(ICON)
Prudential
California
Municipal
Fund
California Income
Series
SEMI
ANNUAL
REPORT
Feb. 28, 1999
<PAGE>
Prudential California Municipal Fund
California Income Series
Performance At A Glance.
During the six months ended February 28, 1999, municipal
bonds initially
rallied on the coattails of U.S. Treasuries, which gained
in value as
investors fleeing a global financial crisis purchased the
federal government
securities. As the financial chaos subsided and investors
shifted money out
of Treasuries, tax-exempt bonds also erased some of their
early price
increases. Your Prudential California Municipal Fund--
California Income
Series had a large exposure to zero coupon bonds. Prices of
these bonds
declined markedly when the municipal market sold off. As a
result, the
Series' returns lagged the average comparable fund as
measured by Lipper, Inc.
<TABLE>
Cumulative Total Returns1 As of
2/28/99
<CAPTION>
Six One Five
Since
Months Year Years
Inception2
<S> <C> <C> <C>
<C>
Class A 1.86% 5.99% (5.89) 41.72%
(40.70) 97.35% (93.26)
Class B 1.68 5.50 (5.40) 38.97
(37.97) 39.45 (38.32)
Class C 1.55 5.23 (5.14) N/A
38.21 (37.34)
Class Z 1.93 6.12 (6.02) N/A
22.52 (22.41)
Lipper CA Muni
Debt Fd. Avg.3 2.09 5.43 34.14
***
</TABLE>
<TABLE>
Average Annual Total Returns1 As
of 3/31/99
<CAPTION>
One Five
Since
Year Years
Inception2
<S> <C> <C>
<C>
Class A 2.78% 7.39%
(7.23) 8.12% (7.86)
Class B 0.57 7.48
(7.32) 6.32 (6.15)
Class C 3.26 N/A
6.95 (6.83)
Class Z 6.10 N/A
8.38 (8.34)
</TABLE>
<TABLE>
Distributions & Yields1 As of
2/28/99
<CAPTION>
Taxable
Equivalent Yield4
Total Distributions 30-Day At
Tax Rates Of
Paid for Six Mos. SEC Yield 36%
39.6%
<S> <C> <C> <C>
<C>
Class A $0.28 4.01% (3.96) 6.91%
(6.82) 7.32% (7.23)
Class B $0.26 3.88 (3.83) 6.68
(6.60) 7.08 (6.99)
Class C $0.25 3.59 (3.54) 6.18
(6.10) 6.55 (6.46)
Class Z $0.29 4.38 (4.33) 7.55
(7.46) 8.00 (7.90)
</TABLE>
Past performance is not indicative of future results.
Principal and investment
return will fluctuate so that an investor's shares, when
redeemed, may be
worth more or less than their original cost.
1 Source: Prudential Investments Fund Management and Lipper,
Inc. The
cumulative total returns do not take into account sales
charges. The average
annual total returns do take into account applicable sales
charges. The Series
charges a maximum front-end sales charge of 3% for Class A
shares and a
declining contingent deferred sales charge (CDSC) of 5%, 4%,
3%, 2%, 1% and
1% for six years for Class B shares. Class B shares will
automatically convert
to Class A shares, on a quarterly basis, approximately seven
years after
purchase. Class C shares are subject to a front-end sales
charge of 1% and a
CDSC of 1% for 18 months. Class C shares bought before
November 2, 1998 have a
1% CDSC if sold within one year. Class Z shares are not
subject to a sales
charge or distribution fee. Without waiver of management
fees and/or expense
subsidization, the Series' cumulative and average annual
total returns and 30-
day SEC yields would have been lower, as indicated in
parentheses ( ).
2 Inception dates: Class A, 12/3/90; Class B, 12/7/93; Class
C, 8/1/94; and
Class Z, 9/18/96.
3 Lipper average returns are for all funds in each share
class for the six-
month, one-, and five-year periods in the California
Municipal Debt Fund
category.
4 Taxable equivalent yields reflect federal and applicable
state tax rates.
*** Lipper Since Inception returns are 81.21% for Class A;
35.19% for Class B;
37.08% for Class C; and 19.05% for Class Z based on all
funds in each share
class.
How Investments Compared.
(As of 2/28/99)
(GRAPH)
Source: Lipper, Inc. Financial markets change, so a mutual
fund's past
performance should never be used to predict future results.
The risks to each
of the investments listed above are different--we provide 12-
month total
returns for several Lipper mutual fund categories to show
you that reaching
for higher yields means tolerating more risk. The greater
the risk, the larger
the potential reward or loss. In addition, we've included
historical 20-year
average annual returns. These returns assume the
reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors
have received higher
historical total returns from stocks than from most other
invest-ments.
Smaller capitalization stocks offer greater potential for
long-term growth but
may be more volatile than larger capitalization stocks.
General Bond Funds provide more income than stock funds,
which can help smooth]
out their total returns year by year. But their prices still
fluctuate
(sometimes significantly) and their returns have been
historically lower than
those of stock funds.
General Municipal Debt Funds invest in bonds issued by state
governments,
state agencies and/or municipalities. This investment
provides income that
is usually exempt from federal and state income taxes.
U.S. Tax-Exempt Money Funds attempt to preserve a constant
share value; they
don't fluctuate much in price but, historically, their
returns have been
generally among the lowest of the major investment
categories.
*19 years for U.S. Tax-Exempt Money Funds.
<PAGE>
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, consistent with the preservation of capital.
Certain
shareholders, however, may be subject to the federal
alternative minimum tax.
There can be no assurance the Series will achieve its
investment objective.
Strategy Session.
Interest-Rate Outlook.
We expected long-term interest rates to continue to fall
because the U.S.
economic expansion was poised to slow and inflation to
remain tame after a
global financial crisis spread beyond Asia in mid-summer of
1998. The
overseas turmoil was expected to temper U.S. economic growth
as struggling
countries in Asia and Latin America purchased fewer goods
and services from
the United States.
Because of our outlook for lower long-term rates, we
maintained a longer-than-
average duration, which is a measure of the Series'
sensitivity to interest-
rate fluctuations. A longer duration would enable the
Series' shares to gain
more rapidly if interest rates continued to fall and
municipal bond prices
rose. In order to sustain a longer duration, the Series
remained heavily
invested in noncallable bonds, which averaged approximately
40% of its total
investments throughout the six-month period. Noncallable
bonds usually perform
well when debt markets rally since they are free to
appreciate in value
without the risk of being retired early. Some of our
noncallable bonds were
also zero coupon bonds. These bonds do not make periodic
interest payments,
and typically trade at deep discounts to their price at
maturity. Their prices
therefore have plenty of room to rise when interest rates
tumble. The
difference between a zero coupon bond's purchase price and
maturity price
constitutes the return to investors.
We subsequently altered our strategy by shortening the
Series' duration
because long-term interest rates unexpectedly began to move
higher and bond
prices fell in the autumn. By reducing the duration, we
tried to make Series
shares less sensitive to the sell-off in the bond market.
Key Municipal Bond Index Tumbles.
Municipal bonds did not rally as much as U.S. Treasuries
last autumn. However,
municipal bond prices rose strongly enough to drive the Bond
Buyer Revenue
Bond Index, a weekly average of long-term municipal bond
yields, to 5.09% in
early October. This was the lowest level reached by the
Index since its
inception in 1979. Yields fall as prices rise and vice
versa.
Portfolio Composition.
Expressed as a percentage of
total investments as of 2/28/99.
(PIE CHART)
<PAGE>
What Went Well.
Munis Rallied, at First.
The Series' long duration helped its shares increase in
value as municipal
bonds rallied in sympathy with U.S. Treasuries during
September and early
October 1998. Prices of Treasuries soared as concern about
the global
financial crisis boosted demand for the safest government
securities.
Municipal bonds did not rally as strongly as Treasuries.
Nevertheless,
prices of municipal bonds gained enough to drive down the
Bond Buyer Revenue
Bond Index (a weekly average of long-term municipal bond
yields) to 5.09% in
early October 1998. This was the lowest level since the
Index began in 1979.
And Not So Well.
Then the Rally Fizzled.
The Federal Reserve eased monetary policy three times in the
autumn of 1998
to calm global financial markets and restore faith in the
U.S. economy. (In
fact, the economy unexpectedly grew at a rapid pace in the
fourth quarter of
1998.) As a result, concern about the global financial
crisis dwindled and
investors sold Treasuries and bought higher-yielding assets
with renewed
confidence. Municipal bonds also sold off, but to a lesser
extent than
Treasuries.
We cut the Series' duration to 7.95 years as of February 28,
1999 from 8.56
years as of October 31, 1998 in order to make the Series
less sensitive to
the decline in bond prices and the rise in interest rates.
But despite the
shorter duration, the Series still held noncallable zero
coupon bonds. Just
as prices of these bonds tend to climb markedly as interest
rates fall, they
tumble when the municipal bond market sells off and interest
rates head
higher. The declines in the prices of our zero coupon bonds
detracted from
the Series' performance.
Five Largest Issuers.
5.2% Southern California
Public Power Authority
4.4% Orange County
Local Transportation
Authority
3.2% Long Beach Harbor
Revenue
2.1% Torrance Redevelopment
Agency
2.1% San Joaquin Hills
Transit Corridor Agency
Expressed as a percentage of net assetsas of 2/28/99.
Looking Ahead.
In the short run, we feel municipal bond prices will remain
in a trading
range because of the U.S. economy's continued resilience.
However, we do
not think the rally in tax-exempt bonds is over. We believe
U.S. economic
growth will continue to slow from the torrid pace of late
1998.
Furthermore, we believe that inflation will remain subdued
as global
competition helps to keep prices of goods and services in
check. Since the
level of interest rates typically reflects the anticipated
rate of inflation,
we expect interest rates to fall and bond prices to rise
amid continued low
inflation.
Credit Breakdown.
Expressed as a percentage of
total investments as of 2/28/99.
(PIE CHART)
- ------------------------------------------------------------
- -------------------
1
<PAGE>
A Message to Our Shareholders.
April 19, 1999
(PHOTO)
Dear Shareholder,
For the last several months, major index advances have been
driven by the
stocks of a handful of very large companies. These stocks
are getting more
and more expensive, out of proportion to their earnings
expectations. As a
result, a substantial disparity in value has grown between
large and small
companies and between growth and value stocks.
Since not all stocks are benefiting from the highly
publicized euphoria
surrounding each record-breaking milestone, it is unlikely
that these
trends will continue. In fact, signs that the tide is
turning are starting
to emerge. Moreover, history shows that markets generally
bring prices in
line with earnings performance sooner or later.
Many sectors of the bond market, on the other hand, have
already begun to
rebound from last year's global financial crisis.
Furthermore, while bonds
have not generated higher returns than stocks in recent
years, they have
demonstrated that they hold up better during market
downturns. That's a
thought to keep in mind going forward.
Diversification Is Critical.
What does this suggest? Instead of chasing recent market
winners, investors
should have a well-diversified asset allocation strategy in
place and keep to
it. It is also a good practice to rebalance your holdings,
when necessary, to
keep your asset allocation consistent with your long-term
objectives and risk
tolerance. A properly diversified portfolio of value- and
growth-oriented
mutual funds, bond funds and money market funds could help
you weather
inevitable market turbulence and receive more consistent
returns over time.
Prudential offers a wide range of mutual funds to help our
shareholders
diversify. We have also designed several balanced and
diversified funds to
allow one-decision diversification.
Thank you for your continued confidence in Prudential mutual
funds.
Sincerely,
John R. Strangfeld
Chief Investment Officer
Prudential Investments
- ------------------------------------------------------------
- -------------------
2
<PAGE>
Portfolio of Investments as of February 28, 1999
PRUDENTIAL
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--97.7%
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Alisal Union Sch. Dist.,
Cap. Apprec., Ser. C., F.G.I.C.
Aaa Zero 8/01/13 $ 1,090 $
552,074
Cap. Apprec., Ser. C., F.G.I.C.
Aaa Zero 8/01/15 1,075
481,385
Cap. Apprec., Ser. C., F.G.I.C.
Aaa Zero 8/01/19 1,615
569,207
Cap. Apprec., Ser. C., F.G.I.C.
Aaa Zero 8/01/22 1,175
353,228
Arcadia Unified Sch. Dist.,
Gen. Oblig., Ser. A, M.B.I.A.
Aaa Zero 9/01/09 1,200
760,932
Gen. Oblig., Ser. A, M.B.I.A.
Aaa Zero 9/01/11 1,875
1,065,206
Gen. Oblig., Ser. A, M.B.I.A.
Aaa Zero 9/01/12 2,045
1,095,875
Assoc. of Bay Area Govt's. Fin. Auth.,
Cert. of Part., Channing House, Ser. A
A+(d) 7.125% 1/01/21 1,500
1,595,175
Ref. Amer. Baptist Homes, Ser. A
BBB(d) 6.20 10/01/27 2,000
2,111,180
Bonita Canyon Pub. Facs. Fin. Auth., Cmnty. Focs. Dist. No.
98-1
NR 5.375 9/01/28 5,000
4,857,400
Brea Pub. Fin. Auth. Rev., Tax Alloc. Redev. Proj., Ser. C
NR 8.10 3/01/21 3,000
3,192,030
Brentwood Infrastructure Fin. Auth. Rev.
NR 5.60 9/02/19 2,000
1,966,460
Buena Park Cmnty. Redev. Agcy. Cent. Bus. Dist. Proj.
NR 7.80 9/01/14 3,325
3,609,021
Calabasas Spec. Tax Ref. Cmnty. Facs. Dist. 98-1
NR 5.75 9/01/28 1,000
992,960
California Cmty. Dev. Comm., Ref. Ser. A
NR 5.70 8/01/28 2,250
2,268,697
California Hsg. Fin. Agcy.,
Home Mtg., A.M.T., A.M.B.A.C.
Aaa 5.25 2/01/33 1,400
1,417,290
Single Fam. Mort., Ser. A., A.M.T., M.B.I.A.
Aaa 6.00 8/01/20 3,895(f)
4,127,921
California St. Dept. Wtr. Res. Rev., Central Valley Proj.,
Ser. J-3
Aa2 7.00 12/01/12 1,000
1,261,450
California St. Edl. Facs. Auth. Rev., Chapman College
Baa2 7.50 1/01/18 600(e)
656,058
California St. Gen. Oblig., A.M.B.A.C.
Aaa 6.50 9/01/10 1,250
1,500,188
California St. Hlth. Facs. Fin. Auth. Rev., Valleycare Hosp.
Corp.
A+(d) 5.50 5/01/20 1,500
1,547,070
California Statewide Cmnty. Cap. Apprec., Cmnty. Facs. Dist.
No. 97-1
NR Zero 9/01/22 4,440
1,018,625
California Statewide Cmnty. Dev. Rev., Cert. of Part.,
Villaview
Cmnty. Hosp.
A+(d) 7.00 9/01/09 855
934,259
Capistrano Beach Wtr. Dist., Enterprise Corp. Imprt.,
M.B.I.A.
Aaa(d) 4.75 12/01/18 2,820
2,725,051
Carson City Ltd. Oblig. Impvt. Rev., Assmt. Dist.
NR 7.375 9/02/22 2,345
2,546,693
Cerritos Pub. Fin. Auth. Rev., Los Coyotes Redev. Proj.,
Loan
A, A.M.B.A.C.
Aaa 6.50 11/01/23 3,000
3,667,920
Chula Vista Cmnty. Redev. Agcy.,
Ref. Tax Alloc. Sr. Bayfront, Ser. A
BBB+(d) 7.625 9/01/24 2,500
2,904,850
Ref. Tax Alloc. Sub. Bayfront, Ser. C
NR 8.25 5/01/24 2,500
2,898,700
Contra Costa Cnty., Spec. Tax Cmnty. Facs. Dist. No. 91-1
NR 8.125 8/01/16 1,520(e)
1,652,346
Corona Cert. of Part., Vista Hosp. Sys. Inc., Ser. C
NR 8.375 7/01/11 2,000
2,193,060
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as of February 28, 1999
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>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Davis Ca. Pub. Facs. Fin. Auth., Mace Ranch, Ser. A.
NR 6.60% 9/01/25 $ 2,000 $
2,118,640
Delano Cert. of Part., Regl. Med. Ctr., Ser. 92-A
NR 9.25 1/01/22 2,850(e)
3,497,064
Desert Hosp. Dist., Cert. of Part.
AAA(d) 8.10 7/01/20 2,000(e)
2,170,300
East Palo Alto San. Dist., Cert. of Part.
NR 8.25 10/01/15 500
531,065
El Dorado Cnty., Spec. Tax, Cmnty. Facs. Dist. No. 92-1
NR 8.25 9/01/24 1,975
2,211,047
Fairfield Pub. Fin. Auth. Rev., Fairfield Redev. Proj., Ser.
A
NR 7.90 8/01/21 2,500(e)
2,808,175
Folsom Spec. Tax Dist. No. 2
NR 7.70 12/01/19 3,130(e)
3,302,526
Fontana Pub. Fin. Auth., N. Fontana Tax Alloc. Rev.
NR 7.65 12/01/09 1,575(e)
1,780,081
Foothill/Eastern Trans. Corr. Agcy., Toll Rd., Ser. A
Baa3 Zero 1/01/20 10,000
3,279,500
Gateway Impvt. Auth. Rev., Marin City Cmnty. Facs. Dist. &
Redev.
NR 7.75 9/01/25 2,100(e)
2,589,657
Glendale Unified Sch. Dist., Ser. B, F.S.A.
Aaa 5.125 9/01/23 1,250
1,259,600
Kings Cnty. Wst. Mgmt. Auth., Solid Wst. Rev., A.M.T.
BBB+(d) 7.20 10/01/14 1,275
1,426,419
La Mesa Impvt. Bond Act 1915 Ltd. Oblig., Dist. No. 98-1
NR 5.75 9/02/23 1,000
1,006,200
La Mirada Redev. Agcy. Spec. Tax, Ref. Cmnty. Facs. Dist.
No.
89-1
NR 5.70 10/01/20 1,000
1,008,720
La Quinta Redev. Agcy.,
Proj. Area No. 1, M.B.I.A.
Aaa 7.30 9/01/10 1,000
1,268,510
Tax Alloc. Ref. Proj. No. 1, M.B.I.A.
Aaa 7.30 9/01/11 1,000
1,277,220
Long Beach Hbr. Rev.,
Ref. Ser. A., A.M.T., F.G.I.C.
Aaa 6.00 5/15/17 5,000(f)
5,637,900
Ref. Ser. A., A.M.T., F.G.I.C.
Aaa 6.00 5/15/19 3,000
3,391,050
Long Beach Redev. Agcy. Hsg.,
Multifamily Hsg. Rev., Pacific Court Apts.
(cost $991,820; purchased 10/18/93)
NR 6.80 9/01/13 1,000(c)(h)
552,500
Multifamily Hsg. Rev., Pacific Court Apts.
(cost $1,490,475; purchased 10/18/93)
NR 6.95 9/01/23 1,500(c)(h)
828,750
Los Angeles Cmnty. Facs., Dist. No. 5, Rowland Heights Area
NR 7.25 9/01/19 1,500(e)
1,792,065
Los Angeles Cnty. Cert. of Part., Disney Parking Ref. Proj.,
A.M.B.A.C.
Aaa 4.75 3/01/23 6,015
5,781,678
Los Angeles Dept. of Wtr. & Pwr., Waterworks Rev.
Aa3 4.50 5/15/23 1,900
1,739,887
Lynwood Pub. Fin. Auth. Rev., Wtr. Sys. Impvt. Proj.
BBB-(d) 6.50 6/01/21 1,500
1,639,050
Madera Redev. Agcy. Tax Rev., Tax Alloc. Redev. Proj.,
F.S.A. Aaa 4.75 9/01/28 1,205
1,143,292
Met. Wtr. Dist. of Southern California, Waterworks Rev.,
Linked S.A.V.R.S. & R.I.B.S.
