(ICON)
Prudential
Municipal
Series Fund
Florida Series
SEMI
ANNUAL
REPORT
Feb. 28, 1998
(LOGO)
<PAGE>
Prudential Municipal Series Fund
Florida Series
Performance At A Glance.
Municipal bond prices climbed during the six months ended February
28, 1998 as inflation remained subdued in the U.S. and an economic
crisis gripped Asia. Your Prudential Municipal Series Fund -- Florida
Series posted returns that were competitive with comparable funds
tracked by Lipper Analytical Services. Our results were bolstered
by hospital and general obligation bonds. In addition, we also took
profits on some noncallable bonds that gained nicely as interest
rates declined.
<TABLE>
Cumulative Total Returns1 As of 2/28/98
<CAPTION>
Six One Five Since
Months Year Years Inception2
<S> <C> <C> <C> <C>
Class A 4.89% 8.80% (8.70) 34.27% (30.74) 75.21% (68.13)
Class B 4.68 8.27 (8.16) N/A 28.63 (26.81)
Class C 4.54 8.00 (7.89) N/A 28.40 (25.38)
Class Z 4.94 8.91 (8.81) N/A 9.74 (9.53)
Lipper FL Muni Avg.3 4.89 8.79 32.43 ***
</TABLE>
<TABLE>
Average Annual Total Returns1 As of 3/31/98
<CAPTION>
One Five Since
Year Years Inception2
<S> <C> <C> <C>
Class A 6.96% (6.86) 5.79% (5.25) 7.60% (6.97)
Class B 4.83 (4.73) N/A 6.67 (6.25)
Class C 8.56 (8.46) N/A 5.50 (4.96)
Class Z 10.49 (10.39) N/A 7.41 (7.25)
</TABLE>
<TABLE>
Distributions & Yields As of 2/28/98
<CAPTION>
Taxable Equivalent Yield4
Total Distributions 30-Day At Tax Rates Of
Paid for Six Mos. SEC Yield 36% 39.6%
<S> <C> <C> <C> <C>
Class A $0.26 3.96% 6.19% 6.56%
Class B $0.24 3.68 5.75 6.09
Class C $0.23 3.43 5.36 5.68
Class Z $0.26 4.18 6.53 6.92
</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
Analytical Services. The cumulative total returns do not take
into account sales charges. The average annual returns do take
into account applicable sales charges. The Series charges a
maximum front-end sales load of 3% for Class A shares and a
six-year declining contingent deferred sales charge (CDSC) of
5%, 4%, 3%, 2%, 1% and 1% for Class B shares. Class C shares
have a 1% CDSC for one year. Without waiver of management fees
and/or expense subsidization, the Series' cumulative and
average annual total returns would have been lower, as
indicated in parentheses ( ). Class B shares automatically
convert to Class A shares on a quarterly basis, after
approximately seven years. Class Z shares do not carry
a sales load or a distribution fee.
2 Inception dates: Class A, 12/28/90; Class B, 8/1/94; Class
C, 7/26/93; and Class Z, 12/6/96.
3 The Lipper Florida Municipal Bond fund average are for all
funds in each share class for the six-month, 1- and 5-year
categories.
4 Taxable equivalent yields reflect federal and applicable
state tax rates.
***The Lipper Since Inception category return for Class A
shares is 70.64%; for Class B is 29.00%; for Class C is
29.85%; and for Class Z is 9.12% for all funds in each
share class.
How Investments Compared.
(As of 2/28/98)
(GRAPH)
Source: Lipper Analytical Services. Financial markets change, so
a mutual fund's past performance should never be used to predict
future results. The risks to each of the investments listed above
are different -- we provide 12-month total returns for several
Lipper mutual fund categories to show you that reaching for
higher yields means tolerating more risk. The greater the risk,
the larger the potential reward or loss. In addition, we've
included historical 20-year average annual returns. These
returns assume the reinvestment of dividends.
U.S. Growth Funds will fluctuate a great deal. Investors have
received higher historical total returns from stocks than
from most other invest-ments. Smaller capitalization stocks
offer greater potential for long-term growth but may be
more volatile than larger capitalization stocks.
General Bond Funds provide more income than stock funds,
which can help smooth out their total returns year by year.
But their prices still fluctuate (sometimes significantly)
and their returns have been historically lower than those
of stock funds.
General Municipal Debt Funds invest in bonds issued by
state governments, state agencies and/or municipalities.
This investment provides income that is usually exempt from
federal and state income taxes.
U.S. Tax-Exempt Money Funds attempt to preserve a constant
share value; they don't fluctuate much in price but,
historically, their returns have been generally among
the lowest of the major investment categories.
*18 years for Tax-Exempt Money Funds.
<PAGE>
Peter Allegrini and Scott Diamond, Fund Managers (PICTURE) (PICTURE)
Portfolio
Managers'Report
The Series invests in carefully selected, long-term municipal bonds
that offer a high level of current income exempt from federal income
taxes as well as the Florida intangibles tax. Certain shareholders
may be subject to the alternative minimum tax, however. There can
be no assurance that the Series will achieve its investment objective.
Is Inflation Conquered?
Inflation inched up a mere 1.7% in 1997 and will likely remain
tame this year as U.S. companies face increased competition
from cheaper Asian imports. This is good news for bondholders
because inflation hurts the value of their bonds' fixed
interest and principal payments
Strategy Session.
Asian Contagion
Lifts Muni Bonds.
Although job growth has moderated, employment and income have
been growing faster in Florida than in the Southeast and the
country as a whole. The Sunshine State's economy continues to
benefit from its expanding trade and services sectors as well
as tourism and agriculture.
On the opposite side of the globe, however, economic turbulence
engulfed Asian markets as a series of financial shocks, caused
by imprudent lending practices by major financial institutions,
shook the region. Investors began selling Asian stocks and
emerging market bonds and sought refuge in U.S. Treasury
securities. The ensuing rally in Treasuries spilled over
into the municipal securities market, driving tax-exempt
bond prices higher and yields lower. Investors also bid up
municipal bonds, believing that Asian difficulties would
help keep a lid on inflation in the U.S., protecting the
value of their fixed income investments.
By mid-January, the Bond Buyer Revenue Bond Index, a widely
watched gauge of tax-exempt yields, reached a record low
of 5.25%. This occurred during the same week that the
30-year Treasury bond yield sank to 5.66%, its lowest
point since 1977. Cash poured into U.S. Treasuries as
investors fretted over the failure of Hong Kong's
largest investment bank.
As interest rates fell sharply, noncallable bond prices
surged because the bonds cannot be retired early. We
took advantage of this trend by booking profits on
some of your Series' high-coupon, noncallable bonds
that were scheduled to mature in less than 10 years.
