(ICON)
Prudential
Municipal
Series Fund
Maryland Series
SEMI
ANNUAL
REPORT
Feb. 28, 1998
(LOGO)
<PAGE>
Prudential Municipal Series Fund
Maryland Series
Performance At A Glance.
Municipal bond prices rose higher during the six
months ended
February 28, 1998 as investors cheered the
unusually subdued
inflation in the U.S. but fretted over an
economic crisis in
Asia. Your Prudential Municipal Series Fund --
Maryland Series
produced competitive returns with comparable
funds tracked by
Lipper Analytical Services because of its
considerable
investment in noncallable bonds that gained
sharply as
tax-exempt interest rates fell. In addition, we
increased
your Series' holdings of high-coupon bonds rated
BBB.
<TABLE>
Cumulative Total Returns1
As of 2/28/98
<CAPTION>
Six One Five
Ten Since
Months Year Years
Years Inception2
<S> <C> <C> <C>
<C> <C>
Class A 4.87% 8.87% 31.38% (31.14)
N/A 74.47% (74.16)
Class B 4.66 8.34 28.78 (28.55)
92.36% (91.67) 147.40 (142.12)
Class C 4.53 8.07 N/A
N/A 24.76 (24.54)
Lipper MD
Muni Avg.3 4.62 8.55 32.21
103.13 ***
</TABLE>
<TABLE>
Average Annual Total Returns1
As of 3/31/98
<CAPTION>
One Five Ten
Since
Year Years Years
Inception2
<S> <C> <C> <C>
<C>
Class A 6.98% 5.21% (5.17) N/A
6.63% (6.61)
Class B 4.84 5.27 (5.23) 6.86% (6.82)
7.11 (6.92)
Class C 8.57 N/A N/A
6.20 (6.15)
</TABLE>
<TABLE>
Distributions & Yields
As of 2/28/98
<CAPTION>
Taxable Equivalent Yield4
Total Distributions 30-Day
At Tax Rates Of
Paid for Six Mos. SEC Yield
36% 39.6%
<S> <C> <C>
<C> <C>
Class A $0.28 3.64%
5.98% 6.34%
Class B $0.26 3.35
5.51 5.84
Class C $0.25 3.10
5.10 5.40
Past performance is not indicative of future
results. Principal and
investment return will fluctuate so that an
investor's shares,
when redeemed, may be worth more or less than
their original cost.
1 Source: Prudential Investments Fund Management
and Lipper
Analytical Services. The cumulative total
returns do not take
into account sales charges. The average annual
returns do take
into account applicable sales charges. The
Series charges a
maximum front-end sales load of 3% for Class A
shares and a
six-year declining contingent deferred sales
charge (CDSC)
of 5%, 4%, 3%, 2%, 1% and 1% for Class B shares.
Class C
shares have a 1% CDSC for one year. Without
waiver of
management fees and/or expense subsidization,
the Series'
cumulative and average annual total returns
would have been
lower, as indicated in parentheses ( ). Class B
shares
automatically convert to Class A shares on a
quarterly
basis, after approximately seven years.
2 Inception dates: Class A, 1/22/90; Class B,
1/22/85; and
Class C, 8/1/94.
3 The Lipper Maryland Municipal Bond fund
average includes
all funds in each share class for the six-month,
1-, 5-,
and 10-year categories.
4 Taxable equivalent yields reflect federal and
applicable state tax rates.
***The Lipper Since Inception category return
for Class
A shares is 78.17%; for Class B is 156.34%; and
for Class
C is 27.80% for all funds in each share class.
How Investments Compared.
(As of 2/28/98)
(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.
U.S. Tax-Exempt Money Funds attempt to preserve
a constant
share value and provide tax-free income; they
don't fluctuate
much in price but their returns are generally
among the lowest
of the major investment categories.
*18 years for Tax-Exempt Money Funds.
<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
form Maryland state
and federal income taxes, consistent with
preservation of capital.
Certain shareholders may be subject to the
federal alternative
minimum tax (AMT), however, because some of the
Series' bonds
may be AMT eligible. There can be no assurance
that the Series
will achieve its investment objective.
Is Inflation Conquered?
Inflation inched up a mere 1.7% in 1997 and will
likely remain
tame this year as U.S. companies face increased
competition from
cheaper Asian imports. This is good news for
bondholders because
inflation hurts the value of their bonds' fixed
interest
and principal payments.
Strategy Session.
Asian Contagion
Lifts Muni Bonds.
Maryland's broad-based, growing economy,
history of sound
financial management and moderate debt burden
are among the
reasons that the Free State's general obligation
bonds still
merit the top AAA rating.
On the opposite side of the globe, however,
economic turbulence
engulfed Asian markets as a series of financial
shocks, caused
by imprudent lending practices by major
financial institutions,
shook the region. Investors began selling Asian
stocks
and emerging market bonds and sought refuge in
U.S. Treasury
securities. The ensuing rally in U.S. Treasuries
spilled over
into the municipal securities market, driving
tax-exempt bond
prices higher and yields lower. Investors also
bid up municipal
bonds, believing that Asian difficulties would
help keep a lid
on inflation in the U.S., protecting the value
of their fixed
income investments.