Aa2 5.75 8/10/18 1,000
1,112,420
Election 1966 Ser. H
Aaa 4.75 3/01/28 2,000
1,915,000
Ref., Ser. A
Aa2 4.75 7/01/22 1,600
1,540,880
Mojave Desert & Mtn. Solid Waste, Victor Valley Nat'l.
Recov.
Facs., A.M.T.
Baa1 7.875 6/01/20 1,175
1,333,179
Montebello Unified Sch. Dist.,
Cap. Apprec., F.G.I.C.
Aaa Zero 8/01/18 2,195
823,454
Cap. Apprec., F.G.I.C.
Aaa Zero 8/01/19 2,250
793,013
Cap. Apprec., F.G.I.C.
Aaa Zero 8/01/20 2,300
768,706
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as of February 28, 1999
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>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Norco Cert. of Part., Ref., A.M.B.A.C.
Aaa 5.125% 10/01/28 $ 2,500 $
2,520,550
Ontario California Impvt. Bond Act of 1915, Assmt. Dist. No.
100C - Com. Ctr. III
NR 8.00 9/02/11 1,160
1,095,014
Orange Cnty. Cmnty. Facs. Dist., Spec. Tax Rev.,
No. 87-4, Foothill Ranch, Ser. A
AAA(d) 7.375 8/15/18 3,500(e)
4,007,675
No. 87-5B, Rancho Santa Margarita
NR 7.50 8/15/17 1,750(e)
2,002,245
No. 88-1, Aliso Viejo, Ser. A
AAA(d) 7.15 8/15/06 805(e)
916,009
Orange Cnty. Loc. Trans. Auth.,
Sales Tax Rev., Linked S.A.V.R.S. & R.I.B.S., A.M.B.A.C.
Aaa 6.20 2/14/11 10,000
11,576,700
Sales Tax Rev.
Aa3 6.20(g) 2/14/11 750
983,437
Paramount Unified Sch. Dist.,
Cap. Apprec., Ser. A, F.S.A.
Aaa Zero 9/01/20 3,535
1,176,413
Ser. A, F.S.A.
Aaa 5.125 9/01/19 2,500
2,533,875
Perris Sch. Dist., Cert. of Part., Cap. Proj.
NR 7.75 3/01/21 1,500(e)
1,655,025
Placentia Pub. Fin. Auth., Spec. Tax Rev., Ser. B
NR 6.60 9/01/15 1,500
1,559,625
Poway Cmnty. Fac. Dist. No. 88-1, Ref., Parkway Bus. Ctr.
NR 6.75 8/15/15 1,000
1,090,440
Puerto Rico Hwy. & Trans. Auth. Rev., Ser. Q
AAA(d) 7.75 7/01/10 2,100(e)(f)
2,266,278
Puerto Rico Pub. Bldgs. Auth., Gtd. Pub. Ed. & Hlth. Facs.,
Ser. J
Baa1 Zero 7/01/06 1,605
1,181,777
Redding Elec. Sys. Rev.
Cert. of Part., M.B.I.A.
Aaa 6.368(g) 7/08/22 1,850
2,442,000
Cert. of Part., Linked S.A.V.R.S. & R.I.B.S., M.B.I.A.
Aaa 6.368 7/01/22 50
58,018
Richmond Redev. Agcy. Tax Alloc.,
Cap. Apprec. Ref. Harbor, Ser. B., M.B.I.A.
Aaa Zero 7/01/20 1,150
382,789
Cap. Apprec. Ref. Harbor, Ser. B., M.B.I.A.
Aaa Zero 7/01/21 1,150
362,618
Multifamily Hsg., Bridge Affordable Hsg.
NR 7.50 9/01/23 2,500
2,640,650
Rio Vista Impvt. Bond Act of 1915, Assmt. Dist. No. 96-1,
River View Point
NR 7.50 9/02/22 1,970
2,076,991
Riverside Cnty. Cert. of Part., Air Force Village West
NR 8.125 6/15/20 3,000(f)
3,279,420
Riverside Cnty. Impvt. Bond Act 1915, Assmt. Dist. 159, Ser.
A
NR 7.625 9/02/14 2,500
2,599,350
Rocklin Stanford Ranch Cmnty., Spec. Tax Facs. Dist. No. 3
NR 8.10 11/01/15 1,000(e)
1,098,650
Rocklin Unified Sch. Dist., Gen. Oblig.,
Cap. Apprec., Ser. C, M.B.I.A.
Aaa Zero 8/01/12 1,110
597,124
Cap. Apprec., Ser. C, M.B.I.A.
Aaa Zero 8/01/13 1,165
590,061
Cap. Apprec., Ser. C, M.B.I.A.
Aaa Zero 8/01/14 1,220
580,647
Cap. Apprec., Ser. C, M.B.I.A.
Aaa Zero 8/01/15 1,285
575,423
Cap. Apprec., Ser. C, M.B.I.A.
Aaa Zero 8/01/16 1,400
590,940
Roseville California Spec. Tax, N. Roseville Cmnty. Facs.
Dist. No. 1
NR 5.75 9/01/23 1,500
1,484,430
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 5
<PAGE>
Portfolio of Investments as of February 28, 1999
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>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Sacramento City. Fin. Auth.,
Cap. Apprec., Tax Alloc. Comb. Proj., Ser. B, M.B.I.A.
Aaa Zero 11/01/16 $ 5,700 $
2,376,387
Cap. Apprec., Tax Alloc. Comb. Proj., Ser. B, M.B.I.A.
Aaa Zero 11/01/17 5,695
2,239,160
Sacramento Cnty. Spec. Tax Rev.,
Dist. No. 1, Laguna Creek Ranch
NR 5.70% 12/01/20 2,000
2,016,460
Dist. No. 1, Laguna Creek Ranch
NR 8.25 12/01/20 1,000(e)
1,104,200
Sacramento Impvt. Bond Act of 1915, Willowcreek II Assmt.
Dist.
No. 96-1
NR 6.70 9/02/22 2,500
2,584,975
Sacramento Spec. Purpose Fac., Y.M.C.A. of Sacramento
NR 7.25 12/01/18 2,110
2,263,650
San Bernardino Cnty.,
Cert. of Part, Med. Ctr. Fin. Proj., M.B.I.A.
Aaa 5.50 8/01/22 4,540
4,883,860
Fin. Auth. Ref. Impt., Granada Hills
BB(d) 6.90 5/01/27 855
865,602
San Bruno Park Sch. Dist.,
Cap. Apprec., F.S.A.
Aaa Zero 8/01/20 1,275
426,131
Cap. Apprec., F.S.A.
Aaa Zero 8/01/21 1,220
386,398
Cap. Apprec., F.S.A.
Aaa Zero 8/01/22 1,080
324,670
San Diego Spec. Tax, Cmnty. Facs. Dist. No. 1, Ser. B
NR 7.10 9/01/20 2,000(e)
2,393,040
San Francisco City & Cnty.,
Redev. Agcy., Lease Rev.
A1 Zero 7/01/06 1,500
1,096,545
Redev. Agcy., Lease Rev.
A1 Zero 7/01/07 2,250
1,564,605
San Joaquin Hills Trans. Corridor Agcy.,
Toll Road Rev.
Aaa Zero 1/01/11 2,000
1,176,400
Toll Road Rev.
Aaa Zero 1/01/22 15,000
4,761,600
San Jose Redev. Proj., M.B.I.A.
Aaa 6.00 8/01/15 3,000
3,435,420
San Jose Unif. Sch. Dist., Santa Clara,
Gen. Oblig., Ser. A., F.G.I.C.
Aaa Zero 8/01/16 2,630
1,110,123
Gen. Oblig., Ser. A., F.G.I.C.
Aaa Zero 8/01/18 2,765
1,037,289
Gen. Oblig., Ser. A., F.G.I.C.
Aaa Zero 8/01/19 2,835
999,196
San Luis Obispo, Certs. of Part., Vista Hosp. Sys.
NR 8.375 7/01/29 1,000
1,077,200
San Marcos Public Fac. Auth. Rev., Ref., Ser. 1998
NR 5.80 9/01/18 1,000
1,004,990
San Marino Unified Sch. Dist.,
Gen. Oblig., Ser. A
AA(d) 5.25 7/01/19 1,840
1,924,658
Gen. Oblig., Ser. A
AA(d) 5.00 6/01/23 1,500
1,508,295
Santa Margarita, Dana Point Auth.,
Impvt. Dists., Ser. A, M.B.I.A.
Aaa 7.25 8/01/09 905
1,131,974
Impvt. Dists., Ser. B, M.B.I.A.
Aaa 7.25 8/01/14 1,000
1,284,900
Santa Rosa Impvt. Bd. Act 1915, Ref. Fountaingrove Parkway
NR 5.70 9/02/19 1,000
996,390
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 6
<PAGE>
Portfolio of Investments as of February 28, 1999
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>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
South Orange Cnty., Pub. Fin. Auth.,
Foothill Area Proj., Ser. C, F.G.I.C.
Aaa 6.50% 8/15/10 $ 750 $
899,655
Spec. Tax Rev., M.B.I.A.
Aaa 7.00 9/01/10 2,535
3,156,658
South San Francisco Redev. Agcy., Tax Alloc., Gateway Redev.
Proj.
NR 7.60 9/01/18 2,375
2,728,685
South Tahoe Joint Pwrs. Fin., Ser. A, B.A.N.
NR 8.00 10/01/01 2,500
2,507,850
South Whittier Elementary Sch. Dist., Ser. A., F.G.I.C.
Aaa 5.00 8/01/23 5,235
5,198,303
Southern California Pub. Pwr. Auth.,
Proj. Rev.
A 6.75 7/01/10 6,250
7,513,187
Proj. Rev.
A 6.75 7/01/13 3,000
3,639,870
Proj. Rev., A.M.B.A.C.
Aaa Zero 7/01/16 8,400
3,578,400
Stockton Cmnty. Facs. Dist. No. 90-2, Brookside Estates
NR 6.20 8/01/15 1,050
1,101,891
Sulphur Springs Unif. Sch. Dist., Ser. A, M.B.I.A.
Aaa Zero 9/01/11 3,000
1,704,330
Temecula Valley Unif. Sch. Dist., Cmnty. Facs., Spec. Tax
Dist.
No. 89-1,
NR 8.60 9/01/17 2,600
2,759,666
Torrance Redev. Agcy.,
Ref. Tax Alloc. Subordinated Lien
NR 5.625 9/01/28 1,000
1,003,520
Tax Alloc. Downtown Redev.
Baa 7.125 9/01/22 2,105(e)
2,332,950
Tax Alloc. Ind. Redev. Proj.
NR 7.75 9/01/13 2,500(e)
2,610,475
Vacaville Cmnty. Redev. Agcy., Multifamily Hsg. Rev.
NR 7.375 11/01/14 1,110
1,180,252
Ventura California Port Dist. Cert. of Part.
NR 6.375 8/01/28 4,000
4,023,960
Victor Valley,
Union H.S. Dist., M.B.I.A
Aaa Zero 9/01/17 4,500
1,784,115
Union H.S. Dist., M.B.I.A.
Aaa Zero 9/01/19 5,450
1,912,732
Union H.S. Dist., M.B.I.A.
Aaa Zero 9/01/20 5,850
1,946,821
Virgin Islands Pub. Fin. Auth. Rev.,
Hwy. Trans. Trust Fund
AAA(d) 7.70 10/01/04 1,000(e)
1,047,460
Sub. Lien Notes, Ser. E,
NR 5.875 10/01/18 1,000
1,030,910
Virgin Islands Territory, Hugo Ins. Claims Fund Proj., Ser.
91
NR 7.75 10/01/06 870(e)
956,487
West Contra Costa Unif. Sch. Dist., Cert. of Part.
Baa3 6.875 1/01/09 1,140
1,276,606
Westminster Redev. Agcy., Tax Alloc. Rev., Orange Cnty.,
Proj. No. 1, Ser. A
Baa 7.30 8/01/21 3,000(e)
3,337,890
- ------------
Total long-term investments (cost $252,953,983)
277,980,824
- ------------
SHORT-TERM INVESTMENTS--0.8%
California Poll. Ctrl. Fin. Auth. Rev.
So. Cal. Ed., Ser. 86A, F.R.D.D.
VMIG1 3.55 3/01/99 200
200,000
So. Cal. Ed., Ser. 86B, F.R.D.D.
VMIG1 3.55 3/01/99 100
100,000
So. Cal. Ed., Ser. 86D, F.R.D.D.
VMIG1 3.55 3/01/99 200
200,000
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 7
<PAGE>
Portfolio of Investments as of February 28, 1999
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>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
California Poll. Ctr. Fin. Auth. Ref., Pacific Gas & Elec.
Co., Ser. 97B, F.R.D.D., A.M.T.
A-1+(d) 3.15% 3/01/99 $ 1,100 $
1,100,000
California Statewide Cmnty. Dev. Auth., Chevron Proj., Ser.
94, F.R.D.D., A.M.T.
P-1 3.15 3/01/99 600
600,000
Chula Vista Indl. Dev. Rev., San Diego Gas & Elec., Ser.
96B,
F.R.D.D., A.M.T.
VMIG1 3.60 3/01/99 200
200,000
- ------------
Total short-term investments (cost $2,400,000)
2,400,000
- ------------
Total Investments--98.5%
(cost $255,353,983; Note 4)
280,380,824
Other assets in excess of liabilities--1.5%
4,126,604
- ------------
Net Assets--100%
$284,507,428
- ------------
- ------------
</TABLE>
- ---------------
(a) The following abbreviations are used in portfolio
descriptions:
A.M.B.A.C.--American Municipal Bond Assurance
Corporation.
A.M.T.--Alternative Minimum Tax.
B.A.N.--Bond Anticipation Note.
F.G.I.C.--Financial Guaranty Insurance Company.
F.R.D.D.--Floating Rate (Daily) Demand Notes (b).
F.S.A.--Financial Security Assurance.
M.B.I.A.--Municipal Bond Insurance Association.
R.I.B.S.--Residual Interest Bearing Securities.
S.A.V.R.S.--Select Auction Variable Rate Securities.
Y.M.C.A.--Young Mens Christian Association.
(b) For purposes of amortized cost valuation, the maturity
date of Floating Rate
Demand Notes is considered to be the later of the next
date on which the
security can be redeemed at par, or the next date on
which the rate of
interest is adjusted.
(c) Issue in default on interest payment, non-income
producing security.
(d) Standard & Poor's Rating.
(e) Prerefunded issues are secured by escrowed cash and/or
direct U.S.
guaranteed obligations.
(f) All or a portion of the securities are segregated as
collateral for
financial futures contracts.
(g) Rate shown reflects current rate of variable rate
instruments.
(h) Indicates a restricted security; the aggregate cost of
such securities is
$2,482,295. The aggregate value ($1,381,250) is
approximately 0.5% of net
assets.
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. 8
<PAGE>
PRUDENTIAL
CALIFORNIA MUNICIPAL FUND
Statement of Assets and Liabilities (Unaudited)
CALIFORNIA INCOME
SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
Assets
February 28, 1999
<S>
<C>
Investments, at value (cost
$255,353,983)...............................................
................. $ 280,380,824
Cash........................................................
.............................................
65,424
Interest
receivable..................................................
.................................... 3,990,050
Receivable for Series shares
sold........................................................
................ 787,368
Receivable for investments
sold........................................................
.................. 139,050
Other
assets......................................................
....................................... 3,318
- -----------------
Total
assets......................................................
.................................... 285,366,034
- -----------------
Liabilities
Payable for Series shares
reacquired..................................................
................... 329,881
Dividends
payable.....................................................
................................... 125,602
Accrued
expenses....................................................
..................................... 123,968
Management fee
payable.....................................................
.............................. 110,704
Due to broker-variation
margin......................................................
..................... 86,250
Distribution fee
payable.....................................................
............................ 73,510
Deferred trustee's
fees........................................................
.......................... 8,691
- -----------------
Total
liabilities.................................................
.................................... 858,606
- -----------------
Net
Assets......................................................
......................................... $
284,507,428
- -----------------
- -----------------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
........ $ 256,031
Paid-in capital in excess of
par.........................................................
............. 261,813,677
- -----------------
262,069,708
Accumulated net realized loss on
investments.................................................
......... (2,534,090)
Net unrealized appreciation on
investments.................................................
........... 24,971,810
- -----------------
Net assets, February 28,
1999........................................................
.................... $ 284,507,428
- -----------------
- -----------------
Class A:
Net asset value and redemption price per share
($186,618,576 / 16,794,207 shares of beneficial
interest issued and outstanding)...................
$11.11
Maximum sales charge (3% of offering
price)......................................................
..... .34
- -----------------
Maximum offering price to
public......................................................
................ $11.45
- -----------------
- -----------------
Class B:
Net asset value, offering price and redemption price per
share
($83,408,459 / 7,505,646 shares of beneficial interest
issued and outstanding).....................
$11.11
- -----------------
- -----------------
Class C:
Net asset value and redemption price per share
($9,699,242 / 872,812 shares of beneficial interest
issued and outstanding)........................
$11.11
Sales charge (1% of offering
price)......................................................
............. .11
- -----------------
Offering price to
public......................................................
........................ $11.22
- -----------------
- -----------------
Class Z:
Net asset value, offering price and redemption price per
share
($4,781,151 / 430,444 shares of beneficial interest
issued and outstanding)........................
$11.11
- -----------------
- -----------------
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 9
<PAGE>
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA INCOME SERIES
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six
Months
Ended
Net Investment Income February 28,
1999
<S> <C>
Income
Interest and discount earned.............. $
7,921,341
------------
- -----
Expenses
Management fee............................
683,133
Distribution fee--Class A.................
137,611
Distribution fee--Class B.................
192,096
Distribution fee--Class C.................
29,254
Custodian's fees and expenses.............
47,000
Reports to shareholders...................
30,000
Transfer agent's fees and expenses........
30,000
Registration fees.........................
27,500
Legal fees and expenses...................
10,000
Audit fees and expenses...................
6,500
Trustees' fees and expenses...............
4,000
Miscellaneous.............................
3,622
------------
- -----
Total expenses.........................
1,200,716
Less: Management fee waiver (Note 2)......
(68,313)
Custodian fee credit (Note 1)..........
(2,306)
------------
- -----
Net expenses...........................
1,130,097
------------
- -----
Net investment income........................
6,791,244
------------
- -----
Realized and Unrealized Gain
(Loss) on Investments
Net realized gain (loss) on:
Investment transactions...................
655,010
Financial futures transactions............
(145,639)
------------
- -----
509,371
------------
- -----
Net change in unrealized appreciation/depreciation on:
Investments...............................
(2,376,492)
Financial futures contracts...............
(197,937)
------------
- -----
(2,574,429)
------------
- -----
Net loss on investments......................
(2,065,058)
------------
- -----
Net Increase in Net Assets
Resulting from Operations.................... $
4,726,186
------------
- -----
------------
- -----
</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 28, August
31,
in Net Assets 1999 1998
------------ ---------
- ---
<S> <C> <C>
Operations
Net investment income........ $ 6,791,244 $
12,132,906
Net realized gain (loss) on
investment transactions... 509,371
(88,023)
Net change in unrealized
appreciation/depreciation
of investments............ (2,574,429)
10,200,239
------------ ---------
- ---
Net increase in net assets
resulting from
operations................ 4,726,186
22,245,122
------------ ---------
- ---
Dividends and distribution (Note
1):
Dividends from net investment
income
Class A................... (4,672,093)
(8,943,420)
Class B................... (1,820,380)
(2,795,615)
Class C................... (175,846)
(211,960)
Class Z................... (122,925)
(181,911)
------------ ---------
- ---
(6,791,244)
(12,132,906)
------------ ---------
- ---
Distributions in excess of
net investment income
Class A................... --
(77,784)
Class B................... --
(24,826)
Class C................... --
(1,879)
Class Z................... --
(1,255)
------------ ---------
- ---
--
(105,744)
------------ ---------
- ---
Series share transactions (net
of share conversions) (Note
5):
Net proceeds from shares
sold...................... 45,909,572
72,607,907
Net asset value of shares
issued to shareholders in
reinvestment of dividends
and distributions......... 3,355,906
6,072,757
Cost of shares reacquired.... (25,206,019)
(35,867,889)
------------ ---------
- ---
Net increase in net assets
from Series share
transactions.............. 24,059,459
42,812,775
------------ ---------
- ---
Total increase.................. 21,994,401
52,819,247
Net Assets
Beginning of period............. 262,513,027
209,693,780
------------ ---------
- ---
End of period................... $284,507,428
$262,513,027
------------ ---------
- ---
------------ ---------
- ---
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 10
<PAGE>
PRUDENTIAL
CALIFORNIA MUNICIPAL FUND
Notes to Financial Statements (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.
