,234
Eugene C. Dorsey 371,804,474
0 15,182,516
Delayne Dedrick Gold 371,782,816
0 15,204,174
Robert F. Gunia 371,639,995
0 15,346,995
Harry A. Jacobs, Jr. 371,395,066
0 15,591,924
Donald D. Lennox 371,150,974
0 15,836,016
Mendel A. Melzer 371,811,918
0 15,175,072
Thomas T. Mooney 371,607,874
0 15,379,116
Thomas H. O'Brien 371,328,875
0 15,658,115
Richard A. Redeker 371,876,756
0 15,110,234
Nancy H. Teeters 371,775,376
0 15,211,614
Louis A. Weil, III 371,777,517
0 15,209,473
(2) Amendment relating to
borrowing capabilities 259,440,223
31,557,793 17,488,974
- - ------------------------------------------------------------
- - --------------------
-----
14
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
(LOGO)
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Robert F. Gunia
Harry A. Jacobs, Jr.
Donald D. Lennox
Mendel A. Melzer
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Louis A. Weil, III
Officers
Richard A. Redeker, President
Susan C. Cote, Vice President
Thomas Early, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Mutual Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
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 LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Auditors
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, NY 10022
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 28,
1997 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
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
74435M838
74435M846 MF123E2
74435M499 Cat# 6425315
(ICON)
Prudential
Municipal
Series Fund
- - ---------------------
Connecticut
Money Market Series
SEMI
ANNUAL
REPORT
Feb. 28, 1997
(LOGO)
<PAGE>
Prudential Municipal Series Fund
Connecticut Money Market Series
Performance At A Glance.
Over the past six months, the Prudential Municipal Series
Fund -- Connecticut
Money Market Series produced tax-free yields that were
consistently superior
to the average Connecticut tax-free money market fund. The
Series' 7-day
current yield on February 28, 1997 was 3.01%, which was
higher than the 2.71%
reported by the average tax-free Connecticut municipal bond
money market fund
tracked by IBC Financial Data. It was equivalent to a
taxable yield of 5.22%
for individuals in the highest federal and Connecticut state
income tax
brackets.
<TABLE>
Fund Facts
As of 2/28/97
<CAPTION>
7-Day Net Asset Taxable
Equivalent Yield1 Weighted Avg. Total Net
Current Yld. Value @31% @36%
@39.6% Maturity Assets (mil.)
<S> <C> <C> <C> <C>
<C> <C> <C>
CT Money 3.01% $1.00 4.57% 4.93%
5.22% 49 Days $79.8
Market Fund (2.64)3 (4.00)3 (4.31)3
(4.57)3
IBC Financial Data
CT Tax-Exempt
Fund Avg.2 2.71 1.00 3.92 4.23
4.48 47 Days N/A
</TABLE>
Note: Yields will fluctuate from time to time and past
performance is not
indicative 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 10
funds in the
International Business Communications Financial Data
Connecticut tax-exempt
money market fund category as of February 28, 1997.
3Without waiver of management fees and/or expense subsidy,
the Series' yields
would have been lower as indicated in parentheses ( ).
Yields Were Higher Than The Average Fund.
Prudential Connecticut Money Market Series
IBC Financial Data Connecticut Tax-Free Money Fund Avg.
(GRAPH)
Weekly 7-day current yields. Past performance is not
indicative
of future results.
How Investments Compared.
(As of 2/28/97)
(GRAPH)
U.S. General General Taxable
Growth Bond Muni Debt Money
Funds Funds Funds Mkt 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
included
historical 20-year average annual returns. These returns
assume the
reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors
have received higher
historical total returns from stocks than from most other
invest-ments.
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.
Taxable 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.
<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 bonds 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).
There can be no assurance that the Series will achieve its
investment
objective.
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 will stay at $1, we emphasize a conservative, quality-
oriented approach.
Strategy Session.
Waiting Out The Fed.
Short-term municipal markets were fairly quiet over the past
six months that
ended in February. Interest rates fluctuated far less than
they did earlier in
the spring and summer of 1996, as investors came to realize
that the Federal
Reserve would leave interest rates unchanged for the
remainder of the year. As
you may recall, the Federal Reserve seeks moderate, non-
inflationary growth by
raising or lowering the federal funds rate (what banks
charge each other for
overnight loans). Correctly anticipating these moves is one
way your Series
seeks to enhance tax-free return.
The federal funds rate remained unchanged at 5.25%
throughout the reporting
period. On March 25, 1997, however, the Federal Reserve
raised the rate 25
basis points (a basis point is 1/100th of a percentage
point) to 5.50%. It was
the first increase in two years. The central bank explained
it was moving to
quell "inflationary imbalances" that could undermine the
country's six-year
economic expansion. The action was widely expected. Indeed,
Federal Reserve
Chairman Alan Greenspan had been saying he would not rule
out a "pre-emptive"
strike against inflationary pressures for several weeks
prior to the actual
rate increase.
Our strategy over the past six months was to adjust the
Series' weighted
average maturity (WAM) in anticipation of market conditions.
WAM measures the
sensitivity of the Series' underlying securities to changing
interest rates.
When interest rates are expected to rise, WAM is usually
shortened (we buy
shorter maturity securities) so we may be positioned to buy
new securities at
higher yields. Conversely, when rates are expected to fall,
WAM is lengthened
(we buy longer maturity securities) to preserve higher
yields for you.
During the reporting period we kept our WAM shorter than the
average
Connecticut tax-free money market fund. This move prepared
us to purchase
higher yielding securities if the Federal Reserve raised
interest rates (as
things turned out, the central bank did not do so until
March). It also
allowed us to handle seasonal year-end redemptions when
investors needed cash
to pay for such things as holiday expenses or other
purposes.
As December ended, we bought longer term securities to lock-
in higher rates
and carry us through January when yields traditionally fall
as investors
return to the market. We shortened our WAM again as February
ended, in
anticipation of a possible Federal Reserve interest rate
increase, which did
occur on March 25.
<PAGE>
What Went Well.
Good News! Nutmeg State Rebounds.
Connecticut's economy appears to be growing again. Personal
income rose last
year as did employment, although by less than the national
averages. This
renewed economic vigor is welcomed news. It produced higher
tax revenues that
brightened the state's fiscal picture.
Connecticut's credit rating was Aa3 -- unchanged since
August 1996.
Hunting For Value.
Connecticut suffers from a chronic shortage of short-term
municipal bonds.
That means we have to work harder to find value for you --
and we did over the
past six months.
We found value in school district bonds. These securities,
called school bond
anticipation notes, are issued to finance school
construction, repairs, and
other purposes. The bonds are usually small by municipal
market standards, $5
million or less, and therefore may come without a credit
rating. That's
because the dollar amount is too small to warrant the
expense of a major
credit agency rating. To individual investors this may pose
a problem, but not
to Prudential. We have the resources to conduct thorough
credit research prior
to purchase. And we will only invest in those bonds which
meet our strict,
high quality standards.
And Not So Well.
Too Short, Too Soon?
We invested in shorter maturity bonds for much of the
reporting period. This
made our weighted average maturity (WAM) less than the
average Connecticut
tax-free money market fund. Although the shorter WAM let us
achieve higher
yields for you in December, we might have been able to pick
up some additional
return last fall if we had then invested in longer maturity
securities. In our
opinion, however, this additional return was not substantial
enough to outweigh
the negative impact if the Federal Reserve acted to increase
short-term
interest rates.
Weighted Average Maturity Is Now Closer
To The Average Fund.
Prudential Connecticut Money Market Series
IBC Financial Data Connecticut Tax-Free Money Fund Avg.
(GRAPH)
Looking Ahead.
The Federal Reserve has raised short-term interest rates
once in 1997. Will
there be more increases in short-term interest rates?
Probably. Our past
experience tells us that changes in Federal Reserve monetary
policy are rarely
one-shot deals. Given present economic conditions, we
believe one or two
additional rate increases will most likely occur later this
year. Of course,
no one knows for sure. But if this does happen, short-term
municipal rates
will follow the taxable market's lead and we will do our
part to have your
Series take advantage of them.
- - ------------------------------------------------------------
- - ------------------
1
<PAGE>
President's Letter
April 10, 1997
(PHOTO)
We're On Your Side.
Dear Shareholder:
The first three months of the year were not good ones for
most U.S. stock and
bond investors. The Dow Jones Industrial Average was down
considerably from
its record high set in mid-March, and long-term interest
rates were at their
highest levels in six months. Not surprisingly, in the first
quarter of 1997
the average stock and bond mutual fund had negative returns
(for stock funds,
it was the first time since 1994).
The reasons behind the recent market decline have been well-
publicized --
higher interest rates and inflationary pressures. And while
we are watching
market developments closely, we are also very concerned
about you and how
you're dealing with events. We realize that staying the
course toward your
long-term investment goals isn't easy during such times of
uncertainty. Here
are a few thoughts that may help --
- - - Keep Your Expectations Realistic. The best investors know
that financial
markets rise and fall -- and so too, will the value of
their investments.
Over time, however, stocks have been shown to produce
very attractive
returns that were well ahead of inflation.
- - - Remember Your Time Horizon. If your investment goals are
long term (several
years or more), so should your time horizon. During this
period, it's not
unusual for stocks and bonds to experience several
periods of market
uncertainty.
- - - We're On Your Side. Your Prudential Securities Financial
Advisor or
Prudential Registered Representative can help you
understand what's
happening in the financial markets. They can assist you
in making informed
decisions based upon a thorough knowledge of your
financial needs and long-
term goals. Call him or her today.
Thank you for your continued confidence in Prudential mutual
funds. We'll do
everything we can to keep you informed and to earn your
trust.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
- - ------------------------------------------------------------
- - ------------------
2
<PAGE>
Portfolio of Investments
as of February 28, 1997 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, Ser. 96, B.A.N.
NR 3.75% 9/15/97 $ 3,500 $ 3,506,483
Brazos River Harbor Dist., Texas, Dow Chemical Co., Proj.,
Ser.
96 F.R.D.D.
P-1 3.55 3/03/97 2,300 2,300,000
Butler County Kansas, Solid Waste Disp. & Cogeneration Rev.,
Ser. 96B, F.R.D.D.
VMIG1 3.55 3/03/97 2,000 2,000,000
Calcasieu Parish Louisiana, Ind. Dev. Board, Citgo. Corp.,
Ser.
94, F.R.D.D.
VMIG1 3.55 3/03/97 1,500 1,500,000
Coconino County Arizona, Public Service Navajo Proj., Ser.
A,
F.R.D.D.
P-1 3.55 3/03/97 800 800,000
Connecticut St. Dev. Auth.,
Conco Proj., Ser. 85, F.R.W.D.
P-1 3.20 3/06/97 1,700 1,700,000
Hlth. Care Rev. Weekly Corp. Living Proj., Ser. 90,
F.R.W.D. VMIG1 3.30 3/05/97 2,560
2,560,000
Ind. Dev., Shelton Inn L.P., Ser. 86, F.R.M.D.
P-1 3.80 3/03/97 1,000 1,000,000
Lt. & Pwr. Co. Proj., Ser. 93B, F.R.W.D.
VMIG1 3.30 3/05/97 5,200 5,200,000
Poll. Ctrl. Rev., Conn. Lt. & Pwr. Co., Proj. A, Ser.
96A,
F.R.W.D., A.M.B.A.C.
P-1 3.30 3/06/97 2,200 2,200,000
Poll. Ctrl. Rev., W. Mass. Elec. Co., Ser. 93A, F.R.W.D.
VMIG1 3.20 3/05/97 2,500 2,500,000
Rand Whitney Container Bd., Ser. 93, F.R.W.D.
P-1 3.15 3/05/97 2,500 2,500,000
SHW Inc. Proj., Ser. 90, F.R.W.D.
NR 3.35 3/05/97 4,200 4,200,000
Connecticut St. Hlth. & Edl. Facs. Auth. Rev.,
Charlotte-Hungerford, Ser. B, F.R.W.D.
VMIG1 3.05 3/06/97 1,600 1,600,000
Pomfret School Issue, Ser. A, F.R.W.D.
VMIG1 3.00 3/05/97 1,000 1,000,000
Yale Univ., Ser. L, T.E.C.P.
VMIG1 3.35 3/06/97 1,100 1,100,000
Yale Univ., Ser. N, T.E.C.P.
VMIG1 3.35 3/06/97 1,500 1,500,000
Connecticut St. Hsg. Fin. Auth. Prog., Ser. A-4, A.M.T.
VMIG1 3.65 4/10/97 2,200 2,200,000
Connecticut St. Mun. Elec. Engy., Pwr. Supply Sys. Rev.,
Ser.
95A, T.E.C.P.
P-1 3.25 5/01/97 1,600 1,600,000
Connecticut St. Spec. Assmt., Unemployment Comp.,
Ser. 93C, A.M.T., F.G.I.C.
VMIG1 3.90 7/01/97 5,585 5,585,770
Ser. A, A.M.B.A.C.
Aaa 4.10 5/15/97 1,500 1,501,274
Connecticut St. Spec. Tax Oblig., Trans. Infrastructure
Rev.,
Ser. 90I, F.R.W.D.
VMIG1 3.25 3/05/97 5,200 5,200,000
Dist. of Columbia., Gen. Oblig., Ser. 92A-2, F.R.D.D.
VMIG1 3.55 3/03/97 200 200,000
Gulf Coast Texas, Indl. Dev. Auth.,
Citgo Petroleum., Ser. 95, F.R.D.D.
VMIG1 3.55 3/03/97 1,000 1,000,000
Texas Solid Waste Disposal Rev., Ser. 94, F.R.D.D.
VMIG1 3.55 3/03/97 900 900,000
Harris County Texas, Indl. Dev. Corp., Poll. Ctrl. Rev.,
Ser.
87, F.R.D.D.
P-1 3.50 3/03/97 600 600,000
Hartford Connecticut Redev. Agcy. MultiFamily Mtge.,
Underwood
Twrs. Proj., Ser. 90, F.R.W.D.
A1+(c) 3.00 3/06/97 2,800 2,800,000
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments
as of February 28, 1997 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>
- - ------------------------------------------------------------
- - ------------------------------------------------------------
- - ------
Mashantucket Western Connecticut, Ser. 96, T.E.C.P.
P-1 3.50% 4/10/97 $ 5,700 $ 5,700,000
Milford Connecticut, Ser. 96, B.A.N.
NR 3.75 11/13/97 2,000 2,001,624
Puerto Rico Commwlth.,
Gov't. Dev. Bank, Ser. 95, T.E.C.P.
NR 3.40 4/08/97 1,700 1,700,000
Ser. 97A, T.R.A.N.
MIG1 4.00 7/30/97 2,000 2,004,631
Puerto Rico Elec. Pwr. Auth. Rev., Ser. K
Aaa 9.25 7/01/97 1,000 (d) 1,037,362
Puerto Rico Hsg. Fin. Corp., MultiFamily Mtge. Rev.,
Portfolio
A, Ser. 90I, M.O.T.
Aa 3.35 3/15/97 2,455 2,455,000
Puerto Rico Ind. Med. & Environ. Poll. Ctrl. Fac. Fin. Auth.
Rev., Ser. 83A, A.O.T.
NR 3.75 12/01/97 2,500 2,500,000
Puerto Rico Public Bldgs. Auth. Rev., Ser. SG34, F.R.W.D.
A1+(c) 3.10 3/06/97 1,500 1,500,000
Stamford Connecticut Hsg. Auth. Rev., Morgan Street Proj.,
Ser.
94, F.R.W.D.
VMIG1 3.30 3/05/97 1,500 1,500,000
- - -----------
Total Investments--99.2%
(amortized cost--$79,152,144(e))
79,152,144
Other assets in excess of liabilities--0.8%
654,580
- - -----------
Net Assets--100%
$79,806,724
- - -----------
- - -----------
</TABLE>
- - ---------------
(a) The following abbreviations are used in portfolio
descriptions:
A.M.B.A.C.--American Municipal Bond Assurance
Corporation.
A.M.T.--Annual Mandatory Tender.
A.O.T.--Annual Optional 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.O.T.--Monthly Optional Tender.
T.E.C.P.--Tax Exempt Commercial Paper.
T.R.A.N.--Tax & Revenue Anticipation Note.
(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.
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 4
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL
MUNICIPAL SERIES FUND
(Unaudited) CONNECTICUT
MONEY MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Assets
February 28, 1997
<S>
<C>
Investments, at amortized cost which approximates market
value............................................ $
79,152,144
Cash........................................................
..............................................
69,258
Receivable for Series shares
sold........................................................
................. 953,826
Interest
receivable..................................................
..................................... 446,894
Other
assets......................................................
........................................
1,633
- - -----------------
Total
assets......................................................
..................................... 80,623,755
- - -----------------
Liabilities
Payable for Series shares
reacquired..................................................
.................... 729,439
Accrued expenses and other
liabilities.................................................
................... 45,877
Dividends
payable.....................................................
.................................... 20,971
Distribution fee
payable.....................................................
............................. 10,100
Management fee
payable.....................................................
............................... 7,685
Deferred trustees'
fees........................................................
........................... 2,959
- - -----------------
Total
liabilities.................................................
..................................... 817,031
- - -----------------
Net
Assets......................................................
.......................................... $
79,806,724
- - -----------------
- - -----------------
Net assets were comprised of:
Shares of beneficial interest, at $.01 par
value.......................................................
$ 798,067
Paid-in capital in excess of
par.........................................................
.............. 79,008,657
- - -----------------
Net assets, February 28,
1997........................................................
..................... $ 79,806,724
- - -----------------
- - -----------------
Net asset value, offering price and redemption price per
share ($79,806,724 / 79,806,724 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>
Six Months
Ended
Net Investment Income February 28,
1997
<S> <C>
Income
Interest................................ $ 1,337,965
--------------
- - ---
Expenses
Management fee.......................... 193,502
Distribution fee........................ 48,375
Custodian's fees and expenses........... 36,000
Transfer agent's fees and expenses...... 17,000
Reports to shareholders................. 12,000
Registration fees....................... 8,000
Audit fees and expenses................. 4,000
Legal fees and expenses................. 3,000
Trustees' fees.......................... 1,800
Miscellaneous........................... 3,150
--------------
- - ---
Total expenses....................... 326,827
Less: Management fee waiver (Note 2)....
(145,127)
Custodian fee credit................
(1,449)
--------------
- - ---
Net expenses......................... 180,251
--------------
- - ---
Net investment income...................... 1,157,714
Realized Gain on Investments
Net realized gain on investments........... 52
--------------
- - ---
Net Increase in Net Assets
Resulting from Operations.................. $ 1,157,766
--------------
- - ---
--------------
- - ---
</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) February 28,
August 31,
in Net Assets 1997
1996
<S> <C> <C>
Operations
Net investment income........ $ 1,157,714 $
2,326,036
Net realized gain (loss) on
investment transactions... 52
(911)
----------------- -----
- - ----------
Net increase in net assets
resulting from
operations................ 1,157,766
2,325,125
----------------- -----
- - ----------
Dividends and distributions
(Note 1)..................... (1,157,766)
(2,325,125)
----------------- -----
- - ----------
Series share transactions
(at $1 per share)
Net proceeds from shares
sold...................... 132,049,250
288,309,868
Net asset value of shares
issued to shareholders in
reinvestment of dividends
and distributions......... 1,138,873
2,252,473
Cost of shares reacquired.... (131,063,992)
(275,746,533)
----------------- -----
- - ----------
Net increase in net assets
from Series share
transactions.............. 2,124,131
14,815,808
----------------- -----
- - ----------
Total increase.................. 2,124,131
14,815,808
Net Assets
Beginning of period............. 77,682,593
62,866,785
----------------- -----
- - ----------
End of period................... $ 79,806,724 $
77,682,593
----------------- -----
- - ----------
----------------- -----
- - ----------
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 6
<PAGE>
Notes to Financial Statements PRUDENTIAL
MUNICIPAL SERIES FUND
(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, 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.
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 LLC
('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 28, 1997, PMF voluntarily waived 75%
of its management
fee. The amount of fees waived for the six months ended
February 28, 1997
amounted to $145,127 ($.02 per share; .375% of average net
assets, annualized).
The Fund has a distribution agreement with Prudential
Securities Incorporated
('PSI'), which acts as the distributor of the Fund. The
Series compensates 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.
PSI, PMF and PIC are indirect, wholly-owned subsidiaries of
The Prudential
Insurance Company of America.
- - ------------------------------------------------------------
- - --------------------
-----
7
<PAGE>
Notes to Financial Statements PRUDENTIAL
MUNICIPAL SERIES FUND
(Unaudited) CONNECTICUT
MONEY MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly-owned
subsidiary of PMF,
serves as the Fund's transfer agent. During the six months
ended February 28,
1997, the Series incurred fees of approximately $15,400 for
the services of
PMFS. As of February 28, 1997, approximately $2,600 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.
Financial Highlights PRUDENTIAL
MUNICIPAL SERIES FUND
(Unaudited) CONNECTICUT
MONEY MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended August 31,
February 28, ----
- - ---------------------------------------------------
1997
1996 1995 1994 1993 1992
------ ----
- - --- ------- ------- ------- -------
<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 realized
gains(a)........................... .01
.03 .03 .02 .02 .03
Dividends and distributions to
shareholders....................... (.01)
(.03) (.03) (.02) (.02) (.03)
------ ----
- - --- ------- ------- ------- -------
Net asset value, end of period....... $ 1.00 $
1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ----
- - --- ------- ------- ------- -------
------ ----
- - --- ------- ------- ------- -------
TOTAL RETURN(b):..................... 1.48%
3.17% 3.16% 2.02% 2.20% 3.42%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...... $ 79,807
$77,683 $62,867 $54,302 $57,794 $40,480
Average net assets (000)............. $ 78,042
$74,576 $57,103 $60,594 $53,152 $33,964
Ratios to average net assets(a):
Expenses, including distribution
fee................................ .46%(c)
.47% .58% .54% .39% .13%
Expenses, excluding distribution
fee.............................. .34%(c)
.35% .46% .42% .26% .00%
Net investment income.............. 2.99%(c)
3.12% 3.17% 1.99% 2.17% 3.20%
</TABLE>
- - ---------------
(a) Net fee waiver and/or expense subsidy.
(b) Total return includes reinvestment of dividends and
distributions. Total
returns for periods of less than a full year are not
annualized.
(c) Annualized.
- - ------------------------------------------------------------
- - --------------------
-----
8
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Supplemental Proxy Information CONNECTICUT
MONEY MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
A Meeting of Shareholders of the Prudential Municipal
Series Fund was held on
Wednesday, October 30, 1996 at the offices of Prudential
Securities
Incorporated, One Seaport Plaza, New York, New York. The
meeting was held for
the following purposes:
(1) To elect Trustees as follows: Edward D. Beach, Eugene C.
Dorsey, Delayne
Dedrick Gold, Robert F. Gunia, Harry A. Jacobs, Jr.,
Donald D. Lennox,
Mendel A. Melzer, Thomas T. Mooney, Thomas H. O'Brien,
Richard A. Redeker,
Nancy H. Teeters and Louis A. Weil, III.
(2) Approval of an amendment to the Fund's investment
restrictions to permit an
increase in the borrowing capabilities of the Fund.
The results of the proxy solicitation on the above
matters were as follows:
<TABLE>
<CAPTION>
Trustee/Matter
Votes for Votes against Abstentions
- - ----------- ------------- -----------
<C> <S>
<C> <C> <C>
(1) Edward D. Beach
370,817,756 0 16,169,234
Eugene C. Dorsey
371,804,474 0 15,182,516
Delayne Dedrick Gold
371,782,816 0 15,204,174
Robert F. Gunia
371,639,995 0 15,346,995
Harry A. Jacobs, Jr.
371,395,066 0 15,591,924
Donald D. Lennox
371,150,974 0 15,836,016
Mendel A. Melzer
371,811,918 0 15,175,072
Thomas T. Mooney
371,607,874 0 15,379,116
Thomas H. O'Brien
371,328,875 0 15,658,115
Richard A. Redeker
371,876,756 0 15,110,234
Nancy H. Teeters
371,775,376 0 15,211,614
Louis A. Weil, III
371,777,517 0 15,209,473
(2) Amendment relating to borrowing capabilities
259,440,223 31,557,793 17,488,974
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
9
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Robert F. Gunia
Harry A. Jacobs, Jr.
Donald D. Lennox
Mendel A. Melzer
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Louis A. Weil, III
Officers
Richard A. Redeker, President
Susan C. Cote, Vice President
Thomas Early, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Mutual Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
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 LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Auditors
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, NY 10022
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 28,
1997 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
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
BULK RATE
U.S. POSTAGE
PAID
Permit 6807
New York, NY
74435M648 MF154E2
Cat#444515Z
(ICON)
Prudential
Municipal
Series Fund
- - ------------
New Jersey
Money Market Series
(LOGO)
SEMI
ANNUAL
REPORT
Feb. 28, 1997
<PAGE>
Prudential Municipal Series Fund
New Jersey Money Market Series
Performance At A Glance.
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 28, 1997 was 2.70%, which was was
slightly ahead of
the 2.67% reported by the average tax-free New Jersey
municipal bond money
market fund tracked by IBC Financial Data. The Series' yield
was equivalent to
a taxable yield of 4.77% for individuals in the highest
federal and state
income tax brackets.
Fund Facts As of 2/28/97
<TABLE>
<CAPTION>
7-Day Net Asset Taxable
Equivalent Yield1 Weighted Avg. Total Net
Current Yld. Value @31% @36%
@39.6% Mat. Assets (mil.)
<S> <C> <C> <C> <C>
<C> <C> <C>
NJ Money
Market Fund 2.70% $1.00 4.18% 4.45%
4.79% 54 Days $205
IBC Financial Data
NJ Tax-Exempt
Fund Avg.2 2.67 $1.00 4.13 4.46
4.72 54 Days N/A
</TABLE>
Note: Yields will fluctuate from time to time and past
performance is not
indicative 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 12
funds in the
International Business Communications Financial Data New
Jersey tax-exempt
money market fund category as of February 28, 1997.
How Investments Compared.
(As of 2/28/97)
(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 included
historical 20-year average annual returns. These returns
assume the
reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors
have received higher
historical total returns from stocks than from most other
invest-ments. 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.
Taxable 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.
(GRAPH)
<PAGE>
Ken Potts, Fund Manager (PICTURE)
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 bonds 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).
There can be no assurance that the Series will achieve its
investment
objective.
A Word About Quality.
Your Series will typically purchase securities with
maturities of 13 months 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.
Strategy Session.
- - --------------------------------------------------
Waiting Out the Fed.
Short-term municipal markets were fairly quiet over the past
six months ending
in February. Interest rates fluctuated far less than they
did earlier in 1996,
as investors came to realize that the Federal Reserve would
leave interest
rates unchanged for the remainder of the year. Of course,
the Federal Reserve
seeks to promote moderate, non-inflationary growth by
raising or lowering the
federal funds rate (what banks charge each other for
overnight loans).
Correctly anticipating these moves is one way your Series
seeks to enhance
tax-free return.
The federal funds rate remained unchanged at 5.25%
throughout the reporting
period. On March 25, 1997, however, the Federal Reserve
raised the rate 25
basis points (a basis point is 1/100th of a percentage
point) to 5.50%. It was
the first increase in two years. The central bank explained
it was moving to
quell "inflationary imbalances" that could undermine the
country's six-year
economic expansion. The action was widely expected. Indeed,
Federal Reserve
Chairman Alan Greenspan had been saying he would not rule
out a "pre-emptive"
strike against inflationary pressures for several weeks
prior to the actual
rate increase.
Our strategy over the past six months was to adjust the
Series' weighted
average maturity (WAM) in anticipation of market conditions.
WAM measures the
sensitivity of the Series' underlying securities to changing
interest rates.
When interest rates are expected to rise, WAM is usually
shortened (we buy
shorter maturity securities) so we are positioned to buy new
securities at
higher yields. Conversely, when rates are expected to fall,
WAM is lengthened
(we buy longer maturity securities) to preserve higher
yields for you.
During the reporting period we kept our WAM in line with to
the average New
Jersey tax-free money market fund. This move prepared us to
purchase higher
yielding securities if the Federal Reserve raised interest
rates (as things
turned out, the central bank did not do so until March). It
also allowed us to
handle seasonal year-end redemptions when investors needed
cash to pay for such
things as holiday expenses or other purposes.
Governor Christine Whitman continues to implement tax
reductions. After cutting
personal income taxes by 15%, a deduction for property taxes
is being phased
in over several years. The Garden State's credit rating by
Moody's was Aa1 and
remained unchanged since our last report to you.
<PAGE>
What Went Well.
- - --------------------------------------
The Long & Short of It.
Historically, there has been a seasonal dip in municipal
rates in January as
investors scramble to invest cash from coupon payments and
bond calls. That's
why many money funds greatly extend their weighted average
maturity in December
to lock-in higher rates to carry them through this period.
But in 1997, the
decline in rates was not as steep or prolonged as in years
past because fewer
bonds matured. We saw this trend developing and we did not
extend our WAM
precipitously. This allowed us to participate earlier as
rates began to
recover in mid January.
Hunting For Value.
We hunted for value and found it in AMT paper. We continued
to buy AMT paper
(so-called because these securities are subject to the
federal alternative
minimum tax). AMT yields were attractive -- up to 15 basis
points higher than
non-AMT investments. These securities remained useful tools
for us.
Looking Ahead.
- - -------------------
The Federal Reserve has raised short-term interest rates
once in 1997. Will
there be more increases in short-term interest rates?
Probably. Our past
experience tells us that changes in Federal Reserve monetary
policy are rarely
one-shot deals. Given present economic conditions, we
believe one or two
additional rate increases will most likely occur later this
year. Of course, no
one knows for sure. But if this does happen, short-term
municipal rates will
follow the taxable markets' lead and we will do our part to
have your Series
take advantage of them.
And Not So Well.
- - -------------------
Slim Pickings.
Municipal bond supply was very tight over the last six
months. While this makes
what we owned more valuable, we would prefer to have greater
investment
opportunities available. The drop in supply was partly
seasonal but also
reflected a strengthening state economy -- increasing tax
revenues lessens the
need for new bond issuance by municipalities.
(GRAPH)
1
<PAGE>
President's Letter April 10, 1997
(PICTURE)
We're On Your Side.
Dear Shareholder:
The first three months of the year were not good ones for
most U.S. stock and
bond investors. The Dow Jones Industrial Average was down
considerably from its
record high set in mid-March, and long-term interest rates
were at their
highest levels in six months. Not surprisingly, in the first
quarter of 1997
the average stock and bond mutual fund had negative returns
(for stock funds,
it was the first time since 1994).
The reasons behind the recent market decline have been well-
publicized --
higher interest rates and inflationary pressures. And while
we are watching
market developments closely, we are also very concerned
about you and how
you're dealing with events. We realize that staying the
course toward your
long-term investment goals isn't easy during such times of
uncertainty. Here
are a few thoughts that may help --
- - - Keep Your Expectations Realistic. The best investors know
that financial
markets rise and fall -- and so too, will the value of
their investments.
Over time, however, stocks have been shown to produce very
attractive returns
that were well ahead of inflation.
- - - Remember Your Time Horizon. If your investment goals are
long term (several
years or more), so should your time horizon. During this
period, it's not
unusual for stocks and bonds to experience several periods
of market
uncertainty.
- - - We're On Your Side. Your Prudential Securities Financial
Advisor or
Prudential Registered Representative can help you
understand what's happening
in the financial markets. They can assist you in making
informed decisions
based upon a thorough knowledge of your financial needs
and long-term goals.
Call him or her today.
Thank you for your continued confidence in Prudential mutual
funds. We'll do
everything we can to keep you informed and to earn your
trust.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
2
<PAGE>
Portfolio of Investments as of PRUDENTIAL MUNICIPAL
SERIES FUND
February 28, 1997 (Unaudited) NEW JERSEY 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>
- - ------------------------------------------------------------
- - ------------------------------------------------------------
- - ------
Atlantic Cnty. Impvt. Auth. Rev., Ser. 86, F.R.W.D.
VMIG1 3.00% 3/05/97 $ 1,300 $
1,300,000
Bergen Cnty., Ser. 96, G.O.
Aaa 4.50 6/15/97 1,690
1,693,092
Bernards Twnshp., Ser. 96, B.A.N.
NR 4.00 5/23/97 3,801
3,803,082
Burlington Cnty.,
Ser. 96, B.A.N.
NR 4.00 3/13/97 3,000
3,000,591
Ser. 96, G.O.
Aa 5.20 10/01/97 2,760
2,782,764
Cherry Hill Twnshp., Ser. 96A, B.A.N.
NR 4.25 10/15/97 5,000
5,015,033
Essex Cnty. Impvt. Auth. Rev., F.R.W.D.
VMIG1 3.00 3/05/97 3,000
3,000,000
Gulf Coast TX, Ind. Dev. Auth., Citgo Pet., Ser. 95,
F.R.D.D. VMIG1 3.55 3/03/97 5,200
5,200,000
Hudson Cnty. Impvt. Auth. Rev., Ser. 86, F.R.W.D.
A-1+(c) 3.20 3/06/97 2,945
2,945,000
Marlboro Twnshp., Ser. 96, B.A.N.
NR 4.00 12/18/97 3,145
3,154,622
Morris Cnty., B.A.N.
MIG1 3.95 8/07/97 7,000
7,000,856
New Jersey Sports & Expo. Auth., Ser. 92C, F.R.W.D.
VMIG1 3.10 3/06/97 4,300
4,300,000
New Jersey St.
Ser. 87, G.O.
NR 7.40 4/15/97 4,140
4,221,119
Ser. 97A, T.E.C.P.
P-1 3.35 4/24/97 7,200
7,200,000
Ser. 97A, T.E.C.P.
P-1 3.55 5/27/97 2,000
2,000,000
New Jersey St. Econ. Dev. Auth.,
Brach Jersey Ave., Ser. 86, F.R.W.D.
A-1+(c) 3.15 3/05/97 2,200
2,200,000
Catholic Cmnty. Svcs. Proj., Ser. 93, F.R.W.D.
VMIG1 3.20 3/06/97 5,900
5,900,000
Catholic Cmnty. Svcs. Proj., Ser. 95, F.R.W.D.
VMIG1 3.20 3/06/97 2,500
2,500,000
Chambers Cogen. Proj., Ser. 91, T.E.C.P.
VMIG1 3.10 3/28/97 3,000
3,000,000
Dow Chemical, Ser. 84A, F.R.D.D.
P-1 3.30 3/03/97 6,700
6,700,000
East Meadow Corp., Ser. 86A, F.R.W.D.
VMIG1 3.45 3/05/97 2,675
2,675,000
Econ. Growth Bds., Ser. 92L, F.R.W.D.
VMIG1 3.15 3/06/97 1,930
1,930,000
Econ. Growth Bds., Ser. 94B, F.R.W.D.
A-1(c) 3.15 3/06/97 1,800
1,800,000
Franciscan Oaks Proj., Ser. 92B, F.R.W.D.
A-1(c) 3.15 3/05/97 1,600
1,600,000
Hillcrest Health Svcs. Sys. Proj., Ser. 95, F.R.W.D.
VMIG1 3.35 3/05/97 9,200
9,200,000
Keystone Proj., Ser. 92 T.E.C.P.
VMIG1 3.20 5/20/97 2,600
2,600,000
Keystone Proj., Ser. 92, T.E.C.P.
VMIG1 3.40 4/15/97 5,200
5,200,000
Keystone Proj., Ser. 92, T.E.C.P.
VMIG1 3.40 5/12/97 1,500
1,500,000
Michael Shalit Proj., Ser. 93, F.R.D.D.
Aa3 3.35 3/03/97 1,645
1,645,000
North Plainfield Hldg., Ser. 92, A.O.T.
VMIG1 4.00 9/01/97 3,635
3,635,000
Ocean Spray Cranberry Inc. Proj., Ser. 87, S.A.O.T.
A+(c)(e) 4.10 7/01/97 4,000
4,000,000
Office Court Assoc. Proj., F.R.W.D.
A-1+(c) 3.20 3/05/97 1,800
1,800,000
Peddie Sch. Proj., Ser. 94B, F.R.W.D.
A-1(c) 3.15 3/06/97 3,000
3,000,000
PSE&G, Ser. 96A, F.R.W.D.
VMIG1 2.85 3/05/97 5,200
5,200,000
RJB Associates Ltd., F.R.W.D.
A1(e) 3.30 3/06/97 1,480
1,480,000
Russ Berrie & Co., Ser. 83, F.R.W.D.
A-1+(c) 3.00 3/05/97 900
900,000
Thermal Energy Ltd., Ser. 95, S.A.O.T.
NR 3.50 4/10/97 2,500
2,500,000
United Water of NJ Proj., Ser. 96A, F.R.D.D.
VMIG1 3.10 3/03/97 9,800
9,800,000
New Jersey St. Hsg. & Mtg. Fin. Agcy., Ser. 96S, F.R.W.D.
A-1+(c) 3.40 3/06/97 6,000
6,000,000
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as of PRUDENTIAL MUNICIPAL
SERIES FUND
February 28, 1997 (Unaudited) NEW JERSEY 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 Jersey St. Tpke. Auth. Rev., Ser. 91D, F.R.W.D.
VMIG1 3.15% 3/05/97 $ 6,000 $
6,000,000
Newark Healthcare Facs. Rev., Ser. 95A, F.R.W.D.
A-1(c) 3.40 3/06/97 2,955
2,955,000
Ocean Cnty., Ser. 96, B.A.N.
MIG1 4.10 7/01/97 3,000
3,003,248
Piscataway Twnshp., Ser. 96, B.A.N.
NR 4.25 4/25/97 3,000
3,002,833
Port Auth. of New York & New Jersey,
Ser. 3, F.R.D.D.
VMIG1 3.45 3/03/97 3,400
3,400,000
Ser. 4, F.R.D.D.
VMIG1 3.50 3/03/97 6,000
6,000,000
Ser. 5, F.R.D.D.
VMIG1 3.45 3/03/97 2,100
2,100,000
Ser. 93-2, F.R.W.D.
NR 3.40 3/04/97 8,000
8,000,000
Puerto Rico Comnwlth.,
Gov't. Dev. Bank, Ser. 85, F.R.W.D.
VMIG1 2.95 3/05/97 2,900
2,900,000
Gov't. Dev. Bank, Ser. 95, T.E.C.P.
A-1+(c) 3.40 5/15/97 3,600
3,600,000
97A, T.R.A.N.
MIG1 4.00 7/30/97 2,300
2,305,325
Hwy. & Trans. Auth. Rev. Bds.
VMIG1 2.95 3/05/97 800
800,000
Salem Cnty. Ind. Poll. Ctrl. Rev., Ser. 93A, T.E.C.P.
VMIG1 3.40 5/13/97 8,000
8,000,000
Union Cnty. Ind. Poll. Ctrl. Fin. Auth. Rev., Ser. 94,
F.R.D.D.
P-1 3.15 3/03/97 1,400
1,400,000
Washoe Cnty., NV, Sierra Pacific Pwr. Proj., Ser. 90,
F.R.D.D. P-1 3.55 3/03/97 900
900,000
West Windsor Plainsboro Reg. Schl. Dist., Ser. 97, B.A.N.
NR 4.00 2/10/98 5,000
5,015,838
- - ------------
Total Investments--98.7%
(Amortized cost $202,763,403; (d))
202,763,403
Other assets in excess of liabilities--1.3%
2,698,892
- - ------------
Net Assets--100%
$205,462,295
- - ------------
- - ------------
</TABLE>
- - ---------------
(a) The following abbreviations are used in portfolio
descriptions:
A.O.T.--Annual Optional Tender.
B.A.N--Band Anticipation Note.
F.R.D.D.--Floating Rate (Daily) Demand Note (b).
F.R.W.D.--Floating Rate (Weekly) Demand Note (b).
G.O.--General Obligation.
S.A.O.T.--Semi Annual Optional Tender.
T.E.C.P.--Tax Exempt Commercial Paper.
T.R.A.N.--Tax & Revenue Anticipation Note.
(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 statement purposes.
(e) This security has been deemed comparable in quality 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.
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements. 4
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL
MUNICIPAL SERIES FUND
(Unaudited) NEW JERSEY
MONEY MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Assets
February 28, 1997
- - -----------------
<S>
<C>
Investments, at amortized cost which approximates market
value........................................... $
202,763,403
Cash........................................................
.............................................
6,834
Receivable for Series shares
sold........................................................
................ 3,570,552
Interest
receivable..................................................
.................................... 1,406,368
Deferred expenses and other
assets......................................................
................. 3,972
- - -----------------
Total
assets......................................................
.................................... 207,751,129
- - -----------------
Liabilities
Payable for Series shares
reacquired..................................................
................... 2,099,671
Management fee
payable.....................................................
.............................. 76,735
Accrued expenses and other
liabilities.................................................
.................. 50,013
Dividends
payable.....................................................
................................... 48,765
Distribution fee
payable.....................................................
............................ 10,691
Deferred trustees'
fees........................................................
.......................... 2,959
- - -----------------
Total
liabilities.................................................
.................................... 2,288,834
- - -----------------
Net
Assets......................................................
......................................... $
205,462,295
- - -----------------
- - -----------------
Net assets were comprised of:
Shares of beneficial interest, at $.01 par
value......................................................
$ 2,054,623
Paid-in capital in excess of
par.........................................................
............. 203,407,672
- - -----------------
Net assets, February 28,
1997........................................................
.................... $ 205,462,295
- - -----------------
- - -----------------
Net asset value, offering price and redemption price per
share ($205,462,295 / 205,462,295 shares of
beneficial shares 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>
Six
Months
Ended
Net Investment Income February 28,
1997
<S> <C>
Income
Interest and discount earned.............. $
3,320,510
------------
- - -----
Expenses
Management fee............................
480,370
Distribution fee..........................
120,092
Transfer agent's fees and expenses........
44,000
Custodian's fees and expenses.............
36,000
Reports to shareholders...................
12,000
Registration fees.........................
10,000
Audit fee.................................
4,000
Legal fees................................
3,000
Trustee's fees............................
1,800
Miscellaneous.............................
2,601
------------
- - -----
Total expenses.........................
713,863
Less: Custodian fee credit................
(915)
------------
- - -----
Net expenses...........................
712,948
------------
- - -----
Net investment income........................
2,607,562
------------
- - -----
Net Increase in Net Assets
Resulting from Operations.................... $
2,607,562
------------
- - -----
------------
- - -----
</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 28, August
31,
in Net Assets 1997 1996
<S> <C> <C>
Operations
Net investment income....... $ 2,607,562 $
5,571,957
------------- ---------
- - ----
Net increase in net assets
resulting from
operations............... 2,607,562
5,571,957
------------- ---------
- - ----
Dividends to shareholders...... (2,607,562)
(5,571,957)
------------- ---------
- - ----
Series share transactions
(at $1 per share)
Net proceeds from shares
subscribed............... 340,247,380
686,158,251
Net asset value of shares
issued to shareholders in
reinvestment of
dividends................ 2,580,897
5,403,204
Cost of shares reacquired... (318,762,275)
(692,617,954)
------------- ---------
- - ----
Net increase (decrease) in
net assets from Series
share transactions....... 24,066,002
(1,056,499)
------------- ---------
- - ----
Total increase (decrease)...... 24,066,002
(1,056,499)
Net Assets
Beginning of period............ 181,396,293
182,452,792
------------- ---------
- - ----
End of period.................. $ 205,462,295 $
181,396,293
------------- ---------
- - ----
------------- ---------
- - ----
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements. 6
<PAGE>
Notes to Financial Statements (Unaudited) PRUDENTIAL
MUNICIPAL SERIES FUND
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 fourteen 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.
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 LLC
('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 to 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
Securities Incorporated
('PSI'), which acts as the distributor of the Fund. The Fund
compensates PSI for
distributing and servicing the Fund's shares pursuant to
plans of distribution
regardless of expenses actually incurred by them. The
distribution fees for the
Fund are 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 LLC ('PMFS'), a wholly-owned
subsidiary of PMF,
serves as the Fund's transfer agent. During the six months
ended February 28,
1997, the Series incurred fees of approximately $37,300 for
the services of
PMFS. As of February 28, 1997, approximately $6,200 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.
- - ------------------------------------------------------------
- - --------------------
7
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) NEW JERSEY
MONEY MARKET SERIES
- - ------------------------------------------------------------
- - -------------------
<TABLE>
<CAPTION>
Six
Months
Ended
Year Ended August 31,
February
28, ----------------------------------------------------
- - --------
1997
1996 1995 1994 1993 1992
----------
- - -- -------- -------- -------- -------- -
- - -------
<S> <C>
<C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............ $ 1.00
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income and net realized
gains(a)................................... .01
.03(a) .03(a) .02(a) .02(a) .04(a)
Dividends and distributions................... (.01)
(.03) (.03) (.02) (.02) (.04)
------------
- - -------- -------- -------- -------- --------
Net asset value, end of year.................. $ 1.00
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------
- - -------- -------- -------- -------- --------
------------
- - -------- -------- -------- -------- --------
TOTAL RETURN(c):.............................. 1.36%
2.92% 3.15% 1.90% 2.31% 3.48%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................. $205,462
$181,396 $182,453 $158,280 $163,087 $164,092
Average net assets (000)...................... $193,740
$192,617 $171,223 $169,123 $170,103 $155,915
Ratios to average net assets(a):
Expenses, including distribution fee.......
.74%(b) .70%(a) .64%(a) .68%(a)
.64%(a) .32%(a)
Expenses, excluding distribution fee.......
.62%(b) .57%(a) .51%(a) .55%(a)
.51%(a) .19%(a)
Net investment income......................
2.71%(b) 2.89%(a) 3.11%(a) 1.87%(a)
2.02%(a) 3.33%(a)
</TABLE>
- - ---------------
(a) Net of management fee waiver and/or expense subsidy.
(b) Annualized.
(c) 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. 8
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Supplemental Proxy Information NEW JERSEY MONEY
MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
A Meeting of Shareholders of the Prudential Municipal
Series Fund was held on
Wednesday, October 30, 1996 at the offices of Prudential
Securities
Incorporated, One Seaport Plaza, New York, New York. The
meeting was held for
the following purposes:
(1) To elect Trustees as follows: Edward D. Beach, Eugene C.
Dorsey, Delayne
Dedrick Gold, Robert F. Gunia, Harry A. Jacobs, Jr.,
Donald D. Lennox,
Mendel A. Melzer, Thomas T. Mooney, Thomas H. O'Brien,
Richard A. Redeker,
Nancy H. Teeters and Louis A. Weil, III.
(2) Approval of an amendment to the Fund's investment
restrictions to permit an
increase in the borrowing capabilities of the Fund.
The results of the proxy solicitation on the above
matters were as follows:
<TABLE>
<CAPTION>
Trustee/Matter
Votes for Votes against Abstentions
- - ----------- ------------- -----------
<S> <C>
<C> <C> <C>
(1) Edward D. Beach
370,817,756 -- 16,169,234
Eugene C. Dorsey
371,804,474 -- 15,182,516
Delayne Dedrick Gold
371,782,816 -- 15,204,174
Robert F. Gunia
371,639,995 -- 15,346,995
Harry A. Jacobs, Jr.
371,395,066 -- 15,591,924
Donald D. Lennox
371,150,974 -- 15,836,016
Mendel A. Melzer
371,811,918 -- 15,175,072
Thomas T. Mooney
371,607,874 -- 15,379,116
Thomas H. O'Brien
371,328,875 -- 15,658,115
Richard A. Redeker
371,876,756 -- 15,110,234
Nancy H. Teeters
371,775,376 -- 15,211,614
Louis A. Weil, III
371,777,517 -- 15,209,473
(2) Amendment relating to borrowing capabilities
259,440,223 31,557,793 17,488,974
</TABLE>
- - ------------------------------------------------------------
- - --------------------
9
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Robert F. Gunia
Harry A. Jacobs, Jr.
Donald D. Lennox
Mendel A. Melzer
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Louis A. Weil, III
Officers
Richard A. Redeker, President
Susan C. Cote, Vice President
Thomas Early, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Mutual Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
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 LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Auditors
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, NY 10022
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 28,
1997 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
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
BULK RATE
U.S. POSTAGE
PAID
Permit 6807
New York, NY
74435M762 MF154E2
Cat#444355Z
(ICON)
Prudential
Municipal
Series Fund
- - --------------------
Massachusetts Series
SEMI
ANNUAL
REPORT
Feb. 28, 1997
(LOGO)
<PAGE>
Prudential Municipal Series Fund
Massachusetts Series
Performance At A Glance.
