(ICON)
Prudential
California
Municipal
Fund
California Series
SEMI
ANNUAL
REPORT
Feb. 29, 1996
(LOGO)
<PAGE>
Prudential California Municipal Fund
California Series
Performance At A Glance.
Lower interest rates and subdued inflation lifted tax-free municipal bond
prices higher over the past six months, continuing a trend that has been in
place for some time. In fact, 1995 was a terrific year for municipal bonds,
which provided their best total return in nine years, as measured by Lehman
Brothers. However, for the six-month period ended February 29, 1996 the
Prudential California Municipal Fund -- California Series did not perform quite
as well as the average California municipal fund, as measured by Lipper
Analytical Services.
<TABLE>
<CAPTION>
Cumulative Total Returns1 As of 2/29/96
Six One Five Ten Since
Months Year Years Years Inception2
<S> <C> <C> <C> <C> <C>
Class A 5.5% 10.7% 46.9% N/A 59.1%
Class B 5.3 10.3 44.1 92.0% 150.4
Class C 5.2 10.0 N/A N/A 12.9
Lipper CA Muni Avg3 5.6 10.3 46.4 106.3 177.7
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns1 As of 3/31/96
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A 4.1% 6.9% N/A 6.9%
Class B 1.9 7.0 6.4% 8.1 (8.0)4
Class C 5.6 N/A N/A 6.2
</TABLE>
<TABLE>
<CAPTION>
Dividends & Yields
As of 2/29/96
Taxable Equivalent Yield5
Total Dividends 30-Day At Tax Rates Of
Paid for Six Mos. SEC Yield 36% 39.6%
<S> <C> <C> <C> <C>
Class A $0.33 4.44% (4.39)4 7.79% (7.71)4 8.26%(8.17)4
Class B $0.31 4.16 (4.11)4 7.30 (7.22)4 7.74 (7.65)4
Class C $0.29 3.91 (3.86)4 6.86 (6.78)4 7.27 (7.18)4
</TABLE>
Past performance is not a guarantee of future results. Principal and investment
return will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
1Source: Prudential Mutual Fund Management and Lipper Analytical Services. The
cumulative total returns do not take into account sales charges. The average
annual returns do take into account applicable sales charges. The Series
charges a maximum front-end sales load of 3% for Class A shares and a declining
contingent deferred sales charge (CDSC) of 5%, 4%, 3%, 2%, 1% and 1% for six
years, for Class B shares. Class C shares have a 1% CDSC for one year. Class B
shares automatically convert to Class A shares on a quarterly basis, after
approximately seven years.
2Inception dates: 1/22/90 Class A; 9/19/84 Class B; 8/1/94 Class C.
3The Lipper California Municipal Bond fund average includes 99 funds for six
months, 93 funds for one year, 45 funds for five years, 22 funds for ten years
and 13 funds since inception of the Class B shares on 9/19/84.
4Without waivers and expense subsidies the Series' average annual total return/
30-day SEC yield would have been lower, as indicated in parentheses ( ).
5Taxable equivalent yields reflect federal and applicable state tax rates.
How Investments Compared.
(As of 2/29/96)
(GRAPH)
U.S. General General U.S.
Growth Bond Muni Debt Taxable
Funds Funds Funds Money Funds
Source: Lipper Analytical Services. Financial markets change, so a mutual
fund's past performance should never be used to predict future results. The
risks to each of the investments listed above are different -- we provide
12-month total returns for several Lipper mutual fund categories to show you
that reaching for higher yields means tolerating more risk. The greater the
risk, the larger the potential reward or loss. In addition, we've added
historical 20-year average annual returns. The returns assume the reinvestment
of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors have received higher
historical total returns from stocks than from most other investments. Smaller
capitalization stocks offer greater potential for long-term growth but may be
more volatile than larger capitalization stocks.
General Bond Funds provide more income than stock funds, which can help smooth
out their total returns year by year. But their prices still fluctuate
(sometimes significantly) and their returns have been historically lower than
those of stock funds.
General Municipal Debt Funds invest in bonds issued by state governments, state
agencies and/or municipalities. This investment provides income that is usually
exempt from federal and state income taxes.
Money Market Funds attempt to preserve a constant share value; they don't
fluctuate much in price but historically their returns have been generally
among the lowest of the major investment categories.
*19 years for General Muni Debt Funds.
<PAGE>
Christian Smith, Fund Manager
Portfolio
Manager's Report
(PHOTO)
The Series invests primarily in carefully-selected, long-term municipal bonds
that offer a high level of income that is exempt from California state and
federal income taxes, while still attempting to preserve capital. Certain
shareholders may be subject to the federal alternative minimum tax, however.
There can be no assurance that the Series' investment objective will be
achieved.
Strategy Session.
Our strategy over the past six months was to take advantage of falling interest
rates (and rising bond prices) while keeping an eye out for any shift to higher
rates. And for most of the past six months, conditions couldn't have been much
better for municipal bonds. Sluggish national economic growth pushed inflation
lower and interest rates down by nearly a half a percentage point, as measured
by The Bond Buyer Revenue Bond Index. Second, the concern about tax reform that
had held back price gains diminished, allowing municipal bonds to rise in value
in recent months.
While conditions over the past six months were ideal nationally for municipal
bonds, they were improving dramatically in California as well. The state's
economy last year finally replaced all of the 520,000 jobs it lost in the
1990-93 recession.
In fact, California generated more employment last year than any other state in
the country. (California's economy, by the way, is the world's eighth largest).
The entertainment industry was the engine of growth, helping to offset losses
in defense-related industries.
But there were still some lingering concerns about state finance. Medicaid
funding remained the big issue facing California state legislators. Sacramento
is counting upon federal relief for soaring Medicaid costs to care for illegal
immigrants. And while an improving economy means more tax revenues to fund
these costs, it's not enough to close this gap. If federal relief is not
forthcoming, the state's fiscal stresses could increase.
A Word About Quality.
All California obligations purchased by the Series were considered investment
grade, meaning that they were of the four highest quality grades determined by
Moody's Investors Service (Aaa, Aa, A or Baa), by Standard & Poor's Ratings
Group (AAA, AA, A or BBB), or if unrated, considered comparable in the view of
our analysts.
Sector Breakdown.
Prudential California Municipal Fund
California Series as of 2/29/96
(GRAPH)
<PAGE>
What Went Well.
You Can Call Us, But Not Our Bonds.
Our investment in non-callable bonds, which can't be refunded ahead of schedule
by their issuers, was 42% of net assets on February 29, 1996. That helped lift
performance.
When interest rates fall, municipalities often "call" bonds, or repay the
principal value of their bonds early, so that they can reissue them at the
now-lower rates. This leaves investors in the lurch -- with only newly-issued
lower coupon bonds to replace their called higher-yielding holdings. So, we
intentionally focused on non-callable bonds because income-hungry investors
like them and their prices tend to rise more than callable bond prices when
interest rates fall.
As The Market Rallied, We Lengthened.
As part of our strategy to take advantage of falling interest rates, we bought
long-term bonds. Their prices rose dramatically when rates fell. Late last
summer we substantially lengthened our duration (a measure of sensitivity to
interest rates).
And Not So Well.
Not Lengthening Sooner.
Looking back, something we did right -- lengthening duration -- was also
something we could have done sooner. We began lengthening our duration late
last summer. If we had lengthened earlier -- like when the municipal bond rally
began in the spring of 1995 -- our performance would have been better. Why did
we wait? We were wary of municipal market volatility at the time. Tax-reform
plans that would have eliminated the tax exemption for municipal bond income
were the talk of Washington. If enacted, the longest-term municipal bonds would
have suffered most.
Five Largest Issuers.
6.7% Southern California
Public Power Authority
4.4% Metro Water District
Southern California
4.2% Santa Margarita/Dana
Point Authority
3.5% South Orange County
Public Finance Authority
3.5% Puerto Rico Public
Buildings Authority
Expressed as a percentage of total net assets as of 2/29/96.
Looking Ahead.
The California municipal market looks good to us in 1996. It has recovered
nicely from Orange County's bankruptcy filing in late 1994. California's
strengthening economy and low interest rates and inflation nationally make
municipal bonds here quite attractive.
What could go wrong? This is a presidential election year and resurfacing talk
of flat taxes and other types of income tax reform could roil the municipal
bond market. Volatility and election year politics seem to go
hand-in-hand.
- ------------------------------------------------------------------------------
1
<PAGE>
President's Letter
(PHOTO)
April 5, 1996
Dear Shareholder:
For many investors, 1995 was a profitable year -- most stock and bond funds
enjoyed healthy returns from the U.S. markets. While climbing returns can tempt
even the most skittish investors to start buying again, it is important to
remember that the stock and bond markets go down just as they go up. At times
like these, remember the importance of working with your Financial Advisor or
Registered Representative to help you find investments that are consistent with
your risk tolerance and time horizon. Your Financial Advisor or Registered
Representative can help you maintain realistic expectations about both the
potential performance and risks associated with your investments.
Shareholder Legislative Action Program.
From time to time we've been informing you about significant legislation before
Congress, such as the American Dream Savings Account, that may potentially
impact mutual fund investors. We want to make it easier for you to share your
views with your Congressional member. So, beginning in 1996, whenever Congress
is considering legislation that would affect you, we'll send you postage-paid
message cards that you simply drop in the mail if you want to let your senator
or representative know how you want him or her to vote.
Fund Profiles.
Over the past year, we've worked to make your shareholder reports more
interesting, informative and easy to read. This year, well be considering "fund
profiles." Some mutual fund companies now offer one to shareholders along with
a full prospectus. The purpose of a fund profile is to provide a very brief,
reader-friendly summary of a fund's objective, investments, risks and expenses.
Would you like to see fund profiles from us? Please call your Financial Advisor
or Registered Representative to share your views.
As always, thank you for your confidence in Prudential Mutual Funds.
Sincerely,
Richard A. Redeker
President
- ------------------------------------------------------------------------------
2
<PAGE>
Portfolio of Investments
as of February 29, 1996 PRUDENTIAL CALIFORNIA MUNICIPAL FUND
(Unaudited) CALIFORNIA 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--99.1%
- -----------------------------------------------------------------------------
- -------------------------------------------------
Alameda Impvt. Bond Act of 1915,
Marina Vlg. Assmt. Dist. 89-1 NR
7.55% 9/02/06 $ 1,700 $ 1,763,087
Marina Vlg. Assmt. Dist. 89-1 NR
7.65 9/02/09 1,120 1,163,669
Arcadia Unified Sch. Dist.,
Gen. Oblig., Ser. A, M.B.I.A Aaa
Zero 9/01/10 1,765 797,762
Gen. Oblig., Ser. A, M.B.I.A. Aaa
Zero 9/01/14 1,370 484,199
Gen. Oblig., Ser. A, M.B.I.A. Aaa
Zero 9/01/15 2,555 853,677
Gen. Oblig., Ser. A, M.B.I.A. Aaa
Zero 9/01/16 1,225 383,082
Gen. Oblig., Ser. A, M.B.I.A. Aaa
Zero 9/01/17 1,790 523,432
Bakersfield Pub. Fac. Corp., Cert. of Part., Wst. Wtr.
Treat. Plant, No. 3 A1
8.00 1/01/10 2,750 (c) 2,978,195
Baldwin Park Pub. Fin. Auth. Rev. BBB(b)
7.05 9/01/14 1,020 1,092,716
Berkeley Hosp. Rev., Alta Bates Hosp. Corp. Baa1
7.65 12/01/15 1,645 (c) 1,879,774
Brea Pub. Fin. Auth. Rev., Sub. Tax Alloc. Redev.
Proj., Ser. C NR
8.10 3/01/21 5,000 5,308,900
Buena Park Cmnty. Redev. Agcy. Tax Allocation, Central
Bus. Dist. Proj. BBB+(b)
7.10 9/01/14 2,500 2,660,575
California St. Brd. of Pub. Wks., Lease Rev., Univ. of
California at Santa Barbara, High Technology Facs.,
Ser. A A1
8.125 2/01/08 2,500 (c) 2,750,675
California St. Brd. of Pub., Wks. Lease Rev., Ser. A A1
5.00 6/01/23 3,115 2,779,390
California St. Hlth. Facs. Fin. Auth. Rev.,
Episcopal Homes Foundation, Ser. A A(b)
7.70 7/01/18 2,500 2,703,100
Eskaton Properties A(b)
7.50 5/01/20 4,500 (c) 5,090,040
California St. Hsg. Fin. Agcy. Rev., Sngl. Fam. Mtge.,
Ser. A Aa
Zero 2/01/15 8,420 1,347,958
California Statewide Cmnty. Dev. Corp., Children's
Hosp., M.B.I.A. Aaa
4.75 6/01/21 2,265 2,003,438
Chula Vista Redev. Agcy., Bayfront Tax Alloc. BBB+(b)
7.625 9/01/24 4,500 5,026,455
Contra Costa Cnty., Spec. Tax Cmnty. Facs. Dist. No.
1991-1, Pleasant Hill NR
8.125 8/01/16 1,300 1,387,152
Desert Hosp. Dist., Cert. of Part. AAA(b)
8.10 7/01/20 5,000 (c) 5,871,050
East Palo Alto Sanit. Dist., Cert. of Part. NR
8.25 10/01/15 1,295 1,401,799
Fairfield Pub. Fin. Auth. Rev., Fairfield Redev.
Projs., Ser. A NR
7.90 8/01/21 4,200 (c) 4,995,354
Fontana Cmnty. Facs., Dist. No. 2, Spec. Tax Rev., Ser.
B NR
8.50 9/01/17 3,000 3,196,380
Foothill/Eastern Trans. Corridor Agcy.
Toll Rd. Rev., 1995-A Baa
Zero 1/01/16 5,000 1,432,800
Toll Rd. Rev. Baa
Zero 1/01/18 2,950 745,288
Kings Cnty. Wst. Mgmt. Auth., Solid Wst. Rev. BBB+(b)
7.20 10/01/14 1,225 1,326,871
Long Beach Redev. Agcy. Dist. No. 3, Spec. Tax Rev. NR
6.375 9/01/23 3,000 2,870,970
Los Angeles Cnty., Cert. of Part.,
Civic Ctr. Heating & Refrigeration Plant A1
8.00 6/01/10 2,000 (c) 2,215,120
Correctional Facs. Proj., M.B.I.A. Aaa
Zero 9/01/10 3,770 1,656,613
Solheim Lutheran Home Inc. A(b)
8.125 11/01/17 2,000 (c) 2,182,100
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3 -----
<PAGE>
Portfolio of Investments
as of February 29, 1996 PRUDENTIAL CALIFORNIA MUNICIPAL FUND
(Unaudited) CALIFORNIA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C> <C>
<C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Los Angeles Cnty., Hsg. Auth., Multifam. Mtge. Rev.,
Mayflower Gardens Proj., Ser. K, G.N.M.A. AAA(b)
8.875% 12/20/10 $ 2,100(c) $ 2,560,341
Los Angeles Conv. & Exhib. Ctr. Auth., Cert. of Part. Aaa
9.00 12/01/10 1,250(c)/(e) 1,681,800
La Canada Unified School Dist.,
Capital Apprec., F.G.I.C. Aaa
Zero 8/01/12 1,600 640,832
Gen. Oblig., Tax Rev., F.G.I.C. Aaa
Zero 8/01/13 1,680 631,042
Manhattan Beach California Unified School Dist.,
Capital Apprec., Ser. A, F.G.I.C. Aaa
Zero 9/01/12 1,000 398,660
Capital Apprec., Ser. A, F.G.I.C. Aaa
Zero 9/01/13 1,250 467,325
Capital Apprec., Ser. A, F.G.I.C. Aaa
Zero 9/01/14 2,000 706,860
Capital Apprec., Ser. A, F.G.I.C. Aaa
Zero 9/01/15 2,605 870,383
Met. Wtr. Dist. of Southern California,
Rev. Linked S.A.V.R.S. & R.I.B.S. Aa
5.75 8/10/18 1,000 1,034,570
Waterworks Rev., Ser. A Aa
5.75 7/01/21 4,000 4,203,120
Waterworks Rev., Ser. B, M.B.I.A. Aaa
4.75 7/01/21 2,500 2,235,725
Mojave Desert & Solid Wst. Victor Valley Materials,
Recov. Fac. Baa1
7.875 6/01/20 1,175 1,293,828
Orange Cnty. Loc. Trans. Auth., S.A.V.R.S. & R.I.B.S.,
A.M.B.A.C. Aaa
6.20 2/14/11 4,000 4,333,280
Orange Cnty. Loc. Trans., Auth. Linked S.A.V.R.S. &
R.I.B.S. Aa
6.20 2/14/11 1,500 1,591,650
Petaluma City Joint Union High School Dist.,
Capital Apprec., M.B.I.A. Aaa
Zero 8/01/14 1,170 415,455
Capital Apprec., M.B.I.A. Aaa
Zero 8/01/15 1,600 537,088
Capital Apprec., M.B.I.A. Aaa
Zero 8/01/16 1,455 457,161
Capital Apprec., M.B.I.A. Aaa
Zero 8/01/17 3,015 885,837
Puerto Rico Public Bldgs. Auth. Rev., Govt. Facs., Ser.