Portfolio Composition.
Expressed as a percentage of
total investments as of 2/28/98.
(PIE CHART)
<PAGE>
What Went Well.
A Win-Win Situation.
Series' performance was enhanced when its Puerto Rico general
obligation bonds and Palm Beach County, Florida, bonds issued
for Good Samaritan Health Services were pre-refunded. This
means that new bonds were issued whose proceeds would be
used to retire the older bonds before their maturity date.
Until then, proceeds from the new bonds would be invested
in direct U.S. guaranteed obligations held in an escrow fund.
Prices of the older Puerto Rico and Palm Beach County bonds
surged because they were now backed by direct U.S. guaranteed
obligations and have virtually no credit risk. (The ratings
on the Puerto Rico bonds were upgraded to AAA by Standard &
Poor's, as is often the case after a bond is pre-refunded.)
Of course, this sharp price appreciation benefited your
Series, while pre-refunding the older bonds at recent low
interest rates reduced the authority's interest payment
expense. That is why we consider this a "win-win" situation.
And Not So Well.
Duration, Duration.
Although the Series' duration (a measure of sensitivity to
interest rate fluctuations) was moderately longer than its
competition, its performance would have been improved had
we been able to extend the duration further by investing
heavily in noncallable, zero coupon bonds. Noncallable
bonds appreciate rapidly when interest rates fall because
they cannot be retired prior to maturity. Zero coupon bonds
also rise quickly, since they typically trade at prices well
below their maturity value. Unfortunately, noncallable zero
coupon bonds were rather scarce in Florida as there was
strong investor demand during the market rally.
Credit Quality.
Expressed as a percentage of
total investments as of 2/28/98.
(PIE CHART)
Five Largest Issuers.
4.4% Puerto Rico Electric
Power Authority
4.3% Lakeland Electric
and Water
3.9% Florida State Board
Of Education
3.2% Escambia County
Pollution Control
3.2% Brevard County
School Board
Expressed as a percentage of net assets
as of 2/28/98.
Looking Ahead.
Asian economic turmoil is already starting to take its toll
as the U.S. trade deficit widened in January, partly because
our sales to Asia declined. As the year progresses, the U.S.
is expected to sell even less to Asia and purchase more and
more cheaply priced Asian imports, broadening the trade gap.
We believe the growing imbalance will slow U.S. economic
growth and head off higher inflation, allowing the Federal
Reserve to leave monetary policy unchanged for the
foreseeable future.
1
<PAGE>
President's Letter April 3, 1998
Investing Smart.
Dear Shareholder:
This is the season when many investors receive income tax refunds
or have a CD or two maturing. What will you do with these assets?
Investing smart can be a challenge especially given today's new
investment choices.
The Federal Taxpayer Relief Act of 1997 is changing the way
Americans invest and accumulate wealth, save for college or
build a nest egg for retirement. While the law offers opportunity,
it is also complex. You may need help to put things in perspective.
Now may be an excellent time for you and your Prudential Financial
Professional to update your investment strategy and retirement plan.
A wise investor does so periodically. You could find the tax law
opening doors that may benefit you now or over the long term,
such as --
- -- Revised Capital Gains Tax Rates & Exclusions. Long-term
rates are down. Is your portfolio positioned to benefit? Also,
new rules allow you to keep more of the profit from the sale
of your home (perhaps up to $500,000 more).
- -- New Roth IRAs. The Roth IRA features tax-free distributions
and does not require mandatory withdrawals, which should be of
particular interest to retirees seeking to shelter assets in a
tax-free account.
- -- New Education IRAs. Similar to a traditional IRA, but
specifically designed for higher education. The new law
also creates credits and deductions to help defray college costs.
- -- Expanded IRAs. Rules governing traditional IRAs have
been extensively revised. Deductibility and contribution
limits have been broadened as has the list for penalty-free
early withdrawals, including first-time home buyers.
As you can see, what you don't know may cost you! That's why
I recommend you call your Prudential Financial Professional
and get a free investment plan checkup. Let us give you the
information and tools to invest smart.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
2
<PAGE>
Portfolio of Investments as
of February 28, 1998 PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) FLORIDA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description (a) Rating Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--96.5%
- ------------------------------------------------------------------------------------------------------------------------------
Alachua Cnty. Hlth. Facs. Auth. Rev., Santa Fe Healthcare
Facs. Proj. Baa1 7.60% 11/15/13 $ 1,750 (f) $ 1,947,225
Alachua Cnty. Ind. Dev. Auth. Rev., H.B. Fuller Co. Proj.,
A.M.T. NR 7.75 11/01/16 3,000 3,161,160
Brevard Cnty. Edl. Facs. Auth. Rev. Ref., Florida Inst. of
Tech. BBB(c) 6.875 11/01/22 1,500 1,615,560
Brevard Cnty. Sch. Brd. Ctfs. of Part., Ser. A, A.M.B.A.C. Aaa 6.50 7/01/12 3,500 (f) 3,895,570
Broward Cnty. Edl. Facs. Auth. Rev., Nova Univ. Dorm.
