(ICON)
Prudential
Municipal
Series Fund
- -------------------------
Connecticut
Money Market Series
SEMI
ANNUAL
REPORT
Feb. 28, 1999
(LOGO)
<PAGE>
Prudential Municipal Series Fund
Connecticut Money Market Series
Performance At A Glance.
Yields on municipal money market securities fell during the
six
months ended February 28, 1999 because the supply of
securities
declined while demand for them remained strong, and the
Federal
Reserve repeatedly eased monetary policy. Nevertheless, your
Prudential Municipal Series Fund--Connecticut Money Market
Series
provided a competitive level of tax-exempt income. We took
advantage
of good buying opportunities among high-quality Connecticut
bonds
maturing in one year.
<TABLE>
Fund Facts As of 2/28/99
<CAPTION>
7-Day Net Asset
Taxable Equivalent Yield* Weighted Avg. Net Assets
Current Yld. Value (NAV) @31%
@36% @39.6% Mat. (WAM) (Millions)
<S> <C> <C> <C>
<C> <C> <C> <C>
CT Money
Market Series 2.11% $1
3.19% 3.44% 3.65% 69 Days $95
IBC Financial Data
Tax-Free State Specific
(SB & GP-CT) Avg.** 2.15% $1
3.26% 3.52% 3.73% 43 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
not insured or guaranteed by the Federal Deposit Insurance
Corporation
or any other government agency. Although the Series seeks to
preserve
the value of your investment at $1.00 per share, it is
possible to
lose money by investing in the Series.
* Some investors may be subject to the federal alternative
minimum
tax and/or state and local taxes. Taxable equivalent yields
reflect
federal and applicable state tax rates.
** International Business Communications (IBC) Financial
Data reports
a seven-day current yield, NAV, and WAM on Mondays. This is
the
data of all funds in the IBC Financial Data Tax-Free State
Specific
Average (Stock Broker (SB) & General Purpose (GP) -
Connecticut)
category as of March 1, 1999.
Tracking Tax-Free Money Fund Yields.
(GRAPH)
How Investments Compared.
(As of 2/28/99)
(GRAPH)
Source: Lipper, Inc. 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; they don't fluctuate much in price but,
historically, their returns have been generally among
the lowest of the major investment categories.
*19 years for U.S. Tax-Exempt Money Funds.
<PAGE>
Richard S. Lynes, Fund Manager (PHOTO)
Portfolio
Manager's Report
The Prudential Municipal Series Fund--Connecticut Money
Market
Series seeks to provide the highest level of current income
that
is exempt from federal income taxes and Connecticut state
income
taxes, consistent with liquidity and the preservation of
capital.
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.
The Importance of WAM.
Weighted Average Maturity (WAM) takes into account the
maturity
level of each security held by a fund. WAM is a measurement
tool
that determines a fund's sensitivity to changes in interest
rates.
A lengthened WAM enables a fund's yield to remain higher for
a
longer period of time during declining interest-rate cycles.
Strategy Session.
Coping With a Supply-Demand Imbalance.
We ideally wanted to invest in a mixture of municipal money
market
securities that would keep the Series' WAM longer than
average
and still provide us with quick access to cash to satisfy
shareholder liquidity needs. Extending the WAM would have
allowed the Series' yield to remain higher for a longer time
as tax-exempt money market yields declined.
Yields on municipal money market securities fell partly
because
there was such strong demand for the dwindling supply of
securities. Competition was fierce in Connecticut, where
many residents in higher tax brackets seek the tax
advantages
afforded by municipal debt securities. Buying longer-term
Connecticut money market securities that met our high-
quality
standards in order to extend the Series' WAM proved to be
very
challenging. Thus we were able to maintain a longer-than-
average
WAM for only a portion of the six-month period.
The supply-demand imbalance was not confined to Connecticut,
however. Among tax-exempt notes, which mature in 13 months
or
less, the total dollar volume issued in 1998 was down 25%
from
1997, according to Municipal Market Data. The 1998 tally was
the lowest in a decade. This drop in issuance occurred
because
short-term borrowing needs of many state and local
governments
declined amid favorable domestic economic conditions. Many
municipalities also preferred to issue bonds instead of
notes
in order to lock in low yields for a longer period of time.
While some of these bonds are scheduled to mature in 20
years
or more, others come due in as little as one year. We
therefore
found good buying opportunities among one-year Connecticut
bonds,
which were an attractive alternative to the more
conventional
municipal money market securities such as notes.
<PAGE>
What Went Well.
Buying Short-Term Bonds.
We purchased AAA-rated insured bonds that matured in one
year,
such as those of the cities of South Windsor and New Haven,
Connecticut. They provided solid yields and significantly
extended the Series' WAM during January and February 1999.
Having a longer WAM worked well because it helped the Series
weather the sharp drop in municipal money market yields that
usually occurs in the first few months of the year. Yields
fell during this time as investors rushed to reinvest money
received from coupon payments and maturing tax-exempt bonds.
And Not So Well.
Our WAM Shortened.
A global financial crisis spread from Asia to Russia and
Latin
America in August. To calm world financial markets and
restore
confidence in the U.S. economy, the Federal funds rate (the
rate
U.S. banks charge each other for overnight loans) was
lowered
three times in the autumn of 1998. Because we knew tax-
exempt
money market yields would edge lower with the Federal funds
rate,
we ideally wanted to lengthen the Series' WAM before yields
fell
even further. Unfortunately, we were not able to buy enough
longer-term Connecticut money market securities so the WAM
shortened considerably in October and early November 1998.
Having a shorter WAM as yields headed lower caused the
Series
to underperform the competitive average.
Weighted Average Maturity Compared
To The Average Fund.
(GRAPH)
Looking Ahead.
We plan to shorten the Series' WAM until it is more in
line with our competition by purchasing very short-term
Connecticut money market securities that can be quickly
converted into cash. This cash will be used from mid- April
to early May to satisfy shareholder liquidity needs prompted
by their income tax payments. Having quicker access to cash
will also enable us to take advantage of attractive buying
opportunities that usually emerge during tax season as
portfolio managers sell money market securities to meet
their shareholder liquidity needs.
Turning to U.S. monetary policy, we believe the Federal
Reserve will hold the Federal funds rate steady in coming
months as the U.S. economic expansion slows and inflation
remains in check.
1
<PAGE>
A Message to Our Shareholders April 19,
1999
(PHOTO)
Dear Shareholder,
For the last several months, major index advances have been
driven by the stocks of a handful of very large companies.
These stocks are getting more and more expensive, out of
proportion to their earnings expectations. As a result, a
substantial disparity in value has grown between large and
small companies and between growth and value stocks.
Since not all stocks are benefiting from the highly
publicized
euphoria surrounding each record-breaking milestone, it is
unlikely that these trends will continue. In fact, signs
that the tide is turning are starting to emerge. Moreover,
history shows that markets generally bring prices in line
with earnings performance sooner or later.
Many sectors of the bond market, on the other hand, have
already begun to rebound from last year's global financial
crisis. Furthermore, while bonds have not generated higher
returns than stocks in recent years, they have demonstrated
that they hold up better during market downturns. That's a
thought to keep in mind going forward.
Diversification Is Critical.
What does this suggest? Instead of chasing recent market
winners,
investors should have a well-diversified asset allocation
strategy
in place and keep to it. It is also a good practice to
rebalance
your holdings when necessary to keep your asset allocation
consistent with your long-term objectives and risk
tolerance.
A properly diversified portfolio of value- and growth-
oriented
mutual funds, bond funds and money market funds could help
you
weather inevitable market turbulence and receive more
consistent
returns over time. Prudential offers a wide range of mutual
funds
to help our shareholders diversify. We have also designed
several
balanced and diversified funds to allow one-decision
diversification.
Thank you for your continued confidence in Prudential mutual
funds.
Sincerely,
John R. Strangfeld
Chief Investment Officer
Prudential Investments
2
<PAGE>
Portfolio of Investments as
of February 28, 1999 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>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Ansonia Connecticut, Gen. Oblig., Ser. 98, F.G.I.C.
Aaa 4.00% 10/15/99 $ 1,175 $ 1,181,442
Branford Connecticut, Gen. Oblig.
A-1(d) 5.00 5/15/99 500 502,033
Brookfield Connecticut, Gen. Oblig., B.A.N.
NR 3.00 12/09/99 1,000 1,000,373
Cheshire Connecticut, Gen. Oblig., Ser. A
Aa3 4.00 8/01/99 235 235,334
Connecticut St., Gen. Oblig.
NR 6.50 8/01/99 900 (c) 930,736
Connecticut St., Gen. Oblig., Puttable Tax Exempt Recpts.,
Ser. 27, F.R.W.D.
VMIG1 3.00 3/04/99 2,975 2,975,000
Ser. B
NR 6.50 8/01/99 1,000 (c) 1,034,151
Ser. C
Aa3 6.80 9/15/99 600 611,938
Connecticut St. Dev. Auth.,
Bradley Airport Hotel, Ser. 97A, F.R.W.D.
VMIG1 2.80 3/04/99 1,000 1,000,000
Bradley Airport Hotel, Ser. 97B, F.R.W.D.
VMIG1 2.80 3/04/99 3,000 3,000,000
Bradley Airport Hotel, Ser. 97C, F.R.W.D.
VMIG1 2.80 3/04/99 1,400 1,400,000
Conco Proj., Ser. 85, F.R.W.D.
P-1 2.75 3/04/99 1,700 1,700,000
Corp. for Independ. Living Proj., Ser. 90, F.R.W.D.
VMIG1 2.60 3/03/99 2,500 2,500,000
Rand Whitney Container Bd., Ser. 93, F.R.W.D., A.M.T.
P-1 2.60 3/03/99 5,000 5,000,000
Pierce Mem'l. Baptist Home, Ser. 99, F.R.W.D.
A-1+(d) 2.90 3/03/99 3,160 3,160,000
SHW Inc. Proj., Ser. 90, F.R.W.D., A.M.T.
CPS1 2.85 3/03/99 4,700 4,700,000
Connecticut St. Hlth. & Edl. Facs. Auth. Rev.,
Bradley Hlth. Care, Ser. B, F.R.W.D.
VMIG1 2.50 3/03/99 2,200 2,200,000
Charlotte Hungerford, Ser. C, F.R.W.D.
VMIG1 2.75 3/04/99 1,500 1,500,000
Fairfield University, Ser. F
NR 6.875 7/01/99 1,840 (c) 1,900,048
Pomfret School Issue, Ser. A, F.R.W.D.
VMIG1 2.85 3/03/99 1,000 1,000,000
Sharon Hosp. Issue, Ser. A, F.R.W.D.
VMIG1 2.75 3/04/99 1,400 1,400,000
Yale New Haven Hopital, Ser. G, M.B.I.A.
Aaa 5.80 7/01/99 795 802,514
Yale University,
Ser. S, T.E.C.P.
VMIG1 2.60 4/07/99 3,400 3,400,000
Ser. S, T.E.C.P.
VMIG1 2.80 5/03/99 3,000 3,000,000
Ser. T, F.R.W.D.
VMIG1 2.85 3/04/99 2,000 2,000,000
Connecticut St. Spec. Assmt.,
Second Injury Fund, T.E.C.P.
P-1 2.65 3/05/99 7,100 7,100,000
Second Injury Fund, T.E.C.P.
P-1 2.85 3/08/99 2,000 2,000,000
Second Injury Fund, T.E.C.P.
P-1 2.75 5/12/99 3,000 3,000,000
Unemployment Comp., Ser. 93C, A.N.N.M.T., F.G.I.C.
VMIG1 3.60 7/01/99 3,000 3,000,000
Connecticut St. Spec. Tax Oblig., Trans. Infrastrusture
Rev.,
Puttable Tax Exempt Recpts.,
Ser. 50B, F.R.W.D., F.S.A.
VMIG1 3.00 3/04/99 5,450 5,450,000
Ser. 94B, F.G.I.C.
Aaa 5.50 10/01/99 1,460 1,480,054
Darien Connecticut, Gen. Oblig.
Aaa 4.50 4/15/99 755 755,842
East Lyme Connecticut, B.A.N.
NR 2.95 1/20/00 4,500 4,503,094
Hartford Connecticut, Redev. Agcy., Underwood Twrs. Proj.,
Ser.
90, F.R.W.D., F.S.A.
A-1+(d) 2.80 3/04/99 600 600,000
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as
of February 28, 1999 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>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
New Haven Connecticut, Gen. Oblig.,
Ser. A, F.G.I.C.
Aaa 4.25% 2/01/00 $ 2,000 $ 2,024,578
Ser. B, F.G.I.C.
Aaa 3.75 2/01/00 1,500 1,512,186
Norwich Connecticut, Gen. Oblig., B.A.N.
NR 4.50 5/15/99 500 501,517
Plainfield Connecticut, Gen. Oblig., T.A.N.
NR 4.00 5/05/99 2,600 2,601,792
Puerto Rico Commwlth., Gov't. Dev. Bank, Ser. 95, T.E.C.P.
A-1+(d) 2.40 3/05/99 4,400 4,400,000
Puerto Rico Elec. Pwr. Auth., Munincipal Securities Trusts
Recpts.,
Ser. SGA43, F.R.W.D., M.B.I.A.
A-1+(d) 2.80 3/03/99 2,600 2,600,000
Puerto Rico Hsg. Fin. Corp., Multi-family Mtge. Rev., Port.
A,
Ser. 90I, M.O.T., A.M.B.A.C.
Aaa 2.80 3/15/99 2,455 2,455,000
Shelton Connecticut, Gen. Oblig., B.A.N.
NR 3.25 12/01/99 1,250 1,253,197
South Windsor Connecticut, Gen. Oblig., M.B.I.A.
Aaa 6.30 11/15/99 500 511,435
Stamford Connecticut, Gen. Oblig.
Aaa 7.00 3/15/99 1,000 1,001,288
Stamford Connecticut, Gen. Oblig.,
Ser. 80
Aaa 7.50 8/01/99 260 264,730
Stratford Connecticut, Gen. Oblig., A.M.B.A.C.
Aaa 6.00 4/15/99 250 250,880
West Hartford Connecticut, Gen. Oblig., Ser. 98
Aaa 5.60 11/01/99 1,000 1,017,713
- -----------
Total Investments--101.6%
(amortized cost $96,416,875(e))
96,416,875
Liabilities in excess of other assets--(1.6)%
(1,534,962)
- -----------
Net Assets--100%
$94,881,913
- -----------
- -----------
</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.
A.N.N.M.T.--Annual Mandatory Tender.
B.A.N.--Bond Anticipation Note.
F.G.I.C.--Financial Guaranty Insurance Company.
F.R.W.D.--Floating Rate (Weekly) Demand Note (b).
F.S.A.--Financial Security Assurance.
M.B.I.A.--Municipal Bond Insurance Association.
M.O.T.--Monthly Optional Tender.
T.A.N.--Tax Anticipation Notes.
T.E.C.P.--Tax-Exempt Commercial Paper.
(b) For purposes of amortized cost valuation, the maturity
date of Floating Rate
Demand Notes is considered to be the later of the next
date on which the
security can be redeemed at par, or the next date on
which the rate of
interest is adjusted.
(c) Prerefunded issues are secured by escrowed cash and/or
direct U.S.
guaranteed obligations.
(d) Standard & Poor's rating.
(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>
PRUDENTIAL MUNICIPAL
SERIES FUND
Statement of Assets and Liabilities
(Unaudited) CONNECTICUT MONEY
MARKET SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Assets
February 28, 1999
<S>
<C>
Investments, at amortized cost which approximates market
value............................................ $
96,416,875
Cash........................................................
..............................................
20,585
Interest
receivable..................................................
..................................... 598,463
Receivable for Series shares
sold........................................................
................. 541,607
Other
assets......................................................
........................................
1,229
- -----------------
Total
assets......................................................
..................................... 97,578,759
- -----------------
Liabilities
Payable for Series shares
reacquired..................................................
.................... 2,554,732
Accrued
expenses....................................................
...................................... 78,359
Management fee
payable.....................................................
............................... 37,606
Dividends
payable.....................................................
.................................... 17,332
Deferred trustee's
fees........................................................
........................... 4,473
Distribution fee
payable.....................................................
............................. 4,344
- -----------------
Total
liabilities.................................................
..................................... 2,696,846
- -----------------
Net
Assets......................................................
.......................................... $
94,881,913
- -----------------
- -----------------
Net assets were comprised of:
Shares of beneficial interest, at $.01 par
value.......................................................
$ 948,819
Paid-in capital in excess of
par.........................................................
.............. 93,933,094
- -----------------
Net assets, February 28,
1999........................................................
..................... $ 94,881,913
- -----------------
- -----------------
Net asset value, offering price and redemption price per
share ($94,881,913 / 94,881,913 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,
1999
<S> <C>
Income
Interest earned......................... $ 1,397,756
--------------
- ---
Expenses
Management fee.......................... 222,171
Distribution fee........................ 55,543
Custodian's fees and expenses........... 29,000
Registration fees....................... 23,000
Transfer agent's fees and expenses...... 16,500
Reports to shareholders................. 16,000
Legal fees and expenses................. 4,700
Audit fee and expenses.................. 4,000
Trustees' fees and expenses............. 2,900
Miscellaneous........................... 1,065
--------------
- ---
Total expenses....................... 374,879
Less: Custodian fee credit (Note 1).....
(16,851)
--------------
- ---
Net expenses......................... 358,028
--------------
- ---
Net investment income...................... 1,039,728
Realized Gain on Investments
Net realized gain on investment
transactions............................ 5,471
--------------
- ---
Net Increase in Net Assets
Resulting from Operations.................. $ 1,045,199
--------------
- ---
--------------
- ---
</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 1999 1998
<S> <C> <C>
Operations
Net investment income........ $ 1,039,728 $
2,268,083
Net realized gain on
investment transactions... 5,471
1,460
------------- ---------
- ----
Net increase in net assets
resulting from
operations................ 1,045,199
2,269,543
------------- ---------
- ----
Dividends and distributions
(Note 1)..................... (1,045,199)
(2,269,543)
------------- ---------
- ----
Series share transactions
(at $1 per share)
Net proceeds from shares
sold...................... 183,313,368
389,111,500
Net asset value of shares
issued in reinvestment of
dividends and
distributions............. 1,032,257
2,204,564
Cost of shares reacquired.... (184,581,160)
(372,125,422)
------------- ---------
- ----
Net increase (decrease) in
net assets from Series
share transactions........ (235,535)
19,190,642
------------- ---------
- ----
Total increase (decrease)....... (235,535)
19,190,642
Net Assets
Beginning of period............. 95,117,448
75,926,806
------------- ---------
- ----
End of period................... $ 94,881,913 $
95,117,448
------------- ---------
- ----
------------- ---------
- ----
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 6
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements
(Unaudited) CONNECTICUT MONEY
MARKET SERIES
- ------------------------------------------------------------
- --------------------
Prudential Municipal Series Fund (the 'Fund') is registered
under the Investment
Company Act of 1940, as an open-end investment company. The
Fund was organized
as a Massachusetts business trust on May 18, 1984 and
consists of 11 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
nondiversified 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
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 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 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
Investment Management
Services LLC ('PIMS'), which acts as the distributor of the
Fund. The Fund
compensates PIMS for distributing and servicing the Fund's
shares pursuant to
the plan of distribution regardless of expenses actually
incurred by them. The
Series reimburses PIMS 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.
PIFM, PIC and PIMS 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 PIFM,
serves as the Fund's transfer agent. During the six months
ended February 28,
1999, the Series incurred fees of approximately $14,000 for
the services of
PMFS. As of February 28, 1999, approximately $1,900 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
nonaffiliates.
- ------------------------------------------------------------
- --------------------
7
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) CONNECTICUT MONEY
MARKET SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Six months
Ended Year Ended August 31,
February 28, -------------------------------------------
1999 1998 1997 1996 1995
- ------ ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE:
<S>
<C> <C> <C> <C> <C>
Net asset value, beginning of
period......................... $ 1.00 $ 1.00
$ 1.00 $ 1.00 $ 1.00
Net investment income and realized
gains..................... .01 .03
.03(a) .03(a) .03(a)
Dividends and
distributions..................................
(.01) (.03) (.03) (.03) (.03)
- ------ ------- ------- ------- -------
Net asset value, end of
period............................... $ 1.00 $
1.00 $ 1.00 $ 1.00 $ 1.00
- ------ ------- ------- ------- -------
- ------ ------- ------- ------- -------
TOTAL
RETURN(b):.............................................
1.18% 2.72% 3.10% 3.17% 3.16%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).............................. $ 94,882
$95,117 $75,927 $77,683 $62,867
Average net assets
(000)..................................... $ 89,605
$84,800 $77,500 $74,576 $57,103
Ratios to average net assets:
Expenses, including distribution
fee....................... .84%(c) .86%
.46%(a) .47%(a) .58%(a)
Expenses, excluding distribution
fee....................... .72%(c) .74%
.34%(a) .35%(a) .46%(a)
Net investment
income......................................
2.34%(c) 2.68% 3.06%(a) 3.12%(a) 3.17%(a)
<CAPTION>
1994
- -------
PER SHARE OPERATING PERFORMANCE:
<S>
<C>
Net asset value, beginning of
period......................... $ 1.00
Net investment income and realized
gains..................... .02(a)
Dividends and
distributions.................................. (.02)
- -------
Net asset value, end of
period............................... $ 1.00
- -------
- -------
TOTAL
RETURN(b):.............................................
2.02%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).............................. $54,302
Average net assets
(000)..................................... $60,594
Ratios to average net assets:
Expenses, including distribution
fee....................... .54%(a)
Expenses, excluding distribution
fee....................... .42%(a)
Net investment
income...................................... 1.99%(a)
</TABLE>
- ---------------
(a) Net of management fee waiver.
(b) Total return 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. 8
<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
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Louis A. Weil, III
Officers
Robert F. Gunia, President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
Deborah A. Docs, Secretary
David F. Connor, 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 Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
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
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Swidler Berlin Shereff Friedman, 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,
1999
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
74435M648 MF154E2
(ICON)
Prudential
Municipal
Series Fund
- -----------------
Florida Series
SEMI
ANNUAL
REPORT
Feb. 28, 1999
(LOGO)
<PAGE>
Prudential Municipal Series Fund
Florida Series
Performance At A Glance.
During the six months ended February 28, 1999, municipal
bonds
initially rallied on the coattails of U.S. Treasuries,
which
gained as investors fleeing a global financial crisis
purchased
the securities. As the financial chaos subsided and
investors
sold Treasuries, tax-exempt bonds also erased some of their
early price increases. Nevertheless, your Prudential
Municipal
Series Fund--Florida Series' Class A shares provided a
return
that slightly exceeded the average fund tracked by Lipper,
Inc.
Taking profits on some of our lower-rated bonds helped boost
the Series' returns.
<TABLE>
Cumulative Total Returns1 As of
2/28/99
<CAPTION>
Six One Five Since
Months Year Years
Inception2
<S> <C> <C> <C> <C>
Class A 1.86% 5.21% 34.25% (31.86) 84.33%
(76.39)
Class B 1.68 4.82 N/A 34.82
(32.93)
Class C 1.55 4.55 29.91 (27.60) 34.24
(30.98)
Class Z 1.93 5.24 N/A 15.49
(15.27)
Lipper FL Muni
Debt Fd. Avg.3 1.78 5.08 32.70 ***
</TABLE>
<TABLE>
Average AnnualTotal Returns1 As of
3/31/99
<CAPTION>
One Five Since
Year Years Inception2
<S> <C> <C> <C>
Class A 1.75% 6.44% (6.07) 7.27% (6.69)
Class B -0.49 N/A 6.39 (6.07)
Class C 2.21 6.18 (5.81) 5.09 (4.63)
Class Z 4.94 N/A 6.33 (6.25)
</TABLE>
<TABLE>
Distributions & Yields As of
2/28/99
<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 $0.25 3.83% 5.98%
6.34%
Class B $0.23 3.70 5.78
6.13
Class C $0.22 3.41 5.33
5.65
Class Z $0.26 4.20 6.56
6.95
</TABLE>
Past performance is not indicative of future results.
Principal
and investment return will fluctuate so that an investor's
shares,
when redeemed, may be worth more or less than their original
cost.
1 Source: Prudential Investments Fund Management and Lipper,
Inc.
The cumulative total returns do not take into account sales
charges.
The average annual total returns do take into account
applicable
sales charges. The Series charges a maximum front-end sales
charge
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 B shares will automatically convert to Class
A
shares, on a quarterly basis, approximately seven years
after
purchase. Class C shares are subject to a front-end sales
charge
of 1% and a CDSC of 1% for 18 months. Class C shares bought
before
November 2, 1998 have a 1% CDSC if sold within one year.
Class Z
shares are not subject to a sales charge or distribution
fee.
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 ( ).
2 Inception dates: Class A, 12/28/90; Class B, 8/1/94; Class
C, 7/26/93; and Class Z, 12/6/96.
3 Lipper average returns are for all funds in each share
class
for the six-month, one-, and five-year periods in the
Florida
Municipal Debt Fund category.
4 Taxable equivalent yields reflect federal and applicable
state tax rates.
***Lipper Since Inception returns are 79.52% for Class A;
35.66% for Class B; 36.59% for Class C; and 14.65% for Class
Z based on all funds in each share class.
How Investments Compared.
(As of 2/28/99)
(GRAPH)
Source: Lipper, Inc. 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; they don't fluctuate much in price but,
historically, their returns have been generally among
the lowest of the major investment categories.
*19 years for U.S. Tax-Exempt Money Funds.
<PAGE>
Scott Diamond, Fund Manager (PHOTO)
Portfolio
Manager's Report
The Series' investment objective is to maximize current
income
that is exempt from federal income taxes, consistent with
the
preservation of capital, and to invest in securities which
will
enable its shares to be exempt from the Florida intangibles
tax. Certain shareholders may be subject to the alternative
minimum tax (AMT), however. There can be no assurance the
Series will achieve its investment objective.
Key Municipal Bond Index Tumbles.
Municipal bonds did not rally as much as U.S. Treasuries
last autumn. However, municipal bond prices rose strongly
enough to drive the Bond Buyer Revenue Bond Index, a weekly
average of long-term municipal bond yields, to 5.09% in
early October.
This was the lowest level reached by the Index since its
inception in 1979. Yields fall as prices rise and vice
versa.
Strategy Session.
An Expected Fall in
Interest Rates.
We expected long-term interest rates to fall throughout the
reporting period because the U.S. economic expansion was
poised
to slow and inflation to remain tame after a global
financial
crisis spread from Asia to Russia and Latin America in
mid-summer. The overseas turmoil was expected to slow
U.S. economic growth as struggling countries in Asia and
Latin America purchased fewer goods and services from the
United States. Therefore, we aimed to keep the Series'
duration longer than its peer group. Duration is a measure
of sensitivity to interest rate changes. A longer duration
would generally enable the Series' shares to gain more
rapidly
if interest rates continued to fall and municipal prices
continued to climb.
In order to sustain a longer duration, we increased the
Series' holdings in noncallable municipal bonds. Noncallable
bonds tend to perform well when debt markets rally because
the bonds can appreciate in value without the risk of being
retired
early. Some of our noncallable bonds were also zero coupon
bonds, which typically trade at a deep discount to their
maturity value. Their prices have plenty of room to rise
when interest rates fall.
Portfolio Composition.
Expressed as a percentage of
total investments as of 2/28/99.
(PIE CHART)
<PAGE>
What Went Well.
Making the Right Calls.
The Series' performance was helped when one of its holdings,
bonds of the city of Mirimar, Florida, was prerefunded.
Bonds
that are prerefunded become backed by direct obligations of
the U.S. government, which significantly improves their
credit
quality. The price and value of these bonds were greatly
increased as a result of being prerefunded and, therefore,
increased the returns of the Series.
We made a decision to sell one of the Series' top three
holdings during the last six-month period-- Escambia
County Pollution Control Revenue for Champion International,
a BBB-rated paper company. We did this at a time when
commodity prices,
specifically paper commodity prices, appeared to be headed
drastically lower. We decided to take profits on this credit
and protect the value of the Series.
And Not So Well.
Too Many Zeroes.
Our zero coupon bond holdings, which helped us at the
beginning
of the reporting period, hurt us toward the end of the
period. When interest rates fell dramatically last fall,
prices of zero coupon bonds rose sharply since they trade
at deep discounts to their maturity value. However, rates
steadily began to rise as the reporting period
progressed and our zero coupon bonds fell in price and gave
back most of the gains they earned earlier.
Five Largest Issuers.
4.6% Puerto Rico Electric
Power Authority
4.4% Lakeland Electric &
Water
3.7% Puerto Rico
Commonwealth
3.7% Dade County
Prof. Sports Facs.
3.2% Brevard County School
Board Ctfs. of Part.
Expressed as a percentage of net assets as of 2/28/99.
Looking Ahead.
In the short run, we feel municipal bond prices will remain
in a trading range because of the U.S. economy's continued
resilience. However, we do not think the rally in tax-exempt
bonds is over. We believe U.S. economic growth will continue
to slow from the torrid pace of late 1998. Furthermore, we
believe that inflation will remain subdued as global
competition helps to keep prices of goods and services
in check. Since the level of interest rates typically
reflects the anticipated rate of inflation, we expect
interest rates to fall and bond prices to rise amid
continued low inflation.
Credit Quality.
Expressed as a percentage of
total investments as of 2/28/99.
(PIE CHART)
1
<PAGE>
A Message to Our Shareholders April 19,
1999
(PHOTO)
Dear Shareholder,
For the last several months, major index advances have been
driven by the stocks of a handful of very large companies.
These
stocks are getting more and more expensive, out of
proportion to
their earnings expectations. As a result, a substantial
disparity in value has grown between large and small
companies
and between growth and value stocks.
Since not all stocks are benefiting from the highly
publicized
euphoria surrounding each record-breaking milestone, it is
unlikely that these trends will continue. In fact, signs
that
the tide is turning are starting to emerge. Moreover,
history
shows that markets generally bring prices in line with
earnings
performance sooner or later.
Many sectors of the bond market, on the other hand, have
already
begun to rebound from last year's global financial crisis.
Furthermore, while bonds have not generated higher returns
than stocks in recent years, they have demonstrated that
they hold
up better during market downturns. That's a thought to keep
in mind going forward.
Diversification Is Critical.
What does this suggest? Instead of chasing recent market
winners,
investors should have a well-diversified asset allocation
strategy
in place and keep to it. It is also a good practice to
rebalance
your holdings, when necessary, to keep your asset allocation
consistent with your long-term objectives and risk
tolerance.
A properly diversified portfolio of value- and growth-
oriented
mutual funds, bond funds and money market funds could help
you
weather inevitable market turbulence and receive
more consistent returns over time. Prudential offers a wide
range of mutual funds to help our shareholders diversify.
We have also designed several balanced and diversified funds
to allow one-decision diversification.
Thank you for your continued confidence in Prudential mutual
funds.
Sincerely,
John R. Strangfeld
Chief Investment Officer
Prudential Investments
2
<PAGE>
Portfolio of Investments as
of February 28, 1999 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--97.4%
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Alachua Cnty. Ind. Dev. Auth. Rev., H.B. Fuller Co. Proj.,
A.M.T.
Aaa 7.75% 11/01/16 $ 3,000 $
3,118,380
Arbor Greene Cmty. Dev. Dist.,
Florida Assmt. Rev.
NR 5.75 5/01/06 690
693,961
Florida Assmt. Rev.
NR 6.30 5/01/19 350
354,581
Bayside Impvt. Cmty. Dev. Dist., Florida Cap. Impvt. Rev.,
Ser. A
NR 6.30 5/01/18 1,000
1,007,870
Boca Raton Cmty. Redev. Agcy. Tax Increment Rev., Cap.
Apprec.
Ref., Mizner Park Proj., F.S.A.
Aaa Zero 3/01/16 2,500
1,075,450
Brevard Cnty. Edl. Facs. Auth. Rev. Ref., Florida Inst. of
Tech.
BBB(b) 6.875 11/01/22 1,500
1,605,255
Brevard Cnty. Sch. Brd. Ctfs. of Part., Ser. A, A.M.B.A.C.
Aaa 6.50 7/01/12 3,500(d)
3,879,295
Broward Cnty. Arpt. Sys. Rev., Passenger Fac., Conv.,
A.M.B.A.C.
Aaa 5.25 10/01/15 1,000
1,025,290
Broward Cnty. Edl. Facs. Auth. Rev., Nova Univ. Dorm.
Proj., Ser. A
NR 7.50 4/01/17 1,500(d)
1,647,495
Broward Cnty. Hlth. Facs. Auth., North Beach Hosp.,
M.B.I.A.
Aaa 6.75 8/15/06 1,000
1,091,840
Broward Cnty. Hsg. Fin. Auth., Multi. Fam. Hsg. Rev.,
Cross Keys Apts. Proj., Ser. A
NR 5.75 10/01/28 1,300
1,344,434
Broward Cnty. Prof. Sports Facs. Rev., Civic Arena Proj.,
Ser. A
Aaa 5.625 9/01/28 2,185
2,297,287
Clay Cnty. Hsg. Fin. Auth. Rev., Sngl. Fam. Mtge.,
Ser. A, A.M.T., G.N.M.A.
Aa1 7.45 9/01/23 375
393,503
Cocoa Wtr. & Swr. Rev. Ref., F.G.I.C.
Aaa 5.25 10/01/17 1,230
1,289,778
Dade Cnty. Aviation Dept. Rev.,
Ser. B, A.M.T., M.B.I.A.
Aaa 6.00 10/01/24 1,500
1,623,510
Ser. E, A.M.B.A.C.
Aaa 5.50 10/01/10 1,000
1,082,750
Dade Cnty. Edl. Facs. Auth. Rev. Ref., Univ. Miami, Ser. A,
M.B.I.A.
Aaa 5.625 4/01/06 2,015
2,211,583
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
570,885
Dade Cnty. Hsg. Fin. Auth. Rev.,
Multi. Fam. Mtge., Golden Lakes Apts. Proj., Ser. A,
A.M.T.
NR 6.05 11/01/39 1,000
1,048,010
Sngl. Fam. Mtge., Ser. B, A.M.T., G.N.M.A
Aaa 7.25 9/01/23 330
345,685
Sngl. Fam. Mtge., Ser. C, A.M.T., G.N.M.A.
Aaa 7.75 9/01/22 625
652,119
Dade Cnty. Prof. Sports Franchise Facs. Tax Rev., E.T.M.,
M.B.I.A.
Aaa 5.25 10/01/30 4,200
4,382,826
Duval Cnty. Hsg. Fin. Auth. Rev., Sngl. Fam. Mtge., A.M.T.,
G.N.M.A.
AAA(b) 8.375 12/01/14 265
290,925
Escambia Cnty. Hlth. Fac. Rev., Baptist Hosp. & Baptist
Manor
A3 5.125 10/01/19 2,000
1,951,440
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as
of February 28, 1999 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>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Florida Hsg. Fin. Corp. Rev.,
Cypress Trace Apts., Ser. G, A.M.T.
NR 6.60% 7/01/38 $ 1,220 $
1,232,481
Westchase Apts., Ser. B, A.M.T.
NR 6.61 7/01/38 1,510
1,525,432
Florida St. Mun. Pwr. Agcy. Ref., Stanton II Proj.,
A.M.B.A.C.
Aaa 4.50 10/01/27 2,000
1,825,960
Greater Orlando Aviation Rev. Auth. Facs., Orlando Arpt.,
A.M.T., F.G.I.C.
Aaa 5.25 10/01/23 2,000
2,016,080
Hialeah Hsg. Auth. Rev., F.H.A., G.N.M.A.
AAA(b) 5.80 6/20/33 2,000
2,118,900
Hillsborough Cnty. Ind. Dev. Auth. Poll. Ctrl. Rev.,
Tampa Elec. Proj., Ser. 92
Aa3 8.00 5/01/22 1,750
1,998,132
Jacksonville Elec. Auth. Rev., St. Johns Rvr. Pwr. Park
Issue 2, Ser. 7
Aa2 Zero 10/01/10 3,000
1,780,410
Jacksonville Hlth. Facs. Auth. Hosp. Rev.,
Nat'l. Ben. Assoc.
Baa1 7.00 12/01/22 1,825
1,979,267
St. Lukes Hosp. Assoc. Proj.
AA+(b) 7.125 11/15/20 1,000
1,089,500
Jacksonville Swr. & Sld. Wste. Disp. Facs. Rev.,
Anheuser Busch Proj., A.M.T.
A1 5.875 2/01/36 1,000
1,063,850
Jacksonville Wtr. & Swr. Dev. Rev.,
Suburban Utils., A.M.T.
A3 6.75 6/01/22 1,000
1,084,480
United Wtr. Proj., A.M.T., A.M.B.A.C.
Aaa 6.35 8/01/25 1,500
1,689,405
Lake Cnty. Res. Rec. Ind. Dev. Rev., NRG Recov. Grp., Ser.
A, A.M.T.
Baa2 5.95 10/01/13 1,035
1,066,754
Lakeland Elec. & Wtr. Rev.
A1 5.625 10/01/36 5,000
5,274,650
Leon Cnty. Hsg. Fin. Auth. Rev., Sngl. Fam. Mtge.,
Ser. A, A.M.T., G.N.M.A.
Aaa 7.30 4/01/21 300
314,004
Martin Cnty. Ind. Dev. Auth. Rev., Indiantown Cogen. Proj.,
Ser. A, A.M.T.
Baa3 7.875 12/15/25 1,200
1,369,884
Miami Beach Hlth. Facs. Auth. Hosp. Rev., Mt. Sinai Med.
Cntr.
BBB(b) 5.375 11/15/28 1,000
977,420
Miami Parking Facs. Rev. Ref., M.B.I.A.
Aaa 5.25 10/01/15 400
423,716
Miami Spec. Oblig.,
Admn. Bldg. Acquis. Proj., F.G.I.C.
Aaa 6.00 2/01/16 1,500
1,652,220
Admn. Bldg. Acquis. Proj., F.G.I.C.
Aaa 6.00 2/01/25 500
548,085
Miami-Dade Cnty. Prof. Sports Fac. Tax Cap. Apprec. Ref.,
M.B.I.A.
Aaa Zero 10/01/16 2,650
1,107,488
Mirimar Wste. Wtr. Impvt. Assmt. Rev., F.G.I.C.
Aaa 6.75 10/01/16 1,590 (d)
1,838,167
Mount Dora Wtr. & Swr. Rev., F.S.A.
Aaa 5.00 10/01/18 1,350
1,353,240
Northern Palm Beach Cnty. Impt. Ref., Wtr. Ctl. & Impt.
NR 6.00 8/01/10 1,280
1,319,462
Okaloosa Cnty. Cap. Impvt. Rev., M.B.I.A.
Aaa Zero 12/01/06 450
326,381
Orange Cnty. Hsg. Fin. Auth. Mtge. Rev., Ser. A, A.M.T.,
G.N.M.A.
AAA(b) 7.375 9/01/24 420
444,289
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as
of February 28, 1999 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>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Orange Cnty. Hsg. Fin. Auth. Rev.,
Multi. Fam. Ashley Point Apts., Ser. A, A.M.T.
BBB+(b) 6.85% 10/01/16 $ 1,200 $
1,242,576
Multi. Fam. Ashley Point Apts., Ser. A, A.M.T.
BBB+(b) 7.10 10/01/24 855
885,199
Orlando Util. Comm., Wtr. & Elec. Rev., Ser. D
Aa2 6.75 10/01/17 2,200
2,675,200
Palm Beach Cnty. Hlth. Facs. Auth. Rev.,
Abbey Delray South Proj.
BBB(b) 5.50 10/01/11 750
768,180
Good Samaritan Hlth. Sys.
Aaa 6.30 10/01/22 1,000 (d)
1,111,890
Palm Beach Cnty. Hsg. Fin. Multi. Fam. Auth. Rev.,
Windsor Pk. Apts., A.M.T.
NR 5.80 12/01/28 680
711,436
Palm Beach Cnty. Sld. Wste. Auth. Rev. Ref., Cap. Apprec.
Bds.,
Ser. A, A.M.B.A.C.
Aaa Zero 10/01/12 4,000
2,109,920
Palm Beach Cnty., Gen. Oblig.
Aa2 5.50 12/01/14 2,000
2,178,920
Pensacola Hlth. Facs. Auth., Daughters of Charity, M.B.I.A.
Aaa 5.25 1/01/11 1,600
1,668,512
Polk Cnty. Ind. Dev. Auth., Sld. Wste. Disp. Fac. Rev.,
Tampa Elec. Co. Proj., A.M.T.
Aa2 5.85 12/01/30 1,500
1,603,395
Puerto Rico Comnwlth.,
Cap. Apprec. Ref. Pub. Impvt., Gen. Oblig.
Baa1 Zero 7/01/17 5,300
2,122,650
Gen. Oblig.
Baa1 Zero 7/01/15 2,235
1,003,314
Gen. Oblig.
Baa1 Zero 7/01/16 2,500
1,065,000
Gen. Oblig.
Aaa 6.45 7/01/17 1,400 (d)
1,598,016
Gen. Oblig.
Aaa 6.50 7/01/23 650 (d)
743,496
Puerto Rico Elec. Pwr. Auth. Rev., Ser. R
Baa1 6.25 7/01/17 5,000 (d)
5,483,900
Puerto Rico Pub. Bldgs. Auth. Rev. Gtd., Govt. Facs., Ser.
B
Baa1 5.25 7/01/21 1,915
1,922,449
Puerto Rico Tel. Auth. Rev., Ser. I, M.B.I.A.
Aaa 7.574(c) 1/16/15 2,250
2,430,000
St. Petersburg Hlth. Facs. Auth. Rev., Allegheny Hlth.
Proj., M.B.I.A.
Aaa 7.00 12/01/15 1,000 (d)
1,110,950
Sunrise Pub. Facs. Rev. Cap. Apprec., Ser. B, M.B.I.A.
Aaa Zero 10/01/20 1,120
374,282
Sunrise Util. Sys. Rev. Ref., A.M.B.A.C.
Aaa 5.50 10/01/18 2,000
2,160,500
Tampa Gtd. Entitlement Rev., A.M.B.A.C.
Aaa 7.05 10/01/07 2,000
2,205,460
Tampa Sports Auth. Rev., Tampa Bay Arena Proj., M.B.I.A.
Aaa 5.75 10/01/20 1,000
1,111,010
Tampa Util. Tax, Cap. Apprec. Impvt., A.M.B.A.C.
AAA(b) Zero 10/01/13 3,295
1,644,040
Virgin Islands Pub. Fin. Auth. Rev., Ser. E
NR 6.00 10/01/22 1,000
1,038,910
Volusia Cnty. Edl. Fac. Auth. Rev., Embry Riddle Univ.
AAA(b) 6.625 10/15/22 1,000
1,102,040
Volusia Cnty. Hlth. Facs. Auth. Rev., Mem. Hlth. Sys. Proj.
BBB+(b) 8.25 6/01/20 2,000 (d)
2,158,920
- ------------
Total long-term investments (cost $109,429,733)
116,633,974
- ------------
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 5
<PAGE>
Portfolio of Investments as
of February 28, 1999 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>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
SHORT-TERM INVESTMENTS--1.2%
Florida St. Brd. Ed. Cap. Secs. Trust Rcpts., Ser. 67
A1+(b) 3.25% 3/01/99 $ 900 $
900,000
Martin Cnty. Poll. Ctrl. Rev., Florida Pwr. & Lt. Proj.,
Ser. 94
VMIG1 3.20 3/01/99 100
100,000
St. Lucie Cnty. Poll. Ctrl. Rev. Ref., Florida Pwr. & Lt.
Co. Proj., Ser. 95
VMIG1 3.15 3/01/99 400
400,000
- ------------
Total short-term investments (cost $1,400,000)
1,400,000
- ------------
Total Investments--98.6%
(cost $110,829,733; Note 4)
118,033,974
Other assets in excess of liabilities--1.4%
1,650,366
- ------------
Net Assets--100%
$119,684,340
- ------------
- ------------
</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.
E.T.M.--Escrowed to Maturity.
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 Corporation.
(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) 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. 6
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Statement of Assets and Liabilities
(Unaudited) FLORIDA SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Assets
February 28, 1999
<S>
<C>
Investments, at value (cost
$110,829,733)...............................................
................. $ 118,033,974
Cash........................................................
.............................................
78,074
Interest
receivable..................................................
.................................... 1,818,936
Receivable for investment
sold........................................................
................... 60,314
Receivable for Series shares
sold........................................................
................ 30,805
Other
assets......................................................
....................................... 2,046
- -----------------
Total
assets......................................................
.................................... 120,024,149
- -----------------
Liabilities
Payable for Series shares
reacquired..................................................
................... 151,385
Accrued
expenses....................................................
..................................... 58,361
Dividends
payable.....................................................
................................... 48,739
Management fee
payable.....................................................
.............................. 46,061
Distribution fee
payable.....................................................
............................ 30,790
Deferred trustees'
fees........................................................
.......................... 4,473
- -----------------
Total
liabilities.................................................
.................................... 339,809
- -----------------
Net
Assets......................................................
......................................... $
119,684,340
- -----------------
- -----------------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
........ $ 112,087
Paid-in capital in excess of
par.........................................................
............. 112,330,793
- -----------------
112,442,880
Accumulated net realized gain on
investments.................................................
......... 37,219
Net unrealized appreciation on
investments.................................................
........... 7,204,241
- -----------------
Net assets, February 28,
1999........................................................
.................... $ 119,684,340
- -----------------
- -----------------
Class A:
Net asset value and redemption price per share
($85,737,846 / 8,029,682 shares of beneficial interest
issued and outstanding).....................
$10.68
Maximum sales charge (3% of offering
price)......................................................
..... .33
- -----------------
Maximum offering price to
public......................................................
................ $11.01
- -----------------
- -----------------
Class B:
Net asset value, offering price and redemption price per
share
($25,883,691 / 2,423,945 shares of beneficial interest
issued and outstanding).....................
$10.68
- -----------------
- -----------------
Class C:
Net asset value and redemption price per share
($7,626,681 / 714,213 shares of beneficial interest
issued and outstanding)........................
$10.68
Maximum sales charge (1% of offering
price)......................................................
..... .11
- -----------------
Maximum offering price to
public......................................................
................ $10.79
- -----------------
- -----------------
Class Z:
Net asset value, offering price and redemption price per
share
($436,122 / 40,867 shares of beneficial interest
issued and outstanding)...........................
$10.67
- -----------------
- -----------------
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 7
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
FLORIDA SERIES
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income February 28,
1999
<S> <C>
Income
Interest................................ $ 3,308,889
--------------
- ---
Expenses
Management fee.......................... 296,058
Distribution fee--Class A............... 64,471
Distribution fee--Class B............... 59,716
Distribution fee--Class C............... 28,152
Custodian's fees and expenses........... 41,000
Registration fees....................... 23,000
Transfer agent's fees and expenses...... 22,000
Reports to shareholders................. 20,000
Audit fees and expenses................. 5,000
Legal fees and expenses................. 5,000
Miscellaneous........................... 2,877
Trustees' fees.......................... 2,000
--------------
- ---
Total expenses....................... 569,274
Less: Custodian fee credit..............
(2,076)
--------------
- ---
Net expenses......................... 567,198
--------------
- ---
Net investment income...................... 2,741,691
--------------
- ---
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions................. 614,319
Financial futures transactions..........
(28,900)
--------------
- ---
585,419
Net change in unrealized depreciation on:
Investments.............................
(1,219,021)
--------------
- ---
Net loss on investments....................
(633,602)
--------------
- ---
Net Increase in Net Assets
Resulting from Operations.................. $ 2,108,089
--------------
- ---
--------------
- ---
</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 1999
1998
<S> <C> <C>
Operations
Net investment income...... $ 2,741,691 $
5,703,424
Net realized gain on
investment
transactions............ 585,419
1,015,244
Net change in unrealized
appreciation
(depreciation) of
investments............. (1,219,021)
2,637,763
----------------- -------
- -----
Net increase in net assets
resulting from
operations.............. 2,108,089
9,356,431
----------------- -------
- -----
Dividends and Distributions (Note 1):
Dividends from net
investment income
Class A................. (2,050,670)
(4,423,732)
Class B................. (525,118)
(950,402)
Class C................. (155,320)
(310,707)
Class Z................. (10,583)
(18,583)
----------------- -------
- -----
(2,741,691)
(5,703,424)
----------------- -------
- -----
Distributions in excess of
net investment income
Class A................. (8,316) --
Class B................. (2,283) --
Class C................. (710) --
Class Z................. (45) --
----------------- -------
- -----
(11,354) --
----------------- -------
- -----
Distributions from net realized gains
Class A................. (8,316) --
Class B................. (2,282) --
Class C................. (711) --
Class Z................. (46) --
----------------- -------
- -----
(11,355) --
----------------- -------
- -----
Series share transactions (net
of share conversions) (Note
5):
Net proceeds from shares
sold.................... 9,744,458
12,853,726
Net asset value of shares
issued in reinvestment
of dividends and
distributions........... 1,222,302
2,414,093
Cost of shares
reacquired.............. (9,328,703)
(19,046,916)
----------------- -------
- -----
Net increase (decrease) in
net assets from Series
share transactions...... 1,638,057
(3,779,097)
----------------- -------
- -----
Total increase (decrease)..... 981,746
(126,090)
Net Assets
Beginning of period........... 118,702,594
118,828,684
----------------- -------
- -----
End of period................. $ 119,684,340
$118,702,594
----------------- -------
- -----
----------------- -------
- -----
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 8
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements
(Unaudited) FLORIDA SERIES
- ------------------------------------------------------------
- --------------------
Prudential Municipal Series Fund, (the 'Fund') is registered
under the
Investment Company Act of 1940, as an open-end investment
company. The Fund was
organized as a Massachusetts business trust on May 18, 1984
and consists of 11
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
nondiversified 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.
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 decrease
accumulated realized gains and
increase undistributed net investment income by $11,354. 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
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.
- ------------------------------------------------------------
- --------------------
9
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements
(Unaudited) FLORIDA 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
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 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 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
Investment Management
Services LLC ('PIMS'), which acts as the distributor of the
Class A, Class B,
Class C and Class Z shares of the Fund. The Fund compensates
PIMS 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
PIMS as distributor
for Class Z shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensates
PIMS 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 period September 1, 1998 through December 31, 1998.
Effective January 1,
1999 such expenses under the Plans were .25 of 1%, .50 of 1%
and .75 of 1% of
the average daily net assets of the Class A, B and C shares,
respectively.
PIMS has advised the Series that they have received
approximately $25,100 and
$700 in front-end sales charges resulting from sales of
Class A shares and Class
C shares, respectively, during the six months ended February
28, 1999. From
these fees, PIMS paid such sales charges to affiliated
broker-dealers, which in
turn paid commissions to salespersons and incurred other
distribution costs.
PIMS has advised the Series that for the six months ended
February 28, 1999,
they received approximately $6,600 and $5,000 in contingent
deferred sales
charges imposed upon certain redemptions by Class B and
Class C shareholders,
respectively.
PIFM, PIMS 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'), 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, 1999. 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 February 28, 1999 and has been extended through
March 12, 1999 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,
1999, the Series incurred fees of approximately $13,700 for
the services of
PMFS. As of February 28, 1999, approximately $2,300 of such
fees were due to
PMFS. Transfer agent fees and expenses in the Statement of
Operations include
certain out-of-pocket expenses paid to 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, 1999 were
$10,858,589 and
$10,378,480, respectively.
The cost basis of investments for federal income tax
purposes at February 28,
1999 was substantially the same as for financial reporting
purposes and
accordingly, net unrealized appreciation of investments for
federal income tax
purposes was $7,204,241 (gross unrealized appreciation--
$7,335,171 gross
unrealized depreciation--$130,930).