The six-months ending in February were rewarding ones for
municipal
bond investors. Bond prices rose as talk of higher interest
rates
subsided (at least temporarily) and inflation levels
remained low.
For the six-month reporting period ended February 28, 1997,
we're
pleased to report that the Prudential Municipal Series Fund
- - -- Massachusetts
Series provided attractive tax-free yields. Our total
returns were
slightly behind the average Massachusetts tax-free municipal
bond
fund, as measured by Lipper Analytical Services.
<TABLE>
Cumulative Total Returns1 As of
2/28/97
<CAPTION>
Six One
Five Ten Since
Months Year
Years Years Inception2
<S> <C> <C> <C>
<C> <C>
Class A 4.6% (4.5)4 4.3% (4.2)4
40.8% (40.7)4 N/A 67.9% (67.8)4
Class B 4.4 (4.3)4 3.9 (3.8)4
37.9 (37.8)4 81.3% (80.2)4 156.4 (152.6)4
Class C 4.3 (4.2)4 3.7 (3.6)4 N/A
N/A 16.8 (16.7)4
Class Z N/A N/A N/A
N/A 1.0
Lipper MA Muni Avg.3 4.7 4.7
40.9 91.0 ***
</TABLE>
<TABLE>
Average Annual Total Returns1
As of 3/31/97
<CAPTION>
One Five Ten
Since
Year Years Years
Inception2
<S> <C> <C> <C>
<C>
Class A 1.3% (1.2)4 6.1% (6.0)4 N/A
6.8%
Class B -0.9 (-1.0)4 6.1 6.0% (5.9)4
7.7 (7.5)4
Class C 2.8 (2.7)4 N/A N/A
5.4 (5.3)4
</TABLE>
<TABLE>
<CAPTION>
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>
Dividends Class A $0.29 4.49% (4.44)4
7.97% (7.88)4 8.45% (8.35)4
& Yields Class B $0.27 4.23 (4.18)4
7.51 (7.42)4 7.96 (7.86)4
As of Class C $0.25 3.98 (3.93)4
7.07 (6.98)4 7.49 (7.39)4
2/28/97 Class Z $0.15 5.25 (5.20)4
9.32 (9.23)4 9.88 (9.78)4
</TABLE>
Past performance is not indicative of future results.
Principal and
investment return will fluctuate so that an investor's
shares, when
redeemed, may be worth more or less than their original
cost.
1Source: Prudential Mutual Fund Management and Lipper
Analytical
Services. The cumulative total returns do not take into
account
sales charges. The average annual returns do take into
account
applicable sales charges. The Fund charges a maximum front-
end
sales load of 3% for Class A shares and a 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.
Class Z shares have no service or 12b-1 fee. Class Z shares
have been in existence for less than one year, and therefore
no average annual returns are shown presented.
2Inception dates: 1/22/90 for Class A; 9/25/84 for Class B;
8/1/94 for Class C; and 12/6/96 for Class Z.
3The Lipper Massachusetts Municipal Bond fund average
includes
51 funds for six months, 51 funds for one year, 22 funds for
five years and seven funds for 10 years.
4Without waiver of management fees and/or expense
subsidization,
the Series' average annual return and yields would have been
lower, as indicated in parentheses ( ).
5Taxable equivalent yields reflect federal and applicable
state tax rates.
***The Lipper Since Inception category return for Class A
shares is 69.0%, which includes 18 funds; for Class B is
64.2%
for four funds and for Class C is 16.9% for 24 funds.
How Investments Compared.
(As of 2/28/97)
(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 included
historical
20-year average annual returns. These returns assume the
reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors
have
received higher historical total returns from stocks than
from
most other invest-ments. 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.
Taxable 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.
<PAGE>
James M. Murphy, 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. 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' will achieve its
objective.
New Manager Named.
In January 1997, James M. Murphy was named the new portfolio
manager
of the Massachusetts Series Fund. Jim joined Prudential in
1989 and
brings to the position extensive experience as a municipal
bond
trader and credit analyst.
Strategy Session.
The municipal bond market moved in cycles during the
reporting period:
Bond prices rallied on news of slower economic growth and
low
inflation; then sold off when reports indicated the
opposite.
For example, in the third quarter of 1996, bond prices
rallied.
Municipal bond interest rates were 6.01% on October 24 and
gradually
declined to 5.80% in November, according to the Bond Buyer's
Revenue
Bond Index, a widely-watched industry barometer. The start
of 1997
brought news that the economy was accelerating. Fourth
quarter
Gross Domestic Product (GDP is the total value of all the
goods
and services produced by the economy and a generally
accepted
measure of economic growth) surged 3.8%. Yet inflation
remained
low. Interest rates then began a steady climb upward as bond
prices fell slightly. Interest rates ended the reporting
period at 5.93%.
Portfolio Breakdown.
Expressed as a percentage of
total investments as of 2/28/97.
(PIE CHART)
As you know, bond prices rise when interest rates fall, and
vice versa. Our strategy over the past six months was to
adjust
the Series' duration in order to help it respond more
effectively
to interest rate movements. When the municipal bond market
rallied
last fall, we lengthened duration. This allowed your Series
to
profit as bond prices rose. Conversely, as the bond market
slowed at year-end, we shortened the Series' duration. This
protected assets as interest rates rose.
As the end of the reporting period neared, we shortened
Series'
duration even more to match or be slightly shorter than, the
average Massachusetts tax-free municipal bond fund. We did
not
want to be caught off guard if the Federal Reserve raised
short-term interest rates.
<PAGE>
What Went Well.
A Prudent Move.
We shortened Series' duration as the reporting period ended
in
February in anticipation of a possible increase in interest
rates
by the Federal Reserve. It was a prudent move. On March 25,
1997,
the central bank raised the federal funds rate (what banks
charge
each other for overnight loans) one-quarter of a percentage
point
to 5.50%. It was the first increase in two years.
The Federal Reserve explained it was acting to quell
"inflationary imbalances" that could undermine the country's
six-year economic expansion. The action was widely expected
by
investors. Indeed, Federal Reserve Chairman Alan Greenspan
had
been saying he would not rule out a "pre-emptive" strike
against inflationary pressures for several weeks prior to
the
actual rate increase.
And Not So Well.
Market Concerns.
While there were more new bonds issued over the past six
months
ending in February, the increase was not dramatic. The
overall
trend for municipal bond supply has been downward for a
couple
of years now. That's because municipalities are receiving
more revenue -- thanks to stronger local economies -- and
thus there is less need to market new bonds. Unfortunately,
that also means fewer investment opportunities for your
Series.
Portfolio Breakdown.
Expressed as a percentage of
total investments as of 2/28/97.
(PIE CHART)
Bond insurance has been another concern. Why? Because as
more
bonds are issued with insurance, it means less uninsured
bonds
were available. In past years, uninsured bonds offered us
the
opportunity to buy good quality credits (usually rated A to
BBB) at attractive prices and yields. As this pool shrinks,
so
too does the opportunity for your Fund to purchase bonds
that
could further enhance yield.
Five Largest Issuers.
6.2% Massachusetts G.O.
5.0% Puerto Rico
Commonwealth G.O.
4.8% City of Boston G.O.
4.7% Mass. Ind. Fin. Agency --
Cape Cod Health System
4.3% Mass. Water Pollution
Abatement Trust
Expressed as a percentage of total net assets as of
2/28/97.
Looking Ahead.
The Federal Reserve has raised short-term interest rates
once
in 1997. Will there be more increases in short-term interest
rates? Probably. Experience tells us that changes in
Federal
Reserve monetary policy are rarely one-shot deals. Given
present
economic conditions, we believe one or two additional rate
increases will most likely occur later this year. Of course,
no one knows for sure. We have positioned the Series'
duration
to be closer to, or slightly shorter than, the average
Massachusetts tax-free municipal bond fund. This will give
us
the flexibility to respond if -- or more likely when -- the
Federal Reserve acts to increase interest rates.
1
<PAGE>
President's Letter April
10, 1997
We're On Your Side.
Dear Shareholder:
The first three months of the year were not good ones for
most
U.S. stock and bond investors. The Dow Jones Industrial
Average
was down considerably from its record high set in mid-March,
and
long-term interest rates were at their highest levels in
six months. Not surprisingly, in the first quarter of 1997
the
average stock and bond mutual fund had negative returns (for
stock funds, it was the first time since 1994).
The reasons behind the recent market decline have been
well-publicized -- higher interest rates and inflationary
pressures. And while we are watching market developments
closely, we are also very concerned about you and how you're
dealing with events. We realize that staying the course
toward
your long-term investment goals isn't easy during such times
of uncertainty. Here are a few thoughts that may help --
Keep Your Expectations Realistic. The best investors know
that financial markets rise and fall -- and so too, will
the value of their investments. Over time, however, stocks
have been shown to produce very attractive returns that were
well ahead of inflation.
Remember Your Time Horizon. If your investment goals are
long
term (several years or more), so should your time horizon.
During this period, it's not unusual for stocks and bonds to
experience several periods of market uncertainty.
We're On Your Side. Your Prudential Securities Financial
Advisor
or Prudential Registered Representative can help you
understand
what's happening in the financial markets. They can assist
you
in making informed decisions based upon a thorough
knowledge of your financial needs and long-term goals. Call
him or her today.
Thank you for your continued confidence in Prudential mutual
funds. We'll do everything we can to keep you informed and
to
earn your trust.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
2
<PAGE>
Portfolio of Investments
as of February 28, 1997 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--98.6%
- - ------------------------------------------------------------
- - ------------------------------------------------------------
- - ------
Attleboro Massachusetts, Gen. Oblig., A.M.B.A.C.
Aaa 5.125% 12/01/15 $ 1,000 $ 956,260
Boston Mass. Ind. Dev. Fin. Auth., Swr. Fac. Rev.,
Harbor Electric Energy Co. Proj.
Baa1 7.375 5/15/15 1,500 1,610,535
Boston Massachusetts Gen. Oblig., Ser. A
Aaa 5.00 11/01/13 2,500 2,393,425
Brockton Massachusetts Gen. Oblig.
Baa1 6.125 6/15/18 1,030 1,059,891
Holyoke Massachusetts Gen. Oblig., School Proj., M.B.I.A.
Aaa 8.10 6/15/05 700 834,414
Lowell Massachusetts Gen. Oblig.
Aaa 7.625 2/15/10 750(e) 858,098
Lynn Mass. Wtr. & Swr. Comn., Gen. Rev., Ser. A, M.B.I.A.
Aaa 7.25 12/01/10 2,100(e) 2,353,155
Mass. Bay Trans. Auth., Gen. Trans., Ser. B, A.M.B.A.C.
Aaa 5.375 3/01/25 1,000 948,110
Mass. St. Gen. Oblig.,
Ser. A
A1 Zero 8/01/06 665 422,155
Ser. A, A.M.B.A.C.
Aaa 5.00 7/01/12 1,000 971,760
Ser. C, F.G.I.C.
Aaa 6.00 8/01/09 1,500 1,624,485
Mass. St. Hlth. & Edl. Facs. Auth. Rev.,
Beth Israel Hospital, A.M.B.A.C
Aaa 8.522(d) 7/01/25 1,500 1,539,375
Dana Farber Cancer Proj., Ser. G-1
A1 6.25 12/01/22 625 644,681
Faulkner Hospital, Ser. C
Baa1 6.00 7/01/23 1,500 1,454,160
Holyoke Hospital, Ser. B
Baa3 6.50 7/01/15 1,500 1,485,735
Jordan Hospital, Ser. C
A-(c) 6.875 10/01/22 1,350 1,441,314
Med Academic & Scientific A
A-(c) 6.625 1/01/15 1,000 1,061,880
Newton-Wellesley Hospital, M.B.I.A.
Aaa 5.875 7/01/15 1,000 1,024,440
Newton-Wellesley Hospital, M.B.I.A.
Aaa 6.00 7/01/18 1,000 1,022,320
Valley Regional Hlth. Sys.
AAA(c) 7.00 7/01/10 825 955,276
Valley Regional Hlth. Sys., Ser. B
Aaa 8.00 7/01/18 1,000(e) 1,130,960
Winchester Hospital, Ser. D
AAA(c) 5.75 7/01/24 2,000 1,962,000
Mass. St. Hsg. Fin. Agcy. Hsg. Rev., Sngl. Fam. Mtge., Ser.
6 Aa 8.10 12/01/14 1,755
1,835,712
Mass. St. Ind. Fin. Agcy. Rev.,
Brooks School
A3 5.95 7/01/23 640 642,445
Cape Cod Hlth. Sys.
Aaa 8.50 11/15/20 2,000(e) 2,317,940
Phillips Academy
Aa1 5.375 9/01/23 1,695 1,642,641
Mass. St. Mun. Wholesale Elec. Co. Pwr. Supply Sys. Rev.,
Ser. A, A.M.B.A.C.
Aaa 5.00 7/01/14 1,500 1,416,750
Mass. St. Port Authority Rev., Ser. B
Aa 5.00 7/01/18 1,000 910,680
Mass. St. Water Pollution Abatement Trust,
Water Pollution Rev.
Aa 6.00 8/01/05 1,000 1,078,000
Water Pollution Rev.
Aa 6.375 2/01/15 1,000 1,071,940
Mass. St. Water Res. Auth., Ser. B, M.B.I.A.
Aaa 6.25 12/01/11 1,000 1,106,070
Palmer Massachusetts Gen. Oblig., Ser. F, A.M.B.A.C.
Aaa 7.30 3/01/10 500(e) 551,900
Plymouth County Corr. Facs. Proj., Cert. of Part., Ser. A
A-(c) 7.00 4/01/22 500 554,005
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments
as of February 28, 1997 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 Commonwealth,
Aqueduct & Swr. Auth. Rev., M.B.I.A.
Aaa 6.00% 7/01/07 $ 1,000 $ 1,093,430
Gen. Oblig., A.M.B.A.C.
Aaa 7.00 7/01/10 1,000 1,180,040
Gen. Oblig., F.S.A.
Aaa 8.132(d) 7/01/20 1,250 1,281,250
Hwy. & Trans. Auth. Rev., Ser. T
Baa1 6.625 7/01/18 1,380 (e) 1,545,614
Puerto Rico Electric Pwr. Auth. Rev.,
Ser. T
Baa1 6.375 7/01/24 1,000 1,055,690
Ser. X
Baa1 5.50 7/01/25 1,000 947,790
Quabbin Mass. Reg. School Dist., Jr.- Sr. High Sch. Proj.,
M.B.I.A.
Aaa 5.50 6/15/06 1,045 1,092,088
- - -----------
Total long-term investments (cost $45,559,520)
49,078,414
- - -----------
SHORT-TERM INVESTMENTS--0.2%
Mass. St. Port Auth. Rev., Multi Modal Rev. Ref., Ser. 95B,
F.R.D.D.
VMIG1 3.45 3/03/97 100 100,000
- - -----------
Total short-term investments (cost $100,000)
100,000
- - -----------
Total Investments--98.8%
(cost $ 45,659,520; Note 4)
49,178,414
Other assets in excess of liabilities--1.2%
594,108
- - -----------
Net Assets--100%
$49,772,522
- - -----------
- - -----------
</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.
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.
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 4
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Statement of Assets and Liabilities
(Unaudited) MASSACHUSETTS
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<S>
<C>
Assets
February 28, 1997
Investments, at value (cost
$45,659,520)................................................
................. $ 49,178,414
Cash........................................................
.............................................
41,922
Interest
receivable..................................................
.................................... 638,825
Receivable for Series shares
sold........................................................
................ 76,765
Other
assets......................................................
....................................... 1,092
- - -----------------
Total
assets......................................................
.................................... 49,937,018
- - -----------------
Liabilities
Accrued
expenses....................................................
..................................... 95,963
Dividends
payable.....................................................
................................... 22,281
Management fee
payable.....................................................
.............................. 17,258
Payable for Series shares
reacquired..................................................
................... 16,220
Distribution fee
payable.....................................................
............................ 9,815
Deferred trustees'
fees........................................................
.......................... 2,959
- - -----------------
Total
liabilities.................................................
.................................... 164,496
- - -----------------
Net
Assets......................................................
......................................... $
49,772,522
- - -----------------
- - -----------------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
........ $ 42,954
Paid-in capital in excess of
par.........................................................
............. 46,175,447
- - -----------------
46,218,401
Accumulated net realized loss on
investments.................................................
......... 35,227
Net unrealized appreciation on
investments.................................................
........... 3,518,894
- - -----------------
Net assets, February 28,
1997........................................................
.................... $ 49,772,522
- - -----------------
- - -----------------
Class A:
Net asset value and redemption price per share
($28,917,752 / 2,494,993 shares of beneficial interest
issued and outstanding).....................
$11.59
Maximum sales charge (3% of offering
price)......................................................
..... .36
- - -----------------
Maximum offering price to
public......................................................
................ $11.95
- - -----------------
- - -----------------
Class B:
Net asset value, offering price and redemption price per
share
($20,811,720 / 1,796,720 shares of beneficial interest
issued and outstanding).....................
$11.58
- - -----------------
- - -----------------
Class C:
Net asset value, offer price and redemption price per
share
($42,851 / 3,700 shares of beneficial interest issued
and outstanding).............................
$11.58
- - -----------------
- - -----------------
Class Z:
Net asset value, offering price and redemption price per
share
($199.32 / 17.198 shares of beneficial interest issued
and outstanding)............................
$11.59
- - -----------------
- - -----------------
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 5
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MASSACHUSETTS SERIES
Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income February 28,
1997
<S> <C>
Income
Interest................................ $ 1,522,380
--------------
- - ---
Expenses
Management fee.......................... 125,283
Distribution fee--Class A............... 14,345
Distribution fee--Class B............... 53,449
Distribution fee--Class C............... 163
Custodian's fees and expenses........... 33,000
Report to shareholders.................. 27,000
Transfer agent's fees and expenses...... 18,000
Registration fees....................... 18,000
Legal fees and expenses................. 5,500
Audit fee and expenses.................. 5,000
Trustees' fees and expenses............. 1,800
Miscellaneous........................... 2,351
--------------
- - ---
Total expenses....................... 303,891
Less: Management fee waiver.............
(12,528)
Custodian fee credit.................
(442)
--------------
- - ---
Net expenses......................... 290,921
--------------
- - ---
Net investment income...................... 1,231,459
--------------
- - ---
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions................. 355,657
Financial futures transactions..........
(134,644)
--------------
- - ---
221,013
--------------
- - ---
Net change in unrealized appreciation/depreciation of:
Investments............................. 782,667
--------------
- - ---
Net gain on investments.................... 1,003,680
--------------
- - ---
Net Increase in Net Assets
Resulting from Operations.................. $ 2,235,139
--------------
- - ---
--------------
- - ---
</TABLE>
<TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
MASSACHUSETTS SERIES
Statement of Changes in Net Assets (Unaudited)
<CAPTION>
Six Months
Ended
Year Ended
Increase (Decrease) February 28,
August 31,
in Net Assets 1997
1996
<S> <C> <C>
Operations
Net investment income........ $ 1,231,459 $
2,623,076
Net realized gain on
investment transactions... 221,013
1,014,811
Net change in unrealized
appreciation/depreciation
of investments............ 782,667
(1,098,536)
----------------- -----
- - ----------
Net increase in net assets
resulting from
operations................ 2,235,139
2,539,351
----------------- -----
- - ----------
Dividends and distributions
(Note 1):
Dividends from net investment
income
Class A................... (729,817)
(1,420,826)
Class B................... (500,669)
(1,200,467)
Class C................... (970)
(1,783)
Class Z................... (3)
- - --
----------------- -----
- - ----------
(1,231,459)
(2,623,076)
----------------- -----
- - ----------
Distributions from net realized gains
Class A................... (438,141)
(162,429)
Class B................... (318,452)
(151,088)
Class C................... (707)
(242)
Class Z................... (3)
- - --
----------------- -----
- - ----------
(757,303)
(313,759)
----------------- -----
- - ----------
Series share transactions (net
of share conversions) (Note
5):
Net proceeds from shares
sold...................... 1,226,524
2,218,216
Net asset value of shares
issued in reinvestment of
dividends................. 1,195,693
1,723,072
Cost of shares reacquired.... (3,757,958)
(8,587,851)
----------------- -----
- - ----------
Net decrease in net assets
from Series share
transactions.............. (1,335,741)
(4,646,563)
----------------- -----
- - ----------
Total decrease.................. (1,089,364)
(5,044,047)
Net Assets
Beginning of period............. 50,861,886
55,905,933
----------------- -----
- - ----------
End of period................... $49,772,522
$50,861,886
----------------- -----
- - ----------
----------------- -----
- - ----------
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 6
<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.
Options: The Fund may either purchase or write options in
order to hedge against
adverse market movements or fluctuations in value caused by
changes in
prevailing interest rates or foreign currency exchange rates
with respect to
securities or currencies which the Fund currently owns or
intends to purchase.
When the Fund purchases an option, it pays a premium and an
amount equal to that
premium is recorded as an investment. When the Fund writes
an option, it
receives a premium and an amount equal to that premium is
recorded as a
liability. The investment or liability is adjusted daily to
reflect the current
market value of the option. If an option expires
unexercised, the Fund realizes
a gain or loss to the extent of the premium received or
paid. If an option is
exercised, the premium received or paid is an adjustment to
the proceeds from
the sale or the cost basis of the purchase in determining
whether the Fund has
realized a gain or loss. The difference between the premium
and the amount
received or paid on effecting a closing purchase or sale
transaction is also
treated as a realized gain or loss. Gain or loss on
purchased options is
included in net realized gain (loss) on investment
transactions.
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
- - ------------------------------------------------------------
- - --------------------
-----
7
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) MASSACHUSETTS
SERIES
- - ------------------------------------------------------------
- - --------------------
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 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 LLC
('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 $12,528 ($0.003 per share)
for the six months
ended February 28, 1997. The Series is not required to
reimburse PMF for such
waiver.
The Fund has a distribution agreement with Prudential
Securities Incorporated
('PSI'), which acts as the distributor of the Class A, Class
B, Class C and
Class Z shares of the Fund. The Fund compensates 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 PSI. The distribution fees are accrued daily and
payable monthly. No
distribution or service fees are paid to PSI as distributor
for the Class Z
shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensates
PSI 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 28, 1997.
PSI has advised the Series that it has received
approximately $1,500 in
front-end sales charges resulting from sales of Class A
shares during the six
months ended February 28, 1997. From these fees, PSI paid
such sales charges to
affiliated broker-dealers, which in turn paid commissions to
salespersons and
incurred other distribution costs.
PSI advised the Series that during the six months ended
February 28, 1997, it
received approximately $19,600 in contingent deferred sales
charges imposed upon
certain redemptions by Class B and C shareholders.
PSI, PMF and PIC are indirect, wholly-owned subsidiaries of
The Prudential
Insurance Company of America.
The Series, along with other affiliated registered
investment companies (the
'Funds'), entered into a credit agreement (the 'Agreement')
on December 31, 1996
with an unaffiliated lender. The maximum commitment under
the Agreement is
$200,000,000. The Agreement expires on December 30, 1997.
Interest on any such
borrowings outstanding will be at market rates. The purpose
of the Agreement is
to serve as an alternative source of funding for capital
share redemptions. The
Series has not borrowed any amounts pursuant to the
Agreement as of February 28,
1997. The Funds pay a commitment fee at an annual rate of
.055 of 1% on the
unused portion of the credit facility. The commitment fee is
accrued and paid
quarterly on a pro-rata basis by the Funds.
- - ------------------------------------------------------------
Note 3. Other Transactions With Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly-owned
subsidiary of PMF,
serves as the Fund's transfer agent. During the six months
ended February 28,
1997, the Series incurred fees of approximately $12,200 for
the services of
PMFS. As of February 28, 1997, approximately
- - ------------------------------------------------------------
- - --------------------
-----
8
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) MASSACHUSETTS
SERIES
- - ------------------------------------------------------------
- - --------------------
$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 28, 1997,
were $3,323,925 and
$4,866,740, respectively.
The cost basis of investments for federal income tax
purposes at February 28,
1997, was $45,768,349 and accordingly, net unrealized
appreciation of
investments for federal income tax purposes was $3,410,065
(gross unrealized
appreciation--$3,450,251, gross unrealized depreciation--
$40,186).
- - ------------------------------------------------------------
Note 5. Capital
The Series offers Class A, Class B, Class C and Class Z
shares. Class A shares
are sold with a front-end sales charge of up to 3%. Class B
shares are sold with
a contingent deferred sales charge which declines from 5% to
zero depending on
the period of time the shares are held. Class C shares are
sold with a
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.
Effective December 6, 1996 the Series commenced offering
Class Z shares. Class Z
shares are not subject to any sales or redemption charge and
are offered
exclusively for sale to a limited group of investors.
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
28, 1997 and fiscal year ended August 31, 1996 were as
follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- - ------------------------------------- ---------- -------
- - ----
<S> <C> <C>
Six months ended February 28, 1997:
Shares sold.......................... 18,078 $
212,370
Shares issued in reinvestment of
dividends and distributions........ 61,939
719,183
Shares reacquired.................... (148,484)
(1,730,108)
---------- -------
- - ----
Net decrease in shares outstanding
before conversion.................. (68,467)
(798,555)
Shares issued upon conversion from
Class B............................ 131,464
1,530,032
---------- -------
- - ----
Net increase in shares outstanding... 62,997 $
731,477
---------- -------
- - ----
---------- -------
- - ----
Year ended August 31, 1996:
Shares sold.......................... 41,217 $
487,329
Shares issued in reinvestment of
dividends and distributions........ 80,396
943,108
Shares reacquired.................... (389,160)
(4,544,162)
---------- -------
- - ----
Net decrease in shares outstanding
before conversion.................. (267,547)
(3,113,725)
Shares issued upon conversion from
Class B............................ 333,272
3,892,048
---------- -------
- - ----
Net increase in shares outstanding... 65,725 $
778,323
---------- -------
- - ----
---------- -------
- - ----
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
9
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) MASSACHUSETTS
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class B Shares
Amount
- - ------------------------------------- ---------- -------
- - ----
<S> <C> <C>
Six months ended February 28, 1997:
Shares sold.......................... 86,570 $
1,008,353
Shares issued in reinvestment of
dividends and distributions........ 40,937
474,820
Shares reacquired.................... (173,172)
(2,017,784)
---------- -------
- - ----
Net decrease in shares outstanding
before conversion.................. (45,665)
(534,611)
Shares issued upon conversion from
Class B............................ (131,495)
(1,530,032)
---------- -------
- - ----
Net increase in shares outstanding... (177,160)
$(2,064,643)
---------- -------
- - ----
---------- -------
- - ----
Year ended August 31, 1996:
Shares sold.......................... 144,346 $
1,689,531
Shares issued in reinvestment of
dividends and distributions........ 66,308
777,976
Shares reacquired.................... (343,488)
(4,032,383)
---------- -------
- - ----
Net decrease in shares outstanding
before conversion.................. (132,834)
(1,564,876)
Shares reacquired upon conversion
into Class A....................... (333,455)
(3,892,048)
---------- -------
- - ----
Net decrease in shares outstanding... (466,289)
$(5,456,924)
---------- -------
- - ----
---------- -------
- - ----
<CAPTION>
Class C
- - -------------------------------------
<S> <C> <C>
Six months ended February 28, 1997:
Shares sold.......................... 483 $
5,600
Shares issued in reinvestment of
dividends and distributions........ 146
1,688
Shares reacquired.................... (870)
(10,066)
---------- -------
- - ----
Net increase in shares outstanding... (241) $
(2,778)
---------- -------
- - ----
---------- -------
- - ----
Year ended August 31, 1996:
Shares sold.......................... 3,492 $
41,356
Shares issued in reinvestment of
dividends and distributions........ 170
1,988
Shares reacquired.................... (958)
(11,306)
---------- -------
- - ----
Net increase in shares outstanding... 2,704 $
32,038
---------- -------
- - ----
---------- -------
- - ----
<CAPTION>
Class Z
- - -------------------------------------
<S> <C> <C>
December 6, 1996(a) through
February 28, 1997:
Shares sold.......................... 17 $
200
Shares issued in reinvestment of
distributions...................... --
3
Shares reacquired.................... --
- - --
---------- -------
- - ----
Net increase in shares outstanding... 17 $
203
---------- -------
- - ----
---------- -------
- - ----
</TABLE>
- - ------------
(a) Commencement of offering of Class Z shares.
- - ------------------------------------------------------------
- - --------------------
-----
10
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) MASSACHUSETTS
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class A
----------
- - -----------------------------------------------------------
Six
Months
Ended
Year Ended August 31,
February
28, ----------------------------------------------------
1997
1996 1995 1994 1993 1992
------
- - ------- ------- ------ ------ ------
<S> <C>
<C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............ $ 11.54
$ 11.63 $ 11.37 $12.17 $11.50 $10.94
------
- - ------- ------- ------ ------ ------
Income from investment operations
Net investment income...........................
.29(a) .59(a) .65(a) .67 .68
.69
Net realized and unrealized gain (loss) on
investment transactions...................... .23
(.02) .26 (.73) .67 .56
------
- - ------- ------- ------ ------ ------
Total from investment operations............. .52
.57 .91 (.06) 1.35 1.25
------
- - ------- ------- ------ ------ ------
Less distributions
Dividends from net investment income............
(.29) (.59) (.65) (.67) (.68)
(.69)
Distributions from net realized gains...........
(.18) (.07) -- (.07) --
- - --
------
- - ------- ------- ------ ------ ------
Total distributions..........................
(.47) (.66) (.65) (.74) (.68)
(.69)
------
- - ------- ------- ------ ------ ------
Net asset value, end of period.................. $ 11.59
$ 11.54 $ 11.63 $11.37 $12.17 $11.50
------
- - ------- ------- ------ ------ ------
------
- - ------- ------- ------ ------ ------
TOTAL RETURN(b):................................
4.59% 4.93% 8.33% (.58)% 12.10%
11.76%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)................. $ 28,918
$28,058 $27,525 $2,293 $2,325 $ 903
Average net assets (000)........................ $ 28,928
$28,091 $15,837 $2,578 $1,336 $ 770
Ratios to average net assets:
Expenses, including distribution fees........
1.26%(a)(d) 1.06%(a) .97%(a) .87% .95%
.99%
Expenses, excluding distribution fees........
1.16%(a)(d) .96%(a) .87%(a) .77% .85%
.89%
Net investment income........................
5.09%(a)(d) 5.06%(a) 5.59%(a) 5.60% 5.79%
6.14%
For Class A, B, C and Z shares:
Portfolio turnover rate(c)...................
7% 18% 36% 33% 56%
32%
</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) Portfolio turnover is calculated on the basis of the
Fund as a whole without
distinguishing between the classes of shares issued.
(d) Annualized.
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 11
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) MASSACHUSETTS
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class B
----------
- - ------------------------------------------------------------
- - --
Six
Months
Ended
Year Ended August 31,
February
28, ----------------------------------------------------
- - ---
1997
1996 1995 1994 1993 1992
------
- - ------- ------- ------- ------- -------
<S> <C>
<C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............ $ 11.53
$ 11.62 $ 11.36 $ 12.17 $ 11.49 $ 10.94
------
- - ------- ------- ------- ------- -------
Income from investment operations
Net investment income...........................
.27(a) .54(a) .60(a) .61 .63
.64
Net realized and unrealized gain (loss) on
investment transactions...................... .23
(.02) .26 (.74) .68 .55
------
- - ------- ------- ------- ------- -------
Total from investment operations............. .50
.52 .86 (.13) 1.31 1.19
------
- - ------- ------- ------- ------- -------
Less distributions
Dividends from net investment income............
(.27) (.54) (.60) (.61) (.63)
(.64)
Distributions from net realized gains...........
(.18) (.07) -- (.07) --
- - --
------
- - ------- ------- ------- ------- -------
Total distributions..........................
(.45) (.61) (.60) (.68) (.63)
(.64)
------
- - ------- ------- ------- ------- -------
Net asset value, end of period.................. $ 11.58
$ 11.53 $ 11.62 $ 11.36 $ 12.17 $ 11.49
------
- - ------- ------- ------- ------- -------
------
- - ------- ------- ------- ------- -------
TOTAL RETURN(b):................................
4.38% 4.51% 7.90% (1.15)% 11.77%
11.23%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)................. $ 20,812
$22,758 $28,367 $55,420 $61,121 $53,449
Average net assets (000)........................ $ 21,557
$25,751 $39,455 $59,544 $55,965 $50,607
Ratios to average net assets:
Expenses, including distribution fees........
1.66%(a)(c) 1.46%(a) 1.34%(a) 1.27% 1.35%
1.39%
Expenses, excluding distribution fees........
1.16%(a)(c) .96%(a) .84%(a) .77% .85%
.89%
Net investment income........................
4.68%(a)(c) 4.66%(a) 5.37%(a) 5.20% 5.39%
5.74%
</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.
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 12
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) MASSACHUSETTS
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class C Class Z
----------
- - ----------------------------------------------- --------
- - ----
August 1, December 6,
Six
Months 1994(d)
1996(e)
Ended
Year Ended August 31, through through
February
28, ------------------------- August 31,
February 28,
1997
1996 1995 1994 1997
-----
- - ----- ----- ----- -----
<S> <C>
<C> <C> <C> <C>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............ $11.53
$11.62 $11.36 $11.41 $11.80
-----
- - ----- ----- ----- -----
Income from investment operations
Net investment income...........................
.25(a) .51(a) .57(a) .04
.15(a)
Net realized and unrealized gain (loss) on
investment transactions...................... .23
(.02) .26 (.05) (.03)
-----
- - ----- ----- ----- -----
Total from investment operations............. .48
.49 .83 (.01) .12
-----
- - ----- ----- ----- -----
Less distributions
Dividends from net investment income............ (.25)
(.51) (.57) (.04) (.15)
Distributions from net realized gains........... (.18)
(.07) -- -- (.18)
-----
- - ----- ----- ----- -----
Total distributions.......................... (.43)
(.58) (.57) (.04) (.33)
-----
- - ----- ----- ----- -----
Net asset value, end of period.................. $11.58
$11.53 $11.62 $11.36 $11.59
-----
- - ----- ----- ----- -----
-----
- - ----- ----- ----- -----
TOTAL RETURN(b):................................ 4.25%
4.26% 7.60% (0.27)% .97%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)................. $ 43
$ 45 $ 14 $ 216(f) $ 199(f)
Average net assets (000)........................ $ 44
$ 41 $ 14 $ 15(f) $ 198(f)
Ratios to average net assets:
Expenses, including distribution fees........
1.91%(a)(c) 1.72%(a) 1.60%(a) 1.57%(c)
1.16%(a c)
Expenses, excluding distribution fees........
1.16%(a)(c) .97%(a) .85%(a) .82%(c)
1.16%(a c)
Net investment income........................
4.46%(a)(c) 4.39%(a) 5.07%(a) 5.06%(c)
6.21%(a c)
</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.
(e) Commencement of offering of Class Z shares.
(f) Amounts are actual and not rounded to the nearest
thousand.
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 13
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Supplemental Proxy Information MASSACHUSETTS
SERIES
- - ------------------------------------------------------------
- - --------------------
A Meeting of Shareholders of the Prudential Municipal
Series Fund was held on
Wednesday, October 30, 1996 at the offices of Prudential
Securities
Incorporated, One Seaport Plaza, New York, New York. The
meeting was held for
the following purposes:
(1) To elect Trustees as follows: Edward D. Beach, Eugene C.
Dorsey, Delayne
Dedrick Gold, Robert F. Gunia, Harry A. Jacobs, Jr.,
Donald D. Lennox,
Mendel A. Melzer, Thomas T. Mooney, Thomas H. O'Brien,
Richard A. Redeker,
Nancy H. Teeters and Louis A. Weil, III.
(2) Approval of an amendment to the Fund's investment
restrictions to permit an
increase in the borrowing capabilities of the Fund.
The results of the proxy solicitation on the above
matters were as follows:
<TABLE>
<CAPTION>
Trustee/Matter
Votes for Votes against Abstentions
- - ----------- ------------- -----------
<S> <C>
<C> <C> <C>
(1) Edward D. Beach
370,817,756 0 16,169,234
Eugene C. Dorsey
371,804,474 0 15,182,516
Delayne Dedrick Gold
371,782,816 0 15,204,174
Robert F. Gunia
371,639,995 0 15,346,995
Harry A. Jacobs, Jr.
371,395,066 0 15,591,924
Donald D. Lennox
371,150,974 0 15,836,016
Mendel A. Melzer
371,811,918 0 15,175,072
Thomas T. Mooney
371,607,874 0 15,379,116
Thomas H. O'Brien
371,328,875 0 15,658,115
Richard A. Redeker
371,876,756 0 15,110,234
Nancy H. Teeters
371,775,376 0 15,211,614
Louis A. Weil, III
371,777,517 0 15,209,473
(2) Amendment relating to borrowing capabilities
259,440,223 31,557,793 17,488,974
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
14
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Robert F. Gunia
Harry A. Jacobs, Jr.
Donald D. Lennox
Mendel A. Melzer
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Louis A. Weil, III
Officers
Richard A. Redeker, President
Susan C. Cote, Vice President
Thomas Early, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Mutual Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
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 LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Auditors
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, NY 10022
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 28,
1997 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
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
74435M655
74435M663 MF119E2
74435M564 Cat#642985K
74435M416
(ICON)
Prudential
Municipal
Series Fund
- - ------------------
New York Series
SEMI
ANNUAL
REPORT
Feb. 28, 1997
(LOGO)
Prudential Municipal Series Fund
New York Series
Performance At A Glance.
The six-months ending in February were rewarding ones for
municipal bond
investors. Bond prices rose as talk of higher interest rates
subsided (at least
temporarily) and inflation levels remained low. For the six-
month reporting
period ended February 28, 1997, we're pleased to report that
the Prudential
Municipal Series Fund -- New York Series provided attractive
tax-free yields.
Our total returns were very competitive with the average New
York tax-free
municipal bond fund, as measured by Lipper Analytical
Services.
Cumulative Total Returns1 As of 2/28/97
<TABLE>
Six One Five
Ten Since
Months Year Years
Years Inception2
<S> <C> <C> <C>
<C> <C>
Class A 5.0% 4.3% (4.2)4 41.4%
(40.1)4 N/A 69.1% (67.9)4
Class B 4.9 3.9 (3.8)4 38.6
(37.3)4 78.7%(77.4)4 168.2 (166.8)4
Class C 4.8 (4.7)4 3.6 (3.5)4 N/A
N/A 16.5 (15.2)4
Class Z N/A N/A N/A
N/A 1.0
Lipper NY Muni Avg.3 4.8 4.4 40.0
97.1 ***
</TABLE>
Average Annual Total Returns1 As of
3/31/97
<TABLE>
One Five Ten
Since
Year Years Years
Inception2
<S> <C> <C> <C>
<C>
Class A 1.9% (1.8)4 6.2% N/A
7.0% (6.9)4
Class B -.5 (-.6)4 6.2 5.9%
8.1
Class C 3.3 (3.2)4 N/A N/A
5.4 (5.3)4
</TABLE>
<TABLE>
<CAPTION>
Dividends &
Yields
As of 2/28/97 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 $0.56 4.67%
7.83% 8.30%
Class B $0.54 4.41
7.40 7.84
Class C $0.52 4.16
6.98 7.39
Class Z $0.41 4.97
8.34 8.83
</TABLE>
Past performance is not indicative of future results.
Principal and investment
return will fluctuate so that an investor's shares, when
redeemed, may be worth
more or less than their original cost.
1Source: Prudential Mutual Fund Management and Lipper
Analytical Services. The
cumulative total returns do not take into account sales
charges. The average
annual returns do take into account applicable sales
charges. The Fund charges
a maximum front-end sales load of 3% for Class A shares and
a declining
contingent deferred sales charge of 5%, 4%, 3%, 2%, 1% and
1% for six years,
for Class B shares. Class C shares have a 1% CDSC for one
year. Class B shares
automatically convert to Class A shares on a quarterly
basis, after
approximately seven years. Class Z shares have no service or
12b-1 fee. Class
Z shares have been in existence for less than one year, and
therefore no
average annual returns are presented.
2Inception dates: 1/22/90 Class A; 9/13/84 Class B; 8/1/94
Class C; 12/6/96
Class Z.
3The Lipper New York Municipal Bond fund average includes 97
funds for six
months, 94 funds for one year, 43 funds for five years and
24 funds for 10
years.
4Without waiver of management fees and/or expense
subsidization, the Series'
average annual return and yields would have been lower, as
indicated in
parentheses ( ).
5Taxable equivalent yields reflect federal and applicable
state tax rates.
***The Lipper Since Inception category return for Class A
shares is 67.9%,
which includes 34 funds; for Class B is 186.9% for 12 funds
and for Class C is
17.0% for 68 funds.
How Investments Compared.
(As of 2/28/97)
(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 included
historical 20-year average annual returns. These returns
assume the
reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors
have received higher
historical total returns from stocks than from most other
invest-
ments. 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.
Taxable 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.
<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 New
York state, New York
City, and federal income taxes, while still attempting to
preserve capital.
Certain shareholders may be subject to federal alternative
minimum tax,
however. There can be no assurance that the Series will
achieve its investment
objective.
High Yield Bonds.
The Trustees adopted a new policy which permits your Series
to invest up to
30% of total investments in bonds rated below investment
grade by Moody's and
S&P. High yield bonds, also known as "junk bonds," are
subject to greater
market and credit risks than investment grade bonds.
Prudential maintains a
large and experienced credit group which evaluates new
purchases and existing
holdings. By purchasing these securities, we seek to broaden
our investment
pool and enhance the Series' returns for you.
Strategy Session.
- - ------------------------------------------------------------
- - --------------
The municipal bond market moved in cycles during the
reporting period: Bond
prices rallied on news of slower economic growth and low
inflation; then sold
off when reports indicated the opposite. For example, in the
third quarter of
1996, bond prices rallied. Municipal bond interest rates
were 6.01% on October
24 and gradually declined to 5.80% in November, according to
the Bond Buyer's
Revenue Bond Index, a widely-watched industry barometer. The
start of 1997
brought news that the economy was accelerating. Fourth
quarter Gross Domestic
Product (GDP is the total value of all the goods and
services produced by the
economy and a generally accepted measure of economic growth)
surged 3.8%. Yet
inflation remained low. Interest rates then began a steady
climb upward as
bond prices fell slightly. Interest rates ended the
reporting period at
5.93%.
As you know, bond prices rise when interest rates fall, and
vice versa. Our
strategy over the past six months was to adjust the Series'
duration in order
to help it respond more effectively to interest rate
movements. When the
municipal bond market rallied last fall, we lengthened
duration. This allowed
your Series to profit as bond prices rose. Conversely, as
the bond market
slowed at year-end, we shortened the Series' duration. This
protected assets
as interest rates rose.
As the end of the reporting period neared, we shortened
Series' duration even
more to match or be slightly shorter than, the average New
York state tax-free
municipal bond fund. We did not want to be caught off guard
if the Federal
Reserve raised short-term interest rates.
<PAGE>
What Went Well.
- - ------------------------------------------------------------
- - ------
The Empire State's
Budget Strikes Back.
New York state, which has in recent years been known for
large projected
budget deficits -- and late budgets -- was seen finishing
the current fiscal
year with a budget surplus of about $1 billion. Part of this
good fortune was
the result of the very impressive performance of securities
firms in
conjunction with the current stock market rally -- and the
bonuses paid to
employees. The Empire State may also benefit in the short
run from federal
welfare reform as a result of the spending formula involved
and a recent drop
in state welfare rolls. New York's credit rating was A2 by
Moody's Investors
Services.
A Prudent Move.
We shortened Series' duration as the reporting period ended
in February in
anticipation of a possible increase in interest rates by the
Federal Reserve.
It was a prudent move. On March 25, 1997, the central bank
raised the federal
funds rate (what banks charge each other for overnight
loans) one-quarter of a
percentage point to 5.50%. It was the first increase in two
years.
The Federal Reserve explained it was acting to quell
"inflationary imbalances"
that could undermine the country's six-year economic
expansion. The action was
widely expected by investors.
And Not So Well.
- - ------------------------------------------------------------
- - ----------
Is There Too
Much Insurance?
The increasing use of bond insurance in the municipal market
is becoming a
concern of ours. Why? Because as more bonds are issued with
insurance, it
means fewer uninsured bonds are available. In past years,
uninsured bonds
offered us the opportunity to buy good quality credits
(usually rated A to BBB)
at attractive prices and yields. As this pool shrinks, so
too does the
opportunity for your Series to purchase bonds that could
further enhance yield.
Looking Ahead.
The Federal Reserve has raised short-term interest rates
once in 1997. Will
there be more increases in short-term interest rates?
Probably. Experience
tells us that changes in Federal Reserve monetary policy are
rarely one-shot
deals. Given present economic conditions, we believe one or
two additional rate
increases will most likely occur later this year. Of course,
no one knows for
sure. We have positioned the Series' duration to be closer
to, or slightly
shorter than, the average New York state tax-free municipal
bond fund. This
will give us the flexibility to respond if -- or more likely
when -- the
Federal Reserve acts to increase interest rates.
Portfolio Breakdown.
Expressed as a percentage of
total investments as of 2/28/97.
(CHART)
Five Largest Issuers.
7.4% New York City
General Obligation
5.9% New York State
Dorm Authority
5.2% NY State Local
Government Assistance
4.8% NY State Urban
Development Corp.
4.8% Metropolitan
Transportation Authority
New York Svc. Contract
Expressed as a percentage of total net assets as of 2/28/97.
1
President's Letter April 10, 1997
(PICTURE)
We're On Your Side.
Dear Shareholder:
The first three months of the year were not good ones for
most U.S. stock and
bond investors. The Dow Jones Industrial Average was down
considerably from
its record high set in mid-March, and long-term interest
rates were at their
highest levels in six months. Not surprisingly, in the first
quarter of 1997
the average stock and bond mutual fund had negative returns
(for stock funds,
it was the first time since 1994).
The reasons behind the recent market decline have been well-
publicized --
higher interest rates and inflationary pressures. And while
we are watching
market developments closely, we are also very concerned
about you and how
you're dealing with events. We realize that staying the
course toward your
long-term investment goals isn't easy during such times of
uncertainty. Here
are a few thoughts that may help --
- - - Keep Your Expectations Realistic. The best investors know
that financial
markets rise and fall -- and so too, will the value of
their investments.
Over time, however, stocks have been shown to produce very
attractive returns
that were well ahead of inflation.
- - - Remember Your Time Horizon. If your investment goals are
long term (several
years or more), so should your time horizon. During this
period, it's not
unusual for stocks and bonds to experience several periods
of market
uncertainty.
- - - We're On Your Side. Your Prudential Securities Financial
Advisor or
Prudential Registered Representative can help you
understand what's happening
in the financial markets. They can assist you in making
informed decisions
based upon a thorough knowledge of your financial needs
and long-term goals.
Call him or her today.
Thank you for your continued confidence in Prudential mutual
funds. We'll do
everything we can to keep you informed and to earn your
trust.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
2
<PAGE>
Portfolio of Investments as of PRUDENTIAL
MUNICIPAL SERIES FUND
February 28, 1997 (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--99.2%
- - ------------------------------------------------------------
- - ------------------------------------------------------------
- - ------
City of Elmira, Wtr. Impt., Ser. B, A.M.B.A.C.
Aaa 5.95% 3/01/16 $ 5,395 $
5,574,060
City of New Rochelle Ind. Dev. Agcy.,
Coll. of New Rochelle
Baa2 6.625 7/01/12 500
518,285
Coll. of New Rochelle
Baa2 6.75 7/01/22 2,000
2,069,820
Dutchess Cnty. Res. Rec. Agcy. Rev., Solid Waste Mgmt., Ser.
A, F.G.I.C.
Aaa 7.50 1/01/09 1,150
1,249,314
Islip Res. Rec., Ser. B, A.M.B.A.C.
Aaa 7.20 7/01/10 1,745
2,055,034
Jefferson Cnty. Ind. Dev. Agcy., Solid Waste Disp. Rev.
Baa1 7.20 12/01/20 1,500
1,610,430
Met. Trans. Auth. Facs. Rev.,
Cap. Apprec., Ser. N, F.G.I.C.
Aaa Zero 7/01/13 4,000
1,679,880
Commuter Facs., Ser. A, F.G.I.C.
Aaa 5.60 7/01/09 500
512,970
Commuter Facs., Ser. A, F.G.I.C.