Proj., Ser. A NR 7.50 4/01/17 1,500 (f) 1,672,710
Broward Cnty. Hlth. Facs. Auth., North Beach Hosp.,
M.B.I.A. Aaa 6.75 8/15/06 1,000 1,099,110
Broward Cnty. Prof. Sports Facs. Rev., Civic Arena Proj.,
Ser. A, M.B.I.A. Aaa 5.625 9/01/28 2,185 2,273,930
Clay Cnty. Hsg. Fin. Auth. Rev., Sngl. Fam. Mtge., Ser. A,
A.M.T., G.N.M.A. Aaa 7.45 9/01/23 375 396,581
Coral Springs Impvt. Dist., Wtr. & Swr. Ref., M.B.I.A. Aaa 6.00 6/01/10 1,000 1,130,000
Dade Cnty. Aviation Dept. Rev.,
Ser. B, A.M.T., M.B.I.A. Aaa 6.00 10/01/24 1,500 1,622,295
Ser. E, A.M.B.A.C. Aaa 5.50 10/01/10 1,000 1,067,540
Miami Int'l. Arpt., Ser. B, A.M.T., F.S.A. Aaa 5.00 10/01/11 1,930 1,949,725
Dade Cnty. Edl. Facs. Auth. Rev. Ref., Univ. of Miami.,
Ser. A, M.B.I.A. Aaa 5.625 4/01/06 2,015 2,194,355
Dade Cnty. Hlth. Facs. Auth. Rev., Baptist Hosp. of Miami
Proj., Ser. A, E.T.M., M.B.I.A. Aaa 6.75 5/01/08 500 (e) 565,900
Dade Cnty. Hsg. Fin. Auth. Rev.,
Multi. Fam. Mtge., Golden Lakes Apts. Proj., Ser. A,
A.M.T. NR 6.05 11/01/39 1,000 1,017,500
Sngl. Fam. Mtge., Ser. B, A.M.T., G.N.M.A Aaa 7.25 9/01/23 350 369,229
Sngl. Fam. Mtge., Ser. C, A.M.T., G.N.M.A. Aaa 7.75 9/01/22 765 742,647
Dade Cnty. Spl. Oblig.,
Ser. B, A.M.B.A.C. Aaa 5.00 10/01/35 2,500 2,417,675
Metro Dade Fire & Rescue Svc., F.G.I.C. Aaa 6.00 4/01/05 2,800 3,099,096
Dade Cnty.,
Pub. Impvt. J & K Seaport, M.B.I.A. Aaa 6.50 10/01/07 1,220 1,420,775
Pub. Impvt. J & K Seaport, M.B.I.A. Aaa 6.50 10/01/10 1,555 1,838,259
Duval Cnty. Hsg. Fin. Auth. Rev., Sngl. Fam. Mtge., A.M.T.,
G.N.M.A. AAA(c) 8.375 12/01/14 360 (e) 379,862
Escambia Cnty. Hlth. Facs. Auth. Rev., Baptist Hosp. Inc.,
Ser. A BBB+(c) 8.70 10/01/14 1,830 1,913,174
Escambia Cnty. Poll. Ctrl. Rev., Champion Int'l. Corp.
Proj., A.M.T. Baa1 6.90 8/01/22 3,500 3,924,865
Florida St. Brd. of Ed. Cap. Outlay, Ref. Pub. Ed., Ser. D Aa 4.75 6/01/22 4,985 4,710,177
Florida St. Mun. Pwr. Agcy. Ref., Stanton II Proj.,
A.M.B.A.C. Aaa 4.50 10/01/27 2,000 1,797,940
Greater Orlando Aviation Rev. Auth., Orlando Arpt., A.M.T.,
F.G.I.C. Aaa 5.25 10/01/23 2,000 1,990,140
Hillsborough Cnty. Ind. Dev. Auth. Poll. Ctrl. Rev., Tampa
Elec. Proj., Ser. 92 Aa3 8.00 5/01/22 1,750 2,027,988
Hillsborough Cnty.,
Cnty. Ctr. Proj., Ser. B, M.B.I.A. Aaa 5.00 7/01/15 1,560 1,550,952
Ref. Cnty. Ctr. Proj., Ser. B, M.B.I.A. Aaa 6.00 7/01/06 1,605 1,792,127
Jacksonville Elec. Auth. Rev., St. Johns Rvr. Pwr. Park
Issue 2, Ser. 7 Aa1 Zero 10/01/10 3,000 1,671,180
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as
of February 28, 1998 PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) FLORIDA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description (a) Rating Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Jacksonville Hlth. Facs. Auth. Hosp. Rev.,
Nat'l. Ben. Assoc. Baa1 7.00% 12/01/22 $ 1,825 $ 1,990,765
St. Lukes Hosp. Assoc. Proj. AA+(c) 7.125 11/15/20 1,000 1,104,330
Jacksonville Swr. & Sld. Wste. Disp. Facs. Rev., Anheuser
Busch Proj., A.M.T. A1 5.875 2/01/36 1,000 1,039,980
Jacksonville Wtr. & Swr. Dev. Rev.,
Suburban Utils., A.M.T. A3 6.75 6/01/22 1,000 1,084,690
United Wtr. Proj., A.M.T., A.M.B.A.C. Aaa 6.35 8/01/25 1,500 1,652,955
Lake Cnty. Res. Rec. Ind. Dev. Rev., NRG Recovery Grp., Ser
A, A.M.T. Baa 5.95 10/01/13 1,035 1,078,128
Lakeland Elec. & Wtr. Rev. Aa 5.625 10/01/36 5,000 5,220,850
Largo Cnty. Hosp. Rev., Sun Coast Hlth. Sys. BB+(c) 6.30 3/01/20 2,000 2,032,620
Leon Cnty. Hsg. Fin. Auth. Rev., Sngl. Fam. Mtge., Ser. A.,
A.M.T., G.N.M.A. Aaa 7.30 4/01/21 345 342,254
Martin Cnty. Ind. Dev. Auth. Rev., Indiantown Cogen. Proj.,
Ser. A, A.M.T. Baa3 7.875 12/15/25 1,200 1,408,284
Miami Spec. Oblig.,
Admn. Bldg. Acquis. Proj., F.G.I.C. Aaa 6.00 2/01/16 1,500 1,626,495
Admn. Bldg. Acquis. Proj., F.G.I.C. Aaa 6.00 2/01/25 500 542,165
Miami Spec. Rev., Prkg. & Conv. Ctr., M.B.I.A. Aaa Zero 1/01/07 1,000 674,630
Miramar Wstwt. Impvt. Assmt., F.G.I.C. Aaa 6.75 10/01/16 2,500 2,828,750
Okaloosa Cnty. Cap. Impvt. Rev., M.B.I.A. Aaa Zero 12/01/06 450 307,337
Orange Cnty. Hsg. Fin. Auth. Mtge. Rev., Ser. A, A.M.T.,
G.N.M.A. AAA(c) 7.375 9/01/24 420 446,237
Orange Cnty. Hsg. Fin. Auth. Rev.,
MultiFam. Ashley Point Apts., Ser. A, A.M.T. BBB+(c) 6.85 10/01/16 1,200 1,241,796
MultiFam. Ashley Point Apts., Ser. A, A.M.T. BBB+(c) 7.10 10/01/24 855 884,942
Orlando Util. Comm., Wtr. & Elec. Rev., Ser. D Aa 6.75 10/01/17 2,200 2,689,830
Palm Beach Cnty. Hlth. Facs. Auth. Rev.,
Abbey Delray South Proj. BBB(c) 5.50 10/01/11 750 760,088
Good Samaritan Hlth. Sys. A+(c) 6.30 10/01/22 1,000 (f) 1,124,920
Palm Beach Cnty. Sld. Wste. Auth. Rev., Ser. A, A.M.B.A.C. Aaa 6.00 10/01/09 1,500 1,701,465
Pensacola Hlth. Facs. Auth., Daughters of Charity, M.B.I.A. Aaa 5.25 1/01/11 1,600 1,647,120
Polk Cnty. Ind. Dev. Auth., Sld. Wste. Disp. Fac. Rev.,
Tampa Elec. Co. Proj., A.M.T. Aa2 5.85 12/01/30 1,500 1,570,755
Puerto Rico Comnwlth. Infr. Fin. Auth. Rev., Spec. Tax ,
Ser. A, A.M.B.A.C. Aaa 5.00 7/01/28 1,750 1,709,803
Puerto Rico Comnwlth.,
Gen. Oblig. Baa1 Zero 7/01/16 2,500 997,825
Gen. Oblig. Baa1 Zero 7/01/15 1,000 421,040
Gen. Oblig. Baa1 6.45 7/01/17 1,400 (f) 1,585,696
Gen. Oblig. Baa1 6.50 7/01/23 650 (f) 740,733
Puerto Rico Elec. Pwr. Auth. Rev., Ser. R Baa1 6.25 7/01/17 5,000 5,380,650
Puerto Rico Tel. Auth. Rev., Ser. I, M.B.I.A. Aaa 7.168 (d) 1/16/15 2,250 2,421,562
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as
of February 28, 1998 PRUDENTIAL MUNICIPAL SERIES FUND
(Unaudited) FLORIDA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Moody's Interest Maturity Amount Value
Description (a) Rating Rate Date (000) (Note 1)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Sarasota Wtr. & Swr. Util. Ref., Ser. C, F.G.I.C. Aaa 4.50% 10/01/16 $ 1,000 $ 931,850
St. Petersburg Hlth. Facs. Auth. Rev., Allegheny Hlth.