A, A.M.B.A.C. Aaa
5.50 7/01/25 6,000 5,939,160
Redding Elec. Sys. Rev., Cert. of Part., Reg. Linked
S.A.V.R.S. & R.I.B.S., M.B.I.A. Aaa
6.368(d) 7/01/22 3,550 3,964,427
Roseville City Sch. Dist., Ser. A, F.G.I.C. Aaa
Zero 8/01/10 1,230 558,494
San Bernardino Cnty., Cert. of Part., Med. Ctr. Fin.
Proj. Baa1
5.50 8/01/22 4,400 4,066,260
San Francisco City & Cnty.,
Pub. Utils. Comn. Wtr. Rev. Aa
8.00 11/01/11 2,000 2,172,940
Redev. Agcy., Lease Rev. A
Zero 7/01/09 2,000 932,860
Santa Ana Tax Alloc., South Main St. Redev., M.B.I.A. Aaa
5.00 9/01/19 3,000 2,769,990
Santa Cruz Cnty. Pub. Fin. Auth. Rev., Tax Alloc. Sub.
Ln., Ser. B AAA(b)
7.625 9/01/21 2,350(c) 2,678,859
Santa Margarita, Dana Point Auth., M.B.I.A.,
Impvt. Dists. 3, 3A, 4 & 4A, Ser. B Aaa
7.25 8/01/09 2,400 2,915,328
Impvt. Dists. 3, 3A, 4 & 4A, Ser. B Aaa
7.25 8/01/14 1,000 1,216,810
Impvt. Dists. 3, 3A, 4, & 4A, Ser. B Aaa
7.25 8/01/08 2,500 3,031,275
So. Orange Cnty. Pub. Fin. Auth.,
Foothill Area Proj., F.G.I.C. Aaa
8.00 8/15/08 750 961,642
Foothill Area Proj., F.G.I.C. Aaa
6.50 8/15/10 750 853,163
Spec. Tax Rev., M.B.I.A. Aaa
7.00 9/01/11 3,500 4,148,410
</TABLE>
- --------------------------------------------------------------------------------
- ----- 4 See Notes to Financial Statements.
<PAGE>
Portfolio of Investments
as of February 29, 1996 PRUDENTIAL CALIFORNIA MUNICIPAL FUND
(Unaudited) CALIFORNIA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C> <C>
<C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Sonoma Cnty., Cert. of Part., Correctional Facs. Proj. NR
8.125% 6/01/12 $ 4,000(c) $ 4,336,040
South Tahoe Joint Pwr. Fin. Auth. Rfdg.,
Redev. Proj. No. 1, Ser. B BBB-(b)
6.25 10/01/20 1,000 997,440
Redev. Proj. No. 1, Ser. B BBB-(b)
6.00 10/01/28 2,100 2,010,309
Southern California Pub. Pwr. Auth.,
Proj. Rev. A
6.75 7/01/10 2,250 2,564,842
Proj. Rev. A
6.75 7/01/12 2,935 3,361,250
Proj. Rev., A
6.75 7/01/13 4,000 4,587,920
Proj. Rev., A.M.B.A.C. Aaa
Zero 7/01/16 7,925(c) 2,526,728
Proj. Rev., A.M.B.A.C. Aaa
4.75 7/01/16 1,000 907,660
Transmission Proj. Rev. Rfdg., Ser. A, F.G.I.C. Aaa
Zero 7/01/12 7,080(c) 2,871,577
Sulphur Springs Union Sch. Dist., Ser. A, M.B.I.A. Aaa
Zero 9/01/09 2,000 961,140
Torrance Redev. Agcy., Rfdg. Tax. Alloc., Downtown
Redev. Baa
7.125 9/01/21 1,580 1,679,287
Vacaville Cmnty. Redev. Agcy., Cmnty. Hsg. Fin.
Multifamily A-(b)
7.375 11/01/14 1,110 1,189,076
Victor Valley Union High Sch. Dist.,
Gen. Oblig., M.B.I.A. Aaa
Zero 9/01/09 2,075 997,183
Gen. Oblig., M.B.I.A. Aaa
Zero 9/01/15 5,070 1,693,988
Virgin Islands Terr., Hugo Ins. Claims Fund Prog., Ser.
91 NR
7.75 10/01/06 835 909,632
Walnut Valley Unified School Dist., M.B.I.A. Aaa
6.00 8/01/15 1,870 2,006,211
Whittier Hlth. Fac. Rev., Presbyterian Intercmnty.,
M.B.I.A. Aaa
6.25 6/01/09 2,240 2,483,488
Whittier Pub. Fin. Auth. Rev., Whittier Blvd. Redev.
Proj., Ser. A NR
7.50 9/01/14 825 859,485
------------
Total Investments--99.1%
(cost $154,653,056; Note 4)
168,969,452
Other assets in excess of liabilities--0.9%
1,496,585
------------
Net Assets--100%
$170,466,037
------------
------------
</TABLE>
- ---------------
(a) The following abbreviations are used in portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance Corporation.
F.G.I.C.--Financial Guaranty Insurance Company.
G.N.M.A.--Government National Mortgage Association.
M.B.I.A.--Municipal Bond Insurance Association.
R.I.B.S.--Residual Interest Bonds.
S.A.V.R.S.--Select Auction Variable Rate Securities.
(b) Standard & Poor's Rating.
(c) Prerefunded issues are secured by escrowed cash and/or direct U.S.
guaranteed obligations.
(d) Inverse floating rate bond. The coupon is inversely indexed to a floating
interest rate. The rate shown is the rate at period end.
(e) Pledged as initial margin on financial futures contracts.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains a description
of
Moody's and Standard & Poor's ratings.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5 -----
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL CALIFORNIA MUNICIPAL FUND
(Unaudited) CALIFORNIA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
February 29, 1996
<S>
<C>
Investments, at value (cost
$154,653,056).................................................................
$ 168,969,452
Cash.........................................................................
............................. 129,694
Interest
receivable...................................................................
.................... 2,478,436
Receivable for Series shares
sold.........................................................................
33,474
Due from broker - variation
margin........................................................................
10,125
Other
assets.......................................................................
....................... 3,709
-----------------
Total
assets.......................................................................
.................... 171,624,890
-----------------
Liabilities
Payable for Series shares
reacquired......................................................................
941,617
Dividends
payable......................................................................
................... 104,055
Management fee
payable......................................................................
.............. 62,221
Distribution fee
payable......................................................................
............ 46,299
Deferred trustee's
fees.........................................................................
.......... 4,661
-----------------
Total
liabilities..................................................................
.................... 1,158,853
-----------------
Net
Assets.......................................................................
......................... $ 170,466,037
-----------------
-----------------
Net assets were comprised of:
Shares of beneficial interest, at
par.................................................................. $
144,599
Paid-in capital in excess of
par.......................................................................
159,348,947
-----------------
159,493,546
Accumulated net realized loss on
investments...........................................................
(2,908,529)
Net unrealized appreciation on
investments.............................................................
13,881,020
-----------------
Net assets, February 29,
1996.........................................................................
.... $ 170,466,037
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($70,154,045 / 5,949,988 shares of beneficial interest issued and
outstanding)...................... $11.79
Maximum sales charge (3.0% of offering
price)..........................................................
.36
Maximum offering price to
public.......................................................................
$12.15
Class B:
Net asset value, offering price and redemption price per share
($100,068,825 / 8,489,243 shares of beneficial interest issued and
outstanding)..................... $11.79
Class C:
Net asset value, offering price and redemption price per share
($243,167 / 20,629 shares of beneficial interest issued and
outstanding)............................ $11.79
</TABLE>
- --------------------------------------------------------------------------------
- ----- 6 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA SERIES
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income February 29, 1996
-----------------
<S> <C>
Income
Interest................................ $ 5,507,514
-----------------
Expenses
Management fee.......................... 431,186
Distribution fee--Class A............... 34,818
Distribution fee--Class B............... 256,633
Distribution fee--Class C............... 695
Reports to shareholders................. 56,000
Transfer agent's fees and expenses...... 45,000
Custodian's fees and expenses........... 37,000
Registration fees....................... 15,000
Legal fees and expenses................. 12,000
Audit fees and expenses................. 8,000
Trustees' fees.......................... 4,000
Miscellaneous........................... 4,331
-----------------
Total expenses....................... 904,663
Less: Management fee waiver................ (43,119)
Custodian fee credit.................... (2,919)
-----------------
Net expenses......................... 858,625
-----------------
Net investment income...................... 4,648,889
-----------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions................. 2,318,851
Financial futures transactions.......... (472,965)
-----------------
1,845,886
-----------------
Net change in unrealized appreciation on:
Investments............................. 2,899,334
Financial futures contracts............. (320,688)
-----------------
2,578,646
-----------------
Net gain on investments.................... 4,424,532
-----------------
Net Increase in Net Assets
Resulting from Operations.................. $ 9,073,421
-----------------
-----------------
</TABLE>
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA SERIES
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) February 29, August 31,
in Net Assets 1996 1995
----------------- ------------
<S> <C> <C>
Operations
Net investment income...... $ 4,648,889 $ 10,047,914
Net realized gain (loss) on
investment
transactions............ 1,845,886 (198,389)
Net change in unrealized
appreciation of
investments............. 2,578,646 2,510,222
----------------- ------------
Net increase in net assets
resulting from
operations.............. 9,073,421 12,359,747
----------------- ------------
Dividends and distributions
(Note 1)
Dividends to shareholders
from net investment
income
Class A................. (1,959,738) (2,510,344)
Class B................. (2,684,543) (7,533,552)
Class C................. (4,608) (4,018)
----------------- ------------
(4,648,889) (10,047,914)
----------------- ------------
Series share transactions (net
of share conversions) (Note
5)
Net proceeds from shares
sold.................... 6,973,400 14,662,935
Net asset value of shares
issued in reinvestment
of dividends and
distributions........... 2,560,448 5,451,092
Cost of shares
reacquired.............. (15,915,298) (47,070,094)
----------------- ------------
Net decrease in net assets
from Series share
transactions............ (6,381,450) (26,956,067)
----------------- ------------
Total decrease................ (1,956,918) (24,644,234)
Net Assets
Beginning of period........... 172,422,955 197,067,189
----------------- ------------
End of period................. $ 170,466,037 $172,422,955
----------------- ------------
----------------- ------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7 -----
<PAGE>
Notes to Financial Statements PRUDENTIAL CALIFORNIA MUNICIPAL FUND
(Unaudited) CALIFORNIA SERIES
- --------------------------------------------------------------------------------
Prudential California Municipal 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
three series. The monies of each series are invested in separate, independently
managed portfolios. The California Series (the ``Series'') commenced investment
operations on September 19, 1984. The Series is diversified and seeks to achieve
its investment objective of obtaining the maximum amount of income exempt from
federal and California state income taxes with the minimum of risk by investing
in ``investment grade'' tax-exempt securities whose ratings are within the four
highest ratings categories by a nationally recognized statistical rating
organization or, if not rated, are of comparable quality. The ability of the
issuers of the securities held by the Series to meet their obligations may be
affected by economic developments in a specific state, industry or region.
- ------------------------------------------------------------
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund, and the Series, in the preparation of its financial statements.
Securities Valuations: The Series values municipal securities (including
commitments to purchase such securities on a ``when-issued'' basis) on the basis
of prices provided by a pricing service which uses information with respect to
transactions in bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities in
determining values. If market quotations are not readily available from such
pricing service, a security is valued at its fair value as determined under
procedures established by the Trustees.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost.
All securities are valued as of 4:15 P.M., New York time.
Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Series is required to pledge to the broker an amount of cash and/or other
assets equal to a certain percentage of the contract amount. This amount is
known as the ``initial margin''. Subsequent payments, known as ``variation
margin'', are made or received by the Series each day, depending on the daily
fluctuations in the value of the underlying security. Such variation margin is
recorded for financial statement purposes on a daily basis as unrealized gain
or
loss. When the contract expires or is closed, the gain or loss is realized and
is presented in the statement of operations as net realized gain(loss) on
financial futures contracts. The Series invests in financial futures contracts
in order to hedge its existing portfolio securities or securities the Series
intends to purchase, against fluctuations in value caused by changes in
prevailing interest rates. Should interest rates move unexpectedly, the Series
may not achieve the anticipated benefits of the financial futures contracts and
may realize a loss. The use of futures transactions involves the risk of
imperfect correlation in movements in the price of futures contracts, interest
rates and the underlying hedged assets.
Securities Transactions and 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 realized and unrealized
gains or losses are allocated daily to each class of shares based upon the
relative proportion of net assets of each class at the beginning of the day.
Federal Income Taxes: For federal income tax purposes, each series in the Fund
is treated as a separate taxpaying entity. It is the intent of the Series to
continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its net income to
shareholders. For this reason and because substantially all of the Series' gross
income consists of tax-exempt interest, no federal income tax provision is
required.
Dividends and Distributions: The Series declares daily dividends from net
investment income. Payment of dividends is made monthly. Distributions of net
capital gains, if any, are made annually.
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
Custody Fee Credits: The Fund has an arrangement with its custodian bank,
whereby uninvested monies earn credits which reduce the fees charged by the
custodian.
- --------------------------------------------------------------------------------
- ----- 8
<PAGE>
Notes to Financial Statements PRUDENTIAL CALIFORNIA MUNICIPAL FUND
(Unaudited) CALIFORNIA SERIES
- --------------------------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential Mutual Fund Management, Inc.
(``PMF''). Pursuant to this agreement, PMF has responsibility for all investment
advisory services and supervises the subadviser's performance of such services.
PMF has entered into a subadvisory agreement with The Prudential Investment
Corporation (``PIC''); PIC furnishes investment advisory services in connection
with the management of the Fund. PMF pays for the cost of the subadviser's
services, compensation of officers of the Fund, occupancy and certain clerical
and bookkeeping costs of the Fund. The Fund bears all other costs and expenses.
The management fee paid PMF is computed daily and payable monthly, at an annual
rate of .50 of 1% of the average daily net assets of the Series. PMF has agreed
to waive a portion (.05 of 1% of the Series' average daily net assets) of its
management fee, which amounted to $43,119 ($.003 per share). The Series is not
required to reimburse PMF for such waiver.
The Fund had distribution agreements with Prudential Mutual Fund Distributors,
Inc. (``PMFD''), which acts as the distributor of the Class A shares of the Fund
through January 1, 1996. Effective January 2, 1996, Prudential Securities
Incorporated (``PSI'') became the distributor of the Class A shares of the Fund
and is servicing the Fund under the same terms and conditions as under the
arrangement with PMFD. PSI is also the distributor of the Class B and Class C
shares of the Fund. The Fund compensated PMFD and PSI for distributing and
servicing the Fund's Class A, Class B and Class C shares, pursuant to plans of
distribution (the ``Class A, B and C Plans'') regardless of expenses actually
incurred by them. The distribution fees are accrued daily and payable monthly.
Pursuant to the Class A, B and C Plans, the Fund compensated PSI, and PMFD for
the period September 1, 1995 through January 1, 1996 with respect to Class A
shares, for distribution-related activities at an annual rate of up to .30 of
1%, .50 of 1% and 1%, of the average daily net assets of the Class A, B and C
shares, respectively. Such expenses under the Plans were .10 of 1%, .50 of 1%
and .75 of 1% of the average daily net assets of the Class A, B and C shares,
respectively, for the six months ended February 29, 1996.
PMFD and PSI have advised the Series that they have received approximately
$8,800 in front-end sales charges resulting from sales of Class A shares during
the six months ended February 29, 1996. From these fees, PMFD and PSI paid such
sales charges to Pruco Securities Corporation, an affiliated broker-dealer,
which in turn paid commissions to salespersons and incurred other distribution
costs.
PSI has advised the Series that for the six months ended February 29, 1996, it
received approximately $113,400 in contingent deferred sales charges imposed
upon certain redemptions by Class B and Class C shareholders.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
- ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services, Inc. (``PMFS''), a wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During the six months ended February
29, 1996, the Series incurred fees of approximately $31,200 for the services of
PMFS. As of February 29, 1996, approximately $5,200 of such fees were due to
PMFS. Transfer agent fees and expenses in the Statement of Operations include
certain out-of-pocket expenses paid to non-affiliates.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of portfolio securities of the Series, excluding short-term
investments, for the six months ended February 29, 1996 were $30,261,635 and
$37,191,382, respectively.
At February 29, 1996, the Series sold 81 financial futures contracts on U.S.
Treasury Bonds which expire in March 1996. The value at disposition of such
contracts was $9,737,720. The value of such contracts on February 29, 1996 was
$9,302,344, thereby resulting in an unrealized loss of $435,376.
The cost basis of investments for federal income tax purposes was substantially
the same as for financial reporting purposes and, accordingly, at February 29,
1996 net unrealized appreciation of investments for federal income tax purposes
was $14,316,396 (gross unrealized appreciation--$15,025,174; gross unrealized
depreciation--$708,778).
For federal income tax purposes, the Series has a capital loss carryforward as
of August 31, 1995 of approximately $4,882,400 which expires in 2003.