Aaa 5.70 7/01/10 1,000
1,026,480
Trans. Facs. Rev., Ser. A, F.S.A.
Aaa 5.60 7/01/09 2,900
2,975,226
Trans. Facs. Rev., Ser. A, F.S.A.
Aaa 5.70 7/01/10 4,600
4,721,808
Trans. Facs. Rev., Ser. N, F.G.I.C.
Aaa Zero 7/01/12 5,575
2,469,000
Met. Trans. Auth., New York Svc. Contract,
Cap. Apprec., Ser. 7, M.B.I.A.
Aaa Zero 7/01/08 8,760
4,904,637
Cap. Apprec., Ser. 7, M.B.I.A.
Aaa Zero 7/01/09 4,205
2,210,190
Commuter Facs., Ser. O
Baa1 5.50 7/01/17 2,500
2,410,900
Trans. Facs. Rev., Ser. O
Baa1 5.75 7/01/08 2,740
2,815,651
Trans. Facs. Rev., Ser. O
Baa1 5.75 7/01/13 1,975
1,995,718
Mun. Assist. Corp. for New York City, Ser. E
Aa 6.00 7/01/06 6,700
7,241,427
New York City Ind. Dev. Agcy., Spec. Fac. Rev.,
U.S.T.A. National Tennis Center Proj., F.S.A.
Aaa 6.375 11/15/14 1,000
1,083,250
Y.M.C.A. Of Greater N.Y. Proj.
Aaa 8.00 8/01/16 1,350(b)
1,561,545
New York City Mun. Wtr. Fin. Auth., Wtr. & Swr. Sys. Rev.,
Ser. A
A2 5.50 6/15/24 9,000
8,572,230
Ser. B
A2 5.875 6/15/26 4,500
4,501,260
New York City, Gen. Oblig.,
Ser. A
Aaa 7.75 3/15/03 3,330(b)
3,703,659
Ser. B
Aaa 8.00 6/01/99 890(b)
966,264
Ser. B
Baa1 8.00 6/01/99 130
140,088
Ser. B
Baa1 7.50 2/01/01 4,000
4,362,600
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as of PRUDENTIAL
MUNICIPAL SERIES FUND
February 28, 1997 (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 City, Gen. Oblig., (cont'd)
Ser. D
Aaa 8.00% 8/01/03 $ 1,055(b) $
1,217,818
Ser. D
Baa1 8.00 8/01/03 1,445
1,628,226
Ser. D
Baa1 7.70 2/01/09 3,040
3,394,707
Ser. F
Aaa 8.20 11/15/03 515(b)
602,916
Ser. F
Baa1 8.20 11/15/03 2,485
2,828,800
Ser. G
Baa1 5.75 10/15/10 4,095
4,052,781
Ser. G
Baa1 5.75 10/15/12 7,085
6,920,415
Ser. G
Baa1 5.875 10/15/14 2,500
2,458,075
Ser. H
Baa1 6.00 8/01/17 2,400
2,355,576
New York St. Dorm. Auth. Rev.,
City Univ. Refunding Bonds
Baa1 6.00 7/01/14 6,500
6,676,280
City Univ. Sys. Cons., Ser. D
Baa1 7.00 7/01/09 1,880
2,087,232
City Univ., Ser. A
BBB(c) 8.125 7/01/07 890(b)
957,080
City Univ., Ser. A
Baa1 8.125 7/01/07 2,545
2,713,606
Coll. & Univ. Ed., M.B.I.A.
Aaa Zero 7/01/04 2,255
1,582,762
Cornell University
Aa2 5.40 7/01/14 2,245
2,256,943
Episcopal Hlth. Svcs., G.N.M.A.
AAA(c) 7.55 8/01/29 3,000
3,245,580
Long Island Med. Ctr., Ser. A, F.H.A.
Aa 7.625 8/15/08 2,555
2,675,903
Long Island Med. Ctr., Ser. A, F.H.A.
Aa 7.75 8/15/27 4,100
4,299,588
Mental Hlth. Svcs. Fac. Impvt., Ser. B
Baa1 6.50 8/15/11 3,000
3,277,650
Mount Sinai Med. Sch., Ser. A, M.B.I.A.
Aaa 5.00 7/01/13 2,945
2,814,890
Spec. Act. Sch. Districts, F.G.I.C.
Aaa 7.00 7/01/13 3,050
3,326,482
St. John's Univ., M.B.I.A.
Aaa 5.60 7/01/16 1,000
995,240
St. John's Univ., M.B.I.A.
Aaa 5.70 7/01/26 1,650
1,642,872
St. Univ. Edl. Facs., Ser. A
Baa1 5.25 5/15/15 8,600
8,089,934
New York St. Energy Resch. & Dev. Auth. Rev.,
Brooklyn Union Gas Co., Ser. B, M.B.I.A.
Aaa 6.75 2/01/24 2,000(e)
2,163,600
Brooklyn Union Gas Co., Ser. D, M.B.I.A.
Aaa 5.635(d) 7/08/26 4,000
3,804,560
Con. Edison Co.
A1 7.50 7/01/25 6,735
7,173,920
Con. Edison Co., Ser. A
A1 7.50 1/01/26 4,775
5,111,876
New York St. Environ. Facs. Corp., Poll. Ctrl. Rev.,
Ser. C
Aaa 5.35 7/15/07 2,000
2,070,780
Ser. C
Aaa 5.45 7/15/08 3,090
3,190,209
Ser. C
Aaa 5.55 7/15/09 1,375
1,420,760
St. Wtr. Revolving Fund, Ser. B
Aa2 7.50 3/15/11 1,300
1,394,042
St. Wtr. Revolving Fund, Ser. E
Aa2 6.50 6/15/14 1,000
1,073,520
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as of PRUDENTIAL
MUNICIPAL SERIES FUND
February 28, 1997 (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. Hsg. Fin. Agcy. Rev., Ser. A,
Multifamily Hsg.
Aa 7.05% 8/15/24 $ 1,000 $
1,057,480
St. Univ. Constr.
Aaa 8.00 5/01/11 3,600
4,502,880
New York St. Local Gov't. Assist. Corp.,
Ser. C
A3 Zero 4/01/14 11,882
4,638,377
Ser. E
A3 6.00 4/01/14 6,135
6,513,836
Ser. E
A3 5.25 4/01/16 4,500
4,336,920
New York St. Med. Care Facs. Fin. Agcy. Rev.,
Mental Hlth. Svcs., Ser. A
Aaa 7.50 8/15/07 5(b)
5,654
Mental Hlth. Svcs., Ser. A
Baa1 7.50 8/15/07 810
898,387
New York Hosp., Ser. A, A.M.B.A.C., F.H.A.
Aaa 6.50 8/15/29 3,000
3,266,790
St. Francis Hosp., Proj. A, F.G.I.C.
Aaa 7.60 11/01/08 2,350
2,516,404
New York St. Mtge. Agcy. Rev.,
Homeowner Mtge., Ser. A
Aa 8.05 10/01/21 3,070
3,230,438
Homeowner Mtge., Ser. 55
Aa 5.95 10/01/17 2,000
2,042,220
Homeowner Mtge., Ser. 60
Aaa 6.00 10/01/22 8,000
8,026,160
New York St. Mun. Bond Bank Agcy., Spec. Proj. Rev., Ser. A
A+(c) 6.75 3/15/11 3,000
3,228,510
New York St. Thrwy. Auth. Svc. Contract Rev., Local Highway
&
Bridge
Baa1 6.45 4/01/15 1,000
1,049,840
New York St. Urban Dev. Corp. Rev.,
Correctional Cap. Facs., A.M.B.A.C.
Aaa Zero 1/01/08 10,000
5,743,900
Correctional Cap. Facs., Ser.5, A.M.B.A.C.
Aaa 6.00 1/01/04 4,415
4,744,491
Senior Lien Corporation Purpose
Aaa 5.50 7/01/26 4,950
4,768,385
St. Facs.
Baa1 5.75 4/01/11 5,000
5,023,700
St. Facs.
Baa1 5.75 4/01/12 5,750
5,766,905
St. Facs.
Baa1 5.60 4/01/15 2,000
1,959,820
Subordinated Lien Corporation Purpose
A 5.50 7/01/16 10,000
9,641,800
Port Auth. of New York & New Jersey, Ser. 70
A1 7.25 8/01/25 1,000
1,073,840
Puerto Rico Commonwealth,
Gen. Oblig., A.M.B.A.C.
Aaa 7.00 7/01/10 6,500
7,670,260
Pub. Impvt. Rfdg., M.B.I.A.
Aaa 7.00 7/01/10 1,250
1,475,050
Hwy. & Trans. Auth. Rev., Ser. W, M.B.I.A.
Aaa 5.50 7/01/13 11,000
11,274,010
Puerto Rico Elec. Pwr. Auth. Rev., Pub. Impvt. Ref.,
M.B.I.A. Aaa Zero 7/01/04 10,845
7,733,027
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
2,271,380
Rockland Cnty. Solid Waste Mgmt. Auth., Ser. B, A.M.B.A.C.
Aaa 5.625 12/15/14 1,585
1,580,435
Suffolk Cnty. Ind. Dev. Agcy., Southwest Swr. Sys. Rev.,
F.G.I.C.
Aaa 6.00 2/01/07 1,000
1,085,600
Suffolk Cnty. Wtr. Auth., Waterworks Rev., M.B.I.A.
Aaa 6.00 6/01/09 5,160
5,608,404
Triborough Bridge & Tunl. Auth. Rev., Ser. A, M.B.I.A.
Aaa 6.00 1/01/10 2,000
2,162,040
- - ------------
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements. 5
<PAGE>
Portfolio of Investments as of PRUDENTIAL
MUNICIPAL SERIES FUND
February 28, 1997 (Unaudited) NEW YORK SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Value
Description (a)
(Note 1)
<S>
<C> <C> <C> <C> <C>
- - ------------------------------------------------------------
- - ------------------------------------------------------------
- - ------
Total Investments--99.2%
(cost $283,064,668; Note 4)
$297,333,292
Other assets in excess of liabilities--0.8%
2,320,453
- - ------------
Net Assets--100%
$299,653,745
- - ------------
- - ------------
</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.S.A.--Financial Security Assurance.
G.N.M.A.--Government National Mortgage Association.
M.B.I.A.--Municipal Bond Insurance Association.
(b) Prerefunded issues are secured by escrowed cash and/or
direct U.S.
guaranteed obligations.
(c) Standard & Poor's Rating.
(d) Inverse floating rate bond. The coupon is inversely
indexed to a floating
interest rate. The rate shown is the rate at year end.
(e) Pledged as initial margin on financial futures
contracts.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information
contains a description of
Moody's and Standard & Poor's ratings.
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements. 6
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL
MUNICIPAL SERIES FUND
(Unaudited) NEW YORK
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Assets
February 28, 1997
<S>
<C>
Investments, at value (cost
$283,064,668)...............................................
................. $ 297,333,292
Interest
receivable..................................................
.................................... 3,494,062
Receivable for Series shares
sold........................................................
................ 145,859
Other
assets......................................................
....................................... 6,887
- - -----------------
Total
assets......................................................
.................................... 300,980,100
- - -----------------
Liabilities
Payable for Series shares
reacquired..................................................
................... 879,258
Dividends
payable.....................................................
................................... 135,420
Management fee
payable.....................................................
.............................. 104,018
Accrued expenses and other
liabilities.................................................
.................. 140,323
Distribution fee
payable.....................................................
............................ 62,260
Deferred trustees'
fees........................................................
.......................... 2,959
Due to broker - variation
margin......................................................
................... 2,117
- - -----------------
Total
liabilities.................................................
.................................... 1,326,355
- - -----------------
Net
Assets......................................................
......................................... $
299,653,745
- - -----------------
- - -----------------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
........ $ 254,284
Paid-in capital in excess of
par.........................................................
............. 284,331,545
- - -----------------
284,585,829
Accumulated net realized gain on
investments.................................................
......... 799,292
Net unrealized appreciation on
investments.................................................
........... 14,268,624
- - -----------------
Net assets, February 28,
1997........................................................
.................... $ 299,653,745
- - -----------------
- - -----------------
Class A:
Net asset value and redemption price per share
($173,112,820 / 14,691,951 shares of beneficial
interest issued and outstanding)...................
$11.78
Maximum sales charge (3% of offering
price)......................................................
..... .36
- - -----------------
Maximum offering price to
public......................................................
................ $12.14
- - -----------------
- - -----------------
Class B:
Net asset value, offering price and redemption price per
share
($125,689,430 / 10,664,163 shares of beneficial
interest issued and outstanding)...................
$11.79
- - -----------------
- - -----------------
Class C:
Net asset value, offering price and redemption price per
share
($843,029 / 71,526 shares of beneficial interest
issued and outstanding)...........................
$11.79
- - -----------------
- - -----------------
Class Z:
Net asset value, offering price and redemption price per
share
($8,466 / 718 shares of beneficial interest issued and
outstanding)................................
$11.79
- - -----------------
- - -----------------
</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 28,
1997
<S> <C>
Income
Interest................................ $ 8,826,040
--------------
- - ---
Expenses
Management fee.......................... 754,700
Distribution fee--Class A............... 86,158
Distribution fee--Class B............... 321,894
Distribution fee--Class C............... 3,017
Transfer agent's fees and expenses...... 82,000
Custodian's fees and expenses........... 42,000
Reports to shareholders................. 30,000
Registration fees....................... 20,000
Legal fees and expenses................. 5,500
Audit fees and expenses................. 5,000
Trustees' fees.......................... 1,800
Miscellaneous........................... 9,398
--------------
- - ---
Total expenses....................... 1,361,467
Less: Management fee waiver.............
(75,470)
Custodian fee credit.................
(7,303)
--------------
- - ---
Net expenses......................... 1,278,694
--------------
- - ---
Net investment income...................... 7,547,346
--------------
- - ---
Realized and Unrealized Gain (Loss)
on Investments
Net realized gain on:
Investment transactions................. 688,072
Financial futures transactions.......... 162,171
--------------
- - ---
850,243
--------------
- - ---
Net change in unrealized appreciation on:
Investments............................. 6,406,255
Financial futures contracts.............
(77,625)
--------------
- - ---
6,328,630
--------------
- - ---
Net gain on investments.................... 7,178,873
--------------
- - ---
Net Increase in Net Assets Resulting from
Operations................................. $14,726,219
--------------
- - ---
--------------
- - ---
</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 28,
August 31,
in Net Assets 1997
1996
<S> <C> <C>
Operations
Net investment income........ $ 7,547,346 $
16,230,346
Net realized gain on
investment transactions... 850,243
9,002,172
Net change in unrealized
appreciation of
investments............... 6,328,630
(11,302,364)
----------------- -----
- - ----------
Net increase in net assets
resulting from
operations................ 14,726,219
13,930,154
----------------- -----
- - ----------
Dividends and distributions
(Note 1):
Dividends from net investment income
Class A................... (4,458,054)
(8,811,465)
Class B................... (3,071,041)
(7,388,688)
Class C................... (18,214)
(30,193)
Class Z................... (37)
- - --
----------------- -----
- - ----------
(7,547,346)
(16,230,346)
----------------- -----
- - ----------
Distributions in excess of
net investment income
Class A................... (59,069)
- - --
Class B................... (42,280)
- - --
Class C................... (262)
- - --
----------------- -----
- - ----------
(101,611)
- - --
----------------- -----
- - ----------
Distributions from net realized gains
Class A................... (3,839,493)
(701,061)
Class B................... (2,748,185)
(645,835)
Class C................... (17,035)
(2,246)
Class Z................... (4)
- - --
----------------- -----
- - ----------
(6,604,717)
(1,349,142)
----------------- -----
- - ----------
Series share transactions (net
of share conversions) (Note
5):
Net proceeds from shares
sold...................... 6,707,413
18,427,055
Net asset value of shares
issued in reinvestment of
dividends and
distributions............. 8,972,652
10,492,197
Cost of shares reacquired.... (21,176,261)
(47,159,422)
----------------- -----
- - ----------
Net decrease in net assets
from Series share
transactions.............. (5,496,196)
(18,240,170)
----------------- -----
- - ----------
Total decrease.................. (5,023,651)
(21,889,504)
Net Assets
Beginning of period............. 304,677,396
326,566,900
----------------- -----
- - ----------
End of period................... $ 299,653,745 $
304,677,396
----------------- -----
- - ----------
----------------- -----
- - ----------
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements. 8
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements (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.
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 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>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) NEW YORK
SERIES
- - ------------------------------------------------------------
- - --------------------
Reclassification of Capital Accounts: The Fund accounts and
reports for
distributions to shareholders in accordance with the
American Institute of
Certified Public Accountants' Statement of Position 93-2:
Determination,
Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and
Return of Capital Distributions by Investment Companies. The
effect of applying
this statement was to increase undistributed net investment
income and decrease
accumulated net realized gain by $101,611, due to the sale
of securities
purchased with market discount. Net investment income, net
realized gains and
net assets were not affected by this change.
- - ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential Mutual
Fund Management LLC
('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 and employees 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 $75,470 ($0.003 per share)
for the six months
ended February 28, 1997. The Series is not required to
reimburse PMF for such
waiver.
The Fund has a distribution agreement with Prudential
Securities Incorporated
('PSI'), which acts as the distributor of the Class A, Class
B, Class C and
Class Z shares of the Fund. The Fund compensates 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 PSI. The distribution fees are accrued daily and
payable monthly. No
distribution or service fees are paid to PSI as distributor
of the Class Z
shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensates
PSI 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 28, 1997.
PSI has advised the Series that it has received
approximately $8,000 in
front-end sales charges resulting from sales of Class A
shares during the six
months ended February 28, 1997. From these fees, PSI paid
such sales charges to
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 28, 1997, it
received approximately $104,000 in contingent deferred sales
charges imposed
upon certain redemptions by Class B shareholders.
PSI, PMF and PIC are indirect, wholly-owned subsidiaries of
The Prudential
Insurance Company of America.
The Series, along with other affiliated registered
investment companies (the
'Funds'), entered into a credit agreement (the 'Agreement')
on December 31, 1996
with an unaffiliated lender. The maximum commitment under
the Agreement is
$200,000,000. The Agreement expires on December 30, 1997.
Interest on any such
borrowings outstanding will be at market rates. The purpose
of the Agreement is
to serve as an alternative source of funding for capital
share redemptions. The
Series has not borrowed any amounts pursuant to the
Agreement as of February 28,
1997. The Funds pay a commitment fee at an annual rate of
.055 of 1% on the
unused portion of the credit facility. The commitment fee is
accrued and paid
quarterly on a pro-rata basis by the Funds.
- - ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly-owned
subsidiary of PMF,
serves as the Fund's transfer agent. During the six months
ended February 28,
1997, the Series incurred fees of approximately $61,000 for
the services of
PMFS. As of February 28, 1997, approximately $9,900 of such
fees were due to
PMFS. Transfer agent fees and expenses in the Statement of
Operations include
certain out-of-pocket expenses paid to non-affiliates.
- - ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of portfolio securities of the Series,
excluding short-term
investments, for the six months ended February 28, 1997 were
$98,979,854 and
$98,701,993, respectively.
The cost basis of investments for federal income tax
purposes at February 28,
1997 was substantially the same as for financial reporting
purposes and
- - ------------------------------------------------------------
- - --------------------
10
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) NEW YORK
SERIES
- - ------------------------------------------------------------
- - --------------------
accordingly, net unrealized appreciation on investments for
federal income tax
purposes was $14,268,624 (gross unrealized appreciation--
$14,529,845, gross
unrealized depreciation--$261,221).
At February 28, 1997 the Series sold 121 financial futures
on U.S. Treasury
bonds which expire in June 1997. The value at sale of such
contracts was
$13,340,250. The value of such contracts on February 28,
1997 was also
$13,340,250, thereby not resulting in any unrealized gain or
loss.
- - ------------------------------------------------------------
Note 5. Capital
The Series offers Class A, Class B, Class C and Class Z
shares. Class A shares
are sold with a front-end sales charge of up to 3%. Class B
shares are sold with
a contingent deferred sales charge which declines from 5% to
zero depending on
the period of time the shares are held. Class C shares are
sold with a
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.
Effective December 6, 1996, the Fund commenced offering
Class Z shares. Class Z
shares are not subject to any sales or redemption charge and
are offered
exclusively for sale to a limited group of investors.
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
28, 1997 and the fiscal year ended August 31, 1996 were as
follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- - ---------------------------------- ----------- ---------
- - ----
<S> <C> <C>
Six months ended February 28,
1997:
Shares sold....................... 81,809 $
969,636
Shares issued in reinvestment of
dividends and distributions..... 451,484
5,326,395
Shares reacquired................. (997,951)
(11,837,317)
----------- ---------
- - ----
Net decrease in shares outstanding
before conversion............... (464,658)
(5,541,286)
Shares issued upon conversion from
Class B......................... 877,594
10,466,333
----------- ---------
- - ----
Net increase in shares
outstanding..................... 412,936 $
4,925,047
----------- ---------
- - ----
----------- ---------
- - ----
<CAPTION>
Class A Shares Amount
- - ---------------------------------- ----------- ---------
- - ----
<S> <C> <C>
Year ended August 31, 1996:
Shares sold....................... 288,545 $
3,471,580
Shares issued in reinvestment of
dividends and distributions..... 482,548
5,793,739
Shares reacquired................. (1,836,870)
(21,951,600)
----------- ---------
- - ----
Net decrease in shares outstanding
before conversion............... (1,065,777)
(12,686,281)
Shares issued upon conversion from
Class B......................... 1,655,227
19,855,903
----------- ---------
- - ----
Net increase in shares
outstanding..................... 589,450 $
7,169,622
----------- ---------
- - ----
----------- ---------
- - ----
<CAPTION>
Class B
- - ----------------------------------
<S> <C> <C>
Six months ended February 28,
1997:
Shares sold....................... 474,236 $
5,631,283
Shares issued in reinvestment of
dividends and distributions..... 306,349
3,614,213
Shares reacquired................. (772,555)
(9,173,394)
----------- ---------
- - ----
Net increase in shares outstanding
before conversion............... 8,030
72,102
Shares reacquired upon conversion
into Class A.................... (877,248)
(10,466,333)
----------- ---------
- - ----
Net decrease in shares
outstanding..................... (869,218) $
(10,394,231)
----------- ---------
- - ----
----------- ---------
- - ----
Year ended August 31, 1996:
Shares sold....................... 1,214,638 $
14,603,191
Shares issued in reinvestment of
dividends and distributions..... 388,580
4,669,975
Shares reacquired................. (2,099,335)
(25,184,658)
----------- ---------
- - ----
Net decrease in shares outstanding
before conversion............... (496,117)
(5,911,492)
Shares reacquired upon conversion
into Class A.................... (1,655,227)
(19,855,903)
----------- ---------
- - ----
Net decrease in shares
outstanding..................... (2,151,344) $
(25,767,395)
----------- ---------
- - ----
----------- ---------
- - ----
<CAPTION>
Class C
- - ----------------------------------
<S> <C> <C>
Six months ended February 28,
1997:
Shares sold....................... 8,288 $
98,131
Shares issued in reinvestment of
dividends and distributions..... 2,714
32,010
Shares reacquired................. (13,931)
(165,550)
----------- ---------
- - ----
Net decrease in shares
outstanding..................... (2,929) $
(35,409)
----------- ---------
- - ----
----------- ---------
- - ----
</TABLE>
- - ------------------------------------------------------------
- - --------------------
11
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) NEW YORK
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class C Shares Amount
- - ---------------------------------- ----------- ---------
- - ----
<S> <C> <C>
Year ended August 31, 1996:
Shares sold....................... 29,584 $
352,284
Shares issued in reinvestment of
dividends and distributions..... 2,378
28,483
Shares reacquired................. (1,951)
(23,164)
----------- ---------
- - ----
Net increase in shares
outstanding..................... 30,011 $
357,603
----------- ---------
- - ----
----------- ---------
- - ----
<CAPTION>
Class Z
- - ----------------------------------
<S> <C> <C>
December 6, 1996 (a) through
February 28, 1997:
Shares sold....................... 715 $
8,363
Shares issued in reinvestment of
dividends and distributions..... 3
34
----------- ---------
- - ----
Net increase in shares
outstanding..................... 718 $
8,397
----------- ---------
- - ----
----------- ---------
- - ----
</TABLE>
- - ---------------
(a) Commencement of offering of Class Z shares.
- - ------------------------------------------------------------
- - --------------------
12
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) NEW YORK SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class A
-------------
- - ------------------------------------------------------------
Six Months
Ended
Year Ended August 31,
February 28,
- - --------------------------------------------------------
1997
1996 1995 1994 1993 1992
------------
- - -------- -------- ------- ------- ------
<S> <C>
<C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....... $ 11.77
$ 11.91 $ 11.71 $ 12.54 $ 11.75 $11.08
------------
- - -------- -------- ------- ------- ------
Income from investment operations
Net investment income...................... .30(a)
.63(a) .66(a) .67 .70 .71
Net realized and unrealized gain (loss) on
investment transactions................. .27
(.09) .20 (.83) .79 .67
------------
- - -------- -------- ------- ------- ------
Total from investment operations........ .57
.54 .86 (.16) 1.49 1.38
------------
- - -------- -------- ------- ------- ------
Less distributions
Dividends from net investment income....... (.30)
(.63) (.66) (.67) (.70) (.71)
Distributions from net realized gains...... (.26)
(.05) -- -- -- --
------------
- - -------- -------- ------- ------- ------
Total distributions..................... (.56)
(.68) (.66) (.67) (.70) (.71)
------------
- - -------- -------- ------- ------- ------
Net asset value, end of period............. $ 11.78
$ 11.77 $ 11.91 $ 11.71 $ 12.54 $11.75
------------
- - -------- -------- ------- ------- ------
------------
- - -------- -------- ------- ------- ------
TOTAL RETURN(b):........................... 5.02%
4.53% 7.70% (1.38)% 13.06% 12.73%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............ $173,113
$168,037 $163,025 $13,661 $11,821 $6,057
Average net assets (000)................... $173,745
$168,291 $ 95,024 $13,454 $ 8,755 $4,024
Ratios to average net assets:
Expenses, including distribution fees...
.68%(a)/(c) .68%(a) .69%(a) .74% .74%
.74%
Expenses, excluding distribution fees...
.58%(a)/(c) .58%(a) .59%(a) .64% .64%
.64%
Net investment income...................
5.17%(a)/(c) 5.24%(a) 5.65%(a) 5.46% 5.78%
6.19%
For Class A, B, C and Z shares:
Portfolio turnover rate................. 34%
92% 57% 49% 44% 45%
</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.
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements. 13
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) NEW YORK SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class B
---------------
- - ------------------------------------------------------------
- - -----
Six Months
Ended
Year Ended August 31,
February 28,
- - ------------------------------------------------------------
1997
1996 1995 1994 1993 1992
------------
- - -------- -------- -------- -------- --------
<S> <C>
<C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....... $ 11.77
$ 11.91 $ 11.71 $ 12.54 $ 11.75 $ 11.08
------------
- - -------- -------- -------- -------- --------
Income from investment operations
Net investment income...................... .28(a)
.58(a) .61(a) .62 .65 .66
Net realized and unrealized gain (loss) on
investment transactions................. .28
(.09) .20 (.83) .79 .67
------------
- - -------- -------- -------- -------- --------
Total from investment operations........ .56
.49 .81 (.21) 1.44 1.33
------------
- - -------- -------- -------- -------- --------
Less distributions
Dividends from net investment income....... (.28)
(.58) (.61) (.62) (.65) (.66)
Distributions from net realized gains...... (.26)
(.05) -- -- -- --
------------
- - -------- -------- -------- -------- --------
Total distributions..................... (.54)
(.63) (.61) (.62) (.65) (.66)
------------
- - -------- -------- -------- -------- --------
Net asset value, end of period............. $ 11.79
$ 11.77 $ 11.91 $ 11.71 $ 12.54 $ 11.75
------------
- - -------- -------- -------- -------- --------
------------
- - -------- -------- -------- -------- --------
TOTAL RETURN(b):........................... 4.90%
4.12% 7.27% (1.77)% 12.61% 12.32%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............ $125,689
$135,764 $163,013 $331,982 $358,607 $316,472
Average net assets (000)................... $129,825
$152,656 $230,033 $350,564 $330,823 $303,016
Ratios to average net assets:
Expenses, including distribution fees...
1.08%(a)/(c) 1.08%(a) 1.11%(a) 1.14%
1.14% 1.14%
Expenses, excluding distribution fees...
.58%(a)/(c) .58%(a) .61%(a) .64%
.64% .64%
Net investment income...................
4.77%(a)/(c) 4.84%(a) 5.30%(a) 5.06%
5.38% 5.79%
</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.
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements. 14
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) NEW YORK
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class C Class Z
-------------
- - -------------------------------------------- -----------
- - -
August 1, December 6,
Six Months
1994(d) 1996(e)
Ended
Year Ended August 31, Through Through
February 28,
- - ------------------------- August 31, February 28,
1997
1996 1995 1994 1997
-----
- - ----- ----- ----- ------------
<S> <C>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....... $11.77
$11.91 $11.71 $11.74 $ 12.09
-----
- - ----- ----- ----- ------------
Income from investment operations
Net investment income...................... .26(a)
.55(a) .58(a) .04 .15(a)
Net realized and unrealized gain (loss) on
investment transactions................. .28
(.09) .20 (.03) (.04)
-----
- - ----- ----- ----- ------------
Total from investment operations........ .54
.46 .78 .01 .11
-----
- - ----- ----- ----- ------------
Less distributions
Dividends from net investment income....... (.26)
(.55) (.58) (.04) (.15)
Distributions from net realized gains...... (.26)
(.05) -- -- (.26)
-----
- - ----- ----- ----- ------------
Total distributions..................... (.52)
(.60) (.58) (.04) (.41)
-----
- - ----- ----- ----- ------------
Net asset value, end of period............. $11.79
$11.77 $11.91 $11.71 $ 11.79
-----
- - ----- ----- ----- ------------
-----
- - ----- ----- ----- ------------
TOTAL RETURN(b):........................... 4.77%
3.86% 7.01% 0.06% 0.96%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............ $ 843
$ 876 $ 529 $ 142 $ 8
Average net assets (000)................... $ 811
$ 659 $ 325 $ 42 $ 3
Ratios to average net assets:
Expenses, including distribution fees...
1.33%(a)/(c) 1.33%(a) 1.36%(a) 1.62%(c)
.58%(a)/(c)
Expenses, excluding distribution fees...
.58%(a)/(c) .58%(a) .61%(a) .87%(c)
.58%(a)/(c)
Net investment income...................
4.52%(a)/(c) 4.59%(a) 5.05%(a) 5.17%(c)
5.27%(a)/(c)
</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.
(e) Commencement of offering of Class Z shares.
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements. 15
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Supplemental Proxy Information NEW YORK
SERIES
- - ------------------------------------------------------------
- - --------------------
A Meeting of Shareholders of the Prudential Municipal
Series Fund was held on
Wednesday, October 30, 1996 at the offices of Prudential
Securities
Incorporated, One Seaport Plaza, New York, New York. The
meeting was held for
the following purposes:
(1) To elect Trustees as follows: Edward D. Beach, Eugene C.
Dorsey, Delayne
Dedrick Gold, Robert F. Gunia, Harry A. Jacobs, Jr.,
Donald D. Lennox,
Mendel A. Melzer, Thomas T. Mooney, Thomas H. O'Brien,
Richard A. Redeker,
Nancy H. Teeters and Louis A. Weil, III.
(2) Approval of an amendment to the Fund's investment
restrictions to permit an
increase in the borrowing capabilities of the Fund.
The results of the proxy solicitation on the above
matters were as follows:
<TABLE>
<CAPTION>
Trustee/Matter
Votes for Votes against Abstentions
- - ----------- ------------- -----------
<S> <C>
<C> <C> <C>
(1) Edward D. Beach
370,817,756 0 16,169,234
Eugene C. Dorsey
371,804,474 0 15,182,516
Delayne Dedrick Gold
371,782,816 0 15,204,174
Robert F. Gunia
371,639,995 0 15,346,995
Harry A. Jacobs, Jr.
371,395,066 0 15,591,924
Donald D. Lennox
371,150,974 0 15,836,016
Mendel A. Melzer
371,811,918 0 15,175,072
Thomas T. Mooney
371,607,874 0 15,379,116
Thomas H. O'Brien
371,328,875 0 15,658,115
Richard A. Redeker
371,876,756 0 15,110,234
Nancy H. Teeters
371,775,376 0 15,211,614
Louis A. Weil, III
371,777,517 0 15,209,473
(2) Amendment relating to borrowing capabilities
259,440,223 31,557,793 17,488,974
</TABLE>
- - ------------------------------------------------------------
- - --------------------
16
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Robert F. Gunia
Harry A. Jacobs, Jr.
Donald D. Lennox
Mendel A. Melzer
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Louis A. Weil, III
Officers
Richard A. Redeker, President
Susan C. Cote, Vice President
Thomas Early, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Mutual Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
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 LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Auditors
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, NY 10022
(LOGO)
BULK RATE
U.S. POSTAGE
PAID
Permit 6807
New York, NY
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
74435M747
74435M754 MF122E2
74435M523 Cat# 6423327
74435M440
(ICON)
Prudential
Municipal
Series Fund
- - --------------
Michigan Series
SEMI
ANNUAL
REPORT
Feb. 28, 1997
(LOGO)
<PAGE>
Prudential Municipal Series Fund
Michigan Series
Performance At A Glance.
The six-months ending in February were rewarding ones for
municipal bond
investors. Bond prices rose as talk of higher interest rates
subsided (at
least temporarily) and inflation levels remained low. For
the six-month
reporting period ended February 28, 1997, we're pleased to
report that the
Prudential Municipal Series Fund -- Michigan Series provided
attractive tax-
free yields. Our total returns were also competitive with
the average Michigan
tax-free municipal bond fund, as measured by Lipper
Analytical Services.
<TABLE>
<CAPTION>
Cumulative Total Returns1
As of 2/28/97
Six One Five
Ten Since
Months Year Years
Years Inception2
<S> <C> <C> <C>
<C> <C>
Class A 4.5% 3.9% (3.8)4 39.8%
(39.7)4 N/A 65.7% (65.5)4
Class B 4.5 3.5 (3.4)4 36.9
(36.8)4 83.4% (82.6)4 170.2 (167.4)4
Class C 4.2 3.2 N/A
N/A 15.7 (15.6)4
Lipper OH Muni Avg.3 4.5 4.3 39.8
92.9 ***
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns1
As of 3/31/97
One Five
Ten Since
Year Years
Years Inception2
<S> <C> <C>
<C> <C>
Class A 1.8% (1.7)4 6.0%
N/A 6.6%
Class B -0.6 (-0.7)4 6.1 (6.0)4
6.2% 8.2 (8.1)4
Class C 3.2 (3.1)4 N/A
N/A 5.1
</TABLE>
<TABLE>
<CAPTION>
Dividends &
Yields
As of 2/28/97
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 $0.30 4.49% (4.44)4
7.34% (7.26)4 7.78% (7.69)4
Class B $0.28 4.23 (4.18)4
6.91 (6.83)4 7.33 (7.24)4
Class C $0.26 3.98 (3.93)4
6.50 (6.42)4 6.89 (6.81)4
</TABLE>
Past performance is not indicative of future results.
Principal and investment
return will fluctuate so that an investor's shares, when
redeemed, may be
worth more or less than their original cost.
1Source: Prudential Mutual Fund Management and Lipper
Analytical Services.
The cumulative total returns do not take into account sales
charges. The
average annual returns do take into account applicable sales
charges. The Fund
charges a maximum front-end sales load of 3% for Class A
shares and a 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 47
funds for six
months, 46 funds for one year, 14 funds for five years and
seven funds for
10 years.
4Without waiver of management fees and/or expense
subsidization, the Series'
average annual return and yields would have been lower, as
indicated in
parentheses ( ).
5Taxable equivalent yields reflect federal and applicable
state tax rates.
***The Lipper Since Inception category return for Class A
shares is 67.7%,
which includes 11 funds; for Class B is 186.7% for two
funds; and Class C is
17.5% for 35 funds.
How Investments Compared.
(As of 2/28/97)
(CHART)
U.S. General General Taxable
Growth Bond Muni Debt Money
Funds Funds Funds Mkt 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
included historical
20-year average annual returns. These returns assume the
reinvestment of
dividends.
U.S. Growth Funds will fluctuate a great deal. Investors
have received higher
historical total returns from stocks than from most other
invest-ments.
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.
Taxable 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.
<PAGE>
James M. Murphy, 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 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' investment
objective will be
achieved.
New Manager Named.
In January 1997, James M. Murphy was named the new portfolio
manager of the
Michigan Series. Jim joined Prudential in 1989 and brings to
the position
extensive experience as a municipal bond trader and credit
analyst.
Strategy Session.
The municipal bond market moved in cycles during the
reporting period: Bond
prices rallied on news of slower economic growth and low
inflation; then sold
off when reports indicated the opposite. For example, in the
third quarter of
1996, bond prices rallied. Municipal bond interest rates
were 6.01% on October
24 and gradually declined to 5.80% in November, according to
the Bond Buyer's
Revenue Bond Index, a widely-watched industry barometer. The
start of 1997
brought news that the economy was accelerating. Fourth
quarter Gross Domestic
Product (GDP is the total value of all the goods and
services produced by the
economy and a generally accepted measure of economic growth)
surged 3.8%. Yet
inflation remained low. Interest rates then began a steady
climb upward as
bond prices fell slightly. Interest rates ended the
reporting period at 5.93%.
As you know, bond prices rise when interest rates fall, and
vice versa. Our
strategy over the past six months was to adjust the Series'
duration in order
to help it respond more effectively to interest rate
movements. When the
municipal bond market rallied last fall, we lengthened
duration. This allowed
your Series to profit as bond prices rose. Conversely, as
the bond market
slowed at year-end, we shortened the Series' duration. This
protected assets
as interest rates rose.
As the end of the reporting period neared, we shortened
Series' duration even
more to match or be slightly shorter than, the average
Michigan tax-free
municipal bond fund. We did not want to be caught off guard
if the Federal
Reserve raised short-term interest rates.
Portfolio Breakdown.
Expressed as a percentage of
total investments as of 2/28/97.
(PIE CHART)
<PAGE>
What Went Well.
A Prudent Move.
We shortened Series' duration as the reporting period ended
in February in
anticipation of a possible increase in interest rates by the
Federal Reserve.
It was a prudent move. On March 25, 1997, the central bank
raised the federal
funds rate (what banks charge each other for overnight
loans) one-quarter of a
percentage point to 5.50%. It was the first increase in two
years.
The Federal Reserve explained it was acting to quell
"inflationary imbalances"
that could undermine the country's six-year economic
expansion. The action was
widely expected by investors. Indeed, Federal Reserve
Chairman Alan Greenspan
had been saying he would not rule out a "pre-emptive" strike
against
inflationary pressures for several weeks prior to the actual
rate increase.
Five Largest
Issuers.
4.1% Brandon School District
4.0% Michigan Trunk Line
4.0% Lincoln Park
School District
3.7% Bay Medical Center
3.6% Wyndote Electric
Revenue
Expressed as a percentage of total net assets as of 2/28/97.
And Not So Well.
Market Concerns.
While there were more new bonds issued over the past six
months ending in
February, the increase was not dramatic. The overall trend
for municipal bond
supply has been downward for a couple of years now. That's
because
municipalities have more revenue coming in -- thanks to
stronger local
economies -- and thus have less need to market new bonds.
Unfortunately, that
also means fewer investment opportunities for your Series.
Bond insurance has been another concern. Why? Because as
more bonds are issued
with insurance, it means fewer uninsured bonds were
available. In past years,
uninsured bonds offered us the opportunity to buy good
quality credits
(usually rated A to BBB) at attractive prices and yields. As
this pool
shrinks, so too does the opportunity for your Fund to
purchase bonds that
could further enhance yield.
Looking Ahead.
The Federal Reserve has raised short-term interest rates
once in 1997. Will
there be more increases in short-term interest rates?
Probably. Experience
tells us that changes in Federal Reserve monetary policy are
rarely one-shot
deals. Given present economic conditions, we believe one or
two additional
rate increases will most likely occur later this year. Of
course, no one knows
for sure. We have positioned the Series' duration to be
closer to, or slightly
shorter than, the average Michigan tax-free municipal bond
fund. This will
give us the flexibility to respond if -- or more likely when
- - -- the Federal
Reserve acts to increase interest rates.
Portfolio Breakdown.
Expressed as a percentage of
total investments as of 2/28/97.
(PIE CHART)
- - ------------------------------------------------------------
- - -------------------
1
<PAGE>
President's Letter
April 10, 1997
We're On Your Side.
Dear Shareholder:
The first three months of the year were not good ones for
most U.S. stock and
bond investors. The Dow Jones Industrial Average was down
considerably from
its record high set in mid-March, and long-term interest
rates were at their
highest levels in six months. Not surprisingly, in the first
quarter of 1997
the average stock and bond mutual fund had negative returns
(for stock funds,
it was the first time since 1994).
The reasons behind the recent market decline have been well-
publicized --
higher interest rates and inflationary pressures. And while
we are watching
market developments closely, we are also very concerned
about you and how
you're dealing with events. We realize that staying the
course toward your
long-term investment goals isn't easy during such times of
uncertainty. Here
are a few thoughts that may help --
- - - Keep Your Expectations Realistic. The best investors know
that financial
markets rise and fall -- and so too, will the value of
their investments.
Over time, however, stocks have been shown to produce
very attractive
returns that were well ahead of inflation.
- - - Remember Your Time Horizon. If your investment goals are
long term (several
years or more), so should your time horizon. During this
period, it's not
unusual for stocks and bonds to experience several
periods of market
uncertainty.
- - - We're On Your Side. Your Prudential Securities Financial
Advisor or
Prudential Registered Representative can help you
understand what's
happening in the financial markets. They can assist you
in making informed
decisions based upon a thorough knowledge of your
financial needs and long-
term goals. Call him or her today.
Thank you for your continued confidence in Prudential mutual
funds. We'll do
everything we can to keep you informed and to earn your
trust.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
- - ------------------------------------------------------------
- - -------------------
2
<PAGE>
Portfolio of Investments as of PRUDENTIAL MUNICIPAL
SERIES FUND
February 28, 1997 (Unaudited) MICHIGAN 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%
- - ------------------------------------------------------------
- - ------------------------------------------------------------
- - ------
Adams Twnshp. Michigan Sch. Dist. Gen. Oblig., A.M.B.A.C.
Aaa 6.60% 5/01/24 $ 1,000 $
1,119,990
Avondale Michigan Sch. Dist., A.M.B.A.C.
Oakland Cnty., Gen. Oblig.
Aaa 5.75 5/01/14 665
677,243
Oakland Cnty., Gen. Oblig.
Aaa 5.80 5/01/15 525
535,132
Oakland Cnty., Gen. Oblig.
Aaa 5.80 5/01/16 550
556,270
Brandon Sch. Dist. Gen. Oblig., F.G.I.C.
Oakland & Lapeer Cnty.
Aaa 5.70 5/01/12 1,155
1,181,034
Oakland & Lapeer Cnty.
Aaa 5.875 5/01/26 1,310
1,328,405
Breitung Twnshp. Sch. Dist. Rev., Gen. Oblig., M.B.I.A.
Aaa 6.30 5/01/15 250
266,500
Canton Charter Twnshp. Bldg. Auth., Wayne Cnty. Golf Course,
F.S.A.
Aaa 4.75 1/01/11 450
423,382
F.S.A.
Aaa 4.75 1/01/12 450
420,368
F.S.A.
Aaa 4.75 1/01/13 500
464,145
F.S.A.
Aaa 4.75 1/01/14 500
454,520
Central Michigan Univ. Rev.
A 7.00 10/01/10 700 (e)
774,263
Detroit Econ. Dev. Corp., Res. Rec. Rev., Ser. A, F.S.A.
Aaa 6.875 5/01/09 1,000
1,077,400
Detroit Sewage Disp. Rev., Ser. 1993 A, F.G.I.C.
Aaa 7.618 7/01/23 1,000 (d)
943,750
Detroit Wtr. Supply Sys. Rev.,
F.G.I.C.
Aaa 4.75 7/01/19 1,000
867,110
Ser. B, M.B.I.A.
Aaa 5.55 7/01/12 1,000
1,017,940
Dickinson Cnty. Mem. Hosp. Sys. Rev.
Ba1 8.00 11/01/14 1,000
1,065,300
East Detroit Sch. Dist. Rfdg., F.G.I.C.
Aaa 6.625 5/01/07 1,600
1,806,608
Ferris St. Univ. Gen. Rev., A.M.B.A.C.
Aaa 5.80 10/01/05 440
469,955
Fowlerville Comm. Sch. Dist., M.B.I.A.
Aaa 5.60 5/01/21 1,500
1,472,595
Grand Ledge Public Sch. Dist., M.B.I.A.
Aaa 5.375 5/01/24 1,480
1,404,032
Grand Rapids San. Swr. Sys. Rev.
A1 7.00 1/01/16 500
539,675
Guam Pwr. Auth. Rev., Ser. A
BBB(c) 6.625 10/01/14 1,000
1,041,310
Holland Sch. Dist., A.M.B.A.C.
Aaa Zero 5/01/15 2,400
862,608
Huron Valley Sch. Dist., Gen. Oblig., F.G.I.C.
Aaa Zero 5/01/10 3,500
1,719,060
Kent Hosp. Fac. Fin. Auth. Rev., Blodgette Mem. Med. Ctr.,
Ser. A
A 7.25 7/01/05 500
531,625
Kirtland Comm. College Dist., Gen. Oblig., M.B.I.A.
Aaa 4.625 5/01/16 1,025
896,332
Lincoln Park Michigan Sch. Dist.,
F.G.I.C.
Aaa 7.00 5/01/20 1,500
1,696,035
F.G.I.C.
Aaa 5.90 5/01/26 750
762,825
Michigan Higher Ed., Student Loan Auth. Rev., Ser. XIII-A,
M.B.I.A.
Aaa 7.55 10/01/08 345
358,476
Michigan Pub. Pwr. Agcy. Rev., Belle River Proj., Ser. A
A1 5.00 1/01/19 1,000
906,150
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as of PRUDENTIAL MUNICIPAL
SERIES FUND
February 28, 1997 (Unaudited) MICHIGAN SERIES
- - ------------------------------------------------------------
- - -------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description (a)
Rating Rate Date (000) (Note
1)
<S>
<C> <C> <C> <C> <C>
- - ------------------------------------------------------------
- - ------------------------------------------------------------
- - ------
Michigan St. Hosp. Fin. Auth. Rev.,
Bay Med. Ctr., Ser. A
A3 8.25% 7/01/12 $ 2,000 $
2,257,900
Henry Ford Hosp., E.T.M.
Aaa 9.00 5/01/08 2,340
3,060,931
Hosp. Genesys Hlth.
Baa 8.125 10/01/21 1,000
1,140,860
Hosp. Genesys Hlth.
Baa 7.50 10/01/27 500
544,940
Michigan St. Hsg. Dev. Auth. Rev.,
Multifamily Mtge. Insured Hsg., Ser. A
A+(c) 7.15 4/01/10 685
721,538
Multifamily Mtge. Insured Hsg., Ser. A
A+(c) 7.70 4/01/23 500
537,305
Sngl. Fam. Mtge., Ser. A
AA+(c) 7.70 12/01/16 370
377,648
Michigan St. Strategic Fund Ltd. Obligated Rev.,
Waste Mgmt. Inc. Proj.,
A1 6.625 12/01/12 2,000
2,159,620
Michigan St. Trunk Line Hwy.,
Ser. A, A.M.B.A.C.
Aaa Zero 10/01/05 2,600
1,705,262
Ser. A, A.M.B.A.C.
Aaa Zero 10/01/06 1,250
773,300
Michigan St. Underground Storage Tank, Fin. Assurance Auth.
Rev., A.M.B.A.C.
Aaa 6.00 5/01/06 2,000
2,154,720
Michigan St. Univ. Rev., Ser. A, A.M.B.A.C.
Aaa 5.125 2/15/16 1,000
944,910
Monroe Cnty. Poll. Ctrl. Rev., Detroit Edison Co., F.G.I.C.,
Aaa 7.65 9/01/20 2,000
2,207,700
Mt. Pleasant Wtr. Rev., Wtr. & Swr.,
M.B.I.A.