Proj., M.B.I.A. Aaa 7.00 12/01/15 1,000 (f) 1,119,080
Tampa Gtd. Entitlement Rev., A.M.B.A.C. Aaa 7.05 10/01/07 2,000 2,223,380
Tampa Hlth. Sys. Rev., Catholic Hlth., Ser. A-1, A.M.B.A.C. Aaa 4.875 11/15/18 1,500 1,444,020
Tampa Sports Auth. Rev., Tampa Bay Arena Proj., M.B.I.A. Aaa 5.75 10/01/20 1,000 1,096,500
Virgin Islands Terr., Hugo Ins. Claims Fund Proj., Ser. 91 NR 7.75 10/01/06 1,105 1,231,953
Volusia Cnty. Edl. Fac. Auth. Rev., Embry Riddle Univ. AAA(c) 6.625 10/15/22 1,000 1,104,190
Volusia Cnty. Hlth. Facs. Auth. Rev., Mem. Hlth. Sys. Proj. BBB+(c) 8.25 6/01/20 2,000 (f) 2,218,860
------------
Total long-term investments (cost $108,534,090) 116,883,775
------------
SHORT-TERM INVESTMENTS--1.9%
Hillsborough Cnty. Ind. Dev. Auth., Poll. Ctrl. Rev., Tampa
Elec. Co. Ser. 93, F.R.D.D. VMIG1 3.70 3/02/98 200 200,000
Martin Cnty. Poll. Ctrl. Rev., Florida Pwr. & Lt. Proj.,
F.R.D.D. VMIG1 3.60 3/02/98 1,100 1,100,000
St. Lucie Cnty. Poll. Ctrl. Rev., Florida Pwr. & Lt. Proj.,
F.R.D.D. VMIG1 3.60 3/02/98 1,000 1,000,000
------------
Total short-term investments (cost $2,300,000) 2,300,000
------------
Total Investments--98.4%
(cost $110,834,090; Note 4) 119,183,775
Other assets in excess of liabilities--1.6% 1,915,802
------------
Net Assets--100% $121,099,577
------------
------------
</TABLE>
- ---------------
(a) The following abbreviations are used in portfolio descriptions:
A.M.B.A.C.--American Municipal Bond Assurance Corporation.
A.M.T.--Alternative Minimum Tax.
E.T.M.--Escrowed to Maturity.
F.G.I.C.--Financial Guaranty Insurance Company.
F.R.D.D.--Floating Rate (Daily) Demand Note (b).
F.S.A.--Financial Security Assurance.
G.N.M.A.--Government National Mortgage Association.
M.B.I.A.--Municipal Bond Insurance Corporation.
(b) For purposes of amortized cost valuation, the maturity date of Floating Rate
Demand Notes is considered to be the later of the next date on which the
security can be redeemed at par, or the next date on which the rate of
interest is adjusted.
(c) Standard & Poor's Rating.
(d) Inverse floating rate bond. The coupon is inversely indexed to a floating
interest rate. The rate shown is the rate at period-end.
(e) Pledged as initial margin on financial futures contracts.
(f) Prerefunded issues are secured by escrowed cash and direct U.S. guaranteed
obligations.
NR--Not Rated by Moody's or Standard & Poor's.