- ------------------------------------------------------------
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
- --------------------------------------------------------------------------------
9 -----
<PAGE>
Notes to Financial Statements PRUDENTIAL CALIFORNIA MUNICIPAL FUND
(Unaudited) CALIFORNIA SERIES
- --------------------------------------------------------------------------------
sold with a contingent deferred sales charge of 1% during the first year. Class
B shares will automatically convert to Class A shares on a quarterly basis
approximately seven years after purchase.
The Fund has authorized an unlimited number of shares of beneficial interest for
each class at $.01 par value per share. A special exchange privilege is also
available for shareholders who qualify to purchase Class A shares at net asset
value.
Transactions in shares of beneficial interest for the six months ended February
29, 1996 and fiscal year ended August 31, 1995 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------------ ---------- ------------
<S> <C> <C>
Six months ended February 29, 1996:
Shares sold......................... 225,054 $ 2,653,270
Shares issued in reinvestment of
dividends......................... 91,666 1,077,393
Shares reacquired................... (619,069) (7,292,735)
---------- ------------
Net decrease in shares outstanding
before conversion................. (302,349) (3,562,072)
Shares issued upon conversion from
Class B........................... 301,484 3,605,755
---------- ------------
Net decrease in shares
outstanding....................... (865) $ 43,683
---------- ------------
---------- ------------
Year ended August 31, 1995:
Shares sold......................... 378,328 $ 4,180,841
Shares issued in reinvestment of
dividends......................... 117,773 1,337,448
Shares reacquired................... (1,225,036) (13,742,541)
---------- ------------
Net decrease in shares outstanding
before conversion................. (728,935) (8,224,252)
Shares issued upon conversion from
Class B........................... 5,610,964 62,338,422
---------- ------------
Net increase in shares
outstanding....................... 4,882,029 $ 54,114,170
---------- ------------
---------- ------------
<CAPTION>
Class B Shares Amount
- ------------------------------------ ---------- ------------
<S> <C> <C>
Six months ended February 29, 1996:
Shares sold......................... 355,747 $ 4,194,044
Shares issued in reinvestment of
dividends......................... 125,962 1,479,353
Shares reacquired................... (731,436) (8,604,259)
---------- ------------
Net decrease in shares outstanding
before conversion................. (249,727) (2,930,862)
Shares reacquired upon conversion
into Class A...................... (301,484) (3,605,755)
---------- ------------
Net decrease in shares
outstanding....................... (551,211) $ (6,536,617)
---------- ------------
---------- ------------
Year ended August 31, 1995:
Shares sold......................... 928,019 $ 10,337,210
Shares issued in reinvestment of
dividends......................... 370,841 4,111,099
Shares reacquired................... (3,028,920) (33,303,902)
---------- ------------
Net decrease in shares outstanding
before conversion................. (1,730,060) (18,855,593)
Shares reacquired upon conversion
into
Class A........................... (5,610,964) (62,338,422)
---------- ------------
Net decrease in shares
outstanding....................... (7,341,024) $(81,194,015)
---------- ------------
---------- ------------
<CAPTION>
Class C
- ------------------------------------
<S> <C> <C>
Six months ended February 29, 1996:
Shares sold......................... 10,635 $ 126,086
Shares issued in reinvestment of
dividends......................... 314 3,702
Shares reacquired................... (1,557) (18,304)
---------- ------------
Net increase in shares
outstanding....................... 9,392 $ 111,484
---------- ------------
---------- ------------
Year ended August 31, 1995:
Shares sold......................... 13,073 $ 144,884
Shares issued in reinvestment of
dividends......................... 224 2,545
Shares reacquired................... (2,078) (23,651)
---------- ------------
Net increase in shares
outstanding....................... 11,219 $ 123,778
---------- ------------
---------- ------------
</TABLE>
- --------------------------------------------------------------------------------
- ----- 10
<PAGE>
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
Financial Highlights (Unaudited) CALIFORNIA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
- ----------------------------------------------------------------------
Six Months
Ended Year
Ended August 31,
February 29,
- -----------------------------------------------------
1996 1995 1994
1993 1992 1991
------------ ------- -------
- ------- ------ ------
<S> <C> <C> <C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period......................... $ 11.49 $ 11.30 $ 12.16
$ 11.48 $11.01 $10.57
------------ ------- -------
- ------- ------ ------
Income from investment operations
Net investment income............. .33(a) .66(a) .65
.69 .70 .69
Net realized and unrealized gain
(loss) on investment
transactions................... .30 .19 (.74)
.68 .47 .44
------------ ------- -------
- ------- ------ ------
Total from investment
operations.................. .63 .85 (.09)
1.37 1.17 1.13
------------ ------- -------
- ------- ------ ------
Less distributions
Dividends from net investment
income......................... (.33) (.66) (.65)
(.69) (.70) (.69)
Distributions from net realized
gains.......................... -- -- (.12)
-- -- --
------------ ------- -------
- ------- ------ ------
Total distributions............ (.33) (.66) (.77)
(.69) (.70) (.69)
------------ ------- -------
- ------- ------ ------
Net asset value, end of period.... $ 11.79 $ 11.49 $ 11.30
$ 12.16 $11.48 $11.01
------------ ------- -------
- ------- ------ ------
------------ ------- -------
- ------- ------ ------
TOTAL RETURN(b):.................. 5.52% 7.90% (0.80)%
12.30% 10.95% 10.98%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)... $70,154 $68,403 $12,082
$11,116 $5,388 $4,188
Average net assets (000).......... $70,018 $42,617 $11,812
$7,728 $4,322 $2,748
Ratios to average net assets:
Expenses, including
distribution fees........... .76%(a)/(c) .73%(a) .73%
.77% .82% .88%
Expenses, excluding
distribution fees........... .66%(a)/(c) .63%(a) .63%
.67% .72% .78%
Net investment income.......... 5.63%(a)/(c) 5.90%(a) 5.57%
5.82% 6.25% 6.37%
Portfolio turnover rate........... 18% 44% 69%
43% 53% 53%
</TABLE>
- ---------------
(a) Net of fee waiver.
(b) Total return does not consider the effects of sales loads. Total
return is calculated assuming a purchase of shares on the first
day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total returns for
periods of less than a full year are not annualized.
(c) Annualized.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 11 -----
<PAGE>
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
Financial Highlights (Unaudited) CALIFORNIA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class
B
- --------------------------------------------------------------------------------
Six Months
Ended Year
Ended August 31,
February 29,
- ------------------------------------------------------------
1996 1995 1994
1993 1992 1991
<S> <C> <C> <C>
<C> <C> <C>
------------ -------- --------
-------- -------- --------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period......................... $ 11.49 $ 11.29 $ 12.15
$ 11.48 $ 11.01 $ 10.57
------------ -------- --------
-------- -------- --------
Income from investment operations
Net investment income............. .31(a) .62(a) .60
.64 .66 .64
Net realized and unrealized gain
(loss) on investment
transactions................... .30 .20 (.74)
.67 .47 .44
------------ -------- --------
-------- -------- --------
Total from investment
operations.................. .61 .82 (.14)
1.31 1.13 1.08
------------ -------- --------
-------- -------- --------
Less distributions
Dividends from net investment
income......................... (.31) (.62) (.60)
(.64) (.66) (.64)
Distributions from net realized
gains.......................... -- -- (.12)
-- -- --
------------ -------- --------
-------- -------- --------
Total distributions............ (.31) (.62) (.72)
(.64) (.66) (.64)
------------ -------- --------
-------- -------- --------
Net asset value, end of period.... $ 11.79 $ 11.49 $ 11.29
$ 12.15 $ 11.48 $ 11.01
------------ -------- --------
-------- -------- --------
------------ -------- --------
-------- -------- --------
TOTAL RETURN(b):.................. 5.31% 7.56% (1.20)%
11.74% 10.52% 10.54%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)... $100,069 $103,891 $184,985
$207,634 $177,861 $169,190
Average net assets (000).......... $103,217 $136,275 $201,558
$190,944 $172,495 $169,220
Ratios to average net assets:
Expenses, including
distribution fees........... 1.16%(a)/(c) 1.13%(a) 1.13%
1.17% 1.22% 1.28%
Expenses, excluding
distribution fees........... .66%(a)/(c) .63%(a) .63%
.67% .72% .78%
Net investment income.......... 5.23%(a)/(c) 5.50%(a) 5.17%
5.44% 5.85% 5.98%
Portfolio turnover rate........... 18% 44% 69%
43% 53% 53%
<CAPTION>
Class C
August 1,
Six Months Year 1994(d)
Ended Ended through
February 29, August 31, August 31,
1996 1995 1994
<S> <C> <C> <C>
------------ ---------- ----------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period......................... $ 11.49 $11.29 $11.32
------ ----- -----
Income from investment operations
Net investment income............. .29(a) .59(a) .04
Net realized and unrealized gain
(loss) on investment
transactions................... .30 .20 (.03)
------ ----- -----
Total from investment
operations.................. .59 .79 .01
------ ----- -----
Less distributions
Dividends from net investment
income......................... (.29) (.59) (.04)
Distributions from net realized
gains.......................... -- -- --
------ ----- -----
Total distributions............ (.29) (.59) (.04)
------ ----- -----
Net asset value, end of period.... $ 11.79 $11.49 $11.29
------ ----- -----
------ ----- -----
TOTAL RETURN(b):.................. 5.18% 7.29% .05%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)... $243 $129 $200(e)
Average net assets (000).......... $186 $ 76 $199(e)
Ratios to average net assets:
Expenses, including
distribution fees........... 1.41%(a)/(c) 1.38%(a) 1.71%(c)
Expenses, excluding
distribution fees........... .66%(a)/(c) .63%(a) .96%(c)
Net investment income.......... 4.98%(a)/(c) 5.25%(a) 4.87%(c)
Portfolio turnover rate........... 18% 44% 69%
</TABLE>
- ---------------
(a) Net of fee waiver.
(b) Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a
sale on the last day of each period reported and includes reinvestment
of dividends and distributions. Total returns for periods of less than
a full year are not annualized.
(c) Annualized.
(d) Commencement of offering of Class C shares.
(e) Figures are actual and not rounded to the nearest thousand.
- --------------------------------------------------------------------------------
- ----- 12 See Notes to Financial Statements.
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
Internet Address:
http:\\www.prudential.com
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy Hays Teeters
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Eugene S. Stark, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributor
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Auditor
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
The views expressed in this report and information about the Series' portfolio
holdings are for the period covered by this report and are subject to change
thereafter.
The accompanying financial statements as of February 29, 1996 were not audited
and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
<PAGE>
(LOGO)
BULK RATE
U.S. POSTAGE
PAID
Permit 6807
New York, NY
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
744313107
744313206 MF116E2
744313701 Cat# 642111F
(ICON)
Prudential
California
Municipal
Fund
California Income
Series
SEMI
ANNUAL
REPORT
Feb. 29, 1996
(LOGO)
<PAGE>
Prudential California Municipal Fund
California Income Series
Performance At A Glance.
Lower interest rates and subdued inflation lifted tax-free municipal bond prices
higher over the past six months, continuing a trend that has been in place for
some time. 1995 was terrific for municipal bonds, which provided their best
total return in nine years, as measured by Lehman Brothers. We're pleased to
report that for the six-month period ended February 29, 1996 the Prudential
California Municipal Fund -- California Income Series performed better than
the average California municipal fund, as measured by Lipper Analytical
Services.
<TABLE>
<CAPTION>
Cumulative Total Returns1 As of 2/29/96
Six One Five Since
Months Year Years Inception2
<S> <C> <C> <C> <C>
Class A 6.0% 11.9% 55.7% 59.0%
Class B 5.8 11.4 N/A 13.3
Class C 5.6 11.1 N/A 13.5
Lipper CA Muni Avg3 5.6 10.3 46.4 177.7
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns1 As of 3/31/96
One Five Since
Year Years Inception2
<S> <C> <C> <C>
Class A 5.2% (4.8)4 8.2% (7.7)4 8.1% (7.7)4
Class B 3.0 (2.6)4 N/A 3.5 (3.0)4
Class C 6.7 (6.3)4 N/A 6.7 (6.4)4
</TABLE>
<TABLE>
<CAPTION>
Dividends
& Yields
As of
2/29/96 Taxable Equivalent
Yield5
Total Dividends 30-Day At Tax Rates Of
Paid for Six Mos. SEC Yield 36% 39.6%
<S> <C> <C> <C> <C>
Class A $0.32 5.44% (5.15)4 9.55% (9.04)4 10.12%
(9.58)4
Class B $0.30 5.21 (4.91)4 9.15 (8.62)4 9.69
(9.13)4
Class C $0.28 4.95 (4.66)4 8.69 (8.18)4 9.21
(8.67)4
</TABLE>
Past performance is not a guarantee of future results. Principal and investment
return will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
1Source: Prudential Mutual Fund Management and Lipper Analytical Services. The
cumulative total returns do not take into account sales charges. The average
annual returns do take into account applicable sales charges. All total returns
reflect a management fee waiver since inception. The Series charges a maximum
front-end sales load of 3% for Class A shares and a declining contingent
deferred sales charge (CDSC) of 5%, 4%, 3%, 2%, 1% and 1% for six years, for
Class B shares. Class C shares have a 1% CDSC for one year. Class B shares
automatically convert to Class A shares on a quarterly basis, after
approximately seven years.
2Inception dates: 12/3/90 Class A; 12/7/93, Class B; 8/1/94 Class C.
3The Lipper California Municipal Bond fund average includes 99 funds for six
months, 93 funds for one year, 45 funds for five years and 13 funds since
inception of the Class A shares on 12/3/90.
4Without waivers and expense subsidies the Series' average annual total
return/30-day SEC yield would have been lower, as indicated in parentheses ( ).
5Taxable equivalent yields reflect federal and applicable state tax rates.
How Investments Compared.
(As of 2/29/96)
(CHART)
Source: Lipper Analytical Services. Financial markets change, so a mutual fund's
past performance should never be used to predict future results. The risks to
each of the investments listed above are different -- we provide 12-month total
returns for several Lipper mutual fund categories to show you that reaching for
higher yields means tolerating more risk. The greater the risk, the larger the
potential reward or loss. In addition, we've added historical 20-year average
annual returns. The returns assume the reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors have received higher
historical total returns from stocks than from most other investments. Smaller
capitalization stocks offer greater potential for long-term growth but may be
more volatile than larger capitalization stocks. General Bond Funds provide
more income than stock funds, which can help smooth out their total returns
year by year. But their prices still fluctuate (sometimes significantly) and
their returns have been historically lower than those of stock funds.
General Municipal Debt Funds invest in bonds issued by state governments, state
agencies and/or municipalities. This investment provides income that is usually
exempt from federal and state income taxes.
Money Market Funds attempt to preserve a constant share value; they don't
fluctuate much in price but historically their returns have been generally
among the lowest of the major investment categories.
*19 years for General Muni Debt Funds.
<PAGE>
Christian Smith, Fund Manager
Portfolio
Manager's Report (PHOTO)
The Series looks to invest primarily in long-term municipal bonds that offer the
maximum amount of income that is exempt from California state and federal income
taxes, while still attempting to preserve capital. Certain shareholders may be
subject to the federal alternative minimum tax, however. There can be no
assurance that the Series' investment objective will be achieved.
Strategy Session.
Over the past six months, conditions couldn't have been much better for
municipal bonds. Sluggish national economic growth pushed inflation lower and
interest rates down by nearly a half a percentage point, as measured by The
Bond Buyer Revenue Bond Index. Concern about tax reform (that earlier sent
municipal bond prices lower) also diminished, allowing municipal bonds to
appreciate generally faster than taxable bonds in recent months.
Our strategy over the past six months was to take advantage of falling interest
rates (and rising bond prices) while keeping an eye out for the bottom. As it
turned out, this strategy -- which led us to focus on long-term bonds, which
are very sensitive to falling interest rates, was wise.
As part of our strategy we lengthened duration to its present 9.1 years.
Duration is a measure of a fund's sensitivity to changes in interest rates.
The longer a fund's duration, the better its performance as interest rates fall.
California's Comeback.
While conditions over the past six months were ideal nationally for municipal
bonds, they were improving dramatically in California as well. The state's
economy last year finally replaced all of the 520,000 jobs it lost in the
1990-93 recession. In fact, California generated more employment last year
than any other state in the country.
The entertainment industry was the engine of growth, helping to offset losses
in defense-related industries. But there were still some lingering concerns
about state finance. Medicaid funding remained the big issue facing California
state legislators. Sacramento is counting upon federal relief for soaring
Medicaid costs to care for illegal immigrants. And while an improving economy
means more tax revenues to fund these costs, it's not enough to close this gap.
If federal relief is not forthcoming, the state's fiscal stresses could
increase.
High Yields.
The Series may invest up to 30% of its total assets in high yield municipal
bonds, which are rated below investment grade. These bonds, also known as
"junk bonds," generally offer higher income than investment grade bonds, but
also pose greater credit risk. These bonds comprised 26% of the Series' assets
as of February 29, 1996.
Sector Breakdown.
Prudential California Municipal Fund
California Income Series as of 2/29/96
(CHART)
<PAGE>
What Went Well.
Using Credit Research
To Find Better Yields.
Over the past six months, we held a higher percentage of below investment grade
bonds than many of our competitors (26% of assets in bonds as of February 29,
1996).
