-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Uv5FoDggzQJMGsl93+45CITew3tPh0xFI3DKNNa1ie0ztQkpMqOcRRJ44dpECSY5 Ms59YyIBQkGyblBv4jJASw== 0000898733-02-000522.txt : 20020822 0000898733-02-000522.hdr.sgml : 20020822 20020821175124 ACCESSION NUMBER: 0000898733-02-000522 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020822 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRUDENTIAL NATIONAL MUNICIPALS FUND INC CENTRAL INDEX KEY: 0000314612 IRS NUMBER: 133021492 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-02992 FILM NUMBER: 02745181 BUSINESS ADDRESS: STREET 1: 199 WATER ST CITY: NEW YORK STATE: NY ZIP: 10292 BUSINESS PHONE: 2122142189 MAIL ADDRESS: STREET 1: ONE SEAPORT PLZ STREET 2: ONE SEAPORT PLZ CITY: NEW YORK STATE: NY ZIP: 10292 FORMER COMPANY: FORMER CONFORMED NAME: CHANCELLOR HIGH YIELD MUNICIPALS INC DATE OF NAME CHANGE: 19830516 FORMER COMPANY: FORMER CONFORMED NAME: PRUDENTIAL BACHE HIGH YIELD MUNICIPALS INC DATE OF NAME CHANGE: 19870507 FORMER COMPANY: FORMER CONFORMED NAME: PRUDENTIAL BACHE NATIONAL MUNICIPALS FUND INC DATE OF NAME CHANGE: 19920602 N-30D 1 mf15651.txt PRUDENTIAL NATIONAL MUNICIPALS FUND, INC. -- JUNE 30, 2002 SEMIANNUAL REPORT SEMIANNUAL REPORT JUNE 30, 2002 PRUDENTIAL National Municipals Fund, Inc. FUND TYPE Municipal bond OBJECTIVE High level of current income exempt from federal income taxes This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus. The views expressed in this report and information about the Fund's portfolio holdings are for the period covered by this report and are subject to change thereafter. Prudential Financial is a service mark of The Prudential Insurance Company of America, Newark, NJ, and its affiliates. (Logo) Prudential Financial Prudential National Municipals Fund, Inc. Performance at a Glance INVESTMENT GOALS AND STYLE The Prudential National Municipals Fund, Inc. (the Fund) seeks a high level of current income exempt from federal income taxes. The Fund's portfolio consists primarily of long-term municipal bonds of medium quality, which offer a high level of current income that is exempt from federal income taxes. These bonds are varied among the states, maturities, and types of activity they support. There can be no assurance that the Fund will achieve its investment objective. Credit Quality Expressed as a percentage of total investments as of 6/30/02 7.2% AAA 46.5 AAA Insured 12.7 AA 6.7 A 15.2 BBB 0.8 BB 0.8 B 0.2 CCC and below 6.1 Cash Equivalents 3.8 Not Rated* (Prudential ratings used) Breakout*: 1.3 AAA 2.2 BBB 0.3 B * Unrated bonds are believed to be of comparable quality to rated investments. Ten Largest Issuers Expressed as a percentage of net assets as of 6/30/02 4.0% DE St. Econ. Dev. Auth. Rev. 3.9 IL Metropolitan Pier & Expo. Auth. 3.2 MA St. Hlth. & Edl. Facs. Auth. Rev. 2.2 SC Pub. Svc. Auth. Rev. 2.1 PR Tel. Auth. Rev. 2.0 OH St. Wtr. Dev. Auth. Poll. Ctrl. Facs. 1.9 CO Housing Fin. Auth. 1.8 WA King County 1.7 ND Mercer Cnty. Poll. Ctrl. Rev. 1.7 TX San Benito Cons. Indpt. Sch. Dist. Holdings are subject to change. Portfolio Composition Expressed as a percentage of total investments as of 6/30/02 23.9% General Obligation Bonds 14.4 Utilities 13.2 Prerefunded 12.8 Healthcare 10.1 Industrial Development 8.7 Other Revenue 7.5 Transportation 3.3 Miscellaneous 6.1 Cash Equivalents www.prudential.com (800) 225-1852 Semiannual Report June 30, 2002 Cumulative Total Returns(1) As of 6/30/02
Since Six Months One Year Five Years Ten Years Inception(2) Class A 4.10% 5.31% 30.31% 77.73% (77.50) 124.34% (124.05) Class B 3.97 5.06 28.40 71.88 (71.66) 434.88 (434.20) Class C 3.84 4.80 26.83 N/A 50.55 (50.36) Class Z 4.23 5.64 N/A N/A 16.30 Lipper General Muni Debt Funds Avg.(3) 4.22 5.75 27.78 76.50 *** Lehman Brothers Municipal Bond Index(4) 4.64 6.92 35.56 90.99 ****
Average Annual Total Returns(1) As of 6/30/02 One Year Five Years Ten Years Since Inception(2) Class A 2.16% 4.80% 5.60% (5.58) 6.45% (6.44) Class B 0.09 4.96 5.57 (5.55) 7.85 Class C 2.77 4.66 N/A 5.17 (5.15) Class Z 5.64 N/A N/A 4.50 Distributions and Yields As of 6/30/02 Taxable Equivalent 30-Day Total Distributions 30-Day Yield(5) at Tax Rates of Paid for Six Months SEC Yield 35% 38.6% Class A $0.43 3.90% 6.00% 6.35% Class B $0.41 3.78 5.82 6.16 Class C $0.39 3.49 5.37 5.68 Class Z $0.45 4.28 6.58 6.97 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 LLC 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 Fund charges a maximum front-end sales charge of 3% for Class A shares. Class B shares are subject to a declining contingent deferred sales charge (CDSC) of 5%, 4%, 3%, 2%, 1%, and 1% respectively for the first six years. Approximately seven years after purchase, Class B shares will automatically convert to Class A shares on a quarterly basis. Class C shares are subject to a front-end sales charge of 1% and a CDSC of 1% for shares redeemed within 18 months of purchase. Class Z shares are not subject to a sales charge or distribution and service (12b-1) fees. Without waiver of fees and/or expense subsidization, the Fund's cumulative and average annual total returns would have been lower, as indicated in parentheses. The cumulative and average annual total returns in the tables above do not reflect the deduction of taxes that a shareholder would pay on fund distributions or following the redemption of fund shares. (2)Inception dates: Class A, 1/22/90; Class B, 4/25/80; Class C, 8/1/94; and Class Z 1/22/99. (3)The Lipper Average is unmanaged, and is based on the average return for all funds in each share class for the six-month, one-year, five-year, ten-year, and since inception periods in the Lipper General Municipal Debt Funds category. Funds in the Lipper General Municipal Debt Funds Average invest at least 65% of their assets in municipal debt issues in the top four credit ratings. (4)The Lehman Brothers Municipal Bond Index is an unmanaged index of over 39,000 long-term investment-grade municipal bonds which gives a broad look at how long- term investment-grade municipal bonds have performed. (5)Some investors may be subject to the federal alternative minimum tax (AMT) and/or state and local taxes. Taxable equivalent yields reflect federal taxes only. Investors cannot invest directly in an index. The returns for the Lipper Average and Lehman Brothers Municipal Bond Index would be lower if they included the effect of sales charges or taxes. *** Lipper Since Inception returns are 122.19% for Class A, 485.01% for Class B, 54.48% for Class C, and 13.35% for Class Z, based on all funds in each share class. ****Lehman Brothers Muni Bond Index Since Inception returns are 140.34% for Class A, 496.53% for Class B, 67.24% for Class C, and 18.91% for Class Z. 1 (Logo) Prudential Financial August 15, 2002 DEAR SHAREHOLDER, The reporting period for Prudential National Municipals Fund, Inc.-the six months ended June 30, 2002-was a time of significant change in the U.S. economy and the financial markets. The economy grew rapidly as it emerged from its first recession in a decade, helped by 11 cuts in short-term interest rates that had been completed by the Federal Reserve (the Fed) in the previous year. The Fed left short-term rates near record lows as the economic recovery slowed and accounting scandals involving high-profile firms in the United States roiled financial markets. Municipal bonds, however, came through the fray relatively unscathed. In this environment characterized by investor pessimism and distrust, demand increased for high-quality debt securities, including investment-grade municipal bonds, but declined for riskier assets such as stocks. This flight-to-quality trend affected the Fund. During our reporting period, the Fund's shares gained in value, but returned less than the Lehman Brothers Municipal Bond Index (the Index). Total return on the Fund's Class A shares also lagged the average return of their peers, as represented by the Lipper General Municipal Debt Funds Average. The Fund's management team explains conditions in the tax-exempt bond market and the Fund's investments on the following pages. Thank you for your continued confidence