Aaa 5.00 2/01/22 520
470,569
M.B.I.A.
Aaa 4.00 2/01/23 550
416,256
M.B.I.A.
Aaa 4.00 2/01/24 585
440,429
Oak Park, Gen. Oblig.,
A.M.B.A.C.
Aaa 7.00 5/01/11 375 (e)
422,659
A.M.B.A.C.
Aaa 7.00 5/01/12 400 (e)
450,836
Posen Cons. Sch. Dist., Sch. Dist. No. 9, M.B.I.A.
Aaa 6.75 5/01/22 1,000 (e)
1,127,980
Puerto Rico Commonwlth. Hwy. Auth., Rev., Ser. Q
AAA(c) 7.75 7/01/16 1,500 (e)
1,695,435
Puerto Rico Elec. Pwr. Auth. Rev.,
Ser. N
Baa1 7.125 7/01/14 920
987,169
Ser. X
Baa1 5.50 7/01/25 1,000
947,790
St. Clair Cnty., Wtr. Supply Sys. No. VII, IRA Township,
A.M.B.A.C.
Aaa 5.25 7/01/15 1,000
972,400
Univ. of Michigan Rev., Pkg. Sys. Rfdg.
Aa 5.00 6/01/15 500
469,735
Virgin Islands Wtr. & Pwr. Auth., Elec. Sys. Rev., Ser. A
NR 7.40 7/01/11 500
532,110
Walled Lake Cons. Sch. Dist., M.B.I.A.
Aaa 5.50 5/01/22 1,800
1,752,030
Wayne Cnty. Bldg. Auth., Ser. A
Baa 8.00 3/01/17 1,250 (e)
1,453,812
Wyandotte Elec. Rev., M.B.I.A.
Aaa 6.25 10/01/08 2,000
2,212,240
- - ------------
Total long-term investments (cost $56,697,815 )
60,578,122
- - ------------
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as of PRUDENTIAL MUNICIPAL
SERIES FUND
February 28, 1997 (Unaudited) MICHIGAN 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--0.5%
Michigan Strategic Fund Poll. Ctrl. Rev., Consumers Pwr.
Proj., F.R.D.D., Ser. 88A (cost $300,000)
P1 3.45% 3/03/97 $ 300 $
300,000
- - ------------
Total Investments--98.6%
(cost $56,997,815; Note 4)
60,878,122
Other assets in excess of liabilities--1.4%
841,847
- - ------------
Net Assets--100%
$ 61,719,969
- - ------------
- - ------------
</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.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.
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>
<CAPTION>
Assets
February 28, 1997
<S>
<C>
Investments, at value (cost
$56,997,815)................................................
.................. $ 60,878,122
Cash........................................................
..............................................
32,293
Interest
receivable..................................................
..................................... 1,044,764
Receivable for Series shares
sold........................................................
................. 2,207
Other
assets......................................................
........................................
1,420
- - -----------------
Total
assets......................................................
..................................... 61,958,806
- - -----------------
Liabilities
Accrued
expenses....................................................
...................................... 92,838
Payable for Series shares
reacquired..................................................
.................... 79,966
Dividends
payable.....................................................
.................................... 26,974
Management fee
payable.....................................................
............................... 21,429
Distribution fee
payable.....................................................
............................. 14,671
Deferred trustees'
fees........................................................
........................... 2,959
- - -----------------
Total
liabilities.................................................
..................................... 238,837
- - -----------------
Net
Assets......................................................
.......................................... $
61,719,969
- - -----------------
- - -----------------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
......... $ 51,887
Paid-in capital in excess of
par.........................................................
.............. 57,952,869
- - -----------------
58,004,756
Accumulated net realized loss on
investments.................................................
.......... (165,094)
Net unrealized appreciation on
investments.................................................
............ 3,880,307
- - -----------------
Net assets, February 28,
1997........................................................
..................... $ 61,719,969
- - -----------------
- - -----------------
Class A:
Net asset value and redemption price per share
($29,712,817 / 2,497,026 shares of beneficial interest
issued and outstanding)......................
$11.90
Maximum sales charge (3% of offering
price)......................................................
...... .37
- - -----------------
Maximum offering price to
public......................................................
................. $12.27
- - -----------------
- - -----------------
Class B:
Net asset value, offering price and redemption price per
share
($31,893,730 / 2,682,111 shares of beneficial interest
issued and outstanding)......................
$11.89
- - -----------------
- - -----------------
Class C:
Net asset value, offering price and redemption price per
share
($113,422 / 9,538 shares of beneficial interest issued
and outstanding).............................
$11.89
- - -----------------
- - -----------------
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements. 6
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MICHIGAN SERIES
Statement of Operations (Unaudited)
- - ------------------------------------------------------------
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income February 28,
1997
<S> <C>
Income
Interest................................ $ 1,887,358
--------------
- - ---
Expenses
Management fee.......................... 156,005
Distribution fee--Class A............... 14,714
Distribution fee--Class B............... 82,154
Distribution fee--Class C............... 423
Custodian's fees and expenses........... 42,300
Transfer agent's fees and expenses...... 28,200
Report to shareholders.................. 19,800
Registration fees....................... 17,400
Legal fees and expenses................. 5,500
Audit fees and expenses................. 5,000
Trustees' fees and expenses............. 1,800
Miscellaneous........................... 3,829
--------------
- - ---
Total expenses....................... 377,125
Less: Management fee waiver.............
(15,601)
Custodian fee credit.................
(764)
--------------
- - ---
Net expenses......................... 360,760
--------------
- - ---
Net investment income...................... 1,526,598
--------------
- - ---
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions................. 81,645
Financial futures transactions..........
(55,902)
--------------
- - ---
25,743
--------------
- - ---
Net change in unrealized appreciation
(depreciation) on:
Investments............................. 1,209,190
Financial futures contracts.............
(32,938)
--------------
- - ---
1,176,252
--------------
- - ---
Net gain on investments.................... 1,201,995
--------------
- - ---
Net Increase in Net Assets
Resulting from Operations.................. $ 2,728,593
--------------
- - ---
--------------
- - ---
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
MICHIGAN SERIES
Statement of Changes in Net Assets (Unaudited)
- - ------------------------------------------------------------
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended
Increase (Decrease) February 28,
August 31,
in Net Assets 1997
1996
<S> <C> <C>
Operations
Net investment income........ $ 1,526,598 $
3,317,225
Net realized gain on
investment transactions... 25,743
298,735
Net change in unrealized
appreciation/depreciation
of investments............ 1,176,252
(391,222)
----------------- -----
- - ----------
Net increase in net assets
resulting from
operations................ 2,728,593
3,227,738
----------------- -----
- - ----------
Dividends and distributions
(Note 1):
Dividends from net investment
income
Class A................... (751,390)
(1,448,506)
Class B................... (772,693)
(1,864,426)
Class C................... (2,515)
(4,293)
----------------- -----
- - ----------
(1,526,598)
(3,317,225)
----------------- -----
- - ----------
Distributions in excess of
net investment income
Class A................... (5,093)
- - --
Class B................... (5,425)
- - --
Class C................... (19)
- - --
----------------- -----
- - ----------
(10,537)
- - --
----------------- -----
- - ----------
Distributions from net
realized gains
Class A................... (101,868)
(352,642)
Class B................... (108,497)
(514,059)
Class C................... (387)
(412)
----------------- -----
- - ----------
(210,752)
(867,113)
----------------- -----
- - ----------
Series share transactions (net
of share conversions) (Note
5):
Net proceeds from shares
sold...................... 680,267
2,574,979
Net asset value of shares
issued in reinvestment of
dividends and
distributions............. 1,093,965
2,652,668
Cost of shares reacquired.... (4,848,349)
(9,038,280)
----------------- -----
- - ----------
Net decrease in net assets
from Series share
transactions.............. (3,074,117)
(3,810,633)
----------------- -----
- - ----------
Total decrease.................. (2,093,411)
(4,770,233)
Net Assets
Beginning of period............. 63,813,380
68,583,613
----------------- -----
- - ----------
End of period................... $ 61,719,969 $
63,813,380
----------------- -----
- - ----------
----------------- -----
- - ----------
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements. 7
<PAGE>
Notes to Financial Statements PRUDENTIAL MUNICIPAL
SERIES FUND
(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.
Reclassification of Capital Accounts: The Fund accounts and
reports for
distributions to shareholders in accordance with Statement
of Position 93-2:
Determination, Disclosure, and Financial Statement
Presentation of Income,
Capital Gain, and Return of Capital Distributions by
Investment Companies. The
effect of applying this statement was to increase
undistributed net investment
income and increase accumulated net realized loss by
$10,537, due to the sale of
securities purchased with market discount. Net investment
income, net realized
gains and net assets were not affected by this change.
Federal Income Taxes: 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.
- - ------------------------------------------------------------
- - --------------------
8
<PAGE>
Notes to Financial Statements PRUDENTIAL MUNICIPAL
SERIES FUND
(Unaudited) MICHIGAN SERIES
- - ------------------------------------------------------------
- - --------------------
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 LLC
('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 $15,601 ($0.003 per share)
for the six months
ended February 28, 1997. The Series is not required to
reimburse PMF for such
waiver.
The Fund has a distribution agreement with Prudential
Securities Incorporated
('PSI'), which acts as the distributor of the Class A, Class
B and Class C
shares of the Fund. The Fund compensates 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 PSI.
The distribution fees are accrued daily and payable monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates
PSI 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 28, 1997.
PSI has advised the Series that it has received
approximately $1,500 in
front-end sales charges resulting from sales of Class A
shares during the six
months ended February 28, 1997. From these fees, PSI paid
such sales charges to
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 28, 1997, it
received approximately $24,900 in contingent deferred sales
charges imposed upon
certain redemptions by Class B shareholders.
PSI, PMF and PIC are indirect, wholly-owned subsidiaries of
The Prudential
Insurance Company of America.
The Series, along with other affiliated registered
investment companies (the
'Funds'), entered into a credit agreement (the 'Agreement')
on December 31, 1996
with an unaffiliated lender. The maximum commitment under
the Agreement is
$200,000,000. The Agreement expires on December 30, 1997.
Interest on any such
borrowings outstanding will be at market rates. The purpose
of the Agreement is
to serve as an alternative source of funding for capital
share redemptions. The
Series has not borrowed any amounts pursuant to the
Agreement as of February 28,
1997. The Funds pay a commitment fee at an annual rate of
.055 of 1% on the
unused portion of the credit facility. The commitment fee is
accrued and paid
quarterly on a pro-rata basis by the Funds.
- - ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly-owned
subsidiary of PMF,
serves as the Fund's transfer agent. During the six months
ended February 28,
1997, the Series incurred fees of approximately $17,400 for
the services of
PMFS. As of February 28, 1997, approximately $2,800 of such
fees were due to
PMFS. Transfer agent fees and expenses in the Statement of
Operations include
certain out-of-pocket expenses paid to non-affiliates.
- - ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of portfolio securities of the Series,
excluding short-term
investments, for the six months ended February 28, 1997 were
$4,141,632 and
$6,256,090, respectively.
- - ------------------------------------------------------------
- - --------------------
9
<PAGE>
Notes to Financial Statements PRUDENTIAL MUNICIPAL
SERIES FUND
(Unaudited) MICHIGAN SERIES
- - ------------------------------------------------------------
- - --------------------
The cost basis of investments for federal income tax
purposes at February 28,
1997 was substantially the same as for financial reporting
purposes and
accordingly, net unrealized appreciation for federal income
tax purposes was
$3,880,307 (gross unrealized appreciation--$4,025,348; gross
unrealized
depreciation--$145,041).
- - ------------------------------------------------------------
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 28, 1997 and the
fiscal year ended
August 31, 1996 were as follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- - ------------------------------------ ---------- --------
- - ----
<S> <C> <C>
Six months ended February 28, 1997:
Shares sold......................... 6,406 $
76,247
Shares issued in reinvestment of
dividends and distributions....... 47,019
557,839
Shares reacquired................... (203,969)
(2,413,857)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................. (150,544)
(1,779,771)
Shares issued upon conversion from
Class B........................... 195,592
2,315,239
---------- --------
- - ----
Net increase in shares
outstanding....................... 45,048 $
535,468
---------- --------
- - ----
---------- --------
- - ----
<CAPTION>
Class A Shares
Amount
- - ------------------------------------ ---------- --------
- - ----
<S> <C> <C>
Year ended August 31, 1996:
Shares sold......................... 52,406 $
620,873
Shares issued in reinvestment of
dividends
and distributions................. 94,877
1,134,847
Shares reacquired................... (308,633)
(3,671,352)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................. (161,350)
(1,915,632)
Shares issued upon conversion from
Class B........................... 339,773
4,040,498
---------- --------
- - ----
Net increase in shares
outstanding....................... 178,423 $
2,124,866
---------- --------
- - ----
---------- --------
- - ----
<CAPTION>
Class B
- - ------------------------------------
<S> <C> <C>
Six months ended February 28, 1997
Shares sold......................... 51,113 $
604,020
Shares issued in reinvestment of
dividends and distributions....... 45,025
533,841
Shares reacquired................... (205,005)
(2,431,474)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................. (108,867)
(1,293,613)
Shares reacquired upon conversion
into Class A...................... (195,757)
(2,315,239)
---------- --------
- - ----
Net decrease in shares
outstanding....................... (304,624) $
(3,608,852)
---------- --------
- - ----
---------- --------
- - ----
Year ended August 31, 1996:
Shares sold......................... 153,896 $
1,841,004
Shares issued in reinvestment of
dividends and distributions....... 126,423
1,513,838
Shares reacquired................... (444,092)
(5,262,595)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................. (163,773)
(1,907,753)
Shares reacquired upon conversion
into Class A...................... (339,981)
(4,040,498)
---------- --------
- - ----
Net decrease in shares
outstanding....................... (503,754) $
(5,948,251)
---------- --------
- - ----
---------- --------
- - ----
<CAPTION>
Class C
- - ------------------------------------
<S> <C> <C>
Six months ended February 28, 1997
Shares issued in reinvestment of
dividends and distributions....... 193 $
2,285
Shares reacquired................... (257)
(3,018)
---------- --------
- - ----
Net decrease in shares
outstanding....................... (64) $
(733)
---------- --------
- - ----
---------- --------
- - ----
Year ended August 31, 1996:
Shares sold......................... 9,428 $
113,102
Shares issued in reinvestment of
dividends and distributions....... 334
3,983
Shares reacquired................... (8,567)
(104,333)
---------- --------
- - ----
Net increase in shares
outstanding....................... 1,195 $
12,752
---------- --------
- - ----
---------- --------
- - ----
</TABLE>
- - ------------------------------------------------------------
- - --------------------
10
<PAGE>
PRUDENTIAL MUNICIPAL
SERIES FUND
Financial Highlights (Unaudited) MICHIGAN SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class A
----------
- - -----------------------------------------------------------
Six
Months
Ended
Year Ended August 31,
February
28, ----------------------------------------------------
1997
1996 1995 1994 1993 1992
------
- - ------- ------- ------ ------ ------
<S> <C>
<C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 11.72
$ 11.89 $ 11.75 $12.51 $11.90 $11.30
------
- - ------- ------- ------ ------ ------
Income from investment operations
Net investment income.........................
.30(a) .62(a) .64(a) .64 .67
.68
Net realized and unrealized gain (loss) on
investment transactions.................... .22
(.02) .17 (.69) .71 .60
------
- - ------- ------- ------ ------ ------
Total from investment operations........... .52
.60 .81 (.05) 1.38 1.28
------
- - ------- ------- ------ ------ ------
Less distributions
Dividends from net investment income..........
(.30) (.62) (.64) (.64) (.67)
(.68)
Distributions from net realized gains.........
(.04) (.15) (.03) (.07) (.10)
- - --
------
- - ------- ------- ------ ------ ------
Total distributions........................
(.34) (.77) (.67) (.71) (.77)
(.68)
------
- - ------- ------- ------ ------ ------
Net asset value, end of period................ $ 11.90
$ 11.72 $ 11.89 $11.75 $12.51 $11.90
------
- - ------- ------- ------ ------ ------
------
- - ------- ------- ------ ------ ------
TOTAL RETURN(b):..............................
4.54% 5.07% 7.13% (0.38)% 11.95%
11.63%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $29,713
$28,730 $27,024 $4,706 $3,814 $1,618
Average net assets (000)...................... $29,671
$27,978 $16,932 $4,505 $2,285 $1,235
Ratios to average net assets:
Expenses, including distribution fees......
.95%(a)(c) .91%(a) 1.02%(a) .91% .96%
.98%
Expenses, excluding distribution fees......
.85%(a)(c) .81%(a) .92%(a) .81% .86%
.88%
Net investment income......................
5.11%(a)(c) 5.18%(a) 5.31%(a) 5.27% 5.51%
5.82%
For Class A, B and C shares:
Portfolio turnover rate....................
7% 36% 33% 12% 14%
30%
</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.
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements. 11
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) MICHIGAN SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class B
----------
- - ------------------------------------------------------------
- - --
Six
Months
Ended
Year Ended August 31,
February
28, ----------------------------------------------------
- - ---
1997
1996 1995 1994 1993 1992
----------
- - -- ------- ------- ------- ------- -----
- - --
<S> <C>
<C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $11.71
$ 11.88 $ 11.75 $ 12.51 $ 11.90 $ 11.30
-----
- - ------- ------- ------- ------- -------
Income from investment operations
Net investment income.........................
.28(a) .57(a) .59(a) .59 .62
.63
Net realized and unrealized gain (loss) on
investment transactions.................... .22
(.02) .16 (.69) .71 .60
-----
- - ------- ------- ------- ------- -------
Total from investment operations........... .50
.55 .75 (.10) 1.33 1.23
-----
- - ------- ------- ------- ------- -------
Less distributions
Dividends from net investment income.......... (.28)
(.57) (.59) (.59) (.62) (.63)
Distributions from net realized gains......... (.04)
(.15) (.03) (.07) (.10) --
-----
- - ------- ------- ------- ------- -------
Total distributions........................ (.32)
(.72) (.62) (.66) (.72) (.63)
-----
- - ------- ------- ------- ------- -------
Net asset value, end of period................ $11.89
$ 11.71 $ 11.88 $ 11.75 $ 12.51 $ 11.90
-----
- - ------- ------- ------- ------- -------
-----
- - ------- ------- ------- ------- -------
TOTAL RETURN(b):.............................. 4.33%
4.66% 6.60% (0.78)% 11.51% 11.18%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $31,894
$34,971 $41,459 $70,112 $70,302 $56,095
Average net assets (000)...................... $33,134
$39,052 $52,216 $72,095 $61,548 $52,137
Ratios to average net assets:
Expenses, including distribution fees......
1.35%(a)(c) 1.31%(a) 1.37%(a) 1.31% 1.36%
1.38%
Expenses, excluding distribution fees......
.85%(a)(c) .81%(a) .87%(a) .81% .86%
.88%
Net investment income......................
4.70%(a)(c) 4.77%(a) 5.04%(a) 4.87% 5.11%
5.42%
</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.
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements. 12
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) MICHIGAN SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class C
----------
- - -------------------------------------------------
August 1,
Six
Months 1994(d)
Ended
Year Ended August 31, Through
February
28, --------------------------- August 31,
1997
1996 1995 1994
----------
- - -- ------------ ---------- ----------
<S> <C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $11.71
$11.88 $11.75 $11.78
-----
- - ----- ----- -----
Income from investment operations
Net investment income.........................
.26(a) .54(a) .56(a) .04
Net realized and unrealized gain (loss) on
investment transactions.................... .22
(.02) .16 (.03)
-----
- - ----- ----- -----
Total from investment operations........... .48
.52 .72 .01
-----
- - ----- ----- -----
Less distributions
Dividends from net investment income.......... (.26)
(.54) (.56) (.04)
Distributions from net realized gains......... (.04)
(.15) (.03) --
-----
- - ----- ----- -----
Total distributions........................ (.30)
(.69) (.59) (.04)
-----
- - ----- ----- -----
Net asset value, end of period................ $11.89
$11.71 $11.88 $11.75
-----
- - ----- ----- -----
-----
- - ----- ----- -----
TOTAL RETURN(b):.............................. 4.20%
4.39% 6.29% 0.06%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $113
$112 $100 $200(e)
Average net assets (000)...................... $114
$95 $61 $199(e)
Ratios to average net assets:
Expenses, including distribution fees......
1.60%(a)(c) 1.56%(a) 1.68%(a) 2.15%(c)
Expenses, excluding distribution fees......
.85%(a)(c) .81%(a) .93%(a) 1.39%(c)
Net investment income......................
4.45%(a)(c) 4.53%(a) 4.66%(a) 4.56%(c)
</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.
(e) Figures are actual and not rounded to the nearest
thousand.
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements. 13
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Supplemental Proxy Information MICHIGAN SERIES
- - ------------------------------------------------------------
- - --------------------
A Meeting of Shareholders of the Prudential Municipal
Series Fund was held on
Wednesday, October 30, 1996 at the offices of Prudential
Securities
Incorporated, One Seaport Plaza, New York, New York. The
meeting was held for
the following purposes:
(1) To elect Trustees as follows: Edward D. Beach, Eugene C.
Dorsey, Delayne
Dedrick Gold, Robert F. Gunia, Harry A. Jacobs, Jr.,
Donald D. Lennox,
Mendel A. Melzer, Thomas T. Mooney, Thomas H. O'Brien,
Richard A. Redeker,
Nancy H. Teeters and Louis A. Weil, III.
(2) Approval of an amendment to the Fund's investment
restrictions to permit an
increase in the borrowing capabilities of the Fund.
The results of the proxy solicitation on the above
matters were as follows:
<TABLE>
<CAPTION>
Trustee/Matter
Votes for Votes against Abstentions
- - ----------- ------------- -----------
<S> <C>
<C> <C> <C>
(1) Edward D. Beach
370,817,756 0 16,169,234
Eugene C. Dorsey
371,804,474 0 15,182,516
Delayne Dedrick Gold
371,782,816 0 15,204,174
Robert F. Gunia
371,639,995 0 15,346,995
Harry A. Jacobs, Jr.
371,395,066 0 15,591,924
Donald D. Lennox
371,150,974 0 15,836,016
Mendel A. Melzer
371,811,918 0 15,175,072
Thomas T. Mooney
371,607,874 0 15,379,116
Thomas H. O'Brien
371,328,875 0 15,658,115
Richard A. Redeker
371,876,756 0 15,110,234
Nancy H. Teeters
371,775,376 0 15,211,614
Louis A. Weil, III
371,777,517 0 15,209,473
(2) Amendment relating to borrowing capabilities
259,440,223 31,557,793 17,488,974
</TABLE>
- - ------------------------------------------------------------
- - --------------------
14
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Robert F. Gunia
Harry A. Jacobs, Jr.
Donald D. Lennox
Mendel A. Melzer
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Louis A. Weil, III
Officers
Richard A. Redeker, President
Susan C. Cote, Vice President
Thomas Early, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Mutual Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
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 LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Auditors
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, NY 10022
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 28,
1997 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
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
74435M671
74435M689 MF120E2
74435M556 Cat# 642742Y
(ICON)
Prudential
Municipal
Series Fund
- - --------------------
Hawaii Income Series
SEMI
ANNUAL
REPORT
Feb. 28, 1997
(LOGO)
<PAGE>
Prudential Municipal Series Fund
Hawaii Income Series
Performance At A Glance.
The six-months ending in February were rewarding ones for
municipal bond
investors. Bond prices rose as talk of higher interest rates
subsided (at
least temporarily) and inflation levels remained low. For
the six-month
reporting period ended February 28, 1997, we're pleased to
report that the
Prudential Municipal Series Fund -- Hawaii Income Series
provided attractive
tax-free yields. Our total returns trailed the average
Hawaiian tax-free
municipal bond fund, as measured by Lipper Analytical
Services.
<TABLE>
<CAPTION>
Cumulative Total Returns1
As of 2/28/97
Six One
Since
Months Year
Inception2
<S> <C> <C>
<C>
Class A 4.4% (3.8)4 4.7% (3.5)4
20.0% (16.5)4
Class B 4.2 (3.6)4 4.3 (3.1)4
18.9 (15.4)4
Class C 4.1 (3.5)4 4.1 (2.9)4
18.2 (14.7)4
Lipper Hawaii Muni Avg.3 4.6 4.8
***
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns1
As of 3/31/97
One
Since
Year
Inception2
<S> <C>
<C>
Class A 2.5% (1.3)4
5.7% (4.4)4
Class B 0.2 (-.9)4
5.5 (4.1)4
Class C 4.0 (2.8)4
6.3 (5.0)4
</TABLE>
<TABLE>
<CAPTION>
Dividends
& Yields
Taxable Equivalent Yield5
As of Total Dividends 30-Day
At Tax Rates Of
2/28/97 Paid for Six Mos. SEC Yield
36% 39.6%
<S> <C> <C>
<C> <C>
Class A $0.32 5.09%
(4.05)4 8.84% (7.03)4 9.36% (7.45)4
Class B $0.30 4.97
(3.90)4 8.63 (6.77)4 9.14 (7.17)4
Class C $0.29 4.78
(3.71)4 8.30 (6.44)4 8.79 (6.82)4
</TABLE>
Past performance is not indicative of future results.
Principal and investment
return will fluctuate so that an investor's shares, when
redeemed, may be
worth more or less than their original cost.
1Source: Prudential Mutual Fund Management and Lipper
Analytical Services. The
cumulative total returns do not take into account sales
charges. The average
annual returns do take into account applicable sales
charges. The Fund charges
a maximum front-end sales load of 3% for Class A shares and
a 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 and for one year.
4Without waiver of management fees and/or expense
subsidization, the Series'
average annual return and yields would have been lower, as
indicated in
parentheses ( ).
5Taxable equivalent yields reflect federal and applicable
state tax rates.
***The Lipper Since Inception category return for Class A,
Class B and Class C
shares is 19.1%, which includes 10 funds.
How Investments Compared.
(As of 2/28/97)
(GRAPH)
U.S. General General Taxable
Growth Bond Muni Debt Money
Funds Funds Funds Mkt 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 included historical 20-year average
annual returns.
These returns assume the reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors
have received higher
historical total returns from stocks than from most other
investments. Smaller
capitalization stocks offer greater potential for long-term
growth but may be
more volatile than larger capitalization stocks.
General Bond Funds provide more income than stock funds,
which can help smooth
out their total returns year by year. But their prices still
fluctuate
(sometimes significantly) and their returns have been
historically lower than
those of stock funds.
General Municipal Debt Funds invest in bonds issued by state
governments,
state agencies and/or municipalities. This investment
provides income that is
usually exempt from federal and state income taxes.
Taxable 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.
<PAGE>
Christian Smith, 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 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
achieve its
investment objective.
Merger Vote.
The Board of Trustees has recently approved a proposal to
exchange the assets
and liabilities of the Prudential Municipal Series Fund --
Hawaii Income
Series for shares of the Prudential National Municipal
Municipals Fund. For
more information, please refer to the proxy materials we are
sending you.
Strategy Session.
The municipal bond market moved in cycles during the
reporting period: Bond
prices rallied on news of slower economic growth and low
inflation; then sold
off when reports indicated the opposite. For example, in the
third quarter of
1996, bond prices rallied. Municipal bond interest rates
were 6.01% on October
24 and gradually declined to 5.80% in November, according to
the Bond Buyer's
Revenue Bond Index, a widely-watched industry barometer. The
start of 1997
brought news that the economy was accelerating. Fourth
quarter Gross Domestic
Product (GDP is the total value of all the goods and
services produced by the
economy and a generally accepted measure of economic growth)
surged 3.8%. Yet
inflation remained low. Interest rates then began a steady
climb upward as
bond prices fell slightly. Interest rates ended the
reporting period at 5.93%.
As you know, bond prices rise when interest rates fall, and
vice versa. Our
strategy over the past six months was to adjust the Series'
duration in order
to help it respond more effectively to interest rate
movements. When the
municipal bond market rallied last fall, we lengthened
duration. This allowed
your Series to profit as bond prices rose. Conversely, as
the bond market
slowed at year-end, we shortened the Series' duration. This
protected assets
as interest rates rose.
As the end of the reporting period neared, we shortened
Series' duration even
more to match or be slightly shorter than, the average
Hawaiian tax-free
municipal bond fund. We did not want to be caught off guard
if the Federal
Reserve raised short-term interest rates.
Portfolio Breakdown.
Expressed as a percentage of
total investments as of 2/28/97.
(PIE CHART)
<PAGE>
What Went Well.
A Prudent Move.
We shortened Series' duration as the reporting period ended
in February in
anticipation of a possible increase in interest rates by the
Federal Reserve.
It was a prudent move. On March 25, 1997, the central bank
raised the federal
funds rate (what banks charge each other for overnight
loans) one-quarter of a
percentage point to 5.50%. It was the first increase in two
years.
The Federal Reserve explained it was acting to quell
"inflationary imbalances"
that could undermine the country's six-year economic
expansion. The action was
widely expected by investors. Indeed, Federal Reserve
Chairman Alan Greenspan
had been saying he would not rule out a "pre-emptive" strike
against
inflationary pressures for several weeks prior to the actual
rate increase.
Five Largest Issuers.
6.6% Hawaii State Airport
System Revenue
6.4% Honolulu City
& County
5.7% Guam Power
Authority Revenue
5.6% Hawaii State Dept.
of Budget & Finance
5.5% Hawaii State Harbor
Capital Improvement
Revenue
Expressed as a percentage of total net assets as of 2/28/97.
And Not So Well.
Market Concerns.
While there were more new bonds issued over the past six
months ending in
February, the increase was not dramatic. The overall trend
for municipal bond
supply has been downward for a couple of years now. That's
because
municipalities have more revenue coming in -- thanks to
stronger local
economies -- and thus have less need to market new bonds.
Unfortunately, that
also means less investment opportunity for your Series.
Bond insurance has been another concern. Why? Because as
more bonds are issued
with insurance, it means less uninsured bonds were
available. In past years,
uninsured bonds offered us the opportunity to buy good
quality credits
(usually rated A to BBB) at attractive prices and yields. As
this pool
shrinks, so too does the opportunity for your Fund to
purchase bonds that
could further enhance yield.
Looking Ahead.
The Federal Reserve has raised short-term interest rates
once in 1997. Will
there be more increases in short-term interest rates?
Probably. Experience
tells us that changes in Federal Reserve monetary policy are
rarely one-shot
deals. Given present economic conditions, we believe one or
two additional
rate increases will most likely occur later this year. Of
course, no one knows
for sure. We have positioned the Series duration to be
closer to, or slightly
shorter than, the average Hawaiian tax-free municipal bond
fund. This will
give us the flexibility to respond if -- or more likely when
- - -- the Federal
Reserve acts to increase interest rates.
Portfolio Breakdown.
Expressed as a percentage of
total investments as of 2/28/97.
(PIE CHART)
- - ------------------------------------------------------------
- - ------------------
1
<PAGE>
President's Letter
April 10, 1997
(PHOTO)
Dear Shareholder:
The first three months of the year were not good ones for
most U.S. stock and
bond investors. The Dow Jones Industrial Average was down
considerably from
its record high set in mid-March, and long-term interest
rates were at their
highest levels in six months. Not surprisingly, in the first
quarter of 1997
the average stock and bond mutual fund had negative returns
(for stock funds,
it was the first time since 1994).
The reasons behind the recent market decline have been well-
publicized --
higher interest rates and inflationary pressures. And while
we are watching
market developments closely, we are also very concerned
about you and how
you're dealing with events. We realize that staying the
course toward your
long-term investment goals isn't easy during such times of
uncertainty. Here
are a few thoughts that may help --
- - - Keep Your Expectations Realistic. The best investors know
that financial
markets rise and fall -- and so too, will the value of
their investments.
Over time, however, stocks have been shown to produce
very attractive
returns that were well ahead of inflation.
- - - Remember Your Time Horizon. If your investment goals are
long term (several
years or more), so should your time horizon. During this
period, it's not
unusual for stocks and bonds to experience several
periods of market
uncertainty.
- - - We're On Your Side. Your Prudential Securities Financial
Advisor or
Prudential Registered Representative can help you
understand what's
happening in the financial markets. They can assist you
in making informed
decisions based upon a thorough knowledge of your
financial needs and long-
term goals. Call him or her today.
Thank you for your continued confidence in Prudential mutual
funds. We'll do
everything we can to keep you informed and to earn your
trust.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
- - ------------------------------------------------------------
- - ------------------
2
<PAGE>
Portfolio of Investments
as of February 28, 1997 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--100.0%
- - ------------------------------------------------------------
- - ------------------------------------------------------------
- - ------
Guam Gov't.,Gen. Oblig., Ser. A
BBB(c) 5.90% 9/01/05 $ 500 $ 504,315
Guam Pwr. Auth. Rev.,
Ser. A
BBB(c) 6.625 10/01/14 250 260,327
Ser. A
BBB(c) 6.75 10/01/24 525 551,019
Hawaii St. Arpt. Sys. Rev., 2nd Ser.
A 7.00 7/01/18 365 391,915
Hawaii St. Arpt. Sys. Rev., 2nd Ser. 90, F.G.I.C.
Aaa 7.50 7/01/20 500 (b) 548,735
Hawaii St. Dept. Budget & Fin.,
Hawaiian Elec. Co., Ser. C, M.B.I.A.
Aaa 7.375 12/01/20 500 (b) 551,020
Hawaiian Elec. Co. Proj. B, M.B.I.A.
Aaa 5.875 12/01/26 250 248,062
Kapiolani Hlth. Care Sys.
A 6.30 7/01/08 500 525,405
Kapiolani Hosp.
A 6.00 7/01/11 250 255,550
Queens Med. Ctr.
Aa3 5.80 7/01/10 500 512,065
Queens Med. Ctr. Proj., F.G.I.C.
Aa3 5.90 7/01/07 230 (d) 248,476
Hawaii St. Gen. Oblig., Ser. CJ
Aa 6.25 1/01/15 650 683,612
Hawaii St. Harbor Cap. Impvt. Rev.,
F.G.I.C.
Aaa 6.25 7/01/10 250 (e) 266,730
F.G.I.C.
Aaa 6.25 7/01/15 500 523,345
Hawaii St. Highway Rev.
Aa 5.25 7/01/16 750 723,465
Hawaii St. Hsg. Fin. & Dev. Corp. Rev.,
Affordable Rental Proj., Ser. A
A1 6.05 7/01/22 725 727,697
Sngl. Fam. Mtge. Rev., Ser. B, F.N.M.A
Aa 5.85 7/01/17 750 752,610
Univ. of Hawaii Fac. Hsg. Proj., A.M.B.A.C.
Aaa 5.65 10/01/16 500 501,630
Honolulu City & Cnty.,
Ref. & Impvt. Ser. B, F.G.I.C.
Aaa 5.50 10/01/11 900 915,336
Water Sys. Rev.
Aa 5.80 7/01/16 500 507,430
Maui Cnty., Ser. A, M.B.I.A.
Aaa 5.65 6/01/10 570 588,850
Puerto Rico Comnwlth., Gen. Oblig.
Baa1 6.45 7/01/17 500 (b) 533,050
Puerto Rico Elec. Pwr. Auth. Rev., Ser. O
Baa1 5.00 7/01/12 600 556,224
Puerto Rico Hwy. & Trans. Auth. Rev., Ser. V
Baa1 6.375 7/01/08 500 533,475
Puerto Rico Ind., Tourist, Ed., Med. & Env. Ctrl. Facs.,
Doctor Pila Hosp. Proj., F.H.A.
AAA(c) 6.125 8/01/25 500 521,300
Hosp. Auxilio Mutuo Oblig. Grp. Proj., M.B.I.A.
Aaa 6.25 7/01/16 500 532,075
Puerto Rico Mun. Fin. Agcy., Ser. A, F.S.A.
Aaa 6.00 7/01/14 250 (b) 261,430
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments
as of February 28, 1997 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>
- - ------------------------------------------------------------
- - ------------------------------------------------------------
- - ------
Virgin Islands Pub. Fin. Auth. Rev.,
Gov't. Dev. Proj., Ser. B
BBB-(c) 7.375% 10/01/10 $ 300 $ 326,553
Ref. Matching Loan Notes, Ser. A
NR 7.25 10/01/18 250 270,465
- - -----------
Total Investments--100.0%
(cost $13,640,830; Note 5)
14,322,166
Other assets in excess of liabilities
6,431
- - -----------
Net Assets--100%
$14,328,597
- - -----------
- - -----------
</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.S.A.--Financial Security Assurance.
M.B.I.A.--Municipal Bond Insurance Association.
(b) Represents when-issued or extended settlement security.
(c) Standard & Poor's Rating.
(d) Prerefunded issues are secured by escrowed cash and/or
direct
U.S. guaranteed obligations.
(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. 4
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Statement of Assets and Liabilities
(Unaudited) HAWAII INCOME
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Assets
February 28, 1997
<S>
<C>
Investments, at value (cost
$13,640,830)................................................
................. $14,322,166
Cash........................................................
.............................................
359,760
Interest
receivable..................................................
.................................... 211,553
Other
assets......................................................
....................................... 53,831
Due from
Manager.....................................................
.................................... 26,132
Receivable for Series shares
sold........................................................
................ 2,000
- - -----------------
Total
assets......................................................
.................................... 14,975,442
- - -----------------
Liabilities
Payable for Series shares
reacquired..................................................
................... 545,880
Accrued
expenses....................................................
..................................... 88,305
Dividends
payable.....................................................
................................... 7,490
Distribution fee
payable.....................................................
............................ 3,221
Deferred trustees'
fees........................................................
.......................... 1,949
- - -----------------
Total
liabilities.................................................
.................................... 646,845
- - -----------------
Net
Assets......................................................
.........................................
$14,328,597
- - -----------------
- - -----------------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
........ $ 11,759
Paid-in capital in excess of
par.........................................................
............. 13,671,399
- - -----------------
13,683,158
Accumulated net realized loss on
investments.................................................
......... (35,898)
Net unrealized appreciation on
investments.................................................
........... 681,337
- - -----------------
Net assets, February 28,
1997........................................................
.................... $14,328,597
- - -----------------
- - -----------------
Class A:
Net asset value and redemption price per share
($3,950,323 / 324,174 shares of beneficial interest
issued and outstanding)........................
$12.19
Maximum sales charge (3% of offering
price)......................................................
..... .38
- - -----------------
Maximum offering price to
public......................................................
................ $12.57
- - -----------------
- - -----------------
Class B:
Net asset value, offering price and redemption price per
share
($8,975,734 / 736,603 shares of beneficial interest
issued and outstanding)........................
$12.19
- - -----------------
- - -----------------
Class C:
Net asset value, offering price and redemption price per
share
($1,402,540 / 115,099 shares of beneficial interest
issued and outstanding)........................
$12.19
- - -----------------
- - -----------------
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 5
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
HAWAII INCOME SERIES
Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income February 28,
1997
<S> <C>
Income
Interest................................ $ 448,968
--------
Expenses
Management fee.......................... 38,118
Distribution fee--Class A............... 2,030
Distribution fee--Class B............... 22,678
Distribution fee--Class C............... 5,121
Custodian's fees and expenses........... 33,000
Reports to shareholders................. 12,000
Amortization of organization expense.... 10,373
Registration fees....................... 7,000
Legal fees and expenses................. 5,500
Audit fees and expenses................. 5,000
Transfer agent's fees and expenses...... 3,000
Trustees' fees.......................... 1,800
Miscellaneous........................... 3,209
--------
Total expenses....................... 148,829
Less: Management fee waiver (Note 2).... (3,812)
Expense subsidy (Note 4)............. (88,508)
--------
Net expenses......................... 56,509
--------
Net investment income...................... 392,459
--------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions................. 50,903
Financial futures transactions.......... (50,042)
--------
861
--------
Net change in unrealized
appreciation/depreciation on:
Investments............................. 243,405
Financial futures contracts............. (9,251)
--------
234,154
--------
Net gain on investments.................... 235,015
--------
Net Increase in Net Assets
Resulting from Operations.................. $ 627,474
--------
--------
</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 28,
August 31,
in Net Assets 1997
1996
<S> <C> <C>
Operations
Net investment income........ $ 392,459 $
725,209
Net realized gain (loss) on
investment transactions... 861
(43,650)
Net change in unrealized
appreciation/depreciation
of investments............ 234,154
(33,934)
----------------- -----
- - ----------
Net increase in net assets
resulting from
operations................ 627,474
647,625
----------------- -----
- - ----------
Dividends and Distributions
(Note 1):
Dividends from net investment
income
Class A................... (116,801)
(194,875)
Class B................... (241,022)
(478,063)
Class C................... (34,636)
(52,271)
----------------- -----
- - ----------
(392,459)
(725,209)
----------------- -----
- - ----------
Distributions in excess of
net investment income
Class A................... (1,119)
- - --
Class B................... (2,313)
- - --
Class C................... (366)
- - --
----------------- -----
- - ----------
(3,798)
- - --
----------------- -----
- - ----------
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...................... 750,146
3,550,148
Net asset value of shares
issued in reinvestment of
dividends and
distributions............. 198,319
434,866
Cost of shares reacquired.... (2,186,024)
(1,563,629)
----------------- -----
- - ----------
Net increase/decrease in net
assets from Series share
transactions.............. (1,237,559)
2,421,385
----------------- -----
- - ----------
Total increase/decrease......... (1,006,342)
2,255,725
Net Assets
Beginning of period............. 15,334,939
13,079,214
----------------- -----
- - ----------
End of period................... $14,328,597
$15,334,939
----------------- -----
- - ----------
----------------- -----
- - ----------
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 6
<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 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.
Deferred Organization Expenses: The Series incurred $98,700
in organization and
initial registration expenses. Such amount has been deferred
and is being
amortized over a period of 60 months ending September 1999.
- - ------------------------------------------------------------
- - --------------------
-----
7
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) HAWAII INCOME
SERIES
- - ------------------------------------------------------------
- - --------------------
Reclassification of Capital Accounts: The Fund accounts for
and reports
distributions to shareholders in accordance with American
Institute of Certified
Public Accountants (AICPA) Statement of Position 93-2:
Determination,
Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and
Return of Capital Distributions by Investment Companies. The
effect of applying
this statement was to increase undistributed net investment
income and decrease
paid-in capital in excess of par by $3,798, due to the sale
of securities
purchased with market discount. Net investment income, net
realized gains and
net assets were not affected by these changes.
- - ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential Mutual
Fund Management LLC
('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 $3,812 ($0.003 per share)
for the six months
ended, February 28, 1997. The Series is not required to
reimburse PMF for such
waiver.
The Fund has a distribution agreement with Prudential
Securities Incorporated
('PSI'), which acts as the distributor of the Class A, Class
B and Class C
shares. The Fund compensates 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
PSI. The
distribution fees are accrued daily and payable monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates
PSI 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 28, 1997.
PSI has advised the Series that it has received
approximately $1,400 in
front-end sales charges resulting from sales of Class A
shares during the six
months ended February 28,1997. From these fees, PSI paid
such sales charges to
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 28, 1997, it
received approximately $4,000 and $900 in contingent
deferred sales charges
imposed upon certain redemptions by Class B and C
shareholders, respectively.
PSI, PMF and PIC are indirect, wholly-owned subsidiaries of
The Prudential
Insurance Company of America.
The Series, along with other affiliated registered
investment companies (the
'Funds'), entered into a credit agreement (the 'Agreement')
on December 31, 1996
with an unaffiliated lender. The maximum commitment under
the Agreement is
$200,000,000. The Agreement expires on December 30, 1997.
Interest on any such
borrowings outstanding will be at market rates. The purpose
of the Agreement is
to serve as an alternative source of funding for capital
share redemptions. The
Series has not borrowed any amounts pursuant to the
Agreement as of February 28,
1997. The Funds pay a commitment fee at an annual rate of
.055 of 1% on the
unused portion of the credit facility. The commitment fee is
accrued and paid
quarterly on a pro-rata basis by the Funds.
- - ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly-owned
subsidiary of PMF,
serves as the Fund's transfer agent. During the six months
ended February 28,
1997, the Series incurred fees of approximately $2,300 for
the services of PMFS.
As of February 28, 1997, 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 .45%, .85% and 1.10% of the average net assets of the
Class A shares,
Class B shares and Class C shares, respectively, until
further notice. For the
six months ended February 28, 1997, PMF subsidized $88,508
($0.08 per share for
Class A, B and C shares; 1.16% of average net assets,
annualized) of the Series'
expenses. The Series is not required to reimburse PMF for
such subsidy.
- - ------------------------------------------------------------
- - --------------------
-----
8
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) HAWAII INCOME
SERIES
- - ------------------------------------------------------------
- - --------------------
- - ------------------------------------------------------------
Note 5. Portfolio Securities
Purchases and sales of portfolio securities of the Series,
excluding short-term
investments, for the six months ended February 28, 1997 were
$1,923,990 and
$2,664,305, respectively.
The cost basis of investments for federal income tax
purposes at February 28,
1997 was substantially the same as for financial reporting
purposes and,
accordingly, net unrealized appreciation of investments for
federal income tax
purposes was $681,336 (gross unrealized appreciation--
$682,390; gross unrealized
depreciation--$1,054).
The Series elected to treat net realized capital losses of
approximately $31,150
incurred in the ten month period ended August 31, 1996 as
having been incurred
in the current fiscal year.
- - ------------------------------------------------------------
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%. 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 1,175,876
shares of beneficial
interest issued and outstanding at February 28, 1997, PMF
owned 171,852 shares.
Transactions in shares of beneficial interest for the six
months ended February
28, 1997 and the fiscal year ended August 31, 1996 were as
follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- - -------------------------------------- -------- -------
- - ----
<S> <C> <C>
Six months ended February 28, 1997:
Shares sold........................... 10,532 $
128,165
Shares issued in reinvestment of
dividends and distributions......... 2,300
27,963
Shares reacquired..................... (54,135)
(661,201)
-------- -------
- - ----
Net decrease in shares outstanding
before conversion................... (41,303)
(505,073)
Shares issued upon conversion from
Class B............................. 48,897
592,404
-------- -------
- - ----
Net increase in shares outstanding.... 7,594 $
87,331
-------- -------
- - ----
-------- -------
- - ----
<CAPTION>
Class A Shares
Amount
- - -------------------------------------- -------- -------
- - ----
<S> <C> <C>
Year ended August 31, 1996:
Shares sold........................... 36,885 $
448,439
Shares issued in reinvestment of
dividends and distributions......... 4,000
48,647
Shares reacquired..................... (10,531)
(126,891)
-------- -------
- - ----
Net increase in shares outstanding
before conversion................... 30,354
370,195
Shares issued upon conversion from
Class B............................. 11,406
137,525
-------- -------
- - ----
Net increase in shares outstanding.... 41,760 $
507,720
-------- -------
- - ----
-------- -------
- - ----
<CAPTION>
Class B
- - --------------------------------------
<S> <C> <C>
Six months ended February 28, 1997:
Shares sold........................... 43,483 $
528,167
Shares issued in reinvestment of
dividends and distributions......... 12,021
146,069
Shares reacquired..................... (113,583)
(1,378,644)
-------- -------
- - ----
Net decrease in shares outstanding
before conversion................... (58,079)
(704,408)
Shares reacquired upon conversion into
Class A............................. (48,897)
(592,404)
-------- -------
- - ----
Net decrease in shares outstanding.... (106,976)
$(1,296,812)
-------- -------
- - ----
-------- -------
- - ----
Year ended August 31, 1996:
Shares sold........................... 204,563 $
2,491,095
Shares issued in reinvestment of
dividends and distributions......... 28,137
342,549
Shares reacquired..................... (115,555)
(1,409,389)
-------- -------
- - ----
Net increase in shares outstanding
before conversion................... 117,145
1,424,255
Shares reacquired upon conversion into
Class A............................. (11,406)
(137,525)
-------- -------
- - ----
Net increase in shares outstanding.... 105,739 $
1,286,730
-------- -------
- - ----
-------- -------
- - ----
<CAPTION>
Class C
- - --------------------------------------
<S> <C> <C>
Six months ended February 28, 1997:
Shares sold........................... 7,755 $
93,814
Shares issued in reinvestment of
dividends and distributions......... 1,999
24,287
Shares reacquired..................... (11,990)
(146,179)
-------- -------
- - ----
Net decrease in shares outstanding.... (2,236) $
(28,078)
-------- -------
- - ----
-------- -------
- - ----
Year ended August 31, 1996:
Shares sold........................... 50,226 $
610,614
Shares issued in reinvestment of
dividends and distributions......... 3,592
43,670
Shares reacquired..................... (2,216)
(27,349)
-------- -------
- - ----
Net increase in shares outstanding.... 51,602 $
626,935
-------- -------
- - ----
-------- -------
- - ----
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
9
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) HAWAII INCOME
SERIES
- - ------------------------------------------------------------
- - --------------------
Note 7. Proposed Reorganization
On February 20, 1997, the Trustees of the Fund approved an
Agreement and Plan of
Reorganization (the 'Plan') which provides for the transfer
of all of the assets
of Prudential Municipal Series Fund, Hawaii Income Series to
Prudential National
Municipals Fund, Inc. in exchange for Class A shares of
National Municipals Fund
and the National Municipals Fund assumption of the
liabilities of the Hawaii
Income Series.