These bonds can offer opportunities for high income, but in-depth credit
research is required to discover whether their higher risks are worth the
investment. One example is an 8 3/8% coupon bond issued by Vista Hospital, in
Corona, CA. This hospital is the dominant facility in its area and it issued
bonds to finance the purchase of the medical practice to strengthen its
strategic position in today's world of managed care. This bond yields nearly
three full percentage points higher than an insured bond. In our view, it was
a wise investment.
You Can Call Us, But
Not Our Bonds.
We purposely focused on non-callable bonds because they tend to perform
better than callable bonds when interest rates fall, as they did over the
past six months. Our investment, 37% of net assets as of February 29, 1996,
helped performance.
Non-callable bond prices tend to rise even more than callable bonds when rates
fall because they can't be redeemed ahead of schedule by their issuers. When
interest rates fall, municipalities often prefer to call, or repay the principal
value of their bonds, so that they can refinance at lower rates.
And Not So Well.
Not Lengthening Sooner.
Looking back, something we did right -- lengthening duration -- was also
something we could have done better. We began lengthening our duration late
last summer. If we had lengthened earlier -- like when the municipal bond rally
began in the spring of 1995 -- the Series' performance would have been better.
Why did we wait? We were wary of municipal market volatility at the time.
Tax-reform plans that would have eliminated the tax exemption for municipal
bond income were the talk of Washington. If enacted, the long-term municipal
bonds would have suffered most.
Five Largest
Issuers.
5.9% Southern Calif. Public
Power Authority
5.1% San Bernardino County
Certificates of
Participation
4.0% Orange County
Local Transportation
3.4% Torrance Redevelopment
Agency
2.8% Whittier, CA Health
Facilities
Expressed as a percentage of total net assets as of 2/29/96.
Looking Ahead.
The California municipal market looks good to us in 1996. It has recovered
nicely from Orange County's bankruptcy filing in late 1994. California's
strengthening economy, low interest rates and low inflation make municipal bonds
here quite attractive. What could go wrong? This is a presidential election year
and resurfacing talk of flat taxes and other types of income tax reform could
roil the municipal bond market. Volatility and election year politics seem to
go hand-in-hand.
1
<PAGE>
President's Letter April 5, 1996
Dear Shareholder:
For many investors, 1995 was a profitable year -- most stock and bond funds
enjoyed healthy returns from the U.S. markets. While climbing returns can
tempt even the most skittish investors to start buying again, it is important
to remember that the stock and bond markets go down just as they go up. At times
like these, remember the importance of working with your Financial Advisor or
Registered Representative to help you find investments that are consistent with
your risk tolerance and time horizon. Your Financial Advisor or Registered
Representative can help you maintain realistic expectations about both the
potential performance and risks associated with your investments.
Shareholder Legislative Action Program.
From time to time we've been informing you about significant legislation before
Congress, such as the American Dream Savings Account, that may potentially
impact mutual fund investors. We want to make it easier for you to share your
views with your Congressional member. So, beginning in 1996, whenever Congress
is considering legislation that would affect you, we'll send you postage-paid
message cards that you simply drop in the mail if you want to let your senator
or representative know how you want him or her to vote.
Fund Profiles.
Over the past year, we've worked to make your shareholder reports more
interesting, informative and easy to read. This year, we'll be considering
"fund profiles." Some mutual fund companies now offer one to shareholders along
with a full prospectus. The purpose of a fund profile is to provide a very
brief, reader-friendly summary of a fund's objective, investments, risks and
expenses. Would you like to see fund profiles from us? Please call your
Financial Advisor or Registered Representative to share your views.
As always, thank you for your confidence in Prudential Mutual Funds.
Sincerely,
Richard A. Redeker
President
<PAGE>
Portfolio of Investments
as of February 29, 1996 PRUDENTIAL CALIFORNIA MUNICIPAL FUND
(Unaudited) CALIFORNIA INCOME SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
LONG-TERM INVESTMENTS--98.6%
- -----------------------------------------------------------------------------
- -------------------------------------------------
Alameda Cmnty. Facs. Dist., Spec. Tax Rev. No. 1 NR
7.75% 9/01/19 $ 3,000 $ 3,159,960
Arcadia Unified Sch. Dist.,
Gen. Oblig., Ser. A, M.B.I.A. Aaa
Zero 9/01/09 1,200 576,684
Gen. Oblig., Ser. A, M.B.I.A. Aaa
Zero 9/01/11 1,875 796,312
Gen. Oblig., Ser. A, M.B.I.A. Aaa
Zero 9/01/12 2,045 815,260
Gen. Oblig., Ser. A, M.B.I.A. Aaa
Zero 9/01/13 1,205 450,501
Gen. Oblig., Ser. A, M.B.I.A. Aaa
Zero 9/01/18 1,940 524,169
Assoc. of Bay Area Govt's. Fin. Auth., Cert. of Part.,
Ser. A,
Channing House A(e)
7.125 1/01/21 1,500 1,626,585
Brea Pub. Fin. Auth. Rev., Tax Alloc. Redev. Proj., Ser. C NR
8.10 3/01/21 3,000 3,185,340
Buena Park Cmnty. Redev. Agcy., Cent. Bus. Dist. Proj. NR
7.80 9/01/14 3,325 3,485,531
California St. Dept. Wtr. Res. Rev., Central Valley Proj. Aa
7.00 12/01/12 1,000 1,184,660
California St. Edl. Facs. Auth. Rev., Chapman College Baa
7.50 1/01/18 600 645,738
California St. Gen. Oblig., A.M.B.A.C. Aaa
6.50 9/01/10 1,250 1,433,413
California Statewide Cmnty. Dev. Rev., Cert. of Part.,
Villaview Cmnty. Hosp. A(e)
7.00 9/01/09 1,000 1,089,240
Carson City Ltd. Oblig. Impvt. Rev., Assmt. Dist. NR
7.375 9/02/22 2,445 2,549,206
Chula Vista Cmnty. Redev. Agcy.,
Ref. Tax Alloc. Sr. Bayfront, Ser. A BBB+(e)
7.625 9/01/24 2,500 2,792,475
Ref. Tax Alloc. Sub. Bayfront, Ser. C NR
8.25 5/01/24 2,500 2,774,725
Contra Costa Cnty., Spec. Tax, Cmnty. Facs. Dist. No. 91-1 NR
8.125 8/01/16 1,520 1,621,901
Corona Cert. of Part., Vista Hosp. Sys. Inc., Ser. C NR
8.375 7/01/11 2,000 1,998,260
Delano, Cert. of Part., Reg. Med. Ctr., Ser. 92A NR
9.25 1/01/22 2,910 3,312,540
Desert Hosp. Dist., Cert. of Part. AAA(e)
8.10 7/01/20 2,000 (c) 2,348,420
East Palo Alto San. Dist., Cert. of Part. NR
8.25 10/01/15 500 541,235
El Dorado Cnty., Spec. Tax, Cmnty. Facs. Dist. No. 92-1 NR
8.25 9/01/24 2,000 2,219,980
Fairfield Impvt. Bond Act of 1915, No. Cordella Impvt.
Dist. NR
8.00 9/02/11 690 715,337
Fairfield Pub. Fin. Auth. Rev., Fairfield Redev. Projs.,
Ser. A NR
7.90 8/01/21 2,500 (c) 2,973,425
Folsom Spec. Tax, Cmnty. Facs. Dist. No. 2 NR
7.70 12/01/19 3,130 3,278,487
Fontana Pub. Fin. Auth., N. Fontana Tax Alloc. Rev. NR
7.65 12/01/09 1,575 (c) 1,862,453
Fontana Spec. Tax, Cmnty. Facs. Dist. No. 2, Ser. B NR
8.50 9/01/17 3,590 3,825,001
Foothill/Eastern Trans. Corr. Agcy., Toll Rd., Ser. A Baa
Zero 1/01/20 10,000 2,201,700
Gateway Impv. Auth. Rev., Marin City Cmnty. Facs. Dist.-A NR
7.75 9/01/25 2,100 2,170,581
Kings Cnty. Wst. Mgmt. Auth., Solid Wst. Rev. BBB+(e)
7.20 10/01/14 1,275 1,381,029
La Quinta Redev. Agcy.,
Tax Alloc., M.B.I.A. Aaa
7.30 9/01/10 1,000 1,228,250
Tax Alloc., M.B.I.A. Aaa
7.30 9/01/11 1,000 1,226,490
Long Beach Redev. Agcy. Hsg.,
Multifamily Hsg. Rev., Pacific Court Apts. NR
6.80 9/01/13 1,000 807,930
Multifamily Hsg. Rev., Pacific Court Apts. NR
6.95 9/01/23 1,500 1,190,175
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3 -----
<PAGE>
Portfolio of Investments
as of February 29, 1996 PRUDENTIAL CALIFORNIA MUNICIPAL FUND
(Unaudited) CALIFORNIA INCOME SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Los Angeles Cmnty. Facs. Dist.,
No. 3, Spec. Tax NR
7.125% 9/01/20 $ 2,500 $ 2,487,075
No. 5, Spec. Tax NR
7.25 9/01/19 1,500 1,556,925
Los Angeles Dept. of Wtr. & Pwr., Waterworks Rev. Aa
4.50 5/15/23 1,900 1,586,519
Lynwood Pub. Fin. Auth. Rev., Wtr. Sys. Impvt. Proj. BBB-(e)
6.50 6/01/21 1,500 1,518,915
Met. Wtr. Dist. of Southern California,
Waterworks Rev. Aa
5.75 8/10/18 1,000 1,034,570
Waterworks Rev., Ser. A Aa
5.75 7/01/21 2,000 2,101,560
Mojave Desert & Mtn Solid Waste Joint Pwrs Authority
California Project Revenue Baa1
7.875 6/01/20 1,175 1,293,828
Ontario California Impvt. Bond Act of 1915, Assmt. Dist.
100C - Com. CTR. III NR
8.00 9/02/11 1,410 1,461,705
Orange Cnty. Cmnty. Facs. Dist., Spec. Tax Rev.,
No. 87-4, Foothill Ranch, Ser. A NR
7.375 8/15/18 3,500(c) 4,137,175
No. 87-5B, Rancho Santa Margarita NR
7.50 8/15/17 1,750(c) 2,074,240
No. 88-1, Aliso Viejo, Ser. A AAA(e)
7.15 8/15/06 805(c) 943,943
Orange Cnty. Cmnty. Loc. Trans. Auth.,
Sales Tax Rev. Aa
6.20 2/14/11 1,500 1,591,650
Sales Tax Rev., A.M.B.A.C. Aaa
6.20 2/14/11 6,000 6,499,920
Perris Sch. Dist., Cert. of Part., Cap. Projs. NR
7.75 3/01/21 1,500(c) 1,756,560
Puerto Rico Hwy. & Trans. Auth. Rev., Ser. Q AAA(e)
7.75 7/01/10 2,100(d) 2,437,806
Puerto Rico Pub. Bldgs. Auth., Gtd. Pub. Ed. & Hlth.
Facs., Ser. J Baa1
Zero 7/01/06 1,605 944,960
Redding California Elec. Sys. Rev., Cert. of Part.,
M.B.I.A. Aaa
6.368(f) 7/01/22 3,750 4,187,775
Richmond Redev. Agcy. Rev., Multifamily Bridge Affordable
Hsg. NR
7.50 6/01/23 2,500 2,514,400
Riverside Cnty. Cert. of Part., Air Force Vlg. West NR
8.125 6/15/20 3,000 3,144,810
Riverside Cnty. Impvt. Bond Act 1915, Assmt. Dist. 159,
Ser. A NR
7.625 9/02/14 2,500 2,578,675
Rocklin Stanford Ranch Cmnty. No.3, Facs. Dist., Spec. Tax NR
8.10 11/01/15 1,000 1,178,400
Rocklin Unified Sch. Dist., Gen. Oblig.,
Cap. Apprec., Ser. C, M.B.I.A. Aaa
Zero 8/01/12 1,110 444,577
Cap. Apprec., Ser. C, M.B.I.A. Aaa
Zero 8/01/13 1,165 437,597
Cap. Apprec., Ser. C, M.B.I.A. Aaa
Zero 8/01/14 1,220 433,210
Cap. Apprec., Ser. C, M.B.I.A. Aaa
Zero 8/01/15 1,285 431,349
Cap. Apprec., Ser. C, M.B.I.A. Aaa
Zero 8/01/16 1,400 439,880
Roseville Jt. Union H.S. Dist., Ser. B, F.G.I.C. Aaa
Zero 6/01/20 5,000 1,220,250
Sacramento City. Fin. Auth.,
Cap. Apprec., Tax Alloc. Comb. Proj., Ser. B, M.B.I.A. Aaa
Zero 11/01/16 5,700 1,765,746
Cap. Apprec., Tax Alloc. Comb. Proj., Ser. B, M.B.I.A. Aaa
Zero 11/01/17 5,695 1,649,500
Sacramento Cnty. Spec. Tax Cmnty.,
Dist. No. 1, Elliot Ranch NR
8.20 8/01/21 2,000 2,121,640
Dist. No. 1, Laguna Creek Ranch NR
8.25 12/01/20 1,000 1,075,000
Sacramento Spec. Purpose Fac., Y.M.C.A. of Sacramento NR
7.25 12/01/18 2,200 2,244,066
</TABLE>
- --------------------------------------------------------------------------------
- ----- 4 See Notes to Financial Statements.
<PAGE>
Portfolio of Investments
as of February 29, 1996 PRUDENTIAL CALIFORNIA MUNICIPAL FUND
(Unaudited) CALIFORNIA INCOME SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
San Bernardino Cnty., Cert. of Part.,
Med. Ctr. Fin. Proj. Baa1
5.50% 8/01/22 $ 4,540 $ 4,195,641
Med. Ctr. Fin. Proj. Baa1
5.50 8/01/24 6,750 6,097,005
San Diego Cnty. Wtr. Auth., Wtr. Rev., Cert. of Part.,
F.G.I.C. Aaa
5.681(f) 4/23/08 2,000 2,096,460
San Diego Spec. Tax, Cmnty. Facs. Dist. No. 1, Ser. B NR
7.10 9/01/20 2,000 1,997,680
San Francisco City & Cnty.,
Redev. Agcy., Lease Rev. A
Zero 7/01/06 1,500 861,180
Redev. Agcy., Lease Rev. A
Zero 7/01/07 2,250 1,209,488
San Joaquin Hills Trans. Corridor Agcy., Toll Road Rev. NR
Zero 1/01/11 2,000 695,140
San Jose Redev. Proj., M.B.I.A. Aaa
6.00 8/01/15 3,000 3,203,520
Santa Margarita, Dana Point Auth.,
Impvt. Dist., Ser A, . M.B.I.A. Aaa
7.25 8/01/09 905 1,099,322
Impvt. Dist., Ser B, M.B.I.A. Aaa
7.25 8/01/14 1,000 1,216,810
South Orange Cnty., Pub. Fin. Auth.,
Foothill Area Proj., F.G.I.C. Aaa
8.00 8/15/08 750 961,642
Foothill Area Proj., F.G.I.C. Aaa
6.50 8/15/10 750 853,163
Spec. Tax Rev., M.B.I.A. Aaa
7.00 9/01/10 2,535 3,012,974
South San Francisco Redev., Agcy., Tax Alloc., Gateway
Redev. Proj. NR
7.60 9/01/18 2,375 2,513,463
South Tahoe Jt. Pwrs. Fin. Auth., Redev. Proj. Area No. 1,
Ser. B BBB-(e)
6.25 10/01/20 1,000 997,440
Southern California Pub. Pwr. Auth.,
Proj. Rev. A
6.75 7/01/10 6,250 7,124,562
Proj. Rev. A
6.75 7/01/13 3,000 3,440,940
Proj. Rev., A.M.B.A.C. Aaa
Zero 7/01/16 8,400 (c) 2,678,172
Proj. Rev., A.M.B.A.C. Aaa
4.75 7/01/16 1,500 1,361,490
Sulphur Springs Unified Sch. Dist., Ser. A, M.B.I.A. Aaa
Zero 9/01/11 3,000 1,274,100
Temecula Valley Unified Sch. Dist., Cmnty. Facs., Spec.