in Prudential mutual funds. Sincerely, David R. Odenath, Jr., President Prudential National Municipals Fund, Inc. 2 Prudential National Municipals Fund, Inc. Semiannual Report June 30, 2002 INVESTMENT ADVISER'S REPORT FLIGHT TO QUALITY BENEFITED MUNICIPAL BOND MARKET The investment environment for municipal bonds grew more favorable during our fiscal half year that began January 1, 2002. Demand for them increased as changing economic conditions in the United States led to a shift in the outlook for monetary policy and investors fled from a bear market in stocks. The economy began to recover from a recession in early 2002 after the Fed repeatedly lowered short-term interest rates in the previous year. Improving economic conditions lent credence to the view that central bankers might soon begin to tighten monetary policy to take back some of their rate cuts and to prevent the economy from growing too rapidly and boosting inflationary pressures. Expectations of higher short-term rates weighed on the municipal bond market during the first quarter of 2002 because bond prices move inversely to interest rates. As the year progressed, the economic recovery weakened and inflation remained tame. This development led to the conclusion that the Fed would not raise short-term rates in the first half of 2002, and might hold off altogether until early 2003. Because of the change in the outlook for monetary policy, interest rates began to fall, driving municipal bond prices higher. Tax-exempt issues also rallied as accounting scandals at certain U.S. firms sent investors seeking refuge in U.S. Treasuries, high-grade municipal bonds, and other conservative assets. Investor demand was so strong that a large supply of newly issued debt securities was easily absorbed into the municipal bond market in the first half of 2002. OUR COUPON BARBELL STRATEGY Because we expected a recovering economy to hurt municipal bond prices, we structured the Fund to behave defensively-limit price declines-if municipal bonds sold off. We also wanted the Fund to benefit as much as possible if municipal bond prices rose. We aimed to achieve this balance by employing a barbell strategy utilizing different municipal bond coupon rates. 3 Prudential National Municipals Fund, Inc. Semiannual Report June 30, 2002 One side of our barbell emphasized bonds with high coupon rates in the 15-year sector that we believed offered the best risk/reward profile in the municipal bond market at that time. That is, bonds in the 15-year sector yielded nearly as much as 30-year tax-exempt securities, but their prices were expected to decline less than those of long-term bonds if interest rates rose. The other side of our barbell emphasized AAA-rated, long-term zero coupon bonds that provided potential for strong price appreciation. Zero coupon bonds are so named because they pay no interest income and are sold at deeply discounted prices to compensate for their lack of periodic interest payments. They are the most interest-rate sensitive of all bonds, and perform better than other debt issues when falling rates push bond prices higher. RECALIBRATING OUR COUPON BARBELL During the first quarter of 2002, we adjusted our coupon barbell. We sold some zero coupon bonds and reinvested the proceeds in additional high coupon bonds when it seemed that the strong economic recovery would prompt the Fed to hike short-term rates. As it turned out, reducing interest-rate sensitivity by selling zero coupon bonds was the key factor that hurt the Fund's performance relative to the Index and its Lipper Average during our reporting period. The Fund would have been better served had we increased its exposure to zero coupon bonds because their prices climbed strongly in the spring of 2002 when expectations for tighter monetary policy faded because the economy cooled. In fact, zero coupon bonds outperformed other sectors of the tax-exempt market during our reporting period, according to the Lehman Brothers indexes. This is not to say that high coupon bonds in the 15-year range performed poorly, as they solidly outperformed longer-term bonds during our reporting period. Our decision to focus on the 15-year range rather than longer-term bonds was a key contributor to the Fund's absolute performance during our reporting period. 4 www.prudential.com (800) 225-1852 EXPOSURE TO HOSPITAL BONDS HELPED THE FUND... Turning to municipal bonds backed by revenues, the Fund benefited from its exposure to healthcare bonds that accounted for nearly 13% of its total investments as of June 30, 2002. Healthcare bonds continued to perform well as some hospitals experienced increased profitability, diversification of earnings, and other improving business fundamentals. We tend to favor hospitals with positive characteristics such as those that are sole providers in their communities or those with less dependency on government reimbursements. ....BUT HOUSING BONDS HURT FUND PERFORMANCE Housing bonds were a slight drag on the Fund's relative performance during our reporting period as the sector posted a very modest return. Concern that falling mortgage rates would lead to higher prepayments on single-family housing bonds left investors reluctant to pay sharply higher prices for the bonds. LOOKING AHEAD Data released after our reporting period ended showed that economic growth slowed more than was originally expected in the second quarter of 2002. Not surprisingly, there is concern that the economy may be headed for an extended period of sluggishness, with the remote possibility of a "double dip" recession. This leads us to believe the Fed will likely leave monetary policy unchanged for the remainder of 2002. However, some market participants have suggested the Fed may cut short-term rates this year if economic growth continues to weaken. We believe the expectation for lower rates is already priced into the municipal bond market. Consequently, we expect the majority of the Fund's total return will be derived from interest income since tax- exempt bond prices are unlikely to continue gaining sharply during the remainder of the year. With this in mind, we plan to focus on preservation of principal in coming months. Prudential National Municipals Fund Management Team 5 Prudential National Municipals Fund, Inc. Portfolio of Investments as of June 30, 2002 (Unaudited)
Principal Moody's Interest Maturity Amount Value Description (a) Rating Rate Date (000) (Note 1) - --------------------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS 92.5% - --------------------------------------------------------------------------------------------------------- Alaska 1.0% Alaska St. Hsg. Fin. Corp. Rev., First Ser. Veterans Mtge. Prog., G.N.M.A., F.N.M.A Aaa 5.875% 12/01/35 $ 3,475 $ 3,521,739 Northern Tobacco Securitization Corp. Rev., Asset Bkd. Bonds Aa3 6.50 6/01/31 3,000 3,099,060 ------------- 6,620,799 - --------------------------------------------------------------------------------------------------------- Arizona 2.4% Arizona Hlth. Facs. Auth., Hosp. Sys. Rev. John C. Lincoln Hlth. Network BBB(d) 6.875 12/01/20 4,100 4,187,125 Arizona St. Mun. Fin. Proj., C.O.P., Ser. 25, B.I.G.I.C. Aaa 7.875 8/01/14 2,250 2,926,237 Pima Cnty. Ind. Dev. Auth. Rev., F.S.A. Aaa 7.25 7/15/10 1,505 1,578,294 Pima Cnty. Uni. Sch. Dist., G.O., F.G.I.C. Aaa 7.50 7/01/10 3,000(f) 3,737,910 Tucson Cnty., G.O., Ser. A Aa2 7.375 7/01/11 1,000 1,251,460 Ser. A Aa2 7.375 7/01/12 1,100 1,388,343 ------------- 15,069,369 - --------------------------------------------------------------------------------------------------------- California 3.6% Anaheim Pub. Fin. Auth. Lease Rev., Ser. 641A, F.S.A., R.I.T.E.S. NR 15.005(c) 9/01/16 2,210(g) 3,376,085 Ser. 641B, F.S.A., R.I.T.E.S. NR 15.005(c) 9/01/24 1,815(g) 2,602,855 California Poll. Ctrl Fin. Auth. Solid Waste Disp. Rev., Keller Canyon Landfill Co. Proj., A.M.T. B1 6.875 11/01/27 2,500 2,451,225 Encinitas Uni. Sch. Dist., G.O., M.B.I.A. Aaa Zero 8/01/21 3,810 1,347,216
6 See Notes to Financial Statements Prudential National Municipals Fund, Inc. Portfolio of Investments as of June 30, 2002 (Unaudited) Cont'd.