The Series will invest primarily in investment grade
municipal obligations but
may also invest a portion of its assets in lower-quality
municipal obligations
or in nonrated securities which are of comparable quality.
The ability of the
issuers of the securities held by the Series to meet their
obligations may be
affected by economic developments in a specific state,
industry or region.
- ------------------------------------------------------------
Note 1. Accounting Policies
The following is a summary of significant accounting
policies followed by the
Fund and the Series in preparation of its financial
statements.
Security Valuations: The Series values municipal securities
(including
commitments to purchase such securities on a 'when-issued'
basis) on the basis
of prices provided by a pricing service which uses
information with respect to
transactions in bonds, quotations from bond dealers, market
transactions in
comparable securities and various relationships between
securities in
determining values. If market quotations are not readily
available from such
pricing 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.
The Series held illiquid securities, including those which
are restricted as to
disposition under securities law ('restricted securities').
None of the issues
of restricted securities held by the Series at February 28,
1999 include
registration rights under which the Series may demand
registration by the
issuer. Restricted securities, sometimes referred to as
private placements, are
valued pursuant to the valuation procedures noted above.
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
transactions.
The Series invests in financial futures contracts in order
to hedge its existing
portfolio securities or securities the Series intends to
purchase, against
fluctuations in value caused by changes in prevailing
interest rates. Should
interest rates move unexpectedly, the Series may not achieve
the anticipated
benefits of the financial futures contracts and may realize
a loss. The use of
futures transactions involves the risk of imperfect
correlation in movements in
the price of futures contracts, interest rates and the
underlying hedged assets.
Securities Transactions and Net Investment Income:
Securities transactions are
recorded on the trade date. Realized gains and losses on
sales of securities are
calculated on the identified cost basis. Interest income is
recorded on the
accrual basis. The Series amortizes premiums and original
issue discount paid on
purchases of portfolio securities as adjustments to interest
income. Expenses
are recorded on the accrual basis which may require the use
of certain estimates
by management.
Net investment income (other than distribution fees) and
unrealized and realized
gains or losses are allocated daily to each class of shares
based upon the
relative proportion of net assets of each class at the
beginning of the day.
Federal Income Taxes: For federal income tax purposes, each
series in the Fund
is treated as a separate taxpaying entity. It is the intent
of the Series to
continue to meet the requirements of the Internal Revenue
Code applicable to
regulated investment companies and to distribute all of its
net income to
shareholders. For this reason, no federal income tax
provision is required.
Dividends and Distributions: The Series declares daily
dividends from net
investment income. Payment of dividends is made monthly.
Distributions of net
capital gains, if any, are made annually.
Income distributions and capital gain distributions are
determined in accordance
with income tax regulations which may differ from generally
accepted accounting
principles.
- ------------------------------------------------------------
- --------------------
11
<PAGE>
PRUDENTIAL
CALIFORNIA MUNICIPAL FUND
Notes to Financial Statements (Unaudited) CALIFORNIA INCOME
SERIES
- ------------------------------------------------------------
- --------------------
Custody Fee Credits: The Fund has an arrangement with its
custodian bank,
whereby uninvested monies earn credits which reduce the fees
charged by the
custodian.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential
Investments Fund Management
LLC ('PIFM'). Pursuant to this agreement, PIFM has
responsibility for all
investment advisory services and supervises the subadviser's
performance of such
services. PIFM has entered into a subadvisory agreement with
The Prudential
Investment Corporation ('PIC'); PIC furnishes investment
advisory services in
connection with the management of the Fund. PIFM pays for
the cost of the
subadviser's services, the compensation of officers of the
Fund, occupancy and
certain clerical and bookkeeping costs of the Fund. The Fund
bears all other
costs and expenses.
The management fee paid PIFM is computed daily and payable
monthly, at an annual
rate of .50 of 1% of the average daily net assets of the
Series. PIFM has agreed
to voluntarily waive a portion (.05 of 1% of the Series'
average daily net
assets) of its management fee, which amounted to $68,313
($.003 per share) for
the six months ended February 28, 1999. The Series is not
required to reimburse
PIFM for such waiver.
The Fund has a distribution agreement with Prudential
Investment Management
Services LLC ('PIMS') which acts as the distributor of the
Fund. The Fund
compensates PIMS for distributing and servicing the Fund's
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 it. The
distribution fees
are accrued daily and payable monthly. No distribution or
service fees are paid
to PIMS as distributor of the Class Z shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensates
PIMS for
distribution-related activities at an annual rate of up to
.30 of 1%, .50 of 1%
and 1% of the average daily net assets of the Class A, B and
C shares,
respectively. Such expenses under the Plans were .10 of 1%,
.50 of 1% and .75 of
1% of the average daily net assets of the Class A, B and C
shares, respectively,
for the period September 1, 1998 through December 31, 1998.
Effective January 1,
1999, such expenses under the Plans were .25 of 1%, .50 of
1% and .75 of 1% of
the average daily net assets of the Class A, B and C shares,
respectively.
PIMS has advised the Series that it received approximately
$239,200 and $14,500
in front-end sales charges resulting from sales of Class A
and Class C shares,
respectively, during the six months ended February 28, 1999.
From these fees,
PIMS paid such sales charges to affiliated broker-dealers
which in turn paid
commissions to sales persons and incurred other distribution
costs.
PIMS has advised the Series that for the six months ended
February 28, 1999, it
received approximately $87,600 and $1,300 in contingent
deferred sales charges
imposed upon certain redemptions by Class B and Class C
shareholders,
respectively.
PIFM, PIMS and PIC are indirect, wholly owned subsidiaries
of The Prudential
Insurance Company of America.
The Series, along with other affiliated registered
investment companies (the
'Funds'), has a credit agreement (the 'Agreement') with an
unaffiliated lender.
The maximum commitment under the Agreement is $200,000,000.
Interest on any such
borrowings outstanding will be at market rates. The purpose
of the Agreement is
to serve as an alternative source of funding for capital
share redemptions. The
Series has not borrowed any amounts pursuant to the
Agreement during the six
months ended February 28, 1999. The Funds pay a commitment
fee at an annual rate
of .055 of 1% on the unused portion of the credit facility.
The commitment fee
is accrued and paid quarterly on a pro rata basis by the
Funds. The Agreement
expired on February 28, 1999 and has been extended through
March 12, 1999 under
the same terms.
- ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned
subsidiary of PIFM,
serves as the Fund's transfer agent. During the six months
ended February 28,
1999, the Series incurred fees of approximately $24,900 for
the services of
PMFS. As of February 28, 1999 approximately $4,300 of such
fees were due to
PMFS. Transfer agent fees and expenses in the Statement of
Operations include
certain out-of-pocket expenses paid to nonaffiliates.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of portfolio securities of the Series,
excluding short-term
investments, for the six months ended February 28, 1999 were
$39,221,992 and
$20,756,841, respectively.
The United States federal income tax cost basis of the
Fund's investments as of
February 28, 1999 was substantially the same as for
financial reporting purposes
and, accordingly, net unrealized appreciation on investments
for federal income
tax purposes was $25,026,841 (gross unrealized appreciation-
- -$26,387,761; gross
unrealized depreciation--$1,360,920).
- ------------------------------------------------------------
- --------------------
12
<PAGE>
PRUDENTIAL
CALIFORNIA MUNICIPAL FUND
Notes to Financial Statements (Unaudited) CALIFORNIA INCOME
SERIES
- ------------------------------------------------------------
- --------------------
During the six months ended February 28, 1999, the Fund
entered into financial
futures contracts. Details of open contracts at February 28,
1999 are as
follows:
<TABLE>
<CAPTION>
Value at
Value at Unrealized
Number of Expiration February 28,
Trade Appreciation
Contracts Type Date 1999
Date (Depreciation)
- --------- ---------------- ---------- ------------
- ----------- --------------
<S> <C> <C> <C>
<C> <C>
Short Position:
138 Muni Bond Mar. 1999 $ 17,198,250
$17,143,219 $(55,031)
- -------
$(55,031)
- -------
- -------
</TABLE>
For federal income tax purposes, the Series has a capital
loss carryforward at
August 31, 1998 of approximately $2,756,900 of which
$1,781,200 expires in 2003
and $975,700 expires in 2004. Accordingly, no capital gains
distributions are
expected to be paid to shareholders until net gains have
been realized in excess
of such amount.
For federal income tax purposes, the Series will elect to
treat net capital
losses of $32,200 incurred in the ten month period ending
August 31, 1998 as
having been incurred in the current fiscal year.
- ------------------------------------------------------------
Note 5. Capital
The Series offers Class A, Class B, Class C and Class Z
shares. Class A shares
are sold with a front-end sales charge of up to 3%. Class B
shares are sold with
a contingent deferred sales charge which declines from 5% to
zero depending on
the period of time the shares are held. Class C shares are
sold with front-end
sales charge of 1% and a contingent deferred sales charge of
1% during the first
18 months. Prior to November 2, 1998, Class C shares were
sold with a contingent
deferred sales charge of 1% during the first year. Class B
shares will
automatically convert to Class A shares on a quarterly basis
approximately seven
years after purchase. A 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
28, 1999 and fiscal year ended August 31, 1998 were as
follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- ----------------------------------- ---------- --------
- ----
<S> <C> <C>
Six months ended February 28, 1999:
Shares sold........................ 1,962,705 $
21,951,157
Shares issued in reinvestment of
dividends and distributions...... 205,737
2,298,605
Shares reacquired.................. (1,640,407)
(18,323,637)
---------- --------
- ----
Net increase in shares outstanding
before conversion................ 528,035
5,926,125
Shares issued upon conversion from
Class B.......................... 47,208
529,344
---------- --------
- ----
Net increase in shares
outstanding...................... 575,243 $
6,455,469
---------- --------
- ----
---------- --------
- ----
Year ended August 31, 1998:
Shares sold........................ 3,414,327 $
37,583,169
Shares issued in reinvestment of
dividends and distributions...... 412,571
4,525,799
Shares reacquired.................. (2,333,125)
(25,610,559)
---------- --------
- ----
Net increase in shares outstanding
before conversion................ 1,493,773
16,498,409
Shares issued upon conversion from
Class B.......................... 101,309
1,102,989
---------- --------
- ----
Net increase in shares
outstanding...................... 1,595,082 $
17,601,398
---------- --------
- ----
---------- --------
- ----
<CAPTION>
Class B
- -----------------------------------
Six months ended February 28, 1999:
Shares sold........................ 1,619,975 $
18,141,654
Shares issued in reinvestment of
dividends and distributions...... 74,270
829,722
Shares reacquired.................. (443,644)
(4,961,629)
---------- --------
- ----
Net increase in shares outstanding
before conversion................ 1,250,601
14,009,747
Shares reacquired upon conversion
into Class A..................... (47,208)
(529,344)
---------- --------
- ----
Net increase in shares
outstanding...................... 1,203,393 $
13,480,403
---------- --------
- ----
---------- --------
- ----
Year ended August 31, 1998:
Shares sold........................ 2,527,906 $
27,786,255
Shares issued in reinvestment of
dividends and distributions...... 111,980
1,228,995
Shares reacquired.................. (663,467)
(7,259,153)
---------- --------
- ----
Net increase in shares outstanding
before conversion................ 1,976,419
21,756,097
Shares reacquired upon conversion
into Class A..................... (101,309)
(1,102,989)
---------- --------
- ----
Net increase in shares
outstanding...................... 1,875,110 $
20,653,108
---------- --------
- ----
---------- --------
- ----
</TABLE>
- ------------------------------------------------------------
- --------------------
13
<PAGE>
PRUDENTIAL
CALIFORNIA MUNICIPAL FUND
Notes to Financial Statements (Unaudited) CALIFORNIA INCOME
SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class C Shares
Amount
- ----------------------------------- ---------- --------
- ----
Six months ended February 28, 1999:
<S> <C> <C>
Shares sold........................ 411,695 $
4,606,390
Shares issued in reinvestment of
dividends and distributions...... 11,331
126,534
Shares reacquired.................. (82,702)
(924,242)
---------- --------
- ----
Net increase in shares
outstanding...................... 340,324 $
3,808,682
---------- --------
- ----
---------- --------
- ----
Year ended August 31, 1998:
Shares sold........................ 384,457 $
4,221,764
Shares issued in reinvestment of
dividends and distributions...... 13,751
150,931
Shares reacquired.................. (202,715)
(2,225,783)
---------- --------
- ----
Net increase in shares
outstanding...................... 195,493 $
2,146,912
---------- --------
- ----
---------- --------
- ----
<CAPTION>
Class Z
- -----------------------------------
Six months ended February 28, 1999:
Shares sold........................ 107,510 $
1,210,371
Shares issued in reinvestment of
dividends and distributions...... 9,050
101,045
Shares reacquired.................. (89,032)
(996,511)
---------- --------
- ----
Net increase in shares
outstanding...................... 27,528 $
314,905
---------- --------
- ----
---------- --------
- ----
Year ended August 31, 1998:
Shares sold........................ 274,705 $
3,016,719
Shares issued in reinvestment of
dividends and distributions...... 15,212
167,032
Shares reacquired.................. (70,320)
(772,394)
---------- --------
- ----
Net increase in shares
outstanding...................... 219,597 $
2,411,357
---------- --------
- ----
---------- --------
- ----
</TABLE>
- ------------------------------------------------------------
- --------------------
14
<PAGE>
PRUDENTIAL
CALIFORNIA MUNICIPAL FUND
Financial Highlights (Unaudited) CALIFORNIA INCOME
SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class A
------------------
- -----------------------------------------------------------
Six Months
Ended
Year Ended August 31,
February 28, -
- -----------------------------------------------------------
1999
1998 1997 1996 1995 1994
------------ -
- ------- -------- -------- -------- --------
<S> <C>
<C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period... $ 11.19 $
10.71 $ 10.33 $ 10.28 $ 10.19 $ 10.68
------------ -
- ------- -------- -------- -------- --------
Income from investment operations
Net investment income(a)............... .28
.59 .60 .63 .65 .65
Net realized and unrealized gain (loss)
on investment transactions.......... (.08)
.49 .38 .05 .09 (.39)
------------ -
- ------- -------- -------- -------- --------
Total from investment operations.... .20
1.08 .98 .68 .74 .26
------------ -
- ------- -------- -------- -------- --------
Less distributions
Dividends from net investment income... (.28)
(.59) (.60) (.63) (.65) (.65)
Distributions in excess of net
investment income................... --
(.01) --(c) -- -- --
Distributions from net realized
gains............................... --
- -- -- -- -- (.10)
------------ -
- ------- -------- -------- -------- --------
Total distributions................. (.28)
(.60) (.60) (.63) (.65) (.75)
------------ -
- ------- -------- -------- -------- --------
Net asset value, end of period......... $ 11.11 $
11.19 $ 10.71 $ 10.33 $ 10.28 $ 10.19
------------ -
- ------- -------- -------- -------- --------
------------ -
- ------- -------- -------- -------- --------
TOTAL RETURN(b):....................... 1.86%
10.31% 9.72% 6.67% 7.67% 2.55%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........ $186,619
$181,512 $156,684 $153,236 $163,538 $183,742
Average net assets (000)............... $185,436
$165,771 $153,019 $161,420 $165,500 $195,610
Ratios to average net assets(a):
Expenses, including distribution
fees............................. .71%(d)
.68% .73% .50% .40% .35%
Expenses, excluding distribution
fees............................. .56%(d)
.58% .63% .40% .30% .25%
Net investment income............... 5.08%(d)
5.39% 5.66% 6.01% 6.49% 6.25%
For Class A, B, C and Z shares:
Portfolio turnover rate............. 8%
10% 16% 22% 39% 46%
</TABLE>
- ---------------
(a) Net of expense subsidy and/or management fee waiver.
(b) Total return does not consider the effects of sales
loads. Total return is
calculated assuming a purchase of shares on the first
day and a sale on the
last day of each period reported and includes
reinvestment of dividends and
distributions. Total returns for periods of less than a
full year are not
annualized.
(c) Less than $.005 per share.
(d) Annualized.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 15
<PAGE>
PRUDENTIAL
CALIFORNIA MUNICIPAL FUND
Financial Highlights (Unaudited) CALIFORNIA INCOME
SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class B
------------------
- ----------------------------------------------------------
December 7,
Six Months
1993(d)
Ended
Year Ended August 31, Through
February 28, -
- ------------------------------------------ August 31,
1999
1998 1997 1996 1995 1994
------------ -
- ------ ------- ------- ------- -----------
<S> <C>
<C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period... $ 11.19 $
10.71 $ 10.33 $ 10.28 $ 10.19 $ 10.61
------ -
- ------ ------- ------- ------- -----------
Income from investment operations
Net investment income(a)............... .26
.55 .55 .59 .61 .44
Net realized and unrealized gain (loss)
on investment transactions.......... (.08)
.49 .38 .05 .09 (.42)
------ -
- ------ ------- ------- ------- -----------
Total from investment operations.... .18
1.04 .93 .64 .70 .02
------ -
- ------ ------- ------- ------- -----------
Less distributions
Dividends from net investment income... (.26)
(.55) (.55) (.59) (.61) (.44)
Distributions in excess of net
investment income................... --
(.01) --(e) -- -- --
------ -
- ------ ------- ------- ------- -----------
Total distributions................. (.26)
(.56) (.55) (.59) (.61) (.44)
------ -
- ------ ------- ------- ------- -----------
Net asset value, end of period......... $ 11.11 $
11.19 $ 10.71 $ 10.33 $ 10.28 $ 10.19
------ -
- ------ ------- ------- ------- -----------
------ -
- ------ ------- ------- ------- -----------
TOTAL RETURN(b):....................... 1.68%
9.87% 9.28% 6.25% 7.24% (.14)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........ $ 83,408
$70,535 $47,436 $35,983 $28,609 $18,931
Average net assets (000)............... $ 77,475
$56,011 $40,983 $32,555 $23,722 $ 6,814
Ratios to average net assets(a):
Expenses, including distribution
fees............................. 1.06%(c)
1.08% 1.13% .90% .80% 1.11%(c)
Expenses, excluding distribution
fees............................. .56%(c)
.58% .63% .40% .30% .43%(c)
Net investment income............... 4.74%(c)
4.99% 5.26% 5.61% 6.09% 8.15%(c)
</TABLE>
- ---------------
(a) Net of expense subsidy and management fee waiver.
(b) Total return does not consider the effects of sales
loads. Total return is
calculated assuming a purchase of shares on the first
day and a sale on the
last day of each period reported and includes
reinvestment of dividends and
distributions. Total returns for periods of less than a
full year are not
annualized.
(c) Annualized.
(d) Commencement of offering of Class B shares.