Tax Dist. No. 89-1 NR
8.60 9/01/17 2,600 2,737,696
Torrance Redev. Agcy.,
Tax Alloc. Downtown Redev. Baa
7.125 9/01/22 3,925 4,159,558
Tax Alloc. Ind. Redev. Proj. NR
7.75 9/01/13 2,500 2,614,075
Vacaville Cmnty. Redev. Agcy., Multifamily Hsg. Rev. A-(e)
7.375 11/01/14 1,110 1,189,076
Victor Valley,
Union H.S. Dist., M.B.I.A. Aaa
Zero 9/01/17 4,500 1,315,890
Union H.S. Dist., M.B.I.A. Aaa
Zero 9/01/19 5,450 1,389,369
Union H.S. Dist., M.B.I.A. Aaa
Zero 9/01/20 5,850 1,407,100
Virgin Islands Pub. Fin. Auth. Rev., Hwy. Trans. Trust
Fund BBB(e)
7.70 10/01/04 1,000 1,094,700
Virgin Islands Territory, Hugo Ins. Claims Fund Prog.,
Ser. 91 NR
7.75 10/01/06 1,080 1,176,530
West Contra Costa Unified Sch. Dist., Cert. of Part. Ba1
6.875 1/01/09 1,140 1,206,895
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5 -----
<PAGE>
Portfolio of Investments
as of February 29, 1996 PRUDENTIAL CALIFORNIA MUNICIPAL FUND
(Unaudited) CALIFORNIA INCOME SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
West Sacramento Impvt. Bond Act of 1915, Lighthouse Marina
Assmt. Dist. 90-1 NR
8.50% 9/02/17 $ 2,500 $ 2,500,000
Westminster Redev. Agcy., Tax Allocation Rev., Orange
County, Proj. No. 1, Ser. A Baa
7.30 8/01/21 3,000 3,197,160
Whittier Hlth. Fac. Rev.,
Presbyterian Inter. Cmnty., M.B.I.A. Aaa
6.25 6/01/09 2,580 2,860,446
Presbyterian Inter. Cmnty., M.B.I.A. Aaa
6.25 6/01/10 2,600 2,866,656
------------
Total long-term investments (cost $182,103,598)
197,892,562
------------
SHORT-TERM INVESTMENTS--0.8%
California Poll. Ctrl. Fin. Auth. Rev.,
Ultrapower Malaga Fresno Proj., Ser. 88A, F.R.D.D. P1
3.30 3/01/96 800 800,000
Ultrapower Malaga Fresno Proj., Ser. 88B, F.R.D.D. P1
3.30 3/01/96 400 400,000
Ultrapower Rocklin Proj., Ser. 88B, F.R.D.D. P1
3.30 3/01/96 300 300,000
------------
Total short-term investments (cost $1,500,000)
1,500,000
------------
Total Investments--99.4%
(cost $183,603,598; Note 4)
199,392,562
Other assets in excess of liabilities--0.6%
1,259,229
------------
Net Assets--100%
$200,651,791
------------
------------
</TABLE>
- ---------------
(a) The following abbreviations are used in portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance Corporation.
F.G.I.C.--Financial Guaranty Insurance Company.
F.R.D.D.--Floating Rate (Daily) Demand Note (b).
M.B.I.A.--Municipal Bond Insurance Association.
(b) For purposes of amortized cost valuation, the maturity date of such
securities is considered to be the later of the next date on which the
security can be redeemed at par or the next date on which the rate of
interest is adjusted.
(c) Prerefunded issues are secured by escrowed cash and/or direct U.S.
guaranteed obligations.
(d) Pledged as initial margin on financial futures contracts.
(e) Standard & Poor's Rating.
(f) Inverse floating rate bond. The coupon is inversely indexed to a floating
interest rate. The rate shown is the rate at period end.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains a description
of
Moody's and Standard & Poor's ratings.
- --------------------------------------------------------------------------------
- ----- 6 See Notes to Financial Statements.
<PAGE>
Statement of Assets and Liabilities PRUDENTIAL CALIFORNIA MUNICIPAL FUND
(Unaudited) CALIFORNIA INCOME SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
February 29, 1996
-----------------
<S>
<C>
Investments, at value (cost
$183,603,598)................................................................
$ 199,392,562
Cash.........................................................................
............................ 43,009
Interest
receivable...................................................................
................... 3,380,679
Receivable for Series shares
sold........................................................................
218,230
Recievable for investments
sold..........................................................................
30,000
Due from broker - variation
margin.......................................................................
5,875
Deferred expenses and other
assets.......................................................................
2,111
-----------------
Total
assets.......................................................................
................... 203,072,466
-----------------
Liabilities
Payable for investments
purchased....................................................................
.... 2,016,750
Payable for Series shares
reacquired.....................................................................
188,139
Dividends
payable......................................................................
.................. 135,496
Management fee
payable......................................................................
............. 32,230
Distribution fee
payable......................................................................
........... 28,563
Accrued
expenses.....................................................................
.................... 14,836
Deferred trustee's
fees.........................................................................
......... 4,661
-----------------
Total
liabilities..................................................................
................... 2,420,675
-----------------
Net
Assets.......................................................................
........................ $ 200,651,791
-----------------
-----------------
Net assets were comprised of:
Shares of beneficial interest, at
par................................................................. $
189,760
Paid-in capital in excess of
par......................................................................
188,552,528
-----------------
188,742,288
Accumulated net realized loss on
investments..........................................................
(3,609,023)
Net unrealized appreciation on
investments............................................................
15,518,526
-----------------
Net assets, February 29,
1996............................................................................
$ 200,651,791
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($164,052,023 / 15,514,793 shares of beneficial interest issued and
outstanding)................... $10.57
Maximum sales charge (3.0% of offering
price).........................................................
.33
-----------------
Maximum offering price to
public......................................................................
$10.90
-----------------
-----------------
Class B:
Net asset value, offering price and redemption price per share
($32,926,695 / 3,113,832 shares of beneficial interest issued and
outstanding)..................... $10.57
-----------------
-----------------
Class C:
Net asset value, offering price and redemption price per share
($3,673,073 / 347,358 shares of beneficial interest issued and
outstanding)........................ $10.57
-----------------
-----------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7 -----
<PAGE>
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA INCOME SERIES
Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Six Months
Ended
Net Investment Income February 29, 1996
-----------------
Income
Interest.................................. $ 6,393,480
-----------------
Expenses
Management fee............................ 495,962
Distribution fee--Class A................. 82,346
Distribution fee--Class B................. 76,855
Distribution fee--Class C................. 11,066
Custodian's fees and expenses............. 46,000
Transfer agent's fees and expenses........ 32,000
Reports to shareholders................... 31,000
Registration fees......................... 17,000
Audit fees and expenses................... 7,500
Legal fees and expenses................... 7,000
Trustees' fees............................ 4,000
Amortization of organizational expenses... 1,900
Miscellaneous............................. 5,985
-----------------
Total expenses......................... 818,614
Less: Management fee waiver............... (379,961)
Custodian fee credit.................. (2,422)
-----------------
Net expenses........................... 436,231
-----------------
Net investment income........................ 5,957,249
-----------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions................... 1,286,525
Financial futures transactions............ (298,731)
-----------------
987,794
-----------------
Net change in unrealized appreciation on:
Investments............................... 4,856,582
Financial futures contracts............... (258,251)
-----------------
4,598,331
-----------------
Net gain on investments...................... 5,586,125
-----------------
Net Increase in Net Assets Resulting
from Operations.............................. $11,543,374
-----------------
-----------------
</TABLE>
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA INCOME SERIES
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) February 29, August 31,
in Net Assets 1996 1995
<S> <C> <C>
Operations
Net investment income.......... $ 5,957,249 $ 12,281,825
Net realized gain (loss) on
investment transactions..... 987,794 (2,117,785)
Net change in unrealized
appreciation of
investments................. 4,598,331 3,177,885
------------ ------------
Net increase in net assets
resulting from operations... 11,543,374 13,341,925
------------ ------------
Dividends to shareholders from net
investment income (Note 1)
Class A........................ (5,004,249) (10,737,201)
Class B........................ (872,821) (1,442,735)
Class C........................ (80,179) (101,889)
------------ ------------
(5,957,249) (12,281,825)
------------ ------------
Series share transactions (net of
share conversions) (Note 5)
Net proceeds from shares
sold........................ 15,693,411 45,224,907
Net asset value of shares
issued to shareholders in
reinvestment of dividends
and distributions........... 2,699,009 5,353,440
Cost of shares reacquired...... (18,236,054) (60,456,281)
------------ ------------
Net increase (decrease) in net
assets from Series share
transactions................ 156,366 (9,877,934)
------------ ------------
Total increase (decrease)......... 5,742,491 (8,817,834)
Net Assets
Beginning of period............... 194,909,300 203,727,134
------------ ------------
End of period..................... $200,651,791 $194,909,300
------------ ------------
------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
- ----- 8 See Notes to Financial Statements.
<PAGE>
Notes to Financial Statements PRUDENTIAL CALIFORNIA MUNICIPAL FUND
(Unaudited) CALIFORNIA INCOME SERIES
- --------------------------------------------------------------------------------
Prudential California Municipal 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
three series. The monies of each series are invested in separate, independently
managed portfolios. The California Income Series (the ``Series'') commenced
investment operations on December 3, 1990. The Series is diversified and seeks
to achieve its investment objective of obtaining the maximum amount of income
exempt from federal and California state income taxes with the minimum of risk
by investing primarily in ``investment grade'' tax-exempt securities whose
ratings are within the four highest ratings categories by a nationally
recognized statistical rating organization or, if not rated, are of comparable
quality but may also invest in lower-quality tax-exempt securities. The ability
of the issuers of the securities held by the Series to meet their obligations
may be affected by economic developments in a specific state, industry or
region.
- ------------------------------------------------------------
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund, and the Series, in preparation of its financial statements.
Security Valuations: The Series values municipal securities (including
commitments to purchase such securities on a ``when-issued'' basis) on the basis
of prices provided by a pricing service which uses information with respect to
transactions in bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities in
determining values. If market quotations are not readily available from such
pricing service, a security is valued at its fair value as determined under
procedures established by the Trustees. Short-term securities which mature in
more than 60 days are valued at current market quotations.
Short-term securities which mature in 60 days or less are valued at amortized
cost.
All securities are valued as of 4:15 P.M., New York time.
Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Series is required to pledge to the broker an amount of cash and/or other
assets equal to a certain percentage of the contract amount. This amount is
known as the ``initial margin''. Subsequent payments, known as ``variation
margin'', are made or received by the Series each day, depending on the daily
fluctuations in the value of the underlying security. Such variation margin is
recorded for financial statement purposes on a daily basis as unrealized gain
or
loss. When the contract expires or is closed, the gain or loss is realized and
is presented in the statement of operations as net realized gain (loss) on
financial futures contracts.
The Series invests in financial futures contracts in order to hedge its existing
portfolio securities or securities the Series intends to purchase, against
fluctuations in value caused by changes in prevailing interest rates. Should
interest rates move unexpectedly, the Series may not achieve the anticipated
benefits of the financial futures contracts and may realize a loss. The use of
futures transactions involves the risk of imperfect correlation in movements in
the price of futures contracts, interest rates and the underlying hedged assets.
Securities Transactions and Net Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis. The Series amortizes premiums and original issue discount paid
on
purchases of portfolio securities as adjustments to interest income. Expenses
are recorded on the accrual basis which may require the use of certain estimates
by management.
Net investment income (other than distribution fees) and unrealized and realized
gains or losses are allocated daily to each class of shares based upon the
relative proportion of net assets of each class at the beginning of the day.
Federal Income Taxes: For federal income tax purposes, each series in the Fund
is treated as a separate taxpaying entity. It is the intent of the Series to
continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute all of its net income to
shareholders. For this reason and because substantially all of the Series' gross
income consists of tax-exempt interest, no federal income tax provision is
required.
Dividends and Distributions: The Series declares daily dividends from net
investment income. Payment of dividends is made monthly. Distributions of net
capital gains, if any, are made annually.
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
- --------------------------------------------------------------------------------
9 -----
<PAGE>
Notes to Financial Statements PRUDENTIAL CALIFORNIA MUNICIPAL FUND
(Unaudited) CALIFORNIA INCOME SERIES
- --------------------------------------------------------------------------------
Custody Fee Credits: The Fund has an arrangement with its custodian bank,
whereby univested monies earn credits which reduce the fees charged by the
custodian.
Deferred Organization Expenses: The Series incurred approximately $36,000 in
organization and initial registration expenses. Such amount has been amortized
over a period of 60 months ended December 1995.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential Mutual Fund Management, Inc.
(``PMF''). Pursuant to this agreement, PMF has responsibility for all investment
advisory services and supervises the subadviser's performance of such services.
PMF has entered into a subadvisory agreement with The Prudential Investment
Corporation (``PIC''); PIC furnishes investment advisory services in connection
with the management of the Fund. PMF pays for the cost of the subadviser's
services, the compensation of officers of the Fund, occupancy and certain
clerical and bookkeeping costs of the Fund. The Fund bears all other costs and
expenses.
The management fee paid PMF is computed daily and payable monthly, at an annual
rate of .50 of 1% of the average daily net assets of the Series. Effective
January 1, 1996, PMF decreased its voluntary waiver from 85% to 75% of its
management fee. The amount of such fees waived for the six months ended February
29, 1996 amounted to $379,961 ($.02 per share, .38% of average net assets). The
Series is not required to reimburse PMF for such waiver.
The Fund had a distribution agreement with Prudential Mutual Fund Distributors,
Inc. (``PMFD''), which acted as the distributor of the Class A shares of the
Fund through January 1, 1996. Effective January 2, 1996 Prudential Securities
Incorporated (``PSI'') became the distributor of the Class A shares of the Fund
and is serving the Fund under the same terms and conditions as under the
arrangement with PMFD, the distributor of the Class B and Class C shares of the
Fund. The Fund compensated PMFD and PSI for distributing and servicing the
Fund's Class A, Class B and Class C shares, pursuant to plans of distribution
(the ``Class A, B and C Plans''), regardless of expenses actually incurred by
them. The distribution fees are accrued daily and payable monthly.
Pursuant to the Class A, B and C Plans, the Fund compensated PSI, and PMFD for
the period September 1, 1995 through January 1, 1996 with respect to Class A
shares, for distribution-related activities at an annual rate of up to .30 of
1%, .50 of 1% and 1% of the average daily net assets of the Class A, B and C
shares, respectively. Such expenses under the Plans were .10 of 1%, .50 of 1%
and .75 of 1% of the average daily net assets of the Class A, B and C shares,
respectively, for the six months ended February 29, 1996.
PMFD and PSI have advised the Series that they have received approximately
$105,300 in front-end sales charges resulting from sales of Class A shares
during the six months ended February 29, 1996. From these fees, PMFD and PSI
paid such sales charges to Pruco Securities Corporation, an affiliated
broker-dealer, which in turn paid commissions to sales persons and incurred
other distribution costs.
PSI has advised the Series that for the six months ended February 29, 1996, it
received approximately $23,000 and $4,000 in contingent deferred sales charges
imposed upon certain redemptions by Class B and Class C shareholders,
respectively.
PMFD is a wholly-owned subsidiary of PMF; PSI, PMF, and PIC are indirect,
wholly-owned subsidiaries of The Prudential Insurance Company of America.
- ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services, Inc. (``PMFS''), a wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During the six months ended February
29, 1996, the Series incurred fees of approximately $23,000 for the services of
PMFS. As of February 29, 1996 approximately $4,000 of such fees were due to
PMFS. Transfer agent fees and expenses in the Statement of Operations include
certain out-of-pocket expenses paid to non-affiliates.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of portfolio securities of the Series, excluding short-term
investments, for the six months ended February 29, 1996 were $31,531,896 and
$30,435,243 respectively.
The cost basis of investments for federal income tax purposes was substantially
the same as for financial reporting purposes and accordingly, as of February 29,
1996 net unrealized appreciation on investments for federal income tax purposes
was $15,788,964 (gross unrealized appreciation--$16,358,990; gross unrealized
depreciation--$570,026).
At February 29, 1996, the Series held 47 financial futures contracts on U. S.
Treasury Bonds which expire in March 1996. The value at acquisition of such
- --------------------------------------------------------------------------------
- ----- 10
<PAGE>
Notes to Financial Statements PRUDENTIAL CALIFORNIA MUNICIPAL FUND
(Unaudited) CALIFORNIA INCOME SERIES
- --------------------------------------------------------------------------------
contracts was $5,668,094. The value of such contracts on February 29, 1996 was
$5,397,656, thereby resulting in an unrealized loss of $270,438.
For federal income tax purposes, the Series had a capital loss carryforward at
August 31, 1995, of approximately $2,741,000 which expires in 2003. Accordingly,
no capital gains distributions are expected to be paid to shareholders until net
gains have been realized in excess of such amount.
The Series has elected to treat approximately $1,685,900 of net capital losses
incurred in the ten-month period ended August 31, 1995, as having been incurred
in the current fiscal year.
- ------------------------------------------------------------
Note 5. Capital
The Series offers Class A, Class B and Class C shares. Class A shares are sold
with a front-end sales charge of up to 3%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Class C shares are sold with a contingent
deferred sales charge of 1% during the first year. Class B shares will
automatically convert to Class A shares on a quarterly basis approximately seven
years after purchase. A special exchange privilege is also available for
shareholders who qualify to purchase Class A shares at net asset value.
The Fund has authorized an unlimited number of shares of beneficial interest for
each class at $.01 par value per share.