The Fund's current Statement of Additional Information contains a description of
Moody's and Standard & Poor's ratings.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Statement of Assets and Liabilities
(Unaudited) FLORIDA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets February 28, 1998
<S> <C>
Investments, at value (cost $110,834,090)................................................................ $ 119,183,775
Cash..................................................................................................... 62,780
Interest receivable...................................................................................... 2,053,090
Receivable for investment sold........................................................................... 100,209
Receivable for Series shares sold........................................................................ 74,411
Other assets............................................................................................. 14,124
Due from broker-variation margin......................................................................... 8,437
-----------------
Total assets.......................................................................................... 121,496,826
-----------------
Liabilities
Payable for Series shares reacquired..................................................................... 176,807
Accrued expenses......................................................................................... 98,725
Dividends payable........................................................................................ 51,812
Management fee payable................................................................................... 46,555
Distribution fee payable................................................................................. 19,572
Deferred trustees' fees.................................................................................. 3,778
-----------------
Total liabilities..................................................................................... 397,249
-----------------
Net Assets............................................................................................... $ 121,099,577
-----------------
-----------------
Net assets were comprised of:
Shares of beneficial interest, at par................................................................. $ 113,684
Paid-in capital in excess of par...................................................................... 114,012,732
-----------------
114,126,416
Accumulated net realized loss on investments.......................................................... (1,380,039)
Net unrealized appreciation on investments............................................................ 8,353,200
-----------------
Net assets, February 28, 1998............................................................................ $ 121,099,577
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($91,259,049 / 8,567,210 shares of beneficial interest issued and outstanding)..................... $10.65
Maximum sales charge (3% of offering price)........................................................... .33
-----------------
Maximum offering price to public...................................................................... $10.98
-----------------
-----------------
Class B:
Net asset value, offering price and redemption price per share
($21,818,864 / 2,048,152 shares of beneficial interest issued and outstanding)..................... $10.65
-----------------
-----------------
Class C:
Net asset value, offering price and redemption price per share
($7,581,142 / 711,663 shares of beneficial interest issued and outstanding)........................ $10.65
-----------------
-----------------
Class Z:
Net asset value, offering price and redemption price per share
($440,522 / 41,374 shares of beneficial interest issued and outstanding)........................... $10.65
-----------------
-----------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 6
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
FLORIDA SERIES
Statement of Operations (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
Net Investment Income February 28, 1998
<S> <C>
Income
Interest................................ $ 3,405,895
-----------------
Expenses
Management fee.......................... 296,870
Distribution fee--Class A............... 45,520
Distribution fee--Class B............... 50,303
Distribution fee--Class C............... 27,046
Custodian's fees and expenses........... 43,000
Transfer agent's fees and expenses...... 22,000
Registration fees....................... 17,000
Reports to shareholders................. 11,000
Audit fees and expenses................. 5,000
Legal fees and expenses................. 4,000
Miscellaneous........................... 2,533
Trustees' fees.......................... 2,000
-----------------
Total expenses....................... 526,272
Less: Custodian fee credit (Note 1)..... (1,132)
-----------------
Net expenses......................... 525,140
-----------------
Net investment income...................... 2,880,755
-----------------
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain (loss) on:
Investment transactions................. 277,340
Financial futures transactions.......... (116,644)
-----------------
160,696
-----------------
Net change in unrealized appreciation on:
Investments............................. 2,564,186
Financial futures contracts 3,515
-----------------
2,567,701
-----------------
Net gain on investments.................... 2,728,397
-----------------
Net Increase in Net Assets
Resulting from Operations.................. $ 5,609,152
-----------------
-----------------
</TABLE>
PRUDENTIAL MUNICIPAL SERIES FUND
FLORIDA SERIES
Statement of Changes in Net Assets (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) February 28, August 31,
in Net Assets 1998 1997
<S> <C> <C>
Operations
Net investment income...... $ 2,880,755 $ 6,420,500
Net realized gain (loss) on
investment
transactions............ 160,696 (79,447)
Net change in unrealized
appreciation of
investments............. 2,567,701 3,713,700
----------------- ------------
Net increase in net assets
resulting from
operations.............. 5,609,152 10,054,753
----------------- ------------
Dividends and Distributions
(Note 1):
Dividends from net
investment income
Class A................. (2,256,615) (5,200,369)
Class B................. (459,233) (864,744)
Class C................. (155,410) (353,934)
Class Z................. (9,497) (1,453)
----------------- ------------
(2,880,755) (6,420,500)
----------------- ------------
Distributions in excess of
net investment income
Class A................. -- (57,916)
Class B................. -- (4,473)
Class C................. -- (10,023)
----------------- ------------
-- (72,412)
----------------- ------------
Series share transactions (net
of share conversions) (Note
5):
Net proceeds from shares
sold.................... 7,422,762 13,962,419
Net asset value of shares
issued in reinvestment
of dividends and
distributions........... 1,229,013 2,752,296
Cost of shares
reacquired.............. (9,109,279) (25,937,462)
----------------- ------------
Net decrease in net assets
from Series share
transactions............ (457,504) (9,222,747)
----------------- ------------
Total increase (decrease)..... 2,270,893 (5,660,906)
Net Assets
Beginning of period........... 118,828,684 124,489,590
----------------- ------------
End of period................. $ 121,099,577 $118,828,684
----------------- ------------
----------------- ------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements
(Unaudited) FLORIDA SERIES
- --------------------------------------------------------------------------------
Prudential Municipal Series Fund, (the 'Fund') is registered under the
Investment Company Act of 1940, as an open-end investment company. The Fund was
organized as a Massachusetts business trust on May 18, 1984 and consists of 13
series. The monies of each series are invested in separate, independently
managed portfolios. The Florida Series (the 'Series') commenced investment
operations on December 28, 1990. The Series is nondiversified and seeks to
achieve its investment objective of providing the maximum amount of income that
is exempt from federal income taxes with the minimum of risk, and investing in
securities which will enable its shares to be exempt from the Florida
intangibles tax by investing in 'investment grade' tax-exempt securities whose
ratings are within the four highest ratings categories by a nationally
recognized statistical rating organization or, if not rated, are of comparable
quality. The ability of the issuers of the securities held by the Series to meet
their obligations may be affected by economic developments in a specific state,
industry or region.
- ------------------------------------------------------------
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund, and the Series, in the preparation of its financial statements.
Securities Valuations: The Fund values municipal securities (including
commitments to purchase such securities on a 'when-issued' basis) on the basis
of prices provided by a pricing service which uses information with respect to
transactions in bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities in
determining values. If market quotations are not readily available from such
pricing service, a security is valued at its fair value as determined under
procedures established by the Trustees.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost.
All securities are valued as of 4:15 p.m., New York time.
Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Series is required to pledge to the broker an amount of cash and/or other
assets equal to a certain percentage of the contract amount. This amount is
known as the 'initial margin.' Subsequent payments, known as 'variation margin,'
are made or received by the Series each day, depending on the daily fluctuations
in the value of the underlying security. Such variation margin is recorded for
financial statement purposes on a daily basis as unrealized gain or loss. When
the contract expires or is closed, the gain or loss is realized and is presented
in the statement of operations as net realized gain (loss) on financial futures
contracts.
The Series invests in financial futures contracts in order to hedge its existing
portfolio securities, or securities the Series intends to purchase, against
fluctuations in value caused by changes in prevailing interest rates. Should
interest rates move unexpectedly, the Series may not achieve the anticipated
benefits of the financial futures contracts and may realize a loss. The use of
futures transactions involves the risk of imperfect correlation in movements in
the price of futures contracts, interest rates and the underlying hedged assets.
Securities Transactions and Net Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses on sales of securities are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis. The Series amortizes premiums and accretes original issue
discount on portfolio securities as adjustments to interest income. Expenses are
recorded on the accrual basis which may require the use of certain estimates by
management.
Net investment income (other than distribution fees) and unrealized and realized
gains or losses are allocated daily to each class of shares based upon the
relative proportion of net assets of each class at the beginning of the day.
Federal Income Taxes: For federal income tax purposes, each series in the Fund
is treated as a separate taxpaying entity. It is the intent of the Series to
meet the requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its net income to shareholders.
For this reason no federal income tax provision is required.
Dividends and Distributions: The Series declares daily dividends from net
investment income. Payment of dividends is made monthly. Distributions of net
capital gains, if any, are made annually.
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
Custody Fee Credits: The Fund has an arrangement with its custodian bank,
whereby uninvested monies earn credits which reduce the fees charged by the
custodian.