By mid-January, the Bond Buyer Revenue Bond
Index, a widely
watched gauge of tax-exempt yields, reached a
record low of
5.25%. This occurred during the same week that
the 30-year
Treasury bond yield sank to 5.66%, its lowest
point since
1977. Cash poured into U.S. Treasuries as
investors worried
over the failure of Hong Kong's largest
investment bank.
Thus, developments in Asia indirectly aided
municipal bonds
by boosting U.S.Treasury bond prices.
During the reporting period, we continued to
emphasize
noncallable bonds, which comprised more than 40%
of your
Series' total investments. This strategy worked
well as
prices of noncallable bonds climb very rapidly
when
interest rates decline, because the bonds cannot
be
retired early.
Portfolio Composition.
Expressed as a percentage of
total investments as of 2/28/98.
(PIE CHART)
<PAGE>
What Went Well.
A Great Combination.
Besides the solid price gains on noncallable
bonds, we
enhanced your Series' performance by investing
in bonds
rated BBB that provide attractive yields and a
steady
stream of tax-exempt income. For example,
Maryland Health
and Higher Educational Facilities Authority
issued bonds
in November for the Kennedy Krieger Institute, a
pediatric
hospital. We jumped at the chance to buy them,
since higher
yielding bonds can be hard to find in Maryland.
Indeed,
bonds in this rating category, climbed to 25% of
your Series
total investments as of February 28, from about
17% at the
start of the reporting period. (Nevertheless,
bonds rated
AAA or AA still dominate the portfolio.)
As the market rally accelerated and yields
continued to fall,
investor appetite increased for higher yielding
bonds. This
growing demand pushed down yields on lower
investment grade
bonds until their prices rose closer to that of
insured bonds,
which are rated AAA. So bonds in the BBB rating
category
provided good income as well as price gains, a
great
combination.
Five Largest Issuers.
5.9% Montgomery County
5.7% Maryland State Trans.
Auth. - B.W.I. Airport
4.4% Charles County
4.1% Harford County
3.7% Prince Georges County
Potomac Elec. Proj.
Expressed as a percentage of net assets
as of 2/28/98.
And Not So Well.
Higher Yields
Were Scarce.
While we were pleased with our purchase of
Kennedy Krieger
bonds, we longed for even more opportunities to
buy lower
investment grade debt securities with sizable
yields. Finding
these, however, presents a challenge because of
the generally high
credit quality of bonds in Maryland. A growing
number of new
tax-exempt bonds are issued with insured
interest and principal
payments, so they are rated AAA. Moreover,
Maryland's strong
economy (the best in more than a decade )
provides favorable
conditions in which the bonds of many counties,
districts
and cities continue to merit good ratings
without insurance.
Although this trend is admirable, it meant that
your Series
had to get along with fewer higher yielding
bonds than we
preferred.
Credit Quality.
Expressed as a percentage of
total investments as of 2/28/98.
(PIE CHART)
Looking Ahead.
The U.S. economic expansion remained firmly on
track in the
first two months of the year as about 600,000
new jobs were
created and the unemployment rate edged down to
4.6%.
While the economy got off to a good start,
growth may
decelerate because demand for U.S. exports is
already
dwindling in Asian countries such as Indonesia.
This
slackening supports our belief that U.S.
monetary
policy will stay unchanged in the near future as
the economy gradually loses steam and inflation
remains subdued. Although this scenario will
likely
benefit the bond market, we plan to keep your
Series'
duration more in line with its competition while
we
monitor the situation and hunt for bonds with
hefty yields.
1
<PAGE>
President's Letter
April 3, 1998
(PICTURE)
Investing Smart.
Dear Shareholder:
This is the season when many investors receive
income tax refunds
or have a CD or two maturing. What will you do
with these assets?
Investing smart can be a challenge especially
given today's new
investment choices.
The Federal Taxpayer Relief Act of 1997 is
changing the way
Americans invest and accumulate wealth, save for
college or
build a nest egg for retirement. While the law
offers
opportunity, it is also complex. You may need
help to
put things in perspective.
Now may be an excellent time for you and your
Prudential
Financial Professional to update your investment
strategy
and retirement plan. A wise investor does so
periodically.
You could find the tax law opening doors that
may benefit
you now or over the long term, such as --
- -- Revised Capital Gains Tax Rates &
Exclusions. Long-term
rates are down. Is your portfolio positioned to
benefit? Also,
new rules allow you to keep more of the profit
from the sale
of your home (perhaps up to $500,000 more).
- -- New Roth IRAs. The Roth IRA features tax-
free
distributions and does not require mandatory
withdrawals,
which should be of particular interest to
retirees seeking
to shelter assets in a tax-free account.
- -- New Education IRAs. Similar to a
traditional IRA, but
specifically designed for higher education. The
new law
also creates credits and deductions to help
defray college costs.
- -- Expanded IRAs. Rules governing traditional
IRAs have
been extensively revised. Deductibility and
contribution
limits have been broadened, as has the list for
penalty-free
early withdrawals, including first-time home
buyers.