(e) Less than $.005 per share.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 16
<PAGE>
PRUDENTIAL
CALIFORNIA MUNICIPAL FUND
Financial Highlights (Unaudited) CALIFORNIA INCOME
SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class C Class Z
------------------
- ----------------------------------------------------- --
- ----------
August 1,
Six Months
1994(d) Six Months
Ended
Year Ended August 31, Through Ended
February 28, -
- -------------------------------------- August 31,
February 28,
1999
1998 1997 1996 1995 1994
1999
------------ -
- ----- ------ ------ ------ ---------- --
- ----------
<S> <C>
<C> <C> <C> <C> <C>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period... $11.19
$10.71 $10.33 $10.28 $10.19 $10.18
$11.19
----- -
- ----- ------ ------ ------ -----
- -----
Income from investment operations
Net investment income(a)............... .25
.52 .53 .56 .58 .05
.29
Net realized and unrealized gain (loss)
on investment transactions.......... (.08)
.49 .38 .05 .09 .01
(.08)
----- -
- ----- ------ ------ ------ -----
- -----
Total from investment operations.... .17
1.01 .91 .61 .67 .06
.21
----- -
- ----- ------ ------ ------ -----
- -----
Less distributions
Dividends from net investment income... (.25)
(.52) (.53) (.56) (.58) (.05)
(.29)
Distributions in excess of net
investment income................... --
(.01) --(f) -- -- --
- --
----- -
- ----- ------ ------ ------ -----
- -----
Total distributions................. (.25)
(.53) (.53) (.56) (.58) (.05)
(.29)
----- -
- ----- ------ ------ ------ -----
- -----
Net asset value, end of period......... $11.11
$11.19 $10.71 $10.33 $10.28 $10.19
$11.11
----- -
- ----- ------ ------ ------ -----
- -----
----- -
- ----- ------ ------ ------ -----
- -----
TOTAL RETURN(b):....................... 1.55%
9.60% 9.01% 5.99% 6.98% .47%
1.93%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........ $9,699
$5,960 $3,611 $3,269 $2,762 $1,054
$4,781
Average net assets (000)............... $7,866
$4,491 $3,135 $3,300 $1,751 $ 353
$4,741
Ratios to average net assets(a):
Expenses, including distribution
fees............................. 1.31%(c)
1.33% 1.38% 1.15% 1.05% 1.12%(c)
.56%(c)
Expenses, excluding distribution
fees............................. .56%(c)
.58% .63% .40% .30% .37%(c)
.56%(c)
Net investment income............... 4.51%(c)
4.74% 5.01% 5.36% 5.84% 6.25%(c)
5.23%(c)
<CAPTION>
September 18,
1996(e)
Year Ended
Through
August 31,
August 31,
1998
1997
---------- ----
- ---------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period... $10.71 $
10.38
-----
- -----
Income from investment operations
Net investment income(a)............... .61
.57
Net realized and unrealized gain (loss)
on investment transactions.......... .49
.33
-----
- -----
Total from investment operations.... 1.10
.90
-----
- -----
Less distributions
Dividends from net investment income... (.61)
(.57)
Distributions in excess of net
investment income................... (.01)
- --(f)
-----
- -----
Total distributions................. (.62)
(.57)
-----
- -----
Net asset value, end of period......... $11.19 $
10.71
-----
- -----
-----
- -----
TOTAL RETURN(b):....................... 10.42%
8.86%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)........ $4,507 $
1,963
Average net assets (000)............... $3,312 $
970
Ratios to average net assets(a):
Expenses, including distribution
fees............................. .58%
.63%(c)
Expenses, excluding distribution
fees............................. .58%
.63%(c)
Net investment income............... 5.49%
5.76%(c)
</TABLE>
- ---------------
(a) Net of expense subsidy and/or fee waiver.
(b) Total return does not consider the effects of sales
loads. Total return is
calculated assuming a purchase of shares on the first
day and a sale on the
last day of each period reported and includes
reinvestment of dividends and
distributions. Total returns for periods of less than a
full year are not
annualized.
(c) Annualized.
(d) Commencement of offering of Class C shares.
(e) Commencement of offering of Class Z shares.
(f) Less than $.005 per share.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 17
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Robert F. Gunia
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Louis A. Weil, III
Officers
Robert F. Gunia, President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
Deborah A. Docs, Secretary
David F. Connor, Assistant Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07102-3777
Distributor
Prudential Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Swidler Berlin Shereff Friedman, LLP
919 Third Avenue
New York, NY 10022
The views expressed in this report and information about the
Series'
portfolio holdings are for the period covered by this report
and are
subject to change thereafter.
The accompanying financial statements as of February 28,
1999 were not
audited and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to
prospective investors
unless preceded or accompanied by a current prospectus.
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
BULK RATE
U.S. POSTAGE
PAID
Permit 6807
New York, NY
744313305
744313404 MF146E2
744313800
744313875
(ICON)
Prudential
California
Municipal
Fund
- --------------------
California Series
SEMI
ANNUAL
REPORT
Feb. 28, 1999
(LOGO)
<PAGE>
Prudential California Municipal Fund
California Series
Performance At A Glance.
During the six months ended February 28, 1999, municipal
bonds
initially rallied on the coattails of U.S. Treasuries, which
gained in value as concern about a global financial crisis
boosted demand for the federal government securities. Later
when prices of Treasuries turned lower, municipal bonds also
partially erased their early price increases. Your
Prudential
California Municipal Fund--California Series held zero
coupon
bonds whose prices declined markedly. As a result, the
Series'
returns lagged the Lipper average.
<TABLE>
Cumulative Total Returns1 As of
2/28/99
<CAPTION>
Six Months One Year Five Years
Ten Years Since Inception2
<S> <C> <C> <C>
<C>
Class A 1.82% 5.38% 34.98% (34.76)
N/A 92.14% (91.83)
Class B 1.56 4.98 32.35 (32.13)
97.69% (97.36) 198.79 (195.09)
Class C 1.43 4.73 N/A
N/A 33.70 (33.48)
Class Z 1.90 5.59 N/A
N/A 20.61 (20.51)
Lipper CA Muni
Debt Fund Avg.3 2.09 5.43 34.14
107.96 ***
</TABLE>
<TABLE>
Average Annual Total Returns1 As of 3/31/99
<CAPTION>
One Year Five Years Ten Years
Since Inception2
<S> <C> <C> <C> <C>
Class A 2.19% 6.47% (6.45) N/A
7.00% (6.99)
Class B -0.12 6.54 (6.53) 7.08% (7.07)
7.81 (7.72)
Class C 2.58 N/A N/A
6.16 (6.14)
Class Z 5.49 N/A N/A
7.64 (7.61)
</TABLE>
<TABLE>
Distributions & Yields As of
2/28/99
<CAPTION>
Taxable
Equivalent Yield4
Total Distributions 30-Day At Tax
Rates Of
Paid for Six Mos. SEC Yield 36%
39.6%
<S> <C> <C> <C>
<C>
Class A $0.30 3.56% 6.13%
6.50%
Class B $0.28 3.43 5.91
6.26
Class C $0.26 3.14 5.41
5.73
Class Z $0.31 3.93 6.77
7.17
</TABLE>
Past performance is not indicative of future results.
Principal
and investment return will fluctuate so that an investor's
shares,
when redeemed, may be worth more or less than their original
cost.
1 Source: Prudential Investments Fund Management and Lipper,
Inc.
The cumulative total returns do not take into account sales
charges.
The average annual total returns do take into account
applicable
sales charges. The Series charges a maximum front-end sales
charge
of 3% for Class A shares and a declining contingent deferred
sales
charge (CDSC) of 5%, 4%, 3%, 2%, 1% and 1% for six years for
Class
B shares. Class B shares will automatically convert to Class
A
shares, on a quarterly basis, approximately seven years
after
purchase. Class C shares are subject to a front-end sales
charge
of 1% and a CDSC of 1% for 18 months. Class C shares bought
before
November 2, 1998 have a 1% CDSC if sold within one year.
Class Z
shares are not subject to a sales charge or distribution
fee.
Without waiver of management fees and/or expense
subsidization,
the Series' cumulative and average annual total returns
would
have been lower, as indicated in parentheses ( ).
2 Inception dates: Class A, 1/22/90; Class B, 9/19/84; Class
C,
8/1/94; and Class Z, 9/18/96.
3 Lipper average returns are for all funds in each share
class
for the six-month, one-, five-, and ten-year periods in the
California Municipal Debt Fund category.
4 Taxable equivalent yields reflect federal and applicable
state tax rates.
*** Lipper Since Inception returns are 93.93% for Class A;
234.80% for Class B; 37.08% for Class C; and 19.05% for
Class Z based on all funds in each share class.
How Investments Compared.
(As of 2/28/99)
(GRAPH)
Source: Lipper, Inc. Financial markets change, so a mutual
fund's
past performance should never be used to predict future
results.
The risks to each of the investments listed above are
different--
we provide 12-month total returns for several Lipper mutual
fund
categories to show you that reaching for higher yields means
tolerating more risk. The greater the risk, the larger the
potential reward or loss. In addition, we've included
historical 20-year average annual returns. These returns
assume the reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors
have received higher historical total returns from stocks
than from most other invest-ments. Smaller capitalization
stocks offer greater potential for long-term growth but
may be more volatile than larger capitalization stocks.
General Bond Funds provide more income than stock funds,
which can help smooth out their total returns year by year.
But their prices still fluctuate (sometimes significantly)
and their returns have been historically lower than those
of stock funds.
General Municipal Debt Funds invest in bonds issued by
state governments, state agencies and/or municipalities.
This investment provides income that is usually exempt
from federal and state income taxes.
U.S. Tax-Exempt Money Funds attempt to preserve a constant
share value; they don't fluctuate much in price but,
historically, their returns have been generally among
the lowest of the major investment categories.
*19 years for U.S. Tax-Exempt Money Funds.
<PAGE>
Christian Smith, Fund Manager (PHOTO)
Portfolio
Manager's Report
The Series seeks to invest primarily in carefully selected,
long-term municipal bonds that provide the maximum amount of
income that is exempt from California state and federal
income
taxes, consistent with the preservation of capital. Certain
shareholders, however, may be subject to the federal
alternative
minimum tax. There can be no assurance the Series will
achieve
its investment objective.
Key Municipal Bond Index Tumbles.
Municipal bonds did not rally as much as U.S. Treasuries
last
autumn. However, municipal bond prices rose strongly enough
to drive the Bond Buyer Revenue Bond Index, a weekly average
of long-term municipal bond yields, to 5.09% in early
October.
This was the lowest level reached by the Index since its
inception in 1979. Yields fall as prices rise and vice
versa.
Strategy Session.
Interest-Rate Outlook.
We expected long-term interest rates to continue to fall
because
the U.S. economic expansion was poised to slow and inflation
to
remain tame after a global financial crisis spread beyond
Asia
in mid-summer of 1998. The overseas turmoil was expected to
temper U.S. economic growth as struggling countries in Asia
and Latin America purchased fewer goods and services from
the
United States.
Because of our outlook for lower long-term rates, we
maintained
a longer-than-average duration, which is a measure of the
Series'
sensitivity to interest-rate fluctuations. A longer duration
would enable the Series' shares to gain more rapidly if
interest rates continued to fall and municipal bond prices
rose. In order to sustain a longer duration, the Series
remained heavily invested in noncallable bonds, which
averaged approximately 59% of its total investments
throughout the six-month period. Noncallable bonds
usually perform well when debt markets rally since
they are free to appreciate in value without the risk
of being retired early. Some of our noncallable bonds
were also zero coupon bonds. These bonds do not make
periodic interest payments, and typically trade at
deep discounts to their price at maturity. Their
prices therefore have plenty of room to rise when
interest rates tumble. The difference between a zero
coupon bond's purchase price and maturity price
constitutes the return to investors.
We subsequently altered our strategy by shortening
the Series' duration because long-term interest rates
unexpectedly began to move higher and bond prices fell.
By reducing the duration, we tried to make the Series'
shares less sensitive to the sell-off in the bond market.
Portfolio Composition.
Expressed as a percentage of
total investments as of 2/28/99.
(PIE CHART)
<PAGE>
What Went Well.
Munis Rallied, at First.
The Series' long duration helped its shares increase in
value
as municipal bonds rallied in sympathy with U.S. Treasuries
during September and early October 1998. Prices of
Treasuries
soared as concern about the global financial crisis boosted
demand for the safest government securities. Municipal bonds
did not rally as strongly as Treasuries. Nevertheless,
prices
of municipal bonds gained enough to drive down the Bond
Buyer
Revenue Bond Index (a weekly average of long-term municipal
bond yields) to 5.09% in early October 1998. This was the
lowest level reached by the Index since its inception in
1979.
And Not So Well.
Then the Rally Fizzled.
The Federal Reserve eased monetary policy three times in the
autumn of 1998 to calm global financial markets and restore
faith in the U.S. economy. (In fact, the economy
unexpectedly
grew at a rapid pace in the fourth quarter of 1998.) As a
result, concern about the global financial crisis dwindled
and investors sold Treasuries and bought higher-yielding
assets with renewed confidence. Municipal bonds also sold
off, but to a lesser extent than Treasuries.
We cut the Series' duration to 7.67 years as of February
28, 1999 from 8.91 years as of October 31, 1998 in order
to make the Series less sensitive to this decline in bond
prices and the rise in interest rates. However, the Series
still held noncallable zero coupon bonds. Just as prices of
these bonds tend to climb markedly as interest rates fall,
they tumble when the municipal bond market sells off and
interest rates head higher. The declines in the prices of
our zero coupon bonds detracted from the Series'
performance.
Credit Quality.
Expressed as a percentage of
total investments as of 2/28/99.
(PIE CHART)
Five Largest Issuers.
8.1% Southern California
Public Power Authority
6.6% Orange County Local
Transportation Authority
5.1% Metro Water District of
Southern California
4.7% Santa Margarita Dana
Point Authority
4.0% Long BeachHarbor Revenue
Expressed as a percentage of net assets as of 2/28/99.
Looking Ahead.
In the short run, we feel municipal bond prices will remain
in a trading range because of the U.S. economy's continued
resilience. However, we do not think the rally in tax-exempt
bonds is over. We believe U.S. economic growth will continue
to slow from the torrid pace of late 1998.
Furthermore, we believe that inflation will remain subdued
as
global competition helps to keep prices of goods and
services
in check. Since the level of interest rates typically
reflects
the anticipated rate of inflation, we expect interest rates
to
fall and bond prices to rise amid continued low inflation.
1
<PAGE>
A Message to Our Shareholders. April
19, 1999
(PHOTO)
Dear Shareholder,
For the last several months, major index advances have been
driven by the stocks of a handful of very large companies.
These stocks are getting more and more expensive, out of
proportion to their earnings expectations. As a result, a
substantial disparity in value has grown between large and
small companies and between growth and value stocks.
Since not all stocks are benefiting from the highly
publicized
euphoria surrounding each record-breaking milestone, it is
unlikely that these trends will continue. In fact, signs
that the tide is turning are starting to emerge. Moreover,
history shows that markets generally bring prices in line
with earnings performance sooner or later.
Many sectors of the bond market, on the other hand, have
already begun to rebound from last year's global financial
crisis. Furthermore, while bonds have not generated higher
returns than stocks in recent years, they have demonstrated
that they hold up better during market downturns. That's a
thought to keep in mind going forward.
Diversification Is Critical.
What does this suggest? Instead of chasing recent market
winners, investors should have a well-diversified asset
allocation strategy in place and keep to it. It is also
a good practice to rebalance your holdings, when necessary,
to keep your asset allocation consistent with your long-term
objectives and risk tolerance. A properly diversified
portfolio of value- and growth-oriented mutual funds,
bond funds and money market funds could help you weather
inevitable market turbulence and receive more consistent
returns over time. Prudential offers a wide range of
mutual funds to help our shareholders diversify. We
have also designed several balanced and diversified
funds to allow one-decision diversification.
Thank you for your continued confidence in Prudential mutual
funds.
Sincerely,
John R. Strangfeld
Chief Investment Officer
Prudential Investments
2
<PAGE>
Portfolio of Investments as
of February 28, 1999 PRUDENTIAL 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--97.1%
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Alisal Union Sch. Dist.,
Capital Apprec., Ser. C, F.G.I.C.
Aaa Zero 8/01/12 $ 1,025 $
551,399
Capital Apprec., Ser. C, F.G.I.C.
Aaa Zero 8/01/14 1,030
490,218
Capital Apprec., Ser. C, F.G.I.C.
Aaa Zero 8/01/16 1,005
424,211
Capital Apprec., Ser. C, F.G.I.C.
Aaa Zero 8/01/21 1,635
517,837
Arcadia Unified Sch. Dist., Gen. Oblig. 1993, Ser. A,
M.B.I.A.
Aaa Zero 9/01/10 1,765
1,060,924
Baldwin Park Pub. Fin. Auth. Rev., Tax Alloc.
BBB(d) 7.05% 9/01/14 1,020
1,147,316
Berkeley Hosp. Rev., Alta Bates Hosp. Corp.
Aaa 7.65 12/01/15 1,420 (c)
1,523,135
Brea Pub. Fin. Auth. Rev., Sub. Tax Alloc. Redev.
Proj., Ser. C
NR 8.10 3/01/21 5,000
5,320,050
Buena Park Cmnty. Redev. Agcy., Central Bus. Dist.
Proj.
BBB+(d) 7.10 9/01/14 2,500
2,721,125
California Commerce Cmnty. Dev. Tax Alloc. Redev.
Proj., Ser. A
NR 5.65 8/01/18 1,175
1,184,788
California Hsg. Fin. Agcy., Amt. Home Mtge., A.M.B.A.C.
Aaa 5.25 2/01/33 750
759,263
California St. Hlth. Facs. Fin. Auth. Rev.,
Eskaton Properties
NR 7.50 5/01/20 4,500 (c)(f)
4,809,600
Valleycare Hosp. Corp.
A+(d) 5.50 5/01/20 2,250 (c)
2,320,605
California St. Hsg. Fin. Agcy. Rev., Sngl. Fam. Mtge.,
Ser. A
Aa2 Zero 2/01/15 8,420
1,839,517
Chula Vista Redev. Agcy., Bayfront Tax Alloc.
BBB+(d) 7.625 9/01/24 4,500
5,228,730
Contra Costa Cnty., Spec. Tax Cmnty. Facs. Dist.
Pleasant Hill
NR 8.125 8/01/16 1,300 (c)
1,413,191
Desert Hosp. Dist., Cert. of Part.
AAA(d) 8.10 7/01/20 5,000 (f)
5,425,750
East Palo Alto Sanit. Dist., Cert. of Part.
NR 8.25 10/01/15 1,295
1,375,458
Fairfield Pub. Fin. Auth. Rev., Fairfield Redev.
Projs., Ser. A
NR 7.90 8/01/21 4,200 (c)
4,717,734
Foothill/Eastern Trans. Corridor Agcy.,
Toll Rd. Rev.
Baa3 Zero 1/01/16 5,000
2,088,350
Toll Rd. Rev.
Baa3 Zero 1/01/18 2,950
1,090,615
Kings Cnty. Wst. Mgmt. Auth., Solid Wst. Rev., A.M.T.
BBB(d) 7.20 10/01/14 1,225
1,370,481
La Canada Unified Sch. Dist.,
Capital Apprec., F.G.I.C.
Aaa Zero 8/01/12 1,600
860,720
Unltd. Tax Gen. Oblig., F.G.I.C.
Aaa Zero 8/01/13 1,680
850,903
Long Beach Harbor Rev., Ser. A, A.M.T., F.G.I.C.
Aaa 6.00 5/15/16 5,500
6,211,480
Long Beach Redev. Agcy. Dist. No. 3, Spec. Tax Rev.
NR 6.375 9/01/23 3,000
3,193,230
Los Angeles Cnty., Cert. of Part., Correctional Facs.
Proj., M.B.I.A.
Aaa Zero 9/01/10 3,770 (c)
2,268,673
Los Angeles Cnty., Hsg. Auth., Multi-fam. Mtge. Rev.,
Mayflower Gardens Proj., Ser. K, G.N.M.A.