- --------------------------------------------------------------------------------
8
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements
(Unaudited) FLORIDA SERIES
- --------------------------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with Prudential Investments Fund Management
LLC ('PIFM'). Pursuant to this agreement, PIFM has responsibility for all
investment advisory services and supervises the subadviser's performance of such
services. PIFM has entered into a subadvisory agreement with The Prudential
Investment Corporation ('PIC'). PIC furnishes investment advisory services in
connection with the management of the Fund. PIFM pays for the cost of the
subadviser's services, the compensation of officers and employees of the Fund,
occupancy and certain clerical and bookkeeping costs of the Fund. The Fund bears
all other costs and expenses.
The management fee paid PIFM is computed daily and payable monthly, at an annual
rate of .50 of 1% of the average daily net assets of the Series.
The Fund has a distribution agreement with Prudential Securities Incorporated
('PSI'), which acts as the distributor of the Class A, Class B, Class C and
Class Z shares of the Fund. The Fund compensates PSI for distributing and
servicing the Fund's Class A, Class B and Class C shares, pursuant to plans of
distribution (the 'Class A, B and C Plans') regardless of expenses actually
incurred by them. The distribution fees are accrued daily and payable monthly.
No distribution or service fees are paid to PSI as distributor for Class Z
shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensates PSI for
distribution-related activities at an annual rate of up to .30 of 1%, .50 of 1%
and .75 of 1% of the average daily net assets of the Class A, B and C shares,
respectively. Such expenses under the Plans were .10 of 1%, .50 of 1% and .75 of
1% of the average daily net assets of the Class A, B and C shares, respectively,
for the six months ended February 28, 1998.
PSI has advised the Series that they have received approximately $36,000 in
front-end sales charges resulting from sales of Class A shares during the six
months ended February 28, 1998. From these fees, PSI paid such sales charges to
affiliated broker-dealers, which in turn paid commissions to salespersons and
incurred other distribution costs.
PSI has advised the Series that for the six months ended February 28, 1998, it
received approximately $5,700 in contingent deferred sales charges imposed upon
certain redemptions by Class B shareholders.
PIFM, PIC and PSI are indirect, wholly owned subsidiaries of The Prudential
Insurance Company of America.
The Series, along with other affiliated registered investment companies (the
'Funds'), has a credit agreement (the 'Agreement') with an unaffiliated lender.
The maximum commitment under the Agreement is $200,000,000. Interest on any such
borrowings outstanding will be at market rates. The purpose of the Agreement is
to serve as an alternative source of funding for capital share redemptions. The
Series has not borrowed any amounts pursuant to the Agreement during the six
months ended February 28, 1998. The Funds pay a commitment fee at an annual rate
of .055 of 1% on the unused portion of the credit facility. The commitment fee
is accrued and paid quarterly on a pro rata basis by the Funds. The Agreement
expired on December 30, 1997 and has been extended through December 29, 1998
under the same terms.
- ------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent. During the six months ended February 28,
1998, the Series incurred fees of approximately $15,800 for the services of
PMFS. As of February 28, 1998, approximately $2,600 of such fees were due to
PMFS. Transfer agent fees and expenses in the Statement of Operations include
certain out-of-pocket expenses paid to nonaffiliates.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of portfolio securities of the Series, excluding short-term
investments, for the six months ended February 28, 1998 were $10,860,345 and
$12,471,680, respectively.
The cost basis of investments for federal income tax purposes at February 28,
1998 was substantially the same as for financial reporting purposes and
accordingly, net unrealized appreciation of investments for federal income tax
purposes was $8,349,685 (gross unrealized appreciation--$8,376,463 gross
unrealized depreciation--$26,778).
During the six months ended February 28, 1998, the Fund entered into financial
futures contracts. Details of open contracts at February 28, 1998 are as
follows:
<TABLE>
<CAPTION>
Value at Value at Unrealized
Number of Expiration February 28, Trade Appreciation/
Contracts Type Date 1998 Date (Depreciation)
- -------------- ------------ ---------- ------------ ---------- --------------
<S> <C> <C> <C> <C> <C>
Long Position:
30 U.S. T-Bond June 1998 $3,614,062 $3,610,547 $ 3,515
</TABLE>
- --------------------------------------------------------------------------------
9
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Notes to Financial Statements
(Unaudited) FLORIDA SERIES
- --------------------------------------------------------------------------------
The Series has a capital loss carryforward as of August 31, 1997 of
approximately $1,592,600 of which $1,460,000 expires in 2003 and $132,600
expires in 2005. Accordingly, no capital gains distribution is expected to be
paid until net gains have been realized in excess of the carryforward.
- ------------------------------------------------------------
Note 5. Capital
The Series offers Class A, Class B, Class C and Class Z shares. Class A shares
are sold with a front-end sales charge of up to 3%. Class B shares are sold with
a contingent deferred sales charge which declines from 5% to zero depending on
the period of time the shares are held. Class C shares, which prior to August 1,
1994 were known as D shares, are sold with a contingent deferred sales charge of
1% during the first year. Class B shares will automatically convert to Class A
shares on a quarterly basis approximately seven years after purchase. Special
exchange privileges are also available for shareholders who qualify to purchase
Class A shares at net asset value. Class Z shares are not subject to any sales
or redemption charge and are offered exclusively for sale to a limited group of
investors.