Principal Moody's Interest Maturity Amount Value Description (a) Rating Rate Date (000) (Note 1) - --------------------------------------------------------------------------------------------------------- Foothill / Eastern Corridor Agcy., Toll Rd. Rev., Ser. A Aaa Zero 1/01/23 $ 5,000(b) $ 1,653,200 Los Angeles Uni. Sch. Dist., Ser. A, F.G.I.C. Aaa 6.00% 7/01/15 1,000 1,168,030 Pittsburg Redev. Agcy. Tax Alloc., Los Medanos Comnty. Dev. Proj., A.M.B.A.C. Aaa Zero 8/01/25 2,000 551,180 Santa Margarita, Dana Point Auth., Impvt. Dists. 3, 4, Ser. B, M.B.I.A. Aaa 7.25 8/01/09 2,000 2,459,420 Impvt. Dists. 3, 4, Ser. B, M.B.I.A. Aaa 7.25 8/01/14 2,000 2,556,060 Impvt. Dists. 3, 4, Ser. B. M.B.I.A. Aaa 7.25 8/01/10 2,450 3,041,675 West Contra Costa Sch. Dist., C.O.P., Rfdg. Baa3 7.125 1/01/24 1,600 1,682,176 ------------- 22,889,122 - --------------------------------------------------------------------------------------------------------- Colorado 6.5% Arapahoe Cnty. Cap. Impvt. Trust Fund, Hwy. Rev., Ser. E-470 Aaa 7.00 8/31/26 3,000(b) 3,488,250 Boulder Cnty. Sales & Use Tax Rev., Ser. A, F.G.I.C. Aaa 6.00 12/15/17 3,970 4,409,717 Colorado Hsg. Fin. Auth., Sngl. Fam. Proj., Ser. A, A.M.T. Aa2 8.00 6/01/25 800 829,224 Ser. A-2, A.M.T. Aa2 7.25 5/01/27 924 981,824 Ser. A-2, A.M.T. Aa2 6.875 11/01/28 1,915 1,977,486 Ser. B-1, A.M.T. Aa2 7.90 12/01/25 570 594,350 Ser. C-1, A.M.T., M.B.I.A. Aaa 7.65 12/01/25 1,425 1,490,978 Ser. C-2, A.M.T., F.H.A. Aa2 5.90 8/01/23 2,525 2,701,397 Ser. C-2, A.M.T., F.H.A. Aa2 7.05 4/01/31 3,385 3,757,587 Colorado Springs Arpt. Rev., Ser. A., A.M.T. BBB+(d) 7.00 1/01/22 7,960(f) 8,230,879
See Notes to Financial Statements 7 Prudential National Municipals Fund, Inc. Portfolio of Investments as of June 30, 2002 (Unaudited) Cont'd.
Principal Moody's Interest Maturity Amount Value Description (a) Rating Rate Date (000) (Note 1) - --------------------------------------------------------------------------------------------------------- Denver Hlth. & Hosp. Auth., Hlth. Care Rev., Ser. A Baa2 6.00% 12/01/31 $ 2,180 $ 2,186,257 E-470 Hwy. Auth. Rev., C.A.B.S., Ser. B, M.B.I.A. Aaa Zero 9/01/17 6,490 2,995,654 E-470 Pub. Hwy. Auth. Rev., C.A.B.S., Sr. Ser. B, M.B.I.A. Aaa Zero 9/01/28 12,000 2,407,080 Silver Dollar Metro. Dist., G.O. NR 7.05 12/01/30 5,000 5,071,400 ------------- 41,122,083 - --------------------------------------------------------------------------------------------------------- Connecticut 1.1% Connecticut St. Hlth. & Edl. Facs. Auth. Rev., Univ. of Hartford, Ser. D Baa3 6.75 7/01/12 5,725 5,841,904 Connecticut St. Spec. Tax Oblig. Rev., Trans. Infrastructure, Ser. A. Aa3 7.125 6/01/10 1,000(b) 1,207,620 ------------- 7,049,524 - --------------------------------------------------------------------------------------------------------- Delaware 1.0% Delaware St. Econ. Dev. Auth. Rev., Rfdg., Poll. Ctrl., Delmarva Proj., Ser. B, A.M.B.A.C. Aaa 5.20 2/01/19 6,250 6,383,187 - --------------------------------------------------------------------------------------------------------- Florida 2.9% Broward Cnty. Resource Recov. Rev. Rfdg., Wheelabrator, Ser. A A3 5.50 12/01/08 5,000 5,383,250 Escambia Cnty. Poll. Ctrl. Rev., Champion Int'l. Corp. Proj., A.M.T. Baa2 6.40 9/01/30 3,000 3,045,420 Florida St. Brd. of Ed., G.O. Aa2 9.125 6/01/14 1,260 1,737,200 Hillsborough Cnty. Ind. Dev. Auth. Poll. Ctrl. Rev., Tampa Elec. Proj. A1 8.00 5/01/22 5,000 5,162,700 Orange Cnty. Hlth. Facs Auth. Rev., Adventist Hlth. Sys. A3 6.375 11/15/20 2,000 2,114,020
8 See Notes to Financial Statements Prudential National Municipals Fund, Inc. Portfolio of Investments as of June 30, 2002 (Unaudited) Cont'd.