- ------------------------------------------------------------
- --------------------
10
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements
(Unaudited) FLORIDA SERIES
- ------------------------------------------------------------
- --------------------
The Series has a capital loss carryforward as of August 31,
1998 of
approximately $536,600 of which $404,000 expires in 2003 and
$132,600 expires in
2005. 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. Prior to November 2,
1998, Class C
shares, which prior to August 1, 1994 were known as D
shares, were sold with a
contingent deferred sales charge of 1% during the first
year. Effective November
2, 1998, Class C shares are sold with a front-end sales
charge of 1% during the
first 18 months. 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. 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, 1999 and the
fiscal year ended
August 31, 1998 were as follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- ------------------------------------ ---------- --------
- ----
<S> <C> <C>
Six months ended February 28, 1999:
Shares sold......................... 390,605 $
4,183,506
Shares issued in reinvestment of
dividends......................... 85,225
912,849
Shares reacquired................... (692,752)
(7,428,028)
---------- --------
- ----
Net decrease in shares outstanding
before conversion................. (216,922)
(2,331,673)
Shares issued upon conversion from
Class B........................... 46,378
498,187
---------- --------
- ----
Net decrease in shares
outstanding....................... (170,544) $
(1,833,486)
---------- --------
- ----
---------- --------
- ----
Year ended August 31, 1998:
Shares sold......................... 496,650 $
5,262,990
Shares issued in reinvestment of
dividends......................... 175,293
1,856,501
Shares reacquired................... (1,398,423)
(14,801,047)
---------- --------
- ----
Net decrease in shares outstanding
before conversion................. (726,480)
(7,681,556)
Shares issued upon conversion from
Class B........................... 34,627
367,509
---------- --------
- ----
Net decrease in shares
outstanding....................... (691,853) $
(7,314,047)
---------- --------
- ----
---------- --------
- ----
<CAPTION>
Class B Shares
Amount
- ------------------------------------ ---------- --------
- ----
<S> <C> <C>
Six months ended February 28, 1999:
Shares sold......................... 457,125 $
4,902,742
Shares issued in reinvestment of
dividends ........................ 20,411
218,638
Shares reacquired................... (126,402)
(1,356,008)
---------- --------
- ----
Net increase in shares outstanding
before conversion................. 351,134
3,765,372
Shares reacquired upon conversion
into Class A...................... (46,378)
(498,187)
---------- --------
- ----
Net increase in shares
outstanding....................... 304,756 $
3,267,185
---------- --------
- ----
---------- --------
- ----
Year ended August 31, 1998:
Shares sold......................... 603,377 $
6,389,159
Shares issued in reinvestment of
dividends ........................ 35,597
377,106
Shares reacquired................... (292,610)
(3,103,941)
---------- --------
- ----
Net increase in shares outstanding
before conversion................. 346,364
3,662,324
Shares reacquired upon conversion
into Class A...................... (34,615)
(367,509)
---------- --------
- ----
Net increase in shares
outstanding....................... 311,749 $
3,294,815
---------- --------
- ----
---------- --------
- ----
<CAPTION>
Class C
- ------------------------------------
<S> <C> <C>
Six months ended February 28, 1999:
Shares sold......................... 19,292 $
207,648
Shares issued in reinvestment of
dividends......................... 7,625
81,680
Shares reacquired................... (13,028)
(140,189)
---------- --------
- ----
Net increase in shares
outstanding....................... 13,889 $
149,139
---------- --------
- ----
---------- --------
- ----
Year ended August 31, 1998:
Shares sold......................... 49,878 $
532,045
Shares issued in reinvestment of
dividends......................... 15,365
162,725
Shares reacquired................... (69,449)
(731,828)
---------- --------
- ----
Net decrease in shares
outstanding....................... (4,206) $
(37,058)
---------- --------
- ----
---------- --------
- ----
Class Z
- ------------------------------------
Six months ended February 28, 1999:
Shares sold......................... 42,053 $
450,562
Shares issued in reinvestment of
dividends......................... 853
9,135
Shares reacquired................... (37,684)
(404,478)
---------- --------
- ----
Net increase in shares
outstanding....................... 5,222 $
55,219
---------- --------
- ----
---------- --------
- ----
Year ended August 31, 1998:
Shares sold......................... 63,422 $
669,532
Shares issued in reinvestment of
dividends......................... 1,673
17,761
Shares reacquired................... (38,487)
(410,100)
---------- --------
- ----
Net increase in shares
outstanding....................... 26,608 $
277,193
---------- --------
- ----
---------- --------
- ----
</TABLE>
- ------------------------------------------------------------
- --------------------
11
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) FLORIDA SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class A
-----------------
- ----------------------------------------------------------
Six Months
Ended
Year Ended August 31,
February 28,
- ----------------------------------------------------------
1999
1998 1997 1996 1995 1994
------
- ------- ------- -------- -------- --------
<S> <C>
<C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period... $ 10.74
$ 10.41 $ 10.11 $ 10.06 $ 9.91 $ 10.87
------
- ------- ------- -------- -------- --------
Income from investment operations
Net investment income.................. .25
.52 .54(a) .57(a) .59(a) .59(a)
Net realized and unrealized gain (loss)
on investment transactions.......... (.06)
.33 .31 .05 .15 (.76)
------
- ------- ------- -------- -------- --------
Total from investment operations.... .19
.85 .85 .62 .74 (.17)
------
- ------- ------- -------- -------- --------
Less distributions
Dividends from net investment income... (.25)
(.52) (.54) (.57) (.59) (.59)
Distributions in excess of net
investment income................... --(d)
- -- (.01) -- -- --
Distributions from net realized
gains............................... --
- -- -- -- -- (.20)
------
- ------- ------- -------- -------- --------
Total distributions................. (.25)
(.52) (.55) (.57) (.59) (.79)
------
- ------- ------- -------- -------- --------
Net asset value, end of period......... $ 10.68
$ 10.74 $ 10.41 $ 10.11 $ 10.06 $ 9.91
------
- ------- ------- -------- -------- --------
------
- ------- ------- -------- -------- --------
TOTAL RETURN(b):....................... 1.86%
8.34% 8.65% 6.20% 7.85% (1.69)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........ $85,738
$88,045 $92,579 $101,999 $120,963 $134,849
Average net assets (000)............... $87,314
$90,437 $97,700 $112,266 $124,259 $146,489
Ratios to average net assets:
Expenses, including distribution
fees............................. .85%(c)
.80% .57%(a) .37%(a) .24%(a) .20%(a)
Expenses, excluding distribution
fees............................. .70%(c)
.70% .47%(a) .27%(a) .17%(a) .20%(a)
Net investment income............... 4.74%(c)
4.89% 5.32%(a) 5.56%(a) 6.04%(a) 5.67%(a)
For Class A, B and C shares:
Portfolio turnover rate............. 9%
35% 22% 68% 65% 75%
</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) Less than $.005 per share.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 12
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) FLORIDA SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class B
-----------------
- ---------------------------------------------------------
August 1,
Six Months
1994(c)
Ended
Year Ended August 31, through
February 28,
- ------------------------------------------ August 31,
1999
1998 1997 1996 1995 1994
------------
- ------- ------- ------- ------ ----------
<S> <C>
<C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period... $ 10.74
$ 10.41 $ 10.11 $ 10.06 $ 9.91 $ 9.95
------
- ------- ------- ------- ------ -----
Income from investment operations
Net investment income.................. .23
.48 .50(a) .53(a) .55(a) .04(a)
Net realized and unrealized gain (loss)
on investment transactions.......... (.06)
.33 .31 .05 .15 (.04)
------
- ------- ------- ------- ------ -----
Total from investment operations.... .17
.81 .81 .58 .70 --
------
- ------- ------- ------- ------ -----
Less distributions
Dividends from net investment income... (.23)
(.48) (.50) (.53) (.55) (.04)
Distributions in excess of net
investment income................... --(e)
- -- (.01) -- -- --
------
- ------- ------- ------- ------ -----
Total distributions................. (.23)
(.48) (.51) (.53) (.55) (.04)
------
- ------- ------- ------- ------ -----
Net asset value, end of period......... $ 10.68
$ 10.74 $ 10.41 $ 10.11 $10.06 $ 9.91
------
- ------- ------- ------- ------ -----
------
- ------- ------- ------- ------ -----
TOTAL RETURN(b):....................... 1.68%
7.91% 8.22% 5.79% 7.39% (0.05)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........ $25,884
$22,755 $18,820 $14,699 $8,326 $582
Average net assets (000)............... $24,084
$21,154 $17,565 $12,570 $4,699 $118
Ratios to average net assets:
Expenses, including distribution
fees............................. 1.20%(d)
1.20% .97%(a) .77%(a) .67%(a) .70%(a)(d)
Expenses, excluding distribution
fees............................. .70%(d)
.70% .47%(a) .27%(a) .17%(a) .20%(a)(d)
Net investment income............... 4.40%(d)
4.49% 4.92%(a) 5.16%(a) 5.56%(a) 6.21%(a)(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.
(e) Less than $.005 per share.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 13
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) FLORIDA SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class C Class Z
------------------
- --------------------------------------------------- ----
- --------
Six Months
Six Months
Ended
Year Ended August 31, Ended
February 28, -
- ---------------------------------------------------
February 28,
1999
1998 1997 1996 1995 1994
1999
------------ -
- ----- ------ ------ ------- ------- ----
- --------
<S> <C>
<C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period... $10.74
$10.41 $10.11 $10.06 $ 9.91 $ 10.87
$10.73
----- -
- ----- ------ ------ ------- -------
- -----
Income from investment operations
Net investment income.................. .22
.45 .48(a) .50(a) .53(a) .48(a)
.26
Net realized and unrealized gain (loss)
on investment transactions.......... (.06)
.33 .31 .05 .15 (.76)
(.06)
----- -
- ----- ------ ------ ------- -------
- -----
Total from investment operations.... .16
.78 .79 .55 .68 (.28)
.20
----- -
- ----- ------ ------ ------- -------
- -----
Less distributions
Dividends from net investment income... (.22)
(.45) (.48) (.50) (.53) (.48)
(.26)
Distributions in excess of net
investment income................... --(e)
- -- (.01) -- -- --
- --(e)
Distributions from net realized
gains............................... --
- -- -- -- -- (.20)
- --
----- -
- ----- ------ ------ ------- -------
- -----
Total distributions................. (.22)
(.45) (.49) (.50) (.53) (.68)
(.26)
----- -
- ----- ------ ------ ------- -------
- -----
Net asset value, end of period......... $10.68
$10.74 $10.41 $10.11 $ 10.06 $ 9.91
$10.67
----- -
- ----- ------ ------ ------- -------
- -----
----- -
- ----- ------ ------ ------- -------
- -----
TOTAL RETURN(b):....................... 1.55%
7.64% 7.95% 5.52% 7.12% (2.40)%
1.93%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........ $7,627
$7,520 $7,336 $7,792 $9,028 $11,185
$436
Average net assets (000)............... $7,570
$7,325 $7,575 $8,293 $10,265 $9,280
$436
Ratios to average net assets:
Expenses, including distribution
fees............................. 1.45%(c)
1.45% 1.22%(a) 1.02%(a) .92%(a) .95%(a)
.70%(c)
Expenses, excluding distribution
fees............................. .70%(c)
.70% .47%(a) .27%(a) .17%(a) .20%(a)
.70%(c)
Net investment income............... 4.14%(c)
4.24% 4.67%(a) 4.91%(a) 5.35%(a) 4.99%(a)
4.89%(c)
<CAPTION>
December 6,
1996(d)
Year Ended
through
August 31,
August 31,
1998
1997
---------- ----
- --------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period... $10.41
$10.36
-----
- -----
Income from investment operations
Net investment income.................. .53
.41(a)
Net realized and unrealized gain (loss)
on investment transactions.......... .32
.06
-----
- -----
Total from investment operations.... .85
.47
-----
- -----
Less distributions
Dividends from net investment income... (.53)
(.41)
Distributions in excess of net
investment income................... --
(.01)
Distributions from net realized
gains............................... --
- --
-----
- -----
Total distributions................. (.53)
(.42)
-----
- -----
Net asset value, end of period......... $10.73
$10.41
-----
- -----
-----
- -----
TOTAL RETURN(b):....................... 8.34%
4.57%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........ $383
$94
Average net assets (000)............... $373
$36
Ratios to average net assets:
Expenses, including distribution
fees............................. .70%
.47%(a)(c)
Expenses, excluding distribution
fees............................. .70%
.47%(a)(c)
Net investment income............... 4.99%
5.48%(a)(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 Z shares.
(e) Less than $.005 per share.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 14
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
How many times have you read these letters -- or other
financial
materials -- and stumbled across a word that you don't
understand?
Many shareholders have run into the same problem. We'd like
to
help. So we'll use this space from time to time to explain
some
of the words you might have read, but not understood. And if
you
have a favorite word that no one can explain to your
satisfaction, please write to us.
Basis Point: 1/100th of 1%. For example, one-half of one
percent
is 50 basis points.
Collateralized Mortgage Obligations (CMOs): Mortgage-backed
bonds
that separate mortgage pools into different maturity
classes,
called tranches. These instruments are sensitive to changes
in
interest rates and homeowner refinancing activity. They
are subject to prepayment and maturity extension risk.
Derivatives: Securities that derive their value from other
securities. The rate of return of these financial
instruments
rises and falls -- sometimes very suddenly -- in response to
changes in some specific interest rate, currency, stock, or
other
variable.
Discount Rate: The interest rate charged by the Federal
Reserve
on loans to member banks.
Federal Funds Rate: The interest rate charged by one bank to
another on overnight loans.
Futures Contract: An agreement to purchase or sell a
specific
amount of a commodity or financial instrument at a set price
at a specified date in the future.
Leverage: The use of borrowed assets to enhance return. The
expectation is that the interest rate charged on borrowed
funds will be lower than the return on the investment. While
leverage can increase profits, it can also magnify losses.
Liquidity: The ease with which a financial instrument (or
product) can be bought or sold (converted into cash) in the
financial markets.
Price/Earnings Ratio: The price of a share of stock divided
by
the earnings per share for a 12-month period.
Option: An agreement to purchase or sell something, such as
shares of stock, by a certain time for a specified price. An
option need not be exercised.
Spread: The difference between two values; often used to
describe
the difference between "bid" and "asked" prices of a
security,
or between the yields of two similar maturity bonds.
Yankee Bond: A bond sold by a foreign company or government
in
the U.S. market and denominated in U.S. dollars.
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
When you invest through Prudential Mutual Funds, you receive
financial advice through a Prudential Securities financial
advisor or Prudential/Pruco Securities registered
representative.
Your advisor or representative can provide you with the
following services:
There's No Reward Without Risk; But Is This Risk Worth It?
Your financial advisor or registered representative can help
you match the reward you seek with the risk you can
tolerate.
And risk can be difficult to gauge -- sometimes even the
simplest
investments bear surprising risks. The educated investor
knows
that markets seldom move in just one direction -- there are
times
when a market sector or asset class will lose value or
provide
little in the way of total return. Managing your own
expectations
is easier with help from someone who understands the
markets and who knows you!
Keeping Up With The Joneses.
A financial advisor or registered representative can help
you
wade through the numerous mutual funds available to find the
ones that fit your own individual investment profile and
risk
tolerance. While the newspapers and popular magazines are
full
of advice about investing, they are aimed at generic groups
of
people or representative individuals, not at you personally.
Your financial advisor or registered representative will
review
your investment objectives with you. This means you can make
financial decisions based on the assets and liabilities in
your
current portfolio and your risk tolerance -- not just based
on
the current investment fad.
Buy Low, Sell High.
Buying at the top of a market cycle and selling at the
bottom
are among the most common investor mistakes. But sometimes
it's
difficult to hold on to an investment when it's losing value
every month. Your financial advisor or registered
representative can answer questions when you're confused or
worried about your investment, and remind you that you're
investing for the long haul.
<PAGE>
Prudential Mutual Funds
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
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Louis A. Weil, III
Officers
Robert F. Gunia, President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
Deborah A. Docs, Secretary
David F. Connor, 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 Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
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
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Swidler Berlin Shereff Friedman, 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,
1999 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
74435M507
74435M606 MF148E2
74435M614
74435M424
(ICON)
Prudential
Municipal
Series Fund
- ------------------------
Massachusetts Series
SEMI
ANNUAL
REPORT
Feb. 28, 1999
(LOGO)
<PAGE>
Prudential Municipal Series Fund
Massachusetts Series
Performance At A Glance.
During the six months ended February 28, 1999 municipal
bonds
initially rallied on the coattails of U.S. Treasuries, which
appreciated as investors fleeing a global financial crisis
sought refuge in federal government securities. As the
financial
chaos subsided and investors sold Treasuries, tax-exempt
bonds
also erased some of their early price increases.
Nevertheless,
your Prudential Municipal Series Fund--Massachusetts Series'
Class A and Z shares provided returns that were competitive
with the average fund tracked by Lipper, Inc. Taking profits
on some of our bonds enhanced the Series' returns.
<TABLE>
Cumulative Total Returns1 As of 2/28/99
<CAPTION>
Six Months One Year Five Years
Ten Years Since Inception2
<S> <C> <C> <C>
<C> <C>
Class A 1.80% 4.97% 33.51% (33.29)
N/A 90.98% (90.66)
Class B 1.61 4.57 30.69 (30.46)
96.04% (95.71) 189.34 (183.41)
Class C 1.49 4.32 N/A
N/A 31.19 (30.96)
Class Z 1.87 5.09 N/A
N/A 15.35
Lipper MA Muni
Debt Fund Average3 1.78 4.94 31.41
107.17 ***
</TABLE>
<TABLE>
Average Annual Total Returns1 As of
3/31/99
<CAPTION>
One Year Five Years Ten Years Since
Inception2
<S> <C> <C> <C> <C>
Class A 1.89% 6.15% (6.11) N/A 6.94%
(6.92)
Class B -0.43 6.21 (6.17) 6.98% (6.96) 7.60
(7.44)
Class C 2.27 N/A N/A 5.76
(5.72)
Class Z 5.18 N/A N/A 6.38
</TABLE>
<TABLE>
Distributions & YieldsAs of 2/28/99
<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 $0.38 3.56% 6.32%
6.70%
Class B $0.36 3.42 6.07
6.43
Class C $0.35 3.15 5.59
5.93
Class Z $0.39 3.93 6.98
7.39
</TABLE>
Past performance is not indicative of future results.
Principal
and investment return will fluctuate so that an investor's
shares,
when redeemed, may be worth more or less than their original
cost.
1 Source: Prudential Investments Fund Management and Lipper,
Inc.
The cumulative total returns do not take into account sales
charges.
The average annual total returns do take into account
applicable
sales charges. The Series charges a maximum front-end sales
charge
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 B shares will automatically convert to Class
A
shares, on a quarterly basis, approximately seven years
after
purchase. Class C shares are subject to a front-end sales
charge
of 1% and a CDSC of 1% for 18 months. Class C shares bought
before November 2, 1998 have a 1% CDSC if sold within one
year.
Class Z shares are not subject to a sales charge or
distribution
fee. 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 ( ).
2 Inception dates: Class A, 1/22/90; Class B, 9/25/84; Class
C,
8/1/94; and Class Z, 12/6/96.
3 Lipper average returns are for all funds in each share
class
for the six-month, one-, five-, and ten-year periods in the
Massachusetts Municipal Debt Fund category.
4 Taxable equivalent yields reflect federal and applicable
state tax rates.
***Lipper Since Inception returns are 93.73% for Class A;
220.45% for Class B; 35.35% for Class C; and 14.60% for
Class Z based on all funds in each share class.
How Investments Compared.
(As of 2/28/99)
(GRAPH)
Source: Lipper, Inc. 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.
*19 years for U.S. Tax-Exempt Money Funds.
<PAGE>
James M. Murphy, Fund Manager (PHOTO)
Portfolio
Manager's Report
The Series invests in carefully selected long-term municipal
bonds that offer a high level of current income exempt from
federal income taxes and Massachusetts state income taxes,
consistent with preservation of capital. Certain
shareholders
may be subject to the federal alternative minimum tax (AMT),
however, because the Series holds some bonds that are AMT
eligible. There can be no assurance the Series will achieve
its investment objective.
Key Municipal Bond
Index Tumbles.
Municipal bonds did not rally as much as U.S. Treasuries
last autumn. However, municipal bond prices rose strongly
enough to drive the Bond Buyer Revenue Bond Index, a weekly
average of long-term municipal bond yields, to 5.09% in
early
October. This was the lowest level reached by the Index
since
its inception in 1979. Yields fall as prices rise and vice
versa.
Strategy Session.
Maintaining a Longer
Duration.
We thought long-term interest rates would continue to fall
because the U.S. economic expansion was poised to slow and
inflation remain tame after a global financial crisis spread
from Asia to Russia and Latin America in mid-summer. The
overseas turmoil was expected to temper U.S. economic growth
as struggling countries in Asia and Latin America purchased
fewer goods and services from the United States.
We based our strategy on this anticipated decline in long-
term
interest rates. Therefore, our primary aim was to maintain a
longer-than-average duration, which is a measure of the
Series'
sensitivity to fluctuations in interest rates. A longer
duration
would enable the Series' shares to gain more rapidly if
interest
rates continued to fall and municipal bond prices continued
to
climb. We lengthened the Series' duration to 7.44 years as
of
February 28, 1999 from 7.28 years on August 31, 1998.
In order to sustain a longer duration, the Series remained
heavily
invested in noncallable bonds, which averaged approximately
26% of
its total investments throughout the six-month period.
Noncallable
bonds tend to perform well when debt markets rally because
the bonds
are free to appreciate in value without the risk of being
retired
early. Some of our noncallable bonds were also zero coupon
bonds,
which typically trade at deep discounts to their maturity
value.
Their prices there-fore have plenty of room to rise when
interest
rates fall.
<PAGE>
What Went Well.
We Took Profits.
We enhanced the Series' returns by taking profits on some of
our
lower-rated municipal bonds, including debt securities of
the New
England Center for Children; St. John's High School; and the
Springhouse Project, a retirement home. These bonds
performed
well because they provided sizable coupon payments and
attractive
yields.
Munis Were A Bargain.
The average insured, AAA-rated tax-exempt bond maturing in
30 years
temporarily yielded 104% as much as comparable Treasuries in
early
October compared with a historical average of roughly 87%.
Municipal
bonds had cheapened relative to Treasuries because gains in
the prices
of tax-exempt bonds could not keep pace with the powerful
rally in
Treasuries. Prices of Treasuries soared as concern about
global
financial turmoil fueled the "flight-to-quality" trend among
increasingly risk-averse investors.
And Not So Well.
"Flight-To-Quality" Faded.
The Series' longer-than-average duration helped its shares
increase in value as municipal bonds rallied with U.S.
Treasuries
during September and early October. However, we should have
cut
its duration after the "flight-to-quality" trend began to
reverse
and prices of Treasuries and municipal bonds fell. A shorter
duration would have made the Series' shares less sensitive
to
this sell-off.
The "flight-to-quality" trend died out as the Federal
Reserve
repeatedly eased U.S. monetary policy in the autumn to calm
financial markets and restore faith in the U.S. economy.
Investors sold Treasuries and purchased riskier assets with
renewed confidence. We believed the bond market rally would
resume because we expected the U.S. economy to lose steam in
the fourth quarter of 1998. But to our surprise, economic
growth accelerated, prompting investors to push bond prices
lower amid concern that the powerful economy could boost
inflation.
Credit Quality.
Expressed as a percentage of
total investments as of 2/28/99.
(PIE CHART)
Five Largest Issuers.
6.7% Mass. St. Turnpike
Authority
5.8% Massachusetts
General Obligation
4.6% Mass. St. Ind. Finance
Agency Revenue
4.5% Mass. St. Water Pollution
Abatement Trust
3.6% Mass. St. Water
Res. Authority
Expressed as a percentage of net assetsas of 2/28/99.
Looking Ahead.
In the short run, we feel municipal bond prices will remain
in
a trading range because of the U.S. economy's continued
resilience.
However, we do not think the rally in tax-exempt bonds is
over.
We believe U.S. economic growth will continue to slow from
the
torrid pace of late 1998. Furthermore, inflation will
likely
remain subdued as global competition helps to keep prices of
goods and services in check. Since the level of interest
rates
typically reflects the anticipated rate of inflation, we
expect
interest rates to fall and bond prices to rise amid
continued
low inflation.
1
<PAGE>
A Message to Our Shareholders April 19,
1999
(PHOTO)
Dear Shareholder,
For the last several months, major index advances have been
driven by the stocks of a handful of very large companies.
These stocks are getting more and more expensive, out of
proportion to their earnings expectations. As a result, a
substantial disparity in value has grown between large and
small companies and between growth and value stocks.
Since not all stocks are benefiting from the highly
publicized
euphoria surrounding each record-breaking milestone, it is
unlikely that these trends will continue. In fact, signs
that the tide is turning are starting to emerge. Moreover,
history shows that markets generally bring prices in line
with earnings performance sooner or later.
Many sectors of the bond market, on the other hand, have
already begun to rebound from last year's global financial
crisis. Furthermore, while bonds have not generated higher
returns than stocks in recent years, they have demonstrated
that they hold up better during market downturns. That's a
thought to keep in mind going forward.
Diversification Is Critical.
What does this suggest? Instead of chasing recent market
winners,
investors should have a well-diversified asset allocation
strategy
in place and keep to it. It is also a good practice to
rebalance
your holdings, when necessary, to keep your asset allocation
consistent with your long-term objectives and risk
tolerance.
A properly diversified portfolio of value- and growth-
oriented
mutual funds, bond funds and money market funds could help
you
weather inevitable market turbulence and receive more
consistent
returns over time. Prudential offers a wide range of mutual
funds
to help our shareholders diversify. We have also designed
several
balanced and diversified funds to allow one-decision
diversification.
Thank you for your continued confidence in Prudential mutual
funds.
Sincerely,
John R. Strangfeld
Chief Investment Officer
Prudential Investments
2
<PAGE>
Portfolio of Investments as
of February 28, 1999 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--97.8%
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Boston Massachusetts Ind. Dev. Fin. Auth., Swr. Fac. Rev.,
Harbor Elec. Energy Co. Proj., A.M.T.
Baa1 7.375% 5/15/15 $ 1,500 $
1,606,590
Brockton Massachusetts, Gen. Oblig.
A2 6.125 6/15/18 1,030
1,115,541
Holyoke Massachusetts, Gen. Oblig., School Proj., M.B.I.A.
Aaa 8.10 6/15/05 700(e)
815,367
Lowell Massachusetts, Gen. Oblig.
Aaa 7.625 2/15/10 750(e)
830,835
Lynn Mass. Wtr. & Swr. Comn., Gen. Rev., Ser. A, M.B.I.A.
Aaa 7.25 12/01/10 1,350(e)
1,466,572
Mass. Bay Trans. Auth., Gen. Trans. Sys., Ser. A, M.B.I.A.
Aaa 5.50 3/01/15 1,000
1,082,260
Mass. St. Cap. Apprec., Fed. Hwy. Grant, Ser. A
Aa3 Zero 6/15/15 1,500
666,300
Massachusetts St. Dev. Fin. Agcy. Rev. Concord Assabet Fmly.
Svcs.
Ba2 6.00 11/01/28 750
739,793
Mass. St. Gen. Oblig.,
Ser. A, A.M.B.A.C.
Aaa 5.00 7/01/12 1,000
1,048,680
Ser. C, F.G.I.C.
Aaa 6.00 8/01/09 1,500
1,716,540
Mass. St. Hlth. & Edl. Facs. Auth. Rev.,
Beth Israel Hospital, A.M.B.A.C.
Aaa 8.826(d) 7/01/25 1,500
1,732,500
Caritas Christi Oblig. Group A
Baa2 5.625 7/01/20 750
734,880
Boston College, Ser. L
Aa3 4.75 6/01/31 1,250
1,162,375
Dana Farber Cancer Proj., Ser. G-1
A1 6.25 12/01/22 625
684,306
Faulkner Hospital, Ser. C
Baa1 6.00 7/01/23 1,500
1,547,700
Holyoke Hospital, Ser. B
Baa3 6.50 7/01/15 1,250
1,328,475
Jordan Hospital, Ser. C
BBB+(c) 6.875 10/01/22 1,350(e)
1,512,351
Mass. Inst. of Tech., Ser. I-1
Aaa 5.20 1/01/28 1,500
1,566,630
Med. Academic & Scientific Co., Ser. A
A-(c) 6.625 1/01/15 1,000
1,106,080
Newton-Wellesley Hospital, Ser. E, M.B.I.A.
Aaa 5.875 7/01/15 1,000
1,079,810
Valley Regional Hlth. Sys., Ser. B
Aaa 8.00 7/01/18 1,000(e)
1,081,340
Valley Regional Hlth. Sys., Ser. C
AAA(c) 7.00 7/01/10 825
1,014,932
Winchester Hospital, Ser. D
AAA(c) 5.75 7/01/24 1,000
1,046,200
Mass. St. Hsg. Fin. Agcy. Hsg. Rev., Sngl. Fam. Mtge., Ser.
59, A.M.B.A.C., A.M.T.
Aaa 5.40 6/01/20 1,000
1,025,380
Mass. St. Ind. Fin. Agcy. Rev.,
Chestnut Knoll Proj., Ser. A
NR 5.625 2/15/25 750
732,480
Bradford College
BBB-(c) 5.625 11/01/28 1,000
1,008,860
Brooks School
A3 5.95 7/01/23 640
669,485
Cambridge Friends School
BBB(c) 5.80 9/01/28 700
716,534
Cape Cod Hlth. Sys.
Aaa 8.50 11/15/20 2,000(e)
2,211,820
Phillips Academy
Aa1 5.375 9/01/23 1,000
1,038,730
Mass. St. Port Auth. Rev., Ser. B, A.M.T.
Aa3 5.00 7/01/18 1,000
986,520
Mass. St. Tpk. Auth., Met. Hwy. Sys. Rev.,
Ser. A, M.B.I.A.
Aaa 5.00 1/01/37 1,000
963,780
Ser. C, M.B.I.A.
Aaa Zero 1/01/17 5,500
2,254,450
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as
of February 28, 1999 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>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Mass. St. Water Poll. Abatement Trust Rev.,
Ser. 3
Aaa 5.625% 2/01/16 $ 1,000 $
1,066,160
Ser. A
Aa3 6.375 2/01/15 1,000
1,111,740
Mass. St. Water Res. Auth. Rev.,
Ser. B, M.B.I.A.
Aaa 6.25 12/01/11 1,000
1,175,910
Ser. D, M.B.I.A.
Aaa 6.00 8/01/13 500
573,210
Palmer Massachusetts, Gen. Oblig., Ser. F, A.M.B.A.C.
Aaa 7.30 3/01/10 500(e)
530,320
Plymouth County Corr. Facs. Proj., Cert. of Part., Ser. A
AA-(c) 7.00 4/01/22 500
555,940
Puerto Rico Commonwealth,
Gen. Oblig., A.M.B.A.C.
Aaa 7.00 7/01/10 1,000
1,241,380
Gen. Oblig., Cap. Apprec. Pub. Impvt.
Baa1 Zero 7/01/15 750
336,682
Puerto Rico Electric Pwr. Auth. Rev., Ser. T
Baa1 6.375 7/01/24 1,000(e)
1,139,840
Virgin Islands Pub. Fin. Auth. Rev., Matching Fd. Ln.,
Ser. E
NR 6.00 10/01/22 250
259,728
Ser. E
NR 5.875 10/01/18 375
386,591
Senior Lien, Ser. A
BBB-(c) 5.50 10/01/22 250
253,628
- -----------
Total long-term investments (cost $42,716,811)
46,925,225
- -----------
SHORT-TERM INVESTMENTS--1.2%
Mass. St. Hlth. & Edl. Facs. Auth. Rev.,
Ser. SGA-65, F.R.D.D.
A1+(c) 3.25 3/01/99 600
600,000
- -----------
Total short-term investments (cost $600,000)
600,000
- -----------
Total Investments--99.0%
(cost $43,316,811; Note 4)
47,525,225
Other assets in excess of liabilities--1.0%
458,129
- -----------
Net Assets--100%
$47,983,354
- -----------
- -----------
</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.D.D.--Floating Rate (Daily) Demand Note(b).
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 year 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. 4
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Statement of Assets and Liabilities
(Unaudited) MASSACHUSETTS
SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Assets
February 28, 1999
<S>
<C>
Investments, at value (cost
$43,316,811)................................................
................. $ 47,525,225
Cash........................................................
.............................................
21,133
Interest
receivable..................................................
.................................... 569,379
Receivable for Series shares
sold........................................................
................ 45,786
Other
assets......................................................
....................................... 775
- -----------------
Total
assets......................................................
.................................... 48,162,298
- -----------------
Liabilities
Accrued
expenses....................................................
..................................... 84,293
Payable for Series shares
reacquired..................................................
................... 40,000
Dividends
payable.....................................................
................................... 19,455
Management fee
payable.....................................................
.............................. 18,467
Distribution fee
payable.....................................................
............................ 12,256
Deferred trustees'
fees........................................................
.......................... 4,473
- -----------------
Total
liabilities.................................................
.................................... 178,944
- -----------------
Net
Assets......................................................
......................................... $
47,983,354
- -----------------
- -----------------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
........ $ 40,962
Paid-in capital in excess of
par.........................................................
............. 43,945,207
- -----------------
43,986,169
Accumulated net realized loss on
investments.................................................
......... (211,229 )
Net unrealized appreciation on
investments.................................................
........... 4,208,414
- -----------------
Net assets, February 28,
1999........................................................
.................... $ 47,983,354
- -----------------
- -----------------
Class A:
Net asset value and redemption price per share
($32,385,949 / 2,764,177 shares of beneficial interest
issued and outstanding).....................
$11.72
Maximum sales charge (3% of offering
price)......................................................
..... .36
- -----------------
Maximum offering price to
public......................................................
................ $12.08
- -----------------
- -----------------
Class B:
Net asset value, offering price and redemption price per
share
($15,293,883 / 1,306,130 shares of beneficial interest
issued and outstanding).....................
$11.71
- -----------------
- -----------------
Class C:
Net asset value and redemption price per share
($234,929 / 20,062 shares of beneficial interest
issued and outstanding)...........................
$11.71
Sales charge (1% of offering
price)......................................................
............. .12
- -----------------
Offering price to
public......................................................
........................ $11.83
- -----------------
- -----------------
Class Z:
Net asset value, offering price and redemption price per
share
($68,593 / 5,859 shares of beneficial interest issued
and outstanding).............................
$11.71
- -----------------
- -----------------
</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,
1999
<S> <C>
Income
Interest................................ $ 1,329,245
--------------
- ---
Expenses
Management fee.......................... 115,906
Distribution fee--Class A............... 23,132
Distribution fee--Class B............... 38,909
Distribution fee--Class C............... 689
Custodian's fees and expenses........... 36,000
Report to shareholders.................. 18,000
Registration fees....................... 16,000
Transfer agent's fees and expenses...... 12,000
Audit fees and expenses................. 5,000
Legal fees and expenses................. 3,000
Trustees' fees and expenses............. 2,000
Miscellaneous........................... 4,457
--------------
- ---
Total expenses.......................... 275,093
--------------
- ---
Net investment income...................... 1,054,152
--------------
- ---
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions................. 32,200
Financial futures transactions..........
(57,600)
--------------
- ---
(25,400)
Net change in unrealized appreciation
(depreciation) of:
Investments.............................
(275,653)
--------------
- ---
Net gain on investments....................
(301,053)
--------------
- ---
Net Increase in Net Assets
Resulting from Operations.................. $ 753,099
--------------
- ---
--------------
- ---
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
MASSACHUSETTS SERIES
Statement of Changes in Net Assets (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year
Ended
Increase (Decrease) February 28, August
31,
in Net Assets 1999
1998
<S> <C> <C>
Operations
Net investment income............ $ 1,054,152 $
2,130,496
Net realized gain on investment
transactions.................. (25,400)
447,865
Net change in unrealized
appreciation (depreciation) of
investments................... (275,653)
980,734
------------ ------
- -----
Net increase in net assets
resulting from operations..... 753,099
3,559,095
------------ ------
- -----
Dividends and distributions (Note
1):
Dividends from net investment
income
Class A....................... (713,772)
(1,376,660)
Class B....................... (335,673)
(749,368)
Class C....................... (3,764)
(4,123)
Class Z....................... (943)
(345)
------------ ------
- -----
(1,054,152)
(2,130,496)
------------ ------
- -----
Distributions in excess of net
investment income
Class A....................... (9,090)
(14,903)
Class B....................... (4,519)
(9,075)
Class C....................... (55)
(39)
Class Z....................... (20)
(3)
------------ ------
- -----
(13,684)
(24,020)
------------ ------
- -----
Distributions from net realized gains
Class A....................... (284,387)
(354,484)
Class B....................... (141,295)
(215,867)
Class C....................... (1,712)
(936)
Class Z....................... (626)
(72)
------------ ------
- -----
(428,020)
(571,359)
------------ ------
- -----
Series share transactions (net of
share conversions) (Note 5):
Net proceeds from shares sold.... 5,433,192
2,768,598
Net asset value of shares issued
in reinvestment of
dividends..................... 848,401
1,617,702
Cost of shares reacquired........ (2,960,453)
(7,029,860)
------------ ------
- -----
Net increase (decrease) in net
assets from Series share
transactions.................. 3,321,140
(2,643,560)
------------ ------
- -----
Total increase (decrease)........... 2,578,383
(1,810,340)
Net Assets
Beginning of period................. 45,404,971
47,215,311
------------ ------
- -----
End of period....................... $ 47,983,354
$45,404,971
------------ ------
- -----
------------ ------
- -----
</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 13 series. The
monies of each series are invested in separate,
independently managed
portfolios. The Massachusetts Series (the 'Series')
commenced investment
operations in September, 1984. The Series is diversified and
seeks to achieve
its investment objective of obtaining the maximum amount of
income exempt from
federal and applicable state income taxes with the minimum
of risk by investing
in 'investment grade' tax-exempt securities whose ratings
are within the four
highest ratings categories by a nationally recognized
statistical rating
organization or, if not rated, are of comparable quality.
The ability of the
issuers of the securities held by the Series to meet their
obligations may be
affected by economic developments in a specific state,
industry or region.
- ------------------------------------------------------------
Note 1. Accounting Policies
The following is a summary of significant accounting
policies followed by the
Fund, and the Series, in the preparation of its financial
statements.
Securities Valuations: The Fund values municipal securities
(including
commitments to purchase such securities on a 'when-issued'
basis) on the basis
of prices provided by a pricing service which uses
information with respect to
transactions in bonds, quotations from bond dealers, market
transactions in
comparable securities and various relationships between
securities in
determining values. If market quotations are not readily
available from such
pricing service, a security is valued at its fair value as
determined under
procedures established by the Trustees.
Short-term securities which mature in more than 60 days are
valued at current
market quotations. Short-term securities which mature in 60
days or less are
valued at amortized cost which approximates market value.
All securities are valued as of 4:15 p.m., New York time.
Financial Futures Contracts: A financial futures contract is
an agreement to
purchase (long) or sell (short) an agreed amount of debt
securities at a set
price for delivery on a future date. Upon entering into a
financial futures
contract, the Series is required to pledge to the broker an
amount of cash
and/or other assets equal to a certain percentage of the
contract amount. This
amount is known as the 'initial margin.' Subsequent
payments, known as
'variation margin,' are made or received by the Series each
day, depending on
the daily fluctuations in the value of the underlying
security. Such variation
margin is recorded for financial statement purposes on a
daily basis as
unrealized gain or loss. The Series invests in financial
futures contracts
solely for the purpose of hedging its existing portfolio
securities or
securities the Series intends to purchase against
fluctuations in value caused
by changes in prevailing market interest rates. Should
interest rates move
unexpectedly, the Series may not achieve the anticipated
benefits of the
financial futures contracts and may realize a loss. The use
of futures
transactions involves the risk of imperfect correlation in
movements in the
price of futures contracts, interest rates and the
underlying hedged assets.
Securities Transactions and Net Investment Income:
Securities transactions are
recorded on the trade date. Realized gains and losses on
sales of securities are
calculated on the identified cost basis. Interest income is
recorded on the
accrual basis. The Series amortizes premiums and original
issue discount paid on
purchases of portfolio securities as adjustments to interest
income. Expenses
are recorded on the accrual basis which may require the use
of certain estimates
by management.
Net investment income (other than distribution fees) and
unrealized and realized
gains or losses are allocated daily to each class of shares
based upon the
relative proportion of net assets of each class at the
beginning of the day.
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 decrease
accumulated realized gains and
increase undistributed net investment income by $13,684. 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 regulations which may differ from generally
accepted accounting
principles.
- ------------------------------------------------------------
- --------------------
7
<PAGE>
PRUDENTIAL MUNICIPAL
SERIES FUND
Notes to Financial Statements
(Unaudited) MASSACHUSETTS SERIES
- ------------------------------------------------------------
- --------------------
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
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 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 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
Investment Management
Services LLC ('PIMS'), which acts as the distributor of the
Class A, Class B,
Class C and Class Z shares of the Fund. The Fund compensates
PIMS 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
PIMS as distributor
of the Class Z shares of the Fund. Effective January 1, 1999
such expenses under
the plans were .25 of 1%, .50 of 1% and .75 of 1% of the
average daily net
assets of the Class A, B and C shares, respectively.
Pursuant to the Class A, B and C Plans, the Fund compensates
PIMS for
distribution-related activities at an annual rate of up to
.30 of 1%, .50 of 1%
and 1% of the average daily net assets of the Class A, B and
C shares,
respectively. Such expenses under the Plans were .10 of 1%,
.50 of 1% and .75 of
1% of the average daily net assets of the Class A, B and C
shares, respectively,
for the period September 1, 1998 through December 31, 1998.
Effective January 1,
1999 such expenses under the plans were .25 of 1%, .50 of 1%
and .75 of 1% of
the average daily net assets of the Class A, B and C shares,
respectively.
PIMS has advised the Series that they have received
approximately $14,200 in
front-end sales charges resulting from sales of Class A and
Class C shares, for
the six months ended February 28, 1999. From these fees PIMS
paid such sales
charges to affiliated broker-dealers, which in turn paid
commissions to
salespersons and incurred other distribution costs.
PIMS advised the Series that for the six months ended
February 28, 1999, they
received approximately $3,800 in contingent deferred sales
charges imposed upon
certain redemptions by Class B and C shareholders.
PIFM, PIMS 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'), 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 did not borrowed any amounts pursuant to the
Agreement during the six
months ended February 28, 1999. 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 February 28, 1999 and has been extended through
March 12, 1999 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 and during the six
months ended February 28,
1999, the Series incurred fees of approximately $7,800 for
the services of PMFS.
As of February 28, 1999, approximately $1,300 of such fees
were due to PMFS.
Transfer agent fees and expenses in the Statement of
Operations include certain
out-of-pocket expenses paid to 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, 1999,
were $5,167,940 and
$2,758,075, respectively.
The cost basis of investments for federal income tax
purposes at February 28,
1999 was substantially the same as for financial reporting
purposes and
accordingly, net unrealized appreciation of investments for
federal income tax
purposes was $4,208,414 (gross unrealized appreciation--
$4,289,302, gross
unrealized depreciation--$80,888).
- ------------------------------------------------------------
- --------------------
8
<PAGE>
PRUDENTIAL MUNICIPAL
SERIES FUND
Notes to Financial Statements
(Unaudited) MASSACHUSETTS SERIES
- ------------------------------------------------------------
- --------------------
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. Prior to November 2,
1998, Class C
shares are sold with a contingent deferred sales charge of
1% during the first
year. Effective November 2, 1998, Class C shares are sold
with a front-end sales
charge of 1% and a contingent deferred sales charge of 1%
during the first 18
months. 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. 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, 1999 and the fiscal year ended August 31, 1998 were as
follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- ------------------------------------- ---------- -------
- ----
<S> <C> <C>
Six months ended February 28, 1999:
Shares sold.......................... 372,456 $
4,423,821
Shares issued in reinvestment of
dividends and distributions........ 50,098
591,312
Shares reacquired.................... (127,875)
(1,516,508)
---------- -------
- ----
Net increase in shares outstanding
before conversion.................. 294,679
3,498,625
Shares issued upon conversion from
Class B............................ 30,579
364,344
---------- -------
- ----
Net increase in shares outstanding... 325,258 $
3,862,969
---------- -------
- ----
---------- -------
- ----
Year ended August 31, 1998:
Shares sold.......................... 142,966 $
1,687,456
Shares issued in reinvestment of
dividends and distributions........ 93,703
1,103,427
Shares reacquired.................... (361,990)
(4,261,684)
---------- -------
- ----
Net decrease in shares outstanding
before conversion.................. (125,321)
(1,470,801)
Shares issued upon conversion from
Class B............................ 92,146
1,085,201
---------- -------
- ----
Net decrease in shares outstanding... (33,175) $
(385,600)
---------- -------
- ----
---------- -------
- ----
<CAPTION>
Class B Shares
Amount
- ------------------------------------- ---------- -------
- ----
<S> <C> <C>
Six months ended February 28, 1999:
Shares sold.......................... 68,334 $
810,611
Shares issued in reinvestment of
dividends and distributions........ 21,407
252,434
Shares reacquired.................... (119,844)
(1,423,394)
---------- -------
- ----
Net decrease in shares outstanding
before conversion.................. (30,103)
(360,349)
Shares reacquired upon conversion
into Class A....................... (30,592)
(364,344)
---------- -------
- ----
Net decrease in shares outstanding... (60,695) $
(724,693)
---------- -------
- ----
---------- -------
- ----
Year ended August 31, 1998:
Shares sold.......................... 78,841 $
927,666
Shares issued in reinvestment of
dividends and distributions........ 43,421
510,985
Shares reacquired.................... (225,580)
(2,656,058)
---------- -------
- ----
Net decrease in shares outstanding
before conversion.................. (103,318)
(1,217,407)
Shares reacquired upon conversion
into Class A....................... (92,162)
(1,085,201)
---------- -------
- ----
Net decrease in shares outstanding... (195,480)
$(2,302,608)
---------- -------
- ----
---------- -------
- ----
<CAPTION>
Class C
- -------------------------------------
<S> <C> <C>
Six months ended February 28, 1999:
Shares sold.......................... 11,399 $
134,816
Shares issued in reinvestment of
dividends and distributions........ 262
3,089
Shares reacquired.................... (1,361)
(16,085)
---------- -------
- ----
Net increase in shares outstanding... 10,300 $
121,820
---------- -------
- ----
---------- -------
- ----
Year ended August 31, 1998:
Shares sold.......................... 9,344 $
109,986
Shares issued in reinvestment of
dividends and distributions........ 250
2,944
Shares reacquired.................... (6,524)
(76,579)
---------- -------
- ----
Net increase in shares outstanding... 3,070 $
36,351
---------- -------
- ----
---------- -------
- ----
<CAPTION>
Class Z
- -------------------------------------
<S> <C> <C>
Six months ended February 28, 1999:
Shares sold.......................... 5,378 $
63,944
Shares issued in reinvestment of
dividends and distributions........ 133
1,566
Shares reacquired.................... (378)
(4,466)
---------- -------
- ----
Net increase in shares outstanding... 5,133 $
61,044
---------- -------
- ----
---------- -------
- ----
Year ended August 31, 1998:
Shares sold.......................... 3,668 $
43,490
Shares issued in reinvestment of
dividends and distributions........ 29
346
Shares reacquired.................... (2,989)
(35,539)
---------- -------
- ----
Net increase in shares outstanding... 708 $
8,297
---------- -------
- ----
---------- -------
- ----
</TABLE>
- ------------------------------------------------------------
- --------------------
9
<PAGE>
PRUDENTIAL MUNICIPAL
SERIES FUND
Financial Highlights (Unaudited) MASSACHUSETTS SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class A
-
- ------------------------------------------------------------
- ----------
Six Months
Ended Year Ended August 31,
February 28, -------------------------------------------
- -----------
1999 1998 1997 1996 1995
1994
- ------ ------- ------- ------- -------
- ------
<S>
<C> <C> <C> <C> <C>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...................
$ 11.90 $ 11.69 $ 11.54 $ 11.63 $ 11.37
$12.17
- ------ ------- ------- ------- -------
- ------
Income from investment operations
Net investment income..................................
.27 .55 .58(a) .59(a) .65(a)
.67
Net realized and unrealized gain (loss) on
investment transactions.............................
(.07) .37 .33 (.02) .26
(.73)
- ------ ------- ------- ------- -------
- ------
Total from investment operations....................
.20 .92 .91 .57 .91
(.06)
- ------ ------- ------- ------- -------
- ------
Less distributions
Dividends from net investment income...................
(.27) (.55) (.58) (.59) (.65)
(.67)
Distributions in excess of net investment income.......
- --(d) (.01) -- -- --
- --
Distributions from net realized gains..................
(.11) (.15) (.18) (.07) --
(.07)
- ------ ------- ------- ------- -------
- ------
Total distributions.................................
(.38) (.71) (.76) (.66) (.65)
(.74)
- ------ ------- ------- ------- -------
- ------
Net asset value, end of period.........................
$ 11.72 $ 11.90 $ 11.69 $ 11.54 $ 11.63
$11.37
- ------ ------- ------- ------- -------
- ------
- ------ ------- ------- ------- -------
- ------
TOTAL RETURN(b):.......................................
1.80% 8.10% 8.10% 4.93% 8.33%
(.58)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........................
$ 32,386 $29,024 $28,890 $28,058 $27,525
$2,293
Average net assets (000)...............................
$ 30,830 $29,031 $29,096 $28,091 $15,837
$2,578
Ratios to average net assets:
Expenses, including distribution fees...............
1.17%(c) 1.04% 1.00%(a) 1.06%(a) .97%(a)
.87%
Expenses, excluding distribution fees...............
.92%(c) .94% .90%(a) .96%(a) .87%(a)
.77%
Net investment income...............................
4.67%(c) 4.75% 5.00%(a) 5.06%(a) 5.59%(a)
5.60%
For Class A, B, C and Z shares:
Portfolio turnover rate.............................
6% 33% 22% 18% 36%
33%
</TABLE>
- ---------------
(a) Net of management fee waiver.
(b) Total return does not consider the effects of sales
loads. Total return is
calculated assuming a purchase of shares on the first
day and a sale on the
last day of each period reported and includes
reinvestment of dividends and
distributions. Total returns for periods of less than a
full year are not
annualized.
(c) Annualized.
(d) Less than .005 per share.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 10
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) MASSACHUSETTS
SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class B
-
- ------------------------------------------------------------
- -----------
Six Months
Ended Year Ended August 31,
February 28, -------------------------------------------
- ------------
1999 1998 1997 1996 1995
1994
- ------ ------- ------- ------- -------
- -------
<S>
<C> <C> <C> <C> <C>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...................
$ 11.89 $ 11.68 $ 11.53 $ 11.62 $ 11.36
$ 12.17
- ------ ------- ------- ------- -------
- -------
Income from investment operations
Net investment income..................................
.25 .51 .53(a) .54(a) .60(a)
.61
Net realized and unrealized gain (loss) on investment
transactions........................................
(.07) .37 .33 (.02) .26
(.74)
- ------ ------- ------- ------- -------
- -------
Total from investment operations....................
.18 .88 .86 .52 .86
(.13)
- ------ ------- ------- ------- -------
- -------
Less distributions
Dividends from net investment income...................
(.25) (.51) (.53) (.54) (.60)
(.61)
Distributions in excess of net investment income.......
- --(d) (.01) -- -- --
- --
Distributions from net realized gains..................
(.11) (.15) (.18) (.07) --
(.07)
- ------ ------- ------- ------- -------
- -------
Total distributions.................................
(.36) (.67) (.71) (.61) (.60)
(.68)
- ------ ------- ------- ------- -------
- -------
Net asset value, end of period.........................
$ 11.71 $ 11.89 $ 11.68 $ 11.53 $ 11.62
$ 11.36
- ------ ------- ------- ------- -------
- -------
- ------ ------- ------- ------- -------
- -------
TOTAL RETURN(b):.......................................
1.61% 7.67% 7.67% 4.51% 7.90%
(1.15)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........................
$ 15,294 $16,256 $18,247 $22,758 $28,367
$55,420
Average net assets (000)...............................
$ 15,693 $17,253 $20,301 $25,751 $39,455
$59,544
Ratios to average net assets:
Expenses, including distribution fees...............
1.42%(c) 1.44% 1.40%(a) 1.46%(a) 1.34%(a)
1.27%
Expenses, excluding distribution fees...............
.92%(c) .94% .90%(a) .96%(a) .84%(a)
.77%
Net investment income...............................
4.31%(c) 4.35% 4.60%(a) 4.66%(a) 5.37%(a)
5.20%
</TABLE>
- ---------------
(a) Net of management fee waiver.
(b) Total return does not consider the effects of sales
loads. Total return is
calculated assuming a purchase of shares on the first
day and a sale on the
last day of each period reported and includes
reinvestment of dividends and
distributions. Total returns for periods of less than a
full year are not
annualized.
(c) Annualized.
(d) Less than .005 per share.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 11
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) MASSACHUSETTS
SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class C
-
- ------------------------------------------------------------
- ----------
August 1,
Six Months
1994(d)
Ended Year Ended August 31,
Through
February 28, ---------------------------------------
August 31,
1999 1998 1997 1996 1995
1994
<S>
<C> <C> <C> <C> <C>
<C>
-
- ----------- ------ ------ ------ ------
- ----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...................
$11.89 $11.68 $11.53 $11.62 $11.36
$11.41
- ----- ------ ------ ------ ------
- -----
Income from investment operations
Net investment income..................................
.24 .48 .50(a) .51(a) .57(a)
.04
Net realized and unrealized gain (loss) on investment
transactions........................................
(.07) .37 .33 (.02) .26
(.05)
- ----- ------ ------ ------ ------
- -----
Total from investment operations....................
.17 .85 .83 .49 .83
(.01)
- ----- ------ ------ ------ ------
- -----
Less distributions
Dividends from net investment income...................
(.24) (.48) (.50) (.51) (.57)
(.04)
Distributions in excess of net investment income.......
- --(f) (.01) -- -- --
- --
Distributions from net realized gains..................
(.11) (.15) (.18) (.07) --
- --
- ----- ------ ------ ------ ------
- -----
Total distributions.................................
(.35) (.64) (.68) (.58) (.57)
(.04)
- ----- ------ ------ ------ ------
- -----
Net asset value, end of period.........................
$11.71 $11.89 $11.68 $11.53 $11.62
$11.36
- ----- ------ ------ ------ ------
- -----
- ----- ------ ------ ------ ------
- -----
TOTAL RETURN(b):.......................................
1.49% 7.41% 7.41% 4.26% 7.60%
(0.27)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........................
$ 235 $ 116 $ 78 $ 45 $ 14
$ 216(e)
Average net assets (000)...............................
$ 185 $ 101 $ 48 $ 41 $ 14
$ 15(e)
Ratios to average net assets:
Expenses, including distribution fees...............
1.67%(c) 1.69% 1.65%(a) 1.72%(a) 1.60%(a)
1.57%(c)
Expenses, excluding distribution fees...............
.92%(c) .94% .90%(a) .97%(a) .85%(a)
.82%(c)
Net investment income...............................
4.09%(c) 4.08% 4.36%(a) 4.39%(a) 5.07%(a)
5.06%(c)
</TABLE>
- ---------------
(a) Net of management fee waiver.
(b) Total return does not consider the effects of sales
loads. Total return is
calculated assuming a purchase of shares on the first
day and a sale on the
last day of each period reported and includes
reinvestment of dividends and
distributions. Total returns for periods of less than a
full year are not
annualized.
(c) Annualized.
(d) Commencement of offering of Class C shares.
(e) Amounts are actual and not rounded to the nearest
thousand.
(f) Less than .005 per share.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 12
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) MASSACHUSETTS
SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class Z
-
- -------------------------------------------
December 6,
Six Months Year 1996(d)
Ended Ended Through
February 28, August 31, August 31,
1999 1998 1997
<S>
<C> <C> <C>
-
- ----------- ---------- ------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...................
$11.89 $11.68 $11.80
- ----- ----- -----
Income from investment operations
Net investment income..................................
.28 .58 .47(a)
Net realized and unrealized gain (loss) on investment
transactions........................................
(.07) .37 .06
- ----- ----- -----
Total from investment operations....................
.21 .95 .53
- ----- ----- -----
Less distributions
Dividends from net investment income...................
(.28) (.58) (.47)
Distributions in excess of net investment income.......
- --(f) (.01) --
Distributions from net realized gains..................
(.11) (.15) (.18)
- ----- ----- -----
Total distributions.................................
(.39) (.74) (.65)
- ----- ----- -----
Net asset value, end of period.........................
$11.71 $11.89 $11.68
- ----- ----- -----
TOTAL RETURN(b):.......................................
1.87% 8.31% 4.54%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........................
$ 68 $ 9 $ 204(e)
Average net assets (000)...............................
$ 39 $ 7 $ 200(e)
Ratios to average net assets:
Expenses, including distribution fees...............
.92%(c) .94% .90%(a)(c)
Expenses, excluding distribution fees...............
.92%(c) .94% .90%(a)(c)
Net investment income...............................
4.90%(c) 4.91% 5.55%(a)(c)
</TABLE>
- ---------------
(a) Net of management fee waiver.
(b) Total return does not consider the effects of sales
loads. Total return is
calculated assuming a purchase of shares on the first
day and a sale on the
last day of each period reported and includes
reinvestment of dividends and
distributions. Total returns for periods of less than a
full year are not
annualized.
(c) Annualized.
(d) Commencement of offering of Class Z shares.
(e) Amounts are actual and not rounded to the nearest
thousand.