As you can see, what you don't know may cost
you! That's why
I recommend you call your Prudential Financial
Professional
and get a free investment plan checkup. Let us
give you the
information and tools to invest smart.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
2
<PAGE>
Portfolio of Investments as
of February 28, 1998 PRUDENTIAL
MUNICIPAL SERIES FUND
(Unaudited) MARYLAND
SERIES
- ------------------------------------------------
- --------------------------------
</TABLE>
<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--102.0%
- ------------------------------------------------
- ------------------------------------------------
- ------------------------------
Baltimore, Maryland
Conv. Ctr. Rev., F.G.I.C.
Aaa 5.75% 9/01/08 $ 1,075
$ 1,153,238
Econ. Dev. Lease Rev., Armistead Partnership
BBB+(c) 7.00 8/01/11 1,000
1,107,030
Gen. Oblig., Cons. Pub. Impt., Ser. A,
F.G.I.C. Aaa 7.25
10/15/05 1,000 1,189,800
Calvert Cnty. Poll. Cntrl. Rev., Baltimore Gas &
Elec Co.
Proj.
A2 5.55 7/15/14 1,000
1,041,820
Charles Cnty. Gen. Oblig.
Aa3 5.50 3/01/05 665
715,773
Charles Cnty. Gen. Oblig.
Aa3 5.50 3/01/06 695
751,990
Harford Cnty. Gen. Oblig.
Aa 5.50 3/01/06 1,250
1,352,500
Howard Cnty. Met. Dist. Proj., Ser. A
Aaa 4.75 2/15/27 500
472,935
Kent Cnty. Coll. Rev., Washington Coll. Proj.
Baa2 7.70 7/01/18 500
533,080
Maryland St. Hlth. & Higher Edl. Facs. Auth.
Rev.,
Broadmead Retirement Community
NR 5.50 7/01/17 500
511,835
Doctor's Comn. Hosp.
Baa2 5.50 7/01/24 1,000
1,008,900
Howard Cnty. Gen. Hosp.
Baa1 5.50 7/01/21 900
911,421
Kennedy Krieger Hosp.
Baa1 5.50 7/01/18 1,000
1,021,520
Mercy Medical Center, F.S.A.
Aaa 5.75 7/01/26 1,000
1,059,930
Pickersgill Retirement Ctr., Ser. A
A-(c) 5.85 1/01/10 600
646,314
Maryland St. Hsg. & Cmnty. Dev. Admin., Sngl.
Fam. Mtge. Rev.
Prog., Sixth Ser., A.M.T.
Aa 7.125 4/01/14 535
557,834
Maryland St. Ind. Dev. Fin. Auth. Rev., Amer.
Ctr. for
Physics
BBB(c) 6.625 1/01/17 1,000
1,083,680
Maryland St. Trans. Auth., Baltimore-Washington
Int'l. Arpt.,
A.M.T., F.G.I.C.
Aaa 6.25 7/01/14 1,750 (e)
1,906,118
Maryland Wtr. Qual. Fin. Admin., Revolving Loan
Fund Rev.,
Ser. A
Aa2 5.90 9/01/04 565
618,884
Montgomery Cnty.,
Econ. Dev. Rev., 1st Mtge., Bullis Schl. Inc.
Facs., Ser.
A
BBB(c) 5.60 11/01/22 400
406,392
Gen. Oblig., Cons. Pub. Impvt.
Aaa 9.75 6/01/01 450 (e)
528,552
Gen. Oblig., Cons. Pub. Impvt., Ser. A
Aaa 5.75 10/01/07 1,300 (e)
1,427,608
Sngl. Fam. Mtge. Rev., Ser. B, A.M.T.
Aa2 6.05 7/01/27 1,000
1,050,190
Northeast Maryland Waste Disp. Auth., Solid
Waste Rev.,
Baltimore City Sludge Proj.
NR 7.25 7/01/07 847
935,884
Montgomery Cnty. Res. Rec. Proj.
A 6.00 7/01/07 1,000
1,097,330
Prince Georges Cnty.,
Gen. Oblig., Cons. Pub. Impvt.
A1 5.25 10/01/11 1,000
1,059,910
Hosp. Rev., Dimensions Hlth. Corp.
A3 5.375 7/01/14 1,000
1,019,110
Hsg. Auth. Mtge. Rev., Langley Gardens Apts.
Proj.,
A.M.T., G.N.M.A.
AAA(c) 5.75 8/20/29 500
509,365
Poll. Cntrl. Rev., Ref., Potomac Elec. Proj.,
M.B.I.A. Aaa 5.75
3/15/10 1,100 1,218,140
Stormwater Mgmt.
Aa3 6.50 3/15/03 840
929,485
</TABLE>
- ------------------------------------------------
- --------------------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as
of February 28, 1998 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 Commonwealth,
Gen. Oblig., Cap. Apprec. Ref. Pub. Impvt.
Baa1 Zero 7/01/15 $ 1,000
$ 421,040
Hwy. & Trans. Auth. Rev., Ser A, A.M.B.A.C.
Aaa Zero 7/01/18 2,500
902,675
Puerto Rico Ind. Tourist Edl., Med. & Env. Ctl.