Principal Moody's Interest Maturity Amount Value Description (a) Rating Rate Date (000) (Note 1) - --------------------------------------------------------------------------------------------------------- Tallahasse Hlth. Facs. Rev., Tallahasse Mem. Hlth. Care Proj. Baa1 6.25% 12/01/20 $ 1,000 $ 1,034,450 ------------- 18,477,040 - --------------------------------------------------------------------------------------------------------- Georgia 1.2% Burke Cnty. Dev. Auth., Poll. Ctrl. Rev., Oglethorpe Pwr. Co., Rfdg., E.T.M., M.B.I.A. Aaa 7.50 1/01/03 202 208,115 Forsyth Cnty. Sch. Dist. Dev. Rev. Aa2 6.75 7/01/16 500 612,080 Fulton Cnty. Sch. Dist. Rev. Aa2 6.375 5/01/17 750 896,482 Georgia Mun. Elec. Auth. Pwr. Rev., Ser. B, M.B.I.A. Aaa 6.375 1/01/16 5,000 5,935,650 Green Cnty. Dev. Auth. Ind. Park Rev. NR 6.875 2/01/04 170 178,194 ------------- 7,830,521 - --------------------------------------------------------------------------------------------------------- Guam 0.5% Guam Pwr. Auth. Rev., Ser. A AAA(d) 6.625 10/01/14 1,000 1,124,760 Ser. A AAA(d) 6.75 10/01/24 2,000 2,255,040 ------------- 3,379,800 - --------------------------------------------------------------------------------------------------------- Hawaii 0.1% Hawaii St. Dept. Budget & Fin. Spec. Purp. Mtge. Rev., Elec. Co., Ser. C., A.M.T., M.B.I.A. Aaa 7.375 12/01/20 90 91,728 Hawaii St. Harbor Cap. Impvt. Rev., A.M.T., F.G.I.C. Aaa 6.25 7/01/15 500 540,145 ------------- 631,873 - --------------------------------------------------------------------------------------------------------- Illinois 9.4% Chicago Brd. of Ed., C.A.B.S., G.O., Ser. A Aaa Zero 12/01/29 10,000 2,066,900 Ser. B-1, F.G.I.C. Aaa Zero 12/01/19 2,000 786,560
See Notes to Financial Statements 9 Prudential National Municipals Fund, Inc. Portfolio of Investments as of June 30, 2002 (Unaudited) Cont'd.
Principal Moody's Interest Maturity Amount Value Description (a) Rating Rate Date (000) (Note 1) - --------------------------------------------------------------------------------------------------------- Chicago C.A.B.S., City Colleges, G.O., F.G.I.C. Aaa Zero 1/01/24 $ 5,000 $ 1,483,400 F.G.I.C. Aaa Zero 1/01/25 5,000 1,395,800 Ser. A, F.G.I.C. Aaa 6.75% 1/01/35 5,000 6,043,350 Chicago Sngl. Fam. Mtge. Rev., Ser. A, A.M.T., F.N.M.A., G.N.M.A. AAA(d) 7.15 9/01/31 2,545 2,867,909 Chicago Wastewater Transmission Rev., Ser. A, C.A.B.S. Rfdg., M.B.I.A. Aaa Zero 1/01/23 5,670 1,800,282 Cook & Du Page Cntys., H.S. Dist. No. 210, G.O., F.S.A. Aaa Zero 12/01/11 3,035 1,993,449 Gilberts Spec. Svc. Area No. 9 Spec. Tax., Big Timber Proj. NR 7.75 3/01/27 2,000 2,083,680 Illinois Edl. Facs. Auth. Student Hsg. Rev., Edl. Advancement Fd., Univ. Ctr. Proj. Baa2 6.00 5/01/22 1,500 1,474,260 Illinois Hlth. Facs. Auth. Rev., Reg. YCNS, M.B.I.A. Aaa 9.77(c) 8/15/14 5,000 5,496,900 Metropolitan Pier & Expo. Auth., Dedicated St. Tax Rev., McCormick Pl., Ser. A, C.A.B.S., M.B.I.A. Aaa Zero 12/15/25 10,000 2,614,400 McCormick Pl. Conv., E.T.M. Aaa 7.00 7/01/26 12,910(b) 16,304,943 McCormick Proj., Ser. A, C.A.B.S., M.B.I.A. Aaa Zero 6/15/24 9,000 2,602,260 McCormick Proj., C.A.B.S., M.B.I.A. Aaa Zero 6/15/28 15,000 3,397,650 University Illinois Rev. Auxiliary Facs. Sys., Ser. A, M.B.I.A. Aaa 6.00 4/01/30 6,000 6,928,560 ------------- 59,340,303
10 See Notes to Financial Statements Prudential National Municipals Fund, Inc. Portfolio of Investments as of June 30, 2002 (Unaudited) Cont'd.
Principal Moody's Interest Maturity Amount Value Description (a) Rating Rate Date (000) (Note 1) - --------------------------------------------------------------------------------------------------------- Indiana 0.3% Gary Mtge. Rev., Lakeshore Dunes Apts., Ser. A, G.N.M.A. AAA(d) 6.00% 8/20/34 $ 2,000 $ 2,024,920 - --------------------------------------------------------------------------------------------------------- Kansas 0.6% Kansas St. Dev. Fin. Auth. Rev., Wtr. Poll. Ctrl. Aa1 6.00 11/01/14 3,000 3,465,540 - --------------------------------------------------------------------------------------------------------- Kentucky 1.4% Henderson Cnty. Solid Waste Disp. Rev., Macmillan Bloedel Proj., A.M.T. Baa2 7.00 3/01/25 6,000 6,240,780 Kentucky Econ. Dev. Fin. Auth., Norton Hlth. Care, Ser. A NR 6.50 10/01/20 2,500 2,545,750 ------------- 8,786,530 - --------------------------------------------------------------------------------------------------------- Louisiana 1.1% Orleans Parish Sch. Brd., E.T.M., M.B.I.A. Aaa 8.90 2/01/07 5,780(b) 7,188,239 - --------------------------------------------------------------------------------------------------------- Maryland 2.0% Baltimore, Econ. Dev. Lease Rev., Armistead Partnership, Ser. A A(d) 7.00 8/01/11 1,000 1,033,390 Maryland St. Hlth. & Higher Edl. Facs. Auth. Rev., Univ. Maryland Med. Sys. Baa1 6.75 7/01/30 5,000 5,405,850 Maryland St. Ind. Dev. Fin. Auth. Rev., Amer. Ctr. Physics Headqrtrs. A(d) 6.625 1/01/17 1,000 1,045,600 Northeast Waste Disp. Auth. Rev., Baltimore City Sludge Corp. Proj. NR 7.25 7/01/07 3,050 3,125,914 Montgomery Cnty. Res. Rec. Proj., Ser. A A2 6.00 7/01/07 1,000 1,104,750
See Notes to Financial Statements 11 Prudential National Municipals Fund, Inc. Portfolio of Investments as of June 30, 2002 (Unaudited) Cont'd.
Principal Moody's Interest Maturity Amount Value Description (a) Rating Rate Date (000) (Note 1) - --------------------------------------------------------------------------------------------------------- Takoma Park Hosp. Facs. Rev., Washington Adventist Hosp., F.S.A. Aaa 6.50% 9/01/12 $ 1,000 $ 1,192,440 ------------- 12,907,944 - --------------------------------------------------------------------------------------------------------- Massachusetts 4.8% Boston Ind. Dev. Fin. Auth., Swr. Fac. Rev., Harbor Elec. Engy. Co. Proj., A.M.T. Aa3 7.375 5/15/15 1,500 1,521,330 Brockton, G.O. Aa3 6.125 6/15/18 1,030 1,095,518 Mass. St. Coll. Bldg. Auth. Proj. Rev., Ser. A, M.B.I.A. Aaa Zero 5/01/22 2,250 787,748 Mass. St. Dev. Fin. Agcy. Rev., Concord Assabet Fam. Svcs. Caa3 6.00 11/01/28 640 451,430 Mass. St. G.O., Ser. A, A.M.B.A.C. Aaa 5.00 7/01/12 1,000 1,075,830 Ser. C, F.G.I.C. Aaa 6.00 8/01/09 1,250 1,431,200 Mass. St. Hlth. & Edl. Facs. Auth. Rev., Beth Israel Hosp., A.M.B.A.C. Aaa 10.216(c) 7/01/25 1,500 1,564,050 Caritas Christi Oblig., Ser. B Baa2 6.75 7/01/16 3,590 3,798,687 Caritas Christi Oblig., Ser. B Baa2 6.25 7/01/22 1,750 1,755,372 Dana Farber Cancer Proj., Ser. G-1 A1 6.25 12/01/22 625 644,631 Faulkner Hosp., Ser. C Baa1 6.00 7/01/23 1,500 1,593,075 Harvard Univ., Ser. W Aaa 6.00 7/01/35 500(b) 579,785 Holyoke Hosp., Ser. B Baa3 6.50 7/01/15 550 540,777 Jordan Hosp., Ser. C BBB+(d) 6.875 10/01/22 1,350 1,395,468 Simmons Coll., Ser. D, A.M.B.A.C. Aaa 6.05 10/01/20 1,000 1,101,420 Univ. Mass. Proj., Ser. A, F.G.I.C. Aaa 5.875 10/01/29 500 533,975 Valley Reg. Hlth. Sys., Ser. C AAA(d) 7.00 7/01/10 825 984,431 Winchester Hosp., Ser. D AAA(d) 5.75 7/01/24 1,000 1,020,750 Youville Hosp., Ser. B, F.H.A. Aa2 6.00 2/15/34 4,195 4,545,409
12 See Notes to Financial Statements Prudential National Municipals Fund, Inc. Portfolio of Investments as of June 30, 2002 (Unaudited) Cont'd.