(f) Less than .005 per share.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 13
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
Some mutual fund shareholders won't ever read this -- they
don't read annual and semi-annual reports. It's quite
understandable. These annual and semi-annual reports are
prepared to comply with Federal regulations. They are often
written in language that is difficult to understand. So when
most people run into those particularly daunting sections of
these reports, they don't read them.
We think that's a mistake.
At Prudential Mutual Funds, we've made some changes to our
report to make it easier to understand and more pleasant to
read, in hopes you'll find it profitable to spend a few
minutes familiarizing yourself with your investment. Here's
what you'll
find in the report:
At A Glance
Since an investment's performance is often a shareholder's
primary
concern, we present performance information in two different
formats. You'll find it first on the "At A Glance" page
where
we compare the Fund and the comparable average calculated
by Lipper Analytical Services, a nationally recognized
mutual
fund rating agency. We report both the cumulative total
returns
and the average annual total returns. The cumulative total
return is the total amount of income and appreciation the
Fund
has achieved in various time periods. The average annual
total
return is an annualized representation of the Fund's
performance -- it generally smoothes out returns and gives
you an idea how much the Fund has earned in an average year,
for a given time period. Under the performance box, you'll
see
legends that explain the performance information, whether
fees
and sales charges have been included in returns, and the
inception dates for the Fund's share classes.
See the performance comparison charts at the back of the
report for more performance information. And keep in mind
that past perfor-mance is not indicative of future results.
Portfolio Manager's Report
The portfolio manager who invests your money for you reports
on
successful -- and not-so-successful -- strategies in this
section
of your report. Look for recent purchases and sales here, as
well
as information about the sectors the portfolio manager
favors and
any changes that are on the drawing board.
Portfolio Of Investments
This is where the report begins to look technical, but it's
really
just a listing of each security held at the end of the
reporting
period, along with valuations and other information. Please
note
that sometimes we discuss a security in the Portfolio
Manager's
Report that doesn't appear in this listing because it was
sold
before the close of the reporting period.
<PAGE>
Statement Of Assets And Liabilities
The balance sheet shows the assets (the value of the Fund's
holdings), liabilities (how much the Fund owes) and net
assets
(the Fund's equity, or holdings after the Fund pays its
debts)
as of the end of the reporting period. It also shows how we
calculate the net asset value per share for each class of
shares.
The net asset value is reduced by payment of your dividend,
capital gain, or other distribution, but remember that the
money or new shares are being paid or issued to you. The net
asset value fluctuates daily along with the value of every
security in the portfolio.
Statement Of Operations
This is the income statement, which details income (mostly
interest and dividends earned) and expenses (including what
you pay us to manage your money). You'll also see capital
gains here -- both realized and unrealized.
Statement Of Changes In Net Assets
This schedule shows how income and expenses translate into
changes in net assets. The Fund is required to pay out the
bulk of its income to shareholders every year, and this
statement shows you how we do it -- through dividends
and distributions -- and how that affects the net assets.
This statement also shows how money from investors flowed
into and out of the Fund.
Notes To Financial Statements
This is the kind of technical material that can intimidate
readers, but it does contain useful information. The Notes
provide a brief history and explanation of your Fund's
objectives. In addition, they also outline how Prudential
Mutual Funds prices securities. The Notes also explain who
manages and distributes the Fund's shares, and more
importantly, how much they are paid for doing so. Finally,
the Notes explain how many shares are outstanding and the
number issued and redeemed over the period.
Financial Highlights
This information contains many elements from prior pages,
but on a per share basis. It is designed to help you
understand
how the Fund performed and to compare this year's
performance
and expenses to those of prior years.
Independent Auditor's Report
Once a year, an outside auditor looks over our books and
certifies
that the information is fairly presented and complies with
generally
accepted accounting principles.
Tax Information
This is information which we report annually about how much
of your
total return is taxable. Should you have any questions, you
may
want to consult a tax advisor.
Performance Comparison
These charts are included in the annual report and are
required
by the Securities Exchange Commission. Performance is
presented
here as a hypothetical $10,000 investment in the Fund since
its
inception or for 10 years (whichever is shorter). To help
you put that return in context, we are required to include
the
performance of an unmanaged, broad based securities index,
as
well. The index does not reflect the cost of buying the
securities
it contains or the cost of managing a mutual fund. Of
course, the index holdings do not mirror those of the fund -
- - the
index is a broadly based reference point commonly used by
investors
to measure how well they are doing. A definition of the
selected
index is also provided. Investors generally cannot
invest directly in an index.
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
How many times have you read these letters -- or other
financial
materials -- and stumbled across a word that you don't
understand?
Many shareholders have run into the same problem. We'd like
to
help. So we'll use this space from time to time to explain
some
of the words you might have read, but not understood. And if
you
have a favorite word that no one can explain to your
satisfaction, please write to us.
Basis Point: 1/100th of 1%. For example, one-half of one
percent
is 50 basis points.
Collateralized Mortgage Obligations (CMOs): Mortgage-backed
bonds
that separate mortgage pools into different maturity
classes,
called tranches. These instruments are sensitive to changes
in
interest rates and homeowner refinancing activity. They
are subject to prepayment and maturity extension risk.
Derivatives: Securities that derive their value from other
securities. The rate of return of these financial
instruments
rises and falls -- sometimes very suddenly -- in response to
changes in some specific interest rate, currency, stock, or
other
variable.
Discount Rate: The interest rate charged by the Federal
Reserve
on loans to member banks.
Federal Funds Rate: The interest rate charged by one bank to
another on overnight loans.
Futures Contract: An agreement to purchase or sell a
specific
amount of a commodity or financial instrument at a set price
at a specified date in the future.
Leverage: The use of borrowed assets to enhance return. The
expectation is that the interest rate charged on borrowed
funds will be lower than the return on the investment. While
leverage can increase profits, it can also magnify losses.
Liquidity: The ease with which a financial instrument (or
product) can be bought or sold (converted into cash) in the
financial markets.
Price/Earnings Ratio: The price of a share of stock divided
by
the earnings per share for a 12-month period.
Option: An agreement to purchase or sell something, such as
shares of stock, by a certain time for a specified price. An
option need not be exercised.
Spread: The difference between two values; often used to
describe
the difference between "bid" and "asked" prices of a
security,
or between the yields of two similar maturity bonds.
Yankee Bond: A bond sold by a foreign company or government
in
the U.S. market and denominated in U.S. dollars.
<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
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Louis A. Weil, III
Officers
Robert F. Gunia, President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Deborah A. Docs, Assistant Secretary
David F. Connor, 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 Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
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
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Swidler Berlin Shereff Friedman, 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,
1999 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
74435M655
74435M663 MF119E2
74435M564
74435M416
(ICON)
Prudential
Municipal
Series Fund
- ------------------------
Massachusetts
Money Market Series
SEMI
ANNUAL
REPORT
Feb. 28, 1999
(LOGO)
<PAGE>
Prudential Municipal Series Fund
Massachusetts Money Market Series
Performance At A Glance.
Yields on municipal money market securities fell during the
six months ended February 28, 1999 because the supply of
securities declined overall while demand for them remained
strong, and the Federal Reserve repeatedly eased monetary
policy. However, we were able to take advantage of many
good buying opportunities since plenty of tax-exempt money
market securities were available in Massachusetts. As a
result, your Prudential Municipal Series Fund--Massachusetts
Money Market Series provided a competitive level of tax-
exempt
income.
<TABLE>
Fund Facts As of
2/28/99
<CAPTION>
7-Day Net Asset
Taxable Equivalent Yield* Weighted Avg. Net Assets
Current Yld. Value (NAV) @31%
@36% @39.6% Mat. (WAM) (Millions)
<S> <C> <C> <C>
<C> <C> <C> <C>
MA Money
Market Series 2.24% $1
3.69% 3.98% 4.21% 56 Days $59
IBC Financial Data
Tax-Free State Specific
(SB & GP-MA) Avg.** 2.29% $1
3.77% 4.07% 4.31% 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
not insured or guaranteed by the Federal Deposit Insurance
Corporation
or any other government agency. Although the Series seeks to
preserve
the value of your investment at $1.00 per share, it is
possible to
lose money by investing in the Series.
* Some investors may be subject to the federal alternative
minimum
tax and/or state and local taxes. Taxable equivalent yields
reflect
federal and applicable state tax rates.
** International Business Communications (IBC) Financial
Data reports
a seven-day current yield, NAV, and WAM on Mondays. This is
the data
of all funds in the IBC Financial Data Tax-Free State
Specific Average
(Stock Broker (SB) & General Purpose (GP) - Massachusetts)
category as
of March 1, 1999.
Traacking Tax-Free Money Fund Yields.
(GRAPH)
How Investments Compared.
(As of 2/28/99)
(GRAPH)
Source: Lipper, Inc. 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; they don't fluctuate much in price but,
historically, their returns have been generally among
the lowest of the major investment categories.
*19 years for U.S. Tax-Exempt Money Funds.
<PAGE>
Colleen Meehan, Fund Manager (PHOTO)
Portfolio
Manager's Report
The Prudential Municipal Series Fund--Massachusetts Money
Market
Series seeks to provide the highest level of current income
that
is exempt from federal and Massachusetts state income taxes,
consistent with liquidity and the preservation of capital.
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.
The Importance of WAM.
Weighted Average Maturity (WAM) takes into account the
maturity level of each security held by a fund. WAM is
a measurement tool that determines a fund's sensitivity
to changes in interest rates. A lengthened WAM enables a
fund's yield to remain higher for a longer period of time
during declining interest-rate cycles.
Strategy Session.
Barbell Strategy.
We employed a barbell strategy in which the Series' assets
were
concentrated in shorter- and longer-term municipal money
market
securities. This approach kept the Series' WAM longer than
average
for most of the six-month period and still provided us with
quick
access to cash to satisfy shareholder redemptions. Extending
the
WAM allowed the Series' yield to remain higher for a longer
time
as tax-exempt money market yields declined.
Beginning in September 1998, we lengthened the Series' WAM
as
the Federal Reserve embarked on a series of reductions in
the
Federal funds rate, which is the rate banks charge each
other
for overnight loans. Cutting interest rates stimulates
economic
growth by lowering borrowing costs. Therefore, the three
Federal-funds-rate reductions helped restore faith in the
U.S. economy and calmed financial markets, which had grown
increasingly volatile after a global financial crisis spread
beyond Asia. Realizing that yields in our market would
continue
to edge lower with the Federal funds rate, we quickly locked
in
yields on longer-term Massachusetts money market securities.
These purchases dramatically extended the Series' WAM in
September and October 1998.
We could lengthen our WAM because of the ample supply of
Massachusetts money market securities, but overall, the
amount of securities in our market declined. Among tax-
exempt
notes, which mature in 13 months or less, the total dollar
volume issued in 1998 was down 25% from 1997, according to
Municipal Market Data. Issuance dropped as some state and
local governments preferred to issue long-term bonds instead
of notes in order to lock in low yields for a longer time.
We found good buying opportunities among one-year insured
Massachusetts bonds, which were an attractive alternative
to the more conventional municipal money market securities
such as notes.
<PAGE>
What Went Well.
Buying Short-Term Bonds.
The one-year Massachusetts bonds we purchased provided very
attractive yields to compensate for the fact that they are
usually issued in smaller-size blocks. Most money managers
prefer to buy larger blocks of bonds because they are easier
to sell. However, owning small blocks of bonds maturing in
one year suited us because we plan to hold them until they
mature. In addition, our purchases of one-year Massachusetts
bonds helped the Series' WAM remain longer than average over
the past six months. The longer WAM afforded the Series'
yield
some protection from the falling-interest-rate environment.
And Not So Well.
Not Enough Commercial Paper.
There was less Massachusetts tax-exempt commercial paper
available
because many municipalities opted to borrow money by
issuing
long-term bonds. (Commercial paper is a type of short-term
debt
security that matures in 270 days or less.) We wanted to
increase the Series' holdings of tax-exempt commercial paper
maturing in late April. Having securities coming due at
this
time would have given us cash to meet shareholder requests
for
money tied to the tax season. Instead, we had to buy
floating-rate securities that, given a day's notice,
would allow us to sell them back at the original purchase
price. These securities, however, tend to provide lower
yields than tax-exempt commercial paper.
Weighted Average Maturity Compared
To The Average Fund.
(GRAPH)
Looking Ahead.
We plan to shorten the Series' WAM until it is more in line
with that of its competition. This strategy allows us
quicker
access to cash from mid-April to early May so that we can
satisfy shareholder liquidity needs prompted by their
income tax payments. Having faster access to cash will
also enable us to take advantage of attractive buying
opportunities that emerge during tax season as portfolio
managers sell money market securities to meet their
shareholder liquidity needs.
Any higher-yielding purchases made during tax season
and in subsequent weeks will help the Series weather
the drop in municipal money market yields that usually
occurs in June and early July. During this time,
municipal note issuance is expected to decline again
due to strong economic growth.
1
<PAGE>
A Message to Our Shareholders April 19,
1999
(PHOTO)
Dear Shareholder,
For the last several months, major index advances have
been driven by the stocks of a handful of very large
companies.
These stocks are getting more and more expensive, out of
proportion to their earnings expectations. As a result,
a substantial disparity in value has grown between large
and small companies and between growth and value stocks.
Since not all stocks are benefiting from the highly
publicized
euphoria surrounding each record-breaking milestone, it is
unlikely that these trends will continue. In fact, signs
that the tide is turning are starting to emerge. Moreover,
history shows that markets generally bring prices in line
with earnings performance sooner or later.
Many sectors of the bond market, on the other hand, have
already begun to rebound from last year's global financial
crisis. Furthermore, while bonds have not generated higher
returns than stocks in recent years, they have demonstrated
that they hold up better during market downturns. That's a
thought to keep in mind going forward.
Diversification Is Critical.
What does this suggest? Instead of chasing recent market
winners,
investors should have a well-diversified asset allocation
strategy
in place and keep to it. It is also a good practice to
rebalance
your holdings, when necessary, to keep your asset allocation
consistent with your long-term objectives and risk
tolerance.
A properly diversified portfolio of value- and growth-
oriented
mutual funds, bond funds and money market funds could help
you
weather inevitable market turbulence and receive more
consistent
returns over time. Prudential offers a wide range of mutual
funds
to help our shareholders diversify. We have also designed
several
balanced and diversified funds to allow one-decision
diversification.
Thank you for your continued confidence in Prudential mutual
funds.
Sincerely,
John R. Strangfeld
Chief Investment Officer
Prudential Investments
2
<PAGE>
Portfolio of Investments as
of February 28, 1999 PRUDENTIAL MUNICIPAL
SERIES FUND
(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>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Fall River Mass., Gen. Oblig., B.A.N., A.M.B.A.C.
Aaa 5.25% 6/15/99 $ 500 $
502,140
Falmouth Mass., Gen. Oblig., B.A.N.
NR 4.00 8/13/99 2,000
2,003,046
First Chicago Bank Certificates, Ser. 98B, F.R.W.D.S.,
F.G.I.C.
VMIG1 3.15 3/03/99 3,000
3,000,000
Holyoke Mass., Municipal Purpose Loan, Ser. A, F.S.A.
Aaa 5.00 6/15/99 1,000
1,004,369
Mass. Bay Trans. Auth., Gen. Trans. Sys. Bonds, Ser. 84A,
S.E.M.O.T.
VMIG1 3.50 9/01/99 1,500
1,500,000
Mass. St. Dev. Fin. Agcy. Rev., Lassell Village Proj., Ser.
98C, F.R.W.D.
VMIG1 2.80 3/03/99 500
500,000
Mass. St. Hlth. & Edl. Facs. Auth. Rev.,
Boston Univ., Ser. 85H, T.E.C.P.
VMIG1 3.00 8/25/99 2,000
2,000,000
Cap. Asset Prog., Ser. P-2, F.R.W.D., F.S.A.
VMIG1 2.85 3/03/99 2,100
2,100,000
Cap. Asset Prog., Ser. 85B, F.R.D.D., M.B.I.A.
VMIG1 3.25 3/01/99 300
300,000
Cap. Asset Prog., Ser. 85C, F.R.D.D., M.B.I.A.
VMIG1 3.25 3/01/99 1,900
1,900,000
Hallmark Hlth. Sys., Ser. B, F.R.W.D., F.S.A.
VMIG1 2.80 3/04/99 1,485
1,485,000
Harvard Univ., Ser. 85I, F.R.W.D.
VMIG1 2.70 3/04/99 1,500
1,500,000
Harvard Univ., Ser. 89L, T.E.C.P.
VMIG1 2.90 4/01/99 1,200
1,200,000
Wellesley College, Ser. G, F.R.D.D.
VMIG1 3.10 3/01/99 1,700
1,700,000
Williams College, Ser. SG65, F.R.D.D.S.
A1+(d) 3.25 3/01/99 2,800
2,800,000
Mass. St. Hsg. Fin. Agcy. Rev.,
Multi-Family Rev., Harbor Port, Ser. 95A, F.R.W.D.
A1+(d) 2.90 3/03/99 3,000
3,000,000
Rental Housing, Ser. 94A, F.R.W.D.S., A.M.B.A.C., A.M.T.
A1+(d) 2.94 3/04/99 2,000
2,000,000
Single Family Mult. Res., Ser. 11, A.N.N.O.T.,
A.M.B.A.C.,
A.M.T.
Aaa 3.55 9/01/99 765
765,000
Mass. St. Ind. Fin. Agcy. Ind. Rev.,
Constitution Corp., Ser. 98, F.R.W.D.S., A.M.T.
A-1(d) 3.00 3/04/99 1,500
1,500,000
Goddard House, Ser. 95, F.R.W.D.
A-1(d) 2.80 3/04/99 1,975
1,975,000
Governor Dummer Academy, Ser. 96, F.R.W.D.
A1+(d) 2.80 3/04/99 1,500
1,500,000
Hazen Paper Co., Ser. 95, F.R.W.D.S., A.M.T.
A-1(d) 3.00 3/04/99 1,600
1,600,000
Heritage at Hingham, Ser. 97, F.R.W.D.
VMIG1 2.90 3/04/99 1,500
1,500,000
New England College, Ser. 97, F.R.W.D.
A1+(d) 2.80 3/04/99 1,000
1,000,000
Ocean Spray Cranberry, Ser. 84, A.N.N.O.T.
A+(d) 3.35 10/15/99 2,470
2,470,000
Riverdale Mills Corp., Ser. 95, F.R.W.D.S., A.M.T.
A-1(d) 3.00 3/04/99 1,100
1,100,000
Showa Womens Inst., Ser. 94, F.R.D.D.
VMIG1 3.20 3/01/99 1,400
1,400,000
United Med. Corp., Ser. 92, F.R.W.D., A.M.T.
P-1 2.85 3/03/99 600
600,000
Mass. St. Municipal Whsl. Elec. Co., Power Supply Sys. Rev.,
Ser. 94C, F.R.W.D., M.B.I.A.
VMIG1 2.80 3/03/99 2,500
2,500,000
Mass. St. Turnpike Auth.,
Ser. A, B.A.N.
Aaa 5.00 6/01/99 700
703,480
Refunded Gts., Ser. A, B.A.N., A.M.T.
Aaa 5.00 6/01/99 2,945 (c)
2,959,003
Mass. St. Wtr. Res. Auth.,
T.E.C.P.
P-1 2.65 4/14/99 2,000
2,000,000
T.E.C.P.
P-1 2.85 5/12/99 1,000
1,000,000
General Rev., Ser. A
Aaa 7.00 11/01/99 880
902,951
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as
of February 28, 1999 PRUDENTIAL MUNICIPAL
SERIES FUND
(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>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Mohawk Trail Reg. School Dist., Gen. Oblig., F.S.A.
Aaa 4.00% 9/15/99 $ 370 $
371,265
New Bedford, Gen. Oblig., Ser. 98, F.S.A.
Aaa 4.25 10/01/99 879
883,767
Quincy, Ser. 98, B.A.N.
NR 4.10 5/21/99 1,500
1,501,059
Rutland, Gen. Oblig., A.M.B.A.C.
Aaa 4.25 2/01/00 535
541,275
- -----------
Total Investments--97.8%
(amortized cost $57,267,355; (e))
57,267,355
Other assets in excess of liabilities--2.2%
1,274,498
- -----------
Net Assets--100%
$58,541,853
- -----------
- -----------
</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.
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.D.D.S.--Floating Rate (Daily) Demand Note Synthetic
(b).
F.R.W.D.--Floating Rate (Weekly) Demand Note (b).
F.R.W.D.S.--Floating Rate (Weekly) Demand Note Synthetic
(b).
F.S.A.--Financial Security Assurance.
M.B.I.A.--Municipal Bond Insurance Associations.
S.E.M.O.T.--Semi Annual Optional Tender.
T.E.C.P.--Tax-Exempt Commercial Paper.
(b) For purposes of amortized cost valuation, the maturity
date of Floating Rate
Demand Notes is considered to be the later of the next
date on which the
security can be redeemed at par, or the next date on
which the rate of
interest is adjusted.
(c) Prerefunded issues are secured by escrowed cash and/or
direct U.S.
guaranteed obligations.
(d) Standard & Poor's Rating.
(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>
PRUDENTIAL MUNICIPAL
SERIES FUND
Statement of Assets and Liabilities
(Unaudited) MASSACHUSETTS MONEY
MARKET SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Assets
February 28, 1999
<S>
<C>
Investments, at amortized cost which approximates market
value........................................... $
57,267,355
Cash........................................................
.............................................
75,929
Receivable for investments
sold........................................................
.................. 1,526,250
Receivable for Series shares
sold........................................................
................ 1,253,549
Interest
receivable..................................................
.................................... 349,865
Other
assets......................................................
....................................... 829
- -----------------
Total
assets......................................................
.................................... 60,473,777
- -----------------
Liabilities
Payable for investments
purchased...................................................
..................... 1,500,000
Payable for Series shares
reacquired..................................................
................... 345,298
Accrued
expenses....................................................
..................................... 45,380
Management fee
payable.....................................................
.............................. 22,653
Dividends
payable.....................................................
................................... 11,516
Deferred trustee's
fees........................................................
.......................... 4,472
Distribution fee
payable.....................................................
............................ 2,605
- -----------------
Total
liabilities.................................................
.................................... 1,931,924
- -----------------
Net
Assets......................................................
......................................... $
58,541,853
- -----------------
- -----------------
Net assets were comprised of:
Shares of beneficial interest, at $.01 par
value......................................................
$ 585,419
Paid-in capital in excess of
par.........................................................
............. 57,956,434
- -----------------
Net assets, February 28,
1999........................................................
.................... $ 58,541,853
- -----------------
- -----------------
Net asset value, offering price and redemption price per
share ($58,541,853 / 58,541,853 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,
1999
<S> <C>
Income
Interest................................ $ 913,196
--------
Expenses
Management fee.......................... 141,647
Distribution fee........................ 35,412
Custodian's fees and expenses........... 32,000
Reports to shareholders................. 19,000
Transfer agent's fees and expenses...... 10,000
Registration fees....................... 6,000
Legal fees and expenses................. 5,500
Audit fee and expenses.................. 4,000
Trustee's fees and expenses............. 2,000
Miscellaneous........................... 2,344
--------
Total expenses....................... 257,903
Less: Custodian fee credit (Note 1)..... (1,186)
--------
Net expenses......................... 256,717
--------
Net investment income...................... 656,479
--------
Net Increase in Net Assets
Resulting from Operations.................. $ 656,479
--------
--------
</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 1999
1998
<S> <C> <C>
Operations
Net investment income...... $ 656,479 $
1,520,000
----------------- -------
- -----
Dividends (Note 1)............ (656,479)
(1,520,000)
----------------- -------
- -----
Series share transactions
(at $1 per share)
Net proceeds from shares
sold....................... 77,999,806
193,957,544
Net asset value of shares
issued to shareholders
in reinvestment of
dividends............... 653,308
1,483,199
Cost of shares
reacquired.............. (82,571,653)
(186,420,872)
----------------- -------
- -----
Net increase (decrease) in
net assets from Series
share transactions...... (3,918,539)
9,019,871
----------------- -------
- -----
Total increase (decrease)..... (3,918,539)
9,019,871
Net Assets
Beginning of period........... 62,460,392
53,440,521
----------------- -------
- -----
End of period................. $ 58,541,853 $
62,460,392
----------------- -------
- -----
----------------- -------
- -----
</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 11 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
nondiversified 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 13 months or less
and whose ratings are within the 2 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
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 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 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
Investment Management
Services LLC ('PIMS') which acts as the distributor of the
Fund. The Fund
compensated PIMS for distributing and servicing the Fund's
shares pursuant to
the plans of the distribution regardless of expenses
actually incurred by them.
The Fund reimburses PIMS for distributing and servicing the
Fund's shares
pursuant to the plan of distribution at an annual rate of
.125 of 1% of the
Fund's average daily net assets. The distribution fees are
accrued daily and
payable monthly.
PIFM, PIC and PIMS 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 PIFM,
serves as the Fund's transfer agent. During the six months
ended February 28,
1999, the Series incurred fees of approximately $7,400 for
the services of PMFS.
As of February 28, 1999, approximately $1,200 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 nonaffiliates.
- ------------------------------------------------------------
- --------------------
7
<PAGE>
PRUDENTIAL MUNICIPAL
SERIES FUND
Financial Highlights (Unaudited) MASSACHUSETTS MONEY
MARKET SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended August 31,
February 28, -------------------------------------------
1999 1998 1997 1996 1995
<S>
<C> <C> <C> <C> <C>
- ------ ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................... $ 1.00 $
1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income and realized
gains........................... .01 .03
.03(a) .03(a) .03(a)
Dividends and distributions to
shareholders........................ (.01)
(.03) (.03) (.03) (.03)
- ------ ------- ------- ------- -------
Net asset value, end of
period..................................... $ 1.00
$ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------ ------- ------- ------- -------
- ------ ------- ------- ------- -------
TOTAL
RETURN(b):..................................................
. 1.16% 2.77% 3.08% 3.12%
3.10%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).................................... $ 58,542
$62,460 $53,441 $50,511 $56,822
Average net assets
(000)........................................... $
57,128 $55,540 $53,078 $54,689 $42,919
Ratios to average net assets:
Expenses, including distribution
fees........................... .91%(c) .84%
.54%(a) .55%(a) .63%(a)
Expenses, excluding distribution
fees........................... .78%(c) .71%
.42%(a) .43%(a) .50%(a)
Net investment
income...........................................
2.32%(c) 2.73% 3.04%(a) 3.08%(a) 3.14%(a)
<CAPTION>
1994
<S>
<C>
- -------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................... $ 1.00
Net investment income and realized
gains........................... .02(a)
Dividends and distributions to
shareholders........................ (.02)
- -------
Net asset value, end of
period..................................... $ 1.00
- -------
- -------
TOTAL
RETURN(b):..................................................
. 1.89%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).................................... $37,278
Average net assets
(000)........................................... $42,427
Ratios to average net assets:
Expenses, including distribution
fees........................... .62%(a)
Expenses, excluding distribution
fees........................... .50%(a)
Net investment
income...........................................
1.86%(a)
</TABLE>
- ---------------
(a) Net of management fee waiver.
(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. 8
<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
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Louis A. Weil, III
Officers
Robert F. Gunia, President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
Deborah A. Docs, Secretary
David F. Connor, 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 Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
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
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Swidler Berlin Shereff Friedman, 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,
1999 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
(ICON)
Prudential
Municipal
Series Fund
- ------------------------
North Carolina Series
SEMI
ANNUAL
REPORT
Feb. 28, 1999
(LOGO)
<PAGE>
Prudential Municipal Series Fund
North Carolina Series
Performance At A Glance.
During the six months ended February 28, 1999, municipal
bonds
initially rallied on the coattails of U.S. Treasuries, which
gained as investors fleeing a global financial crisis
purchased
the securities. As the financial chaos subsided and
investors
sold Treasuries, tax-exempt bonds also erased some of their
early price increases. Nevertheless, your Prudential
Municipal
Series Fund--North Carolina Series' Class A shares provided
a
return that slightly exceeded the average fund tracked by
Lipper, Inc. Taking profits on some of our bonds helped
boost the Series' returns.
<TABLE>
Cumulative Total Returns1 As
of 2/28/99
<CAPTION>
Six One Five
Ten Since
Months Year Years
Years Inception2
<S> <C> <C> <C> <C>
<C>
Class A 1.80% 5.21% 31.99% (31.76)
N/A 86.40% (86.08)
Class B 1.62 4.72 29.31 (29.08)
92.16% (91.82) 169.13 (164.25)
Class C 1.49 4.46 N/A
N/A 30.67 (30.44)
Lipper NC Muni
Debt Fund Avg.3 1.77 5.10 31.29
99.03 ***
</TABLE>
<TABLE>
Average Annual Total Returns1 As
of 3/31/99
<CAPTION>
One Five Ten Since
Year Years Years
Inception2
<S> <C> <C> <C> <C>
Class A 1.76% 5.97% (5.93) N/A 6.65%
(6.63)
Class B -0.57 6.04 (6.01) 6.74% (6.72) 7.25
(7.11)
Class C 2.13 N/A N/A 5.65
(5.61)
</TABLE>
<TABLE>
Distributions & YieldsAs of 2/28/99
<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 $0.33 3.33% 5.64%
5.98%
Class B $0.31 3.19 5.40
5.73
Class C $0.29 2.91 4.93
5.22
</TABLE>
Past performance is not indicative of future results.
Principal
and investment return will fluctuate so that an investor's
shares,
when redeemed, may be worth more or less than their original
cost.
1 Source: Prudential Investments Fund Management and Lipper,
Inc.
The cumulative total returns do not take into account sales
charges.
The average annual total returns do take into account
applicable
sales charges. The Series charges a maximum front-end sales
charge
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 B shares will automatically convert to Class
A
shares, on a quarterly basis, approximately seven years
after
purchase. Class C shares are subject to a front-end sales
charge
of 1% and a CDSC of 1% for 18 months. Class C shares bought
before
November 2, 1998 have a 1% CDSC if sold within 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 ( ).
2 Inception dates: Class A, 1/22/90; Class B, 2/13/85; and
Class C, 8/1/94.
3 Lipper average returns are for all funds in each share
class for the
six-month, one-, five-, and ten-year periods in the North
Carolina
Municipal Debt Fund category.
4 Taxable equivalent yields reflect federal and applicable
state tax rates.
***Lipper Since Inception returns are 85.76% for Class A;
194.04%
for Class B; and 35.00% for Class C based on all funds in
each
share class.
How Investments Compared.
(As of 2/28/99)
(GRAPH)
Source: Lipper, Inc. 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.
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.
*19 years for U.S. Tax-Exempt Money Funds.
<PAGE>
James M. Murphy, Fund Manager
(PHOTO)
Portfolio
Manager's Report
The Series' investment objective is to maximize current
income
that is exempt from federal income taxes and North Carolina
state
income taxes, consistent with preservation of capital.
Certain
shareholders may be subject to the alternative minimum tax,
however. There can be no assurance the Series will achieve
its investment objective.
Key Municipal Bond Index Tumbles.
Municipal bonds did not rally as much as U.S. Treasuries
last autumn. However, municipal bond prices rose strongly
enough to drive the Bond Buyer Revenue Bond Index, a weekly
average of long-term municipal bond yields, to 5.09% in
early October. This was the lowest level reached by the
Index since its inception in 1979. Yields fall as prices
rise and vice versa.
Strategy Session.
Maintaining a
Longer Duration.
We thought long-term interest rates would continue to fall
because
the U.S. economic expansion was poised to slow and inflation
to
remain tame after a global financial crisis spread from Asia
to
Russia and Latin America in mid-summer. The overseas turmoil
was
expected to temper U.S. economic growth as struggling
countries
in Asia and Latin America purchased fewer goods and services
from
the United States.
We based our strategy on this anticipated decline in long-
term
interest rates. Therefore, our primary aim was to maintain a
longer-than-average duration, which is a measure of the
Series'
sensitivity to fluctuations in interest rates. A longer
duration would generally enable the Series' shares to gain
more rapidly if interest rates continued to fall and
municipal bond prices continued to climb. We lengthened
the Series' duration to 7.39 years as of February 28,
1999 from 7.19 years on August 31, 1998.
In order to sustain a longer duration, the Series remained
heavily invested in noncallable bonds, which averaged
approximately 26% of its total investments throughout
the six-month period. Noncallable bonds tend to perform
well when debt markets rally because the bonds are free
to appreciate in value without the risk of being retired
early. Some of our noncallable bonds were also zero coupon
bonds, which typically trade at deep discounts to their
maturity value. Their prices therefore have plenty of
room to rise when interest rates fall.
Portfolio Composition.
Expressed as a percentage of
total investments as of 2/28/99.
(PIE CHART)
<PAGE>
What Went Well.
We Took Profits.
We enhanced the Series' returns by taking profits on some of
our lower-rated municipal bonds, including debt securities
of the United Church Retirement Homes and industrial
development bonds of Champion International Corp. The
Series also benefited after its Pitt County Memorial
Hospital bonds appreciated in value when they became
backed by direct obligations of the U.S. government.
Because the hospital bonds now have little, if any,
credit risk, Moody's Investors Service upgraded them
from AA3 to AAA, its top credit rating.
And Not So Well.
"Flight-to-Quality"
Trend Reversed.
The Series' longer-than-average duration helped its shares
increase in value as municipal bonds rallied in sympathy
with U.S. Treasuries during September and early October.
Prices of Treasuries soared as concern about global
financial
turmoil fueled a "flight-to-quality" trend among
increasingly
risk-averse investors. However, we should have cut the
Series'
duration after this trend began to reverse and prices of
Treasuries and municipal bonds fell. A shorter duration
would have made the Series' shares less sensitive to the
sell-off.
The "flight-to-quality" trend died out as the Federal
Reserve
repeatedly eased U.S. monetary policy in the autumn to calm
financial markets and restore faith in the U.S. economy. As
a result, investors sold Treasuries and purchased riskier
assets with renewed confidence. We initially believed the
bond market rally would resume because we expected the U.S.
economy to lose steam in the fourth quarter of 1998. But
to our surprise, economic growth accelerated, prompting
investors to push bond prices lower and yields higher
amid concern that the powerful economy could spark a
resurgence in inflation.
Five Largest Issuers.
12.8% North Carolina Eastern
Muni Power Agency
9.2% North Carolina Power
Agency No. 1
6.0% North Carolina Medical
Care Community
Hospital
4.7% Pitt County Certificate
of Participation
4.5% Puerto Rico
Commonwealth
Expressed as a percentage of net assets as of 2/28/99.
Credit Quality.
Expressed as a percentage of
total investments as of 2/28/99.
(PIE CHART)
Looking Ahead.
In the short run, we feel municipal bond prices will remain
in a trading range because of the U.S. economy's continued
resilience. However, we do not think the rally in tax-exempt
bonds is over. We believe U.S. economic growth will continue
to slow from the torrid pace of late 1998. Furthermore, we
believe that inflation will remain subdued as global
competition helps to keep prices of goods and services
in check. Since the level of interest rates typically
reflects the anticipated rate of inflation, we expect
interest rates to fall and bond prices to rise amid
continued low inflation.
1
<PAGE>
A Message to Our Shareholders April
19, 1999
(PHOTO)
Dear Shareholder,
For the last several months, major index advances have been
driven
by the stocks of a handful of very large companies. These
stocks
are getting more and more expensive, out of proportion to
their
earnings expectations. As a result, a substantial disparity
in
value has grown between large and small companies and
between
growth and value stocks.
Since not all stocks are benefiting from the highly
publicized
euphoria surrounding each record-breaking milestone, it is
unlikely that these trends will continue. In fact, signs
that the tide is turning are starting to emerge. Moreover,
history shows that markets generally bring prices in line
with earnings performance sooner or later.
Many sectors of the bond market, on the other hand, have
already begun to rebound from last year's global financial
crisis. Furthermore, while bonds have not generated higher
returns than stocks in recent years, they have demonstrated
that they hold up better during market downturns. That's a
thought to keep in mind going forward.
Diversification Is Critical.
What does this suggest? Instead of chasing recent market
winners, investors should have a well-diversified asset
allocation strategy in place and keep to it. It is also
a good practice to rebalance your holdings, when necessary,
to keep your asset allocation consistent with your long-term
objectives and risk tolerance. A properly diversified
portfolio
of value- and growth-oriented mutual funds, bond funds and
money market funds could help you weather inevitable market
turbulence and receive more consistent returns over time.
Prudential offers a wide range of mutual funds to help our
shareholders diversify. We have also designed several
balanced and diversified funds to allow one-decision
diversification.
Thank you for your continued confidence in Prudential mutual
funds.
Sincerely,
John R. Strangfeld
Chief Investment Officer
Prudential Investments
2
<PAGE>
Portfolio of Investments as
of February 28, 1999 PRUDENTIAL MUNICIPAL
SERIES FUND
(Unaudited) NORTH CAROLINA SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description (a)
Rating Rate Date (000) (Note 1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
LONG-TERM INVESTMENTS--99.3%
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Asheville Hsg. Auth. Multifam. Rev., Woodridge Apts.,
G.N.M.A., A.M.T.
AAA(b) 5.70% 11/20/19 $ 750 $
778,605
Buncombe Cnty., Pub. Impvt. Bonds
AAA(b) 6.90 3/01/09 1,000
1,020,520
Charlotte Mecklenberg Hosp.,
Hlth. Care Sys. Rev.
AA(b) 6.25 1/01/20 430 (d)
467,831
Hlth. Care Sys. Rev.
Aa3 6.25 1/01/20 320
343,098
Hlth. Care Sys. Rev.
Aa3 5.875 1/15/26 1,000
1,078,000
Charlotte Spec. Fac. Rev., US Airways, A.M.T.
NR 5.60 7/01/27 500
490,215
Charlotte Wtr. & Swr.
Aaa 6.20 6/01/17 1,500 (d)
1,645,200
Charlotte Wtr. & Swr.
Aaa 5.90 2/01/19 1,000 (d)
1,109,720
City of Greensboro, Enterprise Sys. Rev., Ser. A
A1 5.30 6/01/15 1,000
1,037,430
Columbus Ind. Fac. & Poll. Fin. Auth., Intl. Paper Co.
Proj.,
A.M.T.
A3 6.15 4/01/21 1,000
1,069,380
Concord Util. Sys. Rev., M.B.I.A.
Aaa 5.50 12/01/14 1,000
1,062,750
Fayetteville, Cert. of Part., San. Swr. & Pub. Impvt.,
A.M.B.A.C.
Aaa 6.875 12/01/08 1,000 (d)
1,048,860
Guam Airport Auth. Rev., Ser. B, A.M.T.
BBB(b) 6.60 10/01/10 1,000
1,102,140
Guam Pwr. Auth. Rev.,
Ser. A, 1994
BBB(b) 6.625 10/01/14 250
279,780
Ser. A, 1994
BBB(b) 6.75 10/01/24 525
590,751
Halifax Cnty., Ind. Facs. & Poll. Cntrl., Fin. Auth. Env.
Impvt. Rev.,
Champion Intl. Corp. Proj., Ser. A
Baa1 5.45 11/01/33 1,000
960,840
Lenoir Hsg. Auth. Mtge. Rev., Caldwell Garden Apt. Proj.,
Ser.
A, G.N.M.A.
AAA(b) 5.70 8/20/24 1,000
1,040,830
Lincoln Cnty., Gen. Oblig., Ref., F.G.I.C.
Aaa 5.10 6/01/09 1,170
1,234,572
New Hanover Cnty. Hosp. Rev., Regl. Med. Ctr. Proj.,
A.M.B.A.C.
Aaa 5.75 10/01/26 1,000
1,062,050
No. Carolina Eastn. Mun. Pwr. Agcy.,
Pwr. Sys. Rev., Ser. A
Baa1 6.40 1/01/21 1,000
1,057,690
Pwr. Sys. Rev., Ser. A, E.T.M.
Aaa 6.50 1/01/18 1,995
2,398,489
Pwr. Sys. Rev., Ser. B
Aaa 6.00 1/01/26 650 (d)
744,269
Pwr. Sys. Rev., A.M.B.A.C.
Aaa 6.00 1/01/18 1,000
1,131,610
Pwr. Sys. Rev., M.B.I.A.
Aaa 6.50 1/01/18 1,005
1,198,533
No. Carolina Hsg. Fin. Agcy., Sngl. Fam. Mtge. Rev., Ser.
TT,
A.M.T.
Aa2 5.70 9/01/26 1,000
1,033,550
No. Carolina Med. Care Comn., Hlth. Care Facs. Rev., Stanley
Mem. Hosp. Proj.
Baa1 7.80 10/01/19 650 (d)
681,174
No. Carolina Med. Care Comn., Hosp. Rev.,
Annie Pen Mem. Hosp. Proj.
Baa3 7.50 8/15/21 1,000 (d)
1,122,200
Rex Hosp. Proj.
A1 6.25 6/01/17 1,750 (d)
1,950,673
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as
of February 28, 1999 PRUDENTIAL MUNICIPAL
SERIES FUND
(Unaudited) NORTH CAROLINA SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description (a)
Rating Rate Date (000) (Note 1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
No. Carolina Mun. Pwr. Agcy.,
No. 1 Catawba Elec. Rev., A.M.B.A.C.
Aaa 5.25% 1/01/09 $ 1,000 $
1,073,060
No. 1 Catawba Elec. Rev., M.B.I.A.
Aaa 6.00 1/01/10 1,250
1,420,963
No. 1 Catawba Elec. Rev., M.B.I.A.
Aaa 7.22 1/01/12 2,000 (c)
2,205,000
Northern Hosp. Dist., Surry Cnty. Hlth. Care Facs. Rev.
Ba1 7.875 10/01/21 1,500
1,616,370
Pitt Cnty., Cert. of Part., Pub. Facs.,
Ser. A, M.B.I.A.
Aaa 5.55 4/01/12 1,500
1,623,060
Ser. B, M.B.I.A.
Aaa 5.40 4/01/08 700
760,732
Pitt Cnty. Rev., Pitt Cnty. Mem. Hosp.
Aaa 5.25 12/01/21 1,500
1,547,025
Puerto Rico Commonwlth., Hwy. & Trans.,
Ser. A, A.M.B.A.C.
Aaa Zero 7/01/15 1,000
457,590
Ser. A, A.M.B.A.C.
Aaa Zero 7/01/16 1,000
432,540
Puerto Rico Commonwlth.,
Cap. Apprec. Ref., Pub. Impvt.
Baa1 Zero 7/01/15 2,150
965,156
Ser. A, M.B.I.A.
Aaa 6.25 7/01/10 1,240
1,346,070
Puerto Rico Ind. Med. & Environ. Poll. Ctrl. Facs., Upjohn
Co.
Auth. Rev.
A1 7.50 12/01/23 500
517,175
Puerto Rico Tel. Auth. Rev., Ser. I, M.B.I.A.
Aaa 7.123 1/25/07 1,000 (c)
1,108,750
Union Cnty. Wtr. & Swr., Solid Waste Rev.
A1 6.50 4/01/07 850 (d)
918,170
University of No. Carolina, Chapel Hill Hosp. Rev.,
Util. Sys. Rev.
Aa2 Zero 8/01/16 1,500
637,470
Util. Sys. Rev.
Aa2 Zero 8/01/18 1,400
529,200
Util. Sys. Rev.
Aa2 Zero 8/01/19 2,715
970,341
Virgin Islands Pub. Fin. Auth. Rev.,
Ser. E
NR 5.875 10/01/18 375
386,591
Ser. E
NR 6.00 10/01/22 500
519,455
Virgin Islands Terr., Hugo Ins. Claims Fund Proj., Ser. 91
NR 7.75 10/01/06 335 (d)
368,302
Wake Cnty. Hosp. Rev., E.T.M., M.B.I.A.
Aaa 5.125 10/01/26 1,000
1,026,160
Winston Salem, Sngl. Fam. Mtge. Rev., A.M.T.
A1 8.00 9/01/07 295
259,018
Winston Salem, Wtr. & Swr. Sys. Rev., Ser. B
Aa2 5.70 6/01/17 1,000
1,064,230
- -----------
Total long-term investments (cost $46,546,129)
50,493,188
SHORT-TERM INVESTMENT--0.04%
Martin Cnty. Ind. Facs. & Poll. Ctrl. Fin. Auth. Rev.,
Weyerhaueser Co. Proj.
(cost $199,250)
A2 8.50 6/15/99 200
203,186
- -----------
Total Investments--99.7%
(cost $46,745,379; Note 4)
50,696,374
Other assets in excess of liabilities--0.3%
159,352
- -----------
Net Assets--100%
$50,855,726
- -----------
- -----------
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as
of February 28, 1999 PRUDENTIAL MUNICIPAL
SERIES FUND
(Unaudited) NORTH CAROLINA SERIES
- ------------------------------------------------------------
- --------------------
(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.
E.T.M.--Escrowed To Maturity.
F.G.I.C.--Financial Guaranty Insurance Company.
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 February
28, 1999.
(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>
PRUDENTIAL
MUNICIPAL SERIES FUND
Statement of Assets and Liabilities
(Unaudited) NORTH CAROLINA
SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Assets
February 28, 1999
<S>
<C>
Investments, at value (cost
$46,745,379)................................................
................. $50,696,374
Interest
receivable..................................................
.................................... 708,399
Recievable for Series shares
sold........................................................
................ 56,180
Receivable for investments
sold........................................................
.................. 45,000
Other
assets......................................................
....................................... 999
- -----------------
Total
assets......................................................
.................................... 51,506,952
- -----------------
Liabilities
Bank
overdraft...................................................
........................................ 493,238
Accrued
expenses....................................................
..................................... 85,706
Dividends
payable.....................................................
................................... 23,012
Management fee
payable.....................................................
.............................. 19,601
Distribution fee
payble......................................................
............................ 13,707
Payable for Series shares
reacquired..................................................
................... 11,489
Deferred trustee's
fees........................................................
.......................... 4,473
- -----------------
Total
liabilities.................................................
.................................... 651,226
- -----------------
Net
Assets......................................................
.........................................
$50,855,726
- -----------------
- -----------------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
........ $ 43,963
Paid-in capital in excess of
par.........................................................
............. 46,869,108
- -----------------
46,913,071
Distributions in excess of net realized gain on
investments...........................................
(8,339)
Net unrealized appreciation on
investments.................................................
........... 3,950,994
- -----------------
Net assets, February 28,
1999........................................................
.................... $50,855,726
- -----------------
- -----------------
Class A:
Net asset value and redemption price per share
($30,612,443 / 2,646,796 shares of beneficial interest
issued and outstanding).....................
$11.57
Maximum sales charge (3% of offering
price)......................................................
..... .36
- -----------------
Maximum offering price to
public......................................................
................ $11.93
- -----------------
- -----------------
Class B:
Net asset value, offering price and redemption price per
share
($20,213,263 / 1,746,957 shares of beneficial interest
issued and outstanding).....................
$11.57
- -----------------
- -----------------
Class C:
Net asset value and redemption price per share
($30,020 / 2,594 shares of beneficial interest issued
and outstanding).............................
$11.57
Sales charge (1% of offering
price)......................................................
............. .12
- -----------------
Offering price to
public......................................................
........................ $11.69
- -----------------
- -----------------
</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,
1999
<S> <C>
Income
Interest................................. $ 1,433,104
--------------
- ---
Expenses
Management fee........................... 127,800
Distribution fee--Class A................ 22,558
Distribution fee--Class B................ 52,207
Distribution fee--Class C................ 111
Custodian's fees and expenses............ 37,000
Transfer agent's fees and expenses....... 17,000
Registration fees........................ 12,000
Reports to shareholders.................. 10,000
Audit fee and expenses................... 5,000
Legal fees and expenses.................. 5,000
Trustee's fees........................... 2,000
Miscellaneous............................ 1,786
--------------
- ---
Total expenses........................ 292,462
Less: Custodian fee credit.................
(259)
--------------
- ---
Net expenses............................. 292,203
--------------
- ---
Net investment income...................... 1,140,901
--------------
- ---
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions.................. 84,771
Financial futures transactions...........
(52,315)
--------------
- ---
32,456
Net change in unrealized depreciation on:
Investments..............................
(315,692)
--------------
- ---
Net loss on investments....................
(283,236)
--------------
- ---
Net Increase in Net Assets
Resulting from Operations.................. $ 857,665
--------------
- ---
--------------
- ---
</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 1999
1998
<S> <C> <C>
Operations
Net investment income............ $ 1,140,901 $
2,448,496
Net realized gain on investment
transactions.................. 32,456
467,783
Net change in unrealized
appreciation (depreciation) of
investments................... (315,692 )
1,410,422
------------ -------
- -----
Net increase in net assets
resulting from operations..... 857,665
4,326,701
------------ -------
- -----
Dividends and distributions (Note
1):
Dividends from net investment income
Class A....................... (696,203 )
(1,417,583)
Class B....................... (444,105 )
(1,029,623)
Class C....................... (593 )
(1,290)
------------ -------
- -----
(1,140,901 )
(2,448,496)
------------ -------
- -----
Distributions from net realized
gains
Class A....................... (152,984 )
(3,350)
Class B....................... (100,928 )
(2,696)
Class C....................... (148 )
(2)
------------ -------
- -----
(254,060 )
(6,048)
------------ -------
- -----
Series share transactions (net of
share conversions) (Note 5):
Net proceeds from shares sold.... 1,915,423
1,884,417
Net asset value of shares issued
in reinvestment of dividends
and distributions............. 751,525
1,223,860
Cost of shares reacquired........ (3,178,563 )
(7,439,832)
------------ -------
- -----
Net decrease in net assets from
Series share transactions..... (511,615 )
(4,331,555)
------------ -------
- -----
Total decrease..................... (1,048,911 )
(2,459,398)
Net Assets
Beginning of period................ 51,904,637
54,364,036
------------ -------
- -----
End of period...................... $50,855,726 $
51,904,637
------------ -------
- -----
------------ -------
- -----
</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 11 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
its investment
objective is to maximize current income that is exempt from
North Carolina State
and federal income taxes consistent with the preservation of
capital and, in
conjunction therewith, the Series may invest in debt
securities with the
potential for capital gain. The Series seeks to achieve this
objective by
investing primarily in North Carolina State, municipal and
local government
obligations and obligations of other qualifying issuers. 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
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 fluctuation
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
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.
- ------------------------------------------------------------
- --------------------
8
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements
(Unaudited) NORTH CAROLINA
SERIES
- ------------------------------------------------------------
- --------------------
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 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 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
Investment Management
Services LLC ('PIMS') which acts as the distributor of the
Class A, Class B and
Class C shares of the Fund. The Fund compensated PIMS for
distributing and
servicing the Fund's Class A, Class B and Class C shares,
pursuant to plans of
distribution (the 'Class A, B and C Plans'), regardless of
expenses actually
incurred by them. The distribution fees are accrued daily
and payable monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates
PIMS for
distribution-related activities at an annual rate of up to
.30 of 1%, .50 of 1%
and 1%, of the average daily net assets of the Class A, B
and C shares,
respectively. Such expenses under the Plans were .10 of 1%,
.50 of 1% and .75 of
1% of the average daily net assets of the Class A, B and C
shares, respectively,
for the period September 1, 1998 through December 31, 1998.
Effective January 1,
1999 such expenses under the Plans were .25 of 1%, .50 of 1%
and .75 of 1% of
the average daily net assets of the Class A, B and C shares,
respectively.
PIMS has advised the Series that it received approximately
$2,400 in front-end
sales charges resulting from sales of Class A shares during
the six months ended
February 28, 1999. From these fees, PIMS paid such sales
charges to affiliated
broker-dealers, which in turn paid commissions to
salespersons and incurred
other distribution costs.
PIMS has advised the Series that during the six months ended
February 28, 1999,
it received approximately $10,000 in contingent deferred
sales charges imposed
upon certain redemptions by Class B shareholders.
PIFM, PIC and PIMS 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')
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 did not borrow any amounts pursuant
to the Agreement
during the six months ended February 28, 1999. 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 February 28, 1999 and has been
extended through March
12, 1999 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,
1999, the Series incurred fees of approximately $8,100 for
the services of PMFS.
As of February 28, 1999, approximately $1,300 of such fees
were due to PMFS.
Transfer agent fees and expenses in the Statement of
Operations include certain
out-of-pocket expenses paid to 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, 1999 were
$3,419,480 and
$3,331,065, respectively.
The cost basis of investments for federal income tax
purposes at February 28,
1999, was substantially the same as for financial reporting
purposes and
accordingly, net unrealized appreciation of investments for
federal income tax
purposes was $3,950,995 (gross unrealized appreciation-
$3,996,464; gross
unrealized depreciation-$45,469).
- ------------------------------------------------------------
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 front-end
sales charge of 1% and a contingent deferred sales charge of
1% during the first
18 months. Prior to November 2, 1998, Class C shares were
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
- ------------------------------------------------------------
- --------------------
9
<PAGE>
PRUDENTIAL MUNICIPAL
SERIES FUND
Notes to Financial Statements
(Unaudited) NORTH CAROLINA
SERIES
- ------------------------------------------------------------
- --------------------
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 were as
follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- ------------------------------------ ---------- --------
- ----
<S> <C> <C>
Six months ended February 28, 1999:
Shares sold......................... 50,887 $
594,418
Shares issued in reinvestment of
dividends and distributions....... 38,870
452,118
Shares reacquired................... (135,414)
(1,578,405)
---------- --------
- ----
Net decrease in shares outstanding
before conversion................. (45,657)
(531,869)
Shares issued upon conversion from
Class B........................... 112,898
1,321,394
---------- --------
- ----
Net increase in shares
outstanding....................... 67,241 $
789,525
---------- --------
- ----
---------- --------
- ----
Year ended August 31, 1998:
Shares sold......................... 59,805 $
689,711
Shares issued in reinvestment of
dividends and distributions....... 61,184
704,193
Shares reacquired................... (340,697)
(3,915,222)
---------- --------
- ----
Net decrease in shares outstanding
before conversion................. (219,708)
(2,521,318)
Shares issued upon conversion from
Class B........................... 198,171
2,280,593
---------- --------
- ----
Net decrease in shares
outstanding....................... (21,537) $
(240,725)
---------- --------
- ----
---------- --------
- ----
<CAPTION>
Class B
- ------------------------------------
<S> <C> <C>
Six months ended February 28, 1999:
Shares sold......................... 113,000 $
1,320,707
Shares issued in reinvestment of
dividends and distributions....... 25,692
299,009
Shares reacquired................... (137,057)
(1,600,158)
---------- --------
- ----
Net increase in shares outstanding
before conversion................. 1,635
19,558
Shares reacquired upon conversion
into Class A...................... (112,840)
(1,321,394)
---------- --------
- ----
Net decrease in shares
outstanding....................... (111,205) $
(1,301,836)
---------- --------
- ----
---------- --------
- ----
<CAPTION>
Class B Shares
Amount
- ------------------------------------ ---------- --------
- ----
<S> <C> <C>
Year ended August 31, 1998:
Shares sold......................... 102,504 $
1,180,465
Shares issued in reinvestment of
dividends and distributions....... 45,084
519,030
Shares reacquired................... (301,758)
(3,476,241)
---------- --------
- ----
Net decrease in shares outstanding
before conversion................. (154,170)
(1,776,746)
Shares reacquired upon conversion
into Class A...................... (198,135)
(2,280,593)
---------- --------
- ----
Net decrease in shares
outstanding....................... (352,305) $
(4,057,339)
---------- --------
- ----
---------- --------
- ----
<CAPTION>
Class C
- ------------------------------------
<S> <C> <C>
Six months ended February 28, 1999:
Shares sold......................... 25 $
298
Shares issued in reinvestment of
dividends
and distributions................. 34
398
Shares reacquired................... --
- --
---------- --------
- ----
Net increase in shares
outstanding....................... 59 $
696
---------- --------
- ----
---------- --------
- ----
Year ended August 31, 1998:
Shares sold......................... 1,231 $
14,241
Shares issued in reinvestment of
dividends
and distributions................. 56
637
Shares reacquired................... (4,208)
(48,369)
---------- --------
- ----
Net decrease in shares
outstanding....................... (2,921) $
(33,491)
---------- --------
- ----
---------- --------
- ----
</TABLE>
- ------------------------------------------------------------
- --------------------
10
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) NORTH CAROLINA
SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class A
--
- ------------------------------------------------------------
- ---------
Six Months
Ended Year Ended August 31,
February 28, -------------------------------------------
- -----------
1999 1998 1997 1996 1995
1994
--
- ---------- ------- ------- ------- -------
- ------
<S>
<C> <C> <C> <C> <C>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...................