NR 8.875 12/20/10 2,100 (c)(f)
2,364,474
Los Angeles Conv. & Exhib. Ctr. Auth., Cert. of Part.
Aaa 9.00 12/01/10 1,250 (c)(e)
1,637,862
Madera Redev. Agcy. Tax Rev. Tax Alloc. Redev. Proj.,
F.S.A.
Aaa 4.75 9/01/28 1,000
948,790
Met. Wtr. Dist. of Southern California,
Rev. Linked S.A.V.R.S. & R.I.B.S.
Aa2 5.75 8/10/18 1,000
1,112,420
Waterworks Rev. Rfdg., Ser. A
Aa2 5.75 7/01/21 4,000
4,452,560
Waterworks Rev. Rfdg., Ser. A
Aa2 4.75 7/01/22 2,400
2,311,320
Midpeninsula Regional Open Space Dist. Fin. Auth. Rev.,
1996, A.M.B.A.C.
Aaa Zero 9/01/15 3,000
1,329,330
Mojave Desert Solid Wst. Victor Vally Materials, Recov.
Fac., A.M.T.
Baa1 7.875 6/01/20 1,175
1,333,179
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as
of February 28, 1999 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>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Orange Cnty. Loc. Trans. Auth.,
Linked S.A.V.R.S. & R.I.B.S., A.M.B.A.C.
Aaa 6.20% 2/14/11 $ 8,000 $
9,261,360
Linked R.I.B.S.
Aa3 6.20 2/14/11 750
983,437
Pasadena California Spec. Tax
Capital Apprec., Cmnty. Facs., Dist. 1-A, F.S.A.
Aaa Zero 12/01/16 1,015
421,428
Capital Apprec., Cmnty. Facs., Dist. 1-A, F.S.A.
Aaa Zero 12/01/17 1,080
422,874
Capital Apprec., Cmnty. Facs., Dist. 1-A, F.S.A.
Aaa Zero 12/01/18 1,210
446,357
Capital Apprec., Cmnty. Facs., Dist. 1-A, F.S.A.
Aaa Zero 12/01/19 1,310
453,928
Capital Apprec., Cmnty. Facs., Dist. 1-A, F.S.A.
Aaa Zero 12/01/20 1,405
461,641
Petaluma City Joint Union High Sch. Dist.,
Capital Apprec., M.B.I.A.
Aaa Zero 8/01/14 1,170
556,850
Capital Apprec., M.B.I.A.
Aaa Zero 8/01/15 1,600
716,480
Capital Apprec., M.B.I.A.
Aaa Zero 8/01/16 1,455
614,155
Capital Apprec., M.B.I.A.
Aaa Zero 8/01/17 3,015
1,200,362
Redding Elec. Sys. Rev., Cert. of Part., M.B.I.A.
Aaa 6.368 7/08/22 1,750 (g)
2,310,000
Redding Elec. Sys. Rev., Cert. of Part., Linked
S.A.V.R.S. & R.I.B.S., M.B.I.A.
Aaa 6.368 7/01/22 50
58,018
Roseville City Sch. Dist., Cap. Apprec., Ser. A,
F.G.I.C.
Aaa Zero 8/01/10 1,230
742,071
San Bernardino Cnty.,
Cert. of Part, Med. Ctr. Fin. Proj., M.B.I.A.
Aaa 5.50 8/01/22 4,400
4,733,256
Fin. Auth. Ref. Impt., Granada Hills, Ser. A
BB(d) 6.90 5/01/27 645
652,998
San Francisco City & Cnty.,
Fin. Auth. Tax Alloc., M.B.I.A.
Aaa Zero 8/01/22 2,000
601,240
Redev. Agcy., Lease Rev., Cap. Apprec.
A1 Zero 7/01/09 2,000
1,253,080
San Francisco International Airport Rev. Commission
International Airport Rev., Ser. 16B, F.S.A.
Aaa 4.75 5/01/29 1,000
958,190
San Jose, Unified Sch. Dist., Santa Clara,
Gen. Oblig., Ser. A, F.G.I.C.
Aaa Zero 8/01/17 1,350
537,475
Gen. Oblig., Ser. A, F.G.I.C.
Aaa Zero 8/01/21 2,980
943,826
Santa Cruz Cnty. Pub. Fin. Auth. Rev., Tax Alloc. Sub.
Ln., Ser. B
AAA(d) 7.625 9/01/21 2,350 (c)
2,465,432
Santa Margarita, Dana Point Auth.,
Impvt. Dists. 3, Ser. B, M.B.I.A.
Aaa 7.25 8/01/08 2,500
3,094,775
Impvt. Dists. 3, Ser. A, M.B.I.A.
Aaa 7.25 8/01/09 1,400
1,751,120
Impvt. Dists. 3, Ser. B, M.B.I A.
Aaa 7.25 8/01/09 1,000
1,250,800
Impvt. Dists. 3, Ser. B, M.B.I.A.
Aaa 7.25 8/01/14 1,000
1,284,900
So. Orange Cnty. Pub. Fin. Auth.,
Foothill Area Proj., F.G.I.C.
Aaa 6.50 8/15/10 750
899,655
Spec. Tax Rev., M.B.I.A.
Aaa 7.00 9/01/11 3,500 (f)
4,383,925
Southern California Pub. Pwr. Auth.,
Proj. Rev.
A 6.75 7/01/10 2,265
2,722,779
Proj. Rev.
A 6.75 7/01/11 1,195
1,442,437
Proj. Rev.
A 6.75 7/01/12 2,935
3,558,952
Proj. Rev.
A 6.75 7/01/13 4,000
4,853,160
Proj. Rev., A.M.B.A.C.
Aaa Zero 7/01/16 7,925 (c)(f)
3,376,050
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as
of February 28, 1999 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>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Southern California Pub. Pwr. Auth., (cont'd.)
Transmission Proj. Rev. Rfdg., Ser. A, F.G.I.C.
Aaa Zero 7/01/12 $ 7,080(c) $
3,838,351
Stockton Cmnty. Facs. Dist. No. 90-2, Brookside Estates
NR 6.20% 8/01/15 700
734,594
Sulphur Springs Union Sch. Dist., Ser. A, M.B.I.A.
Aaa Zero 9/01/09 2,000
1,268,220
Torrance Redev. Agcy., Rfdg. Tax. Alloc., Downtown
Redev.
Baa 7.125 9/01/21 1,580 (c)
1,751,098
Vacaville Cmnty. Redev. Agcy., Cmnty. Hsg. Fin.
Multi-family
NR 7.375 11/01/14 1,110
1,180,252
Victor Valley Union High Sch. Dist.,
Gen. Oblig., M.B.I.A.
Aaa Zero 9/01/09 2,075
1,315,778
Gen. Oblig., M.B.I.A.
Aaa Zero 9/01/15 5,070
2,261,119
Virgin Islands Terr., Hugo Ins. Claims Fund Proj., Ser.
91
NR 7.75 10/01/06 670 (c)
736,605
Walnut Valley Unified Sch. Dist., M.B.I.A.
Aaa 6.00 8/01/15 1,870 (c)
2,139,093
- ------------
Total long-term investments (cost $132,991,139)
150,893,359
SHORT-TERM INVESTMENTS--1.9%
California Pollution Ctr., Fin. Rfdg., Pacific Gas &
Elec., Ser. 97B, A.M.T.
A-(d) 3.15 3/01/99 1,800
1,800,000
California St. Cmntys. Dev. Auth., Chevron Proj., Ser.
94, F.R.D.D., A.M.T.
NR 3.15 3/01/99 1,100
1,100,000
- ------------
Total short-term investments (cost $2,900,000)
2,900,000
- ------------
Total Investments--99.0%
(cost $135,891,139; Note 4)
153,793,359
Other assets in excess of liabilities--1.0%
1,504,919
- ------------
Net Assets--100%
$155,298,278
- ------------
- ------------
</TABLE>
- ---------------
(a) The following abbreviations are used in portfolio
descriptions:
A.M.B.A.C.--American Municipal Bond Assurance
Corporation.
A.M.T.--Alternative Minimum Tax
F.G.I.C.--Financial Guaranty Insurance Company.
F.R.D.D.--Floating Rate (Daily) Demand Note (b).
F.S.A.--Financial Security Assurance.
G.N.M.A.--Government National Mortgage Association.
M.B.I.A.--Municipal Bond Insurance Association.
R.I.B.S.--Residual Interest Bearing Securities.
S.A.V.R.S.--Select Auction Variable Rate Securities.
(b) For purposes of amortized cost valuation, the maturity
date of Floating Rate
Demand Notes is considered to be the later of the next
date on which the
security can be redeemed at par, or the next date on
which the rate of
interest is adjusted.
(c) Prerefunded issues are secured by escrowed cash and/or
direct U.S.
guaranteed obligations.
(d) Standard & Poor's Rating.
(e) Segregated as collateral for financial futures
contracts.
(f) When-issued security.
(g) 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.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 5
<PAGE>
PRUDENTIAL
CALIFORNIA MUNICIPAL FUND
Statement of Assets and Liabilities
(Unaudited) CALIFORNIA SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Assets
February 28, 1999
<S>
<C>
Investments, at value (cost
$135,891,139)...............................................
.................. $ 153,793,359
Cash........................................................
..............................................
53,185
Interest
receivable..................................................
..................................... 1,782,901
Receivable for Series shares
sold........................................................
................. 120,792
Other
assets......................................................
........................................
2,582
- -----------------
Total
assets......................................................
..................................... 155,752,819
- -----------------
Liabilities
Payable for Series shares
reacquired..................................................
.................... 136,555
Accrued
expenses....................................................
...................................... 78,846
Dividends
payable.....................................................
.................................... 64,710
Due to broker - variation
margin......................................................
.................... 64,375
Management fee
payable.....................................................
............................... 59,906
Distribution fee
payable.....................................................
............................. 41,458
Deferred trustee's
fees........................................................
........................... 8,691
- -----------------
Total
liabilities.................................................
..................................... 454,541
- -----------------
Net
Assets......................................................
.......................................... $
155,298,278
- -----------------
- -----------------
Net assets were comprised of:
Shares of beneficial interest, at
par.........................................................
......... $ 127,964
Paid-in capital in excess of
par.........................................................
.............. 140,163,449
- -----------------
140,291,413
Accumulated net realized loss on
investments.................................................
.......... (2,854,761)
Net unrealized appreciation on
investments.................................................
............ 17,861,626
- -----------------
Net assets, February 28,
1999........................................................
..................... $ 155,298,278
- -----------------
- -----------------
Class A:
Net asset value and redemption price per share
($94,740,791 / 7,805,585 shares of beneficial interest
issued and outstanding)......................
$12.14
Maximum sales charge (3% of offering
price)......................................................
...... .38
- -----------------
Maximum offering price to
public......................................................
................. $12.52
- -----------------
- -----------------
Class B:
Net asset value, offering price and redemption price per
share
($57,988,472 / 4,779,172 shares of beneficial interest
issued and outstanding)......................
$12.13
- -----------------
- -----------------
Class C:
Net asset value and redemption price per share
($1,386,559 / 114,277 shares of beneficial interest
issued and outstanding).........................
$12.13
Sales charge (1% of offering
price)......................................................
.............. .12
- -----------------
Offering price to
public......................................................
......................... $12.25
- -----------------
- -----------------
Class Z:
Net asset value, offering price and redemption price per
share
($1,182,456 / 97,349 shares of beneficial interest
issued and outstanding)..........................
$12.15
- -----------------
- -----------------
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 6
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
CALIFORNIA SERIES
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six
Months
Ended
Net Investment Income February 28,
1999
<S> <C>
Income
Interest.................................. $
4,455,341
------------
- -----
Expenses
Management fee............................
388,867
Distribution fee--Class A.................
69,932
Distribution fee--Class B.................
148,399
Distribution fee--Class C.................
4,668
Custodian's fees and expenses.............
47,000
Transfer agent's fees and expenses........
37,000
Reports to shareholders...................
22,000
Registration fees.........................
19,000
Legal fees and expenses...................
7,000
Audit fee and expenses....................
6,500
Trustees' fees and expenses...............
4,000
Miscellaneous.............................
3,025
------------
- -----
Total expenses......................
757,391
Less: Custodian fee credit (Note 1).......
(444)
------------
- -----
Net expenses...........................
756,947
------------
- -----
Net investment income........................
3,698,394
------------
- -----
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions...................
412,804
Financial futures transactions............
(105,028)
------------
- -----
307,776
------------
- -----
Net change in unrealized appreciation
(depreciation) on:
Investments...............................
(1,202,169)
Financial futures contracts...............
(188,094)
------------
- -----
(1,390,263)
------------
- -----
Net loss on investments......................
(1,082,487)
------------
- -----
Net Increase in Net Assets
Resulting from Operations.................... $
2,615,907
------------
- -----
------------
- -----
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
CALIFORNIA SERIES
Statement of Changes in Net Assets (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended
Increase (Decrease) February 28,
August 31,
in Net Assets 1999
1998
<S> <C> <C>
Operations
Net investment income........ $ 3,698,394 $
7,678,092
Net realized gain (loss) on
investment transactions... 307,776
(274,855)
Net change in unrealized
appreciation
(depreciation) of
investments............... (1,390,263)
5,747,426
----------------- -----
- ----------
Net increase in net assets
resulting from
operations................ 2,615,907
13,150,663
----------------- -----
- ----------
Dividends and distributions
(Note 1)
Dividends from net investment
income
Class A................... (2,295,380)
(4,438,300)
Class B................... (1,347,487)
(3,163,906)
Class C................... (26,773)
(31,174)
Class Z................... (28,754)
(44,712)
----------------- -----
- ----------
(3,698,394)
(7,678,092)
----------------- -----
- ----------
Distributions in excess of
net investment income
Class A................... --
(53,531)
Class B................... --
(42,305)
Class C................... --
(231)
Class Z................... --
(526)
----------------- -----
- ----------
--
(96,593)
----------------- -----
- ----------
Series share transactions (net
of share conversions) (Note
5)
Net proceeds from shares
sold...................... 8,641,582
13,997,164
Net asset value of shares
issued in reinvestment of
dividends and
distributions............. 2,083,265
4,324,099
Cost of shares reacquired.... (10,037,177)
(20,676,442)
----------------- -----
- ----------
Net increase (decrease) in
net assets from Series
share transactions........ 687,670
(2,355,179)
----------------- -----
- ----------
Total increase (decrease)....... (394,817)
3,020,799
Net Assets
Beginning of period............. 155,693,095
152,672,296
----------------- -----
- ----------
End of period................... $ 155,298,278 $
155,693,095
----------------- -----
- ----------
----------------- -----
- ----------
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 7
<PAGE>
PRUDENTIAL MUNICIPAL
SERIES FUND
Notes to Financial Statements
(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 of 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, no federal income tax
provision is required.
Dividends and Distributions: The Series declares daily
dividends from net
investment income. Payment of dividends is made monthly.
Distributions of net
capital gains, if any, are made annually.
Income distributions and capital gain distributions are
determined in accordance
with income tax regulations which may differ from generally
accepted accounting
principles.
Custody Fee Credits: The Fund has an arrangement with its
custodian bank,
whereby uninvested monies earn credits which reduce the fees
charged by the
custodian.
- ------------------------------------------------------------
- --------------------
8
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Notes to Financial Statements
(Unaudited) CALIFORNIA SERIES
- ------------------------------------------------------------
- --------------------
Note 2. Agreements
The Fund has a management agreement with Prudential
Investments Fund Management
LLC ('PIFM'). Pursuant to this agreement, PIFM has
responsibility for all
investment advisory services and supervises the subadviser's
performance of such
services. PIFM has entered into a subadvisory agreement with
The Prudential
Investment Corporation ('PIC'); PIC furnishes investment
advisory services in
connection with the management of the Fund. PIFM pays for
the cost of the
subadviser's services, compensation of officers of the Fund,
occupancy and
certain clerical and bookkeeping costs of the Fund. The Fund
bears all other
costs and expenses.
The management fee paid PIFM is computed daily and payable
monthly, at an annual
rate of .50 of 1% of the average daily net assets of the
Series.
The Fund has a distribution agreement with Prudential
Investment Management
Services LLC ('PIMS') which acts as the distributor of the
Fund. The Fund
compensates PIMS for distributing and servicing the Fund's
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 it. The
distribution fees
are accrued daily and payable monthly. No distribution or
service fees are paid
to PIMS as distributor of the Class Z shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensates
PIMS for
distribution-related activities at an annual rate of up to
.30 of 1%, .50 of 1%
and 1% of the average daily net assets of the Class A, B and
C shares,
respectively. Such expenses under the Plans were .10 of 1%,
.50 of 1% and .75 of
1% of the average daily net assets of the Class A, B and C
shares, respectively,
for the period September 1, 1998 through December 31, 1998.
Effective January 1,
1999, such expenses under the plans were .25 of 1%, .50 of
1% and .75 of 1% of
the average daily net assets of the Class A, B and C shares,
respectively.
PIMS has advised the Series that they have received
approximately $38,000 and
$800 in front-end sales charges resulting from sales of
Class A and Class C
shares during the period ended February 28, 1999. From these
fees, PIMS paid
such sales charges to affiliated broker-dealers, which in
turn paid commissions
to salespersons and incurred other distribution costs.
PIMS has advised the Series that for the period ended
February 28, 1999, they
received approximately $15,000 and $3,000 in contingent
deferred sales charges
imposed upon certain redemptions by Class B and Class C
shareholders,
respectively.
PIFM, PIMS and PIC are indirect, wholly owned subsidiaries
of The Prudential
Insurance Company of America.
The Series, along with other affiliated registered
investment companies (the
'Funds'), entered into a credit agreement (the 'Agreement')
with an unaffiliated
lender. The maximum commitment under the Agreement is
$200,000,000. Interest on
any such borrowings outstanding will be at market rates. The
purpose of the
Agreement is to serve as an alternative source of funding
for capital share
redemptions. The Series has not borrowed any amounts
pursuant to the Agreement
during the six months ended February 28, 1999. The Funds pay
a commitment fee at
an annual rate of .055 of 1% on the unused portion of the
credit facility. The
commitment fee is accrued and paid quarterly on a pro rata
basis by the Funds.
The Agreement expired on February 28, 1999 and has been
extended through March
12, 1999 under the same terms.
- ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned
subsidiary of PIFM,
serves as the Fund's transfer agent. During the period ended
February 28, 1999,
the Series incurred fees of approximately $23,300 for the
services of PMFS. As
of February 28, 1999, 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 nonaffiliates.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of portfolio securities of the Series,
excluding short-term
investments, for the period ended February 28, 1999 were
$9,283,277 and
$11,817,041, respectively.
During the period ended February 28, 1999, the Fund entered
into financial
futures contracts. Details of open contracts at February 28,
1999 are as
follows:
<TABLE>
<CAPTION>
Value at
Value at
Number of Expiration February
28, Trade Unrealized
Contracts Type Date 1999
Date Depreciation
- ----------- ---------------- ----------- ----------
- -- ----------- --------------
<S> <C> <C> <C>
<C> <C>
Short position: Mar.
103 Muni-Bond 1999 $
12,836,375 $12,795,781 $(40,594)
</TABLE>
The cost basis of investments for federal income tax
purposes at February 28,
1999 was substantially the same as for financial reporting
purposes and,
accordingly, net unrealized appreciation of investments for
federal income tax
purposes was $17,902,220 (gross unrealized appreciation--
$18,111,991; gross
unrealized depreciation--$209,771).
- ------------------------------------------------------------
- --------------------
9
<PAGE>
PRUDENTIAL MUNICIPAL
SERIES FUND
Notes to Financial Statements
(Unaudited) CALIFORNIA SERIES
- ------------------------------------------------------------
- --------------------
For federal income tax purposes, the Series has a capital
loss carryforward as
of August 31, 1998 of approximately $2,948,700, of which,
$2,945,800 expires in
2003 and $2,900 expires in 2006. Accordingly, no capital
gains distribution is
expected to be paid to shareholders until net gains have
been realized in excess
of such carryforward.