Transactions in shares of beneficial interest for the six months ended February
29, 1996 and the fiscal year ended August 31, 1995 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ----------------------------------- ---------- ------------
<S> <C> <C>
Six months ended February 29, 1996:
Shares sold........................ 721,165 $ 7,628,749
Shares issued in reinvestment of
dividends........................ 215,558 2,267,123
Shares reacquired.................. (1,364,554) (14,406,518)
---------- ------------
Net decrease in shares outstanding
before conversion................ (427,831) (4,510,646)
Shares issued upon conversion from
Class B.......................... 31,853 341,781
---------- ------------
Net decrease in shares
outstanding...................... (395,978) $ (4,168,865)
---------- ------------
---------- ------------
<CAPTION>
Class A Shares Amount
- ----------------------------------- ---------- ------------
<S> <C> <C>
Year ended August 31, 1995:
Shares sold........................ 2,688,054 $ 26,760,642
Shares issued in reinvestment of
dividends........................ 465,901 4,658,191
Shares reacquired.................. (5,339,235) (52,933,797)
---------- ------------
Net decrease in shares outstanding
before conversion................ (2,185,280) (21,514,964)
Shares issued upon conversion from
Class B.......................... 64,557 643,530
---------- ------------
Net decrease in shares
outstanding...................... (2,120,723) $(20,871,434)
---------- ------------
---------- ------------
<CAPTION>
Class B
- -----------------------------------
<S> <C> <C>
Six months ended February 29, 1996:
Shares sold........................ 595,571 $ 6,298,267
Shares issued in reinvestment of
dividends........................ 35,172 370,118
Shares reacquired.................. (268,365) (2,834,519)
---------- ------------
Net increase in shares outstanding
before conversion................ 362,378 3,833,866
Shares reacquired upon conversion
into Class A..................... (31,853) (341,781)
---------- ------------
Net increase in shares
outstanding...................... 330,525 $ 3,492,085
---------- ------------
---------- ------------
Year ended August 31, 1995:
Shares sold........................ 1,511,295 $ 15,116,805
Shares issued in reinvestment of
dividends........................ 61,615 617,971
Shares reacquired.................. (582,865) (5,794,588)
---------- ------------
Net increase in shares outstanding
before conversion................ 990,045 9,940,188
Shares reacquired upon conversion
into Class A..................... (64,557) (643,530)
---------- ------------
Net increase in shares
outstanding...................... 925,488 $ 9,296,658
---------- ------------
---------- ------------
<CAPTION>
Class C
- -----------------------------------
<S> <C> <C>
Six months ended February 29, 1996:
Shares sold........................ 166,777 $ 1,766,395
Shares issued in reinvestment of
dividends........................ 5,868 61,768
Shares reacquired.................. (93,979) (995,017)
---------- ------------
Net Increase in shares
outstanding...................... 78,666 $ 833,146
---------- ------------
---------- ------------
Year ended August 31, 1995:
Shares sold........................ 330,637 $ 3,347,460
Shares issued in reinvestment of
dividends........................ 7,682 77,278
Shares reacquired.................. (173,108) (1,727,896)
---------- ------------
Net increase in shares
outstanding...................... 165,211 $ 1,696,842
---------- ------------
---------- ------------
</TABLE>
- --------------------------------------------------------------------------------
11 -----
<PAGE>
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
Financial Highlights (Unaudited) CALIFORNIA INCOME SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
- --------------------------------------------------------------------------------
December 3,
Six Months
1990(d)
Ended
Year Ended August 31, Through
February 29,
- ----------------------------------------------- August 31,
1996 1995
1994 1993 1992 1991
------------ --------
-------- -------- -------- -----------
PER SHARE OPERATING PERFORMANCE:
<S> <C> <C>
<C> <C> <C> <C>
Net asset value, beginning of period.......... $ 10.28 $ 10.19
$ 10.68 $ 10.08 $ 9.76 $ 9.55
------------ --------
-------- -------- -------- -----------
Income from investment operations
Net investment income(b)...................... .32 .65
.65 .67 .69 .51
Net realized and unrealized gain (loss) on
investment transactions.................... .29 .09
(.39) .65 .35 .21
------------ --------
-------- -------- -------- -----------
Total from investment operations........... .61 .74
.26 1.32 1.04 .72
------------ --------
-------- -------- -------- -----------
Less distributions
Dividends from net investment income.......... (.32) (.65)
(.65) (.67) (.69) (.51)
Distributions from net realized gains......... -- --
(.10) (.05) (.03) --
------------ --------
-------- -------- -------- -----------
Total distributions........................ (.32) (.65)
(.75) (.72) (.72) (.51)
------------ --------
-------- -------- -------- -----------
Net asset value, end of period................ $ 10.57 $ 10.28
$ 10.19 $ 10.68 $ 10.08 $ 9.76
------------ --------
-------- -------- -------- -----------
------------ --------
-------- -------- -------- -----------
TOTAL RETURN(c):.............................. 5.97% 7.67%
2.55% 13.67% 11.08% 7.97%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $164,052 $163,538
$183,742 $200,899 $141,101 $72,241
Average net assets (000)...................... $165,597 $165,500
$195,610 $165,895 $102,227 $47,540
Ratios to average net assets(b):
Expenses, including distribution fees...... .37%(a) .40%
.35% .20% .10% .0%(a)
Expenses, excluding distribution fees...... .27%(a) .30%
.25% .10% .04% .0%(a)
Net investment income...................... 6.08%(a) 6.49%
6.25% 6.52% 6.91% 7.04%(a)
Portfolio turnover............................ 16% 39%
46% 34% 69% 35%
</TABLE>
- ---------------
(a) Annualized.
(b) Net of expense subsidy and/or fee waiver.
(c) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(d) Commencement of investment operations.
- --------------------------------------------------------------------------------
- ----- 12 See Notes to Financial Statements.
<PAGE>
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
Financial Highlights (Unaudited) CALIFORNIA INCOME SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
Class C
- ------------------------------------------- ---------------------------
December 7,
Six Months
1993(d) Six Months
Ended Year Ended
Through Ended Year Ended
February 29, August 31,
August 31, February 29, August 31,
1996 1995
1994 1996 1995
------------ ----------
----------- ------------ -----------
<S> <C> <C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 10.28 $ 10.19
$ 10.61 $ 10.28 $10.19
------------ ----------
----------- ------------ -----------
Income from investment operations
Net investment income(b)...................... .30 .61
.44 .28 .58
Net realized and unrealized gain (loss) on
investment transactions.................... .29 .09
(.42) .29 .09
------------ ----------
----------- ------------ -----------
Total from investment operations........... .59 .70
.02 .57 .67
------------ ----------
----------- ------------ -----------
Less distributions
Dividends from net investment income.......... (.30) (.61)
(.44) (.28) (.58)
------------ ----------
----------- ------------ -----------
Total distributions........................ (.30) (.61)
(.44) (.28) (.58)
------------ ----------
----------- ------------ -----------
Net asset value, end of period................ $ 10.57 $ 10.28
$ 10.19 $ 10.57 $10.28
------------ ----------
----------- ------------ -----------
------------ ----------
----------- ------------ -----------
TOTAL RETURN(c):.............................. 5.76% 7.24%
(.14)% 5.63% 6.98%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $ 32,927 $ 28,609
$18,931 $ 3,673 $2,762
Average net assets (000)...................... $ 30,911 $ 23,722
$ 6,814 $ 2,967 $1,751
Ratios to average net assets(b):
Expenses, including distribution fees...... .77%(a) .80%
1.11%(a) 1.02%(a) 1.05%
Expenses, excluding distribution fees...... .27%(a) .30%
.43%(a) .27%(a) .30%
Net investment income...................... 5.68%(a) 6.09%
8.15%(a) 5.43%(a) 5.84%
Portfolio turnover rate....................... 16% 39%
46% 16% 39%
<CAPTION>
<S> <C>
August 1,
1994(e)
Through
August 31,
1994
-----
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $10.18
-----
Income from investment operations
Net investment income(b)...................... .05
Net realized and unrealized gain (loss) on
investment transactions.................... .01
-----
Total from investment operations........... .06
-----
Less distributions
Dividends from net investment income.......... (.05)
-----
Total distributions........................ (.05)
-----
Net asset value, end of period................ $10.19
-----
-----
TOTAL RETURN(c):.............................. .47%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $1,054
Average net assets (000)...................... $ 353
Ratios to average net assets(b):
Expenses, including distribution fees...... 1.12%(a)
Expenses, excluding distribution fees...... .37%(a)
Net investment income...................... 6.25%(a)
Portfolio turnover rate....................... 46%
</TABLE>
- ---------------
(a) Annualized.
(b) Net of expense subsidy and/or fee waiver.
(c) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(d) Commencement of offering of Class B shares.
(e) Commencement of offering of Class C shares.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 13 -----
Getting The Most
From Your
Prudential Mutual Fund
How many times have you read these letters -- or other financial materials
- -- and stumbled across a word that you don't understand?
Many shareholders have run into the same problem. We'd like to help. So we'll
use this space from time to time to explain some of the words you might have
read, but not understood. And if you have a favorite word that no one can
explain to your satisfaction, please write to us.
Basis Point: One 1/100th of 1%. For example, one half of one percentage point
is 50 basis points.
Call Option: A contract giving the holder a right to buy stocks or bonds at a
predetermined price (called the strike price) before a predetermined expiration
date. A buyer of a call option generally expects to benefit from a rise in the
price of the stock or bond.
Capital Gain/Capital Loss: The difference between the cost of a capital asset
(for example, a stock, bond or mutual fund share) and its selling price. Under
current law the federal income tax rate for individuals on a long-term capital
gain is 28%.
Collateralized Mortgage Obligations (CMOs): Pools of mortgage-backed securities
sliced in maturity ranges that bear differing interest rates. These instruments
are sensitive to changes in interest rates and homeowner refinancing activity.
They are subject to prepayment and maturity extension risk.
Derivatives: Securities that derive their value from another security. The rate
of return of these financial products rises and falls -- sometimes very suddenly
- -- in response to changes in some specific interest rate, currency, stock or
other variable.
Discount Rate: The interest rate charged by the Federal Reserve on loans to
banks and other depository institutions.
Federal Funds Rate: The interest rate charged by one bank to another on
overnight loans.
Futures Contract: An agreement to deliver a specific amount of a commodity or
financial instruments at a set price at a stipulated time in the future.
Leverage: The use of borrowed assets to enhance return on equity. The
expectation is that the interest rate charged will be lower than the return on
the investment. While leverage can increase profits, it can also magnify losses.
Liquidity: The ease with which a financial instrument (or mutual fund) can be
bought or sold (converted into cash) in the financial markets.
Option: An agreement to buy or sell something, such as shares of stock, by a
certain time for a specified price. An option need not be exercised. In fact,
most expire unexercised.
Price/Earnings Ratio: The price of a share of stock divided by the earnings
per share for a 12-month period.
Spread: The difference between two values; most often used to describe the
difference between prices bid and asked for a security.
Yankee Bond: A bond denominated in U.S. dollars but sold by a foreign company
or government in the U.S. market.
<PAGE>
Getting The Most
From Your
Prudential Mutual Fund
Change Your Mind.
You can exchange your shares in most Prudential Mutual Funds for shares in most
other Prudential Mutual Funds, without charges. This may be most helpful if your
investment needs change.
Reinvest Dividends Free Of Charge.
Reinvest your dividends and/or capital gains distributions automatically --
without charge.
Invest For Retirement.
There is no minimum investment for an IRA. Plus, you defer taxes on your
investment earnings by investing in an IRA.
If you'd like, you can contribute up to $2,000 a year in an IRA. If you are
married, you and your spouse (if not working outside the home) can contribute
up to $2,250 a year. (Withdrawals are taxed as ordinary income and may be
subject to a 10% penalty prior to age 59 1/2.)
Change Your Job.
You can take your pension with you. Use a rollover IRA to manage your
company-sponsored retirement plan while retaining the special tax-deferred
advantages.
Invest In Your Children.
There's no fee to open a custodial account for a child's education or other
needs.
Take Income.
Would you like to receive monthly or quarterly checks in any amount from your
fund account? Just let us know. We'll take care of it. Of course, there are
minimum amounts. And shares redeemed may be subject to tax, and Class B and C
shares may be subject to contingent deferred sales charges. We'll gladly answer
your questions.
Keep Informed.
We want to keep you up-to-date. Of course, you receive account activity
statements every quarter. But you also receive annual and semi-annual fund
reports, as well as other important updates on events that affect your
investments, including tax information.
This material is only authorized for distribution when preceded or accompanied
by a current prospectus. Read the prospectus carefully before you invest or send
money.
<PAGE>
How Does Your State Stack Up?
Economic conditions vary from state to state. While one region may be
experiencing strong fiscal management and prosperity, another may languish
under the weight of declining industry or chronic state budget problems.
State economic conditions, fiscal management and interest rates play dominant
roles in the performance of individual municipal bonds. A strong economy
generally leads to higher tax revenues and other income sources for the state,
enabling it to more easily repay its debts. Additionally, sound state financial
management often results in high ratings from bond rating agencies. High ratings
are attractive to investors and can help bonds retain value in the market.
California
- - World's 8th largest economy.
- - Entertainment jobs growing.
- - Recovery continues, but growth is expected to be below the national average.
- - Increasing tax revenues may not cover soaring Medicaid costs.
Hawaii
- - Tourism provides 60% of jobs.
- - Strong financial management.
- - Slow recovery from early-1990s U.S. and Japanese recessions, which bit into
tourism and real estate.
- - Government eliminated 1,100 state jobs.
Ohio
- - Shift from manufacturing to service trades.
- - Economic and personal income growth ahead of national averages.
- - Debt is low.
Pennsylvania
- - Slowly rebuilding economy, but needs new engine of growth.
- - Debt as a percentage of personal income is half the national average.
- - Sound financial management.
Michigan
- - Economic growth is 3.5%, higher than national average.
- - Once car capital of the world, now more diversified.
- - Strengthening fiscal management.
Massachusetts
- - Painful cuts in defense and health care eliminated jobs.
- - Slowly rebuilding economy.
- - Personal income is high.
New York
- - High taxes restrain growth.
- - Personal income remains high.
- - Debt level is high.
- - Federal budget Medicaid reform impasses threaten planned budget savings.
Maryland
- - One of wealthiest states.
- - Personal income 115% ofnational average, but income growth has stabilized.
- - Good financial controls.
Florida
- - Economy and personal income growing much faster than national rate.
- - Unemployment and debt are low.
- - Ended 1995 with a budget surplus for the third year in a row.
Connecticut
- - Nation's wealthiest citizens.
- - Economically weak from defense cuts.
- - Slow growth -- recovery may take years.
- - Attempts at "quick fixes" won't provide permanent relief.
New Jersey
- - Broad-based economy and high personal wealth.
- - Economic growth slowing.
- - "Pro-business" tactics siphoned revenue, but may spur more growth.
North Carolina
- - Robust, model economy.
- - Personal income quicklygrowing.
- - Unemployment well below national average.
- - New jobs from financial services, research and high technology.
- - Strong financial management.
Source: Prudential Investment Corporation. Selected states are those for which
Prudential Mutual Fund Management manages a state-specific municipal bond
mutual fund
Revised: April, 1996
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
Internet Address:
http:\\www.prudential.com
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy Hays Teeters
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Eugene S. Stark, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributor
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Auditor
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
The views expressed in this report and information about the Series' portfolio
holdings are for the period covered by this report and are subject to change
thereafter.
The accompanying financial statements as of February 29, 1996 were not audited
and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors unless
preceded or accompanied by a current prospectus.
<PAGE>
(LOGO)
BULK RATE
Prudential Mutual Funds U.S. POSTAGE
One Seaport Plaza PAID
New York, NY 10292 Permit 6807
Toll Free (800) 225-1852 New York, NY
744313305
744313404 MF146E2
744313800 Cat# 4443517
(ICON)
Prudential
California
Municipal
Fund
California
Money Market Series
SEMI
ANNUAL
REPORT
Feb. 29, 1996
(LOGO)
<PAGE>
Prudential California Municipal Fund
California Money Market Series
Performance At A Glance.
Despite declining short-term interest rates over the past six months,
the Prudential California Municipal Fund -- California Money Market Series
provided competitive, tax-free income. The Series' 7-day current yield
on February 29, 1996 was 2.77%, which was equivalent to a taxable yield
of 5.15% for individuals in the highest federal income tax bracket. The
yield was slightly ahead of the 2.76% reported by the average tax-free
California municipal money market fund tracked by IBC/Donoghue.
<TABLE>
Fund Facts As of 2/29/96
<CAPTION>
7-Day Net Asset Taxable Equivalent Yield1
Weighted Total Net
Current Yld. Value @31% @36% @39.6% Avg.
Mat. Assets (mil.)
<S> <C> <C> <C> <C> <C> <C>
<C>
CA Money
Market Series 2.77% $1.00 4.51% 4.86% 5.15% 42
Days $260.9
IBC/Donoghue
CA Tax-exempt 2.76 1.00 4.49 4.85 5.13 42
Days N/A
Fund Average 2
</TABLE>
Note: Yields will fluctuate from time to time and past performance is no
guarantee of future results. An investment in the Series is neither insured
nor guaranteed by the U.S. government and there can be no assurance that
the Series will be able to maintain a stable net asset value.
1 Some investors may be subject to the federal alternative minimum tax
and/or state and local taxes.Taxable equivalent yields reflect federal
and applicable state tax rates.
2 This is the average 7-day current yield, NAV and WAM of 47 funds in the
International Business Communications/Donoghue California tax-exempt money
market fund category as of February 29, 1996.
How Investments Compared.
(As of 2/29/96)
(GRAPH)
Source: Lipper Analytical Services. Financial markets change, so a mutual
fund's past performance should never be used to predict future results.