$ 11.69 $ 11.28 $ 11.06 $ 11.19 $ 11.06
$12.04
- ------ ------- ------- ------- -------
- ------
Income from investment operations
Net investment income..................................
.27 .55 .54(a) .53(a) .60(a)
.61
Net realized and unrealized gain (loss) on investment
transactions........................................
(.06) .41 .38 (.01) .13
(.76)
- ------ ------- ------- ------- -------
- ------
Total from investment operations....................
.21 .96 .92 .52 .73
(.15)
- ------ ------- ------- ------- -------
- ------
Less distributions
Dividends from net investment income...................
(.27) (.55) (.54) (.53) (.60)
(.61)
Distributions in excess of net investment income.......
- -- --(d) -- -- --
- --
Distributions from net realized gains..................
(.06) -- (.16) (.12) --
(.22)
- ------ ------- ------- ------- -------
- ------
Total distributions.................................
(.33) (.55) (.70) (.65) (.60)
(.83)
- ------ ------- ------- ------- -------
- ------
Net asset value, end of period.........................
$ 11.57 $ 11.69 $ 11.28 $ 11.06 $ 11.19
$11.06
- ------ ------- ------- ------- -------
- ------
- ------ ------- ------- ------- -------
- ------
TOTAL RETURN(b):.......................................
1.80% 8.72% 8.58% 4.70% 6.86%
(1.35)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........................
$ 30,612 $30,149 $29,350 $28,089 $26,519
$2,256
Average net assets (000)...............................
$ 30,458 $29,617 $29,055 $27,628 $15,244
$2,067
Ratios to average net assets:
Expenses, including distribution fees...............
1.00%(c) .84% .93%(a) 1.03%(a) .98%(a)
.88%
Expenses, excluding distribution fees...............
.85%(c) .74% .83%(a) .93%(a) .88%(a)
.78%
Net investment income...............................
4.61%(c) 4.79% 4.87%(a) 4.78%(a) 5.25%(a)
5.31%
For Class A, B and C shares:
Portfolio turnover rate.............................
7% 27% 35% 23% 28%
17%
</TABLE>
- ---------------
(a) Net of management fee waiver.
(b) Total return does not consider the effects of sales
loads. Total return is
calculated assuming a purchase of shares on the first
day and a sale on the
last day of each period reported and includes
reinvestment of dividends and
distributions. Total returns for periods of less than a
full year are not
annualized.
(c) Annualized.
(d) Less than $.005 per share.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 11
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) NORTH CAROLINA
SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class B
--
- ------------------------------------------------------------
- ----------
Six Months
Ended Year Ended August 31,
February 28, -------------------------------------------
- ------------
1999 1998 1997 1996 1995
1994
--
- ---------- ------- ------- ------- -------
- -------
<S>
<C> <C> <C> <C> <C>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...................
$ 11.69 $ 11.29 $ 11.06 $ 11.19 $ 11.06
$ 12.05
- ------ ------- ------- ------- -------
- -------
Income from investment operations
Net investment income..................................
.25 .51 .50(a) .49(a) .55(a)
.56
Net realized and unrealized gain (loss) on investment
transactions........................................
(.06) .40 .39 (.01) .13
(.77)
- ------ ------- ------- ------- -------
- -------
Total from investment operations....................
.19 .91 .89 .48 .68
(.21)
- ------ ------- ------- ------- -------
- -------
Less distributions
Dividends from net investment income...................
(.25) (.51) (.50) (.49) (.55)
(.56)
Distributions in excess of net investment income.......
- -- --(d) -- -- --
- --
Distributions from net realized gains..................
(.06) -- (.16) (.12) --
(.22)
- ------ ------- ------- ------- -------
- -------
Total distributions.................................
(.31) (.51) (.66) (.61) (.55)
(.78)
- ------ ------- ------- ------- -------
- -------
Net asset value, end of period.........................
$ 11.57 $ 11.69 $ 11.29 $ 11.06 $ 11.19
$ 11.06
- ------ ------- ------- ------- -------
- -------
- ------ ------- ------- ------- -------
- -------
TOTAL RETURN(b):.......................................
1.62% 8.19% 8.25% 4.28% 6.44%
(1.82)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........................
$ 20,213 $21,726 $524,952 $31,029 $40,119
$69,448
Average net assets (000)...............................
$ 21,056 $23,460 $27,703 $35,605 $51,963
$73,606
Ratios to average net assets:
Expenses, including distribution fees...............
1.35%(c) 1.24% 1.33%(a) 1.43%(a) 1.34%(a)
1.28%
Expenses, excluding distribution fees...............
.85%(c) .74% .83%(a) .93%(a) .84%(a)
.78%
Net investment income...............................
4.25%(c) 4.39% 4.47%(a) 4.37%(a) 5.10%(a)
4.89%
</TABLE>
- ---------------
(a) Net of management fee waiver.
(b) Total return does not consider the effects of sales
loads. Total return is
calculated assuming a purchase of shares on the first
day and a sale on the
last day of each period reported and includes
reinvestment of dividends and
distributions. Total returns for periods of less than a
full year are not
annualized.
(c) Annualized.
(d) Less than $.005 per share.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 12
<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,
1999 1998 1997 1996 1995
1994
--
- ---------- ------ ------ ------ ------ -
- ---------
<S>
<C> <C> <C> <C> <C>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...................
$ 11.69 $11.29 $11.06 $11.19 $11.06
$11.09
- ------ ------ ------ ------ ------
- -----
Income from investment operations
Net investment income..................................
.23 .48 .47(a) .46(a) .52(a)
.04
Net realized and unrealized gain (loss) on investment
transactions........................................
(.06) .40 .39 (.01) .13
(.03)
- ------ ------ ------ ------ ------
- -----
Total from investment operations....................
.17 .88 .86 .45 .65
.01
- ------ ------ ------ ------ ------
- -----
Less distributions
Dividends from net investment income...................
(.23) (.48) (.47) (.46) (.52)
(.04)
Distributions in excess of net investment income.......
- -- --(e) -- -- -- -
- -
Distributions from net realized gains..................
(.06) -- (.16) (.12) --
- --
- ------ ------ ------ ------ ------
- -----
Total distributions.................................
(.29) (.48) (.63) (.58) (.52)
(.04)
- ------ ------ ------ ------ ------
- -----
Net asset value, end of period.........................
$ 11.57 $11.69 $11.29 $11.06 $11.19
$11.06
- ------ ------ ------ ------ ------
- -----
- ------ ------ ------ ------ ------
- -----
TOTAL RETURN(b):.......................................
1.49% 7.92% 7.98% 4.03% 6.17%
.02%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........................
$ 30 $ 30 $ 62 $ 72 $ 53
$ 10
Average net assets (000)...............................
$ 30 $ 31 $ 68 $ 69 $ 32
$ 5
Ratios to average net assets:
Expenses, including distribution fees...............
1.60%(c) 1.49% 1.58%(a) 1.68%(a) 1.63%(a)
1.67%(c)
Expenses, excluding distribution fees...............
.85%(c) .74% .83%(a) .93%(a) .88%(a)
.92%(c)
Net investment income...............................
4.00%(c) 4.14% 4.22%(a) 4.14%(a) 4.59%(a)
5.06%(c)
</TABLE>
- ---------------
(a) Net of management fee waiver.
(b) Total return does not consider the effects of sales
loads. Total return is
calculated assuming a purchase of shares on the first
day and a sale on the
last day of each period reported and includes
reinvestment of dividends and
distributions. Total returns for periods of less than a
full year are not
annualized.
(c) Annualized.
(d) Commencement of offering of Class C shares.
(e) Less than $.005 per share.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 13
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
Some mutual fund shareholders won't ever read this -- they
don't read annual and semi-annual reports. It's quite
understandable. These annual and semi-annual reports are
prepared to comply with Federal regulations. They are often
written in language that is difficult to understand. So when
most people run into those particularly daunting sections of
these reports, they don't read them.
We think that's a mistake.
At Prudential Mutual Funds, we've made some changes to our
report to make it easier to understand and more pleasant to
read, in hopes you'll find it profitable to spend a few
minutes familiarizing yourself with your investment. Here's
what you'll
find in the report:
At A Glance
Since an investment's performance is often a shareholder's
primary
concern, we present performance information in two different
formats. You'll find it first on the "At A Glance" page
where
we compare the Fund and the comparable average calculated
by Lipper Analytical Services, a nationally recognized
mutual
fund rating agency. We report both the cumulative total
returns
and the average annual total returns. The cumulative total
return is the total amount of income and appreciation the
Fund
has achieved in various time periods. The average annual
total
return is an annualized representation of the Fund's
performance -- it generally smoothes out returns and gives
you an idea how much the Fund has earned in an average year,
for a given time period. Under the performance box, you'll
see
legends that explain the performance information, whether
fees
and sales charges have been included in returns, and the
inception dates for the Fund's share classes.
See the performance comparison charts at the back of the
report for more performance information. And keep in mind
that past perfor-mance is not indicative of future results.
Portfolio Manager's Report
The portfolio manager who invests your money for you reports
on
successful -- and not-so-successful -- strategies in this
section
of your report. Look for recent purchases and sales here, as
well
as information about the sectors the portfolio manager
favors and
any changes that are on the drawing board.
Portfolio Of Investments
This is where the report begins to look technical, but it's
really
just a listing of each security held at the end of the
reporting
period, along with valuations and other information. Please
note
that sometimes we discuss a security in the Portfolio
Manager's
Report that doesn't appear in this listing because it was
sold
before the close of the reporting period.
<PAGE>
Statement Of Assets And Liabilities
The balance sheet shows the assets (the value of the Fund's
holdings), liabilities (how much the Fund owes) and net
assets
(the Fund's equity, or holdings after the Fund pays its
debts)
as of the end of the reporting period. It also shows how we
calculate the net asset value per share for each class of
shares.
The net asset value is reduced by payment of your dividend,
capital gain, or other distribution, but remember that the
money or new shares are being paid or issued to you. The net
asset value fluctuates daily along with the value of every
security in the portfolio.
Statement Of Operations
This is the income statement, which details income (mostly
interest and dividends earned) and expenses (including what
you pay us to manage your money). You'll also see capital
gains here -- both realized and unrealized.
Statement Of Changes In Net Assets
This schedule shows how income and expenses translate into
changes in net assets. The Fund is required to pay out the
bulk of its income to shareholders every year, and this
statement shows you how we do it -- through dividends
and distributions -- and how that affects the net assets.
This statement also shows how money from investors flowed
into and out of the Fund.
Notes To Financial Statements
This is the kind of technical material that can intimidate
readers, but it does contain useful information. The Notes
provide a brief history and explanation of your Fund's
objectives. In addition, they also outline how Prudential
Mutual Funds prices securities. The Notes also explain who
manages and distributes the Fund's shares, and more
importantly, how much they are paid for doing so. Finally,
the Notes explain how many shares are outstanding and the
number issued and redeemed over the period.
Financial Highlights
This information contains many elements from prior pages,
but on a per share basis. It is designed to help you
understand
how the Fund performed and to compare this year's
performance
and expenses to those of prior years.
Independent Auditor's Report
Once a year, an outside auditor looks over our books and
certifies
that the information is fairly presented and complies with
generally
accepted accounting principles.
Tax Information
This is information which we report annually about how much
of your
total return is taxable. Should you have any questions, you
may
want to consult a tax advisor.
Performance Comparison
These charts are included in the annual report and are
required
by the Securities Exchange Commission. Performance is
presented
here as a hypothetical $10,000 investment in the Fund since
its
inception or for 10 years (whichever is shorter). To help
you put that return in context, we are required to include
the
performance of an unmanaged, broad based securities index,
as
well. The index does not reflect the cost of buying the
securities
it contains or the cost of managing a mutual fund. Of
course, the index holdings do not mirror those of the fund -
- - the
index is a broadly based reference point commonly used by
investors
to measure how well they are doing. A definition of the
selected
index is also provided. Investors generally cannot
invest directly in an index.
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
How many times have you read these letters -- or other
financial
materials -- and stumbled across a word that you don't
understand?
Many shareholders have run into the same problem. We'd like
to
help. So we'll use this space from time to time to explain
some
of the words you might have read, but not understood. And if
you
have a favorite word that no one can explain to your
satisfaction, please write to us.
Basis Point: 1/100th of 1%. For example, one-half of one
percent
is 50 basis points.
Collateralized Mortgage Obligations (CMOs): Mortgage-backed
bonds
that separate mortgage pools into different maturity
classes,
called tranches. These instruments are sensitive to changes
in
interest rates and homeowner refinancing activity. They
are subject to prepayment and maturity extension risk.
Derivatives: Securities that derive their value from other
securities. The rate of return of these financial
instruments
rises and falls -- sometimes very suddenly -- in response to
changes in some specific interest rate, currency, stock, or
other
variable.
Discount Rate: The interest rate charged by the Federal
Reserve
on loans to member banks.
Federal Funds Rate: The interest rate charged by one bank to
another on overnight loans.
Futures Contract: An agreement to purchase or sell a
specific
amount of a commodity or financial instrument at a set price
at a specified date in the future.
Leverage: The use of borrowed assets to enhance return. The
expectation is that the interest rate charged on borrowed
funds will be lower than the return on the investment. While
leverage can increase profits, it can also magnify losses.
Liquidity: The ease with which a financial instrument (or
product) can be bought or sold (converted into cash) in the
financial markets.
Price/Earnings Ratio: The price of a share of stock divided
by
the earnings per share for a 12-month period.
Option: An agreement to purchase or sell something, such as
shares of stock, by a certain time for a specified price. An
option need not be exercised.
Spread: The difference between two values; often used to
describe
the difference between "bid" and "asked" prices of a
security,
or between the yields of two similar maturity bonds.
Yankee Bond: A bond sold by a foreign company or government
in
the U.S. market and denominated in U.S. dollars.
<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
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Louis A. Weil, III
Officers
Robert F. Gunia, President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
Deborah A. Docs, Secretary
David F. Connor, 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 Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
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
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Swidler Berlin Shereff Friedman, 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,
1999 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
74435M812
74435M820 MF126E2
74435M515
(ICON)
Prudential
Municipal
Series Fund
- --------------------
New Jersey Series
SEMI
ANNUAL
REPORT
Feb. 28, 1999
(LOGO)
<PAGE>
Prudential Municipal Series Fund
New Jersey Series
Performance At A Glance.
During the six months ended February 28, 1999, municipal
bonds
initially rallied on the coattails of U.S. Treasuries, which
gained as investors fleeing a global financial crisis
purchased
the securities. As the financial chaos subsided and
investors
sold Treasuries, tax-exempt bonds also erased some of their
early price increases. Nevertheless, your Prudential
Municipal
Series Fund--New Jersey Series' Class A shares provided a
return
that exceeded the average fund tracked by Lipper, Inc.
Taking
profits on some of our lower-rated bonds helped boost the
Series' returns.
<TABLE>
Cumulative Total Returns1 As of
2/28/99
<CAPTION>
Six One Five
Ten Since
Months Year Years
Years Inception2
<S> <C> <C> <C> <C>
<C>
Class A 2.25% 5.74% 32.29% (31.70)
N/A 93.38% (89.92)
Class B 2.07 5.24 29.71 (29.13) 101.92%
(97.06) 120.19 (114.30)
Class C 1.94 4.98 N/A
N/A 31.06 (30.59)
Class Z 2.42 5.87 N/A
N/A 16.12
Lipper NJ Muni
Debt Fund Avg.3 1.96 5.22 31.88
110.23 ***
</TABLE>
<TABLE>
Average Annual Total Returns1 As
of 3/31/99
<CAPTION>
One Five Ten Since
Year Years Years
Inception2
<S> <C> <C> <C> <C>
Class A 2.63% 5.98% (5.88) N/A 7.09%
(6.88)
Class B 0.42 6.05 (5.96) 7.27% (7.01) 7.39
(7.11)
Class C 3.11 N/A N/A 5.73
(5.65)
Class Z 5.95 N/A N/A 6.68
</TABLE>
<TABLE>
Distributions & Yields As of
2/28/99
<CAPTION>
Taxable
Equivalent Yield4
Total Distributions 30-Day At Tax
Rates Of
Paid for Six Mos. SEC Yield 36%
39.6%
<ST> <C> <C> <C>
<C>
Class A $0.36 3.67% 6.12%
6.49%
Class B $0.34 3.54 5.91
6.26
Class C $0.33 3.26 5.44
5.76
Class Z $0.37 4.04 6.74
7.14
</TABLE>
Past performance is not indicative of future results.
Principal and
investment return will fluctuate so that an investor's
shares, when
redeemed, may be worth more or less than their original
cost.
1 Source: Prudential Investments Fund Management and Lipper,
Inc.
The cumulative total returns do not take into account sales
charges.
The average annual total returns do take into account
applicable
sales charges. The Series charges a maximum front-end sales
charge
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 B shares will automatically convert to Class
A
shares, on a quarterly basis, approximately seven years
after
purchase. Class C shares are subject to a front-end sales
charge
of 1% and a CDSC of 1% for 18 months. Class C shares bought
before
November 2, 1998 have a 1% CDSC if sold within one year.
Class Z
shares are not subject to a sales charge or distribution
fee.
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 ( ).
2 Inception dates: Class A, 1/22/90; Class B, 3/4/88; Class
C,
8/1/94; and Class Z, 12/6/96.
3 Lipper average returns are for all funds in each share
class
for the six-month, one-, five-, and ten-year periods in the
New
Jersey Municipal Debt Fund category.
4 Taxable equivalent yields reflect federal and applicable
state tax rates.
***Lipper Since Inception returns are 94.74% for Class A;
125.03% for
Class B; 34.88% for Class C; and 14.66% for Class Z based on
all funds
in each share class.
How Investments Compared.
(As of 2/28/99)
(GRAPH)
Source: Lipper, Inc. 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; they don't fluctuate much in price but,
historically, their returns have been generally among
the lowest of the major investment categories.
*19 years for U.S. Tax-Exempt Money Funds.
<PAGE>
Scott Diamond, Fund Manager (PHOTO)
Portfolio
Manager's Report
The Series' investment objective is to maximize current
income that
is exempt from New Jersey state income taxes and federal
income
taxes, consistent with the 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.
Key Municipal Bond Index Tumbles.
Municipal bonds did not rally as much as U.S. Treasuries
last
autumn. However, municipal bond prices rose strongly enough
to
drive the Bond Buyer Revenue Bond Index, a weekly average of
long-term municipal bond yields, to 5.09% in early October.
This was the lowest level reached by the Index since its
inception in 1979. Yields fall as prices rise and vice
versa.
Strategy Session.
An Expected Fall in
Interest Rates.
We expected long-term interest rates to fall throughout the
reporting period because the U.S. economic expansion was
poised to slow and inflation to remain tame after a global
financial crisis spread from Asia to Russia and Latin
America in
mid-summer. The overseas turmoil was expected to slow U.S.
economic growth as struggling countries in Asia and Latin
America purchased fewer goods and services from the United
States. Therefore, we aimed to keep the Series' duration
longer than its peer group. Duration is a measure of
sensitivity to interest rate changes. A longer duration
would generally enable the Series' shares to gain more
rapidly if interest rates continued to fall and municipal
prices continued to climb.
In order to sustain a longer duration, we increased the
Series' holdings in noncallable municipal bonds. Noncallable
bonds tend to perform well when debt markets rally because
the bonds can appreciate in value without the risk of being
retired
early. Some of our noncallable bonds were also zero coupon
bonds, which typically trade at a deep discount to their
maturity value. Their prices have plenty of room to rise
when interest rates fall.
Portfolio Composition.
Expressed as a percentage of
total investments as of 2/28/99.
(PIE CHART)
<PAGE>
What Went Well.
Taking Profits.
We were concerned about the state of the healthcare industry
due
to laws that would decrease Medicaid and Medicare
reimbursement
payments to hospitals. We therefore decided to reduce the
Series'
exposure to hospital bonds in order to lower its
credit risk. Moreover, we sold some of these lower-rated
bonds
at a profit, which helped to boost Series' returns. After
we
sold one of our holdings, the price of the bonds declined
sharply because Standard & Poor's downgraded their credit
rating.
Increased Credit Quality.
Your Series' performance was bolstered when some of its
bonds
increased in value after being prerefunded. Bonds that are
prerefunded become backed by direct obligations of the U.S.
government, which significantly improves their credit
quality.
Specifically, the Series held Hudson County Solid Waste
bonds,
whose rating rose to AAA from BBB when they were
prerefunded.
Because the credit rating was greatly improved, the price of
the bonds also increased dramatically.
Boosting Our Yield.
We purchased non-rated bonds of the New Jersey Educational
Facilities Authority for Fairleigh Dickinson University. We
believe the university's financial outlook has improved
primarily as a result of its climbing enrollment. Because
the bonds are non-rated, they provided a substantial yield
that enhanced the Series' returns.
Noncallable Bonds Helped.
The Series modestly benefited from its increased exposure to
noncallable municipal bonds from September through early
October 1998, when interest rates fell and these bonds were
not able to be retired by the issuer. By early October, the
Bond Buyer Revenue Bond Index, a weekly average of long-term
tax-exempt yields, fell to 5.09%, its lowest yield since the
Index began in 1979. Soon after, however, municipal bond
yields
trended higher and prices declined, in part because
surprisingly
strong economic growth renewed fears about inflation.
Five Largest Issuers.
6.3% Jersey City
4.3% New Jersey
Transportation
Trust Fund Authority
4.1% Puerto Rico Electric
Power Authority
3.8% Puerto Rico
Telephone Authority
3.7% Monmouth County
Impvt. Auth. Rev.
Howell Twsp. Bd. of Ed.
Expressed as a percentage of net assetsas of 2/28/99.
Credit Quality.
Expressed as a percentage of
total investments as of 2/28/99.
(PIE CHART)
Looking Ahead.
In the short run, we feel municipal bond prices will remain
in a
trading range because of the U.S. economy's continued
resilience.
However, we do not think the rally in tax-exempt bonds is
over.
We believe U.S. economic growth will continue to slow
from the torrid pace of late 1998. Furthermore, we believe
that inflation will remain subdued as global competition
helps to keep prices of goods and services in check. Since
the level of interest rates typically reflects the
anticipated rate of
inflation, we expect interest rates to fall and bond prices
to rise amid continued low inflation.
1
<PAGE>
A Message to Our Shareholders April
19, 1999
(PHOTO)
Dear Shareholder,
For the last several months, major index advances have been
driven
by the stocks of a handful of very large companies. These
stocks
are getting more and more expensive, out of proportion to
their
earnings expectations. As a result, a substantial
disparity in value has grown between large and small
companies
and between growth and value stocks.
Since not all stocks are benefiting from the highly
publicized
euphoria surrounding each record-breaking milestone, it is
unlikely that these trends will continue. In fact, signs
that the tide is turning are starting to emerge. Moreover,
history
shows that markets generally bring prices in line with
earnings performance sooner or later.
Many sectors of the bond market, on the other hand,
have already begun to rebound from last year's global
financial crisis. Furthermore, while bonds have not
generated higher returns than stocks in recent years,
they have demonstrated that they hold
up better during market downturns. That's a thought to
keep in mind going forward.
Diversification Is Critical.
What does this suggest? Instead of chasing recent market
winners, investors should have a well-diversified asset
allocation strategy in place and keep to it. It is also
a good practice to rebalance your holdings, when necessary,
to keep your asset allocation consistent with your long-term
objectives and risk tolerance. A properly diversified
portfolio of value- and growth-oriented mutual funds,
bond funds and money market funds could help you weather
inevitable market turbulence and receive more consistent
returns over time. Prudential offers a wide range of
mutual funds to help our shareholders diversify. We
have also designed several balanced and diversified
funds to allow one-decision diversification.
Thank you for your continued confidence in Prudential
mutual funds.
Sincerely,
John R. Strangfeld
Chief Investment Officer
Prudential Investments
2
<PAGE>
Portfolio of Investments as
of February 28, 1999 PRUDENTIAL MUNICIPAL
SERIES FUND
(Unaudited) NEW JERSEY SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount
Value
Description (a)
Rating Rate Date (000)
(Note 1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
LONG-TERM INVESTMENTS--98.8%
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Bayshore Regl. Sewage Auth. Rev., M.B.I.A. Aaa
5.50% 4/01/12 $ 3,000 $ 3,233,400
Bergen Cnty., Utils. Auth., Wtr. Poll. Ctrl. Rev.,
Ser. B, F.G.I.C. Aaa
5.75 12/15/05 1,000 1,107,650
Camden Cnty. Mun. Utils. Auth. Ref., F.G.I.C. Aaa
5.25 7/15/17 1,000 1,031,460
Cape May Cnty. Ind. Poll. Ctrl., Fin. Auth. Rev.,
Atlantic City Elec. Co., M.B.I.A. Aaa
6.80 3/01/21 2,615 3,259,205
East Orange Bd. of Ed. Cert.,
Cap. Apprec., F.S.A. Aaa
Zero 8/01/18 1,420 535,752
Cap. Apprec., F.S.A. Aaa
Zero 2/01/22 2,845 889,148
Cap. Apprec., F.S.A. Aaa
Zero 2/01/24 1,845 519,459
Edison Twnshp., Gen. Oblig., A.M.B.A.C. Aaa
6.00 1/01/08 5,390 6,100,456
Evesham Mun. Utils. Auth. Rev., Ser. B, M.B.I.A. Aaa
7.00 7/01/10 2,000 2,089,320
Hammonton, Gen. Oblig., A.M.B.A.C. Aaa
6.85 8/15/03 500 564,325
Hammonton, Gen. Oblig., A.M.B.A.C. Aaa
6.85 8/15/04 500 574,400
Hammonton, Gen. Oblig., A.M.B.A.C. Aaa
6.85 8/15/05 500 583,615
Hudson Cnty. Impvt. Auth. Facs., Lease Proj.
AAA(b) 5.25 10/01/14 3,045
3,168,383
Hudson Cnty. Impvt. Auth., Solid Waste Sys. Rev. NR
7.10 1/01/20 2,005 (f) 2,241,931
Hudson Cnty. Impvt. Auth., Solid Waste Sys. Rev.
A+(b) 6.10 7/01/20 1,500 (f)
1,677,555
Hudson Cnty. Impvt. Auth., Solid Waste Sys. Rev. BBB-
(b) 6.125 1/01/29 2,250
2,194,132
Jackson Twnshp. Sch. Dist., F.G.I.C. Aaa
6.60 6/01/04 1,020 1,151,907
Jackson Twnshp. Sch. Dist., F.G.I.C. Aaa
6.60 6/01/05 940 1,076,403
Jackson Twnshp. Sch. Dist., F.G.I.C. Aaa
6.60 6/01/10 1,600 1,917,760
Jackson Twnshp. Sch. Dist., F.G.I.C. Aaa
6.60 6/01/11 1,600 1,923,984
Jersey City Mun. Utils. Auth. Sewer Rev. Ref. Aaa
5.25 12/01/14 1,725 1,831,657
Jersey City,
Gen. Oblig., A.M.B.A.C. Aaa
6.00 10/01/09 2,000 2,277,720
Gen. Oblig., A.M.B.A.C. Aaa
6.00 10/01/10 2,760 3,154,928
Gen. Oblig., Ser. A Aa3
6.25 10/01/12 3,080 3,606,403
Gen. Oblig., Ser. A, F.S.A. Aaa
9.25 5/15/04 4,310 5,371,682
Lakewood Twnshp., Gen. Oblig., F.G.I.C. Aaa
6.60 12/01/04 450 514,391
Lakewood Twnshp., Gen. Oblig., F.G.I.C. Aaa
6.60 12/01/05 445 515,795
Lenape Regl. High Sch. Dist., Gen. Oblig., M.B.I.A. Aaa
7.625 1/01/12 400 519,000
Middle Twnshp. Sch. Dist., F.G.I.C. Aaa
7.00 7/15/05 1,200 1,401,792
Middlesex Cnty. Certif. Part. Cap Apprec., M.B.I.A. Aaa
Zero 6/15/25 1,250 327,550
Middlesex Cnty. Impvt. Auth., Utils. Sys. Rev. Aaa
Zero 9/01/19 5,000 1,761,800
Middlesex Cnty. Utils. Auth. Sewer Rev. Ref., Ser.
A, F.G.I.C. Aaa
5.375 9/15/15 1,500 1,569,510
Millburn Twnshp. Sch. Dist., Brd. of Ed. Aaa
5.35 7/15/13 1,140 1,235,452
Millburn Twnshp. Sch. Dist., Brd. of Ed. Aaa
5.35 7/15/14 1,135 1,224,166
Millburn Twnshp. Sch. Dist., Brd. of Ed. Aaa
5.35 7/15/16 1,150 1,228,154
Millburn Twnshp. Sch. Dist., Brd. of Ed. Aaa
5.35 7/15/17 1,150 1,222,266
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as
of February 28, 1999 PRUDENTIAL MUNICIPAL
SERIES FUND
(Unaudited) NEW JERSEY SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount
Value
Description (a)
Rating Rate Date (000)
(Note 1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Monmouth Cnty. Impvt. Auth. Rev.,
Howell Twnshp. Brd. of Ed.
AA+(b) 6.55% 7/01/12 $ 4,065 (f)
$ 4,503,695
Howell Twnshp. Brd. of Ed., A.M.B.A.C.
AAA(b) 6.50 7/15/04 765
861,535
Howell Twnshp. Brd. of Ed., A.M.B.A.C.
AAA(b) 6.50 7/15/05 820
935,472
Howell Twnshp. Brd. of Ed., A.M.B.A.C.
AAA(b) 6.50 7/15/06 875
1,008,814
Howell Twnshp. Brd. of Ed., A.M.B.A.C.
AAA(b) 6.50 7/15/07 930
1,082,688
New Jersey Econ. Dev. Auth. Rev., Natural Gas Facs.,
NUI Corp. Proj., M.B.I.A., A.M.T. Aaa
5.70 6/01/32 3,000 3,189,030
New Jersey Econ. Dev. Auth. Rev.,
Ed. Testing Service, Ser. A, M.B.I.A. Aaa
5.90 5/15/15 2,000 (f) 2,247,980
First Mtg. - Keswick Pines NR
5.75 1/01/24 2,250 2,192,062
First Mtg. - Reformed Church Project A
BBB(b) 5.375 12/01/18 1,000
953,690
First Mtg. - The Evergreens NR
5.875 10/01/12 1,200 1,219,908
First Mtg. - The Evergreens NR
6.00 10/01/17 1,425 1,481,558
First Mtg. - The Evergreens NR
6.00 10/01/22 1,400 1,449,882
First Mtg. - The Leisure Park Marriott NR
5.875 12/01/27 2,200 2,162,292
Kaplowski Rd. Landfill NR
6.375 4/01/31 2,000 2,056,720
Nat'l. Assoc. of Accountants NR
7.50 7/01/01 675 702,155
Nat'l. Assoc. of Accountants NR
7.65 7/01/09 950 1,004,711
New Jersey Econ. Dev. Auth. Wtr. Facs. Rev., New
Jersey American Wtr. Co., F.G.I.C., A.M.T. Aaa
5.375 5/01/32 2,000 2,049,700
New Jersey Econ. Dev. Auth. Wtr. Facs., F.G.I.C.,
A.M.T. NR
9.376(d) 11/01/29 5,000 5,776,250
New Jersey Econ. Dev. Auth., Econ. Dev. Rev., Cap.
Apprec. NR
Zero 4/01/08 650 375,947
New Jersey Econ. Dist., Heating & Cool., Trigen
Trenton Proj. BBB-
(b) 6.20 12/01/10 600
631,344
New Jersey Ed. Facs. Auth. Rev.,
Fairleigh Dickinson Univ., Ser. G NR
5.70 7/01/28 2,750 (c) 2,726,543
Felician College of Lodi, Ser. D NR
7.375 11/01/22 1,275 1,398,101
Inst. Advanced Study, Ser. G Aaa
5.00 7/01/28 3,000 3,004,260
Princeton Theological, Ser. B Aaa
5.90 7/01/26 4,500 4,919,625
Seton Hall Univ. Proj., Ser. D
Baa1 7.00 7/01/21 2,000
2,141,900
New Jersey Hlth. Care Facs. Fin. Auth. Rev.,
Atlantic City Med. Ctr., Ser. C A3
6.80 7/01/11 2,500 2,736,100
East Orange Gen. Hosp., Ser. B
BBB+(b) 7.75 7/01/20 2,250
2,369,722
Jersey Shore Med. Ctr., A.M.B.A.C. Aaa
6.00 7/01/09 1,465 1,614,240
Jersey Shore Med. Ctr., A.M.B.A.C. Aaa
6.25 7/01/21 1,500 1,666,770
Kensington Cmnty. Med. Ctr., M.B.I.A. Aaa
7.00 7/01/20 3,450 3,661,933
St. Joseph's Hosp. & Med. Ctr., Ser. A
AAA(b) 5.70 7/01/11 4,375
4,744,819
New Jersey St. Hsg. & Mtge. Fin. Agcy.,
Ser. D, M.B.I.A., A.M.T. Aaa
7.70 10/01/29 2,115 (e) 2,174,474
Rental Housing, Ser. B, A.M.T. AA-
(b) 6.75 11/01/11 2,190
2,320,918
New Jersey St. Hwy. Auth., Garden St. Pkwy. Gen.
Rev. A1
5.20 1/01/08 2,000 2,138,780
New Jersey St. Hwy. Auth., Garden St. Pkwy. Gen.
Rev. A1
6.20 1/01/10 3,035 3,499,173
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as
of February 28, 1999 PRUDENTIAL MUNICIPAL
SERIES FUND
(Unaudited) NEW JERSEY SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount
Value
Description (a)
Rating Rate Date (000)
(Note 1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
New Jersey St. Tpke. Auth. Rev., Ser. C, M.B.I.A. Aaa
6.50% 1/01/09 $ 1,000 $ 1,170,650
New Jersey St. Trans. Trust Fund Auth. Trans. Sys. Aaa
5.75 6/15/14 3,500 3,784,375
New Jersey St. Trans. Trust Fund Auth. Trans. Sys.,
Ser. B, M.B.I.A. Aaa
6.50 6/15/11 5,000 (e) 5,967,900
North Brunswick Twnshp.,
Brd. of Ed., Gen. Oblig. Aa
6.80 6/15/06 350 411,506
Brd. of Ed., Gen. Oblig. Aa
6.80 6/15/07 350 416,937
Gen. Oblig., A1
6.40 5/15/10 545 (f) 596,568
Northfield Brd. of Ed., F.S.A. Aaa
5.375 7/15/14 1,390 1,468,035
Northfield Brd. of Ed., F.S.A. Aaa
5.375 7/15/15 1,470 1,543,397
Ocean Cnty. Utils. Auth., Wastewater Rev. Aa2
6.00 1/01/07 5,000 5,617,400
Paterson, Gen. Oblig., F.S.A. Aaa
6.50 2/15/05 2,000 (f) 2,179,040
Perth Amboy Brd. of Ed., M.B.I.A. Aaa
5.25 8/01/19 250 256,658
Pohatcong Twnshp. Sch. Dist., F.S.A.
AAA(b) 5.20 7/15/22 1,960
2,041,203
Port Auth. New York & New Jersey,
Ser. 94 A1
5.80 12/01/13 2,500 2,719,700
Ser. 96, F.G.I.C., A.M.T. Aaa
6.60 10/01/23 2,750 3,084,675
Puerto Rico Commonwealth Hwy. Auth. Rev., Ser. S
AAA(b) 6.50 7/01/22 750 (f)
829,455
Puerto Rico Commonwealth.,
Gen. Oblig.
Baa1 Zero 7/01/15 2,250
1,010,047
Gen. Oblig.
Baa1 Zero 7/01/16 2,500
1,065,000
Puerto Rico Elec. Pwr. Auth. Rev.,
Ser. 94S, M.B.I.A. Aaa
6.125 7/01/08 2,300 2,650,750
Ser. 95X, M.B.I.A. Aaa
6.00 7/01/12 3,295 3,665,061
Ser. R
Baa1 6.25 7/01/17 2,800 (f)
3,070,984
Puerto Rico Public Bldgs. Auth. Rev., Ser. B Ser. B
Baa1 5.25 7/01/21 2,250
2,258,752
Puerto Rico Tel. Auth. Rev., Ser. I, M.B.I.A.,
R.I.B.S. Aaa
7.123(d) 1/25/07 7,875 (e) 8,731,407
Rutgers St. Univ. Rev., Ser. A A1
6.40 5/01/13 2,000 (e) 2,369,500
Salem Cnty. Indus. Poll. Ref., PSE & G Co., M.B.I.A. Aaa
6.20 8/01/30 5,000 5,563,300
South River Sch. Dist., F.G.I.C. Aaa
5.00 12/01/13 1,300 1,355,185
South River Sch. Dist., F.G.I.C. Aaa
5.00 12/01/14 1,300 1,347,398
South River Sch. Dist., F.G.I.C. Aaa
5.00 12/01/15 1,230 1,266,617
Sparta Twnshp. Brd. of Ed., M.B.I.A. Aaa
5.75 9/01/14 1,000 1,110,550
Union City Sch. Impvt., F.S.A. Aaa
6.375 11/01/08 1,545 1,809,921
Union Cnty. Impvt. Auth. Rev.,
Plainfield Brd. of Ed., F.G.I.C. Aaa
6.25 8/01/14 1,175 (f) 1,320,688
Plainfield Brd. of Ed., F.G.I.C. Aaa
6.25 8/01/15 1,250 (f) 1,401,263
Plainfield Brd. of Ed., F.G.I.C. Aaa
6.25 8/01/16 1,330 (f) 1,486,980
Plainfield Brd. of Ed., F.G.I.C. Aaa
6.25 8/01/17 1,415 (f) 1,577,824
Virgin Islands Pub. Fin. Auth. Rev., Ser. E NR
6.00 10/01/22 1,750 1,818,093
Washington Twnshp. Mun. Utils.,
Cap. Apprec., Ser. A Aaa
Zero 12/15/22 1,055 315,371
Cap. Apprec., Ser. A Aaa
Zero 12/15/25 1,055 272,127
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 5
<PAGE>
Portfolio of Investments as
of February 28, 1999 PRUDENTIAL MUNICIPAL
SERIES FUND
(Unaudited) NEW JERSEY SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount
Value
Description (a)
Rating Rate Date (000)
(Note 1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
West Windsor Plainsboro Regional Sch. Dist.,
F.G.I.C. Aaa
5.50% 12/01/13 $ 2,600 $ 2,784,444
West Windsor Plainsboro Regional Sch. Dist.,
F.G.I.C. Aaa
5.50 12/01/14 2,700 2,873,448
- ------------
Total long-term investments
(cost $206,192,356)
$223,817,511
- ------------
Total Investments--98.8%
(cost $206,192,356; Note 4)
223,817,511
Other assets in excess of liabilities--1.2%
2,711,557
- ------------
Net Assets--100%
$226,529,068
- ------------
- ------------
</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.S.A.--Financial Security Assurance.
M.B.I.A.--Municipal Bond Insurance Association.
R.I.B.S.--Residual Interest Bonds.
(b) Standard & Poor's Rating.
(c) Represents a when-issued security.
(d) Inverse floating rate bond. The coupon is inversely
indexed to a floating
interest rate. The rate shown is the rate at February
28, 1999.
(e) All or partial principal amount segregated as collateral
for when-issued
security.
(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. 6
<PAGE>
PRUDENTIAL MUNICIPAL
SERIES FUND
Statement of Assets and Liabilities
(Unaudited) NEW JERSEY SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Assets
February 28, 1999
<S>
<C>
Investments, at value (cost
$207,421,226)...............................................
................. $ 223,817,511
Cash........................................................
.............................................
477,510
Interest
receivable..................................................
.................................... 2,807,883
Receivable for Series shares
sold........................................................
................ 99,275
Prepaid expenses and other
assets......................................................
.................. 4,378
- -----------------
Total
assets......................................................
.................................... 227,206,557
- -----------------
Liabilities
Payable for Series shares
reacquired..................................................
................... 339,952
Dividends
payable.....................................................
................................... 106,597
Management fee
payable.....................................................
.............................. 87,487
Accrued expenses and other
liabilities.................................................
.................. 75,418
Distribution fee
payable.....................................................
............................ 63,563
Deferred trustees'
fees........................................................
.......................... 4,472
- -----------------
Total
liabilities.................................................
.................................... 677,489
- -----------------
Net
Assets......................................................
......................................... $
226,259,068
- -----------------
- -----------------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
........ $ 202,038
Paid-in capital in excess of
par.........................................................
............. 209,286,174
- -----------------
209,488,212
Accumulated net realized gain on
investments.................................................
......... 644,571
Net unrealized appreciation on
investments.................................................
........... 16,396,285
- -----------------
Net assets, February 28,
1999........................................................
.................... $ 226,529,068
- -----------------
- -----------------
Class A:
Net asset value and redemption price per share
($125,276,193 / 11,174,314 shares of beneficial
interest issued and outstanding)...................
$11.21
Maximum sales charge (3% of offering
price)......................................................
..... .35
- -----------------
Maximum offering price to
public......................................................
................ $11.56
- -----------------
- -----------------
Class B:
Net asset value, offering price and redemption price per
share
($99,530,997 / 8,875,932 shares of beneficial interest
issued and outstanding).....................
$11.21
- -----------------
- -----------------
Class C:
Net asset value and redemption price per share
($1,628,143 / 145,193 shares of beneficial interest
issued and outstanding)........................
$11.21
Maximum sales charge (1% of offering
price)......................................................
..... .11
- -----------------
Maximum offering price to
public......................................................
................ $11.32
- -----------------
- -----------------
Class Z:
Net asset value, offering price and redemption price per
share
($93,735 / 8,344 shares of beneficial interest issued
and outstanding).............................
$11.23
- -----------------
- -----------------
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 7
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW JERSEY SERIES
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income February 28,
1999
<S> <C>
Income
Interest and discount earned............ $ 6,268,118
--------------
- ---
Expenses
Management fee.......................... 572,056
Distribution fee--Class A............... 91,787
Distribution fee--Class B............... 262,569
Distribution fee--Class C............... 5,636
Transfer agent's fees and expenses...... 54,000
Custodian's fees and expenses........... 51,000
Reports to shareholders................. 19,000
Registration fees....................... 18,000
Legal fees and expenses................. 7,000
Audit fees and expenses................. 5,000
Trustees' fees and expenses............. 2,000
Miscellaneous........................... 4,091
--------------
- ---
Total expenses....................... 1,092,139
Less: Custodian fee credit..............
(101)
--------------
- ---
Net expenses......................... 1,092,038
--------------
- ---
Net investment income...................... 5,176,080
--------------
- ---
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions................. 1,056,084
Financial futures transactions..........
(69,069)
--------------
- ---
987,015
--------------
- ---
Net change in unrealized appreciation on:
Investments.............................
(1,203,765)
--------------
- ---
Net loss on investments....................
(216,750)
--------------
- ---
Net Increase in Net Assets
Resulting from Operations.................. $ 4,959,330
--------------
- ---
--------------
- ---
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
NEW JERSEY SERIES
Statement of Changes in Net Assets (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year
Ended
Increase (Decrease) February 28, August
31,
in Net Assets 1999 1998
<S> <C> <C>
Operations
Net investment income.......... $ 5,176,080 $
10,985,805
Net realized gain on investment
transactions................ 987,015
1,858,130
Net change in unrealized
appreciation on
investments................. (1,203,764)
5,772,504
------------ --------
- ----
Net increase in net assets
resulting from operations... 4,959,331
18,616,439
------------ --------
- ----
Dividends and distributions (Note 1):
Dividends from net investment
income
Class A..................... (2,867,107)
(5,204,226)
Class B..................... (2,275,826)
(5,725,488)
Class C..................... (30,845)
(53,562)
Class Z..................... (2,302)
(2,529)
------------ --------
- ----
(5,176,080)
(10,985,805)
------------ --------
- ----
Distributions in excess of net
investment income
Class A..................... (7,897)
- --
Class B..................... (6,231)
- --
Class C..................... (97)
- --
Class Z..................... (6)
- --
------------ --------
- ----
(14,231)
- --
------------ --------
- ----
Distributions from net realized
gains
Class A..................... (958,970)
(171,535)
Class B..................... (756,555)
(213,181)
Class C..................... (11,815)
(1,955)
Class Z..................... (714)
(25)
------------ --------
- ----
(1,728,054)
(386,696)
------------ --------
- ----
Series share transactions (net of
share conversions) (Note 5):
Net proceeds from shares
sold........................ 11,469,679
14,827,667
Net asset value of shares
issued in reinvestment of
dividends and
distributions............... 4,216,984
6,612,932
Cost of shares reacquired...... (19,834,334)
(38,421,537)
------------ --------
- ----
Net decrease in net assets from
Series share transactions... (4,147,671)
(16,980,938)
------------ --------
- ----
Total decrease.................... (6,106,705)
(9,737,000)
Net Assets
Beginning of period............... 232,635,773
242,372,773
------------ --------
- ----
End of period..................... $226,529,068
$232,635,773
------------ --------
- ----
------------ --------
- ----
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 8
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements
(Unaudited) NEW JERSEY SERIES
- ------------------------------------------------------------
- --------------------
Prudential Municipal Series Fund (the 'Fund') is registered
under the Investment
Company Act of 1940, as an open-end management investment
company. The Fund was
organized as a Massachusetts business trust on May 18, 1984,
and consists of 11
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
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 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.
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 decrease accumulated net
- ------------------------------------------------------------
- --------------------
9
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements
(Unaudited) NEW JERSEY
SERIES
- ------------------------------------------------------------
- --------------------
investment income by $14,231. 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.
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
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 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 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 had a distribution agreement with Prudential
Investment Management
Services LLC ('PIMS') which acts as distributor of the Class
A, Class B, Class C
and Class Z shares of the Fund. The Fund compensates PIMS
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 PIMS as
distributor of the Class Z
shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensates
PIMS for
distribution-related activities at an annual rate of up to
.30 of 1%, .50% of 1%
and 1% of the average daily net assets of the Class A, B and
C shares,
respectively. Such expenses under the Plans were .10 of 1%,
.50 of 1% and .75 of
1% of the average daily net assets of the Class A, B and C
shares, respectively,
for the period September 1, 1998 through December 31, 1998.
Effective January 1,
1999 such expenses under the Plans were .25 of 1%, .50 of 1%
and .75 of 1% of
the average daily net assets of the Class A, B and C shares,
respectively.
PIMS advised the Series that they have received
approximately $15,800 and $1,200
in front-end sales charges resulting from sales of Class A
and after November 2,
1998 Class C shares during the six months ended February 28,
1999. From these
fees, PSI and PIMS paid such sales charges to affiliated
broker-dealers, which
in turn paid commissions to salespersons and incurred other
distribution costs.
PSI and PIMS have advised the Series that during the six
months ended February
28, 1999, it received approximately $50,500 and $600 in
contingent deferred
sales charges imposed upon certain redemptions by Class B
and Class C
shareholders, respectively.
PIFM, PIMS 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')
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 did not borrow any amounts pursuant
to the Agreement
during the year ended August 31, 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 February 28, 1999 and has been
extended through March
12, 1999 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,
1999, the Series incurred fees of approximately $38,000 for
the services of
PMFS. As of February 28, 1999, approximately $6,300 of such
fees
- ------------------------------------------------------------
- --------------------
10
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements
(Unaudited) NEW JERSEY
SERIES
- ------------------------------------------------------------
- --------------------
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, 1999,
were $2,211,953 and
$3,125,440, respectively.
The cost basis of investments for federal income tax
purposes at February 28,
1999 was substantially the same as for financial reporting
purposes and
accordingly, net unrealized appreciation of investments for
federal income tax
purposes was $16,396,285 (gross unrealized appreciation--
$16,622,468; gross
unrealized depreciation--$226,183).
- ------------------------------------------------------------
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, 1999 and the fiscal year ended August 31, 1998 were as
follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- ------------------------------------ ---------- --------
- ----
<S> <C> <C>
Six months ended February 28, 1999:
Shares sold......................... 503,812 $
5,709,670
Shares issued in reinvestment
of dividends and distributions.... 207,117
2,332,671
Shares reacquired................... (661,613)
(7,474,965)
---------- --------
- ----
Net increase in shares outstanding
before conversion................. 49,316
567,376
Shares issued upon conversion from
Class B........................... 1,035,711
11,742,471
---------- --------
- ----
Net increase in shares
outstanding....................... 1,085,027 $
12,309,847
---------- --------
- ----
---------- --------
- ----
<CAPTION>
Class A Shares
Amount
- ------------------------------------ ---------- --------
- ----
<S> <C> <C>
Year ended August 31, 1998:
Shares sold......................... 461,992 $
5,164,484
Shares issued in reinvestment
of dividends and distributions.... 281,454
3,136,650
Shares reacquired................... (1,625,503)
(18,109,155)
---------- --------
- ----
Net decrease in shares outstanding
before conversion................. (882,057)
(9,808,021)
Shares issued upon conversion from
Class B........................... 2,242,757
24,962,597
---------- --------
- ----
Net increase in shares
outstanding....................... 1,360,700 $
15,154,576
---------- --------
- ----
---------- --------
- ----
<CAPTION>
Class B
- ------------------------------------
<S> <C> <C>
Six months ended February 28, 1999:
Shares sold......................... 473,663 $
5,353,351
Shares issued in reinvestment
of dividends and distributions.... 163,636
1,843,540
Shares reacquired................... (1,078,471)
(12,201,911)
---------- --------
- ----
Net decrease in shares outstanding
before conversion................. (441,172)
(5,005,020)
Shares reacquired upon conversion
into Class A...................... (1,036,139)
(11,742,471)
---------- --------
- ----
Net decrease in shares
outstanding....................... (1,477,311)
$(16,747,491)
---------- --------
- ----
---------- --------
- ----
Year ended August 31, 1998:
Shares sold......................... 811,990 $
9,060,335
Shares issued in reinvestment
of dividends and distributions.... 307,528
3,426,625
Shares reacquired................... (1,741,575)
(19,409,695)
---------- --------
- ----
Net decrease in shares outstanding
before conversion................. (622,057)
(6,922,735)
Shares reacquired upon conversion
into Class A...................... (2,242,154)
(24,962,597)
---------- --------
- ----
Net decrease in shares
outstanding....................... (2,864,211)
$(31,885,332)
---------- --------
- ----
---------- --------
- ----
<CAPTION>
Class C
- ------------------------------------
<S> <C> <C>
Six months ended February 28, 1999:
Shares sold......................... 34,659 $
391,376
Shares issued in reinvestment
of dividends and distributions.... 3,352
37,752
Shares reacquired................... (12,556)
(141,550)
---------- --------
- ----
Net increase in shares
outstanding....................... 25,455 $
287,578
---------- --------
- ----
---------- --------
- ----
</TABLE>
- ------------------------------------------------------------
- --------------------
11
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements
(Unaudited) NEW JERSEY
SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class C Shares
Amount
- ------------------------------------ ---------- --------
- ----
<S> <C> <C>
Year ended August 31, 1998:
Shares sold......................... 41,815 $
465,922
Shares issued in reinvestment
of dividends and distributions.... 4,236
47,210
Shares reacquired................... (75,506)
(838,404)
---------- --------
- ----
Net decrease in shares
outstanding....................... (29,455) $
(325,272)
---------- --------
- ----
---------- --------
- ----
<CAPTION>
Class Z
- ------------------------------------
<S> <C> <C>
Six months ended February 28, 1999:
Shares sold......................... 1,349 $
15,282
Shares issued in reinvestment
of dividends...................... 268
3,021
Shares reacquired................... (1,407)
(15,908)
---------- --------
- ----
Net increase in shares
outstanding....................... 210 $
2,395
---------- --------
- ----
---------- --------
- ----
Year ended August 31, 1998:
Shares sold......................... 12,217 $
136,926
Shares issued in reinvestment
of dividends...................... 219
2,447
Shares reacquired................... (5,695)
(64,283)
---------- --------
- ----
Net increase in shares
outstanding....................... 6,741 $
75,090
---------- --------
- ----
---------- --------
- ----
</TABLE>
- ------------------------------------------------------------
- --------------------
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, -------------------------------------------
- -------------
1999 1998 1997 1996 1995
1994
-
- ----------- -------- ------- ------- -------
- -------
<S>
<C> <C> <C> <C> <C>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...................
$ 11.31 $ 10.97 $ 10.87 $ 10.98 $ 10.81
$ 11.74
-
- ----------- -------- ------- ------- -------
- -------
Income from investment operations
Net investment income..................................
.27 .53 .55(b) .57(b) .61(b)
.61(b)
Net realized and unrealized gain (loss) on investment
transactions........................................
(.01) .36 .29 (.07) .17
(.75)
-
- ----------- -------- ------- ------- -------
- -------
Total from investment operations....................
.26 .89 .84 .50 .78
(.14)
-
- ----------- -------- ------- ------- -------
- -------
Less distributions
Dividends from net investment income...................
(.27) (.53) (.55) (.57) (.61)
(.61)
Distributions in excess of net investment income.......