- ------------------------------------------------------------
Note 5. Capital
The Series offers Class A, Class B, Class C and Class Z
shares. Class A shares
are sold with a front-end sales charge of up to 3%. Class B
shares are sold with
a contingent deferred sales charge which declines from 5% to
zero depending on
the period of time the shares are held. Class C shares are
sold with a front-end
sales charge of 1% and a contingent deferred sales charge of
1% during the first
18 months. Prior to November 2, 1998, Class C shares were
sold with a contingent
deferred sales charge of 1% during the first year. Class B
shares will
automatically convert to Class A shares on a quarterly basis
approximately seven
years after purchase. A 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 period
ended February 28,
1999 and the fiscal year ended August 31, 1998 were as
follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- ------------------------------------ ---------- --------
- ----
<S> <C> <C>
Six months ended February 28, 1999:
Shares sold......................... 371,255 $
4,551,475
Shares issued in reinvestment of
dividends and distributions....... 107,280
1,309,443
Shares reacquired................... (425,893)
(5,211,880)
---------- --------
- ----
Net increase in shares outstanding
before conversion................. 52,642
649,038
Shares issued upon conversion from
Class B........................... 278,043
3,404,540
---------- --------
- ----
Net increase in shares
outstanding....................... 330,685 $
4,053,578
---------- --------
- ----
---------- --------
- ----
Year ended August 31, 1998:
Shares sold......................... 551,486 $
6,650,320
Shares issued in reinvestment of
dividends and distributions....... 210,942
2,535,590
Shares reacquired................... (767,076)
(9,222,647)
---------- --------
- ----
Net decrease in shares outstanding
before conversion................. (4,648)
(36,737)
Shares issued upon conversion from
Class B........................... 571,041
6,863,328
---------- --------
- ----
Net increase in shares
outstanding....................... 566,393 $
6,826,591
---------- --------
- ----
---------- --------
- ----
<CAPTION>
Class B Shares
Amount
- ------------------------------------ ---------- --------
- ----
<S> <C> <C>
Six months ended February 28, 1999:
Shares sold......................... 283,872 $
3,475,250
Shares issued in reinvestment of
dividends and distributions....... 59,918
731,348
Shares reacquired................... (364,560)
(4,460,415)
---------- --------
- ----
Net decrease in shares outstanding
before conversion................. (20,770)
(253,817)
Shares reacquired upon conversion
into
Class A........................... (278,043)
(3,404,540)
---------- --------
- ----
Net decrease in shares
outstanding....................... (298,813) $
(3,658,357)
---------- --------
- ----
---------- --------
- ----
Year ended August 31, 1998:
Shares sold......................... 493,897 $
5,944,373
Shares issued in reinvestment of
dividends and distributions....... 143,690
1,726,117
Shares reacquired................... (929,330)
(11,183,208)
---------- --------
- ----
Net decrease in shares outstanding
before conversion................. (291,743)
(3,512,718)
Shares reacquired upon conversion
into
Class A........................... (571,041)
(6,863,328)
---------- --------
- ----
Net decrease in shares
outstanding....................... (862,784)
$(10,376,046)
---------- --------
- ----
---------- --------
- ----
<CAPTION>
Class C
- ------------------------------------
<S> <C> <C>
Six months ended February 28, 1999:
Shares sold......................... 25,876 $
315,515
Shares issued in reinvestment of
dividends and distributions....... 1,573
19,193
Shares reacquired................... (16,033)
(195,783)
---------- --------
- ----
Net increase in shares
outstanding....................... 11,416 $
138,925
---------- --------
- ----
---------- --------
- ----
Year ended August 31, 1998:
Shares sold......................... 87,614 $
1,056,749
Shares issued in reinvestment of
dividends and distributions....... 2,094
25,178
Shares reacquired................... (15,196)
(183,128)
---------- --------
- ----
Net increase in shares
outstanding....................... 74,512 $
898,799
---------- --------
- ----
---------- --------
- ----
<CAPTION>
Class Z
- ------------------------------------
<S> <C> <C>
Six months ended February 28, 1999:
Shares sold......................... 24,454 $
299,342
Shares issued in reinvestment of
dividends and distributions....... 1,907
23,281
Shares reacquired................... (13,815)
(169,099)
---------- --------
- ----
Net increase in shares
outstanding....................... 12,546 $
153,524
---------- --------
- ----
---------- --------
- ----
Year ended August 31, 1998:
Shares sold......................... 28,803 $
345,722
Shares issued in reinvestment of
dividends and distributions....... 3,094
37,214
Shares reacquired................... (7,224)
(87,459)
---------- --------
- ----
Net increase in shares
outstanding....................... 24,673 $
295,477
---------- --------
- ----
---------- --------
- ----
</TABLE>
- ------------------------------------------------------------
- --------------------
10
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) CALIFORNIA SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class A
-----------------
- -------------------------------------------------------
Six Months
Ended
Year Ended August 31,
February 28,
- -------------------------------------------------------
1999
1998 1997 1996 1995 1994
------------
- ------- ------- ------- ------- -------
<S> <C>
<C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $ 12.22
$ 11.80 $ 11.44 $ 11.49 $ 11.30 $ 12.16
------
- ------- ------- ------- ------- -------
Income from investment operations
Net investment income................... .30
.62 .65(a) .65(a) .66(a) .65
Net realized and unrealized gain (loss)
on investment transactions........... (.08)
.43 .36 (.05) .19 (.74)
------
- ------- ------- ------- ------- -------
Total from investment operations..... .22
1.05 1.01 .60 .85 (.09)
------
- ------- ------- ------- ------- -------
Less distributions
Dividends from net investment income.... (.30)
(.62) (.65) (.65) (.66) (.65)
Distributions in excess of net
investment income.................... --
(.01) --(c) -- -- --
Distributions from net realized gains... --
- -- -- -- -- (.12)
------
- ------- ------- ------- ------- -------
Total distributions.................. (.30)
(.63) (.65) (.65) (.66) (.77)
------
- ------- ------- ------- ------- -------
Net asset value, end of period.......... $ 12.14
$ 12.22 $ 11.80 $ 11.44 $ 11.49 $ 11.30
------
- ------- ------- ------- ------- -------
------
- ------- ------- ------- ------- -------
TOTAL RETURN(b):........................ 1.82%
9.13% 9.01% 5.23% 7.90% (0.80)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)......... $ 94,741
$91,356 $81,535 $72,876 $68,403 $12,082
Average net assets (000)................ $ 94,580
$85,624 $78,347 $71,119 $42,617 $11,812
Ratios to average net assets:
Expenses, including distribution
fees.............................. .84%(d)
.78% .76%(a) .81%(a) .73%(a) .73%
Expenses, excluding distribution
fees.............................. .69%(d)
.68% .66%(a) .71%(a) .63%(a) .63%
Net investment income................ 4.89%(d)
5.18% 5.53%(a) 5.58%(a) 5.90%(a) 5.57%
For Class A, B, C and Z shares:
Portfolio turnover rate.............. 6%
11% 14% 26% 44% 69%
</TABLE>
- ---------------
(a) Net of management fee waiver.
(b) Total return does not consider the effects of sales
loads. Total return is
calculated assuming a purchase of shares on the first
day and a sale on the
last day of each period reported and includes
reinvestment of dividends and
distributions. Total returns for periods of less than a
full year are not
annualized.
(c) Less than $.005 per share.
(d) Annualized.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 11
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) CALIFORNIA SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class B
-----------------
- ---------------------------------------------------------
Six Months
Ended
Year Ended August 31,
February 28,
- ---------------------------------------------------------
1999
1998 1997 1996 1995 1994
------------
- ------- ------- ------- -------- --------
<S> <C>
<C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $ 12.22
$ 11.80 $ 11.43 $ 11.49 $ 11.29 $ 12.15
------
- ------- ------- ------- -------- --------
Income from investment operations
Net investment income................... .28
.58 .60(a) .60(a) .62(a) .60
Net realized and unrealized gain (loss)
on investment transactions........... (.09)
.43 .37 (.06) .20 (.74)
------
- ------- ------- ------- -------- --------
Total from investment operations..... .19
1.01 .97 .54 .82 (.14)
------
- ------- ------- ------- -------- --------
Less distributions
Dividends from net investment income.... (.28)
(.58) (.60) (.60) (.62) (.60)
Distributions in excess of net
investment income.................... --
(.01) --(c) -- -- --
Distributions from net realized gains... --
- -- -- -- -- (.12)
------
- ------- ------- ------- -------- --------
Total distributions.................. (.28)
(.59) (.60) (.60) (.62) (.72)
------
- ------- ------- ------- -------- --------
Net asset value, end of period.......... $ 12.13
$ 12.22 $ 11.80 $ 11.43 $ 11.49 $ 11.29
------
- ------- ------- ------- -------- --------
------
- ------- ------- ------- -------- --------
TOTAL RETURN(b):........................ 1.56%
8.70% 8.67% 4.73% 7.56% (1.20)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)......... $ 57,988
$62,043 $70,093 $85,190 $103,891 $184,985
Average net assets (000)................ $ 59,852
$66,086 $75,935 $96,525 $136,275 $201,558
Ratios to average net assets:
Expenses, including distribution
fees.............................. 1.19%(d)
1.18% 1.16%(a) 1.21%(a) 1.13%(a) 1.13%
Expenses, excluding distribution
fees.............................. .69%(d)
.68% .66%(a) .71%(a) .63%(a) .63%
Net investment income................ 4.54%(d)
4.78% 5.13%(a) 5.18%(a) 5.50%(a) 5.17%
</TABLE>
- ---------------
(a) Net of management fee waiver.
(b) Total return does not consider the effects of sales
loads. Total return is
calculated assuming a purchase of shares on the first
day and a sale on the
last day of each period reported and includes
reinvestment of dividends and
distributions. Total returns for periods of less than a
full year are not
annualized.
(c) Less than $.005 per share.
(d) Annualized.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 12
<PAGE>
PRUDENTIAL
MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) CALIFORNIA SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Class C Class Z
-----------------
- ------------------------------------------------------ -
- -----------
August 1,
Six Months
1994(d) Six Months
Ended
Year Ended August 31, through Ended
February 28,
- --------------------------------------- August 31,
February 28,
1999
1998 1997 1996 1995 1994
1999
------------
- ------ ------ ------ ------ ---------- -
- -----------
<S> <C>
<C> <C> <C> <C> <C>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $ 12.22
$11.80 $11.43 $11.49 $11.29 $11.32
$ 12.23
------
- ------ ------ ------ ------ -----
- ------
Income from investment operations
Net investment income................... .26
.55 .57(a) .57(a) .59(a) .04
.31
Net realized and unrealized gain (loss)
on investment transactions........... (.09)
.43 .37 (.06) .20 (.03)
(.08)
------
- ------ ------ ------ ------ -----
- ------
Total from investment operations..... .17
.98 .94 .51 .79 .01
.23
------
- ------ ------ ------ ------ -----
- ------
Less distributions
Dividends from net investment income.... (.26)
(.55) (.57) (.57) (.59) (.04)
(.31)
Distributions in excess of net
investment income.................... --
(.01) --(c) -- -- --
- --
------
- ------ ------ ------ ------ -----
- ------
Total distributions.................. (.26)
(.56) (.57) (.57) (.59) (.04)
(.31)
------
- ------ ------ ------ ------ -----
- ------
Net asset value, end of period.......... $ 12.13
$12.22 $11.80 $11.43 $11.49 $11.29
$ 12.15
------
- ------ ------ ------ ------ -----
- ------
------
- ------ ------ ------ ------ -----
- ------
TOTAL RETURN(b):........................ 1.43%
8.43% 8.40% 4.47% 7.29% .05%
1.90%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)......... $ 1,387
$1,257 $ 334 $ 543 $ 129 $ 200(e)
$ 1,182
Average net assets (000)................ $ 1,255
689 $ 480 $ 286 $ 76 $ 199(e) $
1,149
Ratios to average net assets:
Expenses, including distribution
fees.............................. 1.44%(g)
1.43% 1.41%(a) 1.46%(a) 1.38%(a) 1.71%(g)
.69%(g)
Expenses, excluding distribution
fees.............................. .69%(g)
.68% .66%(a) .71%(a) .63%(a) .96%(g)
.69%(g)
Net investment income................ 4.29%(g)
4.53% 4.88%(a) 4.93%(a) 5.25%(a) 4.87%(g)
5.04%(g)
<CAPTION>
September 18,
1996(f)
Year Ended
through
August 31,
August 31,
1998
1997
---------- ---
- ----------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $11.81
$ 11.50
-----
- -----
Income from investment operations
Net investment income................... .63
.64(a)
Net realized and unrealized gain (loss)
on investment transactions........... .43
.31
-----
- -----
Total from investment operations..... 1.06
.95
-----
- -----
Less distributions
Dividends from net investment income.... (.63)
(.64)
Distributions in excess of net
investment income.................... (.01)
- --(c)
-----
- -----
Total distributions.................. (.64)
(.64)
-----
- -----
Net asset value, end of period.......... $12.23
$ 11.81
-----
- -----
-----
- -----
TOTAL RETURN(b):........................ 9.24%
8.35%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)......... $1,037
$ 710
Average net assets (000)................ $ 847
$ 458
Ratios to average net assets:
Expenses, including distribution
fees.............................. .68%
.66%(a)/(g)
Expenses, excluding distribution
fees.............................. .68%
.66%(a)/(g)
Net investment income................ 5.28%
5.35%(a)/(g)
</TABLE>
- ---------------
(a) Net of management fee waiver.
(b) Total return does not consider the effects of sales
loads. Total return is
calculated assuming a purchase of shares on the first
day and a sale on the
last day of each period reported and includes
reinvestment of dividends and
distributions. Total returns for periods of less than a
full year are not
annualized.
(c) Less than $.005 per share.
(d) Commencement of offering of Class C shares.
(e) Figures are actual and not rounded to the nearest
thousand.
(f) Commencement of offering of Class Z shares.
(g) Annualized.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 13
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
Some mutual fund shareholders won't ever read this -- they
don't read annual and semi-annual reports. It's quite
understandable. These annual and semi-annual reports are
prepared to comply with Federal regulations. They are often
written in language that is difficult to understand. So when
most people run into those particularly daunting sections of
these reports, they don't read them.
We think that's a mistake.
At Prudential Mutual Funds, we've made some changes to our
report to make it easier to understand and more pleasant to
read, in hopes you'll find it profitable to spend a few
minutes familiarizing yourself with your investment. Here's
what you'll
find in the report:
At A Glance
Since an investment's performance is often a shareholder's
primary
concern, we present performance information in two different
formats. You'll find it first on the "At A Glance" page
where
we compare the Fund and the comparable average calculated
by Lipper Analytical Services, a nationally recognized
mutual
fund rating agency. We report both the cumulative total
returns
and the average annual total returns. The cumulative total
return is the total amount of income and appreciation the
Fund
has achieved in various time periods. The average annual
total
return is an annualized representation of the Fund's
performance -- it generally smoothes out returns and gives
you an idea how much the Fund has earned in an average year,
for a given time period. Under the performance box, you'll
see
legends that explain the performance information, whether
fees
and sales charges have been included in returns, and the
inception dates for the Fund's share classes.
See the performance comparison charts at the back of the
report for more performance information. And keep in mind
that past perfor-mance is not indicative of future results.
Portfolio Manager's Report
The portfolio manager who invests your money for you reports
on
successful -- and not-so-successful -- strategies in this
section
of your report. Look for recent purchases and sales here, as
well
as information about the sectors the portfolio manager
favors and
any changes that are on the drawing board.
Portfolio Of Investments
This is where the report begins to look technical, but it's
really
just a listing of each security held at the end of the
reporting
period, along with valuations and other information. Please
note
that sometimes we discuss a security in the Portfolio
Manager's
Report that doesn't appear in this listing because it was
sold
before the close of the reporting period.
<PAGE>
Statement Of Assets And Liabilities
The balance sheet shows the assets (the value of the Fund's
holdings), liabilities (how much the Fund owes) and net
assets
(the Fund's equity, or holdings after the Fund pays its
debts)
as of the end of the reporting period. It also shows how we
calculate the net asset value per share for each class of
shares.
The net asset value is reduced by payment of your dividend,
capital gain, or other distribution, but remember that the
money or new shares are being paid or issued to you. The net
asset value fluctuates daily along with the value of every
security in the portfolio.
Statement Of Operations
This is the income statement, which details income (mostly
interest and dividends earned) and expenses (including what
you pay us to manage your money). You'll also see capital
gains here -- both realized and unrealized.
Statement Of Changes In Net Assets
This schedule shows how income and expenses translate into
changes in net assets. The Fund is required to pay out the
bulk of its income to shareholders every year, and this
statement shows you how we do it -- through dividends
and distributions -- and how that affects the net assets.
This statement also shows how money from investors flowed
into and out of the Fund.
Notes To Financial Statements
This is the kind of technical material that can intimidate
readers, but it does contain useful information. The Notes
provide a brief history and explanation of your Fund's
objectives. In addition, they also outline how Prudential
Mutual Funds prices securities. The Notes also explain who
manages and distributes the Fund's shares, and more
importantly, how much they are paid for doing so. Finally,
the Notes explain how many shares are outstanding and the
number issued and redeemed over the period.
Financial Highlights
This information contains many elements from prior pages,
but on a per share basis. It is designed to help you
understand
how the Fund performed and to compare this year's
performance
and expenses to those of prior years.
Independent Auditor's Report
Once a year, an outside auditor looks over our books and
certifies
that the information is fairly presented and complies with
generally
accepted accounting principles.
Tax Information
This is information which we report annually about how much
of your
total return is taxable. Should you have any questions, you
may
want to consult a tax advisor.
Performance Comparison
These charts are included in the annual report and are
required
by the Securities Exchange Commission. Performance is
presented
here as a hypothetical $10,000 investment in the Fund since
its
inception or for 10 years (whichever is shorter). To help
you put that return in context, we are required to include
the
performance of an unmanaged, broad based securities index,
as
well. The index does not reflect the cost of buying the
securities
it contains or the cost of managing a mutual fund. Of
course, the index holdings do not mirror those of the fund -
- - the
index is a broadly based reference point commonly used by
investors
to measure how well they are doing. A definition of the
selected
index is also provided. Investors generally cannot
invest directly in an index.
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
How many times have you read these letters -- or other
financial
materials -- and stumbled across a word that you don't
understand?
Many shareholders have run into the same problem. We'd like
to
help. So we'll use this space from time to time to explain
some
of the words you might have read, but not understood. And if
you
have a favorite word that no one can explain to your
satisfaction, please write to us.
Basis Point: 1/100th of 1%. For example, one-half of one
percent
is 50 basis points.
Collateralized Mortgage Obligations (CMOs): Mortgage-backed
bonds
that separate mortgage pools into different maturity
classes,
called tranches. These instruments are sensitive to changes
in
interest rates and homeowner refinancing activity. They
are subject to prepayment and maturity extension risk.
Derivatives: Securities that derive their value from other
securities. The rate of return of these financial
instruments
rises and falls -- sometimes very suddenly -- in response to
changes in some specific interest rate, currency, stock, or
other
variable.
Discount Rate: The interest rate charged by the Federal
Reserve
on loans to member banks.
Federal Funds Rate: The interest rate charged by one bank to
another on overnight loans.
Futures Contract: An agreement to purchase or sell a
specific
amount of a commodity or financial instrument at a set price
at a specified date in the future.
Leverage: The use of borrowed assets to enhance return. The
expectation is that the interest rate charged on borrowed
funds will be lower than the return on the investment. While
leverage can increase profits, it can also magnify losses.
Liquidity: The ease with which a financial instrument (or
product) can be bought or sold (converted into cash) in the
financial markets.