The Fund has authorized an unlimited number of shares of beneficial interest of
each class at $.01 par value per share. Transactions in shares of beneficial
interest for the six months ended February 28, 1998 and the fiscal year ended
August 31, 1997 were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------------ ---------- ------------
<S> <C> <C>
Six months ended February 28, 1998:
Shares sold......................... 276,202 $ 2,920,045
Shares issued in reinvestment of
dividends......................... 89,979 951,291
Shares reacquired................... (697,683) (7,362,313)
---------- ------------
Net decrease in shares outstanding
before conversion................. (331,502) (3,490,977)
Shares issued upon conversion from
Class B........................... 6,633 69,946
---------- ------------
Net decrease in shares
outstanding....................... (324,869) $ (3,421,031)
---------- ------------
---------- ------------
Year ended August 31, 1997:
Shares sold......................... 494,435 $ 5,074,068
Shares issued in reinvestment of
dividends......................... 213,918 2,200,461
Shares reacquired................... (1,988,937) (20,452,223)
---------- ------------
Net decrease in shares outstanding
before conversion................. (1,280,584) (13,177,694)
Shares issued upon conversion from
Class B........................... 87,091 891,335
---------- ------------
Net decrease in shares
outstanding....................... (1,193,493) $(12,286,359)
---------- ------------
---------- ------------
<CAPTION>
Class B Shares Amount
- ------------------------------------ ---------- ------------
<S> <C> <C>
Six months ended February 28, 1998:
Shares sold......................... 340,636 $ 3,602,133
Shares issued in reinvestment of
dividends ........................ 17,345 183,432
Shares reacquired................... (110,639) (1,171,397)
---------- ------------
Net increase in shares outstanding
before conversion................. 247,342 2,614,168
Shares reacquired upon conversion
into Class A...................... (6,630) (69,946)
---------- ------------
Net increase in shares
outstanding....................... 240,712 $ 2,544,222
---------- ------------
---------- ------------
Year ended August 31, 1997:
Shares sold......................... 793,985 $ 8,170,066
Shares issued in reinvestment of
dividends ........................ 34,104 350,919
Shares reacquired................... (386,783) (3,982,887)
---------- ------------
Net increase in shares outstanding
before conversion................. 441,306 4,538,098
Shares reacquired upon conversion
into Class A...................... (87,091) (891,335)
---------- ------------
Net increase in shares
outstanding....................... 354,215 $ 3,646,763
---------- ------------
---------- ------------
<CAPTION>
Class C
- ------------------------------------
<S> <C> <C>
Six months ended February 28, 1998:
Shares sold......................... 34,840 $ 371,986
Shares issued in reinvestment of
dividends......................... 8,041 85,016
Shares reacquired................... (35,748) (375,569)
---------- ------------
Net increase in shares
outstanding....................... 7,133 $ 81,433
---------- ------------
---------- ------------
Year ended August 31, 1997:
Shares sold......................... 60,503 $ 624,420
Shares issued in reinvestment of
dividends......................... 19,401 199,548
Shares reacquired................... (145,733) (1,501,101)
---------- ------------
Net decrease in shares
outstanding....................... (65,829) $ (677,133)
---------- ------------
---------- ------------
Class Z
- ------------------------------------
Six months ended February 28, 1998:
Shares sold......................... 50,172 $ 528,598
Shares issued in reinvestment of
dividends......................... 874 9,274
Shares reacquired................... (18,709) (200,000)
---------- ------------
Net increase in shares
outstanding....................... 32,337 $ 337,872
---------- ------------
---------- ------------
December 6, 1996(a) through
August 31, 1997:
Shares sold......................... 9,024 $ 93,865
Shares issued in reinvestment of
dividends......................... 132 1,368
Shares reacquired................... (119) (1,251)
---------- ------------
Net increase in shares
outstanding....................... 9,037 $ 93,982
---------- ------------
---------- ------------
</TABLE>
- ------------------
(a) Commencement of offering of Class Z shares.
- --------------------------------------------------------------------------------
10
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) FLORIDA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------------------------------
Six Months
Ended Year Ended August 31,
February 28, ------------------------------------------------------------
1998 1997 1996 1995 1994 1993
------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $ 10.41 $ 10.11 $ 10.06 $ 9.91 $ 10.87 $ 10.27
------ -------- -------- -------- -------- --------
Income from investment operations
Net investment income................... .26 .54(a) .57(a) .59(a) .59(a) .57 a)
Net realized and unrealized gain (loss)
on investment transactions........... .24 .31 .05 .15 (.76) .73
------ -------- -------- -------- -------- --------
Total from investment operations..... .50 .85 .62 .74 (.17) 1.30
------ -------- -------- -------- -------- --------
Less distributions
Dividends from net investment income.... (.26) (.54) (.57) (.59) (.59) (.57)
Distributions in excess of net
investment income.................... -- (.01) -- -- -- --
Distributions from net realized gains... -- -- -- -- (.20) (.13)
------ -------- -------- -------- -------- --------
Total distributions.................. (.26) (.55) (.57) (.59) (.79) (.70)
------ -------- -------- -------- -------- --------
Net asset value, end of period.......... $ 10.65 $ 10.41 $ 10.11 $ 10.06 $ 9.91 $ 10.87
------ -------- -------- -------- -------- --------
------ -------- -------- -------- -------- --------
TOTAL RETURN(b):........................ 4.89% 8.65% 6.20% 7.85% (1.69)% 13.78%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)......... $91,259 $92,579 $101,999 $120,963 $134,849 $148,900
Average net assets (000)................ $91,794 $97,700 $112,266 $124,259 $146,489 $123,820
Ratios to average net assets:
Expenses, including distribution
fees.............................. .78%(c) .57%(a) .37%(a) .24%(a) .20%(a) .20 a)
Expenses, excluding distribution
fees.............................. .68%(c) .47%(a) .27%(a) .17%(a) .20%(a) .20 a)
Net investment income................ 4.96%(c) 5.32%(a) 5.56%(a) 6.04%(a) 5.67%(a) 5.94 a)
For Class A, B and C shares:
Portfolio turnover rate.............. 9% 22% 68% 65% 75% 68%
</TABLE>
- ---------------
(a) Net of expense subsidy and fee waiver.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(c) Annualized.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 11
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) FLORIDA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
--------------------------------------------------------------
August 1,
Six Months 1994(c)
Ended Year Ended August 31, through
February 28, ------------------------------ August 31,
1998 1997 1996 1995 1994
------------ ------- ------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $ 10.41 $ 10.11 $ 10.06 $ 9.91 $ 9.95
------ ------- ------- ------ -----
Income from investment operations
Net investment income................... .24 .50(a) .53(a) .55(a) .04(a)
Net realized and unrealized gain (loss)
on investment transactions........... .24 .31 .05 .15 (.04)
------ ------- ------- ------ -----
Total from investment operations..... .48 .81 .58 .70 --
------ ------- ------- ------
Less distributions
Dividends from net investment income.... (.24) (.50) (.53) (.55) (.04)
Distributions in excess of net
investment income.................... -- (.01) -- -- --
------ ------- ------- ------ -----
Total distributions.................. (.24) (.51) (.53) (.55) (.04)
------ ------- ------- ------ -----
Net asset value, end of period.......... $ 10.65 $ 10.41 $ 10.11 $10.06 $ 9.91
------ ------- ------- ------ -----
------ ------- ------- ------ -----
TOTAL RETURN(b):........................ 4.68% 8.22% 5.79% 7.39% (0.05)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)......... $21,819 $18,820 $14,699 $8,326 $582
Average net assets (000)................ $20,288 $17,565 $12,570 $4,699 $118
Ratios to average net assets:
Expenses, including distribution
fees.............................. 1.18%(d) .97%(a) .77%(a) .67%(a) .70%( d)
Expenses, excluding distribution
fees.............................. .68%(d) .47%(a) .27%(a) .17%(a) .20%( d)
Net investment income................ 4.56%(d) 4.92%(a) 5.16%(a) 5.56%(a) 6.21%( d)
</TABLE>
- ---------------
(a) Net of expense subsidy and fee waiver.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(c) Commencement of offering of Class B shares.