- --(d) -- --(d) -- --
- --
Distributions from net realized gains on investment
transactions........................................
(.09) (.02) (.19) (.04) --
(.18)
-
- ----------- -------- ------- ------- -------
- -------
Total distributions.................................
(.36) (.55) (.74) (.61) (.61)
(.79)
-
- ----------- -------- ------- ------- -------
- -------
Net asset value, end of period.........................
$ 11.21 $ 11.31 $ 10.97 $ 10.87 $ 10.98
$ 10.81
-
- ----------- -------- ------- ------- -------
- -------
-
- ----------- -------- ------- ------- -------
- -------
TOTAL RETURN(c):.......................................
5.74% 8.40% 7.97% 4.63% 7.55%
(1.27)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........................
$125,276 $114,090 $95,729 $74,492 $49,666
$14,774
Average net assets (000)...............................
$123,209 $107,206 $89,280 $61,837 $30,290
$15,334
Ratios to average net assets:(b)
Expenses, including distribution fees...............
.74%(a) .71% .70%(b) .67%(b) .55%(b)
.58%(b)
Expenses, excluding distribution fees...............
.64%(a) .61% .60%(b) .57%(b) .45%(b)
.48%(b)
Net investment income...............................
4.69%(a) 4.85% 5.03%(b) 5.19%(b)
5.65%(b)5.42%(b)
For Class A, B, C and Z shares:
Portfolio turnover rate.............................
1% 18% 25% 62% 37%
34%
</TABLE>
- ---------------
(a) Annualized.
(b) Net of management 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.
(d) Less than $.005 per share.
- ------------------------------------------------------------
- --------------------
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, -------------------------------------------
- ----
1999 1998 1997 1996 1995
-
- ----------- -------- -------- -------- -----
- ---
<S>
<C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...................
$ 11.31 $ 10.97 $ 10.87 $ 10.98 $
10.81
-
- ----------- -------- -------- -------- -----
- ---
Income from investment operations
Net investment income..................................
.25 .50 .50(b) .53(b) .57(b)
Net realized and unrealized gain (loss) on investment
transactions........................................
(.01) .36 .29 (.07) .17
-
- ----------- -------- -------- -------- -----
- ---
Total from investment operations....................
.24 .86 .79 .46 .74
-
- ----------- -------- -------- -------- -----
- ---
Less distributions
Dividends from net investment income...................
(.25) (.50) (.50) (.53) (.57)
Distributions in excess of net investment income.......
- --(d) -- --(d) -- --
Distributions from net realized gains on investment
transactions........................................
(.09) (.02) (.19) (.04) --
-
- ----------- -------- -------- -------- -----
- ---
Total distributions.................................
(.34) (.52) (.69) (.57) (.57)
-
- ----------- -------- -------- -------- -----
- ---
Net asset value, end of period.........................
$ 11.21 $ 11.31 $ 10.97 $ 10.87 $
10.98
-
- ----------- -------- -------- -------- -----
- ---
-
- ----------- -------- -------- -------- -----
- ---
TOTAL RETURN(c):.......................................
5.24% 7.97% 7.54% 4.22% 7.12%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........................
$ 99,531 $117,099 $144,992 $188,315
$246,202
Average net assets (000)...............................
$105,898 $128,382 $162,330 $222,235
$274,995
Ratios to average net assets:(b)
Expenses, including distribution fees...............
1.14%(a) 1.11% 1.10%(b) 1.07%(b)
.95%(b)
Expenses, excluding distribution fees...............
.64%(a) .61% .60%(b) .57%(b)
.45%(b)
Net investment income...............................
4.33%(a) 4.46% 4.63%(b) 4.80%(b)
5.30%(b)
<CAPTION>
1994
---
- -----
<S>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................... $
11.74
---
- -----
Income from investment operations
Net investment income..................................
.56(b)
Net realized and unrealized gain (loss) on investment
transactions........................................
(.75)
---
- -----
Total from investment operations....................
(.19)
---
- -----
Less distributions
Dividends from net investment income...................
(.56)
Distributions in excess of net investment income.......
- --
Distributions from net realized gains on investment
transactions........................................
(.18)
---
- -----
Total distributions.................................
(.74)
---
- -----
Net asset value, end of period......................... $
10.81
---
- -----
---
- -----
TOTAL RETURN(c):.......................................
(1.67)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........................
$323,077
Average net assets (000)...............................
$343,941
Ratios to average net assets:(b)
Expenses, including distribution fees...............
.98%(b)
Expenses, excluding distribution fees...............
.48%(b)
Net investment income...............................
5.02%(b)
</TABLE>
- ---------------
(a) Annualized.
(b) Net of management 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.
(d) Less than $.005 per share.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 14
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) NEW JERSEY
SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class C
-
- ------------------------------------------------------------
- ----------
August 1,
Six Months
1994(e)
Ended Year Ended August 31,
Through
February 28, ---------------------------------------
August 31,
1999 1998 1997 1996 1995
1994
<S>
<C> <C> <C> <C> <C>
<C>
-
- ----------- ------ ------ ------ ------
- ----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...................
$11.31 $10.97 $10.87 $10.98 $10.81
$10.83
- ----- ------ ------ ------ ------
- -----
Income from investment operations
Net investment income..................................
.24 .47 .48(b) .50(b) .54(b)
.04(b)
Net realized and unrealized gain (loss) on investment
transactions........................................
(.01) .36 .29 (.07) .17
(.02)
- ----- ------ ------ ------ ------
- -----
Total from investment operations....................
.23 .83 .77 .43 .71
.02
- ----- ------ ------ ------ ------
- -----
Less distributions
Dividends from net investment income...................
(.24) (.47) (.48) (.50) (.54)
(.04)
Distributions in excess of net investment income.......
- --(d) --(d) -- --
- --
Distributions from net realized gains on investment
transactions........................................
(.09) (.02) (.19) (.04) --
- --
- ----- ------ ------ ------ ------
- -----
Total distributions.................................
(.33) (.49) (.67) (.54) (.54)
(.04)
- ----- ------ ------ ------ ------
- -----
Net asset value, end of period.........................
$11.21 $11.31 $10.97 $10.87 $10.98
$10.81
- ----- ------ ------ ------ ------
- -----
- ----- ------ ------ ------ ------
- -----
TOTAL RETURN(c):.......................................
4.98% 7.70% 7.27% 3.96% 6.86%
0.14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........................
$1,628 $1,354 $1,637 $1,961 $1,502
$ 240
Average net assets (000)...............................
$1,515 $1,274 $1,894 $1,735 $ 790
$ 11
Ratios to average net assets:(b)
Expenses, including distribution fees...............
1.39%(a) 1.36% 1.35%(b) 1.32%(b) 1.20%(b)
1.29%(a)(b)
Expenses, excluding distribution fees...............
.64%(a) .61% .60%(b) .57%(b) .45%(b)
.54%(a)(b)
Net investment income...............................
4.10%(a) 4.21% 4.38%(b) 4.54%(b) 4.99%(b)
5.06%(a)(b)
</TABLE>
- ---------------
(a) Annualized.
(b) Net of management 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) Less than $.005 per share.
(e) Commencement of offering of Class C shares.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 15
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) NEW JERSEY
SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class Z
-
- -------------------------------------------
December 6,
Six Months Year 1996(e)
Ended Ended Through
February 28, August 31, August 31,
1999 1998 1997
<S>
<C> <C> <C>
-
- ----------- ---------- ------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...................
$11.32 $10.98 $11.10
- ----- ----- -----
Income from investment operations
Net investment income..................................
.28 .55 .41(b)
Net realized and unrealized gain (loss) on investment
transactions........................................
- -- .36 .07
- ----- ----- -----
Total from investment operations....................
.28 .91 .48
- ----- ----- -----
Less distributions
Dividends from net investment income...................
(.28) (.55) (.41)
Distributions in excess of net investment income.......
- --(d) -- --(d)
Distributions from net realized gains on investment
transactions........................................
(.09) (.02) (.19)
- ----- ----- -----
Total distributions.................................
(.37) (.57) (.60)
- ----- ----- -----
Net asset value, end of period.........................
$11.23 $11.32 $10.98
- ----- ----- -----
- ----- ----- -----
TOTAL RETURN(c):.......................................
5.87% 8.51% 4.49%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........................
$ 94 $ 92 $ 15
Average net assets (000)...............................
$ 96 $ 30 $ 10
Ratios to average net assets:(b)
Expenses, including distribution fees...............
.64%(a) .61% .60%(a)(b)
Expenses, excluding distribution fees...............
.64%(a) .61% .60%(a)(b)
Net investment income...............................
4.84%(a) 4.96% 5.13%(a)(b)
</TABLE>
- ---------------
(a) Annualized.
(b) Net of management 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) Less than $.005 per share.
(e) Commencement of offering of Class Z shares.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 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
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Louis A. Weil, III
Officers
Robert F. Gunia, President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
Deborah A. Docs, Secretary
David F. Connor, 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 Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
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
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Swidler Berlin Shereff Friedman, 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,
1999 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
74435M788
74435M796 MF138E2
74435M531
74435M432
(ICON)
Prudential
Municipal
Series Fund
- ----------------------
New Jersey
Money Market Series
SEMI
ANNUAL
REPORT
Feb. 28, 1999
(LOGO)
<PAGE>
Prudential Municipal Series Fund
New Jersey Money Market Series
Performance At A Glance.
Yields on municipal money market securities fell during the
six months ended February 28, 1999 because the supply of
securities declined overall while demand for them remained
strong, and the Federal Reserve repeatedly eased monetary
policy. However, we were able to take advantage of many good
buying opportunities among high-quality, tax-exempt money
market securities in New Jersey. As a result, your
Prudential
Municipal Series Fund--New Jersey Money Market Series
provided
an above-average level of tax-exempt income.
<TABLE>
Fund Facts As
of 2/28/99
<CAPTION>
7-Day Net Asset
Taxable Equivalent Yield* Weighted Avg. Net Assets
Current Yld. Value (NAV)
@31% @36% @39.6% Mat. (WAM) (Millions)
<S> <C> <C> <C>
<C> <C> <C> <C>
NJ Money
Market Series 2.41% $1
3.73% 4.02% 4.26% 59 Days $214
IBC Financial Data
Tax-Free State Specific
(SB & GP-NJ) Avg.** 2.21% $1
3.42% 3.69% 3.91% 45 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 not insured or guaranteed by the Federal Deposit
Insurance
Corporation or any other government agency. Although the
Series
seeks to preserve the value of your investment at $1.00 per
share,
it is possible to lose money by investing in the Series.
* Some investors may be subject to the federal alternative
minimum
tax and/or state and local taxes. Taxable equivalent yields
reflect
federal and applicable state tax rates.
** International Business Communications (IBC) Financial
Data reports
a seven-day current yield, NAV, and WAM on Mondays. This is
the data
of all funds in the IBC Financial Data Tax-Free State
Specific
Average (Stock Broker (SB) & General Purpose (GP) - New
Jersey)
category as of March 1, 1999.
Tracking Tax-Free Money Fund Yields.
(GRAPH)
How Investments Compared.
(As of 2/228/99)
(GRAPH)
Source: Lipper, Inc. 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.
U.S. Tax-Exempt Money Funds attempt to preserve a constant
share value;
they don't fluctuate much in price but, historically, their
returns
have been generally among the lowest of the major investment
categories.
*19 years for U.S. Tax-Exempt Money Funds.
<PAGE>
Richard S. Lynes, Fund Manager (PHOTO)
Portfolio
Manager's Report
The Prudential Municipal Series Fund--New Jersey Money
Market Series
seeks to provide the highest level of current income that is
exempt
from federal and New Jersey state income taxes, consistent
with
liquidity and the preservation of capital. 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.
The Importance of WAM.
Weighted Average Maturity (WAM) takes into account the
maturity
level of each security held by a fund. WAM is a measurement
tool
that determines a fund's sensitivity to changes in interest
rates.
A lengthened WAM enables a fund's yield to remain higher for
a
longer period of time during declining interest-rate cycles.
Strategy Session.
Barbell Strategy.
We employed a barbell strategy in which the Series' assets
were
concentrated in shorter- and longer-term municipal money
market
securities. This approach kept the Series' WAM longer than
average
and still provided us with quick access to cash in order to
satisfy
shareholder liquidity needs. Extending the WAM allowed the
Series'
yield to remain higher for a longer time as tax-exempt money
market
yields fell.
In the autumn, we lengthened the Series' WAM as the Federal
Reserve
embarked on a series of reductions in the Federal funds
rate, which
is the rate banks charge each other for overnight loans.
Cutting
interest rates stimulates economic growth by lowering
borrowing
costs. Therefore, the three Federal-funds-rate reductions
helped
restore faith in the U.S. economy and calmed financial
markets,
which had become volatile after a global financial crisis
spread
beyond Asia. Realizing that yields in our market would
continue
to edge lower with the Federal funds rate, we quickly locked
in
yields on longer-term New Jersey money market securities.
These
purchases dramatically extended the Series' WAM in October
and
early November 1998.
We could lengthen our WAM because the supply of New Jersey
money
market securities was sufficient, but overall, the amount of
securities in the tax-exempt money market declined in 1998.
Among tax-exempt notes, which mature in 13 months or less,
the
total dollar volume issued in 1998 was down 25% from 1997,
according to Municipal Market Data. Issuance dropped as some
state and local governments preferred to issue bonds instead
of notes in order to lock in low yields for a longer period
of time. The combination of dwindling supply and strong
investor demand was among the key factors that drove
municipal money market yields lower.
<PAGE>
What Went Well.
Year-End Bargains.
Tax-exempt money market yields usually rise in late December
as portfolio managers sell securities to provide
shareholders
with cash for holiday expenditures and other expenses. We
took
advantage of this buying opportunity by purchasing
attractively
priced, longer-term New Jersey money market securities that
lengthened the WAM in late December 1998 and early January
1999. The longer WAM helped the Series weather the seasonal
drop in municipal money market yields that typically occurs
early in the new year. During this time, yields fall as
investors rush to reinvest money received from coupon
payments
and maturing bonds.
And Not So Well.
Prudent Limitations.
Although there was a sufficient amount of New Jersey money
market
securities available, we had to pass up many potential
buying
opportunities. We avoided certain securities because the
local
municipalities that issued them provided incomplete
information
about their financial standings. Our insistence upon
satisfactory
disclosure limits our investment opportunities, but we
believe
it will protect the Series' credit quality in the long run.
Looking Ahead.
We plan to shorten the Series' WAM until it is more in line
with
our competition by purchasing very short-term New Jersey
money
market securities that can be quickly converted into cash.
This
cash will be used from mid-April to early May to satisfy
shareholder
liquidity needs prompted by their income tax payments.
Having
quicker access to cash will also enable us to take advantage
of attractive buying opportunities that usually emerge
during
tax season as portfolio managers sell money market
securities
to meet their shareholder liquidity needs.
Turning to U.S. monetary policy, we believe the Federal
Reserve
will hold the Federal funds rate steady in coming months as
the
U.S. economic expansion slows and inflation remains in
check.
Weighted Average Maturity Compared
To The Average Fund.
(GRAPH)
1
<PAGE>
A Message to Our Shareholders April
19, 1999
(PHOTO)
Dear Shareholder,
For the last several months, major index advances have been
driven
by the stocks of a handful of very large companies. These
stocks
are getting more and more expensive, out of proportion to
their
earnings expectations. As a result, a substantial disparity
in
value has grown between large and small companies and
between
growth and value stocks.
Since not all stocks are benefiting from the highly
publicized
euphoria surrounding each record-breaking milestone, it is
unlikely that these trends will continue. In fact, signs
that the tide is turning are starting to emerge. Moreover,
history shows that markets generally bring prices in line
with earnings performance sooner or later.
Many sectors of the bond market, on the other hand, have
already begun to rebound from last year's global financial
crisis. Furthermore, while bonds have not generated higher
returns than stocks in recent years, they have demonstrated
that they hold up better during market downturns. That's a
thought to keep in mind going forward.
Diversification Is Critical.
What does this suggest? Instead of chasing recent market
winners,
investors should have a well-diversified asset allocation
strategy
in place and keep to it. It is also a good practice to
rebalance
your holdings when necessary to keep your asset allocation
consistent with your long-term objectives and risk
tolerance.
A properly diversified portfolio of value- and growth-
oriented
mutual funds, bond funds and money market funds could help
you
weather inevitable market turbulence and receive more
consistent
returns over time. Prudential offers a wide range of mutual
funds
to help our shareholders diversify. We have also designed
several
balanced and diversified funds to allow one-decision
diversification.
Thank you for your continued confidence in Prudential mutual
funds.
Sincerely,
John R. Strangfeld
Chief Investment Officer
Prudential Investments
2
<PAGE>
Portfolio of Investments as
of February 28, 1999 PRUDENTIAL MUNICIPAL
SERIES FUND
(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>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Bernards Twnshp., G.O., B.A.N.
NR 3.75% 5/21/99 $ 2,867 $
2,868,309
Burlington Cnty.,
Cmnty. Coll.
AA(b) 4.85 7/15/99 800
803,476
G.O.
AA(b) 5.20 10/01/99 1,630
1,650,060
Gen. Impt.
AA(b) 4.85 7/15/99 1,200
1,205,214
Special Svcs. Sch.
AA(b) 4.85 7/15/99 290
291,260
Denville Twnshp., G.O., B.A.N.
Aa3 4.20 6/01/99 1,155
1,156,126
East Brunswick Twnshp., G.O., B.A.N.
NR 3.50 10/15/99 2,617
2,623,314
Fairfield Twnshp., B.A.N.
NR 4.00 3/23/99 2,700
2,700,596
Florham Park, G.O., B.A.N.
NR 3.25 11/05/99 4,174
4,179,524
Fort Lee, G.O., B.A.N.
NR 4.00 5/22/99 8,405
8,410,079
Hudson Cnty. Impvt. Auth. Rev., Pooled Gov't. Loan Prog.,
Ser.
86, F.R.W.D.
A-1+(b) 2.95 3/04/99 2,945
2,945,000
Oper. Sch. Dist., Cert. of Part.
AAA 4.00 6/01/99 1,285
1,286,086
Jersey City, G.O., B.A.N.
SP1+(b) 3.50 1/14/00 10,000
10,033,828
Mount Olive Twnshp., G.O., B.A.N.
NR 3.30 12/09/99 1,200
1,201,796
New Jersey Hlth. Care Facs. Auth., Atlantic Hlth. Sys. Hosp.
Corp.,
Ser. 97A
AAA 4.00 7/01/99 1,000
1,001,065
New Jersey Hsg. & Mtg. Fin. Agy.,
Eagle Tax Exempt, Trust 92A, Ser. 3001, F.R.W.D.S.
A-1+(b) 2.97 3/04/99 3,200
3,200,000
Home Buyer, Ser. 96S, F.R.W.D.S., A.M.T.
A-1+(b) 2.94 3/04/99 5,840
5,840,000
New Jersey St. Econ. Dev. Auth.,
865 Centennial Ave. Proj., Ser. 85, F.R.W.D., A.M.T.
A-1+(b) 3.07 3/04/99 2,400
2,400,000
Alpha Assoc. & Avallone, Ser. 98, F.R.W.D.
A-1(b) 2.95 3/03/99 2,700
2,700,000
Bayshore Hlth. Care, Ser. 98A, F.R.W.D.
VMIG1 2.90 3/04/99 3,950
3,950,000
Brach Jersey Ave. Proj., Ser. 86, F.R.W.D.
A-1+(b) 2.60 3/03/99 2,000
2,000,000
Catholic Cmnty. Svcs. Proj., Ser. 93, F.R.W.D.
VMIG1 2.70 3/04/99 5,685
5,685,000
Catholic Cmnty. Svcs. Proj., Ser. 95, F.R.W.D.
VMIG1 2.70 3/04/99 3,670
3,670,000
Chambers Congeration. Proj., Ser. 91, T.E.C.P., A.M.T.
VMIG1 2.75 5/03/99 3,500
3,500,000
Davidson Ave. Assoc. Ltd., Ser. 84, F.R.W.D., A.M.T.
A-1+(b) 3.07 3/04/99 2,500
2,500,000
Elizabeth Twnshp. Wtr. Co., Ser. B, F.R.W.D., A.M.T.
A-1+(b) 2.70 3/03/99 5,500
5,500,000
Fin. Assoc. L.P., Ser. 97, F.R.W.D.
A-1+(b) 3.02 3/04/99 3,952
3,952,000
GSA Bldg. Assoc. Ltd., Ser. 85, F.R.W.D., A.M.T.
A-1+(b) 3.07 3/04/99 4,200
4,200,000
Jewish Home At Rockliegh, F.R.W.D.
VMIG1 2.85 3/05/99 10,000
10,000,000
Kent Place, Ser. 92L, F.R.W.D.
VMIG1 2.85 3/04/99 1,775
1,775,000
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as
of February 28, 1999 PRUDENTIAL MUNICIPAL
SERIES FUND
(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>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Michael Shalit Proj., Ser. 93, F.R.D.D.
NR 3.15% 3/01/99 $ 1,290 $
1,290,000
National Refridgerants Inc., Ser. 94A, F.R.W.D., A.M.T.
P-1 2.95 3/03/99 500
500,000
New Jersey Foreign Trade Zone Venture, Ser. 98, F.R.D.D.
A-1+(b) 2.75 3/01/99 1,900
1,900,000
New Jersey Natural Gas Co. Proj.,
Ser. A, F.R.W.D.
VMIG1 2.50 3/03/99 4,000
4,000,000
New Jersey Natural Gas Co. Proj., Ser 98B, F.R.W.D.,
A.M.T. P-1 2.55 3/03/99 1,500
1,500,000
Newark Recycling Fac., Ser. 97, A.M.T.
A-1+(b) 3.00 6/15/99 5,600
5,600,000
North Plainfield Hldg., Ser. 92, A.O.T.
VMIG1 3.65 9/01/99 3,110
3,110,000
Ocean Spray Cranberry Inc. Proj., Ser. 87, A.O.T.
NR 3.80 7/01/99 2,500
2,500,000
Office Court Assoc. Proj., F.R.W.D., A.M.T.
A-1+(b) 2.95 3/03/99 1,650
1,650,000
Owens Drive Bldg. Ltd., Ser. 84, F.R.W.D., A.M.T.
A-1+(b) 3.07 3/04/99 1,200
1,200,000
Owens Drive Bldg. Ltd., Ser. 90, F.R.W.D., A.M.T.
A-1+(b) 3.07 3/04/99 1,450
1,450,000
Peddie Sch. Proj., Ser. 94B, F.R.W.D.
A-1(b) 2.80 3/04/99 3,000
3,000,000
Raritan Bldg. Assoc. Ltd., Ser. 85, F.R.W.D.
A-1+(b) 3.02 3/04/99 3,500
3,500,000
RJB Associates Ltd., F.R.W.D.
NR 2.80 3/04/99 1,322
1,322,000
Russ Berrie & Co., Ser. 83, F.R.W.D.
A-1+(b) 2.70 3/03/99 6,000
6,000,000
U.S. Golf Assoc. Proj.
NR 2.80 3/04/99 2,400
2,400,000
Volvo America Corp., Ser. 84, F.R.W.D.
NR 2.97 3/03/99 1,500
1,500,000
West Essex Assoc. Ltd., Ser. 84, F.R.W.D.
A-1+(b) 3.02 3/04/99 1,300
1,300,000
New Jersey St. Educ. Facs. Auth., Rev. Higher Educ. Tech.
Infras.
Aa3 4.25 9/01/99 1,400
1,408,598
New Jersey St. Educ. Facs. Auth., Princeton Univ., Ser. 97A,
T.E.C.P.
P-1 2.60 3/05/99 1,800
1,800,000
New Jersey St. Higher Educ. Asst. Auth., Student Loan Rev.,
Ser. 97B, A.O.T., A.M.T.
A-1+(b) 3.75 6/01/99 1,800
1,800,000
New Jersey St. Tpke. Auth. Rev., Ser. 91D, F.R.W.D.
VMIG1 2.60 3/03/99 4,800
4,800,000
New Jersey St. Transport Trust Fund Auth. Ser. 49
VMIG1 2.97 3/04/99 4,995
4,995,000
New Jersey Wastewater Treatment Trust Loan Rev., Ser. A
Aaa Zero 9/01/99 1,000
984,682
North Brunswick Twnshp.,
G.O., B.A.N., A.M.T.
NR 3.40 4/30/99 1,010
1,010,576
G.O., B.A.N.
NR 3.20 12/06/99 1,500
1,502,227
G.O., B.A.N., A.M.T.
NR 3.40 12/29/99 1,490
1,493,597
Nutley, G.O., B.A.N.
NR 3.75 7/30/99 3,500
3,501,670
Port Auth. of New York & New Jersey,
Ser. 3, F.R.D.D.
VMIG1 3.25 3/01/99 5,300
5,300,000
Ser. 93-1, F.R.W.D.
NR 3.07 3/02/99 8,000
8,000,000
Spec. Oblig. Rev., Ser. 6, F.R.D.D., A.M.T.
VMIG1 3.25 3/01/99 6,200
6,200,000
Princeton Twnshp., Mercer Co., B.A.N.
NR 3.75 3/11/99 1,000
1,000,053
Puerto Rico Elec. Pwr. Auth., Ser. SGA43, F.R.W.D.S.
A-1+(b) 2.80 3/03/99 3,600
3,600,000
Randolph Twnshp., G.O., B.A.N.
NR 3.90 6/18/99 3,100
3,101,962
Ringwood Borough, Ser. A, B.A.N.
NR 3.62 3/19/99 3,805
3,805,052
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as
of February 28, 1999 PRUDENTIAL MUNICIPAL
SERIES FUND
(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>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Salem Cnty., Ind. Poll Ctrl. Rev., Philadelphia Elec. Co.,
Ser
93A, T.E.C.P., A.M.T.
VMIG1 2.70% 4/07/99 $ 8,000 $
8,000,000
Stafford Twnshp., G.O.
Aaa 4.75 2/01/00 555
563,005
Union Cnty. Util. Auth., Solid Waste Fac. Ogden Martin,
Ser. 98A, A.M.T.
Aaa 4.50 6/01/99 400
400,632
- ------------
Total Investments--98.0%
(cost $210,216,787(d))
210,216,787
Other assets in excess of liabilities--2.0%
4,206,801
- ------------
Net Assets--100%
$214,423,588
- ------------
- ------------
</TABLE>
- ---------------
(a) The following abbreviations are used in portfolio
descriptions:
A.M.T.--Alternative Minimum Tax.
A.O.T.--Annual Optional Tender.
B.A.N.--Bond Anticipation Note.
F.R.D.D.--Floating Rate (Daily) Demand Note(c).
F.R.W.D.--Floating Rate (Weekly) Demand Note(c).
F.R.W.D.S.--Floating Rate (Weekly) Demand
SyntheticNote(c).
G.O.--General Obligation.
T.E.C.P.--Tax Exempt Commercial Paper.
(b) Standard & Poor's Rating.
(c) For purposes of amortized cost valuation, the maturity
date of Floating Rate
Demand Notes is considered to be the later of the next
date on which the
security can be redeemed at par, or the next date on
which the rate of
interest is adjusted.
(d) The cost of securities for federal income tax purposes
is substantially the
same as for financial statement purposes.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information
contains a description of
Moody's and Standard & Poor's ratings.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 5
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Statement of Assets and Liabilities
(Unaudited) NEW JERSEY MONEY
MARKET SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Assets
February 28, 1999
- -----------------
<S>
<C>
Investments, at amortized cost which approximates market
value........................................... $
210,216,787
Cash........................................................
.............................................
60,984
Receivable for Series shares
sold........................................................
................ 4,915,073
Interest
receivable..................................................
.................................... 1,514,677
Deferred expenses and other
assets......................................................
................. 2,909
- -----------------
Total
assets......................................................
.................................... 216,710,430
- -----------------
Liabilities
Payable for Series shares
reacquired..................................................
................... 2,119,302
Management fee
payable.....................................................
.............................. 81,943
Dividends
payable.....................................................
................................... 44,580
Accrued expenses and other
liabilities.................................................
.................. 26,422
Distribution fee
payable.....................................................
............................ 10,122
Deferred trustee's
fee.........................................................
.......................... 4,473
- -----------------
Total
liabilities.................................................
.................................... 2,286,842
- -----------------
Net
Assets......................................................
......................................... $
214,423,588
- -----------------
- -----------------
Net assets were comprised of:
Shares of beneficial interest, at $.01 par
value......................................................
$ 2,144,236
Paid-in capital in excess of
par.........................................................
............. 212,279,352
- -----------------
Net assets, February 28,
1999........................................................
.................... $ 214,423,588
- -----------------
- -----------------
Net asset value, offering price and redemption price per
share ($214,423,588 / 214,423,588 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 JERSEY MONEY MARKET SERIES
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income February 28,
1999
<S> <C>
Income
Interest and discount earned............ $ 3,317,320
--------------
- ---
Expenses
Management fee.......................... 512,171
Distribution fee........................ 128,043
Transfer agent's fees and expenses...... 36,000
Custodian's fees and expenses........... 28,000
Reports to shareholders................. 15,000
Registration fees....................... 6,000
Legal fees.............................. 4,000
Audit fee and expenses.................. 4,000
Trustees' fees.......................... 2,000
Miscellaneous........................... 1,591
--------------
- ---
Total expenses....................... 736,805
Less: Custodian fee credit (Note 1).....
(8,954)
--------------
- ---
Net expenses......................... 727,851
--------------
- ---
Net investment income...................... 2,589,469
--------------
- ---
Net Increase in Net Assets
Resulting from Operations.................. $ 2,589,469
--------------
- ---
--------------
- ---
</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 1999 1998
<S> <C> <C>
Operations
Net investment income.......... $ 2,589,469 $
5,610,096
Net realized gain on investment
transactions................ --
6,532
------------ --------
- ----
Net increase in net assets
resulting from operations... 2,589,469
5,616,628
------------ --------
- ----
Dividends and distributions to
shareholders (Note 1).......... (2,589,469)
(5,616,628)
------------ --------
- ----
Series share transactions
(at $1 per share)
Net proceeds from shares
subscribed.................. 361,419,141
698,322,054
Net asset value of shares
issued in reinvestment of
dividends................... 2,569,987
5,490,086
Cost of shares reacquired...... (350,480,408)
(702,369,007)
------------ --------
- ----
Net increase in net assets from
Series share transactions... 13,508,720
1,443,133
------------ --------
- ----
Total increase.................... 13,508,720
1,443,133
Net Assets
Beginning of period............... 200,914,868
199,471,735
------------ --------
- ----
End of period..................... $214,423,588
$200,914,868
------------ --------
- ----
------------ --------
- ----
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 7
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements
(Unaudited) NEW JERSEY MONEY
MARKET SERIES
- ------------------------------------------------------------
- --------------------
Prudential Municipal Series Fund (the 'Fund') is registered
under the Investment
Company Act of 1940 as an open-end management 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 New Jersey Money Market Series (the
'Series') commenced
investment operations on December 3, 1990. The Series is
nondiversified 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, 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
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 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 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 Series had a distribution agreement with Prudential
Investment Management
Services LLC ('PIMS') which acts as distributor of the
Series shares. The Series
compensates PIMS 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.
PIFM, PIMS 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 PIFM,
serves as the Fund's transfer agent. During the six months
ended February 28,
1999, the Series incurred fees of approximately $29,000 for
the services of
PMFS. As of February 28, 1999, approximately $4,800 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 nonaffiliates.
- ------------------------------------------------------------
- --------------------
8
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) NEW JERSEY MONEY
MARKET SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended August 31,
February 28, ----------------------------------
1999 1998 1997 1996
- ------------ -------- -------- --------
<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(a).................... .01 .03
.03 .03
Dividends and
distributions........................................
(.01) (.03) (.03) (.03)
- ------------ -------- -------- --------
Net asset value, end of
period..................................... $ 1.00
$ 1.00 $ 1.00 $ 1.00
- ------------ -------- -------- --------
- ------------ -------- -------- --------
TOTAL
RETURN(b):..................................................
. 1.28% 2.87% 2.82% 2.92%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).................................... $214,424
$200,915 $199,472 $181,396
Average net assets
(000)...........................................
$206,566 $198,647 $196,223 $192,617
Ratios to average net assets(a):
Expenses, including distribution
fee............................ .71%(c) .73%
.73% .70%
Expenses, excluding distribution
fee............................ .58%(c) .60%
.60% .57%
Net investment
income...........................................
2.54%(c) 2.82% 2.78% 2.89%
<CAPTION>
1995 1994
- -------- --------
<S>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................... $ 1.00 $ 1.00
Net investment income and net realized
gains(a).................... .03 .02
Dividends and
distributions........................................
(.03) (.02)
- -------- --------
Net asset value, end of
period..................................... $ 1.00 $
1.00
- -------- --------
- -------- --------
TOTAL
RETURN(b):..................................................
. 3.15% 1.90%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).................................... $182,453
$158,280
Average net assets
(000)........................................... $171,223
$169,123
Ratios to average net assets(a):
Expenses, including distribution
fee............................ .64% .68%
Expenses, excluding distribution
fee............................ .51% .55%
Net investment
income........................................... 3.11%
1.87%
</TABLE>
- ---------------
(a) Net of custodian fee credit.
(b) Total return includes reinvestment of dividends and
distributions.
(c) Annualized.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 9
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
Some mutual fund shareholders won't ever read this -- they
don't read annual and semi-annual reports. It's quite
understandable. These annual and semi-annual reports are
prepared to comply with Federal regulations. They are often
written in language that is difficult to understand. So when
most people run into those particularly daunting sections of
these reports, they don't read them.
We think that's a mistake.
At Prudential Mutual Funds, we've made some changes to our
report to make it easier to understand and more pleasant to
read, in hopes you'll find it profitable to spend a few
minutes familiarizing yourself with your investment. Here's
what you'll
find in the report:
At A Glance
Since an investment's performance is often a shareholder's
primary
concern, we present performance information in two different
formats. You'll find it first on the "At A Glance" page
where
we compare the Fund and the comparable average calculated
by Lipper Analytical Services, a nationally recognized
mutual
fund rating agency. We report both the cumulative total
returns
and the average annual total returns. The cumulative total
return is the total amount of income and appreciation the
Fund
has achieved in various time periods. The average annual
total
return is an annualized representation of the Fund's
performance -- it generally smoothes out returns and gives
you an idea how much the Fund has earned in an average year,
for a given time period. Under the performance box, you'll
see
legends that explain the performance information, whether
fees
and sales charges have been included in returns, and the
inception dates for the Fund's share classes.
See the performance comparison charts at the back of the
report for more performance information. And keep in mind
that past perfor-mance is not indicative of future results.
Portfolio Manager's Report
The portfolio manager who invests your money for you reports
on
successful -- and not-so-successful -- strategies in this
section
of your report. Look for recent purchases and sales here, as
well
as information about the sectors the portfolio manager
favors and
any changes that are on the drawing board.
Portfolio Of Investments
This is where the report begins to look technical, but it's
really
just a listing of each security held at the end of the
reporting
period, along with valuations and other information. Please
note
that sometimes we discuss a security in the Portfolio
Manager's
Report that doesn't appear in this listing because it was
sold
before the close of the reporting period.
<PAGE>
Statement Of Assets And Liabilities
The balance sheet shows the assets (the value of the Fund's
holdings), liabilities (how much the Fund owes) and net
assets
(the Fund's equity, or holdings after the Fund pays its
debts)
as of the end of the reporting period. It also shows how we
calculate the net asset value per share for each class of
shares.
The net asset value is reduced by payment of your dividend,
capital gain, or other distribution, but remember that the
money or new shares are being paid or issued to you. The net
asset value fluctuates daily along with the value of every
security in the portfolio.
Statement Of Operations
This is the income statement, which details income (mostly
interest and dividends earned) and expenses (including what
you pay us to manage your money). You'll also see capital
gains here -- both realized and unrealized.
Statement Of Changes In Net Assets
This schedule shows how income and expenses translate into
changes in net assets. The Fund is required to pay out the
bulk of its income to shareholders every year, and this
statement shows you how we do it -- through dividends
and distributions -- and how that affects the net assets.
This statement also shows how money from investors flowed
into and out of the Fund.
Notes To Financial Statements
This is the kind of technical material that can intimidate
readers, but it does contain useful information. The Notes
provide a brief history and explanation of your Fund's
objectives. In addition, they also outline how Prudential
Mutual Funds prices securities. The Notes also explain who
manages and distributes the Fund's shares, and more
importantly, how much they are paid for doing so. Finally,
the Notes explain how many shares are outstanding and the
number issued and redeemed over the period.
Financial Highlights
This information contains many elements from prior pages,
but on a per share basis. It is designed to help you
understand
how the Fund performed and to compare this year's
performance
and expenses to those of prior years.
Independent Auditor's Report
Once a year, an outside auditor looks over our books and
certifies
that the information is fairly presented and complies with
generally
accepted accounting principles.
Tax Information
This is information which we report annually about how much
of your
total return is taxable. Should you have any questions, you
may
want to consult a tax advisor.
Performance Comparison
These charts are included in the annual report and are
required
by the Securities Exchange Commission. Performance is
presented
here as a hypothetical $10,000 investment in the Fund since
its
inception or for 10 years (whichever is shorter). To help
you put that return in context, we are required to include
the
performance of an unmanaged, broad based securities index,
as
well. The index does not reflect the cost of buying the
securities
it contains or the cost of managing a mutual fund. Of
course, the index holdings do not mirror those of the fund -
- - the
index is a broadly based reference point commonly used by
investors
to measure how well they are doing. A definition of the
selected
index is also provided. Investors generally cannot
invest directly in an index.
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
How many times have you read these letters -- or other
financial
materials -- and stumbled across a word that you don't
understand?
Many shareholders have run into the same problem. We'd like
to
help. So we'll use this space from time to time to explain
some
of the words you might have read, but not understood. And if
you
have a favorite word that no one can explain to your
satisfaction, please write to us.
Basis Point: 1/100th of 1%. For example, one-half of one
percent
is 50 basis points.
Collateralized Mortgage Obligations (CMOs): Mortgage-backed
bonds
that separate mortgage pools into different maturity
classes,
called tranches. These instruments are sensitive to changes
in
interest rates and homeowner refinancing activity. They
are subject to prepayment and maturity extension risk.
Derivatives: Securities that derive their value from other
securities. The rate of return of these financial
instruments
rises and falls -- sometimes very suddenly -- in response to
changes in some specific interest rate, currency, stock, or
other
variable.
Discount Rate: The interest rate charged by the Federal
Reserve
on loans to member banks.
Federal Funds Rate: The interest rate charged by one bank to
another on overnight loans.
Futures Contract: An agreement to purchase or sell a
specific
amount of a commodity or financial instrument at a set price
at a specified date in the future.
Leverage: The use of borrowed assets to enhance return. The
expectation is that the interest rate charged on borrowed
funds will be lower than the return on the investment. While
leverage can increase profits, it can also magnify losses.
Liquidity: The ease with which a financial instrument (or
product) can be bought or sold (converted into cash) in the
financial markets.
Price/Earnings Ratio: The price of a share of stock divided
by
the earnings per share for a 12-month period.
Option: An agreement to purchase or sell something, such as
shares of stock, by a certain time for a specified price. An
option need not be exercised.
Spread: The difference between two values; often used to
describe
the difference between "bid" and "asked" prices of a
security,
or between the yields of two similar maturity bonds.
Yankee Bond: A bond sold by a foreign company or government
in
the U.S. market and denominated in U.S. dollars.
<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
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Louis A. Weil, III
Officers
Robert F. Gunia, President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
Deborah A. Docs, Secretary
David F. Connor, 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 Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
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
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Swidler Berlin Shereff Friedman, 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,
1999
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
74435M762 MF147E2
(ICON)
Prudential
Municipal
Series Fund
- -------------------
New York Series
SEMI
ANNUAL
REPORT
Feb. 28, 1999
(LOGO)
<PAGE>
Prudential Municipal Series Fund
New York Series
Performance At A Glance.
During the six months ended February 28, 1999, municipal
bonds initially
rallied on the coattails of U.S. Treasuries, which gained as
concern
about a global financial crisis boosted demand for the
federal
government securities. Later when prices of Treasuries fell,
municipal bonds also partially erased their early price
increases. Your Prudential Municipal Series Fund--New York
Series beat the Lipper average, helped by its New York City
general obligation bonds.
<TABLE>
Cumulative Total Returns1 As
of 2/28/99
<CAPTION>
Six One Five Ten
Since
Months Year Years
Years Inception2
<S> <C> <C> <C> <C>
<C>
Class A 2.17% 5.52% 33.74% (33.52)
N/A 95.28% (94.96)
Class B 2.07 5.21 31.24 (31.03) 100.82%
(100.49) 207.33 (206.82)
Class C 1.94 4.95 N/A
N/A 32.83 (32.62)
Class Z 2.24 5.65 N/A
N/A 16.84
Lipper NY Muni
Debt Fund Avg.3 1.91 5.22 31.48
108.10 ***
</TABLE>
<TABLE>
Average Annual Total Returns1
As of 3/31/99
<CAPTION>
One Five Ten
Since
Year Years Years
Inception2
<S> <C> <C> <C>
<C>
Class A 2.42% 6.16% (6.12) N/A
7.18% (7.16)
Class B 0.20 6.25 (6.22) 7.22% (7.21)
8.01 (8.00)
Class C 2.89 N/A N/A
5.99 (5.95)
Class Z 5.81 N/A N/A
6.90
</TABLE>
<TABLE>
Distributions & Yields As
of 2/28/99
<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 $0.40 3.56% 6.04%
6.40%
Class B $0.38 3.42 5.80
6.15
Class C $0.37 3.14 5.33
5.64
Class Z $0.41 3.92 6.65
7.04
</TABLE>
Past performance is not indicative of future results.
Principal and
investment return will fluctuate so that an investor's
shares, when
redeemed, may be worth more or less than their original
cost.
1 Source: Prudential Investments Fund Management and Lipper,
Inc. The
cumulative total returns do not take into account sales
charges.
The average annual total returns do take into account
applicable
sales charges. The Series charges a maximum front-end sales
charge
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 B shares will automatically convert to Class
A
shares, on a quarterly basis, approximately seven years
after
purchase. Class C shares are subject to a front-end sales
charge
of 1% and a CDSC of 1% for 18 months. Class C shares bought
before November 2, 1998 have a 1% CDSC if sold within one
year.
Class Z shares are not subject to a sales charge or
distribution
fee. 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 ( ).
2 Inception dates: Class A, 1/22/90; Class B, 9/13/84; Class
C, 8/1/94; and Class Z, 12/6/96.
3 Lipper average returns are for all funds in each share
class
for the six-month, one-, five-, and ten-year periods in the
New
York Municipal Debt Fund category.
4 Taxable equivalent yields reflect federal and applicable
state
tax rates.
***Lipper Since Inception returns are 93.64% for Class A;
230.82%
for Class B; 34.96% for Class C; and 15.16% for Class Z
based on
all funds in each share class.
How Investments Compared.
(As of 2/28/99)
(GRAPH)
Source: Lipper, Inc. 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.
*19 years for U.S. Tax-Exempt Money Funds.
<PAGE>
Christian Smith, Fund Manager (PHOTO)
Portfolio
Manager's Report
The Series' investment objective is to maximize current
income that
is exempt from New York state, New York City, and federal
income
taxes, consistent with the preservation of capital. Certain
shareholders may be subject to the federal alternative
minimum tax. There can be no assurance that the Series will
achieve its investment objective.
Strategy Session.
Interest-Rate Outlook.
We expected long-term interest rates to continue to fall
because
the U.S. economic expansion was poised to slow and inflation
to
remain tame after a global financial crisis spread beyond
Asia
in mid-summer of 1998. The overseas turmoil was expected
to temper U.S. economic growth as struggling countries in
Asia
and Latin America purchased fewer goods and services from
the
United States.
Because of our outlook for lower long-term rates, we
maintained
a longer-than-average duration, which is a measure of the
Series'
sensitivity to interest-rate fluctuations. A longer duration
would enable the Series' shares to gain more rapidly if
interest rates continued to fall and municipal bond prices
rose. In order to sustain a longer duration, the Series
remained heavily invested in noncallable bonds, which
averaged approximately 37% of its total investments
throughout the six-month period. Noncallable bonds usually
perform well when debt markets rally since they are free to
appreciate in value without the risk of being retired early.
Some of our noncallable bonds were also zero coupon bonds.
These bonds do not make periodic interest payments, and
typically trade at deep discounts to their price at
maturity. Their prices therefore have plenty of room
to rise when interest rates tumble. The difference
between a zero coupon bond's purchase price and maturity
price
constitutes the return to investors.
We subsequently altered our strategy by shortening the
Series'
duration because long-term interest rates unexpectedly began
to move higher and bond prices fell during the autumn.
Portfolio Composition.
Expressed as a percentage of
total investments as of 2/28/99.
(PIE CHART)
Key Municipal Bond
Index Tumbles.
Municipal bonds did not rally as much as U.S. Treasuries
last
autumn. However, municipal bond prices rose strongly enough
to
drive the Bond Buyer Revenue Bond Index, a weekly average of
long-term municipal bond yields, to 5.09% in early October.
This was the lowest level reached by the Index since its
inception in 1979. Yields fall as prices rise and vice
versa.
<PAGE>
What Went Well.
Munis Rallied, at First.
The Series' long duration helped its shares increase in
value as
municipal bonds rallied in sympathy with U.S. Treasuries
during
September and early October 1998. Prices of Treasuries
soared
as concern about the global financial crisis boosted
demand for the safest government securities. Municipal bonds
did not rally as strongly as Treasuries. Nevertheless,
prices
of municipal bonds gained enough to drive down the Bond
Buyer
Revenue Bond Index (a weekly average of long-term municipal
bond
yields) to 5.09% in early October 1998. This was the lowest
level reached by the Index since its inception in 1979.
The Federal Reserve eased monetary policy three times in the
autumn of 1998 to calm global financial markets and restore
faith in the U.S. economy. (In fact, the economy
unexpectedly
grew at a rapid pace in the fourth quarter of 1998.) As a
result,
concern about the global financial crisis dwindled and
investors sold Treasuries and bought higher-yielding assets
with renewed confidence. Municipal bonds also sold off, but
to a lesser extent than Treasuries. We cut the Series'
duration
to 7.15 years as of February 28, 1999 from 7.59 years as of
October 31, 1998. This move was sufficient to make the
Series
less sensitive to the decline in bond prices and the rise in
interest rates.
Sold on New York City.
There was concern that the credit quality of New York City
general obligation bonds could suffer if a dramatic downturn
on Wall Street hurt the local economy. Despite this talk, we
held on to our New York City general obligation bonds, many
of which have higher coupons that provide the Series with
considerable triple tax-exempt income. As it turned out,
the boom on Wall Street has continued, the New York City
economy remains in good shape, and we are glad we kept
our bonds.
Credit Quality.
Expressed as a percentage of
total investments as of 2/28/99.
(PIE CHART)
Looking Ahead.
In the short run, we feel municipal bond prices will
remain in a trading range because of the U.S. economy's
continued resilience. However, we do not think the rally
in tax-exempt bonds is over. We believe U.S. economic
growth will continue to slow from the torrid pace of
late 1998. Furthermore, we believe that inflation will
remain subdued as global competition helps to keep prices
of goods and services in check. Since the level of interest
rates typically reflects the anticipated rate of
inflation, we expect interest rates to fall and
bond prices to rise amid continued low inflation.
Five Largest Issuers.
14.2% New York City
General Obligation
5.6% New York St. Urban Development
Corp., Sub. Lien Corp.
5.0% New York St.
Urban Dev. Corp.
4.5% New York St.
Local Gov't Assist. Corp.
4.0% Metro Transportation
Authority
Expressed as a percentage of net assets as of 2/28/99.
1
<PAGE>
A Message to Our Shareholders. April
19, 1999
(PHOTO)
Dear Shareholder,
For the last several months, major index advances have been
driven by the stocks of a handful of very large companies.
These stocks are getting more and more expensive, out of
proportion to their earnings expectations. As a result, a
substantial disparity in value has grown between large and
small companies and between growth and value stocks.
Since not all stocks are benefiting from the highly
publicized
euphoria surrounding each record-breaking milestone, it is
unlikely that these trends will continue. In fact, signs
that the tide is turning are starting to emerge. Moreover,
history
shows that markets generally bring prices in line with
earnings performance sooner or later.
Many sectors of the bond market, on the other hand, have
already begun to rebound from last year's global financial
crisis. Furthermore, while bonds have not generated higher
returns than stocks in recent years, they have demonstrated
that they hold up better during market downturns. That's a
thought to keep in mind going forward.
Diversification Is Critical.
What does this suggest? Instead of chasing recent market
winners, investors should have a well-diversified asset
allocation strategy in place and keep to it. It is also
a good practice to rebalance your holdings, when necessary,
to keep your asset allocation consistent with your long-term
objectives and risk tolerance. A properly diversified
portfolio of value- and growth-oriented mutual funds,
bond funds and money market funds could help you weather
inevitable market turbulence and receive
more consistent returns over time. Prudential offers a
wide range of mutual funds to help our shareholders
diversify. We have also designed several balanced and
diversified funds to allow one-decision diversification.
Thank you for your continued confidence in Prudential mutual
funds.
Sincerely,
John R. Strangfeld
Chief Investment Officer
Prudential Investments
2
<PAGE>
Portfolio of Investments as
of February 28, 1999 PRUDENTIAL MUNICIPAL
SERIES FUND
(Unaudited) NEW YORK SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount
Value
Description (a)
Rating Rate Date (000) (Note
1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
LONG-TERM INVESTMENTS--98.0%
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
City of Elmira, Wtr. Impvt., Ser. 96 B, A.M.B.A.C.
Aaa 5.95% 3/01/16 $ 5,395 (e) $
5,859,132
City of New Rochelle Ind. Dev. Agcy.,
Coll. of New Rochelle
Baa2 6.625 7/01/12 500
536,720
Coll. of New Rochelle
Baa2 6.75 7/01/22 2,000
2,146,800
Dutchess Cnty. Res. Rec. Agcy. Rev., Solid Waste Mgmt.,
Ser. A, F.G.I.C.
Aaa 7.50 1/01/09 1,150 (b)
1,214,435
Islip Res. Rec., Ser. B, A.M.B.A.C., A.M.T.
Aaa 7.20 7/01/10 1,745
2,150,486
Jefferson Cnty. Ind. Dev. Agcy., Solid Waste Disp. Rev.,
A.M.T.
Baa1 7.20 12/01/20 1,500
1,631,655
Long Island Pwr. Auth. Ser. A
Aaa 5.50 12/01/13 3,000
3,280,050
Met. Trans. Auth. Facs. Rev.,
Cap. Apprec., Ser. N, F.G.I.C.
Aaa Zero 7/01/13 4,000
2,014,080
Commuter Facs., Ser. A
Baa1 5.25 7/01/28 5,000
5,016,600
Commuter Facs., Ser. A, F.G.I.C.
Aaa 5.60 7/01/09 500
546,865
Commuter Facs., Ser. A, F.G.I.C.
Aaa 5.70 7/01/10 1,000
1,099,970
Trans. Facs. Rev., Ser. A, F.S.A.
Aaa 5.60 7/01/09 2,900
3,171,817
Trans. Facs. Rev., Ser. A, F.S.A.
Aaa 5.70 7/01/10 4,600
5,059,862
Trans. Facs. Rev., Ser. N, F.G.I.C.
Aaa Zero 7/01/12 5,575
2,983,238
Met. Trans. Auth., New York Svc. Contract,
Cap. Apprec., Ser. 7, M.B.I.A.
Aaa Zero 7/01/08 7,185
4,801,089
Commuter Facs., Ser. O
Baa1 5.50 7/01/17 2,500
2,658,100
Trans. Facs. Rev., Ser. O
Baa1 5.75 7/01/13 1,975
2,169,972
New York City Ind. Dev. Agcy.
Laguardia Assoc., Ltd. Partnership Proj.
NR 6.00 11/01/28 2,000
1,970,900
New York City Ind. Dev. Agcy., Spec. Fac. Rev.,
Brooklyn Navy Yard Part., A.M.T.
Baa3 5.75 10/01/36 4,000
4,101,920
U.S.T.A. National Tennis Center Proj., F.S.A.
Aaa 6.375 11/15/14 1,000
1,124,170
Y.M.C.A. Of Greater N.Y. Proj.
Aaa 8.00 8/01/16 1,350 (b)
1,511,419
New York City Mun. Wtr. Fin. Auth., Wtr. & Swr. Sys. Rev.,
Ser. B
A2 5.875 6/15/26 2,000
2,151,520
New York City Trans. Fin. Auth. Rev.,
Future Tax Secd.
Aa3 5.00 8/15/13 500
511,455
Future Tax Secd.
Aa3 5.00 8/15/17 2,000
1,999,960
Future Tax Secd.
Aa3 4.75 5/01/23 3,000
2,858,850
New York City Trust, Cultural Res., American Museum of
Natl. History, Ser. A, M.B.I.A.
Aaa 5.65 4/01/22 2,500
2,649,450
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as
of February 28, 1999 PRUDENTIAL MUNICIPAL
SERIES FUND
(Unaudited) NEW YORK SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount
Value
Description (a)
Rating Rate Date (000) (Note
1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
New York City, Gen. Oblig.,
Ser. A
Aaa 7.75% 3/15/03 $ 3,330 (b) $
3,536,393
Ser. B
A3 7.50 2/01/01 4,000
4,287,440
Ser. D
Aaa 8.00 8/01/03 2,395 (b)
2,682,927
Ser. D
A3 8.00 8/01/03 105
116,683
Ser. D
Aaa 7.70 2/01/09 2,995 (b)
3,371,921
Ser. D
A3 7.70 2/01/09 45
50,217
Ser. F
Aaa 8.20 11/15/03 2,650 (b)
3,013,633
Ser. F
A3 8.20 11/15/03 350
394,527
Ser. G
A3 5.75 10/15/12 7,085
7,702,387
Ser. G
A3 5.875 10/15/14 2,500
2,719,400
Ser. H
A3 6.00 8/01/17 2,400
2,615,496
Ser. I
A3 6.10 4/15/10 2,000
2,222,580
Ser. I
Aaa 6.25 4/15/27 2,885 (b)
3,324,530
Ser. I
A3 6.25 4/15/27 3,115
3,435,004
New York St. Dorm. Auth. Rev.,
Albany Cnty. Airport
Baa1 5.25 4/01/17 3,760
3,781,808
City Univ. Refunding Bonds
Baa1 6.00 7/01/14 6,500
7,364,890
City Univ. Sys. Cons., Ser. D
Baa1 7.00 7/01/09 1,880
2,184,504
Coll. & Univ. Ed., M.B.I.A., A.M.T.