The Plan is subject to approval by the shareholders of the
Hawaii Income Series
at a shareholder meeting scheduled on or about June 16,
1997. If the Plan is
approved, it is expected that the reorganization will take
place on or about
June 27, 1997. The Hawaii Income Series and National
Municipals Fund will each
bear their pro-rata share of the costs of the
reorganization, including cost of
proxy solicitation.
- - ------------------------------------------------------------
- - --------------------
-----
10
<PAGE>
PRUDENTIAL MUNICIPAL
SERIES FUND
Financial Highlights (Unaudited) HAWAII INCOME SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class A Class B
-------------------
- - -------------------------- ---------------------------
September 19,
Six Months
Year 1994(b) Six Months Year
Ended
Ended Through Ended Ended
February 28,
August 31, August 31, February 28, August 31,
1997
1996 1995 1997 1996
<S> <C>
<C> <C> <C> <C>
-----
- - ----- ----- ----- ----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $12.00
$12.13 $ 11.64 $12.00 $ 12.13
-----
- - ----- ----- ----- ----------
Income from investment operations
Net investment income(d)............. .32
.66 .58 .30 .61
Net realized and unrealized gain
(loss) on investment
transactions...................... .19
(.05) .49 .19 (.05)
-----
- - ----- ----- ----- ----------
Total from investment
operations..................... .51
.61 1.07 .49 .56
-----
- - ----- ----- ----- ----------
Less distributions
Dividends from net investment
income............................ (.32)
(.66) (.58) (.30) (.61)
Distributions in excess of net
investment income................. --(e)
- - -- -- --(e) --
Distributions from net realized
gains............................. --
(.08) -- -- (.08)
-----
- - ----- ----- ----- ----------
Total distributions............... (.32)
(.74) (.58) (.30) (.69)
-----
- - ----- ----- ----- ----------
Net asset value, end of period....... $12.19
$12.00 $ 12.13 $12.19 $ 12.00
-----
- - ----- ----- ----- ----------
-----
- - ----- ----- ----- ----------
TOTAL RETURN(c):..................... 4.42%
5.01% 9.42% 4.21% 4.60%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...... $3,950
$3,800 $ 3,333 $8,976 $ 10,126
Average net assets (000)............. $4,317
$3,620 $ 2,778 $9,609 $ 9,599
Ratios to average net assets:(d)
Expenses, including distribution
fees........................... .44%(a)
.45% .46%(a) .83%(a) .85%
Expenses, excluding distribution
fees........................... .35%(a)
.35% .36%(a) .35%(a) .35%
Net investment income............. 5.46%(a)
5.38% 5.32%(a) 5.06%(a) 4.98%
Portfolio turnover rate.............. 13%
18% 75% 13% 18%
<CAPTION>
Class C
---
- - ------------------------------------------
September 19,
September 19,
1994(b)
Six Months Year 1994(b)
Through
Ended Ended Through
August 31,
February 28, August 31, August 31,
1995
1997 1996 1995
<S> <C> <C>
<C> <C>
-----
- - ----- ----- -----
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 11.64
$12.00 $12.13 $ 11.64
-----
- - ----- ----- -----
Income from investment operations
Net investment income(d)............. .54
.29 .57 .51
Net realized and unrealized gain
(loss) on investment
transactions...................... .49
.19 (.05) .49
-----
- - ----- ----- -----
Total from investment
operations..................... 1.03
.48 .52 1.00
-----
- - ----- ----- -----
Less distributions
Dividends from net investment
income............................ (.54)
(.29) (.57) (.51)
Distributions in excess of net
investment income................. --
- - --(e) -- --
Distributions from net realized
gains............................. --
- - -- (.08) --
-----
- - ----- ----- -----
Total distributions............... (.54)
(.29) (.65) (.51)
-----
- - ----- ----- -----
Net asset value, end of period....... $ 12.13
$12.19 $12.00 $ 12.13
-----
- - ----- ----- -----
-----
- - ----- ----- -----
TOTAL RETURN(c):..................... 9.03%
4.08% 4.34% 8.78%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...... $ 8,949
$1,403 $1,409 $ 797
Average net assets (000)............. $ 6,270
$1,447 $1,103 $ 373
Ratios to average net assets:(d)
Expenses, including distribution
fees........................... .86%(a)
1.06%(a) 1.10% 1.11%(a)
Expenses, excluding distribution
fees........................... .36%(a)
.35%(a) .35% .36%(a)
Net investment income............. 5.03%(a)
4.83%(a) 4.74% 4.79%(a)
Portfolio turnover rate.............. 75%
13% 18% 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 returns for periods of less than a full year are
not annualized.
(d) Net of expense subsidy and fee waiver.
(e) Less than $.005 per share.
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 11
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Supplemental Proxy Information HAWAII INCOME
SERIES
- - ------------------------------------------------------------
- - --------------------
A Meeting of Shareholders of the Prudential Municipal
Series Fund was held on
Wednesday, October 30, 1996 at the offices of Prudential
Securities
Incorporated, One Seaport Plaza, New York, New York. The
meeting was held for
the following purposes:
(1) To elect Trustees as follows: Edward D. Beach, Eugene C.
Dorsey, Delayne
Dedrick Gold, Robert F. Gunia, Harry A. Jacobs, Jr.,
Donald D. Lennox,
Mendel A. Melzer, Thomas T. Mooney, Thomas H. O'Brien,
Richard A. Redeker,
Nancy H. Teeters and Louis A. Weil, III.
(2) Approval of an amendment to the Fund's investment
restrictions to permit an
increase in the borrowing capabilities of the Fund.
The results of the proxy solicitation on the above
matters were as follows:
<TABLE>
<CAPTION>
Trustee/Matter
Votes for Votes against Abstentions
- - ----------- ------------- -----------
<S> <C>
<C> <C> <C>
(1) Edward D. Beach
370,817,756 0 16,169,234
Eugene C. Dorsey
371,804,474 0 15,182,516
Delayne Dedrick Gold
371,782,816 0 15,204,174
Robert F. Gunia
371,639,995 0 15,346,995
Harry A. Jacobs, Jr.
371,395,066 0 15,591,924
Donald D. Lennox
371,150,974 0 15,836,016
Mendel A. Melzer
371,811,918 0 15,175,072
Thomas T. Mooney
371,607,874 0 15,379,116
Thomas H. O'Brien
371,328,875 0 15,658,115
Richard A. Redeker
371,876,756 0 15,110,234
Nancy H. Teeters
371,775,376 0 15,211,614
Louis A. Weil, III
371,777,517 0 15,209,473
(2) Amendment relating to borrowing capabilities
259,440,223 31,557,793 17,488,974
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
12
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Robert F. Gunia
Harry A. Jacobs, Jr.
Donald D. Lennox
Mendel A. Melzer
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Louis A. Weil, III
Officers
Richard A. Redeker, President
Susan C. Cote, Vice President
Thomas Early, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Mutual Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributor
Prudential Securities Incorporated
One Seaport PlazaNew York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Auditors
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, NY 10022
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 28,
1997 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
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
BULK RATE
U.S. POSTAGE
PAID
Permit 6807
New York, NY
74435M473
74435M465 MF165E2
74435M457 Cat#42M061Y
(ICON)
Prudential
Municipal
Series Fund
- - --------------------
Pennsylvania Series
SEMI
ANNUAL
REPORT
Feb. 28, 1997
(LOGO)
<PAGE>
Prudential Municipal Series Fund
Pennsylvania Series
Performance At A Glance.
The six-months ending in February were rewarding ones for
municipal
bond investors. Bond prices rose as talk of higher interest
rates
subsided (at least temporarily) and inflation levels
remained low.
For the six-month reporting period ended February 28, 1997,
we're
pleased to report that the Prudential Municipal Series
Fund -- Pennsylvania Series provided attractive tax-free
yields. Our total returns were also competitive with the
average Pennsylvania tax-free municipal bond fund, as
measured
by Lipper Analytical Services.
<TABLE>
Cumulative Total Returns1 As of
2/28/97
<CAPTION>
Six One
Five Since
Months Year
Years Inception2
<S> <C> <C> <C>
<C>
Class A 4.9% (4.8)4 4.8% (4.7)4 41.0%
(40.9)4 67.4% (67.1)4
Class B 4.7 (4.6)4 4.5 (4.4)4 38.4
(38.2)4 93.6 (92.1)4
Class C 4.5 4.3 (4.2)4 N/A
16.6 (15.7)4
Lipper PA Muni Avg.3 4.6 4.7 40.9
***
</TABLE>
<TABLE>
Average Annual Total Returns1
As of 3/31/97
<CAPTION>
One Five Since
Year Years Inception2
<S> <C> <C> <C>
Class A 2.4% (2.3)4 6.3% 6.8%
Class B 0.2 (0.1)4 6.4% 6.7
Class C 3.9 (3.8)4 N/A 5.5
</TABLE>
<TABLE>
<CAPTION>
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>
<C>
Dividends
& Yields Class A $0.30 4.62% (4.57)4 7.43%
(7.35)4 7.87% (7.78)4
As of Class B $0.28 4.36 (4.31)4 7.01
(6.93)4 7.43 (7.34)4
2/28/97 Class C $0.26 4.11 (4.06)4 6.61
(6.53)4 7.00 (6.92)4
</TABLE>
Past performance is not indicative of future results.
Principal
and investment return will fluctuate so that an investor's
shares, when
redeemed, may be worth more or less than their original
cost.
1Source: Prudential Mutual Fund Management and Lipper
Analytical
Services. The cumulative total returns do not take into
account
sales charges. The average annual returns do take into
account applicable sales charges. The Fund charges a maximum
front-end sales load of 3% for Class A shares and a
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
63 funds for six months, 63 funds for one year, and 24 funds
for five years.
4Without waiver of management fees and/or expense
subsidization,
the Series' average annual return and yields would have been
lower,
as indicated in parentheses ( ).
5Taxable equivalent yields reflect federal and applicable
state tax rates.
***The Lipper Since Inception category return for Class A
shares is 69.5%,
which includes 15 funds; for Class B is 96.6% for eight
funds; and for Class
C is 18.1% for 51 funds.
How Investments Compared.
(As of 2/28/97)
(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
included historical 20-year average annual returns. These
returns assume the reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors
have
received higher historical total returns from stocks than
from
most other invest-ments. 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.
Taxable 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.
<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 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.
High Yield Bonds.
The Trustees adopted a new policy which permits your Series
to
invest up to 30% of total investments in bonds rated below
investment grade by Moody's and S&P. High yield bonds, also
known as "junk bonds," are subject to greater market and
credit risks than investment grade bonds. Prudential
maintains a large
and experienced credit group which evaluates new purchases
and existing holdings. By purchasing these securities, we
seek to broaden our investment pool and enhance the Series'
returns for you.
Strategy Session.
The municipal bond market moved in cycles during the
reporting
period: Bond prices rallied on news of slower economic
growth
and low inflation; then sold off when reports indicated the
opposite. For example, in the third quarter of 1996, bond
prices rallied. Municipal bond interest rates were 6.01% on
October 24 and gradually declined to 5.80% in November,
according to the Bond Buyer's Revenue Bond Index, a
widely-watched industry barometer. The start of 1997
brought news that the economy was accelerating. Fourth
quarter Gross Domestic Product (GDP is the total value
of all the goods and services produced by the economy
and a generally accepted measure of economic growth)
surged 3.8%. Yet inflation remained low. Interest rates
then began a steady climb upward as bond
prices fell slightly. Interest rates ended the
reporting period at 5.93%.
As you know, bond prices rise when interest rates fall,
and vice versa. Our strategy over the past six months was
to adjust the Series' duration in order to help it respond
more effectively to interest rate movements. When the
municipal bond market rallied last fall, we lengthened
duration. This allowed your Series to profit as bond
prices rose. Conversely, as the bond market slowed at
year-end, we shortened the Series' duration. This protected
assets as interest rates rose.
As the end of the reporting period neared, we shortened
Series'
duration even more to match or be slightly shorter than, the
average Pennsylvania tax-free municipal bond fund. We
did not want to be caught off guard if the Federal Reserve
raised short-term interest rates.
Portfolio Breakdown.
Expressed as a percentage of
total investments as of 2/28/97.
(PIE CHART)
<PAGE>
What Went Well.
A Prudent Move.
We shortened Series' duration as the reporting period ended
in
February in anticipation of a possible increase in interest
rates by the Federal Reserve. It was a prudent move. On
March
25, 1997, the central bank raised the federal funds rate
(what
banks charge each other for overnight loans) one-quarter of
a
percentage point to 5.50%. It was the first increase in two
years.
The Federal Reserve explained it was acting to quell
"inflationary
imbalances" that could undermine the country's six-year
economic
expansion. The action was widely expected by investors.
Indeed,
Federal Reserve Chairman Alan Greenspan had been saying he
would
not rule out a "pre-emptive" strike against inflationary
pressures
for several weeks prior to the actual rate increase.
Five Largest
Issuers.
3.9% Commonwealth
of Puerto Rico
3.1% Pennsylvania Housing
Finance Agency
3.0% Allegheny County
Industrial Development
2.7% Luzerne County
Industrial Development
2.7% Philadelphia
Industrial Development
Expressed as a percentage of total net assets as of 2/28/97.
And Not So Well.
Market Concerns.
While there were more new bonds issued over the past six
months
ending in February, the increase was not dramatic. The
overall
trend for municipal bond supply has been downward for a
couple
of years now. That's because municipalities have more
revenue
coming in -- thanks to stronger local economies -- and thus
have less need to market new bonds. Unfortunately, that also
means less investment opportunity for your Series.
Bond insurance has been another concern. Why? Because as
more
bonds are issued with insurance, it means less uninsured
bonds
were available. In past years, uninsured bonds offered us
the
opportunity to buy good quality credits (usually rated A to
BBB)
at attractive prices and yields. As this pool shrinks, so
too
does the opportunity for your Fund to purchase bonds that
could
further enhance yield.
Portfolio Breakdown.
Expressed as a percentage of
total investments as of 2/28/97.
Looking Ahead.
The Federal Reserve has raised short-term interest rates
once in
1997. Will there be more increases in short-term interest
rates?
Probably. Experience tells us that changes in Federal
Reserve
monetary policy are rarely one-shot deals. Given present
economic conditions, we believe one or two additional rate
increases will most likely occur later this year. Of course,
no one knows for sure. We have positioned the Series'
duration
to be closer to, or slightly shorter than, the average
Pennsylvania tax-free municipal bond fund. This will
give us the flexibility to respond if -- or more likely
when -- the Federal Reserve acts to increase interest rates.
1
<PAGE>
President's Letter April 10,
1997
We're On Your Side.
Dear Shareholder:
The first three months of the year were not good ones for
most U.S. stock and bond investors. The Dow Jones Industrial
Average was down considerably from its record high set in
mid-March,
and long-term interest rates were at their highest levels in
six months. Not surprisingly, in the first quarter of 1997
the
average stock and bond mutual fund had negative returns (for
stock funds, it was the first time since 1994).
The reasons behind the recent market decline have been
well-publicized -- higher interest rates and inflationary
pressures. And while we are watching market developments
closely, we are also very concerned about you and how you're
dealing with events. We realize that staying the course
toward
your long-term investment goals isn't easy during such times
of uncertainty. Here are a few thoughts that may help --
- - -- Keep Your Expectations Realistic. The best investors
know
that financial markets rise and fall -- and so too, will the
value of their investments. Over time, however, stocks have
been shown to produce very attractive returns that were well
ahead of inflation.
- - -- Remember Your Time Horizon. If your investment goals are
long term (several years or more), so should your time
horizon. During this period, it's not unusual for stocks
and bonds to experience several periods of market
uncertainty.
- - -- We're On Your Side. Your Prudential Securities Financial
Advisor or Prudential Registered Representative can help you
understand what's happening in the financial markets. They
can assist you in making informed decisions based upon a
thorough knowledge of your financial needs and long-term
goals. Call him or her today.
Thank you for your continued confidence in Prudential mutual
funds. We'll do everything we can to keep you informed and
to earn your trust.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
2
<PAGE>
Portfolio of Investments
as of February 28, 1997 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--98.6%
- - ------------------------------------------------------------
- - ------------------------------------------------------------
- - ------
Allegheny Cnty. Arpt. Rev., Greater Pittsburgh Int'l. Arpt.,
Ser. A, F.S.A.
Aaa 6.60% 1/01/04 $ 1,000 $
1,088,950
Allegheny Cnty. Higher Ed. Bldg. Auth. Rev.,
Robert Morris Coll., M.B.I.A.
Aaa 7.00 6/15/08 1,000 (e)
1,083,370
Univ. Rev., Duquesne Univ. Proj., A.M.B.A.C.
Aaa 5.00 3/01/21 4,680
4,282,855
Allegheny Cnty. Hosp. Dev. Auth. Rev.,
Allegheny Gen. Hosp. Proj., Ser. A, M.B.I.A.
Aaa 6.25 9/01/20 1,750
1,865,202
Magee-Womens Hosp., F.G.I.C.
Aaa Zero 10/01/14 2,000
741,580
Magee-Womens Hosp., F.G.I.C.
Aaa Zero 10/01/16 2,000
656,580
Magee-Womens Hosp., F.G.I.C.
Aaa Zero 10/01/18 2,000
581,960
Magee-Womens Hosp., F.G.I.C.
Aaa Zero 10/01/19 4,000
1,096,840
Presbyterian Univ. Hosp., Ser. C, M.B.I.A.
Aaa 7.625 7/01/15 1,100
1,167,430
West Penn. Hosp. Hlth. Ctr.
NR 8.50 1/01/20 2,000
2,177,120
Allegheny Cnty. Ind. Dev. Auth. Rev.,
USX Proj., Ser. A
Baa3 6.10 1/15/18 2,250
2,262,465
USX Proj., Ser. A
Baa3 6.70 12/01/20 4,500
4,714,875
Allegheny Cnty. Residential Fin. Auth., Mtge. Rev.,
G.N.M.A.,
Ser. F
Aaa 9.00 6/01/17 375
388,939
Ser. Q
Aaa 7.40 12/01/22 935
988,342
Allegheny Cnty., Ser. C-37, M.B.I.A.
Aaa 7.30 12/01/10 1,500 (e)
1,656,135
Allentown, A.M.B.A.C.,
Gtd. Wtr. Impvt.
Aaa 5.65 7/15/10 775
809,797
Gtd. Wtr. Impvt.
Aaa 5.65 7/15/10 325
339,593
Gtd. Wtr. Impvt.
Aaa 5.65 7/15/10 330
344,817
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
1,258,284
Berks Cnty. Gen. Oblig., Cap. Appreciation, F.G.I.C.
Aaa Zero 5/15/16 2,900
982,375
Berks Cnty. Ind. Dev. Auth. Rev., Lutheran Home Proj.
NR 6.87 51/01/23 1,500
1,508,250
Berks Cnty. Mun. Auth. Hosp. Rev., Reading Hosp. Med. Ctr.
Proj., M.B.I.A.
Aaa 5.70 10/01/14 1,250
1,280,150
Bucks Cnty. Wtr. & Swr. Auth. Rev., Neshaminy Interceptor
Swr.
Sys., F.G.I.C.
Aaa Zero 12/01/15 2,175
756,487
Butler Cnty. Hosp. Auth. Rev., North Hills Passavant Hosp.,
Ser. A, F.S.A.
Aaa 7.00 6/01/22 1,000
1,099,660
Cambria Cnty. Ind. Dev. Auth., Poll. Ctrl. Rev., Elec. Co.
Proj.,
Ser. A, M.B.I.A.
Aaa 5.35 11/01/10 5,000
5,034,350
Central Greene Sch. Dist., Ser. AA, A.M.B.A.C.
Aaa 5.25 2/15/24 1,000
943,620
Chartiers Valley Ind., Ref.-Friendship Vlg./South Hills
NR 6.75 8/15/18 2,225
2,242,956
Chester Upland Sch. Auth., Sch. Rev.
A(b) 6.375 9/01/21 1,000
1,022,530
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments
as of February 28, 1997 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>
- - ------------------------------------------------------------
- - ------------------------------------------------------------
- - ------
Cumberland Cnty. Mun. Auth. Rev., Presbyterian Homes Inc.
Proj.
BBB+(b) 6.00% 12/01/26 $ 3,000 $
2,913,840
Dauphin Cnty. Gen. Auth. Rev., B.I.G
Aaa 7.40 1/01/06 70
72,244
Delaware Cnty. Auth. Hosp. Rev., Crozer-Chester Med. Ctr.,
M.B.I.A.
Aaa 7.15 12/15/05 2,550
2,844,704
Delaware Cnty. Hlth. Facs. Auth. Rev., Mercy Hlth. Corp.
Proj. BBB+(b) 6.00 12/15/26 3,000
2,906,700
Delaware Cnty. Ind. Dev. Auth. Rev., Res. Rec. Proj., Ser. A
Aa3 8.10 12/01/13 2,000
2,085,180
Doylestown Hosp. Auth. Rev., Pine Run Retirement, Ser. A
NR 7.20 7/01/23 3,180
3,263,634
Emmaus Gen. Auth. Rev., Local Gov't Bond, B.I.G.,
Ser. B
Aaa 8.00 5/15/18 1,000 (d)
1,056,910
Ser. C
Aaa 7.90 5/15/18 1,250
1,332,187
Ser. E
Aaa 7.90 5/15/18 2,000
2,131,500
Ser. F
Aaa 7.90 5/15/18 1,600
1,705,200
Great Valley Sch. Dist., Chester Cnty.
Aa1 5.10 2/15/16 2,000
1,906,480
Greencastle Antrim Sch. Dist., M.B.I.A.,
Cap. Appreciation, Ser. B
Aaa Zero 1/01/12 1,000
442,470
Cap. Appreciation, Ser. B
Aaa Zero 1/01/13 1,000
415,600
Harrisburg Auth. Rev., Pooled Bond Prog., Ser. I, M.B.I.A.
Aaa 5.625 4/01/15 2,000
2,013,840
Hazleton Hlth. Svc. Auth. Hosp. Rev., St. Joseph Med. Ctr.
Baa3 6.20 7/01/26 2,355
2,335,877
Lancaster Cnty. Solid Waste Mgmt. Auth. Rev.,
Res. Rec. Sys. Landfill Rev.
A 7.75 12/15/04 750
778,290
Res. Rec. Sys. Landfill Rev.
A 7.875 12/15/09 500
519,495
Res. Rec. Sys. Rev., Ser. A
A 8.375 12/15/04 1,000
1,044,740
Langhorne Manor Boro. Higher Ed. & Hlth. Auth Rev.,
Lower Bucks Hosp.
Ba3 7.35 7/01/22 1,000
959,270
Latrobe Ind. Dev. Auth. Coll. Rev.,
St. Vincent Coll. Proj.
Baa1 6.75 5/01/14 1,800
1,891,404
St. Vincent Coll. Proj.
Baa1 6.75 5/01/24 1,500
1,576,170
Lehigh Cnty. Gen. Purpose Auth. Revs., Horizon Hlth. Sys.
Inc.,
Ser. A
NR 8.25 7/01/13 500 (e)
524,000
Lower Pottsgrove Twnshp. Auth. Swr. Rev., Montgomery Cnty.,
A.M.B.A.C.,
Ser. A
Aaa Zero 11/01/13 1,155
458,350
Ser. A
Aaa Zero 11/01/15 1,185
414,098
Luzerne Cnty. Ind. Dev. Auth. Rev., Gas & Water, Ser. B
A3 7.125 12/01/22 6,000
6,369,900
Montgomery Cnty. Higher Ed. & Hlth. Auth. Hosp. Rev.,
Jeanes Hlth. Sys. Proj.
NR 8.625 7/01/07 4,000 (e)
4,587,040
Montgomery Cnty. Ind. Dev. Auth. Rev., Poll Ctrl.,
Philadelphia Elec. Co., Ser. A
Baa1 7.60 4/01/21 1,000
1,072,880
Res. Recovery
A-(b) 7.50 1/01/12 2,000
2,147,500
Montgomery Cnty. Redev. Auth., Multifamily Hsg., Ser. A
NR 6.50 7/01/25 1,400
1,371,454
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments
as of February 28, 1997 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>
- - ------------------------------------------------------------
- - ------------------------------------------------------------
- - ------
Northampton Cnty. Higher Ed. Auth. Rev.,
Lehigh Univ., M.B.I.A.
Aaa 7.10% 11/15/09 $ 1,500 $
1,625,040
Moravian Coll.
AAA(b) 8.20 6/01/11 2,095 (e)
2,435,312
Moravian Coll., A.M.B.A.C.
Aaa 6.25 7/01/11 2,195
2,418,736
Northeastern Hosp. & Ed. Auth. Coll. Rev., Kings Coll.
Proj.,
Ser. B
BBB(b) 6.00 7/15/18 3,235
3,147,461
Northumberland Cnty. Ind. Dev. Auth. Rev., Roaring Creek
Wtr. NR 6.375 10/15/23 1,000
982,680
Penn Hills, Ser. B, A.M.B.A.C.
Aaa Zero 12/01/18 1,360
395,556
Penn Hills Twnshp., Gen. Oblig., Ser A, A.M.B.A.C.
Aaa Zero 6/01/10 1,535
750,538
Pennsylvania Convention Ctr. Auth. Rev., Ser. A, F.G.I.C.
Aaa 6.00 9/01/19 5,445
5,932,001
Pennsylvania Econ. Dev. Auth.,
Macmillan Ltd. Partnership Proj.
Baa2 7.60 12/01/20 3,000
3,347,520
Wst. Wtr. Treatment Rev., Sun Co. R & M Proj., Ser. A
Baa3 7.60 12/01/24 4,500
5,017,635
Pennsylvania Hsg. Fin. Agcy.,
Sngl. Fam. Mtge.
Aa 7.80 10/01/20 2,930
3,086,462
Sngl. Fam. Mtge.
Aa 8.413(c) 4/01/25 2,100
2,131,500
Sngl. Fam. Mtge., Ser. 53A
Aa 6.15 10/01/24 2,000
2,018,020
Pennsylvania Infrastructure Invt. Auth. Rev., M.B.I.A.
Aaa 5.625 9/01/14 1,500
1,510,740
Pennsylvania St. Cert. of Part., F.S.A.
Aaa 6.25 11/01/06 1,900
2,036,154
Pennsylvania St. Higher Edl. Facs. Auth. Rev.,
Allegheny Coll., Ser. B
BBB+(b) 6.00 11/01/22 2,000
1,951,240
Hahnemann Univ. Proj., M.B.I.A.
Aaa 7.20 7/01/09 1,500
1,631,400
Hlth. Svs. Rev., Univ. of PA., Ser A
Aaa 5.70 11/15/11 2,000
2,073,800
Ursinus College
BBB+(b) 5.90 1/01/27 1,925
1,874,777
Philadelphia Arpt. Rev., Philadelphia Arpt. Sys.
Baa1 9.00 6/15/15 2,000
2,060,000
Philadelphia Gas Wks. Rev.
Baa1 7.70 6/15/11 215
245,141
Philadelphia Gas Wks. Rev.,
13th Ser.
Baa1 7.20 6/15/98 500
518,945
13th Ser.
Baa1 7.30 6/15/99 625
663,906
13th Ser.
Aaa 7.70 6/15/21 3,430 (e)
3,925,361
Philadelphia Gen. Oblig., M.B.I.A.
Aaa 5.00 5/15/15 4,640
4,354,501
Philadelphia Hosps. & Higher Ed. Fac. Auth. Rev.,
Childrens' Hosp. Proj., Ser A
Aa3 5.00 2/15/21 2,000
1,794,180
Childrens' Seashore House
A-(b) 7.00 8/15/12 500
531,970
Childrens' Seashore House, Ser. A
A-(b) 7.00 8/15/12 1,000
1,064,790
Childrens' Seashore House, Ser. A
A-(b) 7.00 8/15/17 1,000
1,062,510
Grad. Hlth. Systems
Ba 7.25 7/01/18 5,000
5,181,700
Philadelphia Ind. Dev. Auth. Rev.,
Inst. For Cancer Res. Proj., Ser. B
AA-(b) 7.25 7/01/10 5,770
6,248,737
Nat'l. Brd. of Med. Examiners Proj.
A+(b) 6.75 5/01/12 5,000
5,413,700
Philadelphia Pkg. Auth. Rev., Arpt. Pkg., A.M.B.A.C.
Aaa 7.375 9/01/18 2,200 (e)
2,356,332
Philadelphia Redev. Auth. Rev., Home Impvt. Loan, Ser. A,
F.H.A.
A1 7.40 6/01/08 295
312,523
Philadelphia Wtr. & Swr. Rev., Ser. 15, M.B.I.A.
Aaa 6.875 10/01/06 700
752,857
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 5
<PAGE>
Portfolio of Investments
as of February 28, 1997 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>
- - ------------------------------------------------------------
- - ------------------------------------------------------------
- - ------
Pine Richland Sch. Dis., Cap Appreciation, Ser A, F.S.A.
Aaa Zero 9/01/20 $ 2,115 $
556,097
Pittsburgh Urban Redev. Auth., Mtge. Rev.,
Ser. 87B
A1 8.30% 4/01/17 795
827,237
Ser. C, A.M.T.
A1 6.55 4/01/28 1,635
1,652,200
Pittsburgh Wtr. & Swr. Auth., Wtr. & Swr. Sys. Rev.,
F.G.I.C. Aaa 6.50 9/01/13 5,000
5,654,700
Pottstown Boro. Auth. Swr. Rev., A.M.B.A.C.
Aaa 5.50 11/01/21 2,000
1,947,180
Puerto Rico Comnwlth.,
Gen. Oblig., A.M.B.A.C.
Aaa 7.00 7/01/10 4,030
4,755,561
Gen. Oblig., F.S.A.
Aaa 8.132(c) 7/01/20 4,250
4,356,250
Hwy. & Trans. Auth. Rev., Ser. Y
Baa1 6.25 7/01/14 1,000
1,088,930
Pub. Impvt.
AAA(b) 7.70 7/01/20 5,250 (e)
5,925,885
Pub. Impvt. Rfdg., M.B.I.A.
Aaa 7.00 7/01/10 720
849,629
Puerto Rico Elec. Pwr. Auth., Pwr. Rev., Ser. S, M.B.I.A.
Aaa 7.00 7/01/06 1,800
2,105,514
Puerto Rico Port Auth. Rev., Spl. Facs. Amer. Airlines, Ser.
A.
Baa3 6.25 6/01/26 1,475
1,515,282
Sayre Hlth. Care Facs. Auth. Rev., A.M.B.A.C.,
Cap. Asset Fin. Prog. C
Aaa 7.70 12/01/13 500
542,095
Cap. Asset Fin. Prog. C
Aaa 7.625 12/01/15 1,000
1,104,710
Schuylkill Cnty. Ind. Dev. Auth., Res. Rec. Rev., Schuykill
Engy.
NR 6.50 1/01/10 3,800
3,658,640
Scranton-Lackawanna Hlth. & Welfare Auth. Rev.,
Univ. of Scranton Proj., Ser. C
A-(b) 7.50 6/15/06 1,000 (e)
1,112,390
Univ. of Scranton Proj., Ser. C
A-(b) 6.50 3/01/15 2,250
2,367,382
So. Fork Mun. Auth. Hosp. Rev., Lee Hosp. Proj., Ser. A
A-(b) 5.50 7/01/23 850
783,488
Unity Twnshp. Mun. Auth., Gtd. Swr. Rev., A.M.B.A.C.,
Cap. Appreciation
Aaa Zero 11/01/11 1,035
465,481
Cap. Appreciation
Aaa Zero 11/01/12 1,035
437,464
Cap. Appreciation
Aaa Zero 11/01/13 1,035
410,729
Virgin Islands Pub. Fin. Auth. Rev.,
Hwy. Trans. Gas Tax
BBB(b) 7.70 10/01/04 1,000
1,080,110
Ref. Matching Loan Notes, Ser. A
NR 7.25 10/01/18 1,950
2,109,627
Virgin Islands Terr., Hugo Ins. Claims Fund Proj., Ser. 91
NR 7.75 10/01/06 940
1,021,799
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 (e)
3,252,437
Washington Cnty. Hosp. Auth. Rev., Monongahela Valley Hosp.
A3 6.75 12/01/08 2,750
2,919,868
West Mifflin San. Swr. Mun. Auth. Rev., F.G.I.C.
Aaa 6.25 8/01/10 1,555
1,714,465
York Cnty. Solid Waste & Refuse Auth., Ind. Dev. Rev., Res.
Rec. Proj., Ser. C
AA-(b) 8.20 12/01/14 1,000
1,049,970
- - ------------
Total Investments--98.6%
(cost $216,264,362; Note 4)
229,635,314
Other assets in excess of liabilities--1.4%
3,352,757
- - ------------
Net Assets--100%
$232,988,071
- - ------------
- - ------------
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 6
<PAGE>
Portfolio of Investments
as of February 28, 1997 PRUDENTIAL
MUNICIPAL SERIES FUND
(Unaudited) PENNSYLVANIA SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
<S>
<C> <C> <C> <C> <C>
- - ------------------------------------------------------------
- - ------------------------------------------------------------
- - ------
</TABLE>
(a) The following abbreviations are used in portfolio
descriptions:
A.M.B.A.C.--American Municipal Bond Assurance
Corporation.
A.M.T.--Annual Mandatory Tender.
B.I.G.--Bond Investors Guaranty Insurance Company.
F.G.I.C.--Financial Guaranty Insurance Company.
F.H.A.--Federal Housing Administration.
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) Inverse floating rate bond. The coupon is inversely
indexed to a floating
interest rate. The rate shown is the rate at period end.
(d) Pledged as initial margin on financial futures
contracts.
(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. 7
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Statement of Assets and Liabilities
(Unaudited) PENNSYLVANIA
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Assets
February 28, 1997
<S>
<C>
Investments, at value (cost
$216,264,362)...............................................
................. $229,635,314
Cash........................................................
.............................................
134,236
Interest
receivable..................................................
.................................... 3,806,216
Receivable for Series shares
sold........................................................
................ 79,640
Other
assets......................................................
....................................... 5,320
Receivable for investments
sold........................................................
.................. 5,000
- - -----------------
Total
assets......................................................
.................................... 233,665,726
- - -----------------
Liabilities
Payable for Series shares
reacquired..................................................
................... 227,035
Accrued
expenses....................................................
..................................... 186,382
Dividends
payable.....................................................
................................... 114,568
Management fee
payable.....................................................
.............................. 80,832
Distribution fee
payable.....................................................
............................ 64,567
Deferred trustees'
fees........................................................
.......................... 2,959
Due to broker-variation
margin......................................................
..................... 1,312
- - -----------------
Total
liabilities.................................................
.................................... 677,655
- - -----------------
Net
Assets......................................................
......................................... $
232,988,071
- - -----------------
- - -----------------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
........ $ 219,781
Paid-in capital in excess of
par.........................................................
............. 218,670,469
- - -----------------
218,890,250
Accumulated net realized gain on
investments.................................................
......... 726,869
Net unrealized appreciation on
investments.................................................
........... 13,370,952
- - -----------------
Net assets, February 28,
1997........................................................
.................... $ 232,988,071
- - -----------------
- - -----------------
Class A:
Net asset value and redemption price per share
($82,299,051 / 7,762,262 shares of beneficial interest
issued and outstanding).....................
$10.60
Maximum sales charge (3% of offering
price)......................................................
..... .33
Maximum offering price to
public......................................................
................ $10.93
Class B:
Net asset value, offering price and redemption price per
share
($149,854,423 / 14,137,162 shares of beneficial
interest issued and outstanding)...................
$10.60
Class C:
Net asset value, offering price and redemption price per
share
($834,597 / 78,736 shares of beneficial interest
issued and outstanding)...........................
$10.60
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 8
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
PENNSYLVANIA SERIES
Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
Six
Months
Ended
Net Investment Income February 28,
1997
<S> <C>
Income
Interest.................................. $
7,504,497
------------
- - -----
Expenses
Management fee............................
588,583
Distribution fee--Class A.................
39,489
Distribution fee--Class B.................
389,079
Distribution fee--Class C.................
3,092
Transfer agent's fees and expenses........
61,000
Reports to shareholders...................
55,000
Custodian's fees and expenses.............
50,000
Registration fees.........................
18,000
Legal fees and expenses...................
5,500
Audit fees and expenses...................
5,000
Trustees' fees............................
1,800
Miscellaneous.............................
1,428
------------
- - -----
Total expenses.........................
1,217,971
Less: Management fee waiver (Note 2)......
(58,858)
Custodian fee credit..................
(5,436)
------------
- - -----
Net expenses...........................
1,153,677
------------
- - -----
Net investment income........................
6,350,820
------------
- - -----
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions...................
1,690,743
Financial futures transactions............
(207,606)
------------
- - -----
1,483,137
------------
- - -----
Net change in unrealized appreciation on:
Investments...............................
2,789,447
Financial futures contracts...............
389,844
------------
- - -----
3,179,291
------------
- - -----
Net gain on investments......................
4,662,428
------------
- - -----
Net Increase in Net Assets
Resulting from Operations....................
$11,013,248
------------
- - -----
------------
- - -----
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
PENNSYLVANIA SERIES
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year
Ended
Increase (Decrease) February 28, August
31,
in Net Assets 1997 1996
<S> <C> <C>
Operations
Net investment income........ $ 6,350,820 $
13,187,276
Net realized gain on
investment transactions... 1,483,137
3,106,670
Net change in unrealized
appreciation/depreciation
of investments............ 3,179,291
(4,390,967)
------------ ---------
- - ---
Net increase in net assets
resulting from
operations................ 11,013,248
11,902,979
------------ ---------
- - ---
Dividends and distributions
(Note 1):
Dividends to shareholders
from net investment income
Class A................... (2,238,544)
(3,346,434)
Class B................... (4,091,600)
(9,806,020)
Class C................... (20,676)
(34,822)
------------ ---------
- - ---
(6,350,820)
(13,187,276)
------------ ---------
- - ---
Distributions from net
realized gains
Class A................... (731,526)
- - --
Class B................... (1,331,940)
- - --
Class C................... (7,284)
- - --
------------ ---------
- - ---
(2,070,750)
- - --
------------ ---------
- - ---
Series share transactions (net
of share conversions) (Note
5):
Net proceeds from shares
sold...................... 4,587,452
14,511,819
Net asset value of shares
issued in reinvestment of
dividends and
distributions............. 4,840,336
7,333,818
Cost of shares reacquired.... (17,328,247)
(35,929,977)
------------ ---------
- - ---
Net decrease in net assets
from Series share
transactions.............. (7,900,459)
(14,084,340)
------------ ---------
- - ---
Total decrease.................. (5,308,781)
(15,368,637)
Net Assets
Beginning of period............. 238,296,852
253,665,489
------------ ---------
- - ---
End of period................... $232,988,071
$238,296,852
------------ ---------
- - ---
------------ ---------
- - ---
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 9
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements (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 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 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.
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>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements (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 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 LLC
('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 $58,858 ($.003 per share)
for the six months
ended February 28, 1997. The Series is not required to
reimburse PMF for such
waiver.
The Fund has a distribution agreement with Prudential
Securities Incorporated
('PSI') which acts as the distributor of the Class A, Class
B and Class C
shares. The Fund compensates 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
PSI. The
distribution fees are accrued daily and payable monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates
PSI 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 28, 1997.
PSI has advised the Series that it has received
approximately $12,000 in
front-end sales charges resulting from sales of Class A
shares during the six
months ended February 28, 1997. From these fees, PSI paid
such sales charges to
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 28, 1997, it
received approximately $120,800 in contingent deferred sales
charges imposed
upon certain redemptions by Class B and Class C
shareholders.
PSI, PMF and PIC are indirect, wholly-owned subsidiaries of
The Prudential
Insurance Company of America.
The Series, along with other affiliated registered
investment companies (the
'Funds'), entered into a credit agreement (the 'Agreement')
on December 31, 1996
with an unaffiliated lender. The maximum commitment under
the Agreement is
$200,000,000. The Agreement expires on December 30, 1997.
Interest on any such
borrowings outstanding will be at market rates. The purpose
of the Agreement is
to serve as an alternative source of funding for capital
share redemptions. The
Series has not borrowed any amounts pursuant to the
Agreement as of February 28,
1997. The Funds pay a commitment fee at an annual rate of
.055 of 1% on the
unused portion of the credit facility. The commitment fee is
accrued and paid
quarterly on a pro-rata basis by the Funds.
- - ------------------------------------------------------------
- - --------------------
-----
11
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) PENNSYLVANIA
SERIES
- - ------------------------------------------------------------
- - --------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly-owned
subsidiary of PMF,
serves as the Fund's transfer agent. During the six months
ended February 28,
1997, the Series incurred fees of approximately $58,800 for
the services of
PMFS. As of February 28, 1997, approximately $9,700 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 28, 1997 were
$29,298,324 and
$37,301,546, respectively.
The cost basis of investments for federal income tax
purposes at February 28,
1997, was $216,231,781 and accordingly, net unrealized
appreciation of
investments for federal income tax purposes was $13,403,533
(gross unrealized
appreciation--$13,707,422; gross unrealized depreciation--
$303,889).
At February 28, 1997 the Series sold 75 financial futures
contracts on the
Municipal Bond Index expiring March 1997. The value at
disposition of such
contracts was $8,268,750. The value of such contracts
February 28, 1997 was
$8,268,750 thereby resulting in no unrealized gain or loss.
- - ------------------------------------------------------------
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 28, 1997 and
August 31, 1996 were as
follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- - ----------------------------------- ---------- --------
- - ----
<S> <C> <C>
Six months ended February 28, 1997:
Shares sold........................ 95,459 $
1,013,280
Shares issued in reinvestment of
dividends........................ 160,035
1,695,433
Shares reacquired.................. (549,084)
(5,823,150)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................ (293,590)
(3,114,437)
Shares issued upon conversion from
Class B.......................... 1,414,007
14,987,094
---------- --------
- - ----
Net increase in shares
outstanding...................... 1,120,417 $
11,872,657
---------- --------
- - ----
---------- --------
- - ----
Year ended August 31, 1996:
Shares sold........................ 170,524 $
1,815,672
Shares issued in reinvestment of
dividends........................ 174,484
1,854,233
Shares reacquired.................. (856,245)
(9,076,849)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................ (511,237)
(5,406,944)
Shares issued upon conversion from
Class B.......................... 2,346,430
24,852,900
---------- --------
- - ----
Net increase in shares
outstanding...................... 1,835,193 $
19,445,956
---------- --------
- - ----
---------- --------
- - ----
<CAPTION>
Class B
- - -----------------------------------
<S> <C> <C>
Six months ended February 28, 1997:
Shares sold........................ 335,526 $
3,557,672
Shares issued in reinvestment of
dividends........................ 295,812
3,132,759
Shares reacquired.................. (1,082,730)
(11,473,187)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................ (451,392)
(4,782,756)
Shares reacquired upon conversion
into Class A..................... (1,414,548)
(14,987,094)
---------- --------
- - ----
Net decrease in shares
outstanding...................... (1,865,940)
$(19,769,850)
---------- --------
- - ----
---------- --------
- - ----
Year ended August 31, 1996:
Shares sold........................ 1,135,725 $
12,092,210
Shares issued in reinvestment of
dividends........................ 513,704
5,464,148
Shares reacquired.................. (2,513,126)
(26,746,007)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................ (863,697)
(9,189,649)
Shares reacquired upon conversion
into Class A..................... (2,346,430)
(24,852,900)
---------- --------
- - ----
Net decrease in shares
outstanding...................... (3,210,127)
$(34,042,549)
---------- --------
- - ----
---------- --------
- - ----
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
12
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) PENNSYLVANIA
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class C Shares
Amount
- - ----------------------------------- ---------- --------
- - ----
Six months ended February 28, 1997:
<S> <C> <C>
Shares sold........................ 1,561 $
16,500
Shares issued in reinvestment of
dividends........................ 1,147
12,144
Shares reacquired.................. (3,024)
(31,910)
---------- --------
- - ----
Net decrease in shares
outstanding...................... (316) $
(3,266)
---------- --------
- - ----
---------- --------
- - ----
Year ended August 31, 1996:
Shares sold........................ 55,805 $
603,937
Shares issued in reinvestment of
dividends........................ 1,449
15,437
Shares reacquired.................. (10,040)
(107,121)
---------- --------
- - ----
Net increase in shares
outstanding...................... 47,214 $
512,253
---------- --------
- - ----
---------- --------
- - ----
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
13
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) PENNSYLVANIA
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class A
--------
- - ------------------------------------------------------------
- - --
Six
Months
Ended
Year Ended August 31,
February
28, ----------------------------------------------------
- - -
1997
1996 1995 1994 1993 1992
--------
- - ---- ------- ------- ------- ------ ----
- - --
<S> <C>
<C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............ $
10.49 $ 10.55 $ 10.42 $ 11.21 $10.55 $
9.96
----
- - -- ------- ------- ------- ------ ----
- - --
Income from investment operations
Net investment income...........................
.30(a) .59(a) .60(a) .59 .62
.62
Net realized and unrealized gain (loss) on
investment transactions......................
.20 (.06) .13 (.68) .70
.59
----
- - -- ------- ------- ------- ------ ----
- - --
Total from investment operations.............
.50 .53 .73 (.09) 1.32
1.21
----
- - -- ------- ------- ------- ------ ----
- - --
Less distributions
Dividends from net investment income............
(.30) (.59) (.60) (.59) (.62)
(.62)
Distributions from net realized gains...........
(.09) -- -- (.11) (.04)
- - --
----
- - -- ------- ------- ------- ------ ----
- - --
Total distributions..........................
(.39) (.59) (.60) (.70) (.66)
(.62)
----
- - -- ------- ------- ------- ------ ----
- - --
Net asset value, end of period.................. $
10.60 $ 10.49 $ 10.55 $ 10.42 $11.21
$10.55
----
- - -- ------- ------- ------- ------ ----
- - --
----
- - -- ------- ------- ------- ------ ----
- - --
TOTAL RETURN(b):................................
4.87% 5.08% 7.35% (.82)% 12.86%
12.44%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)................. $
82,299 $69,659 $50,696 $10,651 $9,342
$5,908
Average net assets (000)........................ $
79,632 $59,995 $30,092 $10,315 $7,354
$4,439
Ratios to average net assets:
Expenses, including distribution fees........
.71%(a)(c) .75%(a) .80%(a) .75% .78%
.81%
Expenses, excluding distribution fees........
.61%(a)(c) .65%(a) .70%(a) .65% .68%
.71%
Net investment income........................
5.67%(a)(c) 5.56%(a) 5.76%(a) 5.52% 5.69%
5.99%
For Class A, B and C shares:
Portfolio turnover rate......................
13% 26% 19% 22% 13%
25%
</TABLE>
- - ---------------
(a) Net of expense subsidy and 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.
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 14
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) PENNSYLVANIA
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class B
--------
- - ------------------------------------------------------------
- - ---------
Six
Months
Ended
Year Ended August 31,
February
28, ----------------------------------------------------
- - --------
1997
1996 1995 1994 1993 1992
--------
- - ---- -------- -------- -------- --------
- - --------
<S> <C>
<C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............ $
10.49 $ 10.55 $ 10.42 $ 11.21 $ 10.54
$ 9.96
--------
- - ---- -------- -------- -------- --------
- - --------
Income from investment operations
Net investment income...........................
.28(a) .55(a) .56(a) .55 .57
.58
Net realized and unrealized gain (loss) on
investment transactions......................
.20 (.06) .13 (.68) .71
.58
--------
- - ---- -------- -------- -------- --------
- - --------
Total from investment operations.............
.48 .49 .69 (.13) 1.28
1.16
--------
- - ---- -------- -------- -------- --------
- - --------
Less distributions
Dividends from net investment income............