The risks to each of the investments listed above are different -- we
provide 12-month total returns for several Lipper mutual fund categories
to show you that reaching for higher yields means tolerating more risk.
The greater the risk, the larger the potential reward or loss. In addition,
we've added historical 20-year average annual returns. The returns assume
the reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors have received
higher historical total returns from stocks than from most other
investments. Smaller capitalization stocks offer greater potential
for long-term growth but may be more volatile than larger capitalization
stocks.
General Bond Funds provide more income than stock funds, which can help
smooth out their total returns year by year. But their prices still
fluctuate (sometimes significantly) and their returns have been historically
lower than those of stock funds.
General Municipal Debt Funds invest in bonds issued by state governments,
state agencies and/or municipalities. This investment provides income that
is usually exempt from federal and state income taxes.
U.S. Tax-Exempt Money Market Funds attempt to preserve a constant share
value and provide tax-free income; they don't fluctuate much in price but,
historically, their returns have been generally among the lowest of the
major investment categories.
* 19 years for General Muni Debt Funds.
* 18 years for Tax-Free Money Market Funds.
<PAGE>
Ken Potts, Fund Manager
Portfolio
Manager's Report
The Prudential California Municipal Fund -- California Money Market Series
seeks the highest current income that is exempt from federal and California
state income taxes, consistent with liquidity, the preservation of capital,
and maintenance of a stable net asset value of $1 per share. The Series
intends to invest in a portfolio of short-term municipal securities with
maturities of 13 months or less from the State of California, its
municipalities, local governments and other qualifying issuers (such
as Puerto Rico, Guam and the U.S. Virgin Islands).
Strategy Session.
Providing A Competitive
Tax-Free Yield.
Our strategy over the past six months was to provide a competitive tax-free
yield in a declining interest rate environment without sacrificing credit
quality. This was a challenge particularly when considering that California
short-term municipal securities are sometimes scarce. We accomplished this
by purchasing longer term securities than the average California tax-free
money market fund, which lifted yield since, at present, longer term
issues pay higher coupons.
Interest Rates Trended Lower.
(GRAPH)
Federal Funds Rate vs. One-Year Bond Buyer Index
This chart shows how interest rates for short-term taxable securities
(Federal Funds Rate) and tax-free securities (One-Year Bond Buyer Index)
have moved lower over the past 12 months.
Source: Bloomberg & the Bond Buyer. The One-Year Bond Buyer Index is
an average of one-year, tax-exempt notes of 10 issuers calculated by
the Bond Buyer weekly on Wednesdays.
Since our last report on August 31, 1995, we are pleased to note that
California's economy is strengthen-ing. For the first time in six years,
California's job creation rate exceeded that of the nation. Yet, job
losses continue to mount in defense-related industries, but they have
been more than offset by gains in the international trade, entertainment,
electronics and tourism industries. Because of the strong growth, the state
may realize a budget surplus of about $700 million for the current fiscal
year. Still, this may not be enough to counter mounting Medicaid spending
which has grown tremendously in recent years. Governor Wilson is seeking
federal relief from Washington. If it's not forthcoming, the state
budget could be jeopardized, further exacerbating the state's structural
fiscal problems.
<PAGE>
What Went Well.
We Went Long.
One of our better moves during the reporting period was extending the
Series' weighted average maturity. The weighted average maturity reflects
a money market fund's sensitivity to changes in interest rates. The longer
it is, the longer a money fund can sustain a higher yield when market
interest rates are falling which, in turn, means more tax-free income
for investors.
On August 31, 1995, the Series' weighted average maturity was two days
shorter than the 52 days for the average California tax-free money fund.
Since then we have positioned the Series about five to seven days longer
than the average of competing funds with similar investment criteria.
However, on February 29, 1996, our weighted average maturity stood at
42 days, equal to the 42 days for the IBC/Donoghue average.
And Not So Well.
Hindsight Is Always 20/20.
Looking back, if we knew in August where interest rates would have been
in January, then naturally we would have lengthened the Series weighted
average maturity even more than we did. We would have been able to lock
in higher yields, which would have paid more tax-free income. Unfortunately,
supply was a major consideration. The available securities were not of
sufficient credit quality for the Series to purchase. Furthermore we
had to maintain a higher level of liquidity to meet the anticipated
seasonal surge in Series redemptions (investors redeem to have cash
available for holiday purchases or for income tax reasons).
A Word
About Quality.
Your Series will typically purchase securities with maturities of one year
or less that are rated Aaa, Aa; Notes: MIG-1, MIG-2, P-1 or P-2 by Moody's
Investors Service, or AAA, AA; Notes: SP-1, SP-1+, A-1 or A-2 by Standard
& Poor's or, if not rated, deemed to be of comparable quality by the
Series' investment adviser. Although there is never a guarantee that
the share price of the California Money Market Series will stay at $1,
we emphasize a conservative, quality-oriented approach.
Looking Ahead.
As we went to press, economic news continued to be mixed, with some
reports indicating a strengthening U.S. economy while others a sluggish
one. Until the Federal Reserve gets a clearer picture of where the
economy is headed, we can expect a period (perhaps several months)
of unchanged monetary policy. Accordingly, we shall keep the Series'
weighted average maturity neutral to a few days longer than the
average tax-free money fund. It will give us the flexibility to
respond to changing market conditions while providing you with
tax-free income.
1
<PAGE>
President's Letter April 5, 1996
(PICTURE)
Dear Shareholder:
For many investors, 1995 was a profitable year -- most stock and bond
funds enjoyed healthy returns from the U.S. markets. While climbing
returns can tempt even the most skittish investors to start buying again,
it is important to remember that the stock and bond markets go down just
as they go up. At times like these, remember the importance of working
with your Financial Advisor or Registered Representative to help you
find investments that are consistent with your risk tolerance and time
horizon. Your Financial Advisor or Registered Representative can help
you maintain realistic expectations about both the potential performance
and risks associated with your investments.
Shareholder Legislative Action Program.
From time to time we've been informing you about significant legislation
before Congress, such as the American Dream Savings Account, that may
potentially impact mutual fund investors. We want to make it easier for
you to share your views with your Congressional member. So, beginning
in 1996, whenever Congress is considering legislation that would affect
you, we'll send you postage-paid message cards that you simply drop in
the mail if you want to let your senator or representative know how
you want him or her to vote.
Fund Profiles.
Over the past year, we've worked to make your shareholder reports more
interesting, informative and easy to read. This year, we'll be
considering "fund profiles." Some mutual fund companies now offer one
to shareholders along with a full prospectus. The purpose of a fund
profile is to provide a very brief, reader-friendly summary of a
fund's objective, investments, risks and expenses. Would you like
to see fund profiles from us? Please call your Financial Advisor or
Registered Representative to share your views.
As always, thank you for your confidence in Prudential Mutual Funds.
Sincerely,
Richard A. Redeker
President
2
<PAGE>
<TABLE>
Portfolio of Investments as of February 29, 1996 PRUDENTIAL CALIFORNIA
MUNICIPAL FUND
(Unaudited) CALIFORNIA MONEY MARKET
SERIES
- --------------------------------------------------------------------------------
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Aluminum Rock Union Elementary Sch. Dist., T.R.A.N., Ser.
95 SP1+(c)
4.25% 11/21/96 $ 5,000 $ 5,016,735
California Poll. Ctrl. Fin. Auth. Rev.,
Chevron U.S.A. Inc. Proj., A.O.T., Ser. 84 Aa2
4.50 5/15/96 4,155 4,155,000
Delano Proj., F.R.D.D., Ser. 89 P1
3.25 3/01/96 3,600 3,600,000
Delano Proj., F.R.D.D., Ser. 90 P1
3.25 3/01/96 4,600 4,600,000
Delano Proj., F.R.D.D., Ser. 91 P1
3.25 3/01/96 8,900 8,900,000
Exxon Corp. Proj., F.R.D.D., Ser. 89 P1
3.10 3/01/96 1,800 1,800,000
Honey Lake Pwr. Proj., F.R.D.D., Ser. 88 Aa3
3.25 3/01/96 9,800 9,800,000
San Diego Gas & Elec. Co. Proj., A.O.T. A1(c)
4.00 9/01/96 2,910 2,910,000
Shell Oil Co. Proj., F.R.D.D., Ser. 94A VMIG1
3.30 3/01/96 700 700,000
Shell Oil Co. Proj., F.R.D.D., Ser. 94B VMIG1
3.30 3/01/96 1,500 1,500,000
So. Cal. Ed., F.R.D.D., Ser. 86D VMIG1
3.50 3/01/96 4,100 4,100,000
U.S. Borax Inc. Proj., F.R.W.D., Ser. 95A Aa2
3.30 3/07/96 5,100 5,100,000
Ultrapower Malaga Fresno Proj., F.R.D.D., Ser. 88B P1
3.30 3/01/96 5,700 5,700,000
Ultrapower Malaga Fresno Proj., F.R.D.D., Ser. 88A P1
3.30 3/01/96 2,200 2,200,000
Ultrapower Rocklin Proj., F.R.D.D., Ser. 88B P1
3.30 3/01/96 400 400,000
Ultrapower Rocklin Proj., F.R.D.D., Ser. 88A P1
3.30 3/01/96 4,200 4,200,000
California St., R.A.W., Ser. 94C, F.G.I.C. AAA
5.75 4/25/96 10,300 10,339,875
California Statewide Cmntys. Dev. Auth.,
Apartment Dev. Rev., F.R.W.D., Ser. 95A-6 A1+(c)
3.00 3/06/96 3,500 3,500,000
Chevron Proj., F.R.D.D., Ser. 94 P1
3.30 3/01/96 690 690,000
Kimberly Woods Apts., F.R.W.D., Ser. 95B A1+(c)
3.25 3/06/96 8,000 8,000,000
Chula Vista Ind. Dev. Auth. Rev., San Diego Gas & Elec.
Co., T.E.C.P., Ser. 92C VMIG1
3.75 3/08/96 3,000 3,000,000
Del Mar Race Track Auth., T.E.C.P., Ser. 93 P1
3.15 5/17/96 2,000 2,000,000
East Bay Mun. Util. Dist., T.E.C.P. P1
3.60 3/21/96 10,000 10,000,000
Fowler Ind. Dev. Auth., Bee Sweet Citrus, F.R.W.D., Ser.
95 Aa3
3.45 3/07/96 2,000 2,000,000
King George Cnty. Va., Ind. Dev. Auth., Birchwood Pwr.
Proj., F.R.D.D., Ser. 94 A1+(c)
3.55 3/01/96 1,400 1,400,000
Kings Cnty. Multi-family Rev. Hsg. Auth., Edgewater Isle
Proj., F.R.W.D., Ser. 85A VMIG1
3.30 3/06/96 7,800 7,800,000
Los Angeles Cnty. Met. Trans. Auth. Rev., Union Station
Proj., F.R.W.D., Ser. A VMIG1
2.95 3/07/96 5,600 5,600,000
Los Angeles Cnty. Trans. Comm. Sales Tax Rev., F.R.W.D.,
Ser. A, F.G.I.C. VMIG1
2.75 3/06/96 4,600 4,600,000
Los Angeles Cnty., T.R.A.N. MIG1
4.50 7/01/96 11,300 11,326,625
Los Angeles Hsg. Auth., Multi-family Rev., Lanewood Apts.
Proj., F.R.W.D., Ser. 85 VMIG1
3.30 3/06/96 7,000 7,000,000
Monterey Cnty. Fin. Auth. Rev., Reclamation & Dist.
Projs., F.R.W.D., Ser. 95A VMIG1
3.45 3/07/96 4,000 4,000,000
Moorpark Ind. Dev. Auth. Rev., Kavli & Kavli Co.,
F.R.W.D., Ser. 85 VMIG1
3.30 3/07/96 6,795 6,795,000
Mount Diablo Unified School Dist., T.R.A.N., Ser. 95-96 SP1+(c)
4.50 10/24/96 7,000 7,026,154
Oakland Multi-family Hsg. Rev., Skyline Hills Assoc.,
F.R.W.D.,
Ser. 85A MIG1
3.00 3/07/96 6,700 6,700,000
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3 -----
<PAGE>
<TABLE>
Portfolio of Investments as of February 29, 1996 PRUDENTIAL CALIFORNIA
MUNICIPAL FUND
(Unaudited) CALIFORNIA MONEY MARKET
SERIES
- --------------------------------------------------------------------------------
<CAPTION>
Principal
Moody's
Interest Maturity Amount Value
Description (a) Rating
Rate Date (000) (Note 1)
<S> <C>
<C> <C> <C> <C>
- -----------------------------------------------------------------------------
- -------------------------------------------------
Olcese Wtr. Dist., Rio Bravo Wtr. Delivery Sys., T.E.C.P.,
Ser. 86A P1
3.45% 3/14/96 $ 7,300 $ 7,300,000
Ontario Multi-family Hsg. Rev., Park Ctr. Proj., F.R.W.D.,
Ser. 85A VMIG1
3.15 3/07/96 8,400 8,400,000
Palmdale Cmnty. Redev. Agy., Manzanita Villa Apts. Proj.,
F.R.W.D., Ser. 93A VMIG1
3.20 3/07/96 4,800 4,800,000
Puerto Rico Comnwlth., Gov't. Dev. Bank, F.R.W.D., Ser. 85 VMIG1
2.80 3/06/96 800 800,000
Riverside Cnty. Hsg. Auth., McKinely Hills Apt. Proj.,
F.R.W.D., Ser. 85R A1+(c)
3.375 3/07/96 11,000 11,000,000
Sacramento Muni. Util. Dist., T.E.C.P., Ser. I P1
3.55 4/09/96 10,000 10,000,000
San Diego Cnty., T.E.C.P., Ser. 95B P1
3.40 3/05/96 3,500 3,500,000
San Francisco Cnty. Redev. Fin. Auth. Rev., Yerba Buena
Gardens, F.R.W.D., Ser. 95 VMIG1
3.25 3/06/96 6,900 6,900,000
San Francisco Cnty., Unified School Dist., T.R.A.N., Ser.
95 MIG1
4.50 7/25/96 7,200 7,216,560
San Lorenzo Unified School Dist., T.R.A.N. SP1+(c)
4.75 7/05/96 4,800 4,813,190
San Marcos Ind. Dev. Auth. Rev., Village Square Proj.,
F.R.W.D., Ser. 92 Aa2
3.30 3/07/96 3,700 3,700,000
Sonoma Cnty., T.R.A.N. SP1+(c)
4.25 11/01/96 6,000 6,015,465
Southern Pub. Pwr. Auth., Transmission Proj. Rev.,
F.R.W.D.,
Ser. 91, A.M.B.A.C. P1
2.75 3/06/96 5,400 5,400,000
Visalia, Cert. of Part., Convention Ctr., F.R.W.D. A1+(c)
3.35 3/06/96 8,380 8,380,000
------------
Total Investments--97.6%
(cost $254,684,604(d))
254,684,604
Other assets in excess of liabilities--2.4%
6,172,394
------------
Net Assets--100%
$260,856,998
------------
------------
</TABLE>
- ---------------
(a) The following abbreviations are used in portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance Corporation.
A.O.T.--Annual Optional Tender.
F.G.I.C.--Financial Guaranty Insurance Company.
F.R.D.D.--Floating Rate (Daily) Demand Note (b).
F.R.W.D.--Floating Rate (Weekly) Demand Note (b).
R.A.W.--Revenue Anticipation Warrant.
T.E.C.P.--Tax-Exempt Commercial Paper.
T.R.A.N.--Tax & Revenue Anticipation Note.
(b) For purposes of amortized cost valuation, the maturity date of Floating Rate
Demand Notes is considered to be the later of the next date on which the
security can be redeemed at par, or the next date on which the rate of
interest is adjusted.
(c) Standard & Poor's Rating.
(d) The cost of securities for federal income tax purposes is substantially the
same as for financial reporting purposes.
The Fund's current Statement of Additional Information contains a description
of
Moody's and Standard & Poor's ratings.
- --------------------------------------------------------------------------------
- ----- 4 See Notes to Financial Statements.
<PAGE>
Statement of Assets and PRUDENTIAL CALIFORNIA MUNICIPAL FUND
Liabilities (Unaudited) CALIFORNIA MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<S>
<C>
Assets
February 29, 1996
Investments, at amortized cost which approximates market
value........................................... $ 254,684,604
Cash.........................................................................
............................ 1,993,873
Receivable for Series shares
sold........................................................................
4,394,034
Receivable for investments
sold..........................................................................
3,802,157
Interest
receivable...................................................................
................... 2,130,838
Other
assets.......................................................................
...................... 4,085
-----------------
Total
assets.......................................................................
................... 267,009,591
-----------------
Liabilities
Payable for Series shares
reacquired.....................................................................
5,911,906
Management fee
payable......................................................................
............. 98,052
Dividends
payable......................................................................
.................. 81,260
Accrued expenses and other
liabilities...................................................................
43,629
Distribution fee
payable......................................................................
........... 13,085
Deferred trustee's
fee..........................................................................
......... 4,661
-----------------
Total
liabilities..................................................................
................... 6,152,593
-----------------
Net
Assets.......................................................................