Aaa Zero 7/01/04 2,255
1,825,580
Episcopal Hlth. Svcs., G.N.M.A.
AAA(d) 7.55 8/01/29 3,000
3,139,620
Mental Hlth. Svcs. Facs. Impvt., Ser. B
A3 6.50 8/15/11 3,000
3,508,230
Mental Hlth. Svcs. Facs. Impvt., Ser. B
A3 5.625 2/15/21 2,000
2,108,400
Spec. Act. Sch. Districts, F.G.I.C.
Aaa 7.00 7/01/13 3,050
3,257,186
St. Univ. Edl. Facs., Ser. A
A3 5.25 5/15/15 8,600
8,972,724
Westchester Cnty. Court Facs.
Aa1 Zero 8/01/23 5,500
1,572,230
New York St. Energy Resch. & Dev. Auth. Rev.,
Brooklyn Union Gas Co., Ser. B, M.B.I.A., A.M.T.
Aaa 6.75 2/01/24 2,000
2,187,300
Con. Edison Co., Ser.A, A.M.T.
A1 7.50 1/01/26 4,775
4,972,971
New York St. Environ. Facs. Corp., Poll. Ctrl. Rev.,
Ser. C
Aaa 5.35 7/15/07 2,000
2,171,380
Ser. C
Aaa 5.45 7/15/08 3,090
3,371,005
Ser. C
Aaa 5.55 7/15/09 1,375
1,501,266
Ser. E
Aaa 6.50 6/15/14 965 (b)
1,047,845
Ser. E
Aaa 6.50 6/15/14 35
37,761
New York St. Hsg. Fin. Agcy. Rev., Ser. A,
Multifamily Hsg.
Aa1 7.05 8/15/24 1,000
1,077,730
St. Univ. Constr.
Aaa 8.00 5/01/11 3,600
4,703,184
New York St. Local Gov't. Assist. Corp.,
Ser. C
A3 Zero 4/01/14 11,882
5,629,216
Ser. E
A3 6.00 4/01/14 6,135
6,997,213
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as
of February 28, 1999 PRUDENTIAL MUNICIPAL
SERIES FUND
(Unaudited) NEW YORK SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount
Value
Description (a)
Rating Rate Date (000) (Note
1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
New York St. Med. Care Facs. Fin. Agcy. Rev.,
Mental Hlth. Svcs., Ser. A
Aaa 7.50% 8/15/07 $ 505 (b) $
553,208
Mental Hlth. Svcs., Ser. A
Aa3 7.50 8/15/07 310
337,351
New York Hosp., Ser. A, A.M.B.A.C., F.H.A.
Aaa 6.50 8/15/29 3,000 (b)
3,454,230
New York St. Mtge. Agcy. Rev.,
Homeowner Mtge., Ser. 55
Aa2 5.95 10/01/17 2,000
2,119,400
Homeowner Mtge., Ser. 60, A.M.T.
Aa2 6.00 10/01/22 8,000 (e)
8,500,400
New York St. Mun. Bond Bank Agcy., Spec. Proj. Rev., Ser.
A
A+(d) 6.75 3/15/11 3,000 b)(d)
3,298,740
New York St. Thrwy. Auth.,
Highway & Bridge Trust Fund, Ser. B, F.G.I.C.
Aaa 6.00 4/01/14 2,220 (b)
2,483,137
Svc. Contract Rev., Local Highway & Bridge
Baa1 6.45 4/01/15 1,000 (b)
1,151,180
New York St. Urban Dev. Corp. Rev.,
Correctional Cap. Facs., A.M.B.A.C.
Aaa Zero 1/01/08 10,000
6,827,700
St. Facs.
Baa1 5.75 4/01/11 5,000
5,504,250
St. Facs.
Baa1 5.75 4/01/12 5,750
6,323,390
St. Facs.
Baa1 5.60 4/01/15 2,000
2,154,540
Subordinated Lien Corp.
A2 5.50 7/01/16 10,000
10,422,100
Subordinated Lien Corp.
A2 5.50 7/01/22 5,000
5,161,900
Orange County Ind. Dev. Agcy., The Glen Arden Inc. Proj.
NR 5.70 1/01/28 1,250
1,223,063
Port Auth. of New York & New Jersey, Ser. 70, A.M.T.
A1 7.25 8/01/25 1,000
1,049,160
Puerto Rico Commonwealth,
Gen. Oblig.
Baa1 Zero 7/01/14 2,000
952,840
Gen. Oblig.
Baa1 Zero 7/01/15 1,250
561,137
Gen. Oblig., A.M.B.A.C.
Aaa 7.00 7/01/10 6,500
8,068,970
Pub. Impvt. Rfdg., M.B.I.A.
Aaa 7.00 7/01/10 1,250
1,551,725
Puerto Rico Ind. Tourist Edl. Med. & Envr. Ctrl. Facs.
Fin. Auth., Hosp. Rev., M.B.I.A.
Aaa 5.50 7/01/26 2,500
2,595,750
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
2,417,319
Rensselaer Cnty.,
Cap. Apprec., Ser. A, A.M.B.A.C.
Aaa Zero 6/01/12 2,442
1,308,472
Cap. Apprec., Ser. A, A.M.B.A.C.
Aaa Zero 6/01/13 2,372
1,195,773
Rockland Cnty. Solid Waste Mgmt. Auth., Ser. B,
A.M.B.A.C., A.M.T.
Aaa 5.625 12/15/14 1,585
1,693,842
Scotia Hsg. Auth. Rev., Coburg Village Inc. Proj., Ser. A
NR 6.20 7/01/38 4,000
4,038,560
Suffolk Cty. Ind. Dev. Agcy. Rev., A.M.T.
NR 5.50 1/01/23 2,000
2,006,240
Triborough Bridge & Tunl. Auth. Rev., Ser. A, M.B.I.A.
Aaa 6.00 1/01/10 2,000
2,279,100
Virgin Islands Pub. Fin. Auth. Rev., Matching Fund Loan,
Ser. E
NR 5.875 10/01/18 2,250
2,319,548
Watervliet Hsg. Auth., Sen. Res. Beltrone Lvng. Ctr.
Proj., Ser. A
NR 6.125 6/01/38 4,000
3,999,880
- ------------
Total long-term investments (cost $247,421,721)
$271,658,601
- ------------
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 5
<PAGE>
Portfolio of Investments as
of February 28, 1999 PRUDENTIAL MUNICIPAL
SERIES FUND
(Unaudited) NEW YORK SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount
Value
Description (a)
Rating Rate Date (000) (Note
1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
SHORT-TERM INVESTMENTS--0.9%
New York City Gen. Oblig., Ser. B
A3 8.00% 6/01/99 $ 70 $
70,896
New York St. Energy Resch. & Dev. Auth., F.R.D.D.,
Niagara Mohawk Pwr. Corp., Ser. 85C, F.R.D.D.
P-1 3.25 3/01/99 500
500,000
Niagara Mohawk Pwr. Corp., Ser. 86A, F.R.D.D.
P-1 3.35 3/01/99 100
100,000
Pollution Control Revenue, F.R.D.D.
VMIG1 3.25 3/01/99 1,300
1,300,000
Port Auth. of New York & New Jersey, F.R.D.D.
Ser. 1
VMIG1 3.35 3/01/99 200
200,000
Ser. 4
VMIG1 3.25 3/01/99 300
300,000
- ------------
Total short-term investments (cost $2,469,333)
$ 2,470,896
- ------------
Total Investments--98.9%
(cost $249,891,054; Note 4)
274,129,497
Other assets in excess of liabilities--1.1%
3,006,726
- ------------
Net Assets--100%
$277,136,223
- ------------
- ------------
</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.H.A.--Federal Housing Administration.
F.R.D.D.--Floating Rate (Daily) Demand Note (c).
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) For purposes of amortized cost valuation, the maturity
date of Floating Rate
Demand Notes is considered to be the later of the next
date on which the
security can be redeemed at par, or the next date on
which the rate of
interest is adjusted.
(d) Standard & Poor's Rating.
(e) All or partial principal amount pledged as collateral
for financial futures
contracts and delayed settlement securities.
(f) Represents delayed settlement 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>
PRUDENTIAL
MUNICIPAL SERIES FUND
Statement of Assets and Liabilities
(Unaudited) NEW YORK SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Assets
February 28, 1999
<S>
<C>
Investments, at value (cost
$249,891,054)...............................................
................. $ 274,129,497
Cash........................................................
.............................................
41,049
Interest
receivable..................................................
.................................... 3,463,577
Receivable for Series shares
sold........................................................
................ 200,470
Prepaid expenses and other
assets......................................................
.................. 4,948
- -----------------
Total
assets......................................................
.................................... 277,839,541
- -----------------
Liabilities
Payable for Series shares
reacquired..................................................
................... 273,391
Dividends
payable.....................................................
................................... 113,796
Accrued
expenses....................................................
..................................... 110,953
Management fee
payable.....................................................
.............................. 106,385
Distribution fee
payable.....................................................
............................ 71,195
Due to broker - variation
margin......................................................
................... 23,125
Deferred trustee's
fees........................................................
.......................... 4,473
- -----------------
Total
liabilities.................................................
.................................... 703,318
- -----------------
Net
Assets......................................................
......................................... $
277,136,223
- -----------------
- -----------------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
........ $ 227,860
Paid-in capital in excess of
par.........................................................
............. 252,940,511
- -----------------
253,168,371
Distribution in excess of net realized gain on
investments............................................
(256,091)
Net unrealized appreciation on
investments.................................................
........... 24,223,943
- -----------------
Net assets, February 28,
1999........................................................
.................... $ 277,136,223
- -----------------
- -----------------
Class A:
Net asset value and redemption price per share
($183,963,570 / 15,126,947 shares of beneficial
interest issued and outstanding)...................
$12.16
Maximum sales charge (3% of offering
price)......................................................
..... .38
- -----------------
Maximum offering price to
public......................................................
................ $12.54
- -----------------
- -----------------
Class B:
Net asset value, offering price and redemption price per
share
($90,957,048 / 7,476,940 shares of beneficial interest
issued and outstanding).....................
$12.17
- -----------------
- -----------------
Class C:
Net asset value and redemption price per share
($1,618,439 / 133,036 shares of beneficial interest
issued and outstanding)........................
$12.17
Sales charge (1% of offering
price)......................................................
............. .12
- -----------------
Offering price to
public......................................................
........................ $12.29
- -----------------
- -----------------
Class Z:
Net asset value, offering price and redemption price per
share
($597,166 / 49,053 shares of beneficial interest
issued and outstanding)...........................
$12.17
- -----------------
- -----------------
</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,
1999
<S> <C>
Income
Interest.................................. $
7,645,817
------------
- -----
Expenses
Management fee............................
688,801
Distribution fee--Class A.................
134,626
Distribution fee--Class B.................
233,214
Distribution fee--Class C.................
5,095
Transfer agent's fees and expenses........
64,000
Custodian's fees and expenses.............
46,000
Reports to shareholders...................
25,000
Registration fees.........................
17,000
Audit fees and expenses...................
5,000
Legal fees and expenses...................
2,500
Trustees' fees............................
1,700
Miscellaneous expense.....................
3,327
------------
- -----
Total expenses.........................
1,226,263
------------
- -----
Net investment income........................
6,419,554
------------
- -----
Realized and Unrealized Gain (Loss)
on Investments
Net realized gain (loss) on:
Investment transactions...................
231,430
Financial futures transactions............
(94,181)
------------
- -----
137,249
------------
- -----
Net change in unrealized appreciation
(depreciation) on:
Investments...............................
(694,007)
Financial futures contracts...............
(113,875)
------------
- -----
(807,882)
------------
- -----
Net loss on investments......................
(670,633)
------------
- -----
Net Increase in Net Assets Resulting from
Operations................................... $
5,748,921
------------
- -----
------------
- -----
</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 1999
1998
<S> <C> <C>
Operations
Net investment income........ $ 6,419,554 $
13,397,105
Net realized gain on
investment transactions... 137,249
2,324,971
Net change in unrealized
appreciation
(depreciation) of
investments............... (807,882)
7,300,759
----------------- -----
- -------
Net increase in net assets
resulting from
operations................ 5,748,921
23,022,835
----------------- -----
- -------
Dividends and distributions (Note 1):
Dividends from net investment income
Class A................... (4,312,621)
(8,602,581)
Class B................... (2,065,237)
(4,742,947)
Class C................... (28,472)
(41,511)
Class Z................... (13,224)
(10,066)
----------------- -----
- -------
(6,419,554)
(13,397,105)
----------------- -----
- -------
Distributions in excess of
net investment income
Class A................... --
(87,902)
Class B................... --
(53,544)
Class C................... --
(428)
Class Z................... --
(33)
----------------- -----
- -------
--
(141,907)
----------------- -----
- -------
Distributions from net realized gains
Class A................... (1,608,536)
(720,509)
Class B................... (805,965)
(438,881)
Class C................... (12,368)
(3,511)
Class Z................... (4,828)
(274)
----------------- -----
- -------
(2,431,697)
(1,163,175)
----------------- -----
- -------
Series share transactions (net
of share conversions) (Note
5):
Net proceeds from shares
sold...................... 14,397,886
16,534,022
Net asset value of shares
issued in reinvestment of
dividends and
distributions............. 5,601,836
8,971,237
Cost of shares reacquired.... (17,915,487)
(41,609,077)
----------------- -----
- -------
Net increase (decrease) in
net assets from Series
share transactions........ 2,084,235
(16,103,818)
----------------- -----
- -------
Total decrease.................. (1,018,095)
(7,783,170)
Net Assets
Beginning of period............. 278,154,318
285,937,488
----------------- -----
- -------
End of period................... $ 277,136,223
$278,154,318
----------------- -----
- -------
----------------- -----
- -------
</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 11 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 its
investment objective is to
maximize current income that is exempt from New York State,
New York City and
federal income taxes consistent with the preservation of
capital, and in
conjunction therewith, the Series may invest in debt
securities with the
potential for capital gain. The Series seeks to achieve the
objective by
investing primarily in New York State, municipal and local
government
obligations and obligations of other qualifying issuers. 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 accretes
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.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential
Investments Fund Management
LLC ('PIFM'). Pursuant to this agreement, PIFM has
- ------------------------------------------------------------
- --------------------
9
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements
(Unaudited) NEW YORK SERIES
- ------------------------------------------------------------
- --------------------
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 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 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
Investment Management
Services ('PIMS'), which acts as the distributor of the
Class A, Class B, Class
C and Class Z shares of the Fund. The Fund compensates PIMS
for distributing and
servicing the Fund's Class A, Class B and Class C shares,
pursuant to a plan 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 PIMS as
distributor of the Class Z
shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensates
PIMS for
distribution-related activities at an annual rate of up to
.30 of 1%, .50 of 1%
and 1% of the average daily net assets of the Class A, B and
C shares,
respectively. Effective January 1, 1999 such expenses for
the Series were .25 of
1%, .50 of 1% and .75 of 1% of the average daily net assets
of the Class A, B
and C respectively. Prior to January 1, 1999, 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.
PIMS has advised the Series that they received approximately
$17,300 in
front-end sales charges resulting from sales of Class A and
after November 2,
1998 Class C shares during the six months ended February 28,
1999. From these
fees, PIMS paid such sales charges to affiliated broker-
dealers, which in turn
paid commissions to salespersons and incurred other
distribution costs.
PIMS has advised the Series that for the six months ended
February 28, 1999,
they received approximately $48,000 and $600 in contingent
deferred sales
charges imposed upon certain redemptions by Class B and C
shareholders,
respectively.
PIFM, PIMS 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')
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 did not borrow any amounts pursuant
to the Agreement
during the six months ended February 28, 1999. 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 February 28, 1999 and has been
extended through March
12, 1999 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,
1999, the Series incurred fees of approximately $51,000 for
the services of
PMFS. As of February 28, 1999, 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 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, 1999 were
$10,231,126 and
$15,059,436, respectively.
The cost basis of investments for federal income tax
purposes at February 28,
1999 was substantially the same as for financial reporting
purposes and
accordingly, net unrealized appreciation on investments for
federal income tax
purposes was $24,238,443 (gross unrealized appreciation--
$24,348,930, gross
unrealized depreciation--$110,487).
During the six months ended February 28, 1999, the Series
entered into financial
futures contracts. Details of open contracts at February 28,
1999 are as
follows:
<TABLE>
<CAPTION>
Value at
Value at
Number of Expiration February 28,
Trade Unrealized
Contracts Type Date 1999
Date Depreciation
- -------------- ------------ ---------- ------------
- ---------- --------------
<S> <C> <C> <C>
<C> <C>
Short Positions:
Muni Bond
17 Future March 1999 $2,118,625
$2,112,250 $ (6,375)
Muni Bond
20 Future March 1999 2,492,500
2,484,375 (8,125)
- --------------
$ (14,500)
- --------------
- --------------
</TABLE>
- ------------------------------------------------------------
- --------------------
10
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements
(Unaudited) NEW YORK SERIES
- ------------------------------------------------------------
- --------------------
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 front-end
sales charge of 1% and a contingent deferred sales charge of
1% during the first
18 months. Prior to November 2, 1998, Class C shares were
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
qualify to purchase Class A shares at net asset value. 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 were as
follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- ----------------------------------- ----------- --------
- ----
<S> <C> <C>
Six months ended February 28, 1999:
Shares sold........................ 696,127 $
8,553,107
Shares issued in reinvestment of
dividends and distributions...... 312,878
3,829,626
Shares reacquired.................. (670,965)
(8,243,455)
----------- --------
- ----
Net increase in shares outstanding
before conversion................ 338,040
4,139,278
Shares issued upon conversion from
Class B.......................... 433,529
5,345,076
----------- --------
- ----
Net increase in shares
outstanding...................... 771,569 $
9,484,353
----------- --------
- ----
----------- --------
- ----
Year ended August 31, 1998:
Shares sold........................ 439,455 $
5,329,691
Shares issued in reinvestment of
dividends and distributions...... 483,685
5,858,242
Shares reacquired.................. (1,885,411)
(22,838,785)
----------- --------
- ----
Net decrease in shares outstanding
before conversion................ (962,271)
(11,650,852)
Shares issued upon conversion from
Class B.......................... 874,211
10,587,013
----------- --------
- ----
Net decrease in shares
outstanding...................... (88,060) $
(1,063,839)
----------- --------
- ----
----------- --------
- ----
<CAPTION>
Class B Shares
Amount
- ----------------------------------- ----------- --------
- ----
<S> <C> <C>
Six months ended February 28, 1999:
Shares sold........................ 427,558 $
5,262,348
Shares issued in reinvestment of
dividends and distributions...... 140,940
1,725,914
Shares reacquired.................. (772,125)
(9,506,791)
----------- --------
- ----
Net decrease in shares outstanding
before conversion................ (203,627)
(2,518,529)
Shares reacquired upon conversion
into
Class A.......................... (433,383)
(5,345,075)
----------- --------
- ----
Net decrease in shares
outstanding...................... (637,010) $
(7,863,604)
----------- --------
- ----
----------- --------
- ----
Year ended August 31, 1998:
Shares sold........................ 821,187 $
9,961,080
Shares issued in reinvestment of
dividends and distributions...... 253,115
3,066,564
Shares reacquired.................. (1,518,526)
(18,407,575)
----------- --------
- ----
Net decrease in shares outstanding
before conversion................ (444,224)
(5,379,931)
Shares reacquired upon conversion
into
Class A.......................... (873,853)
(10,587,013)
----------- --------
- ----
Net decrease in shares
outstanding...................... (1,318,077)
$(15,966,944)
----------- --------
- ----
----------- --------
- ----
<CAPTION>
Class C
- -----------------------------------
<S> <C> <C>
Six months ended February 28, 1999:
Shares sold........................ 34,238 $
419,896
Shares issued in reinvestment of
dividends and distributions...... 2,990
36,612
Shares reacquired.................. (8,187)
(100,298)
----------- --------
- ----
Net increase in shares
outstanding...................... 29,041 $
356,210
----------- --------
- ----
----------- --------
- ----
Year ended August 31, 1998:
Shares sold........................ 63,757 $
772,337
Shares issued in reinvestment of
dividends and distributions...... 3,337
40,442
Shares reacquired.................. (28,392)
(345,599)
----------- --------
- ----
Net increase in shares
outstanding...................... 38,702 $
467,180
----------- --------
- ----
----------- --------
- ----
<CAPTION>
Class Z
- -----------------------------------
<S> <C> <C>
Six months ended February 28, 1999:
Shares sold........................ 13,234 $
162,535
Shares issued in reinvestment of
dividends and distributions...... 790
9,684
Shares reacquired.................. (5,321)
(64,943)
----------- --------
- ----
Net increase in shares
outstanding...................... 8,703 $
107,276
----------- --------
- ----
----------- --------
- ----
Year ended August 31, 1998:
Shares sold........................ 38,915 $
470,914
Shares issued in reinvestment of
dividends and distributions...... 493
5,989
Shares reacquired.................. (1,413)
(17,118)
----------- --------
- ----
Net increase in shares
outstanding...................... 37,995 $
459,785
----------- --------
- ----
----------- --------
- ----
</TABLE>
- ------------------------------------------------------------
- --------------------
11
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) NEW YORK SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class A
--
- ------------------------------------------------------------
- --
<S>
<C> <C> <C> <C> <C>
Six Months
Ended Year Ended August 31,
February 28, -------------------------------------------
- ----
1999 1998 1997 1996 1995
--
- ---------- -------- -------- -------- ------
- --
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...................
$ 12.30 $ 11.94 $ 11.77 $ 11.91 $
11.71
--
- ---------- -------- -------- -------- ------
- --
Income from investment operations
Net investment income..................................
.29 .60 .61(a) .63(a) .66(a)
Net realized and unrealized gain (loss) on investment
transactions........................................
(.03) .42 .43 (.09) .20
--
- ---------- -------- -------- -------- ------
- --
Total from investment operations....................
.26 1.02 1.04 .54 .86
--
- ---------- -------- -------- -------- ------
- --
Less distributions
Dividends from net investment income...................
(.29) (.60) (.61) (.63) (.66)
Distributions in excess of net investment income.......
- -- (.01) --(c) -- --
Distributions from net realized gains..................
(.11) (.05) (.26) (.05) --
--
- ---------- -------- -------- -------- ------
- --
Total distributions.................................
(.40) (.66) (.87) (.68) (.66)
--
- ---------- -------- -------- -------- ------
- --
Net asset value, end of period.........................
$ 12.16 $ 12.30 $ 11.94 $ 11.77 $
11.91
--
- ---------- -------- -------- -------- ------
- --
--
- ---------- -------- -------- -------- ------
- --
TOTAL RETURN(b):.......................................
2.17% 8.71% 9.19% 4.53% 7.70%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........................
$183,964 $176,555 $172,471 $168,037
$163,025
Average net assets (000)...............................
$181,836 $174,485 $173,963 $168,291 $
95,024
Ratios to average net assets:
Expenses, including distribution fees...............
.77%(d) .73% .68%(a) .68%(a)
.69%(a)
Expenses, excluding distribution fees...............
.62%(d) .63% .58%(a) .58%(a)
.59%(a)
Net investment income...............................
4.80%(d) 4.93% 5.15%(a) 5.24%(a)
5.65%(a)
For Class A, B, C and Z shares:
Portfolio turnover rate.............................
4% 33% 43% 92% 57%
<CAPTION>
<S>
<C>
1994
---
- ----
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................... $
12.54
---
- ----
Income from investment operations
Net investment income..................................
.67
Net realized and unrealized gain (loss) on investment
transactions........................................
(.83)
---
- ----
Total from investment operations....................
(.16)
---
- ----
Less distributions
Dividends from net investment income...................
(.67)
Distributions in excess of net investment income....... -
- -
Distributions from net realized gains.................. -
- -
---
- ----
Total distributions.................................
(.67)
---
- ----
Net asset value, end of period......................... $
11.71
---
- ----
---
- ----
TOTAL RETURN(b):.......................................
(1.38)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........................
$13,661
Average net assets (000)...............................
$13,454
Ratios to average net assets:
Expenses, including distribution fees...............
.74%
Expenses, excluding distribution fees...............
.64%
Net investment income...............................
5.46%
For Class A, B, C and Z shares:
Portfolio turnover rate.............................
49%
</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. 12
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) NEW YORK SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class B
--
- ------------------------------------------------------------
- --
<S>
<C> <C> <C> <C> <C>
Six Months
Ended Year Ended August 31,
February 28, -------------------------------------------
- ----
1999 1998 1997 1996 1995
--
- ---------- -------- -------- -------- ------
- --
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...................
$ 12.30 $ 11.94 $ 11.77 $ 11.91 $
11.71
--
- ---------- -------- -------- -------- ------
- --
Income from investment operations
Net investment income..................................
.27 .55 .56(a) .58(a) .61(a)
Net realized and unrealized gain (loss) on investment
transactions........................................
(.02) .42 .43 (.09) .20
--
- ---------- -------- -------- -------- ------
- --
Total from investment operations....................
.25 .97 .99 .49 .81
--
- ---------- -------- -------- -------- ------
- --
Less distributions
Dividends from net investment income...................
(.27) (.55) (.56) (.58) (.61)
Distributions in excess of net investment income.......
- -- (.01) --(c) -- --
Distributions from net realized gains..................
(.11) (.05) (.26) (.05) --
--
- ---------- -------- -------- -------- ------
- --
Total distributions.................................
(.38) (.61) (.82) (.63) (.61)
--
- ---------- -------- -------- -------- ------
- --
Net asset value, end of period.........................
$ 12.17 $ 12.30 $ 11.94 $ 11.77 $
11.91
--
- ---------- -------- -------- -------- ------
- --
--
- ---------- -------- -------- -------- ------
- --
TOTAL RETURN(b):.......................................
2.07% 8.28% 8.76% 4.12% 7.27%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........................
$ 90,957 $ 99,823 $112,658 $135,764
$163,013
Average net assets (000)...............................
$ 94,059 $104,653 $122,744 $152,656
$230,033
Ratios to average net assets:
Expenses, including distribution fees...............
1.12%(d) 1.13% 1.08%(a) 1.08%(a)
1.11%(a)
Expenses, excluding distribution fees...............
.62%(d) .63% .58%(a) .58%(a)
.61%(a)
Net investment income...............................
4.45%(d) 4.53% 4.75%(a) 4.84%(a)
5.30%(a)
<CAPTION>
<S>
<C>
1994
---
- -----
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................... $
12.54
---
- -----
Income from investment operations
Net investment income..................................
.62
Net realized and unrealized gain (loss) on investment
transactions........................................
(.83)
---
- -----
Total from investment operations....................
(.21)
---
- -----
Less distributions
Dividends from net investment income...................
(.62)
Distributions in excess of net investment income.......
- --
Distributions from net realized gains..................
- --
---
- -----
Total distributions.................................
(.62)
---
- -----
Net asset value, end of period......................... $
11.71
---
- -----
---
- -----
TOTAL RETURN(b):.......................................
(1.77)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........................
$331,982
Average net assets (000)...............................
$350,564
Ratios to average net assets:
Expenses, including distribution fees...............
1.14%
Expenses, excluding distribution fees...............
.64%
Net investment income...............................
5.06%
</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. 13
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) NEW YORK SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class C
---
- ------------------------------------------------------------
- --------
<S> <C>
<C> <C> <C> <C> <C>
August 1,
Six Months
1994(d)
Ended Year Ended August 31,
Through
February 28, ---------------------------------------
August 31,
1999 1998 1997 1996 1995
1994
- ------ ------ ------ ------ ------
- -----
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................... $
12.30 $11.94 $11.77 $11.91 $11.71
$11.74
- ------ ------ ------ ------ ------
- -----
Income from investment operations
Net investment income..................................
.26 .52 .53(a) .55(a) .58(a)
.04
Net realized and unrealized gain (loss) on investment
transactions........................................
(.02) .42 .43 (.09) .20
(.03)
- ------ ------ ------ ------ ------
- -----
Total from investment operations....................
.24 .94 .96 .46 .78
.01
- ------ ------ ------ ------ ------
- -----
Less distributions
Dividends from net investment income...................
(.26) (.52) (.53) (.55) (.58)
(.04)
Distributions in excess of net investment income.......
- -- (.01) --(c) -- --
- --
Distributions from net realized gains..................
(.11) (.05) (.26) (.05) -- --
- ------ ------ ------ ------ ------
- -----
Total distributions.................................
(.37) (.58) (.79) (.60) (.58)
(.04)
- ------ ------ ------ ------ ------
- -----
Net asset value, end of period......................... $
12.17 $12.30 $11.94 $11.77 $11.91
$11.71
- ------ ------ ------ ------ ------
- -----
- ------ ------ ------ ------ ------
- -----
TOTAL RETURN(b):.......................................
1.94% 8.01% 8.49% 3.86% 7.01%
0.06%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........................ $
1,618 $1,279 $ 780 $ 876 $ 529 $
142
Average net assets (000)............................... $
1,370 $ 969 $ 798 $ 659 $ 325 $
42
Ratios to average net assets:
Expenses, including distribution fees...............
1.37%(f) 1.38% 1.33%(a) 1.33%(a) 1.36%(a)
1.62%(f)
Expenses, excluding distribution fees...............
.62%(f) .63% .58%(a) .58%(a) .61%(a)
.87%(f)
Net investment income...............................
4.20%(f) 4.28% 4.50%(a) 4.59%(a) 5.05%(a)
5.17%(f)
</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) Commencement of offering of Class C shares.
(e) Commencement of offering of Class Z shares.
(f) Annualized.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 14
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) NEW YORK SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class Z
-
- -------------------------------------------
<S>
<C> <C> <C> <C>
December 6,
Six Months Year 1996(e)
Ended Ended Through
February 28, August 31, August 31,
1999 1998 1997
- ------ ----- -----
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period...................
$ 12.31 $11.95 $12.09
- ------ ----- -----
Income from investment operations
Net investment income..................................
.30 .62 .46(a)
Net realized and unrealized gain (loss) on investment
transactions........................................
(.03) .42 .12
- ------ ----- -----
Total from investment operations....................
.27 1.04 .58
- ------ ----- -----
Less distributions
Dividends from net investment income...................
(.30) (.62) (.46)
Distributions in excess of net investment income.......
- -- (.01) --(c)
Distributions from net realized gains..................
(.11) (.05) (.26)
- ------ ----- -----
Total distributions.................................
(.41) (.68) (.72)
- ------ ----- -----
Net asset value, end of period.........................
$ 12.17 $12.31 $11.95
- ------ ----- -----
- ------ ----- -----
TOTAL RETURN(b):.......................................
2.24% 8.81% 5.02%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........................
$ 597 $ 497 $ 28
Average net assets (000)...............................
$ 539 $ 116 $ 11
Ratios to average net assets:
Expenses, including distribution fees...............
.62%(d) .63% .58%(a)/(f)
Expenses, excluding distribution fees...............
.62%(d) .63% .58%(a)/(f)
Net investment income...............................
4.95%(d) 5.03% 5.25%(a)/(f)
</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) Commencement of offering of Class C shares.
(e) Commencement of offering of Class Z shares.
(f) Annualized.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 15
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
When you invest through Prudential Mutual Funds, you receive
financial advice through a Prudential Securities financial
advisor or Prudential/Pruco Securities registered
representative.
Your advisor or representative can provide you with the
following services:
There's No Reward Without Risk; But Is This Risk Worth It?
Your financial advisor or registered representative can help
you match the reward you seek with the risk you can
tolerate.
And risk can be difficult to gauge -- sometimes even the
simplest
investments bear surprising risks. The educated investor
knows
that markets seldom move in just one direction -- there are
times
when a market sector or asset class will lose value or
provide
little in the way of total return. Managing your own
expectations
is easier with help from someone who understands the
markets and who knows you!
Keeping Up With The Joneses.
A financial advisor or registered representative can help
you
wade through the numerous mutual funds available to find the
ones that fit your own individual investment profile and
risk
tolerance. While the newspapers and popular magazines are
full
of advice about investing, they are aimed at generic groups
of
people or representative individuals, not at you personally.
Your financial advisor or registered representative will
review
your investment objectives with you. This means you can make
financial decisions based on the assets and liabilities in
your
current portfolio and your risk tolerance -- not just based
on
the current investment fad.
Buy Low, Sell High.
Buying at the top of a market cycle and selling at the
bottom
are among the most common investor mistakes. But sometimes
it's
difficult to hold on to an investment when it's losing value
every month. Your financial advisor or registered
representative can answer questions when you're confused or
worried about your investment, and remind you that you're
investing for the long haul.
<PAGE>
Prudential Mutual Funds
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
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Louis A. Weil, III
Officers
Robert F. Gunia, President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
Deborah A. Docs, Secretary
David F. Connor, 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 Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
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
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Swidler Berlin Shereff Friedman, 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,
1999
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
74435M747
74435M754 MF122E2
74435M523
74435M440
(ICON)
Prudential
Municipal
Series Fund
- -------------------
New York
Money Market Series
SEMI
ANNUAL
REPORT
Feb. 28, 1999
(LOGO)
<PAGE>
Prudential Municipal Series Fund
New York Money Market Series
Performance At A Glance.
Yields on municipal money market securities fell during the
six
months ended February 28, 1999 because the supply of
securities
declined while demand for them remained strong, and the
Federal
Reserve repeatedly eased monetary policy. Nevertheless, your
Prudential Municipal Series Fund--New York Money Market
Series
provided an attractive level of tax-exempt income. We took
advantage of good buying opportunities in municipal
commercial
paper and attractively priced, longer-term money market
securities.
<TABLE>
<CAPTION>
Fund Facts
As of 2/28/99
7-Day Net Asset
Taxable Equivalent Yield* Weighted Avg. Net Assets
Current Yld. Value (NAV) @31%
@36% @39.6% Mat. (WAM) (Millions)
<S> <C> <C> <C>
<C> <C> <C> <C>
NY Money
Market Series 2.37% $1
3.69% 3.98% 4.21% 49 Days $373
IBC Financial Data
Tax-Free State Specific
(SB & GP-NY) Avg.** 2.29% $1
3.56% 3.84% 4.07% 39 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 not insured or guaranteed by the Federal Deposit
Insurance
Corporation or any other government agency. Although
the Series seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing
in the Series.
* Some investors may be subject to the federal alternative
minimum tax and/or state and local taxes. Taxable equivalent
yields reflect federal and applicable state tax rates.
** International Business Communications (IBC) Financial
Data
reports a seven-day current yield, NAV, and WAM on Mondays.
This is the data of all funds in the IBC Financial Data Tax-
Free
State Specific Average (Stock Broker (SB) & General Purpose
(GP) - New York) category as of March 1, 1999.
Tracking Tax-Free Money Fund Yields.
(GRAPH)
How Investments Compared
(As of 2/28/99)
(GRAPH)
Source: Lipper, Inc. 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; they don't fluctuate much in price but,
historically,
their returns have been generally among the lowest of the
major
investment categories.
*19 years for U.S. Tax-Exempt Money Funds.
<PAGE>
Colleen Meehan, Fund Manager (PHOTO)
Portfolio
Manager's Report
The Prudential Municipal Series Fund--New York Money Market
Series
seeks to provide the maximum current income that is exempt
from
federal, New York state and New York City income taxes,
consistent
with liquidity and the preservation of capital. 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.
The Importance of WAM.
Weighted Average Maturity (WAM) takes into account the
maturity level of each security held by a fund. WAM is
a measurement tool that determines a fund's sensitivity
to changes in interest rates. A lengthened WAM enables a
fund's yield to remain higher for a longer period of time
during declining interest-rate cycles.
Strategy Session.
Coping With a Supply-
Demand Imbalance.
We ideally wanted to invest in a mixture of municipal money
market
securities that would keep the Series' WAM longer than
average
and still provide us with quick access to cash in order to
satisfy shareholder liquidity needs. Extending the WAM would
have allowed the Series' yield to remain higher for a longer
time as tax-exempt money market yields declined.
Municipal money market yields slid as the Federal Reserve
embarked on a series of reductions in the Federal funds
rate,
which is the rate banks charge each other for overnight
loans.
Cutting interest rates stimulates economic growth by
lowering
borrowing costs. Therefore, the three Federal-funds-rate
reductions helped restore faith in the U.S. economy and
calmed financial markets, which had grown increasingly
volatile after a global financial crisis spread beyond
Asia in mid-summer of 1998.
Yields on municipal money market securities also fell
because there was such strong demand for the dwindling
supply of securities. As a result, buying longer-term New
York money market securities that met our high-quality
standards in order to extend the Series' WAM proved to
be very challenging. We thus were able to maintain a
longer-than-average WAM for only a portion of the
six-month period.
This supply-demand imbalance was not confined to New
York, however. Among tax-exempt notes, which mature in
13 months or less, the total dollar volume issued in 1998
was down 25% from 1997, according to Municipal Market Data.
The 1998 tally was the lowest in a decade. Issuance dropped
as some state and local governments preferred to issue
long-term bonds instead of notes in order to lock in
low yields for a longer period of time. Note issuance
also fell as the short-term borrowing needs of
many municipalities declined amid favorable domestic
economic conditions. For example, the boom on Wall
Street continues to bolster the economy of New York
City, which has also benefited from the conservative
budgeting practices of its government.
In light of the shrinking supply of notes, we found
good buying opportunities among New York commercial
paper, which matures in 270 days or less.
<PAGE>
What Went Well.
Year-End Bargains.
In December 1998, some New York municipalities sold tax-
exempt
commercial paper at very attractive yields. Purchasing this
commercial paper lengthened our WAM and helped the Series
weather the period of low yields that usually occurs in
January and early February as investors hurry to reinvest
money received from coupon payments and maturing bonds.
When our commercial paper matured in mid-February 1999,
we reinvested our proceeds in longer-term money market
securities with solid yields that
dramatically extended the Series' WAM.
And Not So Well.
Too Short.
The Series' WAM was shorter than that of its competition for
most of the six-month period. Unfortunately, we were unable
to buy enough longer-term New York money market securities
to maintain a longer-than-average WAM. As you recall, a
longer WAM
would have provided the Series some protection from the
decline in tax-exempt money market yields.
In the autumn of 1998, yields in our market declined in
sympathy with the Federal funds rate. An imbalance in the
supply and demand of municipal money market securities
also drove their yields lower.
Looking Ahead.
We plan to keep the Series' WAM in line with its competition
and increase its liquidity. This strategy allows us quicker
access to cash from mid-April to early May so that we can
satisfy shareholder liquidity needs prompted by their income
tax
payments. Having fast access to cash will also enable us
to take advantage of attractive buying opportunities that
emerge during tax season as other portfolio managers sell
money market securities to meet their shareholder liquidity
needs.
Any higher-yielding purchases made during tax season will
help the Series weather the drop in municipal money market
yields that usually occurs in June and early July. During
this time, municipal note issuance is expected to decline
again due to strong economic growth.
Weighted Average Maturity Compared
To The Average Fund.
(GRAPH)
1
<PAGE>
A Message to Our Shareholders April 19,
1999
(PHOTO)
Dear Shareholder,
For the last several months, major index advances have been
driven
by the stocks of a handful of very large companies. These
stocks
are getting more and more expensive, out of proportion to
their
earnings expectations. As a result, a substantial
disparity in value has grown between large and small
companies
and between growth and value stocks.
Since not all stocks are benefiting from the highly
publicized
euphoria surrounding each record-breaking milestone, it is
unlikely that these trends will continue. In fact, signs
that
the tide is turning are starting to emerge. Moreover,
history
shows that markets generally bring prices in line with
earnings
performance sooner or later.
Many sectors of the bond market, on the other hand, have
already
begun to rebound from last year's global financial crisis.
Furthermore, while bonds have not generated higher returns
than stocks in recent years, they have demonstrated that
they hold
up better during market downturns. That's a thought to keep
in mind going forward.
Diversification Is Critical.
What does this suggest? Instead of chasing recent market
winners,
investors should have a well-diversified asset allocation
strategy
in place and keep to it. It is also a good practice to
rebalance
your holdings, when necessary, to keep your asset
allocation consistent with your long-term objectives and
risk
tolerance. A properly diversified portfolio of value- and
growth-oriented mutual funds, bond funds and money market
funds could help you weather inevitable market turbulence
and receive more consistent returns over time. Prudential
offers a wide range of mutual funds to help our shareholders
diversify. We have also designed several balanced and
diversified funds to allow one-decision diversification.
Thank you for your continued confidence in Prudential mutual
funds.
Sincerely,
John R. Strangfeld
Chief Investment Officer
Prudential Investments
2
<PAGE>
Portfolio of Investments as
of February 28, 1999 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>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Amherst Ind. Dev. Agcy. Rev., Gen. Accident Ins. Co., Ser.
85, S.E.M.O.T.
A-1+(d) 3.05% 5/01/99 $ 3,100 $
3,100,000
Battery Park City Auth. Rev. Bonds,
Ser. 90
Aaa 6.50 5/01/99 2,565 (e)
2,578,629
Ser. 90
Aaa 7.70 5/01/99 7,240
7,440,422
Brentwood Union Free Sch. Dist., Ser. 98, T.A.N.
MIG1 3.755 6/30/99 4,000
4,001,527
Buffalo New York,
Gen. Oblig. School Bond, Ser. 99A
Aaa 3.25 2/01/00 2,788
2,798,525
Gen. Oblig. School Bond, Ser. 99B
Aaa 3.25 2/01/00 1,115
1,119,210
Ser. 98-99A, R.A.N.
MIG1 3.75 7/27/99 3,000
3,008,993
Clinton Cnty. Ind. Dev. Agcy., Champlain Plastics Proj.,
Ser. 98A, F.R.W.D., A.M.T.
NR 3.05 3/03/99 5,000
5,000,000
Copiague Union Free Sch. Dist., T.A.N.
NR 4.00 6/24/99 6,000
6,006,372
Dutchess Cnty. Ind. Dev. Agcy., Marist College Civic
Facility,
Ser. 99A, F.R.W.D.
A-1+(d) 2.70 3/04/99 7,500
7,500,000
Erie Cnty., R.A.N.
MIG1 4.00 10/13/99 4,000
4,024,040
Hempstead Ind. Dev. Agcy. Rev.,
American Refuel - Duke, Ser. 98, F.R.W.D.
A-1(d) 2.75 3/03/99 10,065
10,065,000
Trigen-Nassau Energy, Ser. 98, F.R.W.D., A.M.T.
A-1+(d) 2.65 3/03/99 2,000
2,000,000
Hicksville Union Free Sch. Dist., Ser. 98-99, T.A.N.
NR 3.75 6/23/99 800
800,337
Metropolitan Trans. Auth.,
Commuter Facilities, Ser. 1313, T.E.C.P.
P-1 2.75 7/15/99 5,000
5,000,000
NY Transit Facilities, Ser. A, T.E.C.P.
P-1 2.75 6/15/99 15,000
15,000,000
Monroe Cnty. Ind. Dev. Agcy. Rev.,
Gen. Accident Ins. Co., Ser. 84, S.E.M.O.T.
A-1+(d) 2.95 9/01/99 7,000
7,000,000
Genesee Valley, Ser. 97, F.R.W.D., A.M.T.
VMIG1 2.95 3/04/99 2,900
2,900,000
Nassau Cnty. Gen. Improv., Ser. X
Aaa 5.00 11/01/99 5,765
5,845,283
Nassau Cnty. Ind. Dev. Agcy. Rev., J.C. Solution Inc.
Proj., Ser. 97, F.R.W.D., A.M.T.
NR 3.05 3/03/99 3,380
3,380,000
New York City Fin. Auth. Rev., Future Tax Sec'd. Bonds,
Ser. A2, F.R.W.D.
VMIG1 2.90 3/03/99 5,000
5,000,000
New York City Hsg. Dev. Corp.,
One Columbus Pl., Ser. 98A, F.R.W.D., A.M.T.
A-1+(d) 2.70 3/03/99 15,000
15,000,000
Macombs Pl., Ser. 98A, F.R.W.D., A.M.T.
A-1+(d) 2.80 3/03/99 3,300
3,300,000
Multifamily Mtg., River Ct. Proj., Ser. 97A, F.R.W.D.,
A.M.T.
A-1 2.80 3/03/99 8,100
8,100,000
Multifamily Mtg., Related Bwy., F.R.W.D., A.M.T.
A-1+(d) 2.80 3/03/99 8,200
8,200,000
New York City, Gen. Oblig., T.E.C.P.,
Ser. 94H-3
VMIG1 2.65 3/15/99 5,000
5,000,000
Ser. 94H-5
VMIG1 2.55 4/12/99 6,900
6,900,000
Ser. H4
VMIG1 2.50 4/08/99 2,000
2,000,000
Ser. J2
VMIG1 2.55 3/19/99 6,000
6,000,000
Ser. J3
VMIG1 2.65 3/15/99 5,100
5,100,000
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as
of February 28, 1999 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. Dorm. Auth. Rev., Rockefeller Univ., Ser.
97-C3201, F.R.W.D.S.
A-1+(d) 2.97% 3/04/99 $ 8,850 $
8,850,000
New York St. Energy Res. & Dev. Auth.,
Central Hudson Gas & Elec., Ser. 85A, F.R.W.D.
P-1 2.80 3/04/99 24,250
24,250,000
Citibank Eagle Trust, Ser. 94A, F.R.W.D.S.
A-1(d) 3.02 3/04/99 7,000
7,000,000
Con Edison Proj., Ser. PT219, A.N.N.O.T.S., A.M.T.
A-1+(d) 3.75 4/15/99 5,000
5,000,000
Lilco Proj., Ser. 85A
VMIG1 3.58 3/01/99 1,130
1,130,000
Niagara Mohawk Pwr. Corp., Ser. 85C, F.R.D.D.
P-1 3.25 3/01/99 400
400,000
New York St. Environ. Facs. Corp.,
Ser. 97A, T.E.C.P.
VMIG1 3.05 3/11/99 6,800
6,800,000
Ser. 97A, T.E.C.P.
VMIG1 2.90 6/18/99 4,000
4,000,000
New York St. Hsg. Fin. Agcy. Rev.,
240 East 39th St., Ser. 97A, F.R.W.D., A.M.T.
VMIG1 2.80 3/03/99 8,000
8,000,000
750 Sixth Ave., Ser. A, F.R.W.D., A.M.T.
VMIG1 2.60 3/03/99 5,000
5,000,000
Tribeca Landing Hsg., Ser. A, F.R.W.D., A.M.T.
VMIG1 2.95 3/03/99 10,000
10,000,000
Union Square So. Hsg., Ser. 96A, F.R.W.D., A.M.T.
MIG1 2.80 3/03/99 5,000
5,000,000
New York St. Med. Care Facs. Fin. Agcy. Rev.,
North Gen. Hosp.
Aaa 7.35 8/15/99 2,745
2,844,201
St. Lukes Roosevelt, Ser. 89B
Aaa 7.45 2/15/00 1,325
1,407,818
New York St. Power Auth. Rev.,
S.E.M.M.T.
VMIG1 2.90 9/01/99 7,500
7,500,000
Ser. 2, T.E.C.P.
P-1 2.65 4/01/99 5,000
5,000,000
Ser. 2, T.E.C.P.
P-1 2.60 4/09/99 5,800
5,800,000
New York St. Thruway Auth. Rev., Ser. SGA 66, F.R.W.D.S.
A-1+(d) 3.10 3/03/99 3,845
3,845,000
New York St., Gen. Oblig.,
Ser. 90
A2 6.70 11/15/99 3,200
3,279,235
Ser. 92
A2 7.80 11/15/99 2,230
2,301,867
Ser. U, T.E.C.P.
P-1 3.05 3/02/99 12,000
12,000,000
Niagara Cnty. Ind. Dev. Agcy. Rev., F.R.W.D., A.M.T.,
Solid Waste Disp. Rev., American Refuel Co., Ser. 94C
P-1 2.80 3/03/99 10,800
10,800,000
Solid Waste Disp. Rev., American Refuel Co., Ser. 96D
A-1+(d) 2.80 3/03/99 7,800
7,800,000
Onondaga Cnty. Ind. Dev. Agcy. Rev., Syracuse Research
Corp., Ser. 97A, F.R.W.D.
A-1(d) 3.05 3/04/99 6,220
6,220,000
Oswego Cnty. Ind. Dev. Agcy. Rev., Phillip Morris Co.,
Ser. 92, F.R.W.D.
P-1 3.00 3/03/99 10,000
10,000,000
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as
of February 28, 1999 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>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Port Auth. of New York & New Jersey,
Ser. 4, F.R.D.D., A.M.T.
VMIG1 3.25% 3/01/99 $ 900 $
900,000
Ser. 93-1, F.R.W.D.
NR 3.07 3/02/99 12,000
12,000,000
Ramapo Hsg. Auth. Rev., Fountainview Proj., Ser. 98,
F.R.W.D., A.M.T.
VMIG1 2.99 3/03/99 11,485
11,485,000
Rockland Cnty. Ind. Dev. Agcy., Asstd. Living, Northern
River,
Ser. 99, F.R.W.D.
VMIG1 2.99 3/04/99 5,500
5,500,000
Shenendehowa Central Sch. Dist., Ser. 98, R.A.N.
NR 3.70 6/30/99 5,000
5,000,149
- ------------
Total Investments--97.2%
(cost $362,281,608(b))
362,281,608
Other assets in excess of liabilities--2.8%
10,572,401
- ------------
Net Assets--100%
$372,854,009
- ------------
- ------------
</TABLE>
- ---------------
(a) The following abbreviations are used in portfolio
descriptions:
A.M.T.--Alternative Minimum Tax.
A.N.N.O.T.S.--Annual Optional Tender Synthetic.
F.R.D.D.--Floating Rate (Daily) Demand Note (c).
F.R.W.D.--Floating Rate (Weekly) Demand Note (c).
F.R.W.D.S.--Floating Rate (Weekly) Demand Note Synthetic
(c).
R.A.N.--Revenue Anticipation Note.
S.E.M.M.T.--Semi-Annual Mandatory Tender.
S.E.M.O.T.--Semi-Annual Optional Tender.
T.A.N.--Tax Anticipation Note.
T.E.C.P.--Tax-Exempt Commercial Paper.
(b) The cost of securities for federal income tax purposes
is substantially the
same as for financial reporting purposes.
(c) For purposes of amortized cost valuation, the maturity
date of Floating Rate
Demand Notes is considered to be the later of the next
date on which the
security can be redeemed at par, or the next date on
which the rate of
interest is adjusted.
(d) Standard & Poor's Rating.
(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>
PRUDENTIAL
MUNICIPAL SERIES FUND
Statement of Assets and Liabilities
(Unaudited) NEW YORK MONEY
MARKET SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Assets
February 28, 1999
<S>
<C>
Investments, at amortized cost which approximates market
value........................................... $
362,281,608
Cash........................................................
.............................................
77,604
Receivable for investments
sold........................................................
.................. 22,999,375
Receivable for Series shares
sold........................................................
................ 7,224,141
Interest
receivable..................................................
.................................... 2,095,652
Other
assets......................................................
....................................... 5,455
- -----------------
Total
assets......................................................
.................................... 394,683,835
- -----------------
Liabilities
Payable for investments
purchased...................................................
..................... 17,642,584
Payable for Series shares
reacquired..................................................
................... 3,842,340
Management fee
payable.....................................................
.............................. 143,999
Accrued
expenses....................................................
..................................... 102,442
Dividends
payable.....................................................
................................... 76,002
Distribution fee
payable.....................................................
............................ 17,986
Deferred trustee's
fee.........................................................
.......................... 4,473
- -----------------
Total
liabilities.................................................
.................................... 21,829,826
- -----------------
Net
Assets......................................................
......................................... $
372,854,009
- -----------------
- -----------------
Net assets were comprised of:
Shares of beneficial interest, at $.01 par
value......................................................
$ 3,728,540
Paid-in capital in excess of
par.........................................................
............. 369,125,469
- -----------------
Net assets, February 28,
1999........................................................
.................... $ 372,854,009
- -----------------
- -----------------
Net asset value, offering price and redemption price per
share ($372,854,009 / 372,854,009 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,
1999
<S> <C>
Income
Interest.................................. $
6,249,269
------------
- -----
Expenses
Management fee............................
979,886
Distribution fee..........................
244,971
Transfer agent's fees and expenses........
60,000
Custodian's fees and expenses.............
22,000
Reports to shareholders...................
15,000
Registration fees.........................
10,000
Legal fees and expenses...................
7,000
Audit fee and expenses....................
4,000
Trustees' fees............................
2,000
Miscellaneous.............................
5,616
------------
- -----
Total expenses.........................
1,350,473
Less: custodian fee credit............
(1,610)
------------
- -----
Net expenses...........................
1,348,863
------------
- -----
Net investment income........................
4,900,406
------------
- -----
Net Increase in Net Assets
Resulting from Operations.................... $
4,900,406
------------
- -----
------------
- -----
</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 1999 1998
<S> <C> <C>
Operations
Net investment income..... $ 4,900,406 $
10,824,877
Net realized gain on
investment
transactions........... --
3,750
------------- -----------
- ----
Net increase in net assets
resulting from
operations............. 4,900,406
10,828,627
------------- -----------
- ----
Dividends and distributions
to shareholders........... (4,900,406)
(10,828,627)
------------- -----------
- ----
Series share transactions
(at $1 per share)
Net proceeds from shares
sold................... 586,760,924
1,298,953,146
Net asset value of shares
issued in reinvestment
of dividends and
distributions.......... 4,877,283
10,570,063
Cost of shares
reacquired............. (631,136,651)
(1,255,462,008)
------------- -----------
- ----
Net increase (decrease) in
net assets from Series
share transactions..... (39,498,444)
54,061,201
------------- -----------
- ----
Total increase (decrease).... (39,498,444)
54,061,201
Net Assets
Beginning of period.......... 412,352,453
358,291,252
------------- -----------
- ----
End of period................ $ 372,854,009 $
412,352,453
------------- -----------
- ----
------------- -----------
- ----
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 7
<PAGE>
PRUDENTIAL MUNICIPAL
SERIES FUND
Notes to Financial Statements
(Unaudited) NEW YORK MONEY MARKET
SERIES
- ------------------------------------------------------------
- --------------------
Prudential Municipal Series Fund (the 'Fund') is registered
under the Investment
Company Act of 1940 as an open-end investment company. The
Fund was organized as
a Massachusetts business trust on May 18, 1984 and consists
of eleven 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 13 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
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 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 to 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
Investment Management
Services LLC ('PIMS') which acts as the distributor of the
Fund. The Fund
compensated PIMS for distributing and servicing the Fund's
shares pursuant to
the plans of distribution regardless of expenses actually
incurred by them. The
Series reimburses PIMS 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.
PIFM, PIC and PIMS 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 PIFM,
serves as the Fund's transfer agent. During the six months
ended February 28,
1999, the Series incurred fees of approximately $48,000 for
the services of
PMFS. As of February 28, 1999, 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 nonaffiliates.