(.28) (.55) (.56) (.55) (.57)
(.58)
Distributions from net realized gains...........
(.09) -- -- (.11) (.04)
- - --
--------
- - ---- -------- -------- -------- --------
- - --------
Total distributions..........................
(.37) (.55) (.56) (.66) (.61)
(.58)
--------
- - ---- -------- -------- -------- --------
- - --------
Net asset value, end of period.................. $
10.60 $ 10.49 $ 10.55 $ 10.42 $ 11.21
$ 10.54
--------
- - ---- -------- -------- -------- --------
- - --------
--------
- - ---- -------- -------- -------- --------
- - --------
TOTAL RETURN(b):................................
4.66% 4.66% 6.92% (1.22)% 12.54%
11.92%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).................
$149,854 $167,809 $202,633 $257,732
$263,752 $206,028
Average net assets (000)........................
$156,921 $189,902 $223,082 $266,594
$229,955 $186,113
Ratios to average net assets:
Expenses, including distribution fees........
1.11%(a)(c) 1.15%(a) 1.17%(a) 1.15% 1.18%
1.21%
Expenses, excluding distribution fees........
.61%(a)(c) .65%(a) .67%(a) .65% .68%
.71%
Net investment income........................
5.26%(a)(c) 5.16%(a) 5.44%(a) 5.11% 5.29%
5.59%
</TABLE>
- - ---------------
(a) Net of expense subsidy and 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.
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 15
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) PENNSYLVANIA
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class C
--------
- - -----------------------------------------
August 1,
Six
Months Year Ended August 1994(d)
Ended
31, Through
February
28, ----------------- August 31,
1997
1996 1995 1994
----
- - - ------ ------ -----
<S> <C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period............
$10.49 $10.55 $10.42 $10.44
----
- - - ------ ------ -----
Income from investment operations
Net investment income...........................
.26(a) .52(a) .53(a) .04
Net realized and unrealized gain (loss) on
investment transactions......................
.20 (.06) .13 (.02)
----
- - - ------ ------ -----
Total from investment operations.............
.46 .46 .66 .02
----
- - - ------ ------ -----
Less distributions
Dividends from net investment income............
(.26) (.52) (.53) (.04)
Distributions from net realized gains...........
(.09) -- -- --
----
- - - ------ ------ -----
Total distributions..........................
(.35) (.52) (.53) (.04)
----
- - - ------ ------ -----
Net asset value, end of period..................
$10.60 $10.49 $10.55 $10.42
----
- - - ------ ------ -----
----
- - - ------ ------ -----
TOTAL RETURN(b):................................
4.53% 4.41% 6.65% .14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)................. $
835 $ 829 $ 336 $ 90
Average net assets (000)........................ $
831 $ 704 $ 223 $ 1
Ratios to average net assets:
Expenses, including distribution fees........
1.36%(a)(c) 1.40%(a) 1.44%(a) 2.00%(c)
Expenses, excluding distribution fees........
.61%(a)(c) .65%(a) .69%(a) 1.25%(c)
Net investment income........................
5.01%(a)(c) 4.91%(a) 5.14%(a) 8.51%(c)
</TABLE>
- - ---------------
(a) Net of expense subsidy and 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. 16
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Supplemental Proxy Information PENNSYLVANIA
SERIES
- - ------------------------------------------------------------
- - --------------------
A Meeting of Shareholders of the Prudential Municipal
Series Fund was held on
Wednesday, October 30, 1996 at the offices of Prudential
Securities
Incorporated, One Seaport Plaza, New York, New York. The
meeting was held for
the following purposes:
(1) To elect Trustees as follows: Edward D. Beach, Eugene C.
Dorsey, Delayne
Dedrick Gold, Robert F. Gunia, Harry A. Jacobs, Jr.,
Donald D. Lennox,
Mendel A. Melzer, Thomas T. Mooney, Thomas H. O'Brien,
Richard A. Redeker,
Nancy H. Teeters and Louis A. Weil, III.
(2) Approval of an amendment to the Fund's investment
restrictions to permit an
increase in the borrowing capabilities of the Fund.
The results of the proxy solicitation on the above
matters were as follows:
<TABLE>
<CAPTION>
Trustee/Matter
Votes for Votes against Abstentions
- - ----------- ------------- -----------
<S> <C>
<C> <C> <C>
(1) Edward D. Beach
370,817,756 0 16,169,234
Eugene C. Dorsey
371,804,474 0 15,182,516
Delayne Dedrick Gold
371,782,816 0 15,204,174
Robert F. Gunia
371,639,995 0 15,346,995
Harry A. Jacobs, Jr.
371,395,066 0 15,591,924
Donald D. Lennox
371,150,974 0 15,836,016
Mendel A. Melzer
371,811,918 0 15,175,072
Thomas T. Mooney
371,607,874 0 15,379,116
Thomas H. O'Brien
371,328,875 0 15,658,115
Richard A. Redeker
371,876,756 0 15,110,234
Nancy H. Teeters
371,775,376 0 15,211,614
Louis A. Weil, III
371,777,517 0 15,209,473
(2) Amendment relating to borrowing capabilities
259,440,223 31,557,793 17,488,974
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
17
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Robert F. Gunia
Harry A. Jacobs, Jr.
Donald D. Lennox
Mendel A. Melzer
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Louis A. Weil, III
Officers
Richard A. Redeker, President
Susan C. Cote, Vice President
Thomas Early, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Mutual Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
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 LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Auditors
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, NY 10022
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 28,
1997 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
Gateway Center Three U.S.
POSTAGE
100 Mulberry Street PAID
Newark, NJ 07102-4077 Permit
6807
(800) 225-1852 New York,
NY
74435M879
74435M887 MF132E2
74435M481 Cat# 642131D
(ICON)
Prudential
Municipal
Series Fund
- - ----------------------------
Massachusetts
Money Market Series
SEMI
ANNUAL
REPORT
Feb. 28, 1997
(LOGO)
<PAGE>
Prudential Municipal Series Fund
Massachusetts Money Market Series
Performance At A Glance.
Over the past six months, the Prudential Municipal Series
Fund -- Massachusetts
Money Market Series produced tax-free returns which were
generally superior to
those of the average Massachusetts tax-free money market
fund. The Series'
7-day current yield on February 28, 1997 was 2.88%, which
was higher than the
2.77% reported by the average tax-free Massachusetts
municipal bond money
market fund tracked by IBC Financial Data. The Series' yield
was equivalent to
a taxable yield of 5.42% for individuals in the highest
federal and state
income tax brackets.
Fund Facts As of 2/28/97
<TABLE>
<CAPTION>
7-Day Net Asset Taxable
Equivalent Yield1 Weighted Avg. Total Net
Current Yld. Value @31% @36%
@39.6% Mat. Assets (mil.)
<S> <C> <C> <C> <C>
<C> <C> <C>
MA Money
Market Funds 2.88% 4.74% 5.11%
5.42%
Market Fund (2.51) $1.00 (4.13) (4.45)
(4.71) 46 Days $54.4
IBC Financial Data
MA Tax-Exempt
Fund Avg.2 2.77 $1.00 4.56 4.92
5.21 54 Days N/A
</TABLE>
Note: Yields will fluctuate from time to time and past
performance is not
indicative 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. Without waiver of management fees and/or
expense subsidies,
the Series' yield would have been lower as indicated in
parentheses ().
2This is the average 7-day current yield, NAV and WAM of 10
funds in the
International Business Communications Financial Data
Massachusetts tax-exempt
money market fund category as of February 28, 1997.
Tracking Tax-Free Money Fund Yields.
(CHART)
How Investments Compared.
(As of 2/28/97)
(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 included
historical 20-year average annual returns. These returns
assume the
reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors
have received higher
historical total returns from stocks than from most other
invest-ments. 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.
Taxable 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.
<PAGE>
Colleen Meehan, Fund Manager (PICTURE)
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 bonds 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). There can be no assurance that the Series will
achieve its investment
objective.
A Word
About Quality.
Your Series will typically purchase securities with
maturities of 13 months 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.
Strategy Session.
- - ------------------------------------------------------------
- - ---
Waiting Out The Fed.
Short-term municipal markets were fairly quiet over the past
six months ending
in February. Interest rates fluctuated far less than they
did earlier in 1996,
as investors came to realize that the Federal Reserve would
leave interest
rates unchanged for the remainder of the year. Of course,
the Federal Reserve
seeks to promote moderate, non-inflationary growth by
raising or lowering the
federal funds rate (what banks charge each other for
overnight loans).
Correctly anticipating these moves is one way your Series
seeks to enhance
tax-free return.
The federal funds rate remained unchanged at 5.25%
throughout the reporting
period. On March 25, 1997, however, the Federal Reserve
raised the rate 25
basis points (a basis point is 1/100th of a percentage
point) to 5.50%. It was
the first increase in two years. The central bank explained
it was moving to
quell "inflationary imbalances" that could undermine the
country's six-year
economic expansion. The action was widely expected. Indeed,
Federal Reserve
Chairman Alan Greenspan had been saying he would not rule
out a "pre-emptive"
strike against inflationary pressures for several weeks
prior to the actual
rate increase.
Our strategy over the past six months was to adjust the
Series' weighted
average maturity (WAM) in anticipation of market conditions.
WAM measures the
sensitivity of the Series' underlying securities to changing
interest rates.
When interest rates are expected to rise, WAM is usually
shortened (we buy
shorter maturity securities) so we are positioned to buy new
securities at
higher yields. Conversely, when rates are expected to fall,
WAM is lengthened
(we buy longer maturity securities) to preserve higher
yields for you.
During much of the reporting period, there was such a dearth
of new issuance
that we positioned the Series' WAM, longer than the average
Massachusetts
tax-free money market fund. This helped performance. In
fact, it was a prudent
course given that the Federal Reserve did not raise interest
rates. We
shortened the WAM in December to accommodate seasonal year-
end redemptions that
usually produce higher municipal rates. As the month ended,
we extended the WAM
to lock-in higher rates and carry us through January when
yields traditionally
fall. As February ended, the WAM was shorter than the
average fund as we
anticipated a rate move by the Federal Reserve.
<PAGE>
What Went Well.
- - --------------------------------------------
Steering A
Prudent Course.
During the reporting period, we tried to steer a prudent
course of looking for
value-oriented investments as they became available, while
maintaining our high
credit quality.
With such a scarcity of new issues we sometimes purchased
high quality variable
rate securities or credits issued out-of-state. We also
favored AMT paper and
insured first-year serial bonds.
AMT comes with attractive yields -- sometimes 10 to 15 basis
points higher
than non-AMT investments. It was a useful tool for us.
We also found value in buying first-year serial securities
of longer term
bonds. Under this arrangement, we bought portions of 30-year
bonds that matured
in 12 months. The prices and yields were very attractive and
the securities
were also insured.
Another plus was the Series' weighted average maturity
(WAM). Although the WAM
was longer overall than our peer group for much of the six-
month period, it
worked in our favor when the Federal Reserve left interest
rates unchanged in
October and November.
Looking Ahead.
- - ------------------------------------------------
The Federal Reserve has raised short-term interest rates
once in 1997. Will
there be more increases in short-term interest rates?
Probably. Our past
experience tells us that changes in Federal Reserve monetary
policy are rarely
one-shot deals. Given present economic conditions, we
believe one or two
additional rate increases will most likely occur later this
year. Of course,
no one knows for sure. But if this does happen, short-term
municipal rates will
follow the taxable markets' lead and we will do our part to
have your Series
take advantage of them.
And Not So Well.
- - ------------------------------------------
Markets Were Too Quiet.
Massachusetts' short-term municipal markets were quiet over
the last six
months. New issues were in very short supply while demand
was high, causing
rates to trend lower, although overall quality was good. Why
are new municipal
bonds so scarce? A strengthening economy means additional
tax revenues for
municipalities reducing their need to borrow. And with the
difference between
short- and long-term rates narrowing, many municipalities
are finding it more
cost-efficient to participate in the long-term markets.
(CHART)
1
<PAGE>
President's Letter April 10,
1997
- - ------------------------------------------------------------
- - -
(PICTURE)
We're On Your Side.
Dear Shareholder:
The first three months of the year were not good ones for
most U.S. stock and
bond investors. The Dow Jones Industrial Average was down
considerably from its
record high set in mid-March, and long-term interest rates
were at their
highest levels in six months. Not surprisingly, in the first
quarter of 1997
the average stock and bond mutual fund had negative returns
(for stock funds,
it was the first time since 1994).
The reasons behind the recent market decline have been well-
publicized --
higher interest rates and inflationary pressures. And while
we are watching
market developments closely, we are also very concerned
about you and how
you're dealing with events. We realize that staying the
course toward your
long-term investment goals isn't easy during such times of
uncertainty. Here
are a few thoughts that may help --
- - - Keep Your Expectations Realistic. The best investors know
that financial
markets rise and fall -- and so too, will the value of
their investments.
Over time, however, stocks have been shown to produce very
attractive returns
that were well ahead of inflation.
- - - Remember Your Time Horizon. If your investment goals are
long term (several
years or more), so should your time horizon. During this
period, it's not
unusual for stocks and bonds to experience several periods
of market
uncertainty.
- - - We're On Your Side. Your Prudential Securities Financial
Advisor or
Prudential Registered Representative can help you
understand what's happening
in the financial markets. They can assist you in making
informed decisions
based upon a thorough knowledge of your financial needs
and long-term goals.
Call him or her today.
Thank you for your continued confidence in Prudential mutual
funds. We'll do
everything we can to keep you informed and to earn your
trust.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
2
<PAGE>
Portfolio of Investments as of PRUDENTIAL MUNICIPAL
SERIES FUND
February 28, 1997 (Unaudited) MASSACHUSETTS 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>
Chicopee, Gen. Oblig., Ser. 96, F.S.A.
Aaa 6.00% 8/01/97 $ 600 $ 605,131
Dracut, Gen. Oblig., A.M.B.A.C.
Aaa 6.00 6/01/97 740 744,170
Fitchburg Mass., Gen. Oblig., Ser. 96, A.M.B.A.C.
Aaa 5.50 3/01/97 1,200 1,200,000
Holyoke Poll. Ctrl. Rev., Ser. 88, F.R.W.D.
A-1+(c) 3.10 3/05/97 1,100 1,100,000
Jackson Cnty. Mississippi Ind. Swr. Facs. Rev., Chevron
Project,
Ser. 94, F.R.D.D.
P-1 3.55 3/03/97 100 100,000
Mass. Bay Trans. Auth., S.E.M.O.T., Ser. 84A
VMIG1 3.45 9/01/97 1,000 1,000,000
Mass. Comnwlth., Ded. Inc. Tax, Ser. 90E, F.R.D.D.
VMIG1 3.40 3/03/97 1,300 1,300,000
Mass. Edl. Loan Auth. Rev., Issue E, Ser. 96A, F.R.W.D.
A-1+(c) 3.25 3/05/97 2,000 2,000,000
Mass. Ind. Fin. Agcy. Ind. Rev., Showa Womens Inst. Inc.,
F.R.D.D., Ser. 94
VMIG1 3.40 3/03/97 1,000 1,000,000
Mass. Mun. Whsl. Elec. Co. Pwr. Supply Sys. Rev., Ser. 94C,
F.R.W.D.
VMIG1 3.05 3/05/97 2,500 2,500,000
Mass. St. Hlth. & Edl. Facs. Auth. Rev.,
Boston Univ., Ser. 85H, T.E.C.P.
VMIG1 3.5o 5/14/97 1,500 1,500,000
Cap. Asset Prog., Ser. 85B, F.R.D.D.
VMIG1 3.15 3/03/97 1,000 1,000,000
Cap. Asset Prog., Ser. 85C, F.R.D.D., M.B.I.A.
VMIG1 3.15 3/03/97 800 800,000
Cap. Asset Prog., Ser. D, F.R.D.D.
VMIG1 3.45 3/03/97 600 600,000
Harvard Univ., Ser. 89L, T.E.C.P.
VMIG1 3.45 3/28/97 1,300 1,300,000
Harvard Univ., Ser. 89L, T.E.C.P.
VMIG1 3.40 5/15/97 1,000 1,000,000
William College, Ser. E, F.R.W.D.
A-1+(c) 3.25 3/05/97 1,500 1,500,000
Mass. St. Hsg. Fin. Agcy. Rev.,
Long Option Period Ser. 11, A.N.N.O.T., A.M.B.A.C.
Aaa 4.00 9/01/97 1,420 1,420,000
Multi Family Rev., Harbor Point, Ser. 95A
A-1+(c) 3.20 3/05/97 1,000 1,000,000
Mass. St. Ind. Fin. Agcy. Ind. Rev.,
Edgewood Retirement, Ser. 95C, F.R.W.D.
VMIG1 3.35 3/05/97 2,500 2,500,000
Goddard House, Ser. 95, F.R.W.D.
A-1(c) 3.20 3/06/97 2,000 2,000,000
Governor Dummer Academy, F.R.W.D.
A-1+(c) 3.15 3/06/97 1,500 1,500,000
Hazen Paper Co., Ser. 95, F.R.W.D.S.
A-1(c) 3.30 3/06/97 1,800 1,800,000
Heritage At Dartmouth, F.R.W.D.
VMIG1 3.30 3/06/97 1,500 1,500,000
Nutramax Prods. Inc., Ser. 96A, F.R.W.D.
A-1+(c) 3.30 3/06/97 2,000 2,000,000
Ocean Spray Cranberries Inc. Proj., Ser. 84, A.N.N.O.T.
A+(c) 3.85 10/15/97 1,100 1,100,000
Ogden Haverhill Proj., Ser. 86B, F.R.W.D.
VMIG1 3.25 3/05/97 2,000 2,000,000
Riverdale Mills, Ser. 95, F.R.W.D.
A-1(c) 3.30 3/06/97 1,300 1,300,000
United Med. Corp. Issue, Ser. 92, F.R.W.D.
P1 3.25 3/05/97 700 700,000
Mass. St. Ind. Fin. Agcy. Poll. Ctrl., New England Pwr. Co.
Proj. Ser. 93A, T.E.C.P.
Mass. St. Ind. Fin. Agcy. Poll. Ctrl.,
New England Pwr. Co. Proj., Ser. 92, F.R.D.D.
VMIG1 3.40 3/03/97 1,500 1,500,000
New England Pwr. Co. Proj., Ser. 93A, T.E.C.P.
VMIG1 3.45 4/18/97 1,000 1,000,000
Mass. St. Port Auth. Rev.,
Multi Modal Amt. Ref., Ser. 95B, F.R.D.D.
VMIG1 3.45 3/03/97 1,900 1,900,000
Multi Modal Ref., Ser. 95A
VMIG1 3.35 3/03/97 1,200 1,200,000
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as of PRUDENTIAL MUNICIPAL
SERIES FUND
February 28, 1997 (Unaudited) MASSACHUSETTS 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>
Milford, Gen. Oblig., M.B.I.A.
Aaa 4.50% 8/15/97 $ 608 $ 609,889
Natick, Gen. Oblig., Ser. 96, B.A.N.
NR 3.70 5/22/97 1,000 1,000,108
Needham, Gen. Oblig., Ser. 96
Aa 4.75 5/15/97 865 866,853
North Andover, Gen. Oblig., F.G.I.C.
Aaa 6.00 1/15/98 678 691,291
Northampton, Gen. Oblig., Ser. 96, M.B.I.A.
Aaa 4.25 5/15/97 752 752,748
Peabody, Gen. Oblig., Ser. 96, B.A.N.
NR 4.15 8/15/97 1,000 1,001,385
Puerto Rico Comnwlth., Hwy. & Trans. Auth. Rev., F.R.W.D.,
Ser.
X
VMIG1 2.95 3/05/97 600 600,000
Puerto Rico Ind. Med. & Environ. Poll. Ctrl. Fac. Fin. Auth.
Rev., Pharmaceuticals, Ser. 83A, A.N.N.O.T.
AAA(c) 3.75 12/01/97 2,000 2,000,000
Revere Hsg. Auth. Multifamily Mtge. Rev., Waters Edge Apts.
Proj., F.R.W.D. Ser. 91C
A-1(c) 3.65 3/07/97 1,990 1,990,000
Saugus, Gen. Oblig., Ser. 96, M.B.I.A.
Aaa 6.50 8/15/97 460 466,175
Sublette Cnty. Wyoming Poll. Ctr. Rev., Exxon Proj., Ser. 84
A-1+(c) 3.40 3/03/97 100 100,000
West Baton Rouge Parish Ind. Dist. Pound3 Rev., Dow Chemical
Co. Proj., F.R.D.D., Ser. 94A
P1 3.55 3/03/97 1,200 1,200,000
- - -----------
Total Investments--101.1%
(cost $54,947,750; (d))
54,947,750
Liabilities in excess of other assets--(1.1)%
(583,441)
- - -----------
Net Assets--100%
$54,364,309
- - -----------
- - -----------
</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.
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.W.D.--Floating Rate (Weekly) Demand Note (b).
F.R.W.D.S.--Floating Rate (Weekly) Demand Synthetic
Notes (b).
F.S.A.--Financial Security Assurance.
M.B.I.A.--Municipal Bond Insurance Corporation.
S.E.M.O.T.--Semi-Monthly Tender Offer.
T.E.C.P.--Tax-Exempt Commerical 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.
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. 4
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL
MUNICIPAL SERIES FUND
(Unaudited) MASSACHUSETTS
MONEY MARKET SERIES
- - ------------------------------------------------------------
- - -------------------
<TABLE>
Assets
February 28, 1997
<S>
<C>
Investments, at amortized cost which approximates market
value........................................... $
54,947,750
Cash........................................................
.............................................
64,423
Receivable for Series shares
sold........................................................
................ 1,134,841
Interest
receivable..................................................
.................................... 300,630
Receivable for investments
sold........................................................
.................. 50,119
Other
assets......................................................
....................................... 1,086
- - -----------------
Total
assets......................................................
.................................... 56,498,849
- - -----------------
Liabilities
Payable for Series shares
reacquired..................................................
................... 1,047,336
Payable for investments
purchased...................................................
..................... 1,000,000
Accrued
expenses....................................................
..................................... 62,977
Dividends
payable.....................................................
................................... 13,626
Management fee
payable.....................................................
.............................. 5,063
Deferred trustees'
fees........................................................
.......................... 2,959
Distribution fee
payable.....................................................
............................ 2,579
- - -----------------
Total
liabilities.................................................
.................................... 2,134,540
- - -----------------
Net
Assets......................................................
......................................... $
54,364,309
- - -----------------
- - -----------------
Net assets were comprised of:
Shares of beneficial interest, at $.01 par
value......................................................
$ 543,643
Paid-in capital in excess of
par.........................................................
............. 53,820,666
- - -----------------
Net assets, February 28,
1997........................................................
.................... $ 54,364,309
- - -----------------
- - -----------------
Net asset value, offering price and redemption price per
share ($54,364,309 / 54,364,309 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
MASSACHUSETTS MONEY MARKET SERIES
Statement of Operations (Unaudited)
- - ------------------------------------------------------------
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income February 28,
1997
<S> <C>
Income
Interest................................ $ 887,875
--------------
- - ---
Expenses
Management fee.......................... 126,009
Distribution fee........................ 31,502
Custodian's fees and expenses........... 35,700
Reports to shareholders................. 12,400
Transfer agent's fees and expenses...... 10,900
Registration fees....................... 8,200
Audit fees and expenses................. 4,000
Legal fees and expenses................. 3,000
Trustees' fees and expenses............. 1,800
Insurance expense....................... 500
Miscellaneous........................... 1,850
--------------
- - ---
Total expenses....................... 235,861
Less: Management fee waiver............. (94,506)
--------------
- - ---
Net expenses......................... 141,355
--------------
- - ---
Net investment income...................... 746,520
Net Increase in Net Assets
Resulting from Operations.................. $ 746,520
--------------
- - ---
--------------
- - ---
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
MASSACHUSETTS MONEY MARKET SERIES
Statement of Changes in Net Assets (Unaudited)
- - ------------------------------------------------------------
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year
Ended
Increase (Decrease) February 28, August
31,
in Net Assets 1997 1996
<S> <C> <C>
Operations
Net investment income........ $ 746,520
1,682,042
Net realized loss on
investment transactions... --
(130)
------------- ---------
- - ----
Net increase in net assets
resulting from
operations................ 746,520
1,681,912
------------- ---------
- - ----
Dividends to shareholders (Note
1)........................... (746,520)
(1,681,912)
------------- ---------
- - ----
Series share transactions
(at $1 per share)
Net proceeds from shares
sold......................... 109,506,952
264,188,977
Net asset value of shares
issued to shareholders in
reinvestment of
dividends................. 738,671
1,637,636
Cost of shares reacquired.... (106,392,726)
(272,137,014)
------------- ---------
- - ----
Net increase (decrease) in
net assets from Series
share transactions........ 3,852,897
(6,310,401)
------------- ---------
- - ----
Total increase (decrease)....... 3,852,897
(6,310,401)
Net Assets
Beginning of period............. 50,511,412
56,821,813
------------- ---------
- - ----
End of period................... $ 54,364,309 $
50,511,412
------------- ---------
- - ----
------------- ---------
- - ----
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements. 6
<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.
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 LLC
('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 28, 1997, PMF voluntarily waived 75%
of its management
fee. The amount of fees waived for the six months ended
February 28, 1997
amounted to $94,506 ($.002 per share; .375% of average net
assets; annualized).
The Fund has a distribution agreement with Prudential
Securities Incorporated
('PSI'), which acts as the distributor of the Fund. The Fund
compensates PSI for
distributing and servicing of the Series, pursuant to a plan
of distribution,
regardless of expenses actually incurred by PSI. The Series
reimbursed 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 fees are accrued daily and payable
monthly.
PSI, PMF and PIC are indirect wholly-owned subsidiaries of
The Prudential
Insurance Company of America.
The Series, along with other affiliated registered
investment companies (the
'Funds'), entered into a credit agreement (the 'Agreement')
on December 31, 1996
with an unaffiliated lender. The maximum commitment under
the Agreement is
$200,000,000. The Agreement expires on December 30, 1997.
Interest on any such
borrowings outstanding will be at market rates. The purpose
of the Agreement is
to serve as an alternative source of funding for capital
share redemptions. The
Series has not
- - ------------------------------------------------------------
- - --------------------
7
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) MASSACHUSETTS
MONEY MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
borrowed any amounts pursuant to the Agreement as of
February 28, 1997. The
Funds pay a commitment fee at an annual rate of .055 of 1%
on the unused portion
of the credit facility. The commitment fee is accrued and
paid quarterly on a
pro-rata basis by the Funds.
- - ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly-owned
subsidiary of PMF,
serves as the Fund's transfer agent. During six months ended
February 28, 1997,
the Series incurred fees of approximately $10,800 for the
services of PMFS. As
of February 28, 1997, approximately $1,800 of such fees were
due to PMFS.
Transfer agent fees and expenses in the Statement of
Operations include certain
out-of-pocket expenses paid to non-affiliates.
- - ------------------------------------------------------------
- - --------------------
8
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) MASSACHUSETTS
MONEY MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Six
Months
Ended Year Ended August 31,
February 28, -------------------------------------------
- - ------------
1997 1996 1995 1994 1993
1992
-
- - ----- ------- ------- ------- -------
- - -------
<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 realized gains(a)........
.016 .031 .031 .019 .021
.034
Dividends and distributions to shareholders........
(.016) (.031) (.031) (.019) (.021)
(.034)
-
- - ----- ------- ------- ------- -------
- - -------
Net asset value, end of period..................... $
1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $
1.00
-
- - ----- ------- ------- ------- -------
- - -------
-
- - ----- ------- ------- ------- -------
- - -------
TOTAL RETURN(b):...................................
1.50% 3.12% 3.10% 1.89% 2.17%
3.44%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000).................... $
54,364 $50,511 $56,822 $37,278 $36,608
$18,019
Average net assets (000)........................... $
50,821 $54,689 $42,919 $42,427 $32,246
$15,477
Ratios to average net assets:(a)
Expenses, including distribution fees...........
.561%(c) .554% .627% .620% .365%
.125%
Expenses, excluding distribution fees...........
.436%(c) .429% .502% .495% .240%
.00%
Net investment income...........................
2.96%(c) 3.08% 3.14% 1.86% 2.11%
3.20%
</TABLE>
- - ---------------
(a) Net of fee waiver and/or expense subsidy.
(b) Total return includes reinvestment of dividends and
distributions. Total
return for periods of less than a full year are not
annualized.
(c) Annualized.
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements. 9
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Supplemental Proxy Information MASSACHUSETTS
MONEY MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
A Meeting of Shareholders of the Prudential Municipal
Series Fund was held on
Wednesday, October 30, 1996 at the offices of Prudential
Securities
Incorporated, One Seaport Plaza, New York, New York. The
meeting was held for
the following purposes:
(1) To elect Trustees as follows: Edward D. Beach, Eugene C.
Dorsey, Delayne
Dedrick Gold, Robert F. Gunia, Harry A. Jacobs, Jr.,
Donald D. Lennox,
Mendel A. Melzer, Thomas T. Mooney, Thomas H. O'Brien,
Richard A. Redeker,
Nancy H. Teeters and Louis A. Weil, III.
(2) Approval of an amendment to the Fund's investment
restrictions to permit an
increase in the borrowing capabilities of the Fund.
The results of the proxy solicitation on the above
matters were as follows:
<TABLE>
<CAPTION>
Trustee/Matter
Votes for Votes against Abstentions
- - ----------- ------------- -----------
<S> <C>
<C> <C> <C>
(1) Edward D. Beach
370,817,756 0 16,169,234
Eugene C. Dorsey
371,804,474 0 15,182,516
Delayne Dedrick Gold
371,782,816 0 15,204,174
Robert F. Gunia
371,639,995 0 15,346,995
Harry A. Jacobs, Jr.
371,395,066 0 15,591,924
Donald D. Lennox
371,150,974 0 15,836,016
Mendel A. Melzer
371,811,918 0 15,175,072
Thomas T. Mooney
371,607,874 0 15,379,116
Thomas H. O'Brien
371,328,875 0 15,658,115
Richard A. Redeker
371,876,756 0 15,110,234
Nancy H. Teeters
371,775,376 0 15,211,614
Louis A. Weil, III
371,777,517 0 15,209,473
(2) Amendment relating to borrowing capabilities
259,440,223 31,557,793 17,488,974
</TABLE>
- - ------------------------------------------------------------
- - --------------------
10
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Robert F. Gunia
Harry A. Jacobs, Jr.
Donald D. Lennox
Mendel A. Melzer
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Louis A. Weil, III
Officers
Richard A. Redeker, President
Susan C. Cote, Vice President
Thomas Early, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Mutual Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
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 LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Auditors
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, NY 10022
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 28,
1997 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
Gateway Center Three U.S. POSTAGE
100 Mulberry Street PAID
Newark, NJ 07102-4077 Permit 6807
(800) 225-1852 New York, NY
74435M630 MF153E2
Cat#444525Y
(ICON)
Prudential
Municipal
Series Fund
- - ---------------------
North Carolina Series
SEMI
ANNUAL
REPORT
Feb. 28, 1997
(LOGO)
<PAGE>
Prudential Municipal Series Fund
North Carolina Series
Performance At A Glance.
The six-months ending in February were rewarding ones for
municipal bond
investors. Bond prices rose as talk of higher interest rates
subsided (at
least temporarily) and inflation levels remained low. For
the six-month
reporting period ended February 28, 1997, we're pleased to
report that the
Prudential Municipal Series Fund -- North Carolina Series
provided attractive
tax-free yields. Our total returns were also competitive
with the average
North Carolina tax-free municipal bond fund, as measured by
Lipper Analytical
Services.
Cumulative Total Returns1 As of 2/28/97
<TABLE>
<CAPTION>
Six One
Five Ten Since
Months Year
Years Years Inception2
<S> <C> <C> <C>
<C> <C> <C>
Class A 4.8% (4.7)4 3.8%
(3.7)4 37.4% (37.3)4 N/A 62.5% (62.3)4
Class B 4.6 3.5
(3.4)4 34.7 (34.5)4 76.4%(72.7)4 136.6 (133.7)4
Class C 4.5 3.2
(3.1)4 N/A N/A 15.5 (15.4)4
Lipper NC Muni Avg.3 4.5 4.2
37.3 82.5 ***
</TABLE>
Average Annual Total Returns1 As of
3/31/97
<TABLE>
<CAPTION>
One Five
Ten Since
Year Years
Years Inception2
<S> <C> <C> <C>
<C>
Class A 1.7% (1.6)4 5.6%
N/A 6.3%
Class B -0.6 5.7
5.6% 7.2 (7.1)4
Class C 3.2 (3.1)4 N/A
N/A 4.9
</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%
2/28/97
<S> <C> <C> <C>
<C>
Class A $0.27 4.52%
7.66% (7.57)4 8.11% (8.02)4
Class B $0.25 4.25 7.20
(7.11)4 7.63 (7.54)4
Class C $0.23 4.00 6.78
(6.69)4 7.18 (7.09)4
</TABLE>
Past performance is not indicative of future results.
Principal and investment
return will fluctuate so that an investor's shares, when
redeemed, may be worth
more or less than their original cost.
1Source: Prudential Mutual Fund Management and Lipper
Analytical Services. The
cumulative total returns do not take into account sales
charges. The average
annual returns do take into account applicable sales
charges. The Fund charges
a maximum front-end sales load of 3% for Class A shares and
a 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 36 funds for
six months, 35 funds for one year, eight funds for five
years and three funds
for 10 years.
4Without waiver of management fees and/or expense
subsidization, the Series'
average annual return would have been lower, as indicated in
parentheses ( ).
5Taxable equivalent yields reflect federal and applicable
state tax rates.
***The Lipper Since Inception category return for Class A
shares is 62.5%,
which includes five funds; for Class B is 152.3% for two
funds; and for Class
C is 17.5% for 28 funds.
How Investments Compared.
(As of 2/28/97)
(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 included
historical 20-year average annual returns. These returns
assume the
reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors
have received higher
historical total returns from stocks than from most other
invest-
ments. 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.
Taxable 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.
<PAGE>
James M. Murphy, 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.
New Manager
Named.
In January 1997, James M. Murphy was named the new portfolio
manager of the
North Carolina Series Fund. Jim joined Prudential in 1989
and brings to the
position extensive experience as a municipal bond trader and
credit analyst.
Strategy Session.
- - ------------------------------------------------------------
- - ----
The municipal bond market moved in cycles during the
reporting period: Bond
prices rallied on news of slower economic growth and low
inflation; then sold
off when reports indicated the opposite. For example, in the
third quarter of
1996, bond prices rallied. Municipal bond interest rates
were 6.01% on October
24 and gradually declined to 5.80% in November, according to
the Bond Buyer's
Revenue Bond Index, a widely-watched industry barometer. The
start of 1997
brought news that the economy was accelerating. Fourth
quarter Gross Domestic
Product (GDP is the total value of all the goods and
services produced by the
economy and a generally accepted measure of economic growth)
surged 3.8%. Yet
inflation remained low. Interest rates then began a steady
climb upward as bond
prices fell slightly. Interest rates ended the reporting
period at 5.93%.
As you know, bond prices rise when interest rates fall, and
vice versa. Our
strategy over the past six months was to adjust the Series'
duration in order
to help it respond more effectively to interest rate
movements. When the
municipal bond market rallied last fall, we lengthened
duration. This allowed
your Series to profit as bond prices rose. Conversely, as
the bond market
slowed at year-end, we shortened the Series' duration. This
protected assets
as interest rates rose.
As the end of the reporting period neared, we shortened
Series' duration even
more to match or be slightly shorter than, the average North
Carolina tax-free
municipal bond fund. We did not want to be caught off guard
if the Federal
Reserve raised short-term interest rates.
Portfolio Breakdown.
Expressed as a percentage of
total investments as of 2/28/97.
(GRAPH)
<PAGE>
What Went Well.
- - -----------------------------------
A Prudent Move.
We shortened Series' duration as the reporting period ended
in February in
anticipation of a possible increase in interest rates by the
Federal Reserve.
It was a prudent move. On March 25, 1997, the central bank
raised the federal
funds rate (what banks charge each other for overnight
loans) one-quarter of a
percentage point to 5.50%. It was the first increase in two
years.
The Federal Reserve explained it was acting to quell
"inflationary imbalances"
that could undermine the country's six-year economic
expansion. The action was
widely expected by investors. Indeed, Federal Reserve
Chairman Alan Greenspan
had been saying he would not rule out a "pre-emptive" strike
against
inflationary pressures for several weeks prior to the actual
rate increase.
Five Largest
Issuers.
7.0% NC Municipal
Power Agency
5.2% NC Eastern Municipal
Power Agency
4.9% Durham County
4.3% Commonwealth
of Puerto Rico
4.1% Wake County Hospital
Expressed as a percentage of total net assets as of 2/28/97.
And Not So Well.
- - -----------------------------------
Market Concerns.
While there were more new bonds issued over the past six
months ending in
February, the increase was not dramatic. The overall trend
for municipal bond
supply has been downward for a couple of years now. That's
because
municipalities have more revenue coming in -- thanks to
stronger local
economies -- and thus have less need to market new bonds.
Unfortunately, that
also means fewer investment opportunities for your Series.
Bond insurance has been another concern. Why? Because as
more bonds are issued
with insurance, it means less uninsured bonds were
available. In past years,
uninsured bonds offered us the opportunity to buy good
quality credits (usually
rated A to BBB) at attractive prices and yields. As this
pool shrinks, so too
does the opportunity for your Fund to purchase bonds that
could further enhance
yield.
Looking Ahead.
- - ----------------
The Federal Reserve has raised short-term interest rates
once in 1997. Will
there be more increases in short-term interest rates?
Probably. Experience
tells us that changes in Federal Reserve monetary policy are
rarely one-shot
deals. Given present economic conditions, we believe one or
two additional rate
increases will most likely occur later this year. Of course,
no one knows for
sure. We have positioned the Series' duration to be closer
to, or slightly
shorter than, the average North Carolina tax-free municipal
bond fund. This
will give us the flexibility to respond if -- or more likely
when -- the
Federal Reserve acts to increase interest rates.
1
<PAGE>
President's Letter April 10,
1997
- - ------------------------------------------------------------
- - --
(PICTURE)
We're On Your Side.
Dear Shareholder:
The first three months of the year were not good ones for
most U.S. stock and
bond investors. The Dow Jones Industrial Average was down
considerably from its
record high set in mid-March, and long-term interest rates
were at their
highest levels in six months. Not surprisingly, in the first
quarter of 1997
the average stock and bond mutual fund had negative returns
(for stock funds,
it was the first time since 1994).
The reasons behind the recent market decline have been well-
publicized --
higher interest rates and inflationary pressures. And while
we are watching
market developments closely, we are also very concerned
about you and how
you're dealing with events. We realize that staying the
course toward your
long-term investment goals isn't easy during such times of
uncertainty. Here
are a few thoughts that may help --
- - - Keep Your Expectations Realistic. The best investors know
that financial
markets rise and fall -- and so too, will the value of
their investments.
Over time, however, stocks have been shown to produce very
attractive returns
that were well ahead of inflation.
- - - Remember Your Time Horizon. If your investment goals are
long term (several
years or more), so should your time horizon. During this
period, it's not
unusual for stocks and bonds to experience several periods
of market
uncertainty.
- - - We're On Your Side. Your Prudential Securities Financial
Advisor or
Prudential Registered Representative can help you
understand what's happening
in the financial markets. They can assist you in making
informed decisions
based upon a thorough knowledge of your financial needs
and long-term goals.
Call him or her today.
Thank you for your continued confidence in Prudential mutual
funds. We'll do
everything we can to keep you informed and to earn your
trust.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
2
<PAGE>
Portfolio of Investments as of PRUDENTIAL
MUNICIPAL SERIES FUND
February 28, 1997 (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--99.2%
- - ------------------------------------------------------------
- - ------------------------------------------------------------
- - ------
Buncombe Cnty., Pub. Impvt. Bonds
Aa 6.90% 3/01/09 $ 1,000(e)(f)
$1,072,490
Cary Sanitary Sewer
Aa1 5.20 4/01/09 500
503,370
Charlotte Mecklenberg Hosp., Hlth. Care Sys. Rev.
Aa3 6.25 1/01/20 750
772,605
Charlotte Wtr. & Swr.
Aaa 6.20 6/01/17 1,500(e)(f)
1,650,600
Charlotte Wtr. & Swr.
Aaa 5.90 2/01/19 1,000(e)
1,041,170
City of Greensboro, Comb. Enterprise Sys. Rev., Ser. A
A1 5.30 6/01/15 1,000
970,330
Concord Util. Sys. Rev., M.B.I.A.
Aaa 5.50 12/01/14 1,000(e)
1,007,990
Craven Cnty., M.B.I.A.
Aaa 5.50 6/01/16 1,000
1,007,010
Dare Cnty., Util. Sys. Rev., M.B.I.A.
Aaa 5.75 6/01/14 500
508,925
Davidson Cnty.
Aa 5.40 6/01/14 800
802,968
Durham Cnty., Pub. Impvt.
Aaa 4.60 5/01/04 2,000
2,007,640
Durham, Gen. Oblig.
Aa1 5.10 2/01/15 1,000
970,240
Fayetteville, Cert. of Part., San. Swr. & Pub. Impvt.,
A.M.B.A.C.
Aaa 6.875 12/01/08 1,750
1,908,550
Haywood Cnty., Ind. Facs. & Poll. Ctrl.,
Fin. Auth. Env. Impvt. Rev., Champion Intl. Corp.
Baa1 6.25 9/01/25 750
760,080
Fin. Auth. Env. Impvt. Rev., Champion Intl. Corp., Ser. A
Baa1 5.75 12/01/25 1,500
1,445,970
Lincoln Cnty. Gen. Oblig., Ref., F.G.I.C.
Aaa 5.10 6/01/09 1,170
1,168,327
Martin Cnty. Ind. Facs. & Poll. Ctrl. Fin. Auth. Rev.,
Weyerhaueser Co. Proj.
A2 8.50 6/15/99 200
217,422
Mecklenberg Cnty., Pub. Impvt.
Aaa 5.00 4/01/08 1,000
1,000,800
Mecklenburg Cnty., Pub. Impvt.
Aaa 4.80 3/01/06 1,050
1,053,811
New Hanover Cnty. Hosp. Rev., Regl. Med. Ctr. Proj.,
A.M.B.A.C. Aaa 4.75 10/01/23 1,000
854,890
No. Carolina Eastn. Mun. Pwr. Agcy.,
Pwr. E.T.M., prerefunded, Ser. A
Aaa 6.50 1/01/18 1,995
2,286,430
Pwr. Sys. Rev., Ser. A
Aaa 6.50 1/01/18 1,005
1,127,308
Pwr. Sys. Rev., Ser. A
Baa1 6.40 1/01/21 1,000
1,018,380
Pwr. Sys. Rev., A.M.B.A.C.
Aaa 6.00 1/01/18 1,000
1,058,910
Pwr. Sys. Rev., Ser. B
Aaa 6.00 1/01/26 650(f)
703,879
No. Carolina Hsg. Fin. Agcy., Sngl. Fam. Mtge. Rev., Ser. G
Aa 7.80 3/01/21 610
634,339
No. Carolina Med. Care Comn., Hlth. Care Facs. Rev.,
Stanley Mem. Hosp. Proj.
Baa1 7.80 10/01/19 650(f)
719,784
No. Carolina Med. Care Comn., Hosp. Rev.,
Wilson Mem. Hosp., A.M.B.A.C.
Aaa Zero 11/01/12 2,045
856,487
Annie Pen Mem. Hosp. Proj.
Baa3 7.50 8/15/21 1,000
1,070,660
Rex Hosp. Proj.
A1 6.25 6/01/17 1,750
1,803,217
No. Carolina Mun. Pwr. Agcy.,
No. 1 Catawba Elec. Rev., A.M.B.A.C.
Aaa 5.25 1/01/09 1,000
1,008,710
No. 1 Catawba Elec. Rev., M.B.I.A.
Aaa 6.00 1/01/10 1,250
1,350,050
No. 1 Catawba Elec. Rev., M.B.I.A.
Aaa 6.97(d) 1/01/12 2,000
1,947,500
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as of PRUDENTIAL
MUNICIPAL SERIES FUND
February 28, 1997 (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 Univ. at Raleigh Centennial Campus, B.I.G.
Aaa 5.125% 12/15/16 $ 1,000 $ 952,590
North Carolina Gen. Oblig. Cap. Impvt., Ser. A
Aaa 4.70 2/01/10 1,200 1,141,824
North Carolina Med. Care Comn., Hlth. Care Facs. Rev.,
Carolina Medicorp Proj.
Aa3 5.25 5/01/26 1,400 1,297,716
Northern Hosp. Dist. Surry Cnty. Hlth. Care Facs. Rev.,
No. Carolina Hosp.
Ba1 7.875 10/01/21 1,500 1,579,110
Pitt Cnty. Rev., Pitt Cnty. Mem. Hosp.
Aa3 5.25 12/01/21 1,500 1,414,680
Puerto Rico Commonwealth, Gen. Oblig., Ser. A, M.B.I.A.
Aaa 6.25 7/01/10 1,240 1,324,258
Puerto Rico Comnwlth., Gen. Oblig., F.S.A.
Aaa 8.132(d) 7/01/20 1,300 1,332,500
Puerto Rico Elec. Pwr. Auth. Rev., Pwr. Rev. Bds.
Baa1 5.50 7/01/20 1,520 1,447,040
Puerto Rico Ind. Med. & Environ. Poll. Ctrl. Facs., Upjohn
Co.
Proj.
Aa3 7.50 12/01/23 500 541,690
Puerto Rico Tel. Auth. Rev., Ser. I, M.B.I.A.
Aaa 6.87(d) 1/25/07 1,000 1,022,500
Union Cnty. Wtr. & Swr., Solid Waste Rev.
A1 6.50 4/01/07 850 931,702
University of No. Carolina Chapel Hill Hosp. Rev.
Aa 5.25 2/15/26 1,400 1,318,688
Virgin Islands Terr., Hugo Ins. Claims Fund Proj., Ser. 91
NR 7.75 10/01/06 390 423,938
Wake Cnty.
Aaa 4.90 3/01/07 2,500 2,519,275
Wake Cnty. Hosp. Rev., M.B.I.A.
Aaa 5.125 10/01/26 1,500 1,371,300
Winston Salem, Sngl. Fam. Mtge. Rev., A.M.T.
A1 8.00 9/01/07 410 427,310
Winston Salem, Wtr. & Swr., Sys. Rev., Ser. B
Aa 5.70 6/01/17 1,000 1,003,750
- - -----------
Total long-term investments (cost $54,381,485)
56,360,713
- - -----------
SHORT-TERM INVESTMENTS--5.1%
Halifax Cnty. Ind. Facs. & Poll. Ctrl., Westmoreland L.G. &
E.
Partners, Ser. 93 F.R.D.D.
A1+(c) 3.55 3/03/97 400 400,000
Halifax Cnty. Ind. Facs. & Poll. Ctrl., Westmoreland-Hadson
Roano, Ser. 91 F.R.D.D.
CPS1 3.55 3/03/97 100 100,000
Raleigh Durham Arpt. Auth. Spec. Facs. Rev.,
American Airlines Ser. 95A
A1+(c) 3.45 3/03/97 1,100 1,100,000
American Airlines Ser. 95B1
A1+(c) 3.45 3/03/97 1,300 1,300,000
- - -----------
Total short-term investments (cost $2,900,000)
2,900,000
- - -----------
Total Investments--104.3%
(cost $ 57,281,485; Note 4)
59,260,713
Liabilities in excess of other assets--(4.3)%
(2,427,326)
- - -----------
Net Assets--100%
$56,833,387
- - -----------
- - -----------
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements. 4
<PAGE>
- - ------------------------------------------------------------
- - -------------------
(a) The following abbreviations are used in portfolio
descriptions:
A.M.B.A.C.--American Municipal Bond Assurance
Corporation.
A.M.T.--Alternative Minimum Tax.
B.I.G.--Bonds Investors Guaranty Company.
E.T.M.--Escrowed to Maturity.
F.G.I.C.--Financial Guaranty Insurance Company.
F.R.D.D.--Floating Rate (Daily) Demand Note (b).
F.S.A.--Financial Security Assurance.
M.B.I.A.--Municipal Bond Insurance Association.
(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) NORTH CAROLINA
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Assets
February 28, 1997
<S>
<C>
Investments, at value (cost
$57,281,485)................................................
................. $59,260,713
Cash........................................................