Facs.,
Mennonite Gen. Hosp. Proj., Ser. A
BBB-(c) 5.625 % 7/01/27 500
511,135
Puerto Rico Tel. Auth. Rev., Ser. I, M.B.I.A.
Aaa 7.168 (d) 1/16/15 1,000 (e)
1,076,250
Takoma Park Hosp. Facs. Rev., Washington
Adventist Hosp.,
F.S.A.
Aaa 6.50 9/01/12 1,000 (e)
1,183,150
Washington D.C., Metro. Area Transit Auth. Rev.,
F.G.I.C. Aaa 6.00
7/01/08 1,000 (e) 1,125,550
- -----------
Total long-term investments (cost $30,762,312)
33,046,368
- -----------
SHORT-TERM INVESTMENTS--0.9%
Maryland Natl. Cap. Pk. & Planning Comn., Ser. V-
2 A1+(c) 3.70
3/02/98 100 100,000
Puerto Rico Comnwlth., Hwy. & Trans. Auth. Rev.,
F.R.W.D. VMIG1 2.90
3/04/98 200 200,000
- -----------
Total short-term investments (cost $300,000)
300,000
- -----------
Total Investments--102.9%
(cost $31,062,312; Note 4)
33,346,368
Liabilities in excess of other assets--(2.9)%
(931,456)
- -----------
Net Assets--100%
$32,414,912
- -----------
- -----------
</TABLE>
- ---------------
(a) The following abbreviations are used in
portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance
Corporation.
A.M.T.--Alternative Minimum Tax.
F.G.I.C.--Financial Guaranty Insurance
Company.
F.R.W.D.--Floating Rate (Weekly) Demand Note
(b).
F.S.A.--Financial Security Assurance.
G.N.M.A.--Government National Mortgage
Association.
M.B.I.A.--Municipal Bond Insurance
Association.
(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) Securities segregated as collateral for
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) MARYLAND
SERIES
- ------------------------------------------------
- --------------------------------
<TABLE>
<CAPTION>
Assets
February 28, 1998
- -----------------
<S>
<C>
Investments, at value (cost
$31,062,312)....................................
.............................
$33,346,368
Cash............................................
................................................
......... 91,068
Interest
receivable......................................
................................................
491,266
Receivable for Series shares
sold............................................
............................ 16,164
Other
assets..........................................
................................................
... 750
- -----------------
Total
assets..........................................
................................................
33,945,616
- -----------------
Liabilities
Payable for investments
purchased.......................................
.................................
1,382,882
Accrued
expenses........................................
................................................
. 99,042
Payable for Series shares
reacquired......................................
...............................
13,233
Management fee
payable.........................................
..........................................
12,469
Dividends
payable.........................................
...............................................
11,911
Distribution fee
payable.........................................
........................................
6,639
Deferred trustee's
fees............................................
......................................
3,778
Due to broker-variation
margin..........................................
.................................
750
- -----------------
Total
liabilities.....................................
................................................
1,530,704
- -----------------
Net
Assets..........................................
................................................
..... $32,414,912
- -----------------
- -----------------
Net assets were comprised of:
Shares of beneficial interest, at
par.............................................
.................... $ 28,828
Paid-in capital in excess of
par.............................................
......................... 29,956,875
- -----------------
29,985,703
Accumulated net realized gain on
investments.....................................
..................... 147,153
Net unrealized appreciation on
investments.....................................
....................... 2,282,056
- -----------------
Net assets, February 28,
1998............................................
................................
$32,414,912
- -----------------
- -----------------
Class A:
Net asset value and redemption price per
share
($18,971,019 / 1,688,073 shares of
beneficial interest issued and
outstanding).....................
$11.24
Maximum sales charge (3% of offering
price)..........................................
................. .35
- -----------------
Maximum offering price to
public..........................................
............................
$11.59
- -----------------
- -----------------
Class B:
Net asset value, offering price and
redemption price per share
($13,372,995 / 1,188,416 shares of
beneficial interest issued and
outstanding).....................
$11.25
- -----------------
- -----------------
Class C:
Net asset value, offering price and
redemption price per share
($70,898 / 6,300 shares of beneficial
interest issued and
outstanding).............................
$11.25
- -----------------
- -----------------
</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, 1998
<S>
<C>
Income
Interest................................
$ 893,687
--
- ---------------
Expenses
Management fee..........................
81,044
Distribution fee--Class A...............
9,359
Distribution fee--Class B...............
34,078
Distribution fee--Class C...............
259
Custodian's fees and expenses...........
34,000
Registration fees.......................
17,000
Reports to shareholders.................
15,000
Transfer agent's fees and expenses......
15,000
Audit fee and expenses..................
5,000
Legal fees and expenses.................
5,000
Trustees' fees and expenses.............
2,000
Miscellaneous...........................
3,058
--
- ---------------
Total expenses.......................
220,798
--
- ---------------
Net investment income......................
672,889
--
- ---------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions.................
263,509
Financial futures contract
transactions.........................
(49,923)
--
- ---------------
213,586
--
- ---------------
Net change in unrealized appreciation
(depreciation) of:
Investments.............................