- ------------------------------------------------------------
- --------------------
8
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) NEW YORK MONEY
MARKET SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended August 31,
February 28, ----------------------------------
1999 1998 1997 1996
- ------------ -------- -------- --------
<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 .03
Dividends and distributions to
shareholders.............................. (.01)
(.03) (.03) (.03)
- ------------ -------- -------- --------
Net asset value, end of
period........................................... $
1.00 $ 1.00 $ 1.00 $ 1.00
- ------------ -------- -------- --------
- ------------ -------- -------- --------
TOTAL
RETURN(a):..................................................
....... 1.25% 2.94% 2.91%
2.97%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).......................................... $372,854
$412,352 $358,291 $349,470
Average net assets
(000).................................................
$395,203 $373,494 $326,092 $336,427
Ratios to average net assets:
Expenses, including distribution
fee.................................. .69%(b)
.69% .71% .72%
Expenses, excluding distribution
fee.................................. .56%(b)
.57% .58% .60%
Net investment
income.................................................
2.50%(b) 2.90% 2.87% 2.91%
<CAPTION>
1995 1994
- -------- --------
<S>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period..................................... $ 1.00 $
1.00
Net investment income and net realized
gains............................. .03 .02
Dividends and distributions to
shareholders.............................. (.03)
(.02)
- -------- --------
Net asset value, end of
period........................................... $ 1.00
$ 1.00
- -------- --------
- -------- --------
TOTAL
RETURN(a):..................................................
....... 3.06% 1.80%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).......................................... $324,698
$269,073
Average net assets
(000).................................................
$292,763 $280,492
Ratios to average net assets:
Expenses, including distribution
fee.................................. .73%
.77%
Expenses, excluding distribution
fee.................................. .61%
.64%
Net investment
income.................................................
3.02% 1.78%
</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. 9
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
Some mutual fund shareholders won't ever read this -- they
don't read annual and semi-annual reports. It's quite
understandable. These annual and semi-annual reports are
prepared to comply with Federal regulations. They are often
written in language that is difficult to understand. So when
most people run into those particularly daunting sections of
these reports, they don't read them.
We think that's a mistake.
At Prudential Mutual Funds, we've made some changes to our
report to make it easier to understand and more pleasant to
read, in hopes you'll find it profitable to spend a few
minutes familiarizing yourself with your investment. Here's
what you'll
find in the report:
At A Glance
Since an investment's performance is often a shareholder's
primary
concern, we present performance information in two different
formats. You'll find it first on the "At A Glance" page
where
we compare the Fund and the comparable average calculated
by Lipper Analytical Services, a nationally recognized
mutual
fund rating agency. We report both the cumulative total
returns
and the average annual total returns. The cumulative total
return is the total amount of income and appreciation the
Fund
has achieved in various time periods. The average annual
total
return is an annualized representation of the Fund's
performance -- it generally smoothes out returns and gives
you an idea how much the Fund has earned in an average year,
for a given time period. Under the performance box, you'll
see
legends that explain the performance information, whether
fees
and sales charges have been included in returns, and the
inception dates for the Fund's share classes.
See the performance comparison charts at the back of the
report for more performance information. And keep in mind
that past perfor-mance is not indicative of future results.
Portfolio Manager's Report
The portfolio manager who invests your money for you reports
on
successful -- and not-so-successful -- strategies in this
section
of your report. Look for recent purchases and sales here, as
well
as information about the sectors the portfolio manager
favors and
any changes that are on the drawing board.
Portfolio Of Investments
This is where the report begins to look technical, but it's
really
just a listing of each security held at the end of the
reporting
period, along with valuations and other information. Please
note
that sometimes we discuss a security in the Portfolio
Manager's
Report that doesn't appear in this listing because it was
sold
before the close of the reporting period.
<PAGE>
Statement Of Assets And Liabilities
The balance sheet shows the assets (the value of the Fund's
holdings), liabilities (how much the Fund owes) and net
assets
(the Fund's equity, or holdings after the Fund pays its
debts)
as of the end of the reporting period. It also shows how we
calculate the net asset value per share for each class of
shares.
The net asset value is reduced by payment of your dividend,
capital gain, or other distribution, but remember that the
money or new shares are being paid or issued to you. The net
asset value fluctuates daily along with the value of every
security in the portfolio.
Statement Of Operations
This is the income statement, which details income (mostly
interest and dividends earned) and expenses (including what
you pay us to manage your money). You'll also see capital
gains here -- both realized and unrealized.
Statement Of Changes In Net Assets
This schedule shows how income and expenses translate into
changes in net assets. The Fund is required to pay out the
bulk of its income to shareholders every year, and this
statement shows you how we do it -- through dividends
and distributions -- and how that affects the net assets.
This statement also shows how money from investors flowed
into and out of the Fund.
Notes To Financial Statements
This is the kind of technical material that can intimidate
readers, but it does contain useful information. The Notes
provide a brief history and explanation of your Fund's
objectives. In addition, they also outline how Prudential
Mutual Funds prices securities. The Notes also explain who
manages and distributes the Fund's shares, and more
importantly, how much they are paid for doing so. Finally,
the Notes explain how many shares are outstanding and the
number issued and redeemed over the period.
Financial Highlights
This information contains many elements from prior pages,
but on a per share basis. It is designed to help you
understand
how the Fund performed and to compare this year's
performance
and expenses to those of prior years.
Independent Auditor's Report
Once a year, an outside auditor looks over our books and
certifies
that the information is fairly presented and complies with
generally
accepted accounting principles.
Tax Information
This is information which we report annually about how much
of your
total return is taxable. Should you have any questions, you
may
want to consult a tax advisor.
Performance Comparison
These charts are included in the annual report and are
required
by the Securities Exchange Commission. Performance is
presented
here as a hypothetical $10,000 investment in the Fund since
its
inception or for 10 years (whichever is shorter). To help
you put that return in context, we are required to include
the
performance of an unmanaged, broad based securities index,
as
well. The index does not reflect the cost of buying the
securities
it contains or the cost of managing a mutual fund. Of
course, the index holdings do not mirror those of the fund -
- - the
index is a broadly based reference point commonly used by
investors
to measure how well they are doing. A definition of the
selected
index is also provided. Investors generally cannot
invest directly in an index.
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
How many times have you read these letters -- or other
financial
materials -- and stumbled across a word that you don't
understand?
Many shareholders have run into the same problem. We'd like
to
help. So we'll use this space from time to time to explain
some
of the words you might have read, but not understood. And if
you
have a favorite word that no one can explain to your
satisfaction, please write to us.
Basis Point: 1/100th of 1%. For example, one-half of one
percent
is 50 basis points.
Collateralized Mortgage Obligations (CMOs): Mortgage-backed
bonds
that separate mortgage pools into different maturity
classes,
called tranches. These instruments are sensitive to changes
in
interest rates and homeowner refinancing activity. They
are subject to prepayment and maturity extension risk.
Derivatives: Securities that derive their value from other
securities. The rate of return of these financial
instruments
rises and falls -- sometimes very suddenly -- in response to
changes in some specific interest rate, currency, stock, or
other
variable.
Discount Rate: The interest rate charged by the Federal
Reserve
on loans to member banks.
Federal Funds Rate: The interest rate charged by one bank to
another on overnight loans.
Futures Contract: An agreement to purchase or sell a
specific
amount of a commodity or financial instrument at a set price
at a specified date in the future.
Leverage: The use of borrowed assets to enhance return. The
expectation is that the interest rate charged on borrowed
funds will be lower than the return on the investment. While
leverage can increase profits, it can also magnify losses.
Liquidity: The ease with which a financial instrument (or
product) can be bought or sold (converted into cash) in the
financial markets.
Price/Earnings Ratio: The price of a share of stock divided
by
the earnings per share for a 12-month period.
Option: An agreement to purchase or sell something, such as
shares of stock, by a certain time for a specified price. An
option need not be exercised.
Spread: The difference between two values; often used to
describe
the difference between "bid" and "asked" prices of a
security,
or between the yields of two similar maturity bonds.
Yankee Bond: A bond sold by a foreign company or government
in
the U.S. market and denominated in U.S. dollars.
<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
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Louis A. Weil, III
Officers
Robert F. Gunia, President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
Deborah A. Docs, Secretary
David F. Connor, 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 Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
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
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Swidler Berlin Shereff Friedman, 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,
1999 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
74435M721 MF127E2
(ICON)
Prudential
Municipal
Series Fund
- ------------------
Ohio Series
SEMI
ANNUAL
REPORT
Feb. 28, 1999
(LOGO)
<PAGE>
Prudential Municipal Series Fund
Ohio Series
Performance At A Glance.
During the six months ended February 28, 1999, municipal
bonds
initially rallied on the coattails of U.S. Treasuries, which
gained in value as concern about a global financial crisis
boosted demand for the federal government securities. Later
when prices of Treasuries turned lower, municipal bonds also
partially erased their early price increases. Your
Prudential
Municipal Series Fund--Ohio Series held healthcare bonds
whose
prices declined markedly. As a result, Series returns
lagged
the Lipper average.
<TABLE>
Cumulative Total Returns1 As
of 2/28/99
<CAPTION>
Six One Five
Ten Since
Months Year Years
Years Inception2
<S> <C> <C> <C> <C>
<C>
Class A 1.90% 4.96% 32.60% (32.38)
N/A 90.26% (89.94)
Class B 1.63 4.57 30.01 (29.79) 94.60%
(96.08) 193.82 (191.86)
Class C 1.50 4.31 N/A
N/A 30.21 (29.99)
Lipper OH Muni
Debt Fund Avg.3 1.96 5.04 32.42
104.84 ***
</TABLE>
<TABLE>
Average Annual Total Returns1 As of
3/31/99
<CAPTION>
One Five Ten Since
Year Years Years
Inception2
<S> <C> <C> <C> <C>
Class A 1.60% 5.86% (5.82) N/A 6.85%
(6.83)
Class B -0.64 5.93 (5.89) 6.92% (6.91) 7.68
(7.63)
Class C 2.06 N/A N/A 5.51
(5.48)
</TABLE>
<TABLE>
Distributions & YieldsAs of 2/28/99
<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 $0.55 3.53% 5.94%
6.30%
Class B $0.53 3.39 5.71
6.05
Class C $0.51 3.12 5.25
5.57
</TABLE>
Past performance is not indicative of future results.
Principal and
investment return will fluctuate so that an investor's
shares, when
redeemed, may be worth more or less than their original
cost.
1 Source: Prudential Investments Fund Management and Lipper,
Inc.
The cumulative total returns do not take into account sales
charges.
The average annual total returns do take into account
applicable
sales charges. The Series charges a maximum front-end sales
charge
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 B shares will automatically convert to Class
A
shares, on a quarterly basis, approximately seven years
after
purchase. Class C shares are subject to a front-end sales
charge
of 1% and a CDSC of 1% for 18 months. Class C shares bought
before November 2, 1998 have a 1% CDSC if sold within 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 ( ).
2 Inception dates: Class A, 1/22/90; Class B, 9/20/84; and
Class C, 8/1/94.
3 Lipper average returns are for all funds in each share
class
for the six-month, one-, five-, and ten-year periods in the
Ohio Municipal Debt Fund category.
4 Taxable equivalent yields reflect federal and applicable
state tax rates.
*** Lipper Since Inception returns are 90.68% for Class A;
217.26% for Class B; and 34.67% for Class C based on all
funds
in each share class.
How Investments Compared.
(As of 2/28/99)
(GRAPH)
Source: Lipper, Inc. 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.
*19 years for U.S. Tax-Exempt Money Funds.
<PAGE>
Christian Smith, Fund Manager (PHOTO)
Portfolio
Manager's Report
The Series' investment objective is to maximize current
income that is exempt from Ohio state and federal income
taxes, consistent with the preservation of capital. Certain
shareholders, however, may be subject to the federal
alternative minimum tax. There can be no assurance the
Series will achieve its investment objective.
Key Municipal Bond Index Tumbles.
Municipal bonds did not rally as much as U.S. Treasuries
last autumn. However, municipal bond prices rose strongly
enough to drive the Bond Buyer Revenue Bond Index, a
weekly average of long-term municipal bond yields, to
5.09% in early October. This was the lowest level reached
by the Index since its inception in 1979. Yields fall as
prices rise and vice versa.
Strategy Session.
Interest-Rate Outlook.
We expected long-term interest rates to continue to fall
because
the U.S. economic expansion was poised to slow and inflation
to
remain tame after a global financial crisis spread beyond
Asia
in mid-summer of 1998. The overseas turmoil was expected to
temper U.S. economic growth as struggling countries in Asia
and Latin America purchased fewer goods and services from
the United States.
Because of our outlook for lower long-term rates, we
maintained
a longer-than-average duration, which is a measure of the
Series' sensitivity to interest-rate fluctuations. A longer
duration would enable the Series' shares to gain more
rapidly
if interest rates continued to fall and municipal bond
prices
rose. In order to sustain a longer duration, the Series
remained heavily invested in noncallable bonds, which
averaged approximately 41% of its total investments
throughout the six-month period. Noncallable bonds usually
perform well when debt markets rally since they are free to
appreciate in value without the risk of being retired early.
Some of our noncallable bonds were also zero coupon bonds.
These bonds do not make periodic interest payments, and
typically trade at deep discounts to their price at
maturity.
Their prices therefore have plenty of room to rise when
interest rates tumble. The difference between a zero coupon
bond's purchase price and maturity price constitutes the
return to investors.
We subsequently altered our strategy by shortening the
Series' duration because long-term interest rates
unexpectedly began to move higher and bond prices
fell in the autumn. By reducing the duration, we
tried to lessen the Series' sensitivity to the
sell-off in the bond market.
Portfolio Composition.
Expressed as a percentage of
total investments as of 2/28/99.
(PIE CHART)
<PAGE>
What Went Well.
Munis Rallied, at First.
The Series' long duration helped its shares increase in
value as
municipal bonds rallied in sympathy with U.S. Treasuries
during
September and early October 1998. Prices of Treasuries
soared
as concern about the global financial crisis boosted demand
for the safest government securities. Municipal bonds did
not rally as strongly as Treasuries. Nevertheless, prices
of municipal bonds gained enough to drive down the Bond
Buyer
Revenue Bond Index (a weekly average of long-term municipal
bond yields) to 5.09% in early October 1998.
And Not So Well.
Then the Rally Reversed.
The Federal Reserve eased monetary policy three times in the
autumn of 1998 to calm global financial markets and restore
faith in the U.S. economy. (In fact, the economy
unexpectedly
grew at a rapid pace in the fourth quarter of 1998.) As a
result, concern about the global financial crisis dwindled
and investors sold Treasuries and bought higher-yielding
assets with renewed confidence. Municipal bonds also sold
off, but to a lesser extent than Treasuries.
We cut the Series' duration to 6.77 years as of February
28, 1999 from 7.72 years as of October 31, 1998 in order
to make the Series less sensitive to this decline in bond
prices and the rise in interest rates. But despite the
shorter duration, the Series still held noncallable zero
coupon bonds whose prices slid sharply and hurt the Series'
performance.
Health Problems.
Healthcare bonds performed poorly as the industry suffered
from
growing competitive pressures, and some major credit-rating
agencies such as Moody's Investors Service downgraded the
bonds of certain hospitals. While we gradually reduced our
exposure to healthcare bonds, they still accounted for 19%
of the Series' total investments as of February 28, 1999.
Five Largest Issuers.
6.6% Ohio Turnpike
Commission
6.3% Ohio State Air Quality
Development Authority
Rev.
5.6% Franklin County Hospital
4.3% Guam Power
Authority
4.2% Hilliard City
School District
Expressed as a percentage of net assets as of 2/28/99.
Looking Ahead.
In the short run, we feel municipal bond prices will remain
in a trading range because of the U.S. economy's continued
resilience. However, we do not think the rally in tax-exempt
bonds is over. We believe U.S. economic growth will continue
to slow from the torrid pace of late 1998. Furthermore, we
believe that inflation will remain subdued as global
competition helps to keep prices of goods and services
in check. Since the level of interest rates typically
reflects the anticipated rate of inflation, we expect
interest rates to fall and bond prices to rise amid
continued low inflation.
Credit Quality.
Expressed as a percentage of
total investments as of 2/28/99.
(PIE CHART)
1
<PAGE>
A Message to Our Shareholders. April 19,
1999
(PHOTO)
Dear Shareholder,
For the last several months, major index advances have been
driven by the stocks of a handful of very large companies.
These stocks are getting more and more expensive, out of
proportion to their earnings expectations. As a result, a
substantial disparity in value has grown between large and
small companies and between growth and value stocks.
Since not all stocks are benefiting from the highly
publicized
euphoria surrounding each record-breaking milestone, it is
unlikely that these trends will continue. In fact, signs
that the tide is turning are starting to emerge. Moreover,
history shows that markets generally bring prices in line
with earnings performance sooner or later.
Many sectors of the bond market, on the other hand, have
already begun to rebound from last year's global financial
crisis. Furthermore, while bonds have not generated higher
returns than stocks in recent years, they have demonstrated
that they hold up better during market downturns. That's a
thought to keep in mind going forward.
Diversification Is Critical.
What does this suggest? Instead of chasing recent market
winners,
investors should have a well-diversified asset allocation
strategy
in place and keep to it. It is also a good practice to
rebalance
your holdings, when necessary, to keep your asset allocation
consistent with your long-term objectives and risk
tolerance.
A properly diversified portfolio of value- and growth-
oriented
mutual funds, bond funds and money market funds could help
you
weather inevitable market turbulence and receive more
consistent
returns over time. Prudential offers a wide range of mutual
funds
to help our shareholders diversify. We have also designed
several
balanced and diversified funds to allow one-decision
diversification.
Thank you for your continued confidence in Prudential mutual
funds.
Sincerely,
John R. Strangfeld
Chief Investment Officer
Prudential Investments
2
<PAGE>
Portfolio of Investments as
of February 28, 1999 PRUDENTIAL MUNICIPAL
SERIES FUND
(Unaudited) OHIO SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description (a)
Rating Rate Date (000) (Note 1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
LONG-TERM INVESTMENTS--98.3%
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Akron Econ. Dev. Rev., M.B.I.A.
Aaa 6.00% 12/01/12 $ 1,750 $
2,009,245
Akron, Gen. Oblig.
A2 10.50 12/01/04 200
266,562
Brecksville Broadview Heights City Sch. Dist., F.G.I.C.
Aaa 6.50 12/01/16 1,000
1,156,770
Canton Water Works Sys., Gen. Oblig., A.M.B.A.C.
Aaa 5.85 12/01/15 700
760,347
Carroll Cnty. Econ. Dev. Rev., Great Trail Lake Ctr., F.H.A.
NR 11.75 8/01/14 615
675,350
Clear Fork Valley Loc. Sch. Dist., Richland Cnty.
AA-(b) Zero 12/01/24 845
225,936
Cleveland Arpt. Spl. Rev. Ref., Continental Airlines, Inc.,
A.M.T.
Ba2 5.70 12/01/19 650(e)
633,789
Cleveland City Sch. Dist., Gen. Oblig.,
Sch. Impvt., Ser. B, F.G.I.C.
Aaa Zero 6/01/05 490
380,005
Sch. Impvt., Ser. B, F.G.I.C.
Aaa Zero 6/01/06 400
295,756
Sch. Impvt., Ser. B, F.G.I.C.
Aaa Zero 6/01/07 315
221,624
Sch. Impvt., Ser. B, F.G.I.C.
Aaa Zero 12/01/08 550
360,624
Columbus Citation Hsg. Dev. Corp., Mtge. Rev., F.H.A.
AA(b) 7.625 1/01/22 1,885 (d)
2,423,318
Columbus, Gen. Oblig., Mun. Arpt. No. 32, A.M.T.
Aaa 7.15 7/15/06 435
468,639
Cuyahoga Cnty. Hosp. Rev., Meridia Health Sys.
A1 6.25 8/15/24 1,500 (d)
1,722,255
Dayton, Gen. Oblig., M.B.I.A.
Aaa 7.00 12/01/07 480 (f)
576,869
Dover Mun. Elec. Sys. Rev., F.G.I.C.
Aaa 5.95 12/01/14 1,000
1,089,610
Fairfield City Sch. Dist., Cap. Apprec., Ref., Sch. Impvt.
A1 Zero 12/01/09 515
317,987
Franklin Cnty. Hosp. Rev.,
Holy Cross Hlth. Sys., Ser. B, A.M.B.A.C.
Aaa 7.65 6/01/10 2,500 (d)(f)
2,683,600
Senior Doctors Hlth. Corp., Ser. A
Baa3 5.60 12/01/28 2,025
1,948,293
Franklin Cnty. Pub. Impvt., Ser. 93
Aaa 5.375 12/01/20 3,000
3,136,950
Gahanna Jefferson City Sch. Dist., Gen. Oblig., A.M.B.A.C.
Aaa Zero 12/01/09 445
276,794
Greene Cnty. Cap. Apprec.,
Swr. Sys. Rev., A.M.B.A.C.
Aaa Zero 12/01/08 450
295,056
Wtr. Sys. Rev., Ser. A, F.G.I.C.
Aaa 6.125 12/01/21 1,000
1,110,800
Guam Pwr. Auth. Rev., Ser. A
BBB(b) 6.75 10/01/24 3,110
3,499,496
Hilliard City Sch. Dist., Cap. Apprec. Impvt.,
Ser. A, F.G.I.C.
Aaa Zero 12/01/09 2,855
1,775,838
Ser. A, F.G.I.C.
Aaa Zero 12/01/10 2,855
1,679,768
Huber Heights Water Sys. Rev., Cap. Apprec., M.B.I.A.
Aaa Zero 12/01/23 1,000
280,680
Lakota Local Sch. Dist., Cap. Apprec., F.G.I.C.
Aaa Zero 12/01/11 1,250
695,175
Logan Hocking Local Sch. Dist., Hocking, Perry & Vinton Co.,
Gen. Oblig., A.M.B.A.C.
Aaa Zero 12/01/09 650
406,874
Lorain Cnty. Hosp. Rev., Ref. Mtge., Elyria United Methodist
Village
NR 6.875 6/01/22 2,500 (f)
2,729,925
Lucas Cnty. Hlth. Fac. Rev., Ref., Ohio Presbyterian
Retirement Svcs.
NR 6.625 7/01/14 1,750 (f)
1,901,847
Lucas Cnty. Hosp. Rev., Promedica Healthcare Oblig., Ser.
96,
M.B.I.A.
Aaa 5.75 11/15/09 3,000 (f)
3,307,380
Marion Cnty. Hosp. Impvt. Rev., Ref., Comn. Hosp., Ser. 96
BBB+(b) 6.375 5/15/11 2,000 (f)
2,172,420
Marysville Village Sch. Dist., Gen. Oblig., Sch. Impvt.,
M.B.I.A.
Aaa Zero 12/01/15 865
384,216
Miami Cnty. Hosp. Fac. Rev., Ref. & Impvt., Upper Valley
Med.
Ctr.
Baa2 6.375 5/15/26 1,000
1,059,920
Montgomery Cnty. Hlth. Sys. Rev., Ref., Franciscan Med.
Ctr.,
Dayton
Baa1 5.50 7/01/18 1,750
1,725,272
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as
of February 28, 1999 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>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Montgomery Cnty. Swr. Sys. Rev.,
Greater Moraine, Beaver Creek, F.G.I.C.
Aaa Zero 9/01/05 $ 1,000 $
769,650
Greater Moraine, Beaver Creek, F.G.I.C.
Aaa Zero 9/01/07 500
348,065
Mount Vernon City Sch. Dist., Gen. Oblig., F.G.I.C.
Aaa 7.50% 12/01/14 500
592,090
Newark, Ltd. Tax Gen. Oblig., Wtr. Impvt.,
Cap. Apprec., A.M.B.A.C.
Aaa Zero 12/01/06 805
582,973
Cap. Apprec. Ref., F.G.I.C.
Aaa Zero 12/01/14 1,245
577,755
Cap. Apprec. Ref., F.G.I.C.
Aaa Zero 12/01/17 1,495
585,367
Cap. Apprec. Ref., F.G.I.C.
Aaa Zero 12/01/18 1,495
553,628
North Canton City Sch., Cap. Apprec. Ref., F.G.I.C.
Aaa Zero 12/01/09 1,205
749,522
Ohio Hsg. Fin. Agy., Mtg. Rev., G.N.M.A., A.M.T.
AAA(b) 6.05 9/01/17 995
1,061,168
Ohio St. Air Quality Dev. Auth. Rev., Poll. Ctrl.,
Cleveland Elec. Co. Proj., Ref., F.G.I.C.
Aaa 8.00 12/01/13 2,500 (f)
2,865,475
Cleveland Elec. Co. Proj., Ref., A.M.T.
Ba1 6.10 8/01/20 1,000
1,010,710
Edison Proj., Ser. A, F.G.I.C
Aaa 7.45 3/01/16 1,250 (f)
1,320,175
Ohio St. Bldg. Auth., Das Data Ctr. Proj.
Aa3 6.00 10/01/08 615
700,110
Ohio St. Higher Edl. Fac. Comn. Rev., Case Western Resv.
Univ., Ser. B
Aa3 6.50 10/01/20 750
893,063
Ohio St. Solid Waste Rev., A.M.T.
NR 8.50 8/01/22 500
518,845
Ohio St. Tpk. Comm., Tpk. Rev., Ref., Series A, F.G.I.C.
Aaa 5.50 2/15/24 5,000
5,391,600
Ontario Local Sch. Dist., Gen. Oblig., F.S.A.
AAA(b) 5.00 12/01/23 3,000
2,970,330
Pickerington Local Sch. Dist.,
Gen. Oblig., A.M.B.A.C.
Aaa Zero 12/01/08 890
583,555
Gen. Oblig., A.M.B.A.C.
Aaa Zero 12/01/09 1,875
1,166,269
Gen. Oblig., A.M.B.A.C.
Aaa Zero 12/01/13 525
258,757
Puerto Rico Pub. Bldgs. Auth. Rev., Gtd. Pub. Ed. & Hlth.
Facs., Ser. J
Baa1 Zero 7/01/06 3,000
2,208,930
Puerto Rico, Cap. Apprec. Ref., Pub. Impt., Gen. Oblig.
Baa1 Zero 7/01/14 1,000
476,420
Reynoldsburg City Sch. Dist., Cap. Apprec. Ref., F.G.I.C.
Aaa Zero 12/01/12 1,465
767,748
Sugarcreek Local Sch. Dist., Cap. Apprec., F.G.I.C.
Aaa Zero 12/01/08 500
329,725
Toledo, Cap. Apprec. Ref.,
Ser. B, F.G.I.C.
Aaa Zero 12/01/09 1,450
901,915
Ser. B, F.G.I.C.
Aaa Zero 12/01/10 1,000
588,360
Trumbull Cnty. Cap. Apprec., A.M.B.A.C.
Aaa Zero 12/01/10 1,300
764,868
Trumbull Cnty. Correctional Fac.,
Cap. Apprec., A.M.B.A.C.
Aaa Zero 12/01/08 1,250
819,600
Cap. Apprec., A.M.B.A.C.
Aaa Zero 12/01/09 1,250
777,513
Univ. of Puerto Rico Rev., Cap. Apprec. Ref., Ser. N,
M.B.I.A.
Aaa Zero 6/01/13 4,245
2,188,255
Virgin Islands Pub. Fin. Auth. Rev., Ref., Matching Loan
Notes, Ser. A
NR 7.25 10/01/18 1,000 (d)
1,139,300
Virgin Islands Terr., Hugo Ins. Claims Fund Proj., Ser. 91
NR 7.75 10/01/06 335 (d)
368,302
Virgin Islands Wtr. & Pwr. Auth., Elec. Sys. Rev., Ser. A
NR 7.40 7/01/11 920 (d)
1,006,029
Woodmore Indpt. Sch. Dist., Gen. Oblig., A.M.B.A.C.
Aaa Zero 12/01/06 480
348,403
- -----------
Total long-term investments (cost $73,826,265)
$80,839,465
- -----------
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as
of February 28, 1999 PRUDENTIAL MUNICIPAL
SERIES FUND
(Unaudited) OHIO SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description (a)
Rating Rate Date (000) (Note 1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
SHORT-TERM INVESTMENT--0.5%
Ohio St. Air Quality Dev. Auth. Rev., Ref., Cin. Gas &
Elec.,
Ser. 95B, F.R.D.D.
(cost $400,000)
VMIG1 3.25% 3/01/99 $ 400 $
400,000
- -----------
Total Investments--98.8%
(cost $ 74,226,265; Note 4)
81,239,465
Other assets in excess of liabilities--1.2%
1,004,315
- -----------
Net Assets--100%
$82,243,780
- -----------
- -----------
</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.H.A.--Federal Housing Administration.
F.R.D.D.--Floating Rate (Daily) Demand Note(c).
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) For purposes of amortized cost valuation, the maturity
date of Floating Rate
Demand Notes is considered to be the later of the next
date on which the
security can be redeemed at par, or the next date on
which the rate of
interest is adjusted.
(d) Prerefunded issues are secured by escrowed cash and/or
direct U.S.
guaranteed obligations.
(e) Represents when-issued security.
(f) All or partial principal amount pledged as collateral
for financial futures
contracts or when-issued security.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information
contains a description of
Moody's and Standard & Poor's ratings.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 5
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Statement of Assets and Liabilities
(Unaudited) OHIO SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Assets
February 28, 1999
<S>
<C>
Investments, at value (cost
$74,226,265)................................................
................. $ 81,239,465
Cash........................................................
.............................................
1,003,271
Interest
receivable..................................................
.................................... 812,493
Receivable for Series shares
sold........................................................
................ 34,056
Receivable for investmemts
sold........................................................
.................. 5,000
Other
assets......................................................
....................................... 1,628
- -----------------
Total
assets......................................................
.................................... 83,095,913
- -----------------
Liabilities
Payable for investments
purchased...................................................
..................... 642,246
Due to broker-variation
margin......................................................
..................... 47,500
Payable for Series shares
reacquired..................................................
................... 38,487
Accrued
expenses....................................................
..................................... 33,658
Dividends
payable.....................................................
................................... 32,052
Management fee
payable.....................................................
.............................. 31,741
Distribution fee
payable.....................................................
............................ 21,976
Deferred trustee's
fees........................................................
.......................... 4,473
- -----------------
Total
liabilities.................................................
.................................... 852,133
- -----------------
Net
Assets......................................................
......................................... $
82,243,780
- -----------------
- -----------------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
........ $ 68,598
Paid-in capital in excess of
par.........................................................
............. 74,775,955
- -----------------
74,844,553
Accumulated net realized gain on
investments.................................................
......... 394,089
Net unrealized appreciation on
investments.................................................
........... 7,005,138
- -----------------
Net assets, February 28,
1999........................................................
.................... $ 82,243,780
- -----------------
- -----------------
Class A:
Net asset value and redemption price per share
($50,750,020 / 4,234,080 shares of beneficial interest
issued and outstanding).....................
$11.99
Maximum sales charge (3% of offering
price)......................................................
..... .37
- -----------------
Maximum offering price to
public......................................................
................ $12.36
- -----------------
- -----------------
Class B:
Net asset value, offering price and redemption price per
share
($31,203,894 / 2,601,527 shares of beneficial interest
issued and outstanding).....................
$11.99
- -----------------
- -----------------
Class C:
Net asset value and redemption price per share
($289,866 / 24,167 shares of beneficial interest
issued and outstanding)...........................
$11.99
Sales charge (1% of offering
price)......................................................
............. .12
- -----------------
Offering price to
public......................................................
........................ $12.11
- -----------------
- -----------------
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 6
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
OHIO SERIES
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income February 28,
1999
<S> <C>
Income
Interest................................ $ 2,303,808
--------------
- ---
Expenses
Management fee.......................... 210,954
Distribution fee--Class A............... 38,298
Distribution fee--Class B............... 81,541
Distribution fee--Class C............... 816
Custodian's fees and expenses........... 36,000
Transfer agent's fees and expenses...... 33,000
Reports to shareholders................. 12,000
Registration fees....................... 7,000
Audit fee and expenses.................. 6,000
Legal fees and expenses................. 5,000
Trustees' fees.......................... 2,000
Miscellaneous........................... 2,136
--------------
- ---
Total expenses....................... 434,745
Less: Custodian fee credit..............
(1,082)
--------------
- ---
Net expenses......................... 433,663
--------------
- ---
Net investment income...................... 1,870,145
--------------
- ---
Realized and Unrealized Gain
(Loss) on Investments
Net realized gain on:
Investment transactions................. 678,212
Financial futures transactions.......... 184,958
--------------
- ---
863,170
--------------
- ---
Net change in unrealized appreciation on:
Investments.............................
(1,113,093)
Financial futures contracts.............
(96,468)
--------------
- ---
(1,209,561)
--------------
- ---
Net loss on investments....................
(346,391)
--------------
- ---
Net Increase in Net Assets
Resulting from Operations.................. $ 1,523,754
--------------
- ---
--------------
- ---
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
OHIO SERIES
Statement of Changes in Net Assets (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year
Ended
Increase (Decrease) February 28, August
31,
in Net Assets 1999
1998
<S> <C> <C>
Operations
Net investment income........... $ 1,870,145 $
4,242,234
Net realized gain on investment
transactions................. 863,170
1,457,787
Net change in unrealized
appreciation (depreciation)
of investments............... (1,209,561)
1,626,248
------------ -------
- -----
Net increase in net assets
resulting from operations.... 1,523,754
7,326,269
------------ -------
- -----
Dividends and distributions (Note
1):
Dividends from net investment
income
Class A...................... (1,178,175)
(2,519,282)
Class B...................... (687,614)
(1,716,610)
Class C...................... (4,356)
(6,342)
------------ -------
- -----
(1,870,145)
(4,242,234)
------------ -------
- -----
Distributions in excess of net
investment income
Class A...................... (38,470)
(4,269)
Class B...................... (23,367)
(3,222)
Class C...................... (164)
(14)
------------ -------
- -----
(62,001)
(7,505)
------------ -------
- -----
Distributions from net realized
gains
Class A...................... (1,111,350)
(268,925)
Class B...................... (675,050)
(202,959)
Class C...................... (4,744)
(850)
------------ -------
- -----
(1,791,144)
(472,734)
------------ -------
- -----
Series share transactions (net of
share conversions) (Note 5):
Net proceeds from shares sold... 3,262,476
3,719,541
Net asset value of shares issued
in reinvestment of dividends
and distributions............ 2,282,241
2,728,980
Cost of shares reacquired....... (7,894,689)
(14,076,854)
------------ -------
- -----
Net decrease in net assets from
Series share transactions.... (2,349,972)
(7,628,333)
------------ -------
- -----
Total decrease..................... (4,549,508)
(5,024,537)
Net Assets
Beginning of period................ 86,793,288
91,817,825
------------ -------
- -----
End of period...................... $ 82,243,780 $
86,793,288
------------ -------
- -----
------------ -------
- -----
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 7
<PAGE>
PRUDENTIAL MUNICIPAL
SERIES FUND
Notes to Financial Statements
(Unaudited) OHIO SERIES
- ------------------------------------------------------------
- --------------------
Prudential Municipal Series Fund (the 'Fund') is registered
under the Investment
Company Act of 1940, as an open-end investment company. The
Fund was organized
as a Massachusetts business trust on May 18, 1984 and
consists of eleven 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 its
investment objectives is to
maximize current income that is exempt from Ohio state and
federal income taxes
consistent with the preservation of capital and, in
conjunction therewith, the
Series may invest in debt securities with the potential for
capital gains. The
Series seeks to achieve this objective by investing
primarily in Ohio state,
municipal and local government obligations and obligations
of other qualifying
issuers. 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 Valuation: The Series values municipal securities
(including
commitments to purchase such securities on a 'when-issued'
basis) on the basis
of prices provided by a pricing service which uses
information with respect to
transactions in bonds, quotations from bond dealers, market
transactions in
comparable securities and various relationships between
securities in
determining values. If market quotations are not readily
available from such
pricing services, a security is valued at its fair value as
determined under
procedures established by the Trustees.
Short-term securities which mature in more than 60 days are
valued at current
market quotations. Short-term securities which mature in 60
days or less are
valued at amortized cost.
All securities are valued as of 4:15 p.m., New York time.
Financial Futures Contracts: A financial futures contract is
an agreement to
purchase (long) or sell (short) an agreed amount of
securities at a set price
for delivery on a future date. Upon entering into a
financial futures contract,
the Series is required to pledge to the broker an amount of
cash and/or other
assets equal to a certain percentage of the contract amount.
This amount is
known as the 'initial margin.' Subsequent payments, known as
'variation margin,'
are made or received by the Series each day, depending on
the daily fluctuations
in the value of the underlying security. Such variation
margin is recorded for
financial statement purposes on a daily basis as unrealized
gain or loss. When
the contract expires or is closed, the gain or loss is
realized and is presented
in the statement of operations as net realized gain (loss)
on financial futures
contracts.
The Series invests in financial futures contracts in order
to hedge its existing
portfolio securities or securities the Series intends to
purchase, against
fluctuations in value caused by changes in prevailing
interest rates. Should
interest rates move unexpectedly, the Series may not achieve
the anticipated
benefits of the financial futures contracts and may realize
a loss. The use of
futures transactions involves the risk of imperfect
correlation in movements in
the price of futures contracts, interest rates and the
underlying hedged assets.
Securities Transactions and Net Investment Income:
Securities transactions are
recorded on the trade date. Realized gains and losses on
sales of securities are
calculated on the identified cost basis. Interest income is
recorded on the
accrual basis. The Series amortizes premiums and accretes
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.
Reclassification of Capital Accounts: The Fund accounts for
and reports
distributions to shareholders in accordance with the
American Institute
- ------------------------------------------------------------
- --------------------
8
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements
(Unaudited) OHIO SERIES
- ------------------------------------------------------------
- --------------------
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 on investments by $62,001, due
to the sale of
securities purchased with market discount during the six
months ended February
28, 1999. 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
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 services, the cost of 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 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
Investment Management
Services LLC ('PIMS'), which acts as the distributor of the
Class A, Class B and
Class C shares of the Fund. The Fund compensated PIMS for
distributing and
servicing the Fund's Class A, Class B and Class C shares
pursuant to plans of
distribution, (the 'Class A, B and C Plans'), regardless of
expenses actually
incurred by them. The distribution fees are accrued daily
and payable monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates
PIMS for
distribution-related activities at an annual rate of up to
.30 of 1%, .50 of 1%
and 1% of the average daily net assets of the Class A, B and
C shares,
respectively. Effective January 1, 1999, such expenses under
the Plans were .25
of 1%, .50 of 1% and .75 of 1% of the average daily net
assets of the Class A, B
and C shares, respectively. Prior to January 1, 1999, the
expenses 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.
PIMS has advised the Series that they received approximately
$5,300 and $700 in
front-end sales charges resulting from sales of Class A and
Class C shares,
respectively, during the six months ended February 28, 1999.
From these fees,
PIMS paid such sales charges to affiliated broker-dealers,
which in turn paid
commissions to sales-persons and incurred other distribution
costs.
PIMS has advised the Series that for the six months ended
February 28, 1999,
they received approximately $19,500 and $330 in contingent
deferred sales
charges imposed upon certain redemptions by Class B and
Class C shareholders,
respectively.
PIFM, PIC and PIMS 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')
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 did not borrow any amounts pursuant
to the Agreement
during the six months ended February 28, 1999. 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 29, 1998 and has been
extended through March
12, 1999 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,
1999, the Series incurred fees of approximately $17,300 for
the services of
PMFS. As of February 28, 1999, 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 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, 1999 were
$11,378,472 and
$15,004,048, respectively.
The cost basis of investments for federal income tax
purposes at February 28,
1999 was substantially the same as for financial reporting
purposes and
accordingly, net unrealized appreciation of investments for
federal income tax
purposes was $7,013,200 (gross unrealized appreciation--
$7,118,175; gross
unrealized depreciation--$104,975).
- ------------------------------------------------------------
- --------------------
9
<PAGE>
PRUDENTIAL MUNICIPAL
SERIES FUND
Notes to Financial Statements
(Unaudited) OHIO SERIES
- ------------------------------------------------------------
- --------------------
During the six months ended February 28, 1999, the Series
entered into financial
futures contracts. Details of open contracts at February 28,
1999 are as
follows:
<TABLE>
<CAPTION>
Value at
Value at Unrealized
Number of Expiration February
28, Trade Appreciation/
Contracts Type Date 1999
Date (Depreciation)
- -------------- ------------ ----------- -----------
- - ---------- --------------
<S> <C> <C> <C>
<C> <C>
Short Positions:
76 U.S. T-Bond Mar. 1999 $9,471,500
$9,463,438 $ (8,062)
-----------
- - ---------- ------
-----------
- - ---------- ------
</TABLE>
- ------------------------------------------------------------
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 front-end
sales charge of 1% and a contingent deferred sales charge of
1% during the first
18 months. Prior to November 2, 1998, Class C shares were
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
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 were as
follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- --------------------------------------- -------- -------
- ----
<S> <C> <C>
Six months ended February 28, 1999:
Shares sold............................ 139,704 $
1,726,918
Shares issued in reinvestment of
dividends
and distributions.................... 120,162
1,454,818
Shares reacquired...................... (300,450)
(3,671,028)
-------- -------
- ----
Net decrease in shares outstanding
before conversion.................... (40,584)
(489,292)
Shares issued upon conversion from
Class B.............................. 86,655
1,071,977
-------- -------
- ----
Net increase in shares outstanding..... 46,071 $
582,685
-------- -------
- ----
-------- -------
- ----
Year ended August 31, 1998:
Shares sold............................ 119,495 $
1,453,990
Shares issued in reinvestment of
dividends
and distributions.................... 135,599
1,646,460
Shares reacquired...................... (575,569)
(6,996,342)
-------- -------
- ----
Net decrease in shares outstanding
before conversion.................... (320,475)
(3,895,892)
Shares issued upon conversion from
Class B.............................. 244,351
2,964,239
-------- -------
- ----
Net decrease in shares outstanding..... (76,124) $
(931,653)
-------- -------
- ----
-------- -------
- ----
<CAPTION>
Class B Shares
Amount
- --------------------------------------- -------- -------
- ----
<S> <C> <C>
Six months ended February 28, 1999:
Shares sold............................ 116,118 $
1,424,882
Shares issued in reinvestment of
dividends
and distributions.................... 67,874
822,202
Shares reacquired...................... (342,842)
(4,220,644)
-------- -------
- ----
Net decrease in shares outstanding
before conversion.................... (158,850)
(1,973,560)
Shares reacquired upon conversion into
Class A.............................. (86,585)
(1,071,977)
-------- -------
- ----
Net decrease in shares outstanding..... (245,435)
$(3,045,537)
-------- -------
- ----
-------- -------
- ----
Year ended August 31, 1998:
Shares sold............................ 176,720 $
2,148,713
Shares issued in reinvestment of
dividends
and distributions.................... 88,790
1,078,882
Shares reacquired...................... (582,208)
(7,068,071)
-------- -------
- ----
Net decrease in shares outstanding
before conversion.................... (316,698)
(3,840,476)
Shares reacquired upon conversion into
Class A.............................. (244,213)
(2,964,239)
-------- -------
- ----
Net decrease in shares outstanding..... (560,911)
$(6,804,715)
-------- -------
- ----
-------- -------
- ----
<CAPTION>
Class C
- ---------------------------------------
<S> <C> <C>
Six months ended February 28, 1999::
Shares sold............................ 9,104 $
110,676
Shares issued in reinvestment of
dividends
and distributions.................... 432
5,221
Shares reacquired...................... (243)
(3,017)
-------- -------
- ----
Net increase in shares outstanding..... 9,293 $
112,880
-------- -------
- ----
-------- -------
- ----
Year ended August 31, 1998:
Shares sold............................ 9,671 $
116,838
Shares issued in reinvestment of
dividends
and distributions.................... 299
3,638
Shares reacquired...................... (1,028)
(12,441)
-------- -------
- ----
Net increase in shares outstanding..... 8,942 $
108,035
-------- -------
- ----
-------- -------
- ----
</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, -------------------------------------------
1999 1998 1997 1996 1995
- ------------ ------- ------- ------- -------
<S>
<C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period......................... $ 12.31 $ 11.95
$ 11.70 $ 11.92 $ 11.72
- ------ ------- ------- ------- -------
Income from investment operations
Net investment
income........................................ .28
.60 .63(a) .63(a) .65(a)
Net realized and unrealized gain (loss) on investment
transactions..............................................
(.05) .42 .27 (.15) .20
- ------ ------- ------- ------- -------
Total from investment
operations.......................... .23
1.02 .90 .48 .85
- ------ ------- ------- ------- -------
Less distributions
Dividends from net investment
income......................... (.28) (.60)
(.63) (.63) (.65)
Distributions in excess of net investment
income............. (.01) --(c) --
(c) -- --
Distributions from net realized
gains........................ (.26) (.06)
(.02) (.07) --
- ------ ------- ------- ------- -------
Total
distributions.......................................
(.55) (.66) (.65) (.70) (.65)
- ------ ------- ------- ------- -------
Net asset value, end of
period............................... $ 11.99 $
12.31 $ 11.95 $ 11.70 $ 11.92
- ------ ------- ------- ------- -------
- ------ ------- ------- ------- -------
TOTAL
RETURN(b):.............................................
1.90% 8.80% 7.92% 4.02% 7.59%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).............................. $ 50,750
$51,546 $50,977 $49,851 $51,132
Average net assets
(000)..................................... $ 51,975
$51,082 $51,641 $51,205 $29,904
Ratios to average net assets:
Expenses, including distribution
fees..................... .89%(d) .83%
.80%(a) .80%(a) .83%(a)
Expenses, excluding distribution
fees..................... .74%(d) .73%
.70%(a) .70%(a) .73%(a)
Net investment
income.....................................
4.57%(d) 4.93% 5.37%(a) 5.27%(a) 5.50%(a)
For Class A, B and C shares:
Portfolio turnover
rate................................... 13%
30% 22% 35% 38%
<CAPTION>
1994
- ------
<S>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period......................... $12.38
- ------
Income from investment operations
Net investment
income........................................ .66
Net realized and unrealized gain (loss) on investment
transactions..............................................
(.66)
- ------
Total from investment
operations.......................... --
- ------
Less distributions
Dividends from net investment
income......................... (.66)
Distributions in excess of net investment
income............. --
Distributions from net realized
gains........................ --
- ------
Total
distributions.......................................
(.66)
- ------
Net asset value, end of
period............................... $11.72
- ------
- ------
TOTAL
RETURN(b):.............................................
(0.01)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).............................. $4,749
Average net assets
(000)..................................... $4,733
Ratios to average net assets:
Expenses, including distribution
fees..................... .84%
Expenses, excluding distribution
fees..................... .74%
Net investment
income..................................... 5.45%
For Class A, B and C shares:
Portfolio turnover
rate................................... 20%
</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) OHIO SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class B
- ------------------------------------------------------------
Six months
Ended Year Ended August 31,
February 28, -------------------------------------------
1999 1998 1997 1996 1995
- ------------ ------- ------- ------- -------
<S>
<C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period......................... $ 12.32 $ 11.96
$ 11.71 $ 11.93 $ 11.73
- ------ ------- ------- ------- -------
Income from investment operations
Net investment
income........................................ .26
.55 .59(a) .58(a) .60(a)
Net realized and unrealized gain (loss) on investment
transactions..............................................
(.06) .42 .27 (.15) .20
- ------ ------- ------- ------- -------
Total from investment
operations.......................... .20
.97 .86 .43 .80
- ------ ------- ------- ------- -------
Less distributions
Dividends from net investment
income......................... (.26) (.55)
(.59) (.58) (.60)
Distributions in excess of net investment
income............. (.01) --(c) --
(c) -- --
Distributions from net realized
gains........................ (.26) (.06)
(.02) (.07) --
- ------ ------- ------- ------- -------
Total
distributions.......................................
(.53) (.61) (.61) (.65) (.60)
- ------ ------- ------- ------- -------
Net asset value, end of
period............................... $ 11.99 $
12.32 $ 11.96 $ 11.71 $ 11.93
- ------ ------- ------- ------- -------
- ------ ------- ------- ------- -------
TOTAL
RETURN(b):.............................................
1.63% 8.36% 7.49% 3.61% 7.16%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).............................. $ 31,204
$35,064 $40,770 $50,998 $62,805
Average net assets
(000)..................................... $ 32,887
$37,848 $45,503 $57,909 $85,410
Ratios to average net assets:
Expenses, including distribution
fees..................... 1.24%(d) 1.23%
1.20%(a) 1.20%(a) 1.22%(a)
Expenses, excluding distribution
fees..................... .74%(d) .73%
.70%(a) .70%(a) .72%(a)
Net investment
income.....................................
4.22%(d) 4.54% 4.97%(a) 4.87%(a) 5.27%(a)
<CAPTION>
1994
- --------
<S>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period......................... $ 12.38
- --------
Income from investment operations
Net investment
income........................................ .61
Net realized and unrealized gain (loss) on investment
transactions..............................................
(.65)
- --------
Total from investment
operations.......................... (.04)
- --------
Less distributions
Dividends from net investment
income......................... (.61)
Distributions in excess of net investment
income............. --
Distributions from net realized
gains........................ --
- --------
Total
distributions.......................................
(.61)
- --------
Net asset value, end of
period............................... $ 11.73
- --------
- --------
TOTAL
RETURN(b):.............................................
(0.33)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).............................. $118,270
Average net assets
(000)..................................... $121,365
Ratios to average net assets:
Expenses, including distribution
fees..................... 1.24%
Expenses, excluding distribution
fees..................... .74%
Net investment
income..................................... 5.05%
</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. 12
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) OHIO SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class C
- --------------------------------------------------------
Six months
ended Year Ended August 31,
February 28, ---------------------------------------
1999 1998 1997 1996 1995
- ------------ ------ ------ ------ ------
<S>
<C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period......................... $12.32 $11.96
$11.71 $11.93 $11.73
- ----- ------ ------ ------ ------
Income from investment operations
Net investment
income........................................ .24
.52 .56(a) .55(a) .57(a)
Net realized and unrealized gain (loss) on investment
transactions..............................................
(.06) .42 .27 (.15) .20
- ----- ------ ------ ------ ------
Total from investment
operations.......................... .18
.94 .83 .40 .77
- ----- ------ ------ ------ ------
Less distributions
Dividends from net investment
income......................... (.24) (.52)
(.56) (.55) (.57)
Distributions in excess of net investment
income............. (.01) --(c) --(c)
- -- --
Distributions from net realized
gains........................ (.26) (.06)
(.02) (.07) --
- ----- ------ ------ ------ ------
Total
distributions.......................................
(.51) (.58) (.58) (.62) (.57)
- ----- ------ ------ ------ ------
Net asset value, end of
period............................... $11.99
$12.32 $11.96 $11.71 $11.93
- ----- ------ ------ ------ ------
- ----- ------ ------ ------ ------
TOTAL
RETURN(b):.............................................
1.50% 8.09% 7.22% 3.36% 6.89%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).............................. $290
$183 $71 $44 $126
Average net assets
(000)..................................... $220
$149 $57 $97 $ 61
Ratios to average net assets:
Expenses, including distribution
fees..................... 1.49%(d) 1.48%
1.45%(a) 1.45%(a) 1.49%(a)
Expenses, excluding distribution
fees..................... .74%(d) .73%
.70%(a) .70%(a) .74%(a)
Net investment
income..................................... 4.00%(d)
4.26% 4.72%(a) 4.62%(a) 4.76%(a)
<CAPTION>
August 1,
1994(e)
Through
August 31,
1994
- ----------
<S>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period......................... $11.75
- -----
Income from investment operations
Net investment
income........................................ .05
Net realized and unrealized gain (loss) on investment
transactions..............................................
(.02)
- -----
Total from investment
operations.......................... .03
- -----
Less distributions
Dividends from net investment
income......................... (.05)
Distributions in excess of net investment
income............. --
Distributions from net realized
gains........................ --
- -----
Total
distributions.......................................
(.05)
- -----
Net asset value, end of
period............................... $11.73
- -----
- -----
TOTAL
RETURN(b):.............................................
0.18%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).............................. $5
Average net assets
(000)..................................... $2
Ratios to average net assets:
Expenses, including distribution
fees..................... 2.28%(d)
Expenses, excluding distribution
fees..................... 1.53%(d)
Net investment
income..................................... 4.73%(d)
</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.
(e) Commencement of offering of Class C shares.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 13
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
Some mutual fund shareholders won't ever read this -- they
don't read annual and semi-annual reports. It's quite
understandable. These annual and semi-annual reports are
prepared to comply with Federal regulations. They are often
written in language that is difficult to understand. So when
most people run into those particularly daunting sections of
these reports, they don't read them.
We think that's a mistake.
At Prudential Mutual Funds, we've made some changes to our
report to make it easier to understand and more pleasant to
read, in hopes you'll find it profitable to spend a few
minutes familiarizing yourself with your investment. Here's
what you'll
find in the report:
At A Glance
Since an investment's performance is often a shareholder's
primary
concern, we present performance information in two different
formats. You'll find it first on the "At A Glance" page
where
we compare the Fund and the comparable average calculated
by Lipper Analytical Services, a nationally recognized
mutual
fund rating agency. We report both the cumulative total
returns
and the average annual total returns. The cumulative total
return is the total amount of income and appreciation the
Fund
has achieved in various time periods. The average annual
total
return is an annualized representation of the Fund's
performance -- it generally smoothes out returns and gives
you an idea how much the Fund has earned in an average year,
for a given time period. Under the performance box, you'll
see
legends that explain the performance information, whether
fees
and sales charges have been included in returns, and the
inception dates for the Fund's share classes.
See the performance comparison charts at the back of the
report for more performance information. And keep in mind
that past perfor-mance is not indicative of future results.
Portfolio Manager's Report
The portfolio manager who invests your money for you reports
on
successful -- and not-so-successful -- strategies in this
section
of your report. Look for recent purchases and sales here, as
well
as information about the sectors the portfolio manager
favors and
any changes that are on the drawing board.
Portfolio Of Investments
This is where the report begins to look technical, but it's
really
just a listing of each security held at the end of the
reporting
period, along with valuations and other information. Please
note
that sometimes we discuss a security in the Portfolio
Manager's
Report that doesn't appear in this listing because it was
sold
before the close of the reporting period.
<PAGE>
Statement Of Assets And Liabilities
The balance sheet shows the assets (the value of the Fund's
holdings), liabilities (how much the Fund owes) and net
assets
(the Fund's equity, or holdings after the Fund pays its
debts)
as of the end of the reporting period. It also shows how we
calculate the net asset value per share for each class of
shares.
The net asset value is reduced by payment of your dividend,
capital gain, or other distribution, but remember that the
money or new shares are being paid or issued to you. The net
asset value fluctuates daily along with the value of every
security in the portfolio.