Principal Moody's Interest Maturity Amount Value Description (a) Rating Rate Date (000) (Note 1) - --------------------------------------------------------------------------------------------------------- Mass. St. Ind. Fin. Agcy. Bradford Coll. D(d) 5.625% 11/01/28 $ 1,000(h) $ 610,000 Mass. St. Tpke. Auth. Metro. Hwy. Sys. Rev., C.A.B.S., Ser. A, M.B.I.A. Aaa Zero 1/01/28 2,000 499,280 Mass. St. Wtr. Poll. Abatement Trust Rev., Ser. A Aaa 6.375 2/01/15 80 86,196 Mass. St. Wtr. Res. Auth. Rev., Ser. B, M.B.I.A. Aaa 6.25 12/01/11 500 586,740 Ser. D, M.B.I.A. Aaa 6.00 8/01/13 500 579,125 Plymouth Cnty. Corr. Facs. Proj., C.O.P., Ser. A Aaa 7.00 4/01/22 500(b) 517,155 Rail Connections Inc. Rev., Rte. 128, Ser. B, A.C.A. Aaa Zero 7/01/21 2,500(b) 885,775 ------------- 30,185,157 - --------------------------------------------------------------------------------------------------------- Michigan 1.7% Detroit Sewage Disp. Rev., Inflos, F.G.I.C. Aaa 9.798(c) 7/01/23 200 218,392 Inflos, F.G.I.C. Aaa 9.798(c) 7/01/23 800(b) 897,520 Detroit Wtr. Sup. Sys. Rev., Ser. B, M.B.I.A. Aaa 5.55 7/01/12 1,000 1,117,180 Dickinson Cnty. Mem. Hosp. Sys. Rev. Baa3 8.00 11/01/14 1,000 1,148,200 Michigan Mun. Brd. Auth. Rev., Wayne Cnty. Proj., Grp. 12B E.T.M., M.B.I.A. Aaa 7.40 12/01/02 175 179,377 Michigan St. Hosp. Fin. Auth. Rev., Genesys Hlth. Sys., Ser. A AAA(d) 8.125 10/01/21 1,000 1,190,210 Genesys Hlth. Sys., Ser. A AAA(d) 7.50 10/01/27 500 576,460 Michigan St. Strategic Fd., Ltd. Oblig. Rev., Waste Mgmt. Inc. Proj., A.M.T. Ba1 6.625 12/01/12 1,500 1,530,930
See Notes to Financial Statements 13 Prudential National Municipals Fund, Inc. Portfolio of Investments as of June 30, 2002 (Unaudited) Cont'd.
Principal Moody's Interest Maturity Amount Value Description (a) Rating Rate Date (000) (Note 1) - --------------------------------------------------------------------------------------------------------- Okemos Pub. Sch. Dist., M.B.I.A. Aaa Zero 5/01/12 $ 1,100 $ 707,157 M.B.I.A. Aaa Zero 5/01/13 1,000 612,690 Wyandotte Elec. Rev., G.O., M.B.I.A. Aaa 6.25% 10/01/08 2,000 2,254,800 ------------- 10,432,916 - --------------------------------------------------------------------------------------------------------- Minnesota 2.6% Minneapolis Spec. Sch. Dist. No. 1, C.O.P., Ser. A, M.B.I.A. Aaa 5.90 2/01/17 5,000 5,529,600 Minnesota Agric. & Econ. Dev. Brd. Rev., Fairview Hlth. Care Sys., Ser. A A2 6.375 11/15/22 5,000 5,298,100 Minnesota Hsg. Fin. Agcy. Rev., Sngl. Fam. Mtge., Ser. I, A.M.T. Aa1 5.80 1/01/19 5,495 5,644,849 ------------- 16,472,549 - --------------------------------------------------------------------------------------------------------- Missouri 1.2% Missouri St. Hlth. & Edl. Facs. Auth., Rfdg., St. Anthony's Med. Ctr. A2 6.125 12/01/19 1,250 1,311,012 Missouri St. Hsg. Dev. Comn. Mtge. Rev., Sngl. Fam. Homeowner Ln., Ser. A, A.M.T., G.N.M.A. AAA(d) 7.20 9/01/26 2,350 2,480,190 St. Louis Arpt. Rev., Arpt. Dev. Prog., Ser. A, M.B.I.A. Aaa 5.625 7/01/19 3,500 3,711,785 ------------- 7,502,987 - --------------------------------------------------------------------------------------------------------- New Hampshire 1.0% Manchester Hsg. & Redev. Auth. Rev., C.A.B.S., Ser. B, A.C.A. Baa3 Zero 1/01/24 4,740 1,235,528 Ser. B, A.C.A. Baa3 Zero 1/01/27 4,140 888,237 Ser. B, A.C.A. Baa3 Zero 1/01/30 4,640 815,805
14 See Notes to Financial Statements Prudential National Municipals Fund, Inc. Portfolio of Investments as of June 30, 2002 (Unaudited) Cont'd.
Principal Moody's Interest Maturity Amount Value Description (a) Rating Rate Date (000) (Note 1) - --------------------------------------------------------------------------------------------------------- New Hampshire Higher Ed. & Hlth. Facs Auth. Rev., New Hampshire Coll. BBB-(d) 6.30% 1/01/16 $ 500 $ 505,300 New Hampshire Hlth. & Ed. Facs. Auth. Rev., Coll. Issue BBB-(d) 7.50 1/01/31 3,000 3,147,000 ------------- 6,591,870 - --------------------------------------------------------------------------------------------------------- New Jersey 2.5% New Jersey Econ. Dev. Auth. Rev., Rfdg. Kapkowski Rd. Landfill Proj. Baa3 6.50 4/01/28 5,500 5,918,275 New Jersey Econ. Dev. Auth. Spec. Fac. Rev., Continental Airlines Inc. Proj., A.M.T. B3 6.25 9/15/19 3,395 2,886,361 New Jersey Hlth. Care Facs. Fin. Auth. Rev. Rfdg., Atlantic City Med. Ctr. A3 6.25 7/01/17 2,175 2,358,505 St. Peter's Univ. Hosp., Ser. A Baa2 6.875 7/01/30 2,000 2,086,120 New Jersey Hlth. Care Facs. Fin. Auth. Rev., South Jersey Hosp. Baa1 6.00 7/01/26 1,565 1,561,040 South Jersey Hosp. Baa1 6.00 7/01/32 1,000 990,380 ------------- 15,800,681 - --------------------------------------------------------------------------------------------------------- New Mexico 0.7% New Mexico Mtge. Fin. Auth. Rev., Sngl. Fam. Mtge., Ser. C-2, G.N.M.A., F.N.M.A., A.M.T. AAA(d) 6.15 3/01/32 4,325 4,469,152 - --------------------------------------------------------------------------------------------------------- New York 4.9% Metropolitan Trans. Auth., Trans. Facs. Rev., Ser. A, F.S.A. Aaa 6.00 7/01/16 2,500 2,878,400 New York City Mun. Wtr. Fin. Auth., Wtr. & Swr. Sys. Rev., M.B.I.A. Aaa 8.76(c) 6/15/09 5,500 5,999,950
See Notes to Financial Statements 15 Prudential National Municipals Fund, Inc. Portfolio of Investments as of June 30, 2002 (Unaudited) Cont'd.