641,000
Financial futures contracts.............
(2,000)
--
- ---------------
639,000
--
- ---------------
Net gain on investments....................
852,586
--
- ---------------
Net Increase in Net Assets
Resulting from Operations..................
$ 1,525,475
--
- ---------------
--
- ---------------
</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 1998
1997
<S> <C>
<C>
Operations
Net investment income...... $ 672,889
$ 1,522,422
Net realized gain on
investment
transactions............ 213,586
78,313
Net change in unrealized
appreciation of
investments............. 639,000
1,152,180
----------------
- - ------------
Net increase in net assets
resulting from
operations.............. 1,525,475
2,752,915
----------------
- - ------------
Dividends and distributions
(Note 1):
Dividends from net
investment income
Class A................. (404,407)
(856,637)
Class B................. (267,213)
(663,966)
Class C................. (1,269)
(1,819)
----------------
- - ------------
(672,889)
(1,522,422)
----------------
- - ------------
Distributions in excess of
net investment income
Class A................. (3,054)
(10,676)
Class B................. (2,144)
(9,184)
Class C................. (11)
(28)
----------------
- - ------------
(5,209)
(19,888)
----------------
- - ------------
Distributions from net
realized gains
Class A................. (61,079)
(229,545)
Class B................. (42,884)
(197,458)
Class C................. (225)
(597)
----------------
- - ------------
(104,188)
(427,600)
----------------
- - ------------
Series share transactions (net
of share conversions) (Note
5):
Net proceeds from shares
sold.................... 644,903
767,369
Net asset value of shares
issued in reinvestment
of dividends and
distributions........... 519,354
1,326,652
Cost of shares
reacquired.............. (2,530,529)
(6,736,831)
----------------
- - ------------
Net decrease in net assets
from Series share
transactions............ (1,366,272)
(4,642,810)
----------------
- - ------------
Total decrease................ (623,083)
(3,859,805)
Net Assets
Beginning of period........... 33,037,995
36,897,800
----------------
- - ------------
End of period................. $ 32,414,912
$ 33,037,995
----------------
- - ------------
----------------
- - ------------
</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 13 series. The
monies of each series are invested in separate,
independently managed
portfolios. The Maryland Series (the 'Series')
commenced investment operations
on January 22, 1985. The Series is diversified
and seeks to achieve its
investment objective of obtaining the maximum
amount of income exempt from
federal and applicable state income taxes with
the minimum of risk by investing
in 'investment grade' tax-exempt securities
whose ratings are within the four
highest ratings categories by a nationally
recognized statistical rating
organization or, if not rated, are of comparable
quality. The ability of the
issuers of the securities held by the Series to
meet their obligations may be
affected by economic or political developments
in a specific state, industry or
region.
- ------------------------------------------------
- ------------
Note 1. Accounting Policies
The following is a summary of significant
accounting policies followed by the
Fund, and the Series, in the preparation of its
financial statements.
Securities Valuations: The Fund values municipal
securities (including
commitments to purchase such securities on a
'when-issued' basis) on the basis
of prices provided by a pricing service which
uses information with respect to
transactions in bonds, quotations from bond
dealers, market transactions in
comparable securities and various relationships
between securities in
determining values. If market quotations are not
readily available from such
pricing service, a security is valued at its
fair value as determined under
procedures established by the Trustees.
Short-term securities which mature in more than
60 days are valued at current
market quotations. Short-term securities which
mature in 60 days or less are
valued at amortized cost.
All securities are valued as of 4:15 p.m., New
York time.
Financial Futures Contracts: A financial futures
contract is an agreement to
purchase (long) or sell (short) an agreed amount
of debt securities at a set
price for delivery on a future date. Upon
entering into a financial futures
contract, the Series is required to pledge to
the broker an amount of cash
and/or other assets equal to a certain
percentage of the contract amount. This
amount is known as the 'initial margin.'
Subsequent payments, known as
'variation margin,' are made or received by the
Series each day, depending on
the daily fluctuations in the value of the
underlying security. Such variation
margin is recorded for financial statement
purposes on a daily basis as
unrealized gain or loss. When the contract
expires or is closed, the gain or
loss is realized and is presented in the
statement of operations as net realized
gain (loss) on financial futures contracts. The
Series invests in financial
futures contracts in order to hedge its existing
portfolio securities or
securities the Series intends to purchase,
against fluctuations in value caused
by changes in prevailing interest rates. Should
interest rates move
unexpectedly, the Series may not achieve the
anticipated benefits of the
financial futures contracts and may realize a
loss. The use of futures
transactions involves the risk of imperfect
correlation in movements in the
price of futures contracts, interest rates and
the underlying hedged assets.
Securities Transactions and Investment Income:
Securities transactions are
recorded on the trade date. Realized gains and
losses on sales of securities are
calculated on the identified cost basis.
Interest income is recorded on the
accrual basis. The Series amortizes premiums and
original issue discount paid on
purchases of portfolio securities as adjustments
to interest income. 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 by $5,209 and decrease accumulated
realized gains by $5,209. The current
year effect of applying the Statement of
Position was 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
- ------------------------------------------------
- --------------------------------
7
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements
(Unaudited) MARYLAND
SERIES
- ------------------------------------------------
- --------------------------------
regulations which may differ from generally
accepted accounting principles.