Price/Earnings Ratio: The price of a share of stock divided
by
the earnings per share for a 12-month period.
Option: An agreement to purchase or sell something, such as
shares of stock, by a certain time for a specified price. An
option need not be exercised.
Spread: The difference between two values; often used to
describe
the difference between "bid" and "asked" prices of a
security,
or between the yields of two similar maturity bonds.
Yankee Bond: A bond sold by a foreign company or government
in
the U.S. market and denominated in U.S. dollars.
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Robert F. Gunia
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Louis A. Weil, III
Officers
Robert F. Gunia, President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
Deborah A. Docs, Secretary
David F. Connor, Assistant Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07102-3777
Distributor
Prudential Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Swidler Berlin Shereff Friedman, LLP
919 Third Avenue
New York, NY 10022
The views expressed in this report and information about
the Series' portfolio holdings are for the period covered
by this report and are subject to change thereafter.
The accompanying financial statements as of February 28,
1999 were not audited and, accordingly, no opinion is
expressed on them.
This report is not authorized for distribution to
prospective investors unless preceded or accompanied
by a current prospectus.
<PAGE>
(LOGO)
Prudential Mutual Funds BULK RATE
Gateway Center Three U.S. POSTAGE
100 Mulberry Street PAID
Newark, NJ 07102-4077 Permit 6807
(800) 225-1852 New York, NY
744313107
744313206 MF116E2
744313701
744313883
(ICON)
Prudential
California
Municipal
Fund
- ---------------------------
California
Money Market Series
SEMI
ANNUAL
REPORT
Feb. 28, 1999
(LOGO)
<PAGE>
Prudential California Municipal Fund
California Money Market Series
Performance At A Glance.
Yields on municipal money market securities fell during the
six months
ended February 28, 1999 because the supply of securities
declined
while demand for them remained strong, and the Federal
Reserve
repeatedly eased monetary policy. Nevertheless, your
Prudential
California Municipal Fund--California Money Market Series
provided
a competitive level of tax-exempt income. We enhanced the
Series'
yield by purchasing California bonds maturing in one year
and
short-term California bonds backed by direct obligations of
the U.S. government.
<TABLE>
Fund Facts As of
2/28/99
<CAPTION>
7-Day Net Asset
Taxable Equivalent Yield* Weighted Avg. Net Assets
Current Yld. Value (NAV)
@31% @36% @39.6% Mat. (WAM) (Millions)
<S> <C> <C> <C>
<C> <C> <C> <C>
CA Money
Market Series 2.12% $1
3.39% 3.65% 3.87% 32 Days $296
IBC Financial Data
Tax-Free State Specific
(SB & GP-CA) Avg.** 2.17% $1
3.47% 3.74% 3.96% 40 Days N/A
</TABLE>
Note: Yields will fluctuate from time to time and past
performance
is not indicative of future results. An investment in the
Series is
not insured or guaranteed by the Federal Deposit Insurance
Corporation
or any other government agency. Although the Series seeks to
preserve
the value of your investment at $1.00 per share, it is
possible to
lose money by investing in the Series.
* Some investors may be subject to the federal alternative
minimum
tax and/or state and local taxes. Taxable equivalent yields
reflect
federal and applicable state tax rates.
** International Business Communications (IBC) Financial
Data reports
a seven-day current yield, NAV, and WAM on Mondays. This is
the data
of all funds in the IBC Financial Data Tax-Free State
Specific Average
(Stock Broker (SB) & General Purpose (GP) - California)
category as of
March 1, 1999.
Tracking Tax-Free Money Fund Yields.
(GRAPH)
(How Investments Compared.
(As of 2/28/99)
(GRAPH)
Source: Lipper, Inc. Financial markets change, so a mutual
fund's
past performance should never be used to predict future
results.
The risks to each of the investments listed above are
different--we
provide 12-month total returns for several Lipper mutual
fund
categories to show you that reaching for higher yields means
tolerating more risk. The greater the risk, the larger the
potential reward or loss. In addition, we've included
historical
20-year average annual returns. These returns assume the
reinvestment
of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors
have received
higher historical total returns from stocks than from most
other
investments. Smaller capitalization stocks offer greater
potential
for long-term growth but may be more volatile than larger
capitalization stocks.
General Bond Funds provide more income than stock funds,
which
can help smooth out their total returns year by year. But
their
prices still fluctuate (sometimes significantly) and their
returns
have been historically lower than those of stock funds.
General Municipal Debt Funds invest in bonds issued by state
governments, state agencies and/or municipalities. This
investment
provides income that is usually exempt from federal and
state
income taxes.
U.S. Tax-Exempt Money Funds attempt to preserve a constant
share
value; they don't fluctuate much in price but, historically,
their returns have been generally among the lowest of the
major
investment categories.
*19 years for U.S. Tax-Exempt Money Funds.
<PAGE>
Colleen Meehan, Fund Manager (PHOTO)
Portfolio
Manager's Report
The Prudential California Municipal Fund--California Money
Market
Series seeks to provide the highest level of current income
that
is exempt from federal and California state income taxes,
consistent
with liquidity and the preservation of capital. The Series
intends to
invest in a portfolio of short-term municipal bonds with
maturities
of 13 months or less from the state of California, its
municipalities,
local governments, and other qualifying issuers (such as
Puerto Rico,
Guam, and the U.S. Virgin Islands). There can be no
assurance that
the Series will achieve its investment objective.
Strategy Session.
Coping With a Supply-
Demand Imbalance.
We ideally wanted to invest in a mixture of municipal money
market securities that would keep the Series' WAM longer
than
average and still provide us with quick access to cash in
order
to satisfy shareholder liquidity needs. Extending the WAM
would
have allowed the Series' yield to remain higher for a longer
time as tax-exempt money market yields declined.
Municipal money market yields slid as the Federal Reserve
embarked on a series of reductions in the Federal funds
rate,
which is the rate banks charge each other for overnight
loans.
Cutting interest rates stimulates economic growth by
lowering
borrowing costs. Therefore, the three Federal-funds-rate
reductions
helped restore faith in the U.S. economy and calmed
financial
markets, which had grown increasingly volatile after a
global
financial crisis spread beyond Asia in mid-summer of 1998.
Yields on municipal money market securities also fell
because
there was such strong demand for the dwindling supply of
securities. In fact, buying longer-term California money
market securities that met our high-quality standards in
order to extend the Series' WAM proved to be very
challenging.
The WAM therefore remained shorter than its competition
throughout the six months.
This supply-demand imbalance was not confined to California,
however. Among tax-exempt notes, which mature in 13 months
or
less, the total dollar volume issued in 1998 was down 25%
from
1997, according to Municipal Market Data. The 1998 tally was
the lowest in a decade. This drop in issuance occurred
because
short-term borrowing needs of many state and local
governments
declined amid favorable domestic economic conditions. Many
municipalities also preferred to issue long-term bonds
instead
of notes in order to lock in low yields for a longer period
of
time. We found good buying opportunities among one-year
insured
California bonds, which were an attractive alternative to
the
more conventional municipal money market securities such as
notes.
The Importance of WAM.
Weighted Average Maturity (WAM) takes into account the
maturity
level of each security held by a fund. WAM is a measurement
tool that determines a fund's sensitivity to changes in
interest
rates. A lengthened WAM enables a fund's yield to remain
higher
for a longer period of time during declining interest-rate
cycles.
<PAGE>
What Went Well.
Buying Short-Term Bonds.
Purchasing AAA-rated insured California bonds maturing in
one
year helped enhance the Series' yield. These bonds carried
attractive yields to compensate for the fact that they come
in small-size blocks. Most money managers prefer to buy
larger
blocks of bonds because they are easier to sell. However,
the
one-year California bonds suited us because we plan to hold
them to maturity.
Buying prerefunded California bonds was consistent with our
long-held strategy of investing in higher-quality municipal
money market securities that provided solid yields.
Prerefunded
bonds are considered to have little credit risk because they
are
backed by direct obligations of the U.S. government.
And Not So Well.
Too Short.
The Series' WAM remained shorter than average throughout the
six
months. Unfortunately, we were unable to buy enough longer-
term
California money market securities to significantly lengthen
the
WAM. As you recall, a longer WAM would have provided the
Series
some protection from the decline in tax-exempt money market
yields.
In the autumn of 1998, yields in our market declined in
sympathy
with the Federal funds rate. An imbalance in the supply and
demand
of municipal money market securities also drove their yields
lower.
Looking Ahead.
We plan to position the Series' WAM so that it is more in
line
with that of its competition and increase its liquidity.
This
strategy allows us quick access to cash from mid-April to
early
May so that we can satisfy shareholder liquidity needs
prompted
by their income tax payments. Having fast access to cash
will
also enable us to take advantage of attractive buying
opportunities
that emerge during tax season as other portfolio managers
sell money
market securities to meet their shareholder liquidity needs.
Any purchases of higher-yielding securities during tax
season and
in subsequent weeks will help the Series weather the drop in
municipal money market yields that usually occurs in June
and
early July. During this time, municipal note issuance is
expected
to decline again due to strong economic growth.
Weighted Average Maturity Compared
To The Average Fund.
(GRAPH)
1
<PAGE>
A Message to Our Shareholders April 19,
1999
(PHOTO)
Dear Shareholder,
For the last several months, major index advances have been
driven
by the stocks of a handful of very large companies. These
stocks
are getting more and more expensive, out of proportion to
their
earnings expectations. As a result, a substantial disparity
in
value has grown between large and small companies and
between
growth and value stocks.
Since not all stocks are benefiting from the highly
publicized
euphoria surrounding each record-breaking milestone, it is
unlikely
that these trends will continue. In fact, signs that the
tide is
turning are starting to emerge. Moreover, history shows that
markets generally bring prices in line with earnings
performance
sooner or later.
Many sectors of the bond market, on the other hand, have
already
begun to rebound from last year's global financial crisis.
Furthermore, while bonds have not generated higher returns
than stocks in recent years, they have demonstrated that
they
hold up better during market downturns. That's a thought to
keep in mind going forward.
Diversification Is Critical.
What does this suggest? Instead of chasing recent market
winners,
investors should have a well-diversified asset allocation
strategy
in place and keep to it. It is also a good practice to
rebalance
your holdings, when necessary, to keep your asset allocation
consistent with your long-term objectives and risk
tolerance.
A properly diversified portfolio of value- and growth-
oriented
mutual funds, bond funds and money market funds could help
you
weather inevitable market turbulence and receive more
consistent
returns over time. Prudential offers a wide range of mutual
funds
to help our shareholders diversify. We have also designed
several
balanced and diversified funds to allow one-decision
diversification.
Thank you for your continued confidence in Prudential mutual
funds.
Sincerely,
John R. Strangfeld
Chief Investment Officer
Prudential Investments
2
<PAGE>
Portfolio of Investments as
of February 28, 1999 PRUDENTIAL CALIFORNIA
MUNICIPAL FUND
(Unaudited) CALIFORNIA MONEY
MARKET SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description (a)
Rating Rate Date (000) (Note
1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Abag Fin. Auth., Harken School Foundation, Ser. 98, F.R.W.D.
NR 2.65% 3/03/99 $ 3,870 $
3,870,000
Anaheim Hsg. Auth., Monterey Apts., Ser. 97B, F.R.W.D.,
A.M.T. A-1+(d) 2.55 3/04/99 4,545
4,545,000
California Econ. Dev. Fin. Auth. Rev., Mannesmann Dematic
Rapistan Corp., Ser. 98, F.R.W.D., A.M.T.
NR 2.95 3/04/99 3,200
3,200,000
California Hsg. Fin. Agcy. Rev.,
Home Mtg. Rev., Ser. 96R, M.B.I.A., A.M.T.
A-1+(d) 3.70 4/08/99 3,460
3,460,000
Home Mtg. Rev., Ser. 98E, A.O.T., A.M.T.
VMIG1 3.55 3/12/99 1,520
1,520,000
California Hsg. Fin. Agcy. Single Family Mtg., Ser. 99B,
F.G.I.C., A.M.T.
MIG1 3.00 2/01/00 1,000
1,000,000
California Poll. Ctrl. Fin. Auth. Rev.,
Arco Proj., Ser. 94A, F.R.D.D., A.M.T.
VMIG1 3.20 3/01/99 6,000
6,000,000
Arco Proj., Ser. 97A, F.R.W.D., A.M.T.
A-1(d) 2.70 3/03/99 2,900
2,900,000
Browning Ferris Inds., Ser. 97A, F.R.W.D., A.M.T.
P-1 2.65 3/03/99 10,000
10,000,000
Delano Proj., Ser. 90, F.R.D.D., A.M.T.
P-1 3.10 3/01/99 200
200,000
Delano Proj., Ser. 91, F.R.D.D., A.M.T.
P-1 3.10 3/01/99 200
200,000
Pacific Gas & Elec., Ser. 96C, F.R.D.D.
A-1+(d) 3.05 3/01/99 3,000
3,000,000
Pacific Gas & Elec., Ser. 97B, A.M.T.
A-1+(d) 3.15 3/01/99 8,300
8,300,000
Shell Oil Co. Proj., Ser. 94A, F.R.D.D., A.M.T.
VMIG1 3.10 3/01/99 3,500
3,500,000
Shell Oil Co. Proj., Ser. 94B, F.R.D.D., A.M.T.
VMIG1 3.10 3/01/99 4,000
4,000,000
So. Cal. Ed., Ser. 86A, F.R.D.D.
VMIG1 3.55 3/01/99 500
500,000
So. Cal. Ed., Ser 86B, F.R.D.D.
VMIG1 3.55 3/01/99 3,700
3,700,000
So. Cal. Ed., Ser. 86D, F.R.D.D.
VMIG1 3.55 3/01/99 700
700,000
U.S. Borax Inc. Proj., Ser. 95A, F.R.W.D.
NR 2.85 3/04/99 5,100
5,100,000
California Sch. Cash Reserve Prog. Auth., Ser. A, A.M.B.A.C.
MIG1 4.50 7/02/99 11,350
11,381,415
California St., Gen. Oblig., T.E.C.P.
P-1 2.45 5/10/99 9,550
9,550,000
California St., Tend. Option Cert., Ser. 98A, F.R.W.D.S.,
M.B.I.A.
VMIG1 2.85 3/03/99 13,795
13,795,000
California Statewide Cmntys. Dev. Auth.,
Chevron Proj., Ser. 94, F.R.D.D., A.M.T.
P-1 3.15 3/01/99 10,390
10,390,000
Kimberly Woods Apts., Ser. 95B, F.R.W.D., F.N.M.A.,
A.M.T. A-1+(d) 2.70 3/03/99 2,000
2,000,000
Villa Paseo Senior Res., Multi-family Rev., Ser. 98MM,
F.R.W.D., A.M.T.
A-1+(d) 2.70 3/04/99 4,000
4,000,000
Camarillo Multi-family Hsg. Rev., Hacienda De Camarillo
Proj.,
Ser. 96, F.R.W.D., A.M.T.
A-1+(d) 2.70 3/04/99 3,000
3,000,000
Chula Vista Ind. Dev. Rev., Adj. San Diego Gas & Elec., Ser.
96B, F.R.D.D., A.M.T.
VMIG1 3.60 3/01/99 3,100
3,100,000
City of Fowler Ind. Dev. Auth., Bee Sweet Citrus, Ser. 95,
F.R.W.D., A.M.T.
NR 2.85 3/04/99 1,600
1,600,000
City of Westminster, 1998 Civic Center Proj., Ser. A,
F.R.W.D., A.M.B.A.C.
A-1(d) 2.70 3/04/99 4,500
4,500,000
Elk Grove Unified Sch. Dist., Ser. 98-99, T.R.A.N.
SP-1+(d) 4.50 6/30/99 3,000
3,008,636
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as
of February 28, 1999 PRUDENTIAL CALIFORNIA
MUNICIPAL FUND
(Unaudited) CALIFORNIA MONEY
MARKET SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description (a)
Rating Rate Date (000) (Note
1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Fresno Multi-family Hsg. Rev.,
Heron Pointe Apt. Proj., Ser. 96A, F.R.W.D.
VMIG1 2.50% 3/03/99 $ 4,900 $
4,900,000
Sunrise of Fresno Proj., Ser. 96A, F.R.W.D., A.M.T.
A-1+(d) 3.12 3/04/99 5,500
5,500,000
Kern Cnty. Superintendent of Schs., Ser. 96A, F.R.W.D.
A-1+(d) 2.75 3/04/99 12,890
12,890,000
Lassen Muni. Util. Dist. Rev., Refunding Rev., Ser. 96A,
F.R.W.D., F.S.A., A.M.T.
VMIG1 3.00 3/03/99 6,200
6,200,000
Los Angeles, CA, T.R.A.N.
MIG1 4.25 6/30/99 1,500
1,505,977
Los Angeles Cnty. Metropolitan Trans. Auth., Sales Tax Rev.,
Ser. SG55, F.R.W.D.S., M.B.I.A.
A-1+(d) 2.75 3/04/99 3,000
3,000,000
Los Angeles Cnty., Ser. A, T.R.A.N.
MIG1 4.50 6/30/99 4,800
4,823,962
Los Angeles Comm. Coll. Dist., Ser. 98-99, T.R.A.N.
SP-1+(d) 4.25 7/29/99 2,500
2,506,243
Los Angeles Comm. Redev. Agcy., Multi-family Rev., Lanewood
Apts. Proj., Ser. 85, F.R.W.D.
VMIG1 2.00 3/03/99 7,800
7,800,000
Los Angeles Dept. Wtr. & Pwr., T.E.C.P.
P-1 2.70 3/26/99 3,500
3,500,000
Los Angeles Ind. Dev. Auth.,
Alliance Resources Proj., Ser. 98, F.R.W.D., A.M.T.
A-1+(d) 2.75 3/03/99 2,225
2,225,000
Ind. Dev. Rev Bonds, Ser. 98, F.R.W.D.
A-1+(d) 2.75 3/03/99 3,800
3,800,000
Los Angeles Wastewater Sys. Rev., Muni. Trust Susquehanna,
Ser. SSP-19, F.R.W.D.S., F.G.I.C.
VMIG1 3.00 3/03/99 5,000
5,000,000
Modesto Irrigation Dist. Fin. Auth. Rev., Refunding Geysers,
Ser. A, M.B.I.A.
Aaa 4.50 10/01/99 3,775
3,808,978
North City West Sch. Facilities Fin. Auth., Ser. 89A
Aaa 7.85 9/01/99 3,800 (c)
3,968,666
Oakland Unified Sch. Dist., Alameda Cnty., Ser. 98-99,
T.R.A.N.
SP-1+(d) 3.25 11/09/99 7,000
7,021,213
Palmdale Cmnty. Redev. Agcy. Multi-family Rev., Manzania
Village Apts., Ser. 99A, F.R.W.D.
VMIG1 2.65 3/04/99 3,800
3,800,000
Puerto Rico Comnwlth., Govt. Dev. Bank., Ser. 95, T.E.C.P.
A-1+(d) 2.50 3/24/99 5,600
5,600,000
Puerto Rico Elec. Pwr. Auth., Municipal Secs. Trust Recpts.,
Ser. SGA43, F.R.W.D.S., M.B.I.A.
A-1+(d) 2.80 3/03/99 3,800
3,800,000
Riverside Cnty. Hsg. Auth., McKinely Hills Apt. Proj., Ser.
85R,
F.R.W.D.
A-1+(d) 2.65 3/04/99 3,500
3,500,000
Sacramento Cnty. Hsg. Auth., Multi-family Rev., Chesapeake
Apts.,
Ser. A, F.R.W.D., A.M.T.
A-1+(d) 2.65 3/04/99 5,000
5,000,000
Salinas Multi-family Hsg. Rev., Brentwood Garden Apts., Ser.
97A, F.R.W.D.