Principal Moody's Interest Maturity Amount Value Description (a) Rating Rate Date (000) (Note 1) - --------------------------------------------------------------------------------------------------------- New York City Transitional Future Tax, Ser. A Aa2 5.75% 2/15/17 $ 5,000 $ 5,448,700 New York City, G.O., Ser. A A2 7.75 8/15/04 15 15,289 Ser. B A2 8.25 6/01/06 1,500 1,766,235 Ser. B A2 7.25 8/15/07 3,500 4,071,305 Ser. D A2 8.00 8/01/03 70 70,919 Ser. D A2 8.00 8/01/04 30 30,394 Ser. D A2 7.65 2/01/07 45 45,892 Ser. F A2 8.25 11/15/02 405 414,712 New York St. Dorm. Auth. Rev., Sch. Dist. Fin. Prog., Ser. A, M.B.I.A. Aaa 5.75 10/01/17 3,000 3,299,160 New York St. Environ. Facs. Corp., Poll. Ctrl. Rev., Ser. C Aaa 5.80 1/15/14 1,280 1,371,443 New York St. Urban Dev. Corp., Rev. Rfdg., Corr. Facs., F.S.A. Aaa 6.50 1/01/09 3,000 3,463,170 Port Authority New York & New Jersey, Ser. 122, A.M.T. A1 5.50 7/15/11 2,000 2,143,120 ------------- 31,018,689 - --------------------------------------------------------------------------------------------------------- North Carolina 3.1% Charlotte Arpt. Rev., Ser. B, A.M.T., M.B.I.A. Aaa 6.00 7/01/24 1,000 1,061,320 Charlotte Storm Wtr. Fee Rev. Aa2 6.00 6/01/25 500 578,360 No. Carolina Eastern Mun. Pwr. Agcy., Pwr. Sys. Rev., A.M.B.A.C. Aaa 6.00 1/01/18 1,000 1,138,450 Pwr. Sys. Rev., Ser. A, E.T.M. Baa3 6.40 1/01/21 1,000 1,187,840 Pwr. Sys. Rev., Ser. A Aaa 6.00 1/01/26 650(b) 740,051 Pwr. Sys. Rev., Ser. A, E.T.M. Aaa 6.50 1/01/18 2,635 3,189,035 Pwr. Sys. Rev., Ser. A, M.B.I.A. Aaa 6.50 1/01/18 1,005 1,198,925
16 See Notes to Financial Statements Prudential National Municipals Fund, Inc. Portfolio of Investments as of June 30, 2002 (Unaudited) Cont'd.
Principal Moody's Interest Maturity Amount Value Description (a) Rating Rate Date (000) (Note 1) - --------------------------------------------------------------------------------------------------------- No. Carolina Hsg. Fin. Agcy., Home Ownership, Ser. 6A, A.M.T. Aa2 6.20% 1/01/29 $ 980 $ 1,016,564 No. Carolina Mun. Pwr. Agcy., No. 1 Catawba Elec. Rev., M.B.I.A. Aaa 6.00 1/01/10 1,250 1,413,362 No. 1 Catawba Elec. Rev., M.B.I.A. Aaa 5.60 1/01/20 4,000 4,059,480 No. 1 Catawba Elec. Rev., M.B.I.A. Aaa 9.02(c) 1/01/12 2,000 2,103,600 Piedmont Triad Arpt. Auth. Rev., Ser. B, A.M.T., F.S.A. Aaa 6.00 7/01/21 1,000 1,065,580 Pitt Cnty. Rev., Mem. Hosp., E.T.M. Aaa 5.25 12/01/21 1,000(b) 1,018,360 Winston Salem, Sngl. Fam. Mtge. Rev., A.M.T. A1 8.00 9/01/07 165 167,657 ------------- 19,938,584 - --------------------------------------------------------------------------------------------------------- North Dakota 1.7% Mercer Cnty Poll. Ctrl. Rev., Antelope Valley Station, A.M.B.A.C. Aaa 7.20 6/30/13 9,000 11,049,660 - --------------------------------------------------------------------------------------------------------- Ohio 6.9% Akron, G.O. A1 10.50 12/01/04 200 238,864 Brecksville Broadview Heights City Sch. Dist., F.G.I.C. Aaa 6.50 12/01/16 1,000 1,149,810 Cleveland Arpt. Sys. Rev., Ser. A, A.M.T, F.G.I.C. Aaa 6.25 1/01/20 3,500 3,687,495 Cleveland, G.O., M.B.I.A. Aaa 5.75 8/01/14 1,000 1,137,590 G.O., M.B.I.A. Aaa 5.75 8/01/15 1,000 1,136,430 Columbus Citation Hsg. Dev. Corp., Mtge. Rev. AA(d) 7.625 1/01/22 1,775 2,245,819 Cuyahoga Cnty. Hosp. Rev., Meridia Hlth. Sys. A1 6.25 8/15/24 1,500 1,694,025
See Notes to Financial Statements 17 Prudential National Municipals Fund, Inc. Portfolio of Investments as of June 30, 2002 (Unaudited) Cont'd.
Principal Moody's Interest Maturity Amount Value Description (a) Rating Rate Date (000) (Note 1) - --------------------------------------------------------------------------------------------------------- Dayton, G.O., M.B.I.A. Aaa 7.00% 12/01/07 $ 480 $ 569,194 Dover Mun. Elec. Sys. Rev., F.G.I.C. Aaa 5.95 12/01/14 1,000 1,095,910 Greene Cnty. Wtr. Sys. Rev., Ser. A, F.G.I.C. Aaa 6.125 12/01/21 1,000 1,082,040 Hamilton Cnty. Sales Tax Sub. C.A.B.S., Ser. B, A.M.B.A.C. Aaa Zero 12/01/20 2,000 775,300 Hilliard Sch. Dist. C.A.B.S. Sch. Impvt., F.G.I.C. Aaa Zero 12/01/18 1,720 759,397 F.G.I.C. Aaa Zero 12/01/19 1,720 711,547 Lorain Cnty. Hosp. Rev., Rfdg. Mtge., Ser. C BBB+(d) 6.875 6/01/22 2,000 2,068,460 Lucas Cnty. Hlth. Care Fac. Rev. Rfdg. & Impvt., Sunset Ret., Ser. A A-(d) 6.625 8/15/30 1,000 1,034,130 Ref. Presbyterian Svcs., Ser. A NR 6.625 7/01/14 1,750 1,770,475 Montgomery Cnty. Swr. Sys. Rev., Greater Moraine, Beaver Creek, F.G.I.C. Aaa Zero 9/01/05 1,000 916,160 Mount Vernon City Sch. Dist., G.O., F.G.I.C. Aaa 7.50 12/01/14 500 563,925 Newark, Ltd. Tax G.O., A.M.B.A.C. Aaa Zero 12/01/06 805 701,573 Ohio Hsg. Fin. Agcy. Mtge. Res. Con. Opt., Ser. C-1, A.M.T., G.N.M.A. Aaa 6.05 3/01/32 835 865,720 Rev., Ser. A-1, A.M.T., G.N.M.A. Aaa 6.35 9/01/31 970 1,019,305 Ohio St. Air Quality Dev. Auth. Rev., Poll. Ctrl., Cleveland Elec. Co., Proj., F.G.I.C. Aaa 8.00 12/01/13 2,500 2,606,750 Ohio St. Bldg. Auth., St. Corr. Facs., Ser. A Aa2 6.00 10/01/08 615 700,036
18 See Notes to Financial Statements Prudential National Municipals Fund, Inc. Portfolio of Investments as of June 30, 2002 (Unaudited) Cont'd.