- ------------------------------------------------
- ------------
Note 2. Agreements
The Fund has a management agreement with
Prudential Investments Fund Management
LLC ('PIFM'). Pursuant to this agreement, PIFM
has responsibility for all
investment advisory services and supervises the
subadviser's performance of such
services. PIFM has entered into a subadvisory
agreement with The Prudential
Investment Corporation ('PIC'); PIC furnishes
investment advisory services in
connection with the management of the Fund. PIFM
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 PIFM 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
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, 1998.
PSI has advised the Series that it has received
approximately $4,000 in
front-end sales charges resulting from sales of
Class A shares during the six
months ended February 28, 1998. 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, 1998, it
received approximately $12,400 in contingent
deferred sales charges imposed upon
certain redemptions by Class B shareholders.
PIFM, PIC and PSI are indirect, wholly owned
subsidiaries of The Prudential
Insurance Company of America.
The Series, along with other affiliated
registered investment companies (the
'Funds'), has a credit agreement (the
'Agreement') with an unaffiliated lender.
The maximum commitment under the Agreement is
$200,000,000. 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 during the six
months ended February 28, 1998. 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. The Agreement
expired on December 30, 1997 and has been
extended through December 29, 1998
under the same terms.
- ------------------------------------------------
- ------------
Note 3. Other Transactions With Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a
wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent. During the
six months ended February 28,
1998, the Series incurred fees of approximately
$10,400 for the services of
PMFS. As of February 28, 1998, approximately
$1,700 of such fees were due to
PMFS. Transfer agent fees and expenses in the
Statement of Operations include
certain out-of-pocket expenses paid to
nonaffiliates.
- ------------------------------------------------
- ------------
Note 4. Portfolio Securities
Purchases and sales of portfolio securities of
the Series, excluding short-term
investments, for the six months ended February
28, 1998 were $5,746,152 and
$5,473,859, respectively.
The cost basis of investments for federal income
tax purposes at February 28,
1998 was substantially the same as for financial
reporting purposes and,
accordingly net unrealized appreciation of
investments for federal income tax
purposes was $2,284,056 (gross unrealized
appreciation--$2,298,906; gross
unrealized depreciation $14,850).
During the six months ended February 28, 1998,
the Series entered into financial
future contracts. Details of open contracts at
February 28, 1998 are as follows:
<TABLE>
<CAPTION>
Value at Value at Unrealized
Number of Expiration
February 28, Trade Appreciation/
Contracts Type Date
1998 Date (Depreciation)
- -------------- ------------ ----------
- ------------ ---------- --------------
<S> <C> <C>
<C> <C> <C>
Short Position:
16 Muni Bond June 1998
$1,950,500 $1,957,750 $ 7,250
Long Position:
8 U.S. T-Bond June 1998
963,750 973,000 (9,250)
- -------
$ (2,000)
- -------
- -------
</TABLE>
- ------------------------------------------------
- --------------------------------
8
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements
(Unaudited) MARYLAND
SERIES
- ------------------------------------------------
- --------------------------------
Note 5. Capital
The Series offers Class A, Class B and Class C
shares. Class A shares are sold
with a front-end sales charge of up to 3%. Class
B shares are sold with a
contingent deferred sales charge which declines
from 5% to zero depending on the
period of time the shares are held. Class C
shares are sold with a contingent
deferred sales charge of 1% during the first
year. Class B shares 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, 1998 and fiscal year ended August 31, 1997
were as follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- ----------------------------------- ----------
- ------------
<S> <C>
<C>
Six months ended February 28, 1998:
Shares sold........................ 14,462
$ 160,587
Shares issued in reinvestment of
dividends........................ 28,116
313,812
Shares reacquired..................
(117,001) (1,302,733)
----------
- ------------
Net decrease in shares outstanding
before conversion................
(74,423) (828,334)
Shares issued upon conversion from
Class B.......................... 73,300
815,987
----------
- ------------
Net decrease in shares
outstanding......................
(1,123) $ (12,347)
----------
- ------------
----------
- ------------
Year ended August 31, 1997:
Shares sold........................ 20,673
$ 224,724
Shares issued in reinvestment of
dividends........................ 69,189
749,136
Shares reacquired..................
(344,495) (3,737,905)
----------
- ------------
Net decrease in shares outstanding
before conversion................
(254,633) (2,764,045)
Shares issued upon conversion from
Class B.......................... 236,576
2,564,070
----------
- ------------
Net decrease in shares
outstanding......................
(18,057) $ (199,975)
----------
- ------------
----------
- ------------
<CAPTION>
Class B Shares
Amount
- ----------------------------------- ----------
- ------------
<S> <C>
<C>
Six months ended February 28, 1998:
Shares sold........................ 43,576
$ 484,316
Shares issued in reinvestment of
dividends........................ 18,291
204,366
Shares reacquired..................
(110,404) (1,227,796)
----------
- ------------
Net decrease in shares outstanding
before conversion................