Statement Of Operations
This is the income statement, which details income (mostly
interest and dividends earned) and expenses (including what
you pay us to manage your money). You'll also see capital
gains here -- both realized and unrealized.
Statement Of Changes In Net Assets
This schedule shows how income and expenses translate into
changes in net assets. The Fund is required to pay out the
bulk of its income to shareholders every year, and this
statement shows you how we do it -- through dividends
and distributions -- and how that affects the net assets.
This statement also shows how money from investors flowed
into and out of the Fund.
Notes To Financial Statements
This is the kind of technical material that can intimidate
readers, but it does contain useful information. The Notes
provide a brief history and explanation of your Fund's
objectives. In addition, they also outline how Prudential
Mutual Funds prices securities. The Notes also explain who
manages and distributes the Fund's shares, and more
importantly, how much they are paid for doing so. Finally,
the Notes explain how many shares are outstanding and the
number issued and redeemed over the period.
Financial Highlights
This information contains many elements from prior pages,
but on a per share basis. It is designed to help you
understand
how the Fund performed and to compare this year's
performance
and expenses to those of prior years.
Independent Auditor's Report
Once a year, an outside auditor looks over our books and
certifies
that the information is fairly presented and complies with
generally
accepted accounting principles.
Tax Information
This is information which we report annually about how much
of your
total return is taxable. Should you have any questions, you
may
want to consult a tax advisor.
Performance Comparison
These charts are included in the annual report and are
required
by the Securities Exchange Commission. Performance is
presented
here as a hypothetical $10,000 investment in the Fund since
its
inception or for 10 years (whichever is shorter). To help
you put that return in context, we are required to include
the
performance of an unmanaged, broad based securities index,
as
well. The index does not reflect the cost of buying the
securities
it contains or the cost of managing a mutual fund. Of
course, the index holdings do not mirror those of the fund -
- - the
index is a broadly based reference point commonly used by
investors
to measure how well they are doing. A definition of the
selected
index is also provided. Investors generally cannot
invest directly in an index.
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
How many times have you read these letters -- or other
financial
materials -- and stumbled across a word that you don't
understand?
Many shareholders have run into the same problem. We'd like
to
help. So we'll use this space from time to time to explain
some
of the words you might have read, but not understood. And if
you
have a favorite word that no one can explain to your
satisfaction, please write to us.
Basis Point: 1/100th of 1%. For example, one-half of one
percent
is 50 basis points.
Collateralized Mortgage Obligations (CMOs): Mortgage-backed
bonds
that separate mortgage pools into different maturity
classes,
called tranches. These instruments are sensitive to changes
in
interest rates and homeowner refinancing activity. They
are subject to prepayment and maturity extension risk.
Derivatives: Securities that derive their value from other
securities. The rate of return of these financial
instruments
rises and falls -- sometimes very suddenly -- in response to
changes in some specific interest rate, currency, stock, or
other
variable.
Discount Rate: The interest rate charged by the Federal
Reserve
on loans to member banks.
Federal Funds Rate: The interest rate charged by one bank to
another on overnight loans.
Futures Contract: An agreement to purchase or sell a
specific
amount of a commodity or financial instrument at a set price
at a specified date in the future.
Leverage: The use of borrowed assets to enhance return. The
expectation is that the interest rate charged on borrowed
funds will be lower than the return on the investment. While
leverage can increase profits, it can also magnify losses.
Liquidity: The ease with which a financial instrument (or
product) can be bought or sold (converted into cash) in the
financial markets.
Price/Earnings Ratio: The price of a share of stock divided
by
the earnings per share for a 12-month period.
Option: An agreement to purchase or sell something, such as
shares of stock, by a certain time for a specified price. An
option need not be exercised.
Spread: The difference between two values; often used to
describe
the difference between "bid" and "asked" prices of a
security,
or between the yields of two similar maturity bonds.
Yankee Bond: A bond sold by a foreign company or government
in
the U.S. market and denominated in U.S. dollars.
<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
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Louis A. Weil, III
Officers
Robert F. Gunia, President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
Deborah A. Docs, Secretary
David F. Connor, 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 Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
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
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Swidler Berlin Shereff Friedman, 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,
1999 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
74435M838
74435M846 MF123E2
74435M499
(ICON)
Prudential
Municipal
Series Fund
- ---------------------
Pennsylvania Series
SEMI
ANNUAL
REPORT
Feb. 28, 1999
(LOGO)
<PAGE>
Prudential Municipal Series Fund
Pennsylvania Series
Performance At A Glance.
During the six months ended February 28, 1999, municipal
bonds
initially rallied on the coattails of U.S. Treasuries, which
gained in value as concern about a global financial crisis
boosted demand for the federal government securities. Later
when prices of Treasuries turned lower, municipal bonds also
partially erased their early price increases. Your
Prudential
Municipal Series Fund--Pennsylvania Series held healthcare
bonds whose prices declined markedly. As a result, the
Series' returns lagged the Lipper average.
<TABLE>
Cumulative Total Returns1 As of
2/28/99
<CAPTION>
Six One Five
Ten Since
Months Year Years
Years Inception2
<S> <C> <C> <C> <C>
<C>
Class A 1.47% 3.72% 31.96% (31.72)
N/A 89.87% (89.34)
Class B 1.29 3.33 29.39 (29.15)
98.13% (97.02) 117.94 (115.70)
Class C 1.16 3.07 N/A
N/A 30.56 (30.32)
Lipper PA Muni
Debt Fund Avg.3 1.76 4.62 32.17
109.93 ***
</TABLE>
<TABLE>
Average Annual Total Returns1 As
of 3/31/99
<CAPTION>
One Five Ten
Since
Year Years Years
Inception2
<S> <C> <C> <C> <C>
Class A 0.57% 5.88% (5.84) N/A
6.86% (6.83)
Class B -1.79 5.94 (5.90) 7.03% (6.97)
6.69 (6.59)
Class C 0.92 N/A N/A
5.61 (5.56)
</TABLE>
<TABLE>
Distributions & Yields As of
2/28/99
<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 $0.40 3.66% 5.88%
6.23%
Class B $0.38 3.52 5.66
6.00
Class C $0.36 3.23 5.19
5.50
</TABLE>
Past performance is not indicative of future results.
Principal
and investment return will fluctuate so that an investor's
shares,
when redeemed, may be worth more or less than their original
cost.
1 Source: Prudential Investments Fund Management and Lipper,
Inc.
The cumulative total returns do not take into account sales
charges.
The average annual total returns do take into account
applicable
sales charges. The Series charges a maximum front-end sales
charge 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 B shares will
automatically convert to Class A shares, on a quarterly
basis, approximately seven years after purchase. Class C
shares are subject to a front-end sales charge of 1% and
a CDSC of 1% for 18 months. Class C shares bought before
November 2, 1998 have a 1% CDSC if sold within 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 ( ).
2 Inception dates: Class A, 1/22/90; Class B, 4/3/87; and
Class
C, 8/1/94.
3 Lipper average returns are for all funds in each share
class
for the six-month, one-, five-, and ten-year periods in the
Pennsylvania Municipal Debt Fund category.
4 Taxable equivalent yields reflect federal and applicable
state tax rates.
***Lipper Since Inception returns are 93.56% for Class A;
125.29% for Class B; and 34.97% for Class C based on all
funds in each share class.
How Investments Compared.
(As of 2/28/99)
(GRAPH)
Source: Lipper, Inc. 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.*19 years for U.S. Tax-Exempt
Money Funds.
<PAGE>
Christian Smith, Fund Manager (PHOTO)
Portfolio
Manager's Report
The Series' investment objective is to maximize current
income that
is exempt from Pennsylvania state and federal income taxes,
consistent with the preservation of capital. However,
certain
shareholders may be subject to the alternative minimum tax.
There can be no assurance the Series will achieve its
investment
objective.
Key Municipal Bond Index Tumbles.
Municipal bonds did not rally as much as U.S. Treasuries
last autumn. However, municipal bond prices rose strongly
enough to drive the Bond Buyer Revenue Bond Index, a weekly
average of long-term municipal bond yields, to 5.09% in
early October. This was the lowest level reached by the
Index since its inception in 1979. Yields fall as prices
rise and vice versa.
Strategy Session.
Interest-Rate Outlook.
We expected long-term interest rates to continue to fall
because
the U.S. economic expansion was poised to slow and inflation
to
remain tame after a global financial crisis spread beyond
Asia
in mid-summer of 1998. The overseas turmoil was expected
to temper U.S. economic growth as struggling countries in
Asia
and Latin America purchased fewer goods and services from
the
United States.
Because of our outlook for lower long-term rates, we
maintained
a longer-than-average duration, which is a measure of the
Series'
sensitivity to interest-rate fluctuations. A longer duration
would enable the Series' shares to gain more rapidly if
interest rates continued to fall and municipal bond prices
rose. In order to sustain a longer duration, the Series
remained heavily invested in noncallable bonds, which
averaged approximately 31% of its total investments
throughout the six-month period. Noncallable bonds usually
perform well when debt markets rally since they are free to
appreciate in value without the risk of being retired early.
Some of our noncallable bonds were also zero coupon bonds.
These bonds do not make periodic interest payments, and
typically trade at deep discounts to their price at
maturity.
Their prices therefore have plenty of room to rise when
interest
rates tumble. The difference between a zero coupon bond's
purchase price and price at maturity
constitutes the return to investors.
We subsequently altered our strategy by shortening the
Series'
duration because long-term interest rates unexpectedly began
to move higher and bond prices fell in the autumn. By
reducing
the duration, we tried to lessen the Series' sensitivity to
the sell-off in the bond market.
Portfolio Composition.
Expressed as a percentage of
total investments as of 2/28/99.
(PIE CHART)
<PAGE>
What Went Well.
Munis Rallied, at First.
The Series' long duration helped its shares increase in
value as
municipal bonds rallied in sympathy with U.S. Treasuries
during
September and early October 1998. Prices of Treasuries
soared as
concern about the global financial crisis boosted
demand for the safest government securities. Municipal bonds
did not rally as strongly as Treasuries. Nevertheless,
prices
of municipal bonds gained enough to drive down the Bond
Buyer
Revenue Bond Index (a weekly average of long-term municipal
bond yields) to 5.09% in early October 1998.
And Not So Well.
Then the Rally Reversed.
The Federal Reserve eased monetary policy three times in
the autumn of 1998 to calm global financial markets and
restore faith in the U.S. economy. (In fact, the economy
unexpectedly grew at a rapid pace in the fourth quarter of
1998.) As a result, concern about the global financial
crisis
dwindled and investors sold Treasuries and bought
higher-yielding assets with renewed confidence. Municipal
bonds also sold off, but to a lesser extent than Treasuries.
We cut the Series' duration to 7.09 years as of February 28,
1999 from 7.94 years as of October 31, 1998 in order to make
the Series less sensitive to this decline in bond prices and
the rise in interest rates. However, the Series still held
noncallable zero coupon bonds whose prices slid sharply and
hurt the Series' performance.
Health Problems.
Healthcare bonds performed poorly as the industry suffered
from growing competitive pressures, and some major
credit-rating agencies such as Moody's Investors
Service downgraded the bonds of certain hospitals.
While we gradually reduced our exposure to healthcare
bonds, they still accounted for 15.4% of the Series'
total investments as of February 28, 1999.
Credit Quality.
Expressed as a percentage of
total investments as of 2/28/99.
(PIE CHART)
Five Largest Issuers.
6.7% Puerto Rico
Commonwealth
6.6% Philadelphia Ind. Dev.
Auth. Rev.
4.1% Delaware Cnty.
4.1% McKeesport Area School
District, Cap. Apprec.
3.6% Alleghen Cnty. Hosp.
Dev. Auth. Rev.
Expressed as a percentage of net assetsas of 2/28/99.
Looking Ahead.
In the short run, we feel municipal bond prices will remain
in a trading range because of the U.S. economy's continued
resilience. However, we do not think the rally in tax-exempt
bonds is over. We believe U.S. economic growth will continue
to slow from the torrid pace of late 1998.
Furthermore, we believe that inflation will remain subdued
as global competition helps to keep prices of goods and
services in check. Since the level of interest rates
typically reflects the anticipated rate of inflation,
we expect interest rates to fall and bond prices to rise
amid continued low inflation.
1
<PAGE>
A Message to Our Shareholders. April 19,
1999
(PHOTO)
Dear Shareholder,
For the last several months, major index advances have been
driven by the stocks of a handful of very large companies.
These stocks are getting more and more expensive, out of
proportion to their earnings expectations. As a result, a
substantial disparity in value has grown between large and
small companies and between growth and value stocks.
Since not all stocks are benefiting from the highly
publicized
euphoria surrounding each record-breaking milestone, it is
unlikely that these trends will continue. In fact, signs
that the tide is turning are starting to emerge. Moreover,
history shows that markets generally bring prices in line
with earnings performance sooner or later.
Many sectors of the bond market, on the other hand, have
already begun to rebound from last year's global financial
crisis. Furthermore, while bonds have not generated higher
returns than stocks in recent years, they have demonstrated
that they hold up better during market downturns. That's a
thought to keep in mind going forward.
Diversification Is Critical.
What does this suggest? Instead of chasing recent market
winners, investors should have a well-diversified asset
allocation strategy in place and keep to it. It is also a
good practice to rebalance your holdings, when necessary,
to keep your asset allocation consistent with your long-term
objectives and risk tolerance. A properly diversified
portfolio
of value- and growth-oriented mutual funds, bond funds and
money
market funds could help you weather inevitable market
turbulence
and receive more consistent returns over time. Prudential
offers
a wide range of mutual funds to help our shareholders
diversify.
We have also designed several balanced and diversified funds
to
allow one-decision diversification.
Thank you for your continued confidence in Prudential mutual
funds.
Sincerely,
John R. Strangfeld
Chief Investment Officer
Prudential Investments
2
<PAGE>
Portfolio of Investments as
of February 28, 1999 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--95.2%
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Allegheny Cnty. Arpt. Rev.,
Greater Pittsburgh Int'l. Arpt., Ser. A, A.M.T., F.S.A.
Aaa 6.60% 1/01/04 $ 1,000 $
1,085,700
Pittsburgh Int'l. Arpt., A.M.T., M.B.I.A.
Aaa 5.75 1/01/14 2,435 (e)
2,672,997
Allegheny Cnty. Higher Ed. Bldg. Auth. Rev.,
Robert Morris Coll., M.B.I.A.
Aaa 7.00 6/15/08 1,000 (d)
1,047,930
Allegheny Cnty. Hosp. Dev. Auth. Rev.,
Allegheny Gen. Hosp. Proj., Ser. A, M.B.I.A.
Aaa 6.25 9/01/20 1,750 (e)
1,767,447
Magee-Womens Hosp., F.G.I.C.
Aaa Zero 10/01/14 2,000
930,020
Magee-Womens Hosp., F.G.I.C.
Aaa Zero 10/01/16 2,000
825,840
Magee-Womens Hosp., F.G.I.C.
Aaa Zero 10/01/18 2,000
735,540
Magee-Womens Hosp., F.G.I.C.
Aaa Zero 10/01/19 4,000
1,389,480
West Penn. Hosp. Hlth. Ctr.
NR 8.50 1/01/20 2,000
2,106,600
Allegheny Cnty. Ind. Dev. Auth. Rev., USX Proj., Ser. A
Baa3 6.70 12/01/20 4,500
4,884,255
Allegheny Cnty. Residential Fin. Auth., Mtge. Rev.,
G.N.M.A.,
Ser. Q, A.M.T.
Aaa 7.40 12/01/22 770
809,724
Allegheny Cnty., Ser. C-37, M.B.I.A.
Aaa 7.30 12/01/10 1,500 d)(e)
1,603,545
Berks Cnty. Gen. Oblig., Cap. Appreciation F.G.I.C.
Aaa Zero 5/15/16 2,900
1,220,436
Berks Cnty. Ind. Dev. Auth. Rev., Lutheran Home Proj.
NR 6.875 1/01/23 1,500
1,633,290
Berks Cnty. Mun. Auth. Hosp. Rev., Reading Hosp.
Med. Ctr. Proj., M.B.I.A.
Aaa 5.70 10/01/14 1,250
1,385,563
Bethlehem PA Auth. Wtr. Rev., F.S.A.
Cap. Appreciation
Aaa Zero 11/15/22 4,080
1,198,745
Cap. Appreciation
Aaa Zero 11/15/23 4,000
1,114,480
Bucks Cnty. Wtr. & Swr. Auth. Rev.,
Neshaminy Interceptor Swr. Sys. Ser. A, F.G.I.C.
Aaa Zero 12/01/15 2,175
944,211
Butler Cnty. Hosp. Auth. Rev.,
North Hills Passavant Hosp., Ser. A, F.S.A.
Aaa 7.00 6/01/22 1,000 (d)
1,095,110
Chartiers Valley Ind., Ref.-Friendship Vlg./South Hills
NR 6.75 8/15/18 2,225
2,335,449
Chester Upland Sch. Auth., Sch. Rev.
A(b) 6.375 9/01/21 1,000
1,084,980
Clarion Cnty. Hosp. Auth., Clarion Hosp. Proj.
BBB-(b) 5.625 7/01/21 1,000
976,930
Delaware Cnty.
Ind. Dev. Auth. Rev., Res., Rev. Facs., Ser. A
Baa2(b) 6.10 7/01/13 2,500
2,637,850
Ind. Pa. Auth. Rev., Crozer-Chester Med. Ctr., M.B.I.A.
Aaa 7.15 12/15/05 2,550 (d)
2,770,014
Hlth. Facs. Auth. Rev., Mercy Hlth. Corp. Proj.
Aaa 6.00 12/15/26 3,000 (d)
3,358,740
Doylestown Hosp. Auth. Rev., Pine Run Retirement, Ser. A
BBB+ 7.20 7/01/23 3,180 (d)
3,646,951
Greencastle Antrim Sch. Dist., M.B.I.A.,
Cap. Appreciation, Ser. B
Aaa Zero 1/01/12 1,000
548,480
Cap. Appreciation, Ser. B
Aaa Zero 1/01/13 1,000
517,100
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as
of February 28, 1999 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>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Harrisburg Auth. Rev., Pooled Bond Prog., Ser. I, M.B.I.A.
Aaa 5.625% 4/01/15 $ 2,000 $
2,129,480
Harrisburg Pennsylvania, A.M.B.A.C
Capital Appreciation, Ser. D
Aaa Zero 9/15/12 1,665
871,977
Capital Appreciation, Ser. D
Aaa Zero 3/15/15 2,380
1,063,765
Capital Appreciation, Ser. D
Aaa Zero 9/15/17 1,795
696,298
Capital Appreciation, Ser. F
Aaa Zero 9/15/21 2,000
620,960
Capital Appreciation, Ser. F
Aaa Zero 9/15/22 2,000
588,780
Hopewell Area School District, F.S.A,
Capital Appreciation
Aaa Zero 9/01/16 2,320 (e)
962,011
Capital Appreciation
Aaa Zero 9/01/17 2,175
849,968
Capital Appreciation
Aaa Zero 9/01/18 1,950
720,213
Capital Appreciation
Aaa Zero 9/01/19 2,100
732,606
Capital Appreciation
Aaa Zero 9/01/20 2,425
801,972
Capital Appreciation
Aaa Zero 9/01/23 2,000
563,340
Capital Appreciation
Aaa Zero 9/01/24 2,025
540,837
Capital Appreciation
Aaa Zero 9/01/25 1,825
462,127
Capital Appreciation
Aaa Zero 9/01/26 2,000
479,060
Capital Appreciation
Aaa Zero 9/01/27 1,550
352,191
Langhorne Manor Boro. Higher Ed. & Hlth. Auth Rev.,
Lower Bucks Hosp.
Ba3 7.35 7/01/22 1,000
893,520
Latrobe Ind. Dev. Auth. Coll. Rev.,
St. Vincent Coll. Proj.
Baa1 6.75 5/01/14 1,800
2,074,302
St. Vincent Coll. Proj.
Baa1 6.75 5/01/24 1,500
1,728,585
Lehigh Cnty. Gen. Purpose Auth. Revs., Horizon Hlth. Sys.
Inc., Ser. A
NR 8.25 7/01/13 500
509,110
Lower Pottsgrove Twnshp. Auth. Swr. Rev.,
Montgomery Cnty., A.M.B.A.C.,
Ser. A
Aaa Zero 11/01/13 1,155
568,283
Ser. A
Aaa Zero 11/01/15 1,185
516,577
Luzerne Cnty. Ind. Dev. Auth., Rev., Gas & Water, Ser. B,
A.M.T.
A3 7.125 12/01/22 6,000
6,653,940
Lycoming Cnty., M.B.I.A.
Aaa 5.75 11/15/17 2,500 (d)
2,797,725
McKeesport Area School District, M.B.I.A.
Capital Appreciation
Aaa Zero 10/01/14 2,040
948,620
Capital Appreciation
Aaa Zero 10/01/15 2,040
892,990
Capital Appreciation
Aaa Zero 10/01/16 4,655
1,922,143
Capital Appreciation
Aaa Zero 10/01/18 4,655
1,711,969
Capital Appreciation
Aaa Zero 10/01/19 3,555
1,234,900
Capital Appreciation
Aaa Zero 10/01/20 3,555
1,170,626
Capital Appreciation
Aaa Zero 10/01/21 2,555
796,700
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as
of February 28, 1999 PRUDENTIAL MUNICIPAL
SERIES FUND
(Unaudited) PENNSYLVANIA SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description (a)
Rating Rate Date (000) (Note
1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Montgomery Cnty. Higher Ed. & Hlth. Auth. Hosp. Rev.,
Jeanes Hlth. Sys. Proj.
NR 8.625% 7/01/07 $ 4,000(d) $
4,349,320
Montgomery Cnty. Ind. Dev. Auth. Rev., Poll Ctrl.,
Philadelphia Elec. Co., Ser. A A.M.T.
Baa2 7.60 4/01/21 1,000
1,075,980
Res. Recovery
A(b) 7.50 1/01/12 2,000
2,114,820
Montgomery Cnty. Redev. Auth., Multifamily Hsg., Ser. A
NR 6.50 7/01/25 1,400
1,460,326
Montgomery Cnty. Pennsylvania Industrial Dev. Auth.
Retirement Comm. Rev.
A-(b) 5.25 11/15/28 1,500
1,449,540
Nazareth Pennsylvania Area Sch. Dist. Ref. Ser. A
Aaa 5.00 11/15/18 1,000
994,960
Northampton Cnty. Higher Ed. Auth. Rev.,
Moravian Coll.
AAA(b) 8.20 6/01/11 2,095
2,349,417
Moravian Coll., A.M.B.A.C.
Aaa 6.25 7/01/11 2,195
2,567,074
Northeastern Hosp. & Ed. Auth. Coll. Rev., Kings Coll.
Proj.,
Ser. B
BBB(b) 6.00 7/15/18 3,235
3,375,690
Northumberland Cnty. Ind. Dev. Auth. Rev., Roaring Creek
Wtr.
A.M.T.
NR 6.375 10/15/23 1,000
1,026,670
Penn Hills Twnshp., Gen. Oblig., Ser A, A.M.B.A.C.
Aaa Zero 6/01/10 1,535
919,665
Penn Hills, Ser. B, A.M.B.A.C.
Aaa Zero 12/01/18 1,360
495,924
Pennsylvania Convention Ctr. Auth. Rev., Ser. A, F.G.I.C.
Aaa 6.00 9/01/19 5,445
6,200,222
Pennsylvania Econ. Dev. Auth., Wst. Wtr. Treatment Rev.,
Sun Co. R & M Proj., Ser. A, A.M.T.
Baa3 7.60 12/01/24 4,500
5,108,040
Pennsylvania Hsg. Fin. Agcy.,
Sngl. Fam. Mtge., A.M.T.
Aa 7.80 10/01/20 195 (d)
195,749
Sngl. Fam. Mtge., A.M.T., R.I.B.S., S.F.M.R.
Aa 8.577(c) 4/01/25 2,100
2,304,750
Pennsylvania St. Cert. of Part., Ser. A, F.S.A.
Aaa 6.25 11/01/06 1,900
2,058,916
Pennsylvania St. Higher Edl. Facs. Auth. Rev.,
Allegheny Coll., Ser. B
BBB+(b) 6.00 11/01/22 2,000
2,214,080
Ursinus College Ser. A
BBB+(b) 5.90 1/01/27 1,925
2,017,092
Philadelphia Gas Wks. Rev.,
13th Ser.
Baa1 7.70 6/15/11 215 (d)
238,461
13th Ser.
Aaa 7.70 6/15/21 3,430 (d)
3,814,812
Philadelphia Hosps. & Higher Ed. Fac. Auth. Rev.,
Childrens' Seashore House, Ser. B
A-(b) 7.00 8/15/12 500
544,755
Childrens' Seashore House, Ser. A
A-(b) 7.00 8/15/12 1,000
1,089,510
Childrens' Seashore House, Ser. A
A-(b) 7.00 8/15/17 1,000
1,084,480
Grad. Hlth. Sys.
Caa3 7.25 7/01/18 2,730
1,037,400
Philadelphia Ind. Dev. Auth. Rev.,
Baptist Home of Phil Ser. A
NR 5.60 11/15/28 2,750
2,632,877
Inst. For Cancer Res. Proj., Ser. B
A+(b) 7.25 7/01/10 5,770
6,093,351
Nat'l. Brd. of Med. Examiners Proj.
A+(b) 6.75 5/01/12 5,000
5,409,800
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 5
<PAGE>
Portfolio of Investments as
of February 28, 1999 PRUDENTIAL MUNICIPAL
SERIES FUND
(Unaudited) PENNSYLVANIA SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description (a)
Rating Rate Date (000) (Note
1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Philadelphia Pennsylvania Wtr. & Wst. Rev. Ser. A
Aaa 5.125% 8/01/27 $ 5,000 $
4,988,650
Pittsburgh Pennsylvania Ref. Ser. A
Aaa 5.00 9/01/23 1,500
1,464,570
Pittsburgh Urban Redev. Auth., Mtge. Rev.,
Ser. A, A.M.T.
Aa2 6.25 10/01/28 955
1,015,957
Ser. C, A.M.T.
Aa2 6.55 4/01/28 1,625
1,738,539
Pittsburgh Wtr. & Swr. Auth.,
First Lien, Ser. B
Aaa Zero 9/01/19 2,300
802,378
First Lien, Ser. B
Aaa Zero 9/01/20 2,300
760,633
Wtr. Swr., Sys Rev. Ser. A
Aaa 6.50 9/01/13 5,000 (e)
5,974,250
Puerto Rico Comnwlth.,
Cap. Appreciation Pub. Impvt
Baa1 Zero 7/01/14 1,000
476,420
Gen. Oblig., A.M.B.A.C.
Aaa 7.00 7/01/10 4,030 (e)
5,002,761
Cap. Appreciaiton Pub. Impvt
Baa1 Zero 7/01/16 2,500
1,065,000
Hwy. & Trans. Auth. Rev., Ser. Y
Baa1 6.25 7/01/14 1,000
1,162,070
Pub. Impvt.
AAA(b) 7.70 7/01/20 5,250 d)(e)
5,662,282
Pub. Impvt. Rfdg., M.B.I.A.
Aaa 7.00 7/01/10 720
893,794
Puerto Rico Port Auth. Rev., Spl. Facs. Amer. Airlines, Ser.
A., A.M.T.
Baa3 6.25 6/01/26 1,475
1,591,599
Schuylkill Cnty. Ind. Dev. Auth., Res. Rec. Rev., Schuykill
Engy., A.M.T.
NR 6.50 1/01/10 3,415
3,492,111
Scranton-Lackawanna Hlth. & Welfare Auth. Rev.,
Univ. of Scranton Proj., Ser. C
NR 7.50 6/15/06 1,000 (d)
1,071,700
Univ. of Scranton Proj., Ser. C
NR 6.50 3/01/15 2,250 (d)
2,467,913
Unity Twnshp. Mun. Auth., Gtd. Swr. Rev., A.M.B.A.C.,
Cap. Appreciation
Aaa Zero 11/01/11 1,035
579,248
Cap. Appreciation
Aaa Zero 11/01/12 1,035
545,994
Cap. Appreciation
Aaa Zero 11/01/13 1,035
514,374
Virgin Islands Pub. Fin. Auth. Rev.,
Hwy. Trans. Trust Fund
AAA(b) 7.70 10/01/04 1,000 (d)
1,047,460
Ref. Matching Loan Notes, Ser. A
NR 7.25 10/01/18 1,950 (d)
2,221,635
Virgin Islands Terr., Hugo Ins. Claims Fund Proj., Ser. 91
NR 7.75 10/01/06 805 (d)
885,025
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 (d)
3,137,394
Washington Cnty. Hosp. Auth. Rev., Monongahela Valley Hosp.
A3 6.75 12/01/08 2,750
3,020,380
West Mifflin San. Swr. Mun. Auth. Rev., F.G.I.C.
Aaa 6.25 8/01/10 1,555
1,817,297
Westmoreland Cnty., Cap. Appreciation, F.G.I.C.
AAA(b) Zero 12/01/19 5,750
1,968,340
- ------------
Total long-term investments (cost $186,595,143)
202,774,437
- ------------
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 6
<PAGE>
Portfolio of Investments as
of February 28, 1999 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>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
SHORT-TERM INVESTMENTS--3.9%
Allegheny Cnty. Hosp. Dev. Auth. Rev.,
Ser. 88B-2
VMIG1 3.00% 3/04/99 $ 1,900 $
1,900,000
Aces Presbyterian Univ.
VMIG1 3.00 3/04/99 3,700
3,700,000
Beaver Cnty. Pennsylvania Ind. Dev. Auth. Env. Impr. Rev.
P-1 3.25 3/01/99 1,300
1,300,000
Geisinger Auth. Hlth. Sys. Rev. Hlth. Ser. B
VMIG1 3.25 3/01/99 1,300
1,300,000
- ------------
Total short-term investments (cost $8,200,000)
8,200,000
- ------------
Total Investments--99.1%
(cost $194,795,143; Note 4)
210,974,437
Other assets in excess of liabilities--0.9%
1,929,533
- ------------
Net Assets--100%
$212,903,970
- ------------
- ------------
</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.S.A.--Financial Security Assurance.
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.
S.F.M.R.--Single Family Mortgage Revenue.
(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 year-end.
(d) Prerefunded issues are secured by escrowed cash and/or
direct U.S.
guaranteed obligations.
(e) All or partial principal amount pledged 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. 7
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Statement of Assets and Liabilities
(Unaudited) PENNSYLVANIA
SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Assets
February 28, 1999
<S>
<C>
Investments, at value (cost
$194,795,143)...............................................
................. $ 210,974,437
Cash........................................................
.............................................
22,698
Interest
receivable..................................................
.................................... 2,582,176
Receivable for Series shares
sold........................................................
................ 42,839
Other
assets......................................................
....................................... 3,825
- -----------------
Total
assets......................................................
.................................... 213,625,975
- -----------------
Liabilities
Payable for Series shares
reacquired..................................................
................... 283,876
Accrued
expenses....................................................
..................................... 162,159
Dividends
payable.....................................................
................................... 91,844
Management fee
payable.....................................................
.............................. 81,784
Distribution fee
payable.....................................................
............................ 62,244
Due to broker-variation
margin......................................................
..................... 35,625
Deferred trustee's
fees........................................................
.......................... 4,473
- -----------------
Total
liabilities.................................................
.................................... 722,005
- -----------------
Net
Assets......................................................
......................................... $
212,903,970
- -----------------
- -----------------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
........ $ 199,313
Paid-in capital in excess of
par.........................................................
............. 196,720,025
- -----------------
196,919,338
Accumulated net realized loss on
investments.................................................
......... (171,787 )
Net unrealized appreciation on
investments.................................................
........... 16,156,419
- -----------------
Net assets, February 28,
1999........................................................
.................... $ 212,903,970
- -----------------
- -----------------
Class A:
Net asset value and redemption price per share
($103,478,351 / 9,686,191 shares of beneficial
interest issued and outstanding)....................
$10.68
Maximum sales charge (3% of offering
price)......................................................
..... .33
Maximum offering price to
public......................................................
................ $11.01
Class B:
Net asset value, offering price and redemption price per
share
($108,187,668 / 10,129,232 shares of beneficial
interest issued and outstanding)...................
$10.68
Class C:
Net asset value and redemption price per share
($1,237,951 / 115,905 shares of beneficial interest
issued and outstanding)........................
$10.68
Maximum sales charge (1% of offering
price)......................................................
..... .11
Maximum offering price to
public......................................................
................ $10.79
</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,
1999
<S> <C>
Income
Interest................................ $ 6,239,873
--------------
- ---
Expenses
Management fee.......................... 534,039
Distribution fee--Class A............... 75,618
Distribution fee--Class B............... 278,387
Distribution fee--Class C............... 4,327
Transfer agent's fees and expenses...... 60,000
Custodian's fees and expenses........... 35,000
Reports to shareholders................. 15,000
Registration fees....................... 10,000
Audit fee and expenses.................. 5,000
Legal fees and expenses................. 4,000
Trustees' fees and expenses............. 2,000
Miscellaneous........................... 3,799
--------------
- ---
Total expenses....................... 1,027,170
Less: Custodian fee credit..............
(1,965)
--------------
- ---
Net expenses......................... 1,025,205
--------------
- ---
Net investment income...................... 5,214,668
--------------
- ---
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain on:
Investment transactions................. 1,354,272
Financial futures contract.............. 856
--------------
- ---
1,355,128
--------------
- ---
Net change in unrealized depreciation on:
Investments.............................
(3,444,496)
Financial futures contracts.............
(217,250)
--------------
- ---
(3,661,746)
--------------
- ---
Net loss on investments....................
(2,306,618)
--------------
- ---
Net Increase in Net Assets
Resulting from Operations.................. $ 2,908,050
--------------
- ---
--------------
- ---
</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 1999 1998
<S> <C> <C>
Operations
Net investment income.......... $ 5,214,668 $
11,187,139
Net realized gain on investment
transactions................ 1,355,128
1,116,888
Net change in unrealized
appreciation (depreciation)
of investments.............. (3,661,746)
3,332,565
------------ --------
- ----
Net increase in net assets
resulting from operations... 2,908,050
15,636,592
------------ --------
- ----
Dividends and distributions (Note
1):
Dividends to shareholders from
net investment income
Class A..................... (2,563,290)
(5,055,953)
Class B..................... (2,625,543)
(6,100,803)
Class C..................... (25,835)
(30,383)
------------ --------
- ----
(5,214,668)
(11,187,139)
------------ --------
- ----
Distributions in excess of net
investment income
Class A..................... --
(8,885)
Class B..................... --
(11,724)
Class C..................... --
(47)
------------ --------
- ----
--
(20,656)
------------ --------
- ----
Distributions from net realized
gains
Class A..................... (1,164,135)
(158,157)
Class B..................... (1,223,297)
(208,682)
Class C..................... (13,254)
(838)
------------ --------
- ----
(2,400,686)
(367,677)
------------ --------
- ----
Series share transactions (net of
share conversions) (Note 5):
Net proceeds from shares
sold........................ 12,359,150
15,088,301
Net asset value of shares
issued in reinvestment of
dividends and
distributions............... 4,414,635
6,380,444
Cost of shares reacquired...... (15,747,620)
(34,295,335)
------------ --------
- ----
Net increase (decrease) in net
assets from Series share
transactions................ 1,026,165
(12,826,590)
------------ --------
- ----
Total decrease.................... (3,681,139)
(8,765,470)
Net Assets
Beginning of period............... 216,585,109
225,350,579
------------ --------
- ----
End of period..................... $212,903,970
$216,585,109
------------ --------
- ----
------------ --------
- ----
</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 11 series. The
monies of each series are invested in separate,
independently managed
portfolios. The Pennsylvania Series (the 'Series') commenced
investment
operations on April 3, 1987. 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 Series values municipal
securities (including
commitments to purchase such securities on a 'when-issued'
basis) on the basis
of prices provided by a pricing service which uses
information with respect to
transactions in bonds, quotations from bond dealers, market
transactions in
comparable securities and various relationships between
securities in
determining values. If market quotations are not readily
available from such
pricing service, a security is valued at its fair value as
determined under
procedures established by the Trustees.
Short-term securities which mature in more than 60 days are
valued at current
market quotations. Short-term securities which mature in 60
days or less are
valued at amortized cost.
All securities are valued as of 4:15 p.m., New York time.
Financial Futures Contracts: A financial futures contract is
an agreement to
purchase (long) or sell (short) an agreed amount of debt
securities at a set
price for delivery on a future date. Upon entering into a
financial futures
contract, the Series is required to pledge to the broker an
amount of cash
and/or other assets equal to a certain percentage of the
contract amount. This
amount is known as the 'initial margin.' Subsequent
payments, known as
'variation margin,' are made or received by the Series each
day, depending on
the daily fluctuations in the value of the underlying
security. Such variation
margin is recorded for financial statement purposes on a
daily basis as
unrealized gain or loss. When the contract expires or is
closed, the gain or
loss is realized and is presented in the statement of
operations as net realized
gain (loss) on financial futures. The Series invests in
financial futures
contracts in order to hedge its existing portfolio
securities or securities the
Series intends to purchase against fluctuations in value
caused by changes in
prevailing interest rates. Should interest rates move
unexpectedly, the Series
may not achieve the anticipated benefits of the financial
futures contracts and
may realize a loss. The use of futures transactions involves
the risk of
imperfect correlation in movements in the price of futures
contracts, interest
rates and the underlying hedged assets.
Securities Transactions and 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 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
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
- ------------------------------------------------------------
- --------------------
10
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements
(Unaudited) PENNSYLVANIA SERIES
- ------------------------------------------------------------
- --------------------
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 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 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
Investment Management
Services LLC ('PIMS'), which acts as the distributor of the
Class A, Class B and
Class C shares of the Fund. The Fund compensates PIMS for
distributing and
servicing the Fund's Class A, Class B and Class C shares
pursuant to plans of
distribution, (the 'Class A, B and C Plans'), regardless of
expenses actually
incurred by them. The distribution fees are accrued daily
and payable monthly.
Pursuant to the Class A, B and C Plans, the Fund compensates
PIMS for
distribution-related activities at an annual rate of up to
.30 of 1%, .50 of 1%
and 1%, of the average daily net assets of the Class A, B
and C shares,
respectively. Such expenses under the Plans were .10 of 1%,
.50 of 1% and .75 of
1% of the average daily net assets of the Class A, B and C
shares, respectively,
for the period September 1, 1998 through December 31, 1998.
Effective January 1,
1999 such expenses under the Plan were .25 of 1%, .50 of 1%
and .75 of 1% of the
average daily net assets of the Class A, B and C shares,
respectively.
PIMS has advised the Series that it received approximately
$27,900 and $1,000 in
front-end sales charges resulting from sales of Class A and
Class C shares,
respectively, during the six months ended February 28, 1999.
From these fees,
PIMS paid such sales charges to affiliated broker-dealers,
which in turn paid
commissions to salespersons and incurred other distribution
costs.
PIMS have advised the Series that for the six months ended
February 28, 1999, it
received approximately $42,400 in contingent deferred sales
charges imposed upon
certain redemptions by Class B shareholders.
PIFM, PIC and PIMS 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 did not borrowed any amounts pursuant to the
Agreement during the six
months ended February 28, 1999. 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 February 28, 1999 and has been extended through
March 12, 1999 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 year six
months ended February
28, 1999, the Series incurred fees of approximately $48,800
for the services of
PMFS. As of February 28, 1999, approximately $8,000 of such
fees were due to
PMFS. Transfer agent fees and expenses in the Statement of
Operations includes
certain out-of-pocket expenses paid to 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, 1999 were
$13,436,795 and
$21,907,107, respectively.
The cost basis of investments for federal income tax
purposes at February 28,
1999 was substantially the same as for financial reporting
purposes and
accordingly, net unrealized appreciation of investments for
federal income tax
purposes was $16,179,294 (gross unrealized appreciation--
$18,125,953; gross
unrealized depreciation--$1,946,659).
During the six months ended February 28, 1999, the Series
entered into financial
futures contracts. Details of open contracts at February 28,
1999 are as
follows:
<TABLE>
<CAPTION>
Value at
Value at Unrealized
Number of Expiration February 28,
Trade Appreciation/
Contracts Type Date 1999
Date (Depreciation)
- -------------- ---------- ---------- ------------
- ----------- --------------
<S> <C> <C> <C>
<C> <C>
Short Positions:
Muni Bond
57 Index Mar.-99 $(7,080,750 )
$(7,103,625) $(22,875)
- -------
- -------
</TABLE>
- ------------------------------------------------------------
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. Prior to November 2,
1998, Class C shares
were sold with a contingent deferred sales charge of
- ------------------------------------------------------------
- --------------------
11
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements
(Unaudited) PENNSYLVANIA
SERIES
- ------------------------------------------------------------
- --------------------
1% during the first year. Effective November 2, 1998, Class
C shares are sold
with a front-end charge of 1% during the first 18 months.
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, 1999 and the
fiscal year ended
August 31, 1998 were as follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- ----------------------------------- ---------- --------
- ----
<S> <C> <C>
Six months ended February 28, 1999:
Shares sold........................ 631,239 $
6,864,491
Shares issued in reinvestment of
dividends and distributions...... 202,304
2,180,318
Shares reacquired.................. (450,491)
(4,887,870)
---------- --------
- ----
Net increase in shares outstanding
before conversion................ 383,052
4,156,939
Shares issued upon conversion from
Class B.......................... 348,691
3,809,651
---------- --------
- ----
Net increase in shares
outstanding...................... 731,743 $
7,966,590
---------- --------
- ----
---------- --------
- ----
<CAPTION>
Class A
- -----------------------------------
<S> <C> <C>
Year ended August 31, 1998:
Shares sold........................ 416,559 $
4,546,500
Shares issued in reinvestment of
dividends and distributions...... 266,840
2,899,562
Shares reacquired.................. (1,230,000)
(13,368,779)
---------- --------
- ----
Net decrease in shares outstanding
before conversion................ (546,601)
(5,922,717)
Shares issued upon conversion from
Class B.......................... 1,146,331
12,438,073
---------- --------
- ----
Net increase in shares
outstanding...................... 599,730 $
6,515,356
---------- --------
- ----
---------- --------
- ----
<CAPTION>
Class B Shares
Amount
- ----------------------------------- ---------- --------
- ----
<S> <C> <C>
Six months ended February 28, 1999:
Shares sold........................ 492,574 $
5,349,200
Shares issued in reinvestment of
dividends and distributions...... 204,666
2,205,742
Shares reacquired.................. (996,541)
(10,836,688)
---------- --------
- ----
Net decrease in shares outstanding
before conversion................ (299,301)
(3,281,746)
Shares issued upon conversion from
Class B.......................... (348,691)
(3,809,651)
---------- --------
- ----
Net decrease in shares
outstanding...................... (647,992) $
(7,091,397)
---------- --------
- ----
---------- --------
- ----
Year ended August 31, 1998:
Shares sold........................ 902,330 $
9,804,975
Shares issued in reinvestment of
dividends and distributions...... 318,330
3,458,567
Shares reacquired.................. (1,912,585)
(20,801,181)
---------- --------
- ----
Net decrease in shares outstanding
before conversion................ (691,925)
(7,537,639)
Shares issued upon conversion from
Class B.......................... (1,146,539)
(12,438,073)
---------- --------
- ----
Net decrease in shares
outstanding...................... (1,838,464)
$(19,975,712)
---------- --------
- ----
---------- --------
- ----
<CAPTION>
Class C
- -----------------------------------
<S> <C> <C>
Six months ended February 28, 1999:
Shares sold........................ 13,474 $
145,459
Shares issued in reinvestment of
dividends and distributions...... 2,652
28,575
Shares reacquired.................. (2,140)
(23,062)
---------- --------
- ----
Net increase in shares
outstanding...................... 13,986 $
150,972
---------- --------
- ----
---------- --------
- ----
Year ended August 31, 1998:
Shares sold........................ 67,393 $
736,826
Shares issued in reinvestment of
dividends and distributions...... 2,054
22,315
Shares reacquired.................. (11,448)
(125,375)
---------- --------
- ----
Net increase in shares
outstanding...................... 57,999 $
633,766
---------- --------
- ----
---------- --------
- ----
</TABLE>
- ------------------------------------------------------------
- --------------------
12
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) PENNSYLVANIA
SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class A
- ------------------------------------------------------------
Six Months
Ended Year Ended August 31,
February 28, -------------------------------------------
1999 1998 1997 1996 1995
- ------------ ------- ------- ------- -------
<S>
<C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period......................... $ 10.92 $ 10.73
$ 10.49 $ 10.55 $ 10.42
- ------------ ------- ------- ------- -------
Income from investment operations
Net investment
income........................................ .28
.57 .59(a) .59(a) .60(a)
Net realized and unrealized gain (loss) on investment
transactions..............................................
(.12) .21 .33 (.06) .13
- ------------ ------- ------- ------- -------
Total from investment
operations.......................... .16
.78 .92 .53 .73
- ------------ ------- ------- ------- -------
Less distributions
Dividends from net investment
income......................... (.28) (.57)
(.59) (.59) (.60)
Distributions in excess of net investment
income............. -- --(c) --
(c) -- --
Distributions from net realized
gains........................ (.12) (.02)
(.09) -- --
- ------------ ------- ------- ------- -------
Total
distributions.......................................
(.40) (.59) (.68) (.59) (.60)
- ------------ ------- ------- ------- -------
Net asset value, end of
period............................... $ 10.68 $
10.92 $ 10.73 $ 10.49 $ 10.55
- ------------ ------- ------- ------- -------
- ------------ ------- ------- ------- -------
TOTAL
RETURN(b):.............................................
1.47% 7.55% 9.01% 5.08% 7.35%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).............................. $103,478
$97,794 $89,604 $69,659 $50,696
Average net assets
(000)..................................... $101,945
$96,053 $83,552 $59,995 $30,092
Ratios to average net assets:
Expenses, including distribution
fees..................... .77%(d) .77%
.72%(a) .75%(a) .80%(a)
Expenses, excluding distribution
fees..................... .62%(d) .67%
.62%(a) .65%(a) .70%(a)
Net investment
income.....................................
5.07%(d) 5.26% 5.60%(a) 5.56%(a) 5.76%(a)
For Class A, B and C shares:
Portfolio turnover
rate................................... 6%
13% 21% 26% 19%
<CAPTION>
1994
- -------
<S>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period......................... $ 11.21
- -------
Income from investment operations
Net investment
income........................................ .59
Net realized and unrealized gain (loss) on investment
transactions..............................................
(.68)
- -------
Total from investment
operations.......................... (.09)
- -------
Less distributions
Dividends from net investment
income......................... (.59)
Distributions in excess of net investment
income............. --
Distributions from net realized
gains........................ (.11)
- -------
Total
distributions.......................................
(.70)
- -------
Net asset value, end of
period............................... $ 10.42
- -------
- -------
TOTAL
RETURN(b):.............................................
(.82
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).............................. $10,651
Average net assets
(000)..................................... $10,315
Ratios to average net assets:
Expenses, including distribution
fees..................... .75%
Expenses, excluding distribution
fees..................... .65%
Net investment
income..................................... 5.52%
For Class A, B and C shares:
Portfolio turnover
rate................................... 22%
</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. 13
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) PENNSYLVANIA
SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class B
- ------------------------------------------------------------
- ----
Six Months
Ended Year Ended August 31,
February 28, -------------------------------------------
- ----
1999 1998 1997 1996 1995
- ------------ -------- -------- -------- ----
- ----
<S>
<C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period......................... $ 10.92 $ 10.72
$ 10.49 $ 10.55 $ 10.42
- ------------ -------- -------- -------- ----
- ----
Income from investment operations
Net investment
income........................................ .26
.53 .55(a) .55(a) .56(a)
Net realized and unrealized gain (loss) on investment
transactions..............................................
(.12) .22 .32 (.06) .13
- ------------ -------- -------- -------- ----
- ----
Total from investment
operations.......................... .14
.75 .87 .49 .69
- ------------ -------- -------- -------- ----
- ----
Less distributions
Dividends from net investment
income......................... (.26)
(.53) (.55) (.55) (.56)
Distributions in excess of net investment
income............. -- --(c) -
- -(c) -- --
Distributions from net realized
gains........................ (.12) (.02)
(.09) -- --
- ------------ -------- -------- -------- ----
- ----
Total
distributions.......................................
(.38) (.55) (.64) (.55) (.56)
- ------------ -------- -------- -------- ----
- ----
Net asset value, end of
period............................... $ 10.68 $
10.92 $ 10.72 $ 10.49 $ 10.55
- ------------ -------- -------- -------- ----
- ----
- ------------ -------- -------- -------- ----
- ----
TOTAL
RETURN(b):.............................................
1.29% 7.13% 8.58% 4.66% 6.92%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).............................. $108,188
$117,678 $135,275 $167,809 $202,633
Average net assets
(000)..................................... $112,278
$125,306 $148,394 $189,902 $223,082
Ratios to average net assets:
Expenses, including distribution
fees..................... 1.12%(d) 1.17%
1.12%(a) 1.15%(a) 1.17%(a)
Expenses, excluding distribution
fees..................... .62%(d) .67%
.62%(a) .65%(a) .67%(a)
Net investment
income.....................................
4.72%(d) 4.87% 5.20%(a) 5.16%(a)
5.44%(a)
<CAPTION>
1994
- --------
<S>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period......................... $ 11.21
- --------
Income from investment operations
Net investment
income........................................ .55
Net realized and unrealized gain (loss) on investment
transactions..............................................
(.68)
- --------
Total from investment
operations.......................... (.13)
- --------
Less distributions
Dividends from net investment
income......................... (.55)
Distributions in excess of net investment
income............. --
Distributions from net realized
gains........................ (.11)
- --------
Total
distributions.......................................
(.66)
- --------
Net asset value, end of
period............................... $ 10.42
- --------
- --------
TOTAL
RETURN(b):.............................................
(1.22
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).............................. $257,732
Average net assets
(000)..................................... $266,594
Ratios to average net assets:
Expenses, including distribution
fees..................... 1.15%
Expenses, excluding distribution
fees..................... .65%
Net investment
income..................................... 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. 14
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) PENNSYLVANIA
SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class C
- --------------------------------------------------------
Six Months
Ended Year Ended August 31,
February 28, ---------------------------------------
1999 1998 1997 1996 1995
- ------------ ------ ------ ------ ------
<S>
<C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period......................... $10.92 $10.72
$10.49 $10.55 $10.42
- ----- ------ ------ ------ ------
Income from investment operations
Net investment
income........................................ .24
.50 .52(a) .52(a) .53(a)
Net realized and unrealized gain (loss) on investment
transactions..............................................
(.12) .22 .32 (.06) .13
- ----- ------ ------ ------ ------
Total from investment
operations.......................... .12
.72 .84 .46 .66
- ----- ------ ------ ------ ------
Less distributions
Dividends from net investment
income......................... (.24) (.50)
(.52) (.52) (.53)
Distributions in excess of net investment
income............. -- --(c) --(c)
- -- --
Distributions from net realized
gains........................ (.12) (.02)
(.09) -- --
- ----- ------ ------ ------ ------
Total
distributions.......................................
(.36) (.52) (.61) (.52) (.53)
- ----- ------ ------ ------ ------
Net asset value, end of
period............................... $10.68
$10.92 $10.72 $10.49 $10.55
- ----- ------ ------ ------ ------
- ----- ------ ------ ------ ------
TOTAL
RETURN(b):.............................................
1.16% 6.86% 8.31% 4.41% 6.65%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).............................. $1,238
$1,113 $ 471 $ 829 $ 336
Average net assets
(000)..................................... $1,164
$ 661 $ 678 $ 704 $ 223
Ratios to average net assets:
Expenses, including distribution
fees..................... 1.37%(e) 1.42%
1.37%(a) 1.40%(a) 1.44%(a)
Expenses, excluding distribution
fees..................... .62%(e) .67%
.62%(a) .65%(a) .69%(a)
Net investment
income..................................... 4.48%(e)
4.60% 4.95%(a) 4.91%(a) 5.14%(a)
<CAPTION>
August 1,
1994(d)
Through
August 31,
1994
- ----------
<S>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period......................... $10.44
- -----
Income from investment operations
Net investment
income........................................ .04
Net realized and unrealized gain (loss) on investment
transactions..............................................
(.02)
- -----
Total from investment
operations.......................... .02
- -----
Less distributions
Dividends from net investment
income......................... (.04)
Distributions in excess of net investment
income............. --
Distributions from net realized
gains........................ --
- -----
Total
distributions.......................................
(.04)
- -----
Net asset value, end of
period............................... $10.42
- -----
- -----
TOTAL
RETURN(b):.............................................
.14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).............................. $ 90
Average net assets
(000)..................................... $ 1
Ratios to average net assets:
Expenses, including distribution
fees..................... 2.00%(e)
Expenses, excluding distribution
fees..................... 1.25%(e)
Net investment
income..................................... 8.51%(e)
</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) Commencement of offering of Class C shares.
(e) Annualized.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 15
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
When you invest through Prudential Mutual Funds, you receive
financial advice through a Prudential Securities financial
advisor or Prudential/Pruco Securities registered
representative.
Your advisor or representative can provide you with the
following services:
There's No Reward Without Risk; But Is This Risk Worth It?
Your financial advisor or registered representative can help
you match the reward you seek with the risk you can
tolerate.
And risk can be difficult to gauge -- sometimes even the
simplest
investments bear surprising risks. The educated investor
knows
that markets seldom move in just one direction -- there are
times
when a market sector or asset class will lose value or
provide
little in the way of total return. Managing your own
expectations
is easier with help from someone who understands the
markets and who knows you!
Keeping Up With The Joneses.
A financial advisor or registered representative can help
you
wade through the numerous mutual funds available to find the
ones that fit your own individual investment profile and
risk
tolerance. While the newspapers and popular magazines are
full
of advice about investing, they are aimed at generic groups
of
people or representative individuals, not at you personally.
Your financial advisor or registered representative will
review
your investment objectives with you. This means you can make
financial decisions based on the assets and liabilities in
your
current portfolio and your risk tolerance -- not just based
on
the current investment fad.
Buy Low, Sell High.
Buying at the top of a market cycle and selling at the
bottom
are among the most common investor mistakes. But sometimes
it's
difficult to hold on to an investment when it's losing value
every month. Your financial advisor or registered
representative can answer questions when you're confused or
worried about your investment, and remind you that you're
investing for the long haul.
<PAGE>
Prudential Mutual Funds
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
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Louis A. Weil, III
Officers
Robert F. Gunia, President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
Deborah A. Docs, Secretary
David F. Connor, 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 Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
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
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Swidler Berlin Shereff Friedman, 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,
1999 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