........................ $ 260,856,998
-----------------
-----------------
Net assets were comprised of:
Shares of beneficial interest, at $.01 par
value...................................................... $ 2,608,570
Paid-in capital in excess of
par......................................................................
258,248,428
-----------------
Net assets, February 29,
1996............................................................................
$ 260,856,998
-----------------
-----------------
Net asset value, offering price and redemption price per share
($260,856,998 / 260,856,998 shares of beneficial interest issued and
outstanding; unlimited number of
shares
authorized)..................................................................
.................. $1.00
-----------------
-----------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5 -----
<PAGE>
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA MONEY MARKET SERIES
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Six Months
Ended
Net Investment Income February 29, 1996
-----------------
Income
Interest................................ $ 4,440,878
-----------------
Expenses
Management fee.......................... 596,312
Distribution fee........................ 149,078
Transfer agent's fees and expenses...... 60,000
Custodian's fees and expenses........... 34,000
Reports to shareholders................. 18,000
Registration fees....................... 12,000
Audit fee and expenses.................. 7,500
Legal fees and expenses................. 7,000
Insurance expense....................... 4,000
Trustees' fees.......................... 4,000
Miscellaneous........................... 1,520
-----------------
Total expenses....................... 893,410
Less: Custodian fee credit................. (2,919)
-----------------
Net expenses............................ 890,491
-----------------
Net investment income...................... 3,550,387
Realized Gain on Investments
Net realized gain on investment
transactions............................ 1,708
-----------------
Net Increase in Net Assets
Resulting from Operations.................. $ 3,552,095
-----------------
-----------------
</TABLE>
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA MONEY MARKET SERIES
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) February 29, August 31,
in Net Assets 1996 1995
--------------- ---------------
<S> <C> <C>
Operations
Net investment income..... $ 3,550,387 $ 7,126,820
Net realized gain (loss)
on investment
transactions........... 1,708 (2,750,000)
--------------- ---------------
Net increase in net assets
resulting from
operations............. 3,552,095 4,376,820
--------------- ---------------
Dividends and distributions
to shareholders (Note
1)........................ (3,552,095) (7,126,820)
--------------- ---------------
Series share transactions (at
$1 per share)
Net proceeds from shares
sold................... 818,210,839 1,409,780,343
Net asset value of shares
issued to shareholders
in reinvestment of
dividends and
distributions.......... 3,428,263 6,813,982
Cost of shares
reacquired............. (790,161,965) (1,487,890,017)
--------------- ---------------
Net increase (decrease) in
net assets from Series
share transactions..... 31,477,137 (71,295,692)
--------------- ---------------
Capital contribution by
affiliate (Note 3)........ -- 2,750,000
--------------- ---------------
Total increase (decrease).... 31,477,137 (71,295,692)
Net Assets
Beginning of period.......... 229,379,861 300,675,553
--------------- ---------------
End of period................ $ 260,856,998 $ 229,379,861
--------------- ---------------
--------------- ---------------
</TABLE>
- --------------------------------------------------------------------------------
- ----- 6 See Notes to Financial Statements.
<PAGE>
Notes to Financial Statements PRUDENTIAL CALIFORNIA MUNICIPAL FUND
(Unaudited) CALIFORNIA MONEY MARKET SERIES
- --------------------------------------------------------------------------------
Prudential California Municipal 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
three series. The monies of each series are invested in separate, independently
managed portfolios. The California Money Market Series (the ``Series'')
commenced investment operations on March 3, 1989. The Series is diversified and
seeks to achieve its investment objective of obtaining the maximum amount of
income exempt from California state and federal income taxes with the minimum
risk by investing in ``investment grade'' tax-exempt securities having a
maturity of thirteen months or less whose ratings are within the two highest
ratings categories by 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 continue to distribute all of its net
income to shareholders. For this reason and because substantially all of the
Series' gross income consists of tax-exempt interest, no federal income tax
provision is required.
Dividends: The Series declares daily dividends from net investment income.
Payment of dividends is made monthly.
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
Custody Fee Credits: The Fund has an arrangement with its custodian bank,
whereby uninvested monies earn credits which reduce the fees charged by the
custodian.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential Mutual Fund Management, Inc.
(``PMF''). Pursuant to this agreement PMF has responsibility for all investment
advisory services and supervises the subadviser's performance of such services.
PMF has entered into a subadvisory agreement with The Prudential Investment
Corporation (``PIC''); PIC furnishes investment advisory services in connection
with the management of the Fund. PMF pays for the cost of the subadviser's
services, the compensation of officers of the Fund, occupancy and certain
clerical and bookkeeping costs of the Fund. The Fund bears all other costs and
expenses.
The management fee paid PMF is computed daily and payable monthly, at the annual
rate of .50 of 1% of the average daily net assets of the Series.
The Fund had a distribution agreement with Prudential Mutual Fund Distributors,
Inc. (``PMFD'') which acted as the distributor of the Fund through January 1,
1996. Effective January 2, 1996, Prudential Securities Incorporated (``PSI'')
became the distributor of the Fund and is serving the Fund under the same terms
and conditions as under the arrangement with PMFD. The Series reimbursed PMFD
and PSI for distributing and servicing the Series' shares pursuant to the plan
of distribution at an annual rate of .125 of 1% of the Series' average daily net
assets. The distribution fee is accrued daily and payable monthly.
PMFD is a wholly-owned subsidiary of PMF; PSI, PIC, and PMF are (indirect)
wholly-owned subsidiaries of The Prudential Insurance Company of America.
- ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services, Inc. (``PMFS''), a wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During the six months ended February
29, 1996, the Series incurred fees of approximately $49,000 for the services of
PMFS. As of February 29, 1996, approximately $8,000 of such fees were due to
PMFS. Transfer agent fees and expenses in
- --------------------------------------------------------------------------------
7 -----
<PAGE>
Notes to Financial Statements PRUDENTIAL CALIFORNIA MUNICIPAL FUND
(Unaudited) CALIFORNIA MONEY MARKET SERIES
- --------------------------------------------------------------------------------
the Statement of Operations include certain out-of-pocket expenses paid to
non-affiliates.
At the time of the financial crisis in Orange County, California in late 1994,
the Series held (i) $15,000,000 principal amount of Orange County, California,
Teeter Plan Tax-Exempt Notes due June 30, 1995 (Teeter Notes) and (ii)
$10,000,000 principal amount of Orange County, California, Tax Revenue
Anticipation Notes due July 19, 1995 (TRANS A Notes) (collectively, the Orange
County Notes).
On December 7, 1994, Prudential Securities Group, Inc. (``PSG''), an indirect
wholly-owned subsidiary of The Prudential Insurance Company of America and the
parent company of PSI, entered into put agreements with the Series with respect
to the Orange County Notes. The put agreements, originally scheduled to expire
on March 6, 1995, were subsequently extended to the maturity dates of the
respective Orange County Notes. The put agreements provided that the Fund had
the unconditional right at maturity to require PSG to purchase the Orange County
Notes from the Series at par value plus accrued interest. The Series recorded
a
loss on the Orange County Notes and an associated capital contribution to the
Series equal in value to the decline in fair market value of the Orange County
Notes as of December 7, 1994.
On June 30, 1995 the Teeter Notes matured, the Series received par value plus
accrued interest in the normal course of business from Orange County and the put
expired unexercised. On July 19, 1995, with Orange County having defaulted on
its obligations with respect to the TRANS A Notes, the Series put (sold) the
TRANS A Notes to PSG in return for par value plus accrued interest in accordance
with the terms of the put agreement. Accordingly, shareholders of the Series
have incurred no loss of principal or reduction in income, except for certain
legal costs, as a result of its ownership of the Orange County Notes. Since July
19, 1995 the Series has not owned any Orange County, California obligations.
- --------------------------------------------------------------------------------
- ----- 8
<PAGE>
Notes to Financial Statements PRUDENTIAL CALIFORNIA MUNICIPAL FUND
(Unaudited) CALIFORNIA MONEY MARKET SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended August 31,
February 29,
- -----------------------------------------------
1996
1995 1994 1993 1992
-----------------
- -------- -------- -------- --------
<S> <C>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................ $ 1.00
$ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income and net realized
gains/losses...................................... .01
.02(c) .02 .02 .03
Dividends and distributions......................... (.01)
(.03) (.02) (.02) (.03)
Capital contribution by affiliate................... --
.01 -- -- --
-----------------
- -------- -------- -------- --------
Net asset value, end of period...................... $ 1.00
$ 1.00 $ 1.00 $ 1.00 $ 1.00
-----------------
- -------- -------- -------- --------
-----------------
- -------- -------- -------- --------
TOTAL RETURN(b):.................................... 1.48%
3.01%(c) 1.94% 1.86% 2.91%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..................... $ 260,857
$229,380 $300,676 $314,925 $315,890
Average net assets (000)............................ $ 239,835
$243,130 $326,429 $319,464 $339,941
Ratios to average net assets:
Expenses, including distribution fee............. .75%(d)
.78% .73% .76% .76%
Expenses, excluding distribution fee............. .62%(d)
.65% .61% .63% .63%
Net investment income............................ 2.98%(d)
2.93% 1.91% 1.83% 2.89%
<CAPTION>
1991
--------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................ $ 1.00
Net investment income and net realized
gains/losses...................................... .04(a)
Dividends and distributions......................... (.04)
Capital contribution by affiliate................... --
--------
Net asset value, end of period...................... $ 1.00
--------
--------
TOTAL RETURN(b):.................................... 4.48%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..................... $341,625
Average net assets (000)............................ $375,655
Ratios to average net assets:
Expenses, including distribution fee............. .63%(a)
Expenses, excluding distribution fee............. .51%(a)
Net investment income............................ 4.37%(a)
</TABLE>
- ---------------
(a) Net of management fee waiver and/or expense subsidy.
(b) Total return includes reinvestment of dividends and distributions.
Total returns for periods of less than a full year are not annualized.
(c) Includes $.01 of net realized loss on investment transactions that
were offset by a capital contribution by affiliate. Without the
effect of the capital contribution, the Series' total return would
have been 1.88%.
(d) Annualized.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 9 -----
<PAGE>
Getting
The Most
From Your
Prudential
Mutual
Fund
How many times have you read these letters -- or other financial materials --
and stumbled across a word that you don't understand?
Many shareholders have run into the same problem. We'd like to help. So
we'll use this space from time to time to explain some of the words you
might have read, but not understood. And if you have a favorite word that
no one can explain to your satisfaction, please write to us.
Basis Point: One 1/100th of 1%. For example, one half of one percentage
point is 50 basis points.
Call Option: A contract giving the holder a right to buy stocks or bonds
at a predetermined price (called the strike price) before a predetermined
expiration date. A buyer of a call option generally expects to benefit
from a rise in the price of the stock or bond.
Capital Gain/Capital Loss: The difference between the cost of a capital
asset (for example, a stock, bond or mutual fund share) and its selling
price. Under current law the federal income tax rate for individuals on
a long-term capital gain is 28%.
Collateralized Mortgage Obligations (CMOs): Pools of mortgage-backed
securities sliced in maturity ranges that bear differing interest rates.
These instruments are sensitive to changes in interest rates and homeowner
refinancing activity. They are subject to prepayment and maturity
extension risk.
Derivatives: Securities that derive their value from another security.
The rate of return of these financial products rises and falls -- sometimes
very suddenly -- in response to changes in some specific interest rate,
currency, stock or other variable.
Discount Rate: The interest rate charged by the Federal Reserve on loans
to banks and other depository institutions.
Federal Funds Rate: The interest rate charged by one bank to another on
overnight loans.
Futures Contract: An agreement to deliver a specific amount of a
commodity or financial instruments at a set price at a stipulated
time in the future.
Leverage: The use of borrowed assets to enhance return on equity.
The expectation is that the interest rate charged will be lower than
the return on the investment. While leverage can increase profits, it
can also magnify losses.
Liquidity: The ease with which a financial instrument (or mutual fund)
can be bought or sold (converted into cash) in the financial markets.
Option: An agreement to buy or sell something, such as shares of stock,
by a certain time for a specified price. An option need not be exercised.
In fact, most expire unexercised.
Price/Earnings Ratio: The price of a share of stock divided by the earnings
per share for a 12-month period.
Spread: The difference between two values; most often used to describe
the difference between prices bid and asked for a security.
Yankee Bond: A bond denominated in U.S. dollars but sold by a foreign
company or government in the U.S. market.
<PAGE>
Getting
The Most
From Your
Prudential
Mutual
Fund
Change Your Mind.
You can exchange your shares in most Prudential Mutual Funds for shares
in most other Prudential Mutual Funds, without charges. This may be most
helpful if your investment needs change.
Reinvest Dividends Free Of Charge.
Reinvest your dividends and/or capital gains distributions
automatically -- without charge.
Invest For Retirement.
There is no minimum investment for an IRA. Plus, you defer taxes on
your investment earnings by investing in an IRA.
If you'd like, you can contribute up to $2,000 a year in an IRA. If you
are married, you and your spouse (if not working outside the home) can
contribute up to $2,250 a year. (Withdrawals are taxed as ordinary
income and may be subject to a 10% penalty prior to age 59 1/2.)
Change Your Job.
You can take your pension with you. Use a rollover IRA to manage your
company-sponsored retirement plan while retaining the special tax-deferred
advantages.
Invest In Your Children.
There's no fee to open a custodial account for a child's education or
other needs.
Take Income.
Would you like to receive monthly or quarterly checks in any amount from
your fund account? Just let us know. We'll take care of it. Of course,
there are minimum amounts. And shares redeemed may be subject to tax,
and Class B and C shares may be subject to contingent deferred sales
charges. We'll gladly answer your questions.
Keep Informed.
We want to keep you up-to-date. Of course, you receive account activity
statements every quarter. But you also receive annual and semi-annual
fund reports, as well as other important updates on events that affect
your investments, including tax information.
This material is only authorized for distribution when preceded or
accompanied by a current prospectus. Read the prospectus carefully
before you invest or send money.
<PAGE>
How Does Your State Stack Up?
Economic conditions vary from state to state. While one region may be
experiencing strong fiscal management and prosperity, another may
languish under the weight of declining industry or chronic state budget
problems.
State economic conditions, fiscal management and interest rates play
dominant roles in the performance of individual municipal bonds. A
strong economy generally leads to higher tax revenues and other income
sources for the state, enabling it to more easily repay its debts.
Additionally, sound state financial management often results in high
ratings from bond rating agencies. High ratings are attractive to
investors and can help bonds retain value in the market.
California
- -- World's 8th largest economy.
- -- Entertainment jobs growing.
- -- Recovery continues, but growth is expected to be below the
national average.
- -- Increasing tax revenues may not cover soaring Medicaid costs.
Hawaii
- -- Tourism provides 60% of jobs.
- -- Strong financial management.
- -- Slow recovery from early-1990s U.S. and Japanese recessions, which
bit into tourism and real estate.
- -- Government eliminated 1,100 state jobs.
Ohio
- -- Shift from manufacturing to service trades.
- -- Economic and personal income growth ahead of national averages.
- -- Debt is low.
Pennsylvania
- -- Slowly rebuilding economy, but needs new engine of growth.
- -- Debt as a percentage of personal income is half the national average.
- -- Sound financial management.
Michigan
- -- Economic growth is 3.5%, higher than national average.
- -- Once car capital of the world, now more diversified.
- -- Strengthening fiscal management.
Massachusetts
- -- Painful cuts in defense and health care eliminated jobs.
- -- Slowly rebuilding economy.
- -- Personal income is high.
New York
- -- High taxes restrain growth.
- -- Personal income remains high.
- -- Debt level is high.
- -- Federal budget Medicaid reform impasses threaten planned budget savings.
Maryland
- -- One of wealthiest states.
- -- Personal income 115% ofnational average, but income growth has stabilized.
- -- Good financial controls.
Florida
- -- Economy and personal income growing much faster than national rate.
- -- Unemployment and debt are low.
- -- Ended 1995 with a budget surplus for the third year in a row.
Connecticut
- -- Nation's wealthiest citizens.
- -- Economically weak from defense cuts.
- -- Slow growth -- recovery may take years.
- -- Attempts at "quick fixes" won't provide permanent relief.
New Jersey
- -- Broad-based economy and high personal wealth.
- -- Economic growth slowing.
- -- "Pro-business" tactics siphoned revenue, but may spur more growth.
North Carolina
- -- Robust, model economy.
- -- Personal income quicklygrowing.
- -- Unemployment well below national average.
- -- New jobs from financial services, research and high technology.
- -- Strong financial management.
Source: Prudential Investment Corporation. Selected states are those for
which Prudential Mutual Fund Management manages a state-specific municipal
bond mutual fund
Revised: April, 1996
<PAGE>
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
Internet Address:
http:\\www.prudential.com
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy Hays Teeters
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Eugene S. Stark, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributor
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Auditor
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
The views expressed in this report and information about the Series'
portfolio holdings are for the period covered by this report and are
subject to change thereafter.
The accompanying financial statements as of February 29, 1996 were
not audited and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors
unless preceded or accompanied by a current prospectus.
<PAGE>
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PAID
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New York, NY
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll Free (800) 225-1852
744313503 MF139E2
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