(48,537) (539,114)
Shares reacquired upon conversion
into
Class A..........................
(73,169) (815,987)
----------
- ------------
Net decrease in shares
outstanding......................
(121,706) $ (1,355,101)
----------
- ------------
----------
- ------------
Year ended August 31, 1997:
Shares sold........................ 47,087
$ 508,644
Shares issued in reinvestment of
dividends........................ 53,118
575,850
Shares reacquired..................
(275,123) (2,982,939)
----------
- ------------
Net decrease in shares outstanding
before conversion................
(174,918) (1,898,445)
Shares reacquired upon conversion
into Class A.....................
(236,258) (2,564,070)
----------
- ------------
Net decrease in shares
outstanding......................
(411,176) $ (4,462,515)
----------
- ------------
----------
- ------------
<CAPTION>
Class C
- -----------------------------------
<S> <C>
<C>
Six months ended February 28, 1998:
Shares sold........................ --
$ --
Shares issued in reinvestment of
dividends........................ 105
1,176
Shares reacquired.................. --
- --
----------
- ------------
Net increase in shares
outstanding...................... 105
$ 1,176
----------
- ------------
----------
- ------------
Year ended August 31, 1997:
Shares sold........................ 3,134
$ 34,001
Shares issued in reinvestment of
dividends........................ 153
1,666
Shares reacquired..................
(1,479) (15,987)
----------
- ------------
Net increase in shares
outstanding...................... 1,808
$ 19,680
----------
- ------------
----------
- ------------
</TABLE>
- ------------------------------------------------
- --------------------------------
9
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights (Unaudited)
MARYLAND SERIES
- ------------------------------------------------
- --------------------------------
<TABLE>
<CAPTION>
Class A
- ------------------------------------------------
- -----------------------
Six Months
Ended Year Ended August
31,
February 28, -------------------------------
- -----------------------
1998 1997 1996 1995
1994 1993
- ------------ ------- ------- -------
- ------- ------
<S>
<C> <C> <C> <C>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period................ $ 10.99 $
10.74 $ 10.66 $ 10.66 $ 11.64
$11.11
- ------ ------- ------- -------
- ------- ------
Income from investment operations
Net investment
income...............................
.24 .49(a) .51(a) .53(a)
.57 .62
Net realized and unrealized gain (loss) on
investment
transactions..........................
.29 .39 .08 .10
(.77) .65
- ------ ------- ------- -------
- ------- ------
Total from investment
operations................. .53
.88 .59 .63 (.20)
1.27
- ------ ------- ------- -------
- ------- ------
Less distributions
Dividends from net investment
income................ (.24)
(.49) (.51) (.53) (.57)
(.62)
Distributions in excess of net investment
income.... --(c) (.01)
- -- -- -- --
Distributions from net realized
gains............... (.04)
(.13) -- (.10) (.21)
(.12)
- ------ ------- ------- -------
- ------- ------
Total
distributions..............................
(.28) (.63) (.51) (.63)
(.78) (.74)
- ------ ------- ------- -------
- ------- ------
Net asset value, end of
period...................... $ 11.24
$ 10.99 $ 10.74 $ 10.66 $ 10.66
$11.64
- ------ ------- ------- -------
- ------- ------
- ------ ------- ------- -------
- ------- ------
TOTAL
RETURN(b):....................................
4.87% 8.38% 5.58% 6.32%
(1.75)% 11.89%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)..................... $ 18,971
$18,558 $18,339 $17,726 $ 2,709
$2,930
Average net assets
(000)............................ $ 18,872
$18,970 $18,484 $11,341 $ 2,877
$2,068
Ratios to average net assets:
Expenses, including distribution
fees............ 1.19%(d) 1.12%(a)
1.10%(a) 1.30%(a) .95% .96%
Expenses, excluding distribution
fees............ 1.09%(d) 1.02%(a)
1.00%(a) 1.20%(a) .85% .86%
Net investment
income............................
4.32%(d) 4.52%(a) 4.69%(a) 4.96%(a)
5.18% 5.51%
For Class A, B and C shares:
Portfolio turnover
rate.......................... 17%
30% 42% 49% 40%
41%
</TABLE>
- ---------------
(a) Net of management fee waiver.
(b) Total return does not consider the effects
of sales loads. Total return is
calculated assuming a purchase of shares on
the first day and a sale on the
last day of each period reported and
includes reinvestment of dividends and
distributions. Total returns for periods of
less than a full year are not
annualized.
(c) Less than $.005 per share.
(d) Annualized.
- ------------------------------------------------
- --------------------------------
See Notes to Financial Statements. 10
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights (Unaudited)
MARYLAND SERIES
- ------------------------------------------------
- --------------------------------
<TABLE>
<CAPTION>
Class B
- ------------------------------------------------
- -------------------------
Six Months
Ended Year Ended August
31,
February 28, -------------------------------
- -------------------------
1998 1997 1996 1995
1994 1993
- ------------ -------- ------- ------
- - ------- -------
<S>
<C> <C> <C> <C>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period................ $ 11.00 $
10.75 $ 10.67 $ 10.67 $ 11.65 $
11.12
- ------ -------- ------- -------
- ------- -------
Income from investment operations
Net investment
income...............................