A-1+(d) 2.60 3/04/99 8,480
8,480,000
San Bernardino Cnty. Redev. Agcy., Silverwood Apt. Proj.,
Ser.
86, F.R.W.D., A.M.T.
A-1+(d) 2.65 3/04/99 7,000
7,000,000
San Diego Cnty. Regional Trans. Commission, Sales Tax Rev.,
Ser. 89A
Aaa 7.375 4/01/99 1,500 (c)
1,535,610
San Francisco Airport, Ser. 97A, T.E.C.P., A.M.T.
P-1 2.30 4/14/99 3,185
3,185,000
San Francisco Bay Area Rapid Trans., Ser. B, T.E.C.P.
P-1 2.85 3/08/99 7,500
7,500,000
San Jose Multi-family Hsg. Rev., Sienna At Rennaissance
Square,
Ser. 96A, F.R.W.D., A.M.T.
VMIG1 2.75 3/03/99 7,500
7,500,000
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as
of February 28, 1999 PRUDENTIAL CALIFORNIA
MUNICIPAL FUND
(Unaudited) CALIFORNIA MONEY
MARKET SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description (a)
Rating Rate Date (000) (Note
1)
<S>
<C> <C> <C> <C> <C>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------
Ventura Cnty. Public Fin. Auth., T.E.C.P.
A-1+(d) 2.45% 4/06/99 $ 9,000 $
9,000,000
Ventura Cnty., Ser. 98, F.R.W.D.S., T.R.A.N.
VMIG1 2.95 3/03/99 15,000
15,000,000
Westminster Redev. Agcy., Westminster Commercial Proj.
Pound1,
Ser. 97, F.R.W.D., A.M.B.A.C.
A-1+(d) 2.70 3/04/99 7,755
7,755,000
- ------------
Total Investments--100.9 %
(cost $299,125,700(e))
299,125,700
Liabilities in excess of assets--(0.9)%
(2,739,436)
- ------------
Net Assets--100%
$296,386,264
- ------------
- ------------
</TABLE>
- ---------------
(a) The following abbreviations are used in portfolio
descriptions:
A.M.B.A.C.--American Municipal Bond Assurance
Corporation.
A.M.T.--Alternative Minimum Tax.
A.O.T.--Annual Optional Tender.
F.G.I.C.--Financial Guaranty Insurance Company.
F.N.M.A.--Federal National Mortgage Association.
F.R.D.D.--Floating Rate (Daily) Demand Note (b).
F.R.W.D.--Floating Rate (Weekly) Demand Note (b).
F.R.W.D.S.--Floating Rate (Weekly) Demand Synthetic
Note (b).
F.S.A.--Financial Security Assurance.
M.B.I.A.--Municipal Bond Insurance Association.
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) Prerefunded issues are secured by escrowed cash and/or
direct U.S.
guaranteed obligations.
(d) Standard & Poor's Rating.
(e) The cost of securities for federal income tax purposes
is substantially the
same as for financial reporting purposes.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information
contains a description of
Moody's and Standard & Poor's ratings.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 5
<PAGE>
PRUDENTIAL
CALIFORNIA MUNICIPAL FUND
Statement of Assets and Liabilities
(Unaudited) CALIFORNIA MONEY
MARKET SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Assets
February 28, 1999
<S>
<C>
Investments, at amortized cost which approximates market
value........................................... $
299,125,700
Receivable for Series shares
sold........................................................
................ 5,969,191
Interest
receivable..................................................
.................................... 2,095,262
Receivable for investments
sold........................................................
.................. 1,301,939
Other
assets......................................................
....................................... 4,630
- -----------------
Total
assets......................................................
.................................... 308,496,722
- -----------------
Liabilities
Bank
overdraft...................................................
........................................
1,283,873
Payable for Series shares
reacquired..................................................
................... 8,968,522
Payable for investments
purchased...................................................
..................... 1,581,704
Management fee
payable.....................................................
.............................. 115,628
Accrued
expenses....................................................
..................................... 81,485
Dividends
payable.....................................................
................................... 56,076
Distribution fee
payable.....................................................
............................ 14,479
Deferred trustee's
fees........................................................
.......................... 8,691
- -----------------
Total
liabilities.................................................
.................................... 12,110,458
- -----------------
Net
Assets......................................................
......................................... $
296,386,264
- -----------------
- -----------------
Net assets were comprised of:
Shares of beneficial interest, at $.01 par
value......................................................
$ 2,963,862
Paid-in capital in excess of
par.........................................................
............. 293,422,402
- -----------------
Net assets, February 28,
1999........................................................
.................... $ 296,386,264
- -----------------
- -----------------
Net asset value, offering price and redemption price per
share
($296,386,264 / 296,386,264 shares of beneficial interest
issued and outstanding; unlimited number of
shares
authorized).................................................
................................... $1.00
- -----------------
- -----------------
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 6
<PAGE>
PRUDENTIAL CALIFORNIA MUNICIPAL FUND
CALIFORNIA MONEY MARKET SERIES
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income February 28,
1999
<S> <C>
Income
Interest earned......................... $ 4,483,291
--------------
- ---
Expenses
Management fee.......................... 740,417
Distribution fee........................ 185,104
Transfer agent's fees and expenses...... 46,000
Custodian's fees and expenses........... 33,000
Reports to shareholders................. 21,000
Registration fees....................... 13,000
Audit fee and expenses.................. 6,500
Legal fees and expenses................. 5,000
Trustees' fees and expenses............. 4,000
Insurance expense....................... 3,000
Miscellaneous........................... 105
--------------
- ---
Total expenses....................... 1,057,126
Less: Custodian fee credit (Note 1).....
(6,817)
--------------
- ---
Net expenses......................... 1,050,309
--------------
- ---
Net investment income...................... 3,432,982
Realized Gain on Investments
Net realized gain on investment
transactions............................ 15,000
--------------
- ---
Net Increase in Net Assets
Resulting from Operations.................. $ 3,447,982
--------------
- ---
--------------
- ---
</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 28, August
31,
in Net Assets 1999 1998
<S> <C> <C>
Operations
Net investment income....... $ 3,432,982 $
7,948,963
Net realized gain on
investment
transactions............. 15,000
- --
------------- ----------
- -----
Net increase in net assets
resulting from
operations............... 3,447,982
7,948,963
------------- ----------
- -----
Dividends and distributions
(Note 1).................... (3,447,982)
(7,948,963)
------------- ----------
- -----
Series share transactions
(at $1 per share)
Net proceeds from shares
sold..................... 666,458,742
1,442,499,792
Net asset value of shares
issued in reinvestment of
dividends and
distributions............ 3,393,020
7,729,112
Cost of shares reacquired... (674,743,759)
(1,434,231,046)
------------- ----------
- -----
Net increase (decrease) in
net assets from Series
share transactions....... (4,891,997)
15,997,858
------------- ----------
- -----
Total increase (decrease)...... (4,891,997)
15,997,858
Net Assets
Beginning of period............ 301,278,261
285,280,403
------------- ----------
- -----
End of period.................. $ 296,386,264 $
301,278,261
------------- ----------
- -----
------------- ----------
- -----
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 7
<PAGE>
PRUDENTIAL CALIFORNIA
MUNICIPAL FUND
Notes to Financial Statements
(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 13
months or less and whose ratings are within the two highest
ratings categories
by a nationally recognized statistical rating organization
or, if not rated, are
of comparable quality. The ability of the issuers of the
securities held by the
Series to meet their obligations may be affected by economic
developments in a
specific state, industry or region.
- ------------------------------------------------------------
Note 1. Accounting Policies
The following is a summary of significant accounting
policies followed by the
Fund, and the Series, in the preparation of its financial
statements.
Securities Valuations: Portfolio securities of the Series
are valued at
amortized cost, which approximates market value. The
amortized cost method of
valuation involves valuing a security at its cost on the
date of purchase and
thereafter assuming a constant amortization to maturity of
any discount or
premium.
All securities are valued as of 4:30 p.m., New York time.
Securities Transactions and Net Investment Income:
Securities transactions are
recorded on the trade date. Realized gains and losses on
sales of investments
are calculated on the identified cost basis. Interest income
is recorded on the
accrual basis. Expenses are recorded on the accrual basis
which may require the
use of certain estimates by management.
Federal Income Taxes: For federal income tax purposes, each
series in the Fund
is treated as a separate taxpaying entity. It is the intent
of the Series to
continue to meet the requirements of the Internal Revenue
Code applicable to
regulated investment companies and to distribute all of its
net income to
shareholders. For this reason, no federal income tax
provision is required.
Dividends: The Series declares daily dividends from net
investment income.
Payment of dividends is made monthly.
Income distributions and capital gain distributions are
determined in accordance
with income tax regulations which may differ from generally
accepted accounting
principles.
Custody Fee Credits: The Fund has an arrangement with its
custodian bank,
whereby uninvested monies earn credits which reduce the fees
charged by the
custodian.
- ------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential
Investments Fund Management
LLC ('PIFM'). Pursuant to this agreement, PIFM has
responsibility for all
investment advisory services and supervises the subadviser's
performance of such
services. PIFM has entered into a subadvisory agreement with
The Prudential
Investment Corporation ('PIC'); PIC furnishes investment
advisory services in
connection with the management of the Fund. PIFM pays for
the cost of the
subadviser's services, the compensation of officers of the
Fund, occupancy and
certain clerical and bookkeeping costs of the Fund. The Fund
bears all other
costs and expenses.
The management fee paid PIFM is computed daily and payable
monthly, at an annual
rate of .50 of 1% of the average daily net assets of the
Series.
The Fund has a distribution agreement with Prudential
Investment Management
Services LLC ('PIMS') which acts as the distributor of the
Fund. The Fund
compensates PIMS for distributing and servicing the Fund's
shares pursuant to
the plan of distribution regardless of expenses actually
incurred by them. The
Series reimburses PIMS for distributing and servicing the
Series' shares
pursuant to the plan of distribution at an annual rate of
.125 of 1% of the
Series' average daily net assets. The distribution fee is
accrued daily and
payable monthly.
PIC, PIMS and PIFM are indirect, wholly owned subsidiaries
of The Prudential
Insurance Company of America.
- ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned
subsidiary of PIFM,
serves as the Fund's transfer agent. During the six months
ended February 28,
1999, the Series incurred fees of approximately $34,800 for
the services of
PMFS. As of February 28, 1999, approximately $5,700 of such
fees were due to
PMFS. Transfer agent fees and expenses in the Statement of
Operations include
certain out-of-pocket expenses paid to nonaffiliates.
- ------------------------------------------------------------
- --------------------
8
<PAGE>
PRUDENTIAL
CALIFORNIA MUNICIPAL FUND
Financial Highlights (Unaudited) CALIFORNIA MONEY
MARKET SERIES
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended August 31,
February 28, ----------------------------------
1999 1998 1997 1996
- ------------ -------- -------- --------
<S>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................... $ 1.00 $
1.00 $ 1.00 $ 1.00
Net investment income and net realized
gains/losses................ .01 .03
.03 .03
Dividends and
distributions........................................
(.01) (.03) (.03) (.03)
Capital contribution by
affiliate.................................. --
- -- -- --
- ------------ -------- -------- --------
Net asset value, end of
period..................................... $ 1.00
$ 1.00 $ 1.00 $ 1.00
- ------------ -------- -------- --------
- ------------ -------- -------- --------
TOTAL
RETURN(a):..................................................
. 1.16% 2.81% 2.85% 2.88%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).................................... $296,386
$301,278 $285,280 $249,833
Average net assets
(000)...........................................
$298,621 $287,250 $277,720 $256,175
Ratios to average net assets:
Expenses, including distribution
fee............................ .71%(c)
.72% .73% .74%
Expenses, excluding distribution
fee............................ .58%(c)
.60% .61% .62%
Net investment
income...........................................
2.32%(c) 2.77% 2.80% 2.83%
<CAPTION>
1995 1994
- -------- --------
<S>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................... $ 1.00 $ 1.00
Net investment income and net realized
gains/losses................ .02(b) .02
Dividends and
distributions........................................
(.03) (.02)
Capital contribution by
affiliate.................................. .01
- --
- -------- --------
Net asset value, end of
period..................................... $ 1.00 $
1.00
- -------- --------
- -------- --------
TOTAL
RETURN(a):..................................................
. 3.01%(b) 1.94%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000).................................... $229,380
$300,676
Average net assets
(000)........................................... $243,130
$326,429
Ratios to average net assets:
Expenses, including distribution
fee............................ .78% .73%
Expenses, excluding distribution
fee............................ .65% .61%
Net investment
income........................................... 2.93%
1.91%
</TABLE>
- ---------------
(a) Total return includes reinvestment of dividends and
distributions. Total
returns for periods of less than a full year are not
annualized.
(b) 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%.
(c) Annualized.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 9
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
Some mutual fund shareholders won't ever read this -- they
don't read annual and semi-annual reports. It's quite
understandable. These annual and semi-annual reports are
prepared to comply with Federal regulations. They are often
written in language that is difficult to understand. So when
most people run into those particularly daunting sections of
these reports, they don't read them.
We think that's a mistake.
At Prudential Mutual Funds, we've made some changes to our
report to make it easier to understand and more pleasant to
read, in hopes you'll find it profitable to spend a few
minutes familiarizing yourself with your investment. Here's
what you'll
find in the report:
At A Glance
Since an investment's performance is often a shareholder's
primary
concern, we present performance information in two different
formats. You'll find it first on the "At A Glance" page
where
we compare the Fund and the comparable average calculated
by Lipper Analytical Services, a nationally recognized
mutual
fund rating agency. We report both the cumulative total
returns
and the average annual total returns. The cumulative total
return is the total amount of income and appreciation the
Fund
has achieved in various time periods. The average annual
total
return is an annualized representation of the Fund's
performance -- it generally smoothes out returns and gives
you an idea how much the Fund has earned in an average year,
for a given time period. Under the performance box, you'll
see
legends that explain the performance information, whether
fees
and sales charges have been included in returns, and the
inception dates for the Fund's share classes.
See the performance comparison charts at the back of the
report for more performance information. And keep in mind
that past perfor-mance is not indicative of future results.
Portfolio Manager's Report
The portfolio manager who invests your money for you reports
on
successful -- and not-so-successful -- strategies in this
section
of your report. Look for recent purchases and sales here, as
well
as information about the sectors the portfolio manager
favors and
any changes that are on the drawing board.
Portfolio Of Investments
This is where the report begins to look technical, but it's
really
just a listing of each security held at the end of the
reporting
period, along with valuations and other information. Please
note
that sometimes we discuss a security in the Portfolio
Manager's
Report that doesn't appear in this listing because it was
sold
before the close of the reporting period.
<PAGE>
Statement Of Assets And Liabilities
The balance sheet shows the assets (the value of the Fund's
holdings), liabilities (how much the Fund owes) and net
assets
(the Fund's equity, or holdings after the Fund pays its
debts)
as of the end of the reporting period. It also shows how we
calculate the net asset value per share for each class of
shares.
The net asset value is reduced by payment of your dividend,
capital gain, or other distribution, but remember that the
money or new shares are being paid or issued to you. The net
asset value fluctuates daily along with the value of every
security in the portfolio.
Statement Of Operations
This is the income statement, which details income (mostly
interest and dividends earned) and expenses (including what
you pay us to manage your money). You'll also see capital
gains here -- both realized and unrealized.
Statement Of Changes In Net Assets
This schedule shows how income and expenses translate into
changes in net assets. The Fund is required to pay out the
bulk of its income to shareholders every year, and this
statement shows you how we do it -- through dividends
and distributions -- and how that affects the net assets.
This statement also shows how money from investors flowed
into and out of the Fund.
Notes To Financial Statements
This is the kind of technical material that can intimidate
readers, but it does contain useful information. The Notes
provide a brief history and explanation of your Fund's
objectives. In addition, they also outline how Prudential
Mutual Funds prices securities. The Notes also explain who
manages and distributes the Fund's shares, and more
importantly, how much they are paid for doing so. Finally,
the Notes explain how many shares are outstanding and the
number issued and redeemed over the period.
Financial Highlights
This information contains many elements from prior pages,
but on a per share basis. It is designed to help you
understand
how the Fund performed and to compare this year's
performance
and expenses to those of prior years.
Independent Auditor's Report
Once a year, an outside auditor looks over our books and
certifies
that the information is fairly presented and complies with
generally
accepted accounting principles.
Tax Information
This is information which we report annually about how much
of your
total return is taxable. Should you have any questions, you
may
want to consult a tax advisor.
Performance Comparison
These charts are included in the annual report and are
required
by the Securities Exchange Commission. Performance is
presented
here as a hypothetical $10,000 investment in the Fund since
its
inception or for 10 years (whichever is shorter). To help
you put that return in context, we are required to include
the
performance of an unmanaged, broad based securities index,
as
well. The index does not reflect the cost of buying the
securities
it contains or the cost of managing a mutual fund. Of
course, the index holdings do not mirror those of the fund -
- - the
index is a broadly based reference point commonly used by
investors
to measure how well they are doing. A definition of the
selected
index is also provided. Investors generally cannot
invest directly in an index.
<PAGE>
Getting The Most From Your Prudential Mutual Fund.
How many times have you read these letters -- or other
financial
materials -- and stumbled across a word that you don't
understand?
Many shareholders have run into the same problem. We'd like
to
help. So we'll use this space from time to time to explain
some
of the words you might have read, but not understood. And if
you
have a favorite word that no one can explain to your
satisfaction, please write to us.
Basis Point: 1/100th of 1%. For example, one-half of one
percent
is 50 basis points.
Collateralized Mortgage Obligations (CMOs): Mortgage-backed
bonds
that separate mortgage pools into different maturity
classes,
called tranches. These instruments are sensitive to changes
in
interest rates and homeowner refinancing activity. They
are subject to prepayment and maturity extension risk.
Derivatives: Securities that derive their value from other
securities. The rate of return of these financial
instruments
rises and falls -- sometimes very suddenly -- in response to
changes in some specific interest rate, currency, stock, or
other
variable.
Discount Rate: The interest rate charged by the Federal
Reserve
on loans to member banks.
Federal Funds Rate: The interest rate charged by one bank to
another on overnight loans.
Futures Contract: An agreement to purchase or sell a
specific
amount of a commodity or financial instrument at a set price
at a specified date in the future.
Leverage: The use of borrowed assets to enhance return. The
expectation is that the interest rate charged on borrowed
funds will be lower than the return on the investment. While
leverage can increase profits, it can also magnify losses.
Liquidity: The ease with which a financial instrument (or
product) can be bought or sold (converted into cash) in the
financial markets.
Price/Earnings Ratio: The price of a share of stock divided
by
the earnings per share for a 12-month period.
Option: An agreement to purchase or sell something, such as
shares of stock, by a certain time for a specified price. An
option need not be exercised.
Spread: The difference between two values; often used to
describe
the difference between "bid" and "asked" prices of a
security,
or between the yields of two similar maturity bonds.
Yankee Bond: A bond sold by a foreign company or government
in
the U.S. market and denominated in U.S. dollars.
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Robert F. Gunia
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Louis A. Weil, III
Officers
Robert F. Gunia, President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
Deborah A. Docs, Secretary
David F. Connor, Assistant Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07102-3777
Distributor
Prudential Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Swidler Berlin Shereff Friedman, LLP
919 Third Avenue
New York, NY 10022
The views expressed in this report and information about
the Series' portfolio holdings are for the period covered
by this report and are subject to change thereafter.
The accompanying financial statements as of February 28,
1999 were not audited and, accordingly, no opinion is
expressed on them.
This report is not authorized for distribution to
prospective
investors unless preceded or accompanied by a current
prospectus.
<PAGE>
(LOGO)
Prudential Mutual Funds BULK RATE
Gateway Center Three U.S. POSTAGE
100 Mulberry Street PAID
Newark, NJ 07102-4077 Permit 6807
(800) 225-1852 New York, NY
744313503 MF139E2