.............................................
1,414,625
Interest
receivable..................................................
.................................... 774,357
Receivable for Series shares
sold........................................................
................ 14,010
Other
assets......................................................
....................................... 1,379
- - -----------------
Total
assets......................................................
.................................... 61,465,084
- - -----------------
Liabilities
Payable for investments
purchased...................................................
..................... 4,356,800
Accrued
expenses....................................................
..................................... 174,517
Payable for Series shares
reacquired..................................................
................... 35,169
Dividends
payable.....................................................
................................... 24,715
Management fee
payable.....................................................
.............................. 19,743
Distribution fee
payable.....................................................
............................ 13,107
Due to broker - variation
margin......................................................
................... 4,687
Deferred trustees'
fees........................................................
.......................... 2,959
- - -----------------
Total
liabilities.................................................
.................................... 4,631,697
- - -----------------
Net
Assets......................................................
.........................................
$56,833,387
- - -----------------
- - -----------------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
........ $ 50,959
Paid-in capital in excess of
par.........................................................
............. 54,812,347
- - -----------------
54,863,306
Accumulated net realized loss on
investments.................................................
......... (50,491)
Net unrealized appreciation on
investments.................................................
........... 2,020,572
- - -----------------
Net assets, February 28,
1997........................................................
.................... $56,833,387
- - -----------------
- - -----------------
Class A:
Net asset value and redemption price per share
($28,538,173 / 2,559,358 shares of beneficial interest
issued and outstanding).....................
$11.15
Maximum sales charge (3% of offering
price)......................................................
..... .34
- - -----------------
Maximum offering price to
public......................................................
................ $11.49
- - -----------------
- - -----------------
Class B:
Net asset value, offering price and redemption price per
share
($28,220,329 / 2,529,811 shares of beneficial interest
issued and outstanding).....................
$11.16
- - -----------------
- - -----------------
Class C:
Net asset value, offering price and redemption price per
share
($74,885 / 6,713 shares of beneficial interest issued
and outstanding).............................
$11.16
- - -----------------
- - -----------------
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements. 6
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NORTH CAROLINA SERIES
Statement of Operations (Unaudited)
- - ------------------------------------------------------------
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income February 28,
1997
<S> <C>
Income
Interest................................ $ 1,698,902
--------------
- - ---
Expenses
Management fee.......................... 144,814
Distribution fee--Class A............... 14,359
Distribution fee--Class B............... 72,836
Distribution fee--Class C............... 275
Custodian's fees and expenses........... 42,000
Reports to shareholders................. 40,000
Transfer agent's fees and expenses...... 22,000
Registration fees....................... 17,500
Legal fees and expenses................. 5,500
Audit fees and expenses................. 5,000
Trustees' fees and expenses............. 1,800
Miscellaneous........................... 5,315
--------------
- - ---
Total expenses....................... 371,399
Less: Management fee waiver.............
(14,482)
Custodian fee credit................
(545)
--------------
- - ---
Net expenses......................... 356,372
--------------
- - ---
Net investment income...................... 1,342,530
--------------
- - ---
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions................. 223,205
Financial futures transactions..........
(270,011)
--------------
- - ---
(46,806)
--------------
- - ---
Net change in unrealized
appreciation/depreciation of:
Investments............................. 1,337,348
Financial futures contracts............. 41,344
--------------
- - ---
1,378,692
--------------
- - ---
Net gain on investments.................... 1,331,886
--------------
- - ---
Net Increase in Net Assets
Resulting from Operations.................. $ 2,674,416
--------------
- - ---
--------------
- - ---
</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 28,
August 31,
in Net Assets 1997
1996
<S> <C> <C>
Operations
Net investment income........ $ 1,342,530 $
2,879,480
Net realized gain (loss) on
investment transactions... (46,806)
970,425
Net change in unrealized
appreciation/depreciation
of investments............ 1,378,692
(1,009,916)
----------------- -----
- - ----------
Net increase in net assets
resulting from
operations................ 2,674,416
2,839,989
----------------- -----
- - ----------
Dividends and distributions
(Note 1):
Dividends from net investment
income
Class A................... (694,833)
(1,319,689)
Class B................... (646,159)
(1,556,956)
Class C................... (1,538)
(2,835)
----------------- -----
- - ----------
(1,342,530)
(2,879,480)
----------------- -----
- - ----------
Distributions from net realized gains
Class A................... (415,499)
(283,246)
Class B................... (402,215)
(369,288)
Class C................... (1,043)
(674)
----------------- -----
- - ----------
(818,757)
(653,208)
----------------- -----
- - ----------
Series share transactions (net
of share conversions) (Note
5):
Net proceeds from shares
sold...................... 674,585
2,409,691
Net asset value of shares
issued in reinvestment of
dividends and
distributions............. 1,168,181
1,901,502
Cost of shares reacquired.... (4,712,655)
(11,119,778)
----------------- -----
- - ----------
Net decrease in net assets
from Series share
transactions.............. (2,869,889)
(6,808,585)
----------------- -----
- - ----------
Total decrease.................. (2,356,760)
(7,501,284)
Net Assets
Beginning of period............. 59,190,147
66,691,431
----------------- -----
- - ----------
End of period................... $56,833,387 $
59,190,147
----------------- -----
- - ----------
----------------- -----
- - ----------
</TABLE>
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements. 7
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements (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.
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.
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.
- - ------------------------------------------------------------
- - --------------------
8
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) NORTH
CAROLINA SERIES
- - ------------------------------------------------------------
- - -------------------
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 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 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 LLC
('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 $14,482 ($0.003 per share)
the six months
ended February 28, 1997.
The Fund has a distribution agreement with Prudential
Securities Incorporated
('PSI'), which acts as the distributor of the Class A, Class
B and Class C
shares of the Fund. The Fund compensates 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 PSI.
The distribution fees are accrued daily and payable monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates
PSI 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 28, 1997.
PSI has advised the Series that it has received
approximately $3,100 in
front-end sales charges resulting from sales of Class A
shares during the six
months ended February 28, 1997. From these fees, PSI paid
such sales charges to
affiliated broker-dealers, which in turn paid commissions to
salespersons and
incurred other distribution costs.
PSI has advised the Series that during the six months ended
February 28, 1997,
it received approximately $17,300 in contingent deferred
sales charges imposed
upon certain redemptions by Class B and C shareholders.
PSI, PMF and PIC are indirect, wholly-owned subsidiaries of
The Prudential
Insurance Company of America.
The Series, along with other affiliated registered
investment companies (the
'Funds'), entered into a credit agreement (the 'Agreement')
on December 31, 1996
with an unaffiliated lender. The maximum commitment under
the Agreement is
$200,000,000. The Agreement expires on December 30, 1997.
Interest on any such
borrowings outstanding will be at market rates. The purpose
of the Agreement is
to serve as an alternative source of funding for capital
share redemptions. The
Series has not borrowed any amounts pursuant to the
Agreement as of February 28,
1997. The Funds pay a commitment fee at an annual rate of
.055 of 1% on the
unused portion of the credit facility. The commitment fee is
accrued and paid
quarterly on a pro-rata basis by the Funds.
- - ------------------------------------------------------------
- - --------------------
9
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) NORTH
CAROLINA SERIES
- - ------------------------------------------------------------
- - -------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly-owned
subsidiary of PMF,
serves as the Fund's transfer agent. During the six months
ended February 28,
1997, the Series incurred fees of approximately $12,600 for
the services of
PMFS. As of February 28, 1997, 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 28, 1997 were
$7,608,733 and
$9,931,637, respectively.
The cost basis of investments for federal income tax
purposes at February 28,
1997, was $57,281,485 and accordingly, net unrealized
appreciation of
investments for federal income tax purposes was $1,979,228
(gross unrealized
appreciation--$2,287,771; gross unrealized depreciation--
$308,543).
At February 28, 1997, the Portfolio sold 30 financial
futures contracts on the
Municipal Bond Index which expire in March 1997. The value
at disposition of
such contracts is $3,327,187. The value of such contracts on
February 28, 1997
was $3,368,531, thereby resulting in an unrealized gain of
$41,344.
- - ------------------------------------------------------------
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
28, 1997 and the fiscal year ended August 31, 1996, were as
follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- - ------------------------------------ ---------- --------
- - ----
<S> <C> <C>
Six months ended February 28, 1997:
Shares sold......................... 11,255 $
124,842
Shares issued in reinvestment of
dividends and distributions....... 53,642
597,983
Shares reacquired................... (226,407)
(2,523,246)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................. (161,510)
(1,800,421)
Shares issued upon conversion from
Class B........................... 180,128
2,016,639
---------- --------
- - ----
Net increase in shares
outstanding....................... 18,618 $
216,218
---------- --------
- - ----
---------- --------
- - ----
Year ended August 31, 1996:
Shares sold......................... 26,122 $
294,382
Shares issued in reinvestment of
dividends and distributions....... 77,298
872,346
Shares reacquired................... (371,852)
(4,173,584)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................. (268,432)
(3,006,856)
Shares issued upon conversion from
Class B........................... 438,352
4,936,059
---------- --------
- - ----
Net increase in shares
outstanding....................... 169,920 $
1,929,203
---------- --------
- - ----
---------- --------
- - ----
Class B
- - ------------------------------------
Six months ended February 28, 1997:
Shares sold......................... 49,101 $
549,593
Shares issued in reinvestment of
dividends and distributions....... 50,994
568,593
Shares reacquired................... (195,792)
(2,189,409)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................. (95,697)
(1,071,223)
Shares issued upon conversion from
Class B........................... (179,967)
(2,016,639)
---------- --------
- - ----
Net decrease in shares
outstanding....................... (275,664) $
(3,087,862)
---------- --------
- - ----
---------- --------
- - ----
</TABLE>
- - ------------------------------------------------------------
- - --------------------
10
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements (Unaudited) NORTH
CAROLINA SERIES
- - ------------------------------------------------------------
- - -------------------
<TABLE>
<CAPTION>
Class B Shares
Amount
- - ------------------------------------ ---------- --------
- - ----
<S> <C> <C>
Year ended August 31, 1996:
Shares sold......................... 184,643 $
2,097,677
Shares issued in reinvestment of
dividends
and distributions................. 90,870
1,026,914
Shares reacquired................... (617,133)
(6,946,194)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................. (341,620)
(3,821,603)
Shares reacquired upon conversion
into Class A...................... (437,963)
(4,936,059)
---------- --------
- - ----
Net decrease in shares
outstanding....................... (779,583) $
(8,757,662)
---------- --------
- - ----
---------- --------
- - ----
Class C Shares
Amount
- - ------------------------------------ ---------- --------
- - ----
Six months ended February 28, 1997:
Shares sold......................... 13 $
150
Shares issued in reinvestment of
dividends and distributions....... 144
1,605
---------- --------
- - ----
Net increase in shares
outstanding....................... 157 $
1,755
---------- --------
- - ----
---------- --------
- - ----
Year ended August 31, 1996:
Shares sold......................... 1,566 $
17,632
Shares issued in reinvestment of
dividends......................... 199
2,242
---------- --------
- - ----
Net increase in shares
outstanding....................... 1,765 $
19,874
---------- --------
- - ----
---------- --------
- - ----
</TABLE>
- - ------------------------------------------------------------
- - --------------------
11
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) NORTH CAROLINA
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class A
----
- - ------------------------------------------------------------
- - -----
Six
Months
Ended Year Ended August 31,
February 28, -------------------------------------------
- - ---------
1997 1996 1995 1994 1993
1992
----
- - -------- ------- ------- ------ ------ -
- - -----
<S> <C>
<C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................ $
11.06 $ 11.19 $ 11.06 $12.04 $11.37
$10.86
- - ------ ------- ------- ------ ------ -
- - -----
Income from investment operations
Net investment income...............................
.27(b) .53(b) .60(b) .61 .65
.67
Net realized and unrealized gain (loss) on
investment transactions..........................
.25 (.01) .13 (.76) .67
.51
- - ------ ------- ------- ------ ------ -
- - -----
Total from investment operations.................
.52 .52 .73 (.15) 1.32
1.18
- - ------ ------- ------- ------ ------ -
- - -----
Less distributions
Dividends from net investment income................
(.27) (.53) (.60) (.61) (.65)
(.67)
Distributions from net realized gains...............
(.16) (.12) -- (.22) --
- - --
- - ------ ------- ------- ------ ------ -
- - -----
Total distributions..............................
(.43) (.65) (.60) (.83) (.65)
(.67)
- - ------ ------- ------- ------ ------ -
- - -----
Net asset value, end of period...................... $
11.15 $ 11.06 $ 11.19 $11.06 $12.04
$11.37
- - ------ ------- ------- ------ ------ -
- - -----
- - ------ ------- ------- ------ ------ -
- - -----
TOTAL RETURN(c):....................................
4.75% 4.70% 6.86% (1.35)% 11.99%
11.12%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..................... $
28,538 $28,089 $26,519 $2,256 $1,777 $
917
Average net assets (000)............................ $
28,956 $27,628 $15,244 $2,067 $1,316 $
612
Ratios to average net assets:
Expenses, including distribution fees............
1.03%(a)(b) 1.03%(b) .98%(b) .88% .87%
.91%
Expenses, excluding distribution fees............
.93%(a)(b) .93%(b) .88%(b) .78% .77%
.81%
Net investment income............................
4.84%(a)(b) 4.78%(b) 5.25%(b) 5.31% 5.55%
5.90%
For Class A, B and C shares:
Portfolio turnover rate(d).......................
13% 23% 28% 17% 38%
36%
</TABLE>
- - ---------------
(a) Annualized.
(b) Net of fee waiver.
(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 and
distributions. Total returns for periods of less than a
full year are not
annualized.
(d) Portfolio turnover is calculated on the basis of the
Fund as a whole without
distinguishing between the classes of shares issued.
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements. 12
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) NORTH CAROLINA
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class B
----
- - ------------------------------------------------------------
- - --------
Six
Months
Ended Year Ended August 31,
February 28, -------------------------------------------
- - ------------
1997 1996 1995 1994 1993
1992
- - ------ ------- ------- ------- -------
- - -------
<S> <C>
<C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................ $
11.06 $ 11.19 $ 11.06 $ 12.05 $ 11.37
$ 10.86
- - ------ ------- ------- ------- -------
- - -------
Income from investment operations
Net investment income...............................
.25(b) .49(b) .55(b) .56 .60
.62
Net realized and unrealized gain (loss) on
investment transactions..........................
.26 (.01) .13 (.77) .68
.51
- - ------ ------- ------- ------- -------
- - -------
Total from investment operations.................
.51 .48 .68 (.21) 1.28
1.13
- - ------ ------- ------- ------- -------
- - -------
Less distributions
Dividends from net investment income................
(.25) (.49) (.55) (.56) (.60)
(.62)
Distributions from net realized gains...............
(.16) (.12) -- (.22) --
- - --
- - ------ ------- ------- ------- -------
- - -------
Total distributions..............................
(.41) (.61) (.55) (.78) (.60)
(.62)
- - ------ ------- ------- ------- -------
- - -------
Net asset value, end of period...................... $
11.16 $ 11.06 $ 11.19 $ 11.06 $ 12.05
$ 11.37
- - ------ ------- ------- ------- -------
- - -------
- - ------ ------- ------- ------- -------
- - -------
TOTAL RETURN(c):....................................
4.63% 4.28% 6.44% (1.82)% 11.62%
10.64%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..................... $
28,220 $31,029 $40,119 $69,448 $75,515
$63,573
Average net assets (000)............................ $
29,376 $35,605 $51,963 $73,606 $67,997
$60,751
Ratios to average net assets:
Expenses, including distribution fees............
1.43%(a)(b) 1.43%(b) 1.34%(b) 1.28% 1.27%
1.31%
Expenses, excluding distribution fees............
.93%(a)(b) .93%(b) .84%(b) .78% .77%
.81%
Net investment income............................
4.44%(a)(b) 4.37%(b) 5.10%(b) 4.89% 5.18%
5.58%
</TABLE>
- - ---------------
(a) Annualized.
(b) Net of fee waiver.
(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 and
distributions. Total returns for periods of less than a
full year are not
annualized.
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements. 13
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) NORTH CAROLINA
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class C
----
- - -----------------------------------------------------
August 1,
Six
Months 1994(d)
Ended Year Ended August 31, through
February 28, ------------------------- August 31,
1997 1996 1995 1994
- - ----- ----- ----- -----
<S> <C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................
$11.06 $11.19 $11.06 $11.09
- - ----- ----- ----- -----
Income from investment operations
Net investment income...............................
.23(b) .46(b) .52(b) .04
Net realized and unrealized gain (loss) on
investment transactions..........................
.26 (.01) .13 (.03)
- - ----- ----- ----- -----
Total from investment operations.................
.49 .45 .65 .01
- - ----- ----- ----- -----
Less distributions
Dividends from net investment income................
(.23) (.46) (.52) (.04)
Distributions from net realized gains...............
(.16) (.12) -- --
- - ----- ----- ----- -----
Total distributions..............................
(.39) (.58) (.52) (.04)
- - ----- ----- ----- -----
Net asset value, end of period......................
$11.16 $11.06 $11.19 $11.06
- - ----- ----- ----- -----
- - ----- ----- ----- -----
TOTAL RETURN(c):....................................
4.50% 4.03% 6.17% .02%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..................... $
75 $ 72 $ 53 $ 10
Average net assets (000)............................ $
74 $ 69 $ 32 $ 5
Ratios to average net assets:
Expenses, including distribution fees............
1.68%(a)(b) 1.68%(b) 1.63%(b) 1.67%(a)
Expenses, excluding distribution fees............
.93%(a)(b) .93%(b) .88%(b) .92%(a)
Net investment income............................
4.19%(a)(b) 4.14%(b) 4.59%(b) 5.06%(a)
</TABLE>
- - ---------------
(a) Annualized.
(b) Net of fee waiver.
(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 and
distributions. Total returns for periods of less than a
full year are not
annualized.
(d) Commencement of offering of Class C Shares.
- - ------------------------------------------------------------
- - --------------------
See Notes to Financial Statements. 14
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Supplemental Proxy Information NORTH CAROLINA
SERIES
- - ------------------------------------------------------------
- - --------------------
A Meeting of Shareholders of the Prudential Municipal
Series Fund was held on
Wednesday, October 30, 1996 at the offices of Prudential
Securities
Incorporated, One Seaport Plaza, New York, New York. The
meeting was held for
the following purposes:
(1) To elect Trustees as follows: Edward D. Beach, Eugene C.
Dorsey, Delayne
Dedrick Gold, Robert F. Gunia, Harry A. Jacobs, Jr.,
Donald D. Lennox,
Mendel A. Melzer, Thomas T. Mooney, Thomas H. O'Brien,
Richard A. Redeker,
Nancy H. Teeters and Louis A. Weil, III.
(2) Approval of amendment to the Fund's investment
restrictions to permit an
increase in the borrowing capabilities of the Fund.
The results of the proxy solicitation on the above
matters were as follows:
<TABLE>
<CAPTION>
Trustee/Matter
Votes for Votes against Abstentions
- - ----------- ------------- -----------
<S> <C>
<C> <C> <C>
(1) Edward D. Beach
370,817,756 0 16,169,234
Eugene C. Dorsey
371,804,474 0 15,182,516
Delayne Dedrick Gold
371,782,816 0 15,204,174
Robert F. Gunia
371,639,995 0 15,346,995
Harry A. Jacobs, Jr.
371,395,066 0 15,591,924
Donald D. Lennox
371,150,974 0 15,836,016
Mendel A. Melzer
371,811,918 0 15,175,072
Thomas T. Mooney
371,607,874 0 15,379,116
Thomas H. O'Brien
371,328,875 0 15,658,115
Richard A. Redeker
371,876,756 0 15,110,234
Nancy H. Teeters
371,775,376 0 15,211,614
Louis A. Weil, III
371,777,517 0 15,209,473
(2) Amendment relating to borrowing capabilities
259,440,223 31,557,793 17,488,974
</TABLE>
- - ------------------------------------------------------------
- - --------------------
15
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Robert F. Gunia
Harry A. Jacobs, Jr.
Donald D. Lennox
Mendel A. Melzer
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Louis A. Weil, III
Officers
Richard A. Redeker, President
Susan C. Cote, Vice President
Thomas Early, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Mutual Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
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 LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Auditors
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, NY 10022
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 28,
1997 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
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
BULK
RATE
U.S.
POSTAGE
PAID
Permit
6807
New
York, NY
74435M812
74435M820 MF126E2
74435M515 Cat# 642963Q
(ICON)
Prudential
Municipal
Series Fund
- - -------------
New Jersey Series
SEMI
ANNUAL
REPORT
Feb. 28, 1997
(LOGO)
<PAGE>
Prudential Municipal Series Fund
New Jersey Series
Performance At A Glance.
The six-months ending in February were rewarding ones for
municipal bond
investors. Bond prices rose as talk of higher interest rates
subsided (at
least temporarily) and inflation levels remained low. For
the six-month
reporting period ended February 28, 1997, we're pleased to
report that the
Prudential Municipal Series Fund -- New Jersey Series
provided attractive
tax-free yields. Our total returns were very competitive
with the average
New Jersey tax-free municipal bond fund, as measured by
Lipper Analytical
Services.
<TABLE>
Cumulative Total Returns1
As of 2/28/97
<CAPTION>
Six One Five
Since
Months Year
Years Inception2
<S> <C> <C> <C>
<C>
Class A 4.5% (4.4)4 4.2% (4.1)4
39.0% (37.9)4 68.8% (66.2)4
Class B 4.3 (4.2)4 3.7 (3.6)4
36.3 (35.2)4 93.7 (89.6)4
Class C 4.1 3.5 (3.4)4
N/A 15.9 (15.6)4
Class Z N/A N/A
N/A 3.2
Lipper NJ Muni Avg.3 4.5 4.4
39.3 ***
</TABLE>
<TABLE>
Average Annual Total Returns1
As of 3/31/97
<CAPTION>
One Five
Since
Year Years
Inception2
<S> <C> <C>
<C>
Class A 1.6% (1.5)4 5.9% (5.7)4
6.9% (6.7)4
Class B -0.6 (-0.7)4 6.0% (5.8)4
7.4 (7.2)4
Class C 3.1 (3.0)4 N/A
5.2 (5.1)4
</TABLE>
<TABLE>
<CAPTION>
Dividends & Yields
As of 2/28/97
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 $0.27 4.59%
7.66% (7.58)4 8.12% (8.03)4
Class B $0.26 4.33
7.23 (7.14)4 7.66 (7.57)4
Class C $0.24 4.08
6.81 (6.73)4 7.21 (7.13)4
Class Z $0.14 5.24
8.74 (8.66)4 9.27 (9.18)4
</TABLE>
Past performance is not indicative of future results.
Principal and investment
return will fluctuate so that an investor's shares, when
redeemed, may be
worth more or less than their original cost.
1Source: Prudential Mutual Fund Management and Lipper
Analytical Services. The
cumulative total returns do not take into account sales
charges. The average
annual returns do take into account applicable sales
charges. The Fund charges
a maximum front-end sales load of 3% for Class A shares and
a 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. Class Z shares have no service or
12b-1 fee. Class Z
shares have been in existence for less than one year, and
therefore no average
annual returns are presented.
2Inception dates: 1/22/90 Class A; 3/4/88 Class B; 8/1/94
Class C; 12/2/96
Class Z.
3The Lipper New Jersey Municipal Bond fund average includes
55 funds for six
months, 55 funds for one year, and 19 funds for five years.
4Without waiver of management fees and/or expense
subsidization, the Series'
average annual return and yields would have been lower, as
indicated in
parentheses ( ).
5Taxable equivalent yields reflect federal and applicable
state tax rates.
***The Lipper Since Inception category return for Class A
shares is 69.9%,
which includes nine funds; for Class B is 100.7% for five
funds and for Class
C is 17.2% for 40.
How Investments Compared.
(As of 2/28/97)
(GRAPH)
U.S. General General Taxable
Growth Bond Muni Debt Money
Funds Funds Funds Mkt 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
included
historical 20-year average annual returns. These returns
assume the
reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors
have received higher
historical total returns from stocks than from most other
invest-ments.
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.
Taxable 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.
<PAGE>
Marie Conti, Fund Manager
Portfolio
Manager's Report
(PHOTO)
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 can achieve its
investment
objective.
High Yield Bonds.
The Trustees adopted a new policy which permits your Series
to invest up to 30%
of total investments in bonds rated below investment grade
by Moody's and S&P.
High yield bonds, also known as "junk bonds," are subject to
greater market
and credit risks than investment grade bonds. Prudential
maintains a large
and experienced credit group which evaluates new purchases
and existing
holdings. By purchasing these securities, we seek to broaden
our investment
pool and enhance the Series' returns for you.
Strategy Session.
The municipal bond market moved in cycles during the
reporting period: Bond
prices rallied on news of slower economic growth and low
inflation; then sold
off when reports indicated the opposite. For example, in the
third quarter of
1996, bond prices rallied. Municipal bond interest rates
were 6.01% on October
24 and gradually declined to 5.80% in November, according to
the Bond Buyer's
Revenue Bond Index, a widely-watched industry barometer. The
start of 1997
brought news that the economy was accelerating. Fourth
quarter Gross Domestic
Product (GDP is the total value of all the goods and
services produced by the
economy and a generally accepted measure of economic growth)
surged 3.8%. Yet
inflation remained low. Interest rates then began a steady
climb upward as
bond prices fell slightly. Interest rates ended the
reporting period at 5.93%.
As you know, bond prices rise when interest rates fall, and
vice versa. Our
strategy over the past six months was to adjust the Series'
duration in order
to help it respond more effectively to interest rate
movements. When the
municipal bond market rallied last fall, we lengthened
duration. This allowed
your Series to profit as bond prices rose. Conversely, as
the bond market
slowed at year-end, we shortened the Series' duration. This
protected assets
as interest rates rose.
As the end of the reporting period neared, we shortened
Series' duration even
more to match or be slightly shorter than, the average New
Jersey tax-free
municipal bond fund. We did not want to be caught off guard
if the Federal
Reserve raised short-term interest rates.
Portfolio Breakdown.
Expressed as a percentage of
total investments as of 2/28/97.
(PIE CHART)
<PAGE>
What Went Well.
A Prudent Move.
We shortened Series' duration as the reporting period ended
in February in
anticipation of a possible increase in interest rates by the
Federal Reserve.
It was a prudent move. On March 25, 1997, the central bank
raised the federal
funds rate (what banks charge each other for overnight
loans) one-quarter of a
percentage point to 5.50%. It was the first increase in two
years.
The Federal Reserve explained it was acting to quell
"inflationary imbalances"
that could undermine the country's six-year economic
expansion. The action was
widely expected by investors. Indeed, Federal Reserve
Chairman Alan Greenspan
had been saying he would not rule out a "pre-emptive" strike
against
inflationary pressures for several weeks prior to the actual
rate increase.
Five Largest Issuers.
6.5% State of New Jersey
Transport Fund
4.2% Jersey City
General Obligation
3.5% Puerto Rico
Electric Power
3.2% Puerto Rico
Telephone Authority
2.9% New Jersey Economic
Development Authority
Expressed as a percentage of total net assets as of 2/28/97.
And Not So Well.
Is There Too Much Insurance?
The increasing use of bond insurance in the municipal market
is becoming a
concern of ours. Why? Because as more bonds are issued with
insurance, it
means fewer uninsured bonds are available. In past years,
uninsured bonds
offered us the opportunity to buy good quality credits
(usually rated A to
BBB) at attractive prices and yields. As this pool shrinks,
so too does the
opportunity for your Fund to purchase bonds that could
further enhance yield.
Jersey & Tax Cuts, Perfect Together?
Governor Christine Whitman continues to implement tax
reductions. After
cutting personal income taxes by 15%, a deduction for
property taxes is being
phased in over several years. To compensate for lost
revenues, the proposed
1998 state budget relies on a controversial plan to issue
bonds to finance an
unfunded pension liability. The size of the bond issuance
may be as large as
$3 billion. Ratings agencies may not look favorably on the
transaction. The
Garden State's credit rating by Moody's was Aa1 during the
reporting period.
Looking Ahead.
The Federal Reserve has raised short-term interest rates
once in 1997. Will
there be more increases in short-term interest rates?
Probably. Experience
tells us that changes in Federal Reserve monetary policy are
rarely one-shot
deals. Given present economic conditions, we believe one or
two additional
rate increases will most likely occur later this year. Of
course, no one knows
for sure. We have positioned the Series' duration to be
closer to, or slightly
shorter than, the average New Jersey tax-free municipal bond
fund. This will
give us the flexibility to respond if -- or more likely when
- - -- the Federal
Reserve acts to increase interest rates.
Portfolio Breakdown.
Expressed as a percentage of
total investments as of 2/28/97.
(PIE CHART)
- - ------------------------------------------------------------
- - ------------------
1
<PAGE>
President's Letter
April 10, 1997
(PHOTO)
We're On Your Side.
Dear Shareholder:
The first three months of the year were not good ones for
most U.S. stock and
bond investors. The Dow Jones Industrial Average was down
considerably from
its record high set in mid-March, and long-term interest
rates were at their
highest levels in six months. Not surprisingly, in the first
quarter of 1997
the average stock and bond mutual fund had negative returns
(for stock funds,
it was the first time since 1994).
The reasons behind the recent market decline have been well-
publicized --
higher interest rates and inflationary pressures. And while
we are watching
market developments closely, we are also very concerned
about you and how
you're dealing with events. We realize that staying the
course toward your
long-term investment goals isn't easy during such times of
uncertainty. Here
are a few thoughts that may help --
- - - Keep Your Expectations Realistic. The best investors know
that financial
markets rise and fall -- and so too, will the value of
their investments.
Over time, however, stocks have been shown to produce
very attractive
returns that were well ahead of inflation.
- - - Remember Your Time Horizon. If your investment goals are
long term (several
years or more), so should your time horizon. During this
period, it's not
unusual for stocks and bonds to experience several
periods of market
uncertainty.
- - - We're On Your Side. Your Prudential Securities Financial
Advisor or
Prudential Registered Representative can help you
understand what's
happening in the financial markets. They can assist you
in making informed
decisions based upon a thorough knowledge of your
financial needs and long-
term goals. Call him or her today.
Thank you for your continued confidence in Prudential mutual
funds. We'll do
everything we can to keep you informed and to earn your
trust.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
- - ------------------------------------------------------------
- - ------------------
2
<PAGE>
Portfolio of Investments PRUDENTIAL
MUNICIPAL SERIES FUND
as of February 28, 1997 (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--96.6%
- - ------------------------------------------------------------
- - ------------------------------------------------------------
- - ------
Atlantic City Mun. Utils. Auth. Rev., Wtr. Sys.
A-(c) 7.75% 5/01/17 $ 2,000(d) $
2,233,080
Atlantic City, Gen. Oblig., Ser. A
Baa1 Zero 11/01/06 1,490
925,767
Bayshore Regl. Sewage Auth. Rev., M.B.I.A.
Aaa 5.50 4/01/12 3,000
3,034,620
Bergen Cnty., Utils. Auth., Wtr. Poll. Ctrl. Rev., Ser. B,
F.G.I.C.
Aaa 5.75 12/15/05 1,000
1,070,400
Brick Twnshp., Mun. Util. Auth. Rev., F.G.I.C.
Aaa 5.50 12/01/03 1,000
1,053,480
Camden Cnty. Mun. Utility Auth. Ref., F.G.I.C.
Aaa 6.00 7/15/06 2,500
2,706,625
Cape May Cnty. Ind. Poll. Ctrl., Fin. Auth. Rev., M.B.I.A.
Aaa 6.80 3/01/21 2,615
3,068,964
Cinnaminson Sewage Auth. Rev.
NR 7.40 2/01/15 1,600(d)
1,758,496
Delaware River Port Auth., Penn. & New Jersey Rev., F.G.I.C.
Aaa 5.50 1/01/26 2,000
1,957,380
Edison Twnshp., Gen. Oblig., A.M.B.A.C.
Aaa 6.00 1/01/08 5,390
5,860,008
Egg Harbor Twnshp. Sch. Dist., Cert. of Part., M.B.I.A.
Aaa 7.40 4/01/02 1,000(d)
1,085,300
Egg Harbor Twnshp. Sch. Dist., F.S.A.
Aaa 4.75 2/15/09 1,010
963,803
Essex Cnty. Ref., Ser. A-1, A.M.B.A.C.
Aaa 5.375 9/01/10 2,500
2,508,950
Evesham Mun. Utils. Auth. Rev., Ser. B, M.B.I.A.
Aaa 7.00 7/01/10 2,000
2,145,020
Hammonton, Gen. Oblig., A.M.B.A.C.
Aaa 6.85 8/15/03 500
564,960
Hammonton, Gen. Oblig., A.M.B.A.C.
Aaa 6.85 8/15/04 500
569,705
Hammonton, Gen. Oblig., A.M.B.A.C.
Aaa 6.85 8/15/05 500
573,595
Hudson Cnty. Impvt. Auth., Solid Waste Sys. Rev.
BBB-(c) 7.10 1/01/20 2,050
2,063,038
Hudson Cnty. Impvt. Auth., Solid Waste Sys. Rev.
A+(c) 6.10 7/01/20 1,500
1,516,875
Jackson Twnshp. Sch. Dist., F.G.I.C.
Aaa 6.60 6/01/04 1,020
1,139,921
Jackson Twnshp. Sch. Dist., F.G.I.C.
Aaa 6.60 6/01/05 940
1,056,203
Jackson Twnshp. Sch. Dist., F.G.I.C.
Aaa 6.60 6/01/10 1,600
1,825,728
Jackson Twnshp. Sch. Dist., F.G.I.C.
Aaa 6.60 6/01/11 1,600
1,828,640
Jersey City,
Gen. Oblig., A.M.B.A.C.
Aaa 6.00 10/01/09 2,000
2,165,620
Gen. Oblig., A.M.B.A.C.
Aaa 6.00 10/01/10 2,760
2,978,730
Gen. Oblig., Ser. A, F.S.A.
Aaa 9.25 5/15/04 4,310
5,468,787
Lakewood Twnshp., Gen. Oblig., F.G.I.C.
Aaa 6.60 12/01/04 450
507,501
Lakewood Twnshp., Gen. Oblig., F.G.I.C.
Aaa 6.60 12/01/05 445
504,408
Lenape Regl. High Sch. Dist., Gen. Oblig., M.B.I.A.
Aaa 7.625 1/01/12 400
494,652
Mercer Cnty. Impvt. Auth. Rev.
Aa1 Zero 4/01/06 2,500
1,598,500
Middle Twnshp. Sch. Dist., F.G.I.C.
Aaa 7.00 7/15/05 1,200
1,383,000
Middlesex Cnty. New Jersey Utils. Auth. Sewer Rev. Refunding
Ser. A, F.G.I.C.
Aaa 5.375 9/15/15 2,250
2,220,053
Millburn Twnshp. Sch. Dist., Brd. of Ed.
Aaa 5.35 7/15/13 1,140
1,142,394
Millburn Twnshp. Sch. Dist., Brd. of Ed.
Aaa 5.35 7/15/14 1,135
1,140,811
Millburn Twnshp. Sch. Dist., Brd. of Ed.
Aaa 5.35 7/15/16 1,150
1,144,158
Millburn Twnshp. Sch. Dist., Brd. of Ed.
Aaa 5.35 7/15/17 1,150
1,143,997
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments PRUDENTIAL
MUNICIPAL SERIES FUND
as of February 28, 1997 (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>
- - ------------------------------------------------------------
- - ------------------------------------------------------------
- - ------
Monmouth Cnty. Impvt. Auth. Rev.
AA+(c) 6.55% 7/01/12 $ 4,065 $
4,401,338
Monmouth Cnty. Impvt. Auth. Rev.,
Govt. Loan, F.S.A.
Aaa 5.25 7/15/08 1,900
1,925,897
Govt. Loan, F.S.A.
Aaa 5.35 7/15/10 1,980
1,991,959
Water & Sewage Facs. Rev., M.B.I.A.
Aaa 5.00 2/01/13 1,600
1,532,144
Wtr. Treatment Fac., M.B.I.A.
Aaa 6.875 8/01/12 750
824,843
Morris Cnty. Gen'l. Impt. & Park
Aaa 5.00 7/15/14 3,180
3,068,827
Morris Cnty. Gen'l. Impt. & Park
Aaa 5.00 7/15/15 3,180
3,047,013
New Jersey Bldg. Auth. Rev., Garden St. Svg. Bonds, Ser. A
Aa Zero 6/15/03 890
665,079
New Jersey Econ. Dev. Auth. Wtr. Fac. Rev.
NR 9.023 11/01/29 5,000
5,012,500
New Jersey Econ. Dev. Auth. Rev.,
Ed. Testing Service, Ser. B, M.B.I.A.
Aaa 5.90 5/15/15 2,000
2,064,220
Ed. Testing Service, Ser. B, M.B.I.A.
Aaa 6.25 5/15/25 5,000
5,362,300
Nat'l. Assoc. of Accountants
NR 7.50 7/01/01 1,050
1,100,694
Nat'l. Assoc. of Accountants
NR 7.65 7/01/09 950
1,007,874
New Jersey Performing Arts Center Proj., Ser. C,
A.M.B.A.C. Aaa 5.00 6/15/15 3,320
3,148,090
New Jersey Performing Arts Center Proj., Ser. C,
A.M.B.A.C. Aaa 5.00 6/15/16 3,485
3,267,292
New Jersey Econ. Dist. Heating & Cool., Trigen Trenton Proj.
BBB-(c) 6.20 12/01/10 600
610,632
New Jersey Edl. Facs. Auth. Rev.,
Higher Educ. Facs. Trust Fund, Ser. A, A.M.B.A.C.
Aaa 5.125 9/01/10 1,200
1,187,664
Princeton Theological, Ser. B
Aaa 5.90 7/01/26 4,500
4,611,825
Richard Stockton College, Ser. F, A.M.B.A.C.
Aaa 5.40 7/01/27 1,000
970,890
Seton Hall Univ. Proj., Ser. D
Baa1 7.00 7/01/21 2,000
2,115,620
Trenton State College, Ser. A, M.B.I.A.
Aaa 5.00 7/01/16 3,450
3,242,034
Univ. of Medicine & Dentistry, Ser. B, A.M.B.A.C.
Aaa 5.25 12/01/15 1,500
1,461,465
Univ. of Medicine & Dentistry, Ser. B, A.M.B.A.C.
Aaa 5.25 12/01/25 500
475,775
New Jersey Hlth. Care Facs. Fin. Auth. Rev.,
Atlantic City Med. Ctr., Ser. C.
A3 6.80 7/01/11 2,500
2,697,925
East Orange Gen. Hosp., Ser. B
BBB+(c) 7.75 7/01/20 2,250
2,386,238
Helene Fuld Med. Ctr., Ser. C
A(c) 8.00 7/01/08 1,300
1,374,724
Helene Fuld Med. Ctr., Ser. C
A(c) 8.125 7/01/13 500
529,675
Intercare Hlth. Systems-JFK Ctr.
A3 7.50 7/01/07 1,000
1,049,740
Intercare Hlth. Systems-JFK Ctr.
A3 7.625 7/01/18 945
994,395
Jersey Shore Med. Ctr., A.M.B.A.C.
Aaa 6.00 7/01/09 1,465
1,558,540
Jersey Shore Med. Ctr., A.M.B.A.C.
Aaa 6.25 7/01/21 1,500
1,589,055
Kensington Cmnty. Med. Ctr., M.B.I.A.
Aaa 7.00 7/01/20 3,450
3,753,772
Rahway Hospital, Ser. B
Baa1 7.75 7/01/14 4,740
4,954,011
Robert Wood Johnson Univ., Ser. C, M.B.I.A.
Aaa 5.25 7/01/10 2,935
2,912,577
St. Joseph's Hosp. Med. Ctr., Ser. A
AAA(c) 5.70 7/01/11 4,375
4,424,175
Warren Hosp.
AA(c) 5.25 7/01/14 2,985
2,902,047
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments PRUDENTIAL
MUNICIPAL SERIES FUND
as of February 28, 1997 (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>
- - ------------------------------------------------------------
- - ------------------------------------------------------------
- - ------
New Jersey Indus. Poll. Ctrl. Fin. Auth. Rev., M.B.I.A.
Aaa 6.20% 8/01/30 $ 5,000 $
5,254,500
New Jersey St. Hsg. & Mtge. Fin. Agcy.,
Ser. D, M.B.I.A.
Aaa 7.70 10/01/29 3,280
3,442,590
Rental Housing, Ser. B
A+(c) 6.75 11/01/11 2,190
2,277,797
New Jersey St. Hwy. Auth., Garden St. Pkwy. Gen. Rev.
A1 6.20 1/01/10 3,035
3,322,475
New Jersey St. Tpke. Auth. Rev., Ser. C, M.B.I.A.
Aaa 6.50 1/01/16 835
935,275
New Jersey St. Tpke. Auth. Rev., Ser. C, M.B.I.A.
Aaa 6.50 1/01/09 1,000
1,123,220
New Jersey St. Trans. Trust Fund Auth. Trans. Sys., M.B.I.A.
Aaa 6.50 6/15/11 5,000
5,654,900
New Jersey St. Trans. Trust Fund Auth. Trans. Sys., Ser. A,
M.B.I.A.
Aaa 6.00 12/15/06 5,000
5,431,600
New Jersey St. Trans. Trust Fund Auth. Trans. Sys., Ser. B,
M.B.I.A.
Aaa 5.75 6/15/14 5,000
5,112,600
No. Hudson Swr. Auth., F.G.I.C.
AAA(c) 5.25 8/01/16 5,000
4,822,800
North Brunswick Twnshp.,
Brd. of Ed., Gen. Oblig.
AA(c) 6.80 6/15/06 350
402,255
Brd. of Ed., Gen. Oblig.
AA(c) 6.80 6/15/07 350
404,652
Gen. Oblig.
Aaa 6.40 5/15/10 545
587,494
Northfield Brd. of Ed., F.S.A
Aaa 5.375 7/15/14 1,390
1,378,296
Northfield Brd. of Ed., F.S.A
Aaa 5.375 7/15/15 1,470
1,450,493
Paterson Cnty., F.S.A.
Aaa 6.50 2/15/05 2,000
2,178,200
Port Auth. New York & New Jersey, Ser. 109
Aaa 5.375 7/15/27 1,500
1,436,130
Port Auth. New York & New Jersey, Ser. 94
A1 5.80 12/01/13 2,500
2,531,325
Port Auth. New York & New Jersey, Ser. 96, F.G.I.C.
Aaa 6.60 10/01/23 2,750
2,992,990
Puerto Rico Elec. Pwr. Auth. Rev.
Aaa 6.125 7/01/08 2,300
2,542,742
Puerto Rico Elec. Pwr. Auth. Rev.
Baa1 6.00 7/01/12 3,295
3,394,509
Puerto Rico Elec. Pwr. Auth. Rev., Ser. R
Baa1 6.25 7/01/17 2,800
2,908,080
Puerto Rico Hwy. Auth. Rev., Ser. R
Baa1 6.75 7/01/05 1,000(d)
1,099,690
Puerto Rico Hwy. Auth. Rev., Ser. S
Baa1 6.50 7/01/22 750(d)
835,770
Puerto Rico Tel. Auth. Rev., Ser. I, M.B.I.A.
Aaa 6.87 1/25/07 7,875
8,052,187
Rutgers St. Univ. Rev., Ser. A
A1 6.40 5/01/13 2,000
2,232,160
South Brunswick Twnshp., Wtr. & Swr. Utils., Gen. Impvt.
AA+(c) 6.90 8/01/05 850(d)
934,345
South Brunswick Twnshp., Wtr. & Swr. Utils., Gen. Impvt.
AA+(c) 6.90 8/01/06 850(d)
934,346
South River Sch. Dist., F.G.I.C.
Aaa 5.00 12/01/13 1,300
1,256,931
South River Sch. Dist., F.G.I.C.
Aaa 5.00 12/01/14 1,300
1,248,143
South River Sch. Dist., F.G.I.C.
Aaa 5.00 12/01/15 1,230
1,172,325
Sparta Twnshp. Brd. of Ed., M.B.I.A.
Aaa 5.75 9/01/14 1,000
1,022,770
Union City Sch. Impvt., F.S.A.
Aaa 6.375 11/01/08 1,545
1,729,581
Union Cnty. Utils. Auth., Solid Waste Rev., Ser. A
BB(c) 7.20 6/15/14 4,850
4,965,624
Virgin Islands Terr., Hugo Ins. Claims Fund Proj., Ser. 91
NR 7.75 10/01/06 1,750
1,902,285
West Morris Regl. High Sch. Dist., Cert. of Part., B.I.G.
Aaa 7.50 3/15/09 1,500
1,587,300
West New York & New Jersey Mun. Util. Auth. Swr. Rev.,
F.G.I.C.
Aaa 5.125 12/15/17 2,050
1,919,128
West Windsor Regional Sch. Dist., F.G.I.C.
Aaa 5.25 12/01/05 1,000
1,035,410
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 5
<PAGE>
Portfolio of Investments PRUDENTIAL
MUNICIPAL SERIES FUND
as of February 28, 1997 (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>
- - ------------------------------------------------------------
- - ------------------------------------------------------------
- - ------
West Windsor Regional Sch. Dist., F.G.I.C.
Aaa 5.50% 12/01/13 $ 2,600 $
2,618,668
West Windsor Regional Sch. Dist., F.G.I.C.
Aaa 5.50 12/01/14 2,700
2,708,451
- - ------------
Total long-term investments
(cost $234,627,121)
244,466,055
- - ------------
SHORT-TERM INVESTMENTS--2.4%
Port Auth. of New York & New Jersey,
Ser. 1, F.R.D.D.
VMIG1 3.50 3/03/97 300
300,000
Ser. 4, F.R.D.D.
VMIG1 3.50 3/03/97 5,900
5,900,000
- - ------------
Total short-term investments
(cost $6,200,000)
6,200,000
- - ------------
Expiration
OUTSTANDING CALL OPTION PURCHASED(h)
Date Contracts(g)
- - ---------- ---------
U.S. Treasury Bond Futures, expiring Mar. '97 @$116.00
(cost $72,500)
NR -- 3/22/97 250
3,906
- - ------------
Total Investments--99.0%
(cost $240,899,621; Note 4)
250,669,961
Other assets in excess of liabilities--1.0%
2,432,368
- - ------------
Net Assets--100%
$253,102,329
- - ------------
- - ------------
</TABLE>
- - ---------------
(a) The following abbreviations are used in portfolio
descriptions:
A.M.B.A.C.--American Municipal Bond Assurance
Corporation.
B.I.G.--Bond Investors Guaranty Insurance Company.
F.G.I.C.--Financial Guaranty Insurance Company.
F.R.D.D.--Floating Rate (Daily) Demand Note (b).
F.S.A.--Financial Security Assurance.
M.B.I.A.--Municipal Bond Insurance Association.
(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.
(g) One contract equals $1,000 face value.
(h) Non-income producing securities.
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. 6
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL
MUNICIPAL SERIES FUND
(Unaudited) NEW JERSEY
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
Assets
February 28, 1997
<S>
<C>
Investments, at value (cost
$240,899,621)...............................................
................. $ 250,669,961
Interest
receivable..................................................
.................................... 3,160,912
Receivable for Series shares
sold........................................................
................ 146,559
Other
assets......................................................
....................................... 6,085
- - -----------------
Total
assets......................................................
.................................... 253,983,517
- - -----------------
Liabilities
Bank
overdraft...................................................
........................................
13,418
Payable for Series shares
reacquired..................................................
................... 514,981
Dividends
payable.....................................................
................................... 110,500
Management fee
payable.....................................................
.............................. 88,089
Distribution fee
payable.....................................................
............................ 71,308
Accrued expenses and other
liabilities.................................................
.................. 68,839
Due to broker - variation
margin......................................................
................... 11,094
Deferred trustees'
fees........................................................
.......................... 2,959
- - -----------------
Total
liabilities.................................................
.................................... 881,188
- - -----------------
Net
Assets......................................................
......................................... $
253,102,329
- - -----------------
- - -----------------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
........ $ 232,621
Paid-in capital in excess of
par.........................................................
............. 243,186,264
- - -----------------
243,418,885
Accumulated net realized loss on
investments.................................................
......... (126,052)
Net unrealized appreciation on
investments.................................................
........... 9,809,496
- - -----------------
Net assets, February 28,
1997........................................................