Principal Moody's Interest Maturity Amount Value Description (a) Rating Rate Date (000) (Note 1) - --------------------------------------------------------------------------------------------------------- Ohio St. Higher Edl. Fac. Comn. Rev., Case Western Resv. Univ., Ser. B Aa2 6.50% 10/01/20 $ 750 $ 903,825 Ohio St. Solid Waste Rev., CSC Ltd. Proj., A.M.T. NR 8.50 8/01/22 500(h) 0 Ohio St. Univ. Gen. Rcpts., Ser. A Aa2 6.00 12/01/16 1,000 1,112,990 Ohio St. Wtr. Dev. Auth. Poll. Ctrl. Facs. Rev., Buckeye Pwr. Inc. Proj., A.M.B.A.C. Aaa 7.80 11/01/14 10,930 12,420,961 Richland Cnty. Hosp. Facs. Rev., Impvt. Medcentral Hlth. Sys., Ser. B A-(d) 6.375 11/15/22 1,000 1,049,280 ------------- 44,017,011 - --------------------------------------------------------------------------------------------------------- Pennsylvania 3.1% Carbon Cnty. Ind. Dev. Auth. Rev., Rfdg., Panther Creek Partners Proj., A.M.T. BBB-(d) 6.65 5/01/10 5,000 5,386,200 Clarion Cnty. Hosp. Auth. Rev., Clarion Hosp. Proj. BBB-(d) 5.60 7/01/10 685 673,095 Delaware Cnty. Ind. Dev. Auth. Rev., Res. Recov. Fac., Ser. A Baa3 6.20 7/01/19 3,000 3,022,500 Pennsylvania Econ. Dev. Fin. Auth. Res. Recov. Rev., Sr. Northampton Generating, Ser. A, A.M.T. BBB-(d) 6.60 1/01/19 5,250 5,327,647 Philadelphia Hosp. & Higher Edl. Facs. Auth. Rev., Chestnut Hill Hosp. Baa2 6.50 11/15/22 2,685 2,654,606 Children's Seashore House, Ser. A A+(d) 7.00 8/15/03 535 548,739 Westmoreland Cnty. Ind. Dev. Auth. Rev., Valley Landfill Proj. BBB(d) 5.10 5/01/18 2,000 1,965,900 ------------- 19,578,687
See Notes to Financial Statements 19 Prudential National Municipals Fund, Inc. Portfolio of Investments as of June 30, 2002 (Unaudited) Cont'd.
Principal Moody's Interest Maturity Amount Value Description (a) Rating Rate Date (000) (Note 1) - --------------------------------------------------------------------------------------------------------- Puerto Rico 2.6% Puerto Rico Comnwlth., PA625, R.I.T.E.S., A.M.B.A.C. NR 12.501%(c) 7/01/10 $ 500(g) $ 718,390 PA642B, R.I.T.E.S, M.B.I.A. AAA(d) 10.021(c) 7/01/12 1,000(g) 1,284,560 Puerto Rico Comnwlth., Hwy. & Trans Auth. Rev., Pub. Impvt., M.B.I.A. Aaa Zero 7/01/19 2,000 895,580 Puerto Rico Pub. Bldgs. Auth., Gtd. Pub. Ed. & Hlth. Facs. Rev., Ser. J, C.A.B.S., E.T.M. Baa1 Zero 7/01/06 275(b) 243,482 Puerto Rico Tel. Auth. Rev., R.I.B.S., M.B.I.A. Aaa 8.999(c) 1/25/07 5,100(b) 5,437,926 M.B.I.A. Aaa 9.206(c) 1/16/15 7,150(b) 7,638,059 ------------- 16,217,997 - --------------------------------------------------------------------------------------------------------- South Carolina 5.1% Charleston Waterworks & Swr. Rev., E.T.M. Aaa 10.375 1/01/10 7,415(b) 9,570,466 South Carolina Pub. Svc. Auth. Rev., R.I.T.E.S., M.B.I.A. Aaa 9.271(c) 6/28/13 5,000 5,288,200 Rfdg., Ser. A, M.B.I.A. Aaa 5.75 1/01/22 8,085 8,520,863 South Carolina Trans. Infrastructure Bank Rev., Ser. A Aaa 5.25 10/01/21 8,500 8,664,730 ------------- 32,044,259 - --------------------------------------------------------------------------------------------------------- Tennessee 1.6% Bristol Hlth. & Edl. Fac. Rev., Bristol Mem. Hosp., F.G.I.C. Aaa 6.75 9/01/10 5,000(f) 5,904,500 Shelby Cnty. Hlth. Edl. & Hsg. Fac. Brd. Hosp. Rev., Methodist Hlth. Care Baa1 6.50 9/01/26 4,000 4,104,280 ------------- 10,008,780
20 See Notes to Financial Statements Prudential National Municipals Fund, Inc. Portfolio of Investments as of June 30, 2002 (Unaudited) Cont'd.
Principal Moody's Interest Maturity Amount Value Description (a) Rating Rate Date (000) (Note 1) - --------------------------------------------------------------------------------------------------------- Texas 6.1% Bexar Cnty. Hlth. Facs. Dev. Corp. Rev., Baptist Hlth. Sys., Ser. A, M.B.I.A. Aaa 6.00% 11/15/14 $ 5,695 $ 6,522,142 Dallas Ft. Worth, Int'l. Arpt. Fac. Impvt. Corp. Rev., Rfdg., American Airlines, Ser. B B1 6.05 5/01/29 2,500 2,324,675 Dallas Ft. Worth, Reg. Arpt. Rev., F.G.I.C., Ser. A Aaa 7.375 11/01/08 3,500 3,865,330 Ser. A Aaa 7.375 11/01/09 3,500 3,865,330 Harris Cnty. Ind. Dev. Corp. Arpt. Facs. Rev., Continental Airlines, Inc. Proj. B3 5.375 7/01/19 2,795 2,113,048 Houston Wtr. & Swr. Sys. Rev., C.A.B.S. Rfdg. Jr. Lien, Ser. A, F.S.A. Aaa Zero 12/01/26 25,000 6,290,250 Panhandle Reg. Hsg. Fin. Corp. Rev., Multi-Family Hsg., Ser. A A3 6.75 3/01/31 3,000 3,100,740 San Benito Cons. Indpt. Sch. Dist. Aaa 6.00 2/15/25 10,000 10,898,100 ------------- 38,979,615 - --------------------------------------------------------------------------------------------------------- U.S. Virgin Islands 0.4% Virgin Islands Pub. Fin. Auth. Rev., Gross Rcpts. Tax Ln. Note, Ser. A BBB-(d) 6.50 10/01/24 1,500 1,655,175 Matching Ln. Note, Ser. A AAA(d) 7.25 10/01/18 1,000 1,034,900 ------------- 2,690,075 - --------------------------------------------------------------------------------------------------------- Washington 5.1% King Cnty., Ser. B Aa1 5.85 12/01/13 10,000 11,498,800 Skagit Cnty. Cons. Sch. Dist. No. 320, Mount Vernon, M.B.I.A. Aaa 5.50 12/01/15 4,715 5,085,033
See Notes to Financial Statements 21 Prudential National Municipals Fund, Inc. Portfolio of Investments as of June 30, 2002 (Unaudited) Cont'd.