.22 .45(a) .47(a) .49(a)
.53 .58
Net realized and unrealized gain (loss) on
investment
transactions..........................
.29 .39 .08 .10
(.77) .65
- ------ -------- ------- -------
- ------- -------
Total from investment
operations................. .51
.84 .55 .59 (.24)
1.23
- ------ -------- ------- -------
- ------- -------
Less distributions
Dividends from net investment
income................ (.22)
(.45) (.47) (.49) (.53)
(.58)
Distributions in excess of net investment
income.... --(c) (.01)
- -- -- -- --
Distributions from net realized
gains............... (.04)
(.13) -- (.10) (.21)
(.12)
- ------ -------- ------- -------
- ------- -------
Total
distributions..............................
(.26) (.59) (.47) (.59)
(.74) (.70)
- ------ -------- ------- -------
- ------- -------
Net asset value, end of
period...................... $ 11.25
$ 11.00 $ 10.75 $ 10.67 $ 10.67
$ 11.65
- ------ -------- ------- -------
- ------- -------
- ------ -------- ------- -------
- ------- -------
TOTAL
RETURN(b):....................................
4.66% 7.94% 5.16% 5.88%
(2.13)% 11.43%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)..................... $ 13,373 $
14,412 $18,512 $21,414 $51,198
$57,598
Average net assets
(000)............................ $ 13,744
$ 16,113 $19,898 $33,497 $55,223
$53,780
Ratios to average net assets:
Expenses, including distribution
fees............ 1.59%(d)
1.52%(a) 1.50%(a) 1.55%(a) 1.35%
1.36%
Expenses, excluding distribution
fees............ 1.09%(d)
1.02%(a) 1.00%(a) 1.05%(a) .85%
.86%
Net investment
income............................
3.92%(d) 4.12%(a) 4.30%(a) 4.84%(a)
4.77% 5.11%
</TABLE>
- ---------------
(a) Net of management fee waiver.
(b) Total return does not consider the effects
of sales loads. Total return is
calculated assuming a purchase of shares on
the first day and a sale on the
last day of each period reported and
includes reinvestment of dividends and
distributions. Total returns for periods of
less than a full year are not
annualized.
(c) Less than $.005 per share.
(d) Annualized.
- ------------------------------------------------
- --------------------------------
See Notes to Financial Statements. 11
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights (Unaudited)
MARYLAND SERIES
- ------------------------------------------------
- --------------------------------
<TABLE>
<CAPTION>
Class C
- ------------------------------------------------
- --------------------------
August 1,
Six Months
1994(d)
Ended Year Ended August 31,
through
February 28, -------------------------------
- ----------- August 31,
1998 1997 1996
1995 1994
- ------------ -------- ------------ -
- ----------- ----------
<S>
<C> <C> <C>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period................ $ 11.00 $
10.75 $10.67 $ 10.67 $
10.70
- ------ -------- ----- -
- ----- ----------
Income from investment operations
Net investment
income...............................
.21 .42(a) .44(a)
.47(a) .05
Net realized and unrealized gain (loss) on
investment
transactions..........................
.29 .39 .08
.10 (.03)
- ------ -------- ----- -
- ----- ----------
Total from investment
operations................. .50
.81 .52 .57
.02
- ------ -------- ----- -
- ----- ----------
Less distributions
Dividends from net investment
income................ (.21)
(.42) (.44) (.47)
(.05)
Distributions in excess of net investment
income.... --(e) (.01)
- -- -- --
Distributions from net realized
gains............... (.04)
(.13) -- (.10)
- --
- ------ -------- ----- -
- ----- ----------
Total
distributions..............................
(.25) (.56) (.44)
(.57) (.05)
- ------ -------- ----- -
- ----- ----------
Net asset value, end of
period...................... $ 11.25
$ 11.00 $10.75 $ 10.67
$ 10.67
- ------ -------- ----- -
- ----- ----------
- ------ -------- ----- -
- ----- ----------
TOTAL
RETURN(c):....................................
4.53% 7.68% 4.90%
5.62% .07%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)..................... $ 71 $
68 $ 47 $ 52 $
102
Average net assets
(000)............................ $ 70
$ 49 $ 43 $ 58
$ 31
Ratios to average net assets:
Expenses, including distribution
fees............ 1.84%(b)
1.77%(a) 1.75%(a) 1.82%(a)
2.21%(b)
Expenses, excluding distribution
fees............ 1.09%(b)
1.02%(a) 1.00%(a) 1.07%(a)
1.47%(b)
Net investment
income............................
3.67%(b) 3.72%(a) 4.05%(a)
4.55%(a) 4.75%(b)
</TABLE>
- ---------------
(a) Net of management fee waiver.
(b) Annualized.
(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) Less than $.005 per share.
- ------------------------------------------------
- --------------------------------
See Notes to Financial Statements. 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.
Mendel A. Melzer, CFA
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Louis A. Weil, III
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07102-3777
Distributor
Prudential 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 Accountants
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,
1998 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
74435M705
74435M804 MF125E2
74435M572 Cat# 6420935