.................... $ 253,102,329
- - -----------------
- - -----------------
Class A:
Net asset value and redemption price per share
($86,929,409 / 7,990,765 shares of beneficial interest
issued and outstanding).....................
$10.88
Maximum sales charge (3% of offering
price)......................................................
..... .34
- - -----------------
Maximum offering price to
public......................................................
................ $11.22
- - -----------------
- - -----------------
Class B:
Net asset value, offering price and redemption price per
share
($164,270,176 / 15,096,509 shares of beneficial
interest issued and outstanding)...................
$10.88
- - -----------------
- - -----------------
Class C:
Net asset value, offering price and redemption price per
share
($1,902,545 / 174,843 shares of beneficial interest
issued and outstanding)........................
$10.88
- - -----------------
- - -----------------
Class Z:
Net asset value, offering price and redemption price per
share
($199.18 / 18.297 shares of beneficial interest issued
and outstanding)............................
$10.89
- - -----------------
- - -----------------
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 7
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
MUNICIPAL SERIES FUND
NEW JERSEY SERIES
Statement of Operations (Unaudited)
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income February 28,
1997
<S> <C>
Income
Interest................................ $ 7,483,006
--------------
- - ---
Expenses
Management fee.......................... 645,814
Distribution fee--Class A............... 42,161
Distribution fee--Class B............... 430,070
Distribution fee--Class C............... 7,407
Custodian's fees and expenses........... 62,500
Transfer agent's fees and expenses...... 52,000
Reports to shareholders................. 45,000
Registration fees....................... 19,500
Audit fees and expenses................. 5,000
Legal fees and expenses................. 5,500
Trustees' fees.......................... 1,800
Miscellaneous........................... 5,960
--------------
- - ---
Total expenses....................... 1,322,712
Less: Management fee waiver.............
(64,581)
Custodian fee credit................
(4,579)
--------------
- - ---
Net expenses......................... 1,253,552
--------------
- - ---
Net investment income...................... 6,229,454
--------------
- - ---
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions................. 933,363
Financial futures contracts.............
(876,944)
--------------
- - ---
56,419
--------------
- - ---
Net change in unrealized appreciation/depreciation of:
Investments............................. 4,711,477
Financial futures contracts............. 39,156
--------------
- - ---
4,750,633
--------------
- - ---
Net gain on investments.................... 4,807,052
--------------
- - ---
Net Increase in Net Assets
Resulting from Operations.................. $11,036,506
--------------
- - ---
--------------
- - ---
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
MUNICIPAL SERIES FUND
NEW JERSEY SERIES
Statement of Changes in Net Assets (Unaudited)
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year
Ended
Increase (Decrease) February 28, August
31,
in Net Assets 1997 1996
<S> <C> <C>
Operations
Net investment income.......... $ 6,229,454 $
13,949,332
Net realized gain on investment
transactions................ 56,419
7,196,617
Net change in unrealized
appreciation/depreciation of
investments................. 4,750,633
(8,712,631)
------------ --------
- - ----
Net increase in net assets
resulting from operations... 11,036,506
12,433,318
------------ --------
- - ----
Dividends and distributions (Note 1):
Dividends from net investment
income
Class A..................... (2,150,531)
(3,208,681)
Class B..................... (4,035,053)
(10,661,812)
Class C..................... (43,867)
(78,839)
Class Z..................... (3)
- - --
------------ --------
- - ----
(6,229,454)
(13,949,332)
------------ --------
- - ----
Distributions from net realized
gains
Class A..................... (1,547,247)
(241,413)
Class B..................... (2,891,331)
(912,215)
Class C..................... (34,085)
(5,692)
Class Z..................... (3)
- - --
------------ --------
- - ----
(4,472,666)
(1,159,320)
------------ --------
- - ----
Series share transactions (net of
share conversions) (Note 5):
Net proceeds from shares
sold........................ 4,740,691
12,763,152
Net asset value of shares
issued in reinvestment of
dividends and
distributions............... 6,571,716
9,004,603
Cost of shares reacquired...... (23,313,382)
(51,693,450)
------------ --------
- - ----
Net decrease in net assets from
Series share transactions... (12,000,975)
(29,925,695)
------------ --------
- - ----
Total decrease.................... (11,666,589)
(32,601,029)
Net Assets
Beginning of period............... 264,768,918
297,369,947
------------ --------
- - ----
End of period..................... $253,102,329
$264,768,918
------------ --------
- - ----
------------ --------
- - ----
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 8
<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.
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.
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.
- - ------------------------------------------------------------
- - --------------------
-----
9
<PAGE>
Notes to Financial Statements PRUDENTIAL
MUNICIPAL SERIES FUND
(Unaudited) NEW JERSEY
SERIES
- - ------------------------------------------------------------
- - --------------------
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 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 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 LLC
('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. PMF has agreed
to waive a portion (.05 of 1% of the Series' average daily
net assets) of its
management fee, which amounted to $64,581 ($0.003 per share)
for the six months
ended February 28, 1997.
The Fund has a distribution agreement with Prudential
Securities Incorporated
('PSI'), which acts as the distributor of the Class A, Class
B, Class C and
Class Z shares of the Fund. The Fund compensates 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 PSI. The distribution fees are accrued daily and
payable monthly. No
distribution or service fees are paid to PSI as distributor
for the Class Z
shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensates
PSI 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 28, 1997.
PSI has advised the Series that they have received
approximately $2,600 in
front-end sales charges resulting from sales of Class A
shares during the six
months ended February 28, 1997. From these fees, PSI paid
such sales charges to
affiliated broker-dealers, which in turn paid commissions to
salespersons and
incurred other distribution costs.
PSI has advised the Series that during the six months ended
February 28, 1997,
it received approximately $108,000 and $300 in contingent
deferred sales charges
imposed upon certain redemptions by Class B and Class C
shareholders,
respectively.
PSI, PMF and PIC are indirect, wholly-owned subsidiaries of
The Prudential
Insurance Company of America.
The Series, along with other affiliated registered
investment companies (the
'Funds'), entered into a credit agreement (the 'Agreement')
on December 31, 1996
with an unaffiliated lender. The maximum commitment under
the Agreement is
$200,000,000. The Agreement expires on December 30, 1997.
Interest on any such
borrowings outstanding will be at market rates. The purpose
of the Agreement is
to serve as an alternative source of funding for capital
share redemptions. The
Series has not borrowed any amounts pursuant to the
Agreement as of February 28,
1997. The Funds pay a commitment fee at an annual rate of
.055 of 1% on the
unused portion of the credit facility. The commitment fee is
accrued and paid
quarterly on a pro-rata basis by the Funds.
- - ------------------------------------------------------------
- - --------------------
-----
10
<PAGE>
Notes to Financial Statements PRUDENTIAL
MUNICIPAL SERIES FUND
(Unaudited) NEW JERSEY
SERIES
- - ------------------------------------------------------------
- - --------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly-owned
subsidiary of PMF,
serves as the Fund's transfer agent. During the six months
ended February 28,
1997, the Series incurred fees of approximately $48,000 for
the services of
PMFS. As of February 28, 1997, approximately $8,000 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 28, 1997,
were $26,721,453 and
$44,863,477, respectively.
The cost basis of investments for federal income tax
purposes at February 28,
1997, was $240,899,621 and accordingly, net unrealized
appreciation of
investments for federal income tax purposes was $9,770,340
(gross unrealized
appreciation--$10,488,545; gross unrealized depreciation--
$718,205).
At February 28, 1997, the Portfolio sold 71 financial
futures contracts on the
Municipal Bond Index which expire in March 1997. The value
at disposition of
such contracts is $7,874,344. The value of such comtracts on
February 28, 1997
was $7,913,500, thereby resulting in an unrealized gain of
$39,156.
- - ------------------------------------------------------------
Note 5. Capital
The Series offers Class A, Class B, Class C and Class Z
shares. Class A shares
are sold with a front-end sales charge of up to 3%. Class B
shares are sold with
a contingent deferred sales charge which declines from 5% to
zero depending on
the period of time the shares are held. Class C shares are
sold with a
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.
Effective December 6, 1996 the Series commenced offering
Class Z shares. Class Z
shares are not subject to any sales or redemption charge and
are offered
exclusively for sale to a limited group of investors.
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
28, 1997 and fiscal year ended August 31, 1996 were as
follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- - ------------------------------------ ---------- --------
- - ----
<S> <C> <C>
Six months ended February 28, 1997:
Shares sold......................... 55,604 $
608,777
Shares issued in reinvestment
of dividends and distributions.... 210,738
2,298,349
Shares reacquired................... (775,886)
(8,479,505)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................. (509,544)
(5,572,379)
Shares issued upon conversion from
Class B........................... 1,646,154
18,074,236
---------- --------
- - ----
Net increase in shares
outstanding....................... 1,136,610 $
12,501,857
---------- --------
- - ----
---------- --------
- - ----
Year ended August 31, 1996:
Shares sold......................... 148,515 $
1,647,737
Shares issued in reinvestment
of dividends...................... 190,011
2,098,434
Shares reacquired................... (1,234,733)
(13,625,430)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................. (896,207)
(9,879,259)
Shares issued upon conversion from
Class B........................... 3,227,199
35,525,116
---------- --------
- - ----
Net increase in shares
outstanding....................... 2,330,992 $
25,645,857
---------- --------
- - ----
---------- --------
- - ----
<CAPTION>
Class B
- - ------------------------------------
Six months ended February 28, 1997:
Shares sold......................... 368,878 $
4,030,046
Shares issued in reinvestment
of dividends and distributions.... 385,604
4,206,452
Shares reacquired................... (1,335,316)
(14,605,062)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................. (580,834)
(6,368,564)
Shares reacquired upon conversion
into Class A...................... (1,646,154)
(18,074,236)
---------- --------
- - ----
Net decrease in shares
outstanding....................... (2,226,988)
$(24,442,800)
---------- --------
- - ----
---------- --------
- - ----
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
11
<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, 1996:
Shares sold......................... 917,780 $
10,139,469
Shares issued in reinvestment
of dividends...................... 617,603
6,835,852
Shares reacquired................... (3,405,389)
(37,508,650)
---------- --------
- - ----
Net decrease in shares outstanding
before conversion................. (1,870,006)
(20,533,329)
Shares reacquired upon conversion
into Class A...................... (3,227,199)
(35,525,116)
---------- --------
- - ----
Net decrease in shares
outstanding....................... (5,097,205)
$(56,058,445)
---------- --------
- - ----
---------- --------
- - ----
<CAPTION>
Class C
- - ------------------------------------
Six months ended February 28, 1997:
Shares sold......................... 9,279 $
101,668
Shares issued in reinvestment
of dividends and distributions.... 6,134
66,912
Shares reacquired................... (20,997)
(228,815)
---------- --------
- - ----
Net decrease in shares
outstanding....................... (5,584) $
(60,235)
---------- --------
- - ----
---------- --------
- - ----
Year ended August 31, 1996:
Shares sold......................... 88,262 $
975,946
Shares issued in reinvestment
of dividends...................... 6,369
70,317
Shares reacquired................... (51,020)
(559,370)
---------- --------
- - ----
Net increase in shares
outstanding....................... 43,611 $
486,893
---------- --------
- - ----
---------- --------
- - ----
<CAPTION>
Class Z
- - ------------------------------------
December 6, 1996(a) through
February 28, 1997:
Shares sold......................... 18 $
200
Shares issued in reinvestment
of dividends...................... --
3
Shares reacquired................... --
- - --
---------- --------
- - ----
Net increase in shares
outstanding....................... 18 $
203
---------- --------
- - ----
---------- --------
- - ----
</TABLE>
- - ---------------
(a) Commencement of offering of Class Z shares.
- - ------------------------------------------------------------
- - --------------------
-----
12
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) NEW JERSEY
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class A
-------------
- - -----------------------------------------------------------
Six Months
Ended
Year Ended August 31,
February 28,
- - -------------------------------------------------------
1997
1996 1995 1994 1993 1992
------
- - ------- ------- ------- ------- -------
<S> <C>
<C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....... $ 10.87
$ 10.98 $ 10.81 $ 11.74 $ 11.15 $ 10.73
------
- - ------- ------- ------- ------- -------
Income from investment operations
Net investment income(b)................... .28
.57 .61 .61 .64 .67
Net realized and unrealized gain (loss) on
investment transactions................. .20
(.07) .17 (.75) .71 .51
------
- - ------- ------- ------- ------- -------
Total from investment operations........ .48
.50 .78 (.14) 1.35 1.18
------
- - ------- ------- ------- ------- -------
Less distributions
Dividends from net investment income....... (.28)
(.57) (.61) (.61) (.64) (.67)
Distributions from net realized gains on
investment transactions................. (.19)
(.04) -- (.18) (.12) (.09)
------
- - ------- ------- ------- ------- -------
Total distributions..................... (.47)
(.61) (.61) (.79) (.76) (.76)
------
- - ------- ------- ------- ------- -------
Net asset value, end of period............. $ 10.88
$ 10.87 $ 10.98 $ 10.81 $ 11.74 $ 11.15
------
- - ------- ------- ------- ------- -------
------
- - ------- ------- ------- ------- -------
TOTAL RETURN(c):........................... 4.48%
4.63% 7.55% (1.27)% 12.57% 11.35%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............ $ 86,929
$74,492 $49,666 $14,774 $15,501 $11,941
Average net assets (000)................... $ 85,021
$61,837 $30,290 $15,334 $13,444 $ 9,759
Ratios to average net assets:(b)
Expenses, including distribution fees...
.70%(a) .67% .55% .58% .61%
.48%
Expenses, excluding distribution fees...
.60%(a) .57% .45% .48% .51%
.38%
Net investment income...................
5.10%(a) 5.19% 5.65% 5.42% 5.63%
6.14%
For Class A, B, C and Z shares:
Portfolio turnover rate(d).............. 11%
62% 37% 34% 32% 38%
- - ---------------
</TABLE>
(a) Annualized.
(b) Net of fee waiver.
(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 and
distributions. Total returns for periods of less than a
full year are not
annualized.
(d) Portfolio turnover is calculated on the basis of the
Fund as a whole without
distinguishing between the classes of shares issued.
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 13
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) NEW JERSEY
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class B
-------------
- - ------------------------------------------------------------
- - ----
Six Months
Ended
Year Ended August 31,
February 28,
- - ------------------------------------------------------------
1997
1996 1995 1994 1993 1992
------------
- - -------- -------- -------- -------- --------
<S> <C>
<C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....... $ 10.87
$ 10.98 $ 10.81 $ 11.74 $ 11.15 $ 10.73
------------
- - -------- -------- -------- -------- --------
Income from investment operations
Net investment income(b)................... .26
.53 .57 .56 .59 .63
Net realized and unrealized gain (loss) on
investment transactions................. .20
(.07) .17 (.75) .71 .51
------------
- - -------- -------- -------- -------- --------
Total from investment operations........ .46
.46 .74 (.19) 1.30 1.14
------------
- - -------- -------- -------- -------- --------
Less distributions
Dividends from net investment income....... (.26)
(.53) (.57) (.56) (.59) (.63)
Distributions from net realized gains on
investment transactions................. (.19)
(.04) -- (.18) (.12) (.09)
------------
- - -------- -------- -------- -------- --------
Total distributions..................... (.45)
(.57) (.57) (.74) (.71) (.72)
------------
- - -------- -------- -------- -------- --------
Net asset value, end of period............. $ 10.88
$ 10.87 $ 10.98 $ 10.81 $ 11.74 $ 11.15
------------
- - -------- -------- -------- -------- --------
------------
- - -------- -------- -------- -------- --------
TOTAL RETURN(c):........................... 4.27%
4.22% 7.12% (1.67)% 12.12% 10.93%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............ $164,270
$188,315 $246,202 $323,077 $351,878 $295,781
Average net assets (000)................... $173,454
$222,235 $274,995 $343,941 $316,372 $269,318
Ratios to average net assets:(b)
Expenses, including distribution fees...
1.10%(a) 1.07% .95% .98% 1.01%
.88%
Expenses, excluding distribution fees...
.60%(a) .57% .45% .48% .51%
.38%
Net investment income...................
4.69%(a) 4.80% 5.30% 5.02% 5.23%
5.74%
- - ---------------
</TABLE>
(a) Annualized.
(b) Net of fee waiver.
(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 and
distributions. Total returns for periods of less than a
full year are not
annualized.
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 14
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) NEW JERSEY
SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Class C Class Z
-------------
- - ---------------------------------------- ------------
August 1, December 6,
Six Months
1994(d) 1996(e)
Ended
Year Ended August 31, Through Through
February 28,
- - --------------------- August 31, February 28,
1997
1996 1995 1994 1997
------------
- - -------- -------- ---------- ------------
<S> <C>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....... $10.87
$ 10.98 $ 10.81 $10.83 $ 11.10
-----
- - -------- -------- ----- ------
Income from investment operations
Net investment income(b)................... .24
.50 .54 .04 .13
Net realized and unrealized gain (loss) on
investment transactions................. .20
(.07) .17 (.02) (.02)
-----
- - -------- -------- ----- ------
Total from investment operations........ .44
.43 .71 .02 .11
-----
- - -------- -------- ----- ------
Less distributions
Dividends from net investment income....... (.24)
(.50) (.54) (.04) (.13)
Distributions from net realized gains on
investment transactions................. (.19)
(.04) -- -- (.19)
-----
- - -------- -------- ----- ------
Total distributions..................... (.43)
(.54) (.54) (.04) (.32)
-----
- - -------- -------- ----- ------
Net asset value, end of period............. $10.88
$ 10.87 $ 10.98 $10.81 $ 10.89
-----
- - -------- -------- ----- ------
-----
- - -------- -------- ----- ------
TOTAL RETURN(c):........................... 4.14%
3.96% 6.86% 0.14% 3.17%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............ $1,903
$ 1,961 $ 1,502 $ 240 $ 199(f)
Average net assets (000)................... $1,991
$ 1,735 $ 790 $ 11 $ 198(f)
Ratios to average net assets:(b)
Expenses, including distribution fees... 1.35%(a)
1.32% 1.20% 1.29%(a) .60%(a)
Expenses, excluding distribution fees... .60%(a)
.57% .45% .54%(a) .60%(a)
Net investment income................... 4.44%(a)
4.54% 4.99% 5.06%(a) 2.51%(a)
- - ---------------
</TABLE>
(a) Annualized.
(b) Net of fee waiver.
(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 and
distributions. Total returns for periods of less than a
full year are not
annualized.
(d) Commencement of offering of Class C shares.
(e) Commencement of offering of Class Z shares.
(f) Amounts are actual and not rounded to the nearest
thousand.
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 15
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Supplemental Proxy Information NEW JERSEY
SERIES
- - ------------------------------------------------------------
- - --------------------
A Meeting of Shareholders of the Prudential Municipal
Series Fund was held
on Wednesday, October 30, 1996 at the offices of Prudential
Securities
Incorporated, One Seaport Plaza, New York, New York. The
meeting was held for
the following purposes:
(1) To elect Trustees as follows: Edward D. Beach, Eugene C.
Dorsey, Delayne
Dedrick Gold, Robert F. Gunia, Harry A. Jacobs, Jr.,
Donald D. Lennox,
Mendel A. Melzer, Thomas T. Mooney, Thomas H. O'Brien,
Richard A. Redeker,
Nancy H. Teeters and Louis A. Weil, III.
(2) Approval of an amendment to the Fund's investment
restrictions to permit an
increase in the borrowing capabilities of the Fund.
The results of the proxy solicitation on the above
matters were as follows:
<TABLE>
<CAPTION>
Trustee/Matter
Votes for Votes against Abstentions
- - ----------- ------------- -----------
<C> <S>
<C> <C> <C>
(1) Edward D. Beach
370,817,756 0 16,169,234
Eugene C. Dorsey
371,804,474 0 15,182,516
Delayne Dedrick Gold
371,782,816 0 15,204,174
Robert F. Gunia
371,639,995 0 15,346,995
Harry A. Jacobs, Jr.
371,395,066 0 15,591,924
Donald D. Lennox
371,150,974 0 15,836,016
Mendel A. Melzer
371,811,918 0 15,175,072
Thomas T. Mooney
371,607,874 0 15,379,116
Thomas H. O'Brien
371,328,875 0 15,658,115
Richard A. Redeker
371,876,756 0 15,110,234
Nancy H. Teeters
371,775,376 0 15,211,614
Louis A. Weil, III
371,777,517 0 15,209,473
(2) Amendment relating to borrowing capabilities
259,440,223 31,557,793 17,488,974
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
16
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Robert F. Gunia
Harry A. Jacobs, Jr.
Donald D. Lennox
Mendel A. Melzer
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Louis A. Weil, III
Officers
Richard A. Redeker, President
Susan C. Cote, Vice President
Thomas Early, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Mutual Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
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 LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Auditors
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, NY 10022
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 28,
1997 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
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
BULK RATE
U.S. POSTAGE
PAID
Permit 6807
New York, NY
74435M788
74435M796 MF138E2
74435M531 Cat# 642874P
74435M432
(ICON)
Prudential
Municipal
Series Fund
- - --------------------
New York
Money Market Series
SEMI
ANNUAL
REPORT
Feb. 28, 1997
(LOGO)
<PAGE>
Prudential Municipal Series Fund
New York Money Market Series
Performance At A Glance.
During the past six months, the Prudential Municipal Series
Fund -- New York
Money Market Series produced returns which were in line with
the average New
York tax-free money market fund. The Series' 7-day current
yield on February
28, 1997 was 2.70%, which was equivalent to a taxable yield
of 4.80% for
individuals in the highest federal and state income tax
brackets.
<TABLE>
Fund Facts
As of 2/28/97
<CAPTION>
7-Day Net Asset Taxable
Equivalent Yield1 Weighted Avg. Total Net
Current Yld. Value @31% @36%
@39.6% Maturity Assets (mil.)
<S> <C> <C> <C> <C>
<C> <C> <C>
NY Money
Market Fund 2.70% $1.00 4.20% 4.53%
4.80% 54 Days $329.5
IBC Financial Data
NY Tax-Exempt
Fund Avg.2 2.75 1.00 4.28 4.61
4.89 49 Days N/A
</TABLE>
Note: Yields will fluctuate from time to time and past
performance is not
indicative 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 36
funds in the
International Business Communications Financial Data New
York tax-exempt
money market fund category as of February 28, 1997.
Tax-Free Money Fund Yields Have Leveled Off.
Prudential New York Money Market Series
IBC Financial Data New York Tax-Free Money Fund Avg.
(GRAPH)
Weekly 7-day current yields. Past performance is not
indicative
of future results.
How Investments Compared.
(As of 2/28/97)
(GRAPH)
U.S. General General Taxable
Growth Bond Muni Debt Money
Funds Funds Funds Mkt 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
included
historical 20-year average annual returns. These returns
assume the
reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors
have received higher
historical total returns from stocks than from most other
invest-ments.
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.
Taxable 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.
<PAGE>
Colleen Meehan, Fund Manager
Portfolio
Manager's Report
(PHOTO)
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
bonds 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). There can be no assurance that the
Series will achieve
its investment objective.
A Word About Quality.
Your Series will typically purchase securities with
maturities of 13 months
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.
Strategy Session.
Waiting Out the Fed.
Short-term municipal markets were fairly quiet over the past
six months ending
in February. Interest rates fluctuated far less than they
did earlier in 1996,
as investors came to realize that the Federal Reserve would
leave interest
rates unchanged for the remainder of the year. Of course,
the Federal Reserve
seeks to promote moderate, non-inflationary growth by
raising or lowering the
federal funds rate (what banks charge each other for
overnight loans).
Correctly anticipating these moves is one way your Series
seeks to enhance
tax-free return.
The federal funds rate remained unchanged at 5.25%
throughout the reporting
period. On March 25, 1997, however, the Federal Reserve
raised the rate 25
basis points (a basis point is 1/100th of a percentage
point) to 5.50%. It
was the first increase in two years. The central bank
explained it was moving
to quell "inflationary imbalances" that could undermine the
country's six-year
economic expansion. The move was expected. Indeed, Federal
Reserve Chairman
Alan Greenspan had been saying he would not rule out a "pre-
emptive" strike
against inflationary pressures for several weeks prior to
the actual rate
increase.
Our strategy over the past six months was to adjust the
Series' weighted
average maturity (WAM) in anticipation of market conditions.
WAM measures the
sensitivity of the Series' underlying securities to changing
interest rates.
When interest rates are expected to rise, WAM is usually
shortened (we buy
shorter maturity securities) so we may be in position to buy
new securities
at higher yields. Conversely, when rates are expected to
fall, WAM is
lengthened (we buy longer maturity securities) to preserve
higher yields
for you.
Our strategy was to gradually position the Fund's WAM
shorter than that of the
average New York tax-free money market fund. The benefits
were twofold: It
would have allowed us to take advantage of higher interest
rates if the
Federal Reserve moved (it didn't); and positioned us for
seasonal redemptions
in December that also produced higher rates (which did
occur). We lengthened
WAM at year-end to lock-in the higher yields as rates
declined in January. As
the reporting period ended, WAM was moved closer to the
average tax-free money
market fund in anticipation of a rate increase by the
Federal Reserve, which
did occur on March 25.
What Went Well.
Hunting For Value.
We hunted for value and found it in pre-refunded securities,
AMT paper and
insured first-year maturity securities.
- - - At times, pre-refunded securities were attractively
priced relative to
Treasurys, so we purchased them. Pre-refunded bonds are
backed by U.S.
government securities and are rated "Aaa," by Moody's or
"AAA" by Standard
and Poor's.
- - - We continued to buy AMT paper (so-called because these
securities are
subject to the federal alternative minimum tax). AMT yields
were attractive --
up to 15 basis points higher than non-AMT investments. It
remained a useful
tool for us.
- - - We also found value in buying first-year serial
securities of longer term
bonds. Under this arrangement, we bought portions of 30-year
bonds that
matured in 12 months. The prices and yields were very
attractive and the
securities were also insured.
Looking Ahead.
The Federal Reserve has raised short-term interest rates
once in 1997. Will
there be more increases in short-term interest rates?
Probably. Our past
experience tells us that changes in Federal Reserve monetary
policy are
rarely one-shot deals. Given present economic conditions, we
believe one or
two additional rate increases will most likely occur later
this year. Of
course, no one knows for sure. But if this does happen,
short-term municipal
rates will follow the taxable markets' lead and we will do
our part to have
your Series take advantage of them.
And Not So Well.
Caught Too Long.
Historically, there has been a seasonal dip in municipal
rates during
January as investors scramble to invest cash from coupon
payments and bond
calls. That's why we extended our weighted average maturity
in December to
lock-in higher rates and carry us through this period.
Unfortunately, the
decline in rates was not as steep or prolonged as in years
past. As a result,
our longer WAM briefly hurt performance.
Weighted Average Maturity Is Comparable
To The Average Fund.
Prudential New York Money Market Series
IBC Financial Data New York Tax-Free Money Fund Avg.
(GRAPH)
- - ------------------------------------------------------------
- - ------------------
1
<PAGE>
President's Letter
April 10, 1997
(PHOTO)
We're On Your Side.
Dear Shareholder:
The first three months of the year were not good ones for
most U.S. stock and
bond investors. The Dow Jones Industrial Average was down
considerably from
its record high set in mid-March, and long-term interest
rates were at their
highest levels in six months. Not surprisingly, in the first
quarter of 1997
the average stock and bond mutual fund had negative returns
(for stock funds,
it was the first time since 1994).
The reasons behind the recent market decline have been well-
publicized --
higher interest rates and inflationary pressures. And while
we are watching
market developments closely, we are also very concerned
about you and how
you're dealing with events. We realize that staying the
course toward your
long-term investment goals isn't easy during such times of
uncertainty. Here
are a few thoughts that may help --
- - - Keep Your Expectations Realistic. The best investors know
that financial
markets rise and fall -- and so too, will the value of
their investments.
Over time, however, stocks have been shown to produce
very attractive
returns that were well ahead of inflation.
- - - Remember Your Time Horizon. If your investment goals are
long term (several
years or more), so should your time horizon. During this
period, it's not
unusual for stocks and bonds to experience several
periods of market
uncertainty.
- - - We're On Your Side. Your Prudential Securities Financial
Advisor or
Prudential Registered Representative can help you
understand what's
happening in the financial markets. They can assist you
in making informed
decisions based upon a thorough knowledge of your
financial needs and long-
term goals. Call him or her today.
Thank you for your continued confidence in Prudential mutual
funds. We'll do
everything we can to keep you informed and to earn your
trust.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
- - ------------------------------------------------------------
- - ------------------
2
<PAGE>
Portfolio of Investments
as of February 28, 1997 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>
- - ------------------------------------------------------------
- - ------------------------------------------------------------
- - ------
Babylon Ind. Dev. Agcy. Rev., Res. Rec. Rev., Ser. 89,
F.R.D.D.
A1+(c) 3.45% 3/03/97 $ 800 $
800,000
Buffalo,
Gen. Oblig., Ser. 97A, A.M.B.A.C.
Aaa 4.00 2/01/98 2,802
2,812,014
Gen. Imprvt., Ser. 97A, R.A.N.
MIG1 4.25 7/15/97 2,500
2,505,943
Calcasieu Parish Ind. Dev. Brd., Environ. Rev., Ser. 94,
F.R.D.D.
VMIG1 3.55 3/03/97 400
400,000
Clinton Cnty. Ind. Dev. Agcy., Ind. Dev. Rev., Ser. 96A,
F.R.W.D.
A-1(c) 3.30 3/06/97 3,200
3,200,000
Erie Cnty. Ind. Dev. Agcy., Ser. A, R.A.N.
MIG1 4.25 4/17/97 5,500
5,504,439
Islip, Ser. 96, B.A.N.
NR 4.25 7/25/97 5,000
5,005,760
Jackson Cnty., Ind. Swr. Facs. Rev., Ser. 94, F.R.D.D.
P-1 3.55 3/03/97 400
400,000
Monroe Cnty. Ind. Dev. Agcy. Rev., Gen. Accident Ins. Co.,
Ser. 84, S.E.M.O.T.
A1+(c) 3.60 9/01/97 7,000
7,000,000
Mun. Assist. Corp. for City of N.Y., Ser. F, T.E.C.P.
VMIG1 3.40 3/21/97 5,000
5,000,000
Nassau Cnty., Gen. Imprvt., Ser. 96T
Aaa 5.125 9/01/97 8,180
8,230,852
New York City, Gen. Oblig., T.E.C.P.,
Ser. 94H-2
VMIG1 3.50 4/10/97 5,000
5,000,000
Ser. J2
VMIG1 3.45 4/09/97 7,000
7,000,000
Ser. J2
VMIG1 3.45 5/09/97 5,000
5,000,000
New York City, Ser. 97B, R.A.N.
MIG1 4.50 6/30/97 500
501,671
New York City Hsg. Dev. Corp.,
400 West 59th St. Proj., Ser. 95A-1, F.R.W.D.
A-1(c) 3.30 3/05/97 10,000
10,000,000
400 West 59th St. Proj., Ser. 95A-2, F.R.W.D.
A-1(c) 3.25 3/05/97 5,000
5,000,000
E.17th St. Property, Ser. 93A, F.R.D.D.
A-1(c) 3.45 3/03/97 15,500
15,500,000
James Tower Proj., Ser. 94A, F.R.W.D.
A-1(c) 3.25 3/05/97 6,500
6,500,000
New York City Ind. Dev. Agcy., Ind. Dev. Rev.,
Ser. 95A, F.R.W.D.
P-1 3.50 3/05/97 15,900
15,900,000
Spec. Facs. Rev., Ser. 97B, F.R.W.D.
VMIG1 3.35 3/05/97 2,200
2,200,000
New York City Mun. Water Fin. Auth., Water & Sew. Rev.,
Ser. 88A
Aaa 9.00 6/15/97 10,000 (e)
10,312,508
New York St. Dorm. Auth. Rev.,
Cornell Univ., Ser. 90B, F.R.D.D.
VMIG1 3.30 3/03/97 10,300
10,300,000
Rockefeller Univ., Ser. 97-C3201, F.R.W.D.S.
A1+(c) 3.40 3/06/97 13,200
13,200,000
New York St. Energy Res. & Dev. Auth.,
Central Hudson Gas & Elec., Ser. 85A, F.R.W.D.
P-1 3.10 3/06/97 7,050
7,050,000
Long Island Ltg. Co. Proj., Ser. 85A, A.N.N.M.T.
VMIG1 3.60 9/01/97 5,000
5,000,000
Long Island Ltg. Co. Proj., Ser. 95A, F.R.W.D.
VMIG1 3.30 3/05/97 5,000
5,000,000
Niagara Mohawk Pwr. Corp., Ser. 85A, F.R.D.D.
A1+(c) 3.55 3/03/97 1,900
1,900,000
Niagara Mohawk Pwr. Corp., Ser. 85B, F.R.D.D.
P-1 3.50 3/03/97 1,700
1,700,000
Niagara Mohawk Pwr. Corp., Ser. 85C, F.R.D.D.
P-1 3.50 3/03/97 200
200,000
Niagara Mohawk Pwr. Corp., Ser. 86A, F.R.D.D.
P-1 3.55 3/03/97 19,100
19,100,000
Niagara Mohawk Pwr. Corp., Ser. 87B, F.R.D.D.
A1+(c) 3.60 3/03/97 1,100
1,100,000
Niagara Mohawk Pwr. Corp., Ser. 88A, F.R.D.D.
A1+(c) 3.60 3/03/97 1,100
1,100,000
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments
as of February 28, 1997 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. Environ. Facs. Corp., Solid Waste Disp. Rev.,
Ser. 87A, T.E.C.P.
P-1 3.35% 5/16/97 $ 2,550 $
2,550,000
Ser. 92A, T.E.C.P.
P-1 3.50 4/15/97 5,600
5,600,000
New York St., Gen. Oblig.,
Ser. R, T.E.C.P.
P-1 3.40 4/07/97 3,000
3,000,000
Ser. R, T.E.C.P.
P-1 3.40 4/01/97 6,100
6,100,000
New York St. Hsg. Fin. Agcy., Rev., F.R.W.D.,
Liberty View Apts., Ser. 85A
VMIG1 3.30 3/05/97 11,500
11,500,000
Normandie Ct. I Proj., Ser. 91A
VMIG1 3.20 3/05/97 5,000
5,000,000
Union Square So. Hsg., Ser. 96A
VMIG1 3.20 3/05/97 5,000
5,000,000
New York St. Job Dev. Auth., F.R.M.D.,
Ser. 84D
MIG1 3.70 3/03/97 1,270
1,270,000
Ser. 84E
VMIG1 3.70 3/03/97 2,990
2,990,000
Ser. 84F
VMIG1 3.70 3/03/97 1,185
1,185,000
Ser. 86C
VMIG1 3.85 3/03/97 1,020
1,020,000
New York St. Local Gov't Assistance Corp., Var. Rate Bonds
Ser. 95B, F.R.W.D.
VMIG1 3.30 3/05/97 5,000
5,000,000
Ser. 95E, F.R.W.D.
VMIG1 3.20 3/05/97 5,000
5,000,000
New York St. Med. Care Facs. Fin. Agcy. Rev.,
Hosp. & Nurs. Home, Ser. 88B, F.H.A.
Aaa 8.10 2/15/98 5,000 (e)
5,304,030
Huntington Hospital, Ser. 87A
Aaa 8.125 11/01/97 3,900 (e)
4,090,513
Niagara Cnty. Ind. Dev. Agcy. Rev., Gen. Abrasive
Treibacher,
Ser. 91, F.R.W.D.
P-1 3.40 3/05/97 4,600
4,600,000
Oswego Cnty. Ind. Dev. Agcy. Rev., Philip Morris Co., Ser.
92,
F.R.W.D.
P-1 3.25 3/05/97 7,300
7,300,000
Plaquemines Parish Environ. Rev., British Petroleum Co.,
Exploration & Oil Proj., Ser. 94, F.R.D.D.
P-1 3.55 3/03/97 300
300,000
Port Auth. New York & New Jersey,
Special Obligation Rev.,
Ser. 1, F.R.D.D.
VMIG1 3.50 3/03/97 100
100,000
Ser. 5, F.R.D.D.
VMIG1 3.45 3/03/97 3,900
3,900,000
Ser. 93-1, F.R.W.D.
NR 3.40 3/04/97 12,000
12,000,000
Puerto Rico Commwlth., Gov't. Dev. Bank, Ser. 95, T.E.C.P.
A-1+(c) 3.50 3/06/97 2,381
2,381,000
Smithtown Central School District, Ser. 96-97, T.A.N.
NR 4.25 6/26/97 9,580
9,590,334
Syracuse, B.A.N.,
Ser. 96A
NR 3.90 12/19/97 3,000
3,003,468
Ser. 96B
NR 4.15 12/19/97 4,500
4,506,936
Syracuse Ind. Dev. Agcy., Civic Facs. Rev., Ser. 93,
F.R.D.D. A-1+(c) 3.30 3/03/97 5,100
5,100,000
Tarrytown Union Free School District, Ser. 96, T.A.N.
NR 4.25 6/25/97 3,950
3,953,627
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments
as of February 28, 1997 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>
- - ------------------------------------------------------------
- - ------------------------------------------------------------
- - ------
Triborough Bridge & Tunnel Auth., New York Rev.,
Ser. N
Aaa 7.875% 1/01/98 $ 3,445(e) $
3,617,754
Spec. Oblig., Ser. 94, F.R.W.D.
VMIG1 3.20 3/05/97 2,200
2,200,000
Washoe Cnty. Nevada Water Facs. Rev., Sierra Pacific Pwr.
Co.
Proj., Ser. 90, F.R.D.D.
P-1 3.55 3/03/97 600
600,000
Yates Cnty. Ind. Dev. Agcy. Rev., Clearpass Containers Inc.,
Ser. 92A, F.R.W.D.
A-1(c) 3.35 3/06/97 1,330
1,330,000
- - ------------
Total Investments--96.7%
(cost $318,515,849; (d))
318,515,849
Other assets in excess of liabilities--3.3%
10,938,264
- - ------------
Net Assets--100%
$329,454,113
- - ------------
- - ------------
</TABLE>
- - ---------------
(a) The following abbreviations are used in portfolio
descriptions:
A.M.B.A.C.--American Municipal Bond Assurance
Corporation.
A.N.N.M.T.--Annual Mandatory Tender.
B.A.N.--Bond Anticipation Note.
F.H.A.--Federal Housing Administration.
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).
F.R.W.D.S.--Floating Rate (Weekly) Demand Note
Synthetic(b).
R.A.N.--Revenue Anticipation Note.
S.E.M.O.T.--Semi-Annual Optional Tender.
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
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>
<CAPTION>
Assets
February 28, 1997
<S>
<C>
Investments, at amortized cost which approximates market
value........................................... $
318,515,849
Receivable for investments
sold........................................................
.................. 18,196,811
Receivable for Series shares
sold........................................................
................ 6,509,077
Interest
receivable..................................................
.................................... 2,261,013
Deferred expenses and other
assets......................................................
................. 7,238
- - -----------------
Total
assets......................................................
.................................... 345,489,988
- - -----------------
Liabilities
Bank
overdraft...................................................
........................................
90,903
Payable for investments
purchased...................................................
..................... 12,000,000
Payable for Series shares
reacquired..................................................
................... 3,604,164
Management fee
payable.....................................................
.............................. 124,787
Accrued expenses and other
liabilities.................................................
.................. 118,510
Dividends
payable.....................................................
................................... 78,961
Distribution fee
payable.....................................................
............................ 15,591
Deferred trustees'
fee.........................................................
.......................... 2,959
- - -----------------
Total
liabilities.................................................
.................................... 16,035,875
- - -----------------
Net
Assets......................................................
......................................... $
329,454,113
- - -----------------
- - -----------------
Net assets were comprised of:
Shares of beneficial interest, at $.01 par
value......................................................
$ 3,294,541
Paid-in capital in excess of
par.........................................................
............. 326,159,572
- - -----------------
Net assets, February 28,
1997........................................................
.................... $ 329,454,113
- - -----------------
- - -----------------
Net asset value, offering price and redemption price per
share ($329,454,113 / 329,454,113 shares
of beneficial interest issued and outstanding; unlimited
number of shares authorized).................
$1.00
- - -----------------
- - -----------------
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 6
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW YORK MONEY MARKET SERIES
Statement of Operations (Unaudited)
- - ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income February 28,
1997
<S> <C>
Income
Interest................................ $ 5,636,077
--------------
- - ---
Expenses
Management fee.......................... 809,440
Distribution fee........................ 202,360
Transfer agent's fees and expenses...... 60,000
Custodian's fees and expenses........... 36,000
Reports to shareholders................. 27,000
Registration fees....................... 12,000
Audit fees and expenses................. 4,000
Legal fees and expenses................. 3,000
Trustees' fees and expenses............. 1,800
Miscellaneous........................... 394
--------------
- - ---
Total expenses....................... 1,155,994
--------------
- - ---
Net investment income...................... 4,480,083
--------------
- - ---
Net Increase in Net Assets
Resulting from Operations.................. $ 4,480,083
--------------
- - ---
--------------
- - ---
</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 28,
August 31,
in Net Assets 1997
1996
<S> <C> <C>
Operations
Net investment income....... $ 4,480,083 $
9,800,252
Net realized gain on
investment
transactions............. --
1,956
----------------- ------
- - ---------
Net increase in net assets
resulting from
operations............... 4,480,083
9,802,208
----------------- ------
- - ---------
Dividends and distributions to
shareholders................ (4,480,083)
(9,802,208)
----------------- ------
- - ---------
Series share transactions
(at $1 per share)
Net proceeds from shares
sold..................... 510,964,714
1,133,204,969
Net asset value of shares
issued to shareholders in
reinvestment of dividends
and distributions........ 4,426,833
9,471,692
Cost of shares reacquired... (535,407,241)
(1,117,904,471)
----------------- ------
- - ---------
Net increase (decrease) in
net assets from Series
share transactions....... (20,015,694)
24,772,190
----------------- ------
- - ---------
Total increase (decrease)...... (20,015,694)
24,772,190
Net Assets
Beginning of period............ 349,469,807
324,697,617
----------------- ------
- - ---------
End of period.................. $ 329,454,113 $
349,469,807
----------------- ------
- - ---------
----------------- ------
- - ---------
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 7
<PAGE>
Notes to Financial Statements PRUDENTIAL
MUNICIPAL SERIES FUND
(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, 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.
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 LLC.
('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.
The Fund has a distribution agreement with Prudential
Securities Incorporated
('PSI') which acts as the distributor of the Fund. The Fund
compensates PSI for
distributing and servicing of the Series, pursuant to a plan
of distribution,
regardless of expenses actually incurred by PSI. The Series
reimbursed 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.
PSI, PMF and PIC are indirect wholly-owned subsidiaries of
The Prudential
Insurance Company of America.
The Series, along with other affiliated registered
investment companies (the
'Funds'), entered into a credit agreement (the 'Agreement')
on December 31, 1996
with an unaffiliated lender. The maximum commitment under
the Agreement is
$200,000,000. The Agreement expires on December 30, 1997.
Interest on any such
borrowings outstanding will be at market rates. The purpose
of the Agreement is
to serve as an alternative source of funding for capital
share redemptions. The
Series has not
- - ------------------------------------------------------------
- - --------------------
-----
8
<PAGE>
Notes to Financial Statements PRUDENTIAL
MUNICIPAL SERIES FUND
(Unaudited) NEW YORK MONEY
MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
borrowed any amounts pursuant to the Agreement as of
February 28, 1997. The
Funds pay a commitment fee at an annual rate of .055 of 1%
on the unused portion
of the credit facility. The commitment fee is accrued and
paid quarterly on a
pro-rata basis by the Funds.
- - ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly-owned
subsidiary of PMF,
serves as the Fund's transfer agent. During the period ended
February 28, 1997,
the Series incurred fees of approximately $59,300 for the
services of PMFS. As
of February 28, 1997, approximately $10,000 of such fees
were due to PMFS.
Transfer agent fees and expenses in the Statement of
Operations include certain
out-of-pocket expenses paid to non-affiliates.
- - ------------------------------------------------------------
- - --------------------
-----
9
<PAGE>
Financial Highlights PRUDENTIAL
MUNICIPAL SERIES FUND
(Unaudited) NEW YORK MONEY
MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended August 31,
February 28, ----------------------------------
1997 1996 1995 1994
- - ------------ -------- -------- --------
<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............................. .01
.03 .03 .02
Dividends and distributions to
shareholders.............................. (.01)
(.03) (.03) (.02)
- - ------------ -------- -------- --------
Net asset value, end of
period........................................... $
1.00 $ 1.00 $ 1.00 $ 1.00
- - ------------ -------- -------- --------
- - ------------ -------- -------- --------
TOTAL
RETURN(a):..................................................
....... 1.42% 2.97% 3.06%
1.80%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)..........................................
$329,454 $349,470 $324,698 $269,073
Average net assets
(000).................................................
$326,459 $336,427 $292,763 $280,492
Ratios to average net assets:
Expenses, including distribution
fee.................................. .71%(b)
.72% .73% .77%
Expenses, excluding distribution
fee.................................. .59%(b)
.60% .61% .64%
Net investment
income.................................................
2.77%(b) 2.91% 3.02% 1.78%
<CAPTION>
1993 1992
- - -------- --------
<S>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period..................................... $ 1.00 $
1.00
Net investment income and net realized
gains............................. .02 .03
Dividends and distributions to
shareholders.............................. (.02)
(.03)
- - -------- --------
Net asset value, end of
period........................................... $ 1.00
$ 1.00
- - -------- --------
- - -------- --------
TOTAL
RETURN(a):..................................................
....... 1.80% 2.93%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).......................................... $286,304
$249,785
Average net assets
(000).................................................
$275,640 $248,557
Ratios to average net assets:
Expenses, including distribution
fee.................................. .75%
.76%
Expenses, excluding distribution
fee.................................. .63%
.63%
Net investment
income.................................................
1.75% 2.83%
</TABLE>
- - ---------------
(a) Total return includes reinvestment of dividends and
distributions. Total
returns for periods of less than a full year are not
annualized.
(b) Annualized.
- - ------------------------------------------------------------
- - --------------------
-----
See Notes to Financial Statements. 10
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Supplemental Proxy Information NEW YORK MONEY
MARKET SERIES
- - ------------------------------------------------------------
- - --------------------
A Meeting of Shareholders of the Prudential Municipal
Series Fund was held on
Wednesday, October 30, 1996 at the offices of Prudential
Securities
Incorporated, One Seaport Plaza, New York, New York. The
meeting was held for
the following purposes:
(1) To elect Trustees as follows: Edward D. Beach, Eugene C.
Dorsey, Delayne
Dedrick Gold, Robert F. Gunia, Harry A. Jacobs, Jr.,
Donald D. Lennox,
Mendel A. Melzer, Thomas T. Mooney, Thomas H. O'Brien,
Richard A. Redeker,
Nancy H. Teeters and Louis A. Weil, III.
(2) Approval of an amendment to the Fund's investment
restrictions to permit an
increase in the borrowing capabilities of the Fund.
The results of the proxy solicitation on the above
matters were as follows:
<TABLE>
<CAPTION>
Trustee/Matter
Votes for Votes against Abstentions
- - ----------- ------------- -----------
<C> <S>
<C> <C> <C>
(1) Edward D. Beach
370,817,756 0 16,169,234
Eugene C. Dorsey
371,804,474 0 15,182,516
Delayne Dedrick Gold
371,782,816 0 15,204,174
Robert F. Gunia
371,639,995 0 15,346,995
Harry A. Jacobs, Jr.
371,395,066 0 15,591,924
Donald D. Lennox
371,150,974 0 15,836,016
Mendel A. Melzer
371,811,918 0 15,175,072
Thomas T. Mooney
371,607,874 0 15,379,116
Thomas H. O'Brien
371,328,875 0 15,658,115
Richard A. Redeker
371,876,756 0 15,110,234
Nancy H. Teeters
371,775,376 0 15,211,614
Louis A. Weil, III
371,777,517 0 15,209,473
(2) Amendment relating to borrowing capabilities
259,440,223 31,557,793 17,488,974
</TABLE>
- - ------------------------------------------------------------
- - --------------------
-----
11
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Robert F. Gunia
Harry A. Jacobs, Jr.
Donald D. Lennox
Mendel A. Melzer
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Louis A. Weil, III
Officers
Richard A. Redeker, President
Susan C. Cote, Vice President
Thomas Early, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Mutual Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
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 LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Auditors
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, NY 10022
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 28,
1997 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
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
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