(d) Annualized.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 12
<PAGE>
PRUDENTIAL MUNICIPAL SERIES FUND
Financial Highlights (Unaudited) FLORIDA SERIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C
--------------------------------------------------------------------------
July 26,
Six Months 1993(d)
Ended Year Ended August 31, through
February 28, ------------------------------------------ August 31,
1998 1997 1996 1995 1994 1993
------------ ------- ------ ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $ 10.41 $ 10.11 $10.06 $ 9.91 $ 10.87 $ 10.58
------ ------- ------ ------- ------- ----------
Income from investment operations
Net investment income................... .23 .48(a) .50(a) .53(a) .48(a) .03(a)
Net realized and unrealized gain (loss)
on investment transactions........... .24 .31 .05 .15 (.76) .29
------ ------- ------ ------- ------- ----------
Total from investment operations..... .47 .79 .55 .68 (.28) .32
------ ------- ------ ------- ------- ----------
Less distributions
Dividends from net investment income.... (.23) (.48) (.50) (.53) (.48) (.03)
Distributions in excess of net
investment income.................... -- (.01) -- -- -- --
Distributions from net realized gains... -- -- -- -- (.20) --
------ ------- ------ ------- ------- ----------
Total distributions.................. (.23) (.49) (.50) (.53) (.68) (.03)
------ ------- ------ ------- ------- ----------
Net asset value, end of period.......... $ 10.65 $ 10.41 $10.11 $ 10.06 $ 9.91 $ 10.87
------ ------- ------ ------- ------- ----------
------ ------- ------ ------- ------- ----------
TOTAL RETURN(b):........................ 4.54% 7.95% 5.52% 7.12% (2.40)% 3.14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)......... $7,581 $7,336 $7,792 $9,028 $11,185 $3,132
Average net assets (000)................ $7,272 $7,575 $8,293 $10,265 $9,280 $1,038
Ratios to average net assets:
Expenses, including distribution
fees.............................. 1.43%(c) 1.22%(a) 1.02%(a) .92%(a) .95%(a) .95%(a)(c)
Expenses, excluding distribution
fees.............................. .68%(c) .47%(a) .27%(a) .17%(a) .20%(a) .20%(a)(c)
Net investment income................ 4.31%(c) 4.67%(a) 4.91%(a) 5.35%(a) 4.99%(a) 5.19%(a)(c)
<CAPTION>
Class Z
-----------------------------
December 6,
Six Months 1996(e)
Ended through
February 28, August 31,
1998 1997
------------ ------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $ 10.41 $ 10.36
------ ------
Income from investment operations
Net investment income................... .26 .41(a)
Net realized and unrealized gain (loss)
on investment transactions........... .24 (.06)
------ ------
Total from investment operations..... .50 .47
------ ------
Less distributions
Dividends from net investment income.... (.26) (.41)
Distributions in excess of net
investment income.................... -- (.01)
Distributions from net realized gains... -- --
------ ------
Total distributions.................. (.26) (.42)
------ ------
Net asset value, end of period.......... $ 10.65 $ 10.41
------ ------
------ ------
TOTAL RETURN(b):........................ 4.94% 4.57%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)......... $441 $94
Average net assets (000)................ $378 $36
Ratios to average net assets:
Expenses, including distribution
fees.............................. .68%(c) .47%( )
Expenses, excluding distribution
fees.............................. .68%(c) .47%(
Net investment income................ 5.07%(c) 5.48%( )
</TABLE>
- ---------------
(a) Net of expense subsidy and fee waiver.
(b) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(c) Annualized.
(d) Commencement of offering of Class C shares. Prior to August 1, 1994, Class C
shares were called Class D shares.
(e) Commencement of offering of Class Z shares.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 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
performance is not indicative of future results.
Portfolio Manager's Report
The portfolio manager who invests your money for you reports
onsuccessful -- 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: One 1/100th of 1%. For example, one half of
one percentage point is 50 basis points.
Call Option: A contract giving the holder a right to buy
stocks or bonds at a predetermined price (called the strike
price) before a predetermined expiration date. A buyer of a
call option generally expects to benefit from a rise in the
price of the stock or bond.
Capital Gain/Capital Loss: The difference between the cost
of a capital asset (for example, a stock, bond or mutual
fund share) and its selling price. Under current law the
federal income tax rate for individuals on a long-term
capital gain is up to 28%.
Collateralized Mortgage Obligations (CMOs): Pools of
mortgage-backed securities sliced in maturity ranges
that bear differing interest rates. These instruments
are sensitive to changes in interest rates and homeowner
refinancing activity. They are
subject to prepayment and maturity extension risk.
Derivatives: Securities that derive their value from another
security. The rate of return of these financial products
rises and falls -- sometimes very suddenly -- in response
to changes in some specific interest rate, currency, stock
or other variable.
Discount Rate: The interest rate charged by the Federal
Reserve on loans to banks and other depository institutions.
Federal Funds Rate: The interest rate charged by one bank
to another on overnight loans.
Futures Contract: An agreement to deliver a specific amount
of a commodity or financial instrument at a set price at a
stipulated time in the future.
Leverage: The use of borrowed assets to enhance return on
equity. The expectation is that the interest rate charged
will be lower than the return on the investment. While
leverage can increase profits, it can also magnify losses.
Liquidity: The ease with which a financial instrument
(or mutual fund) can be bought or sold (converted into
cash) in the financial markets.
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 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; most often
used to describe the difference between prices bid
and asked for a security.
Yankee Bond: A bond denominated in U.S. dollars but
sold by a foreign company or government in the U.S. market.
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Trustees
Edward D. Beach
Eugene C. Dorsey
Delayne Dedrick Gold
Robert F. Gunia
Harry A. Jacobs, Jr.
Mendel A. Melzer, CFA
Thomas T. Mooney
Thomas H. O'Brien
Richard A. Redeker
Nancy H. Teeters
Louis A. Weil, III
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Deborah A. Docs, Assistant Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07102-3777
Distributor
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, NY 10022
The views expressed in this report and information about
the Series' portfolio holdings are for the period covered
by this report and are subject to change thereafter.
The accompanying financial statements as of February 28,
1998 were not audited and, accordingly, no opinion is
expressed on them.
This report is not authorized for distribution to prospective
investors unless preceded or accompanied by a current prospectus.
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
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