Principal Moody's Interest Maturity Amount Value Description (a) Rating Rate Date (000) (Note 1) - --------------------------------------------------------------------------------------------------------- Washington St. Pub. Pwr. Sup. Sys. Rev., Nuclear Proj. No. 1, Ser. A, F.S.A. Aaa 7.00% 7/01/08 $ 4,000 $ 4,718,280 Washington St., Ser. B Aa1 6.00 1/01/25 10,000 10,867,100 ------------- 32,169,213 - --------------------------------------------------------------------------------------------------------- West Virginia 0.3% West Virginia St. Hosp. Fin. Auth., Oak Hill Hosp. Rev., Ser. B A2 6.75 9/01/30 2,000 2,165,860 - --------------------------------------------------------------------------------------------------------- Wisconsin 2.0% Badger Tobacco Asset Securitization Corp. Rev., Asset Bkd. A1 6.125 6/01/27 5,500 5,427,070 Wisconsin Pub. Pwr. Inc. Sys., Pwr. Sup. Sys. Rev., A.M.B.A.C. Aaa 5.44 7/01/14 5,000 5,157,950 Wisconsin St. Hlth. & Edl. Facs. Auth. Rev., Marshfield Clinic, Ser. B BBB+(d) 6.00 2/15/25 2,000 1,951,500 ------------- 12,536,520 ------------- Total long-term investments (cost $551,375,087) 587,037,056 ------------- SHORT-TERM INVESTMENTS 5.9% - --------------------------------------------------------------------------------------------------------- Alabama 0.4% Mobile Ind. Dev. Brd. Rev., Alabama Pwr. Co. Barry Plant Proj., Ser. B, A.M.T., F.R.D.D. VMIG1 2.05 7/01/02 2,400 2,400,000 - --------------------------------------------------------------------------------------------------------- Arizona 0.3% Phoenix Ind. Dev. Auth. Rev., Swift Aviation Svcs. Inc. Proj., F.R.D.D. A-1(d) 2.05 7/01/02 1,800 1,800,000
22 See Notes to Financial Statements Prudential National Municipals Fund, Inc. Portfolio of Investments as of June 30, 2002 (Unaudited) Cont'd.
Principal Moody's Interest Maturity Amount Value Description (a) Rating Rate Date (000) (Note 1) - --------------------------------------------------------------------------------------------------------- Delaware 2.9% Delaware St. Econ. Dev. Auth. Rev., Delmarva Pwr. & Lt., A.M.T., F.R.D.D. VMIG1 2.15% 7/01/02 $ 4,500 $ 4,500,000 Delmarva Pwr & Lt., Exempt Facs., Ser. A, A.M.T., F.R.D.D., VMIG1 2.15 7/01/02 6,300 6,300,000 Delmarva Pwr. & Lt., Gas Facs., A.M.T., F.R.D.D. VMIG1 2.15 7/01/02 7,900 7,900,000 ------------- 18,700,000 - --------------------------------------------------------------------------------------------------------- Indiana 0.2% Crawfordsville Econ. Dev. Rev., Pedcor Investments-Shady Knoll, A.M.T., F.R.W.D. VMIG1 1.42 7/04/02 1,525 1,525,000 - --------------------------------------------------------------------------------------------------------- Louisiana 0.2% West Baton Rouge Parish Ind. Dist. No. 3 Rev., Dow Chemical Co. Proj., A.M.T., F.R.D.D. A-1(d) 2.20 7/01/02 1,000 1,000,000 - --------------------------------------------------------------------------------------------------------- Michigan 0.6% Michigan St. Strategic Fd. Ltd. Oblig. Rev., Dow Chemical Co. Proj., A.M.T., F.R.D.D. P-2 2.20 7/01/02 2,000 2,000,000 Dow Chemical Co. Proj., A.M.T., F.R.D.D. A-1(d) 2.20 7/01/02 1,800 1,800,000 ------------- 3,800,000 - --------------------------------------------------------------------------------------------------------- Tennessee 0.6% Morgan Keegan Mun. Products Inc., Trust Rcpts., Ser. CN-1, F.R.W.D. A-1+ 1.48 7/05/02 3,500 3,500,000
See Notes to Financial Statements 23 Prudential National Municipals Fund, Inc. Portfolio of Investments as of June 30, 2002 (Unaudited) Cont'd.
Principal Moody's Interest Maturity Amount Value Description (a) Rating Rate Date (000) (Note 1) - --------------------------------------------------------------------------------------------------------- Texas 0.5% Calhoun Cnty. Nav. Ind. Dev. Auth. Port Rev., British Petroleum Co., F.R.D.D. VMIG1 1.90% 7/01/02 $ 500 $ 500,000 Gulf Coast Waste Disp. Auth., Environ. Facs Rev., Bayer Corp. Proj., A.M.T., F.R.D.D. P-1 2.10 7/01/02 2,600 2,600,000 ------------- 3,100,000 - --------------------------------------------------------------------------------------------------------- Virginia 0.2% Loudoun Cnty. Ind. Dev. Auth. Rev., Atlantic Coast Airlines, F.R.D.D. A-1(d) 2.00 7/01/02 1,400 1,400,000 ------------- Total short-term investments (cost $37,225,000) 37,225,000 ------------- Total Investments 98.4% (cost $588,600,087; Note 5) 624,262,056 Other assets in excess of liabilities--1.6% 10,120,052 ------------- Net Assets--100% $ 634,382,108 ------------- -------------
24 See Notes to Financial Statements Prudential National Municipals Fund, Inc. Portfolio of Investments as of June 30, 2002 (Unaudited) Cont'd. (a) The following abbreviations are used in portfolio descriptions: A.C.A.--American Capital Access. A.M.B.A.C.--American Municipal Bond Assurance Corporation. A.M.T.--Alternative Minimum Tax. B.I.G.I.C.--Bond Investors Guaranty Insurance Company. C.A.B.S.--Capital Appreciation Bonds. C.O.P.--Certificate of Participation. E.T.M.--Escrowed to Maturity. F.G.I.C.--Financial Guaranty Insurance Company. F.H.A.--Federal Housing Administration. F.N.M.A.--Federal National Mortgage Association. F.R.D.D.--Floating Rate (Daily) Demand Note(e). F.R.W.D.--Floating Rate (Weekly) Demand Note(e). F.S.A.--Financial Security Assurance. G.O.--General Obligation. G.N.M.A.--Government National Mortgage Association. M.B.I.A.--Municipal Bond Insurance Corporation. R.I.B.S.--Residual Interest Bearing Security. R.I.T.E.S.--Residual Interest Tax Exempt Securities Receipts. (b) Prerefunded issues are secured by escrowed cash and/or direct U.S. guaranteed obligations. (c) Inverse floating rate bond. The coupon is inversely indexed to a floating interest rate. The rate shown is the rate at period end. (d) Standard & Poor's rating. (e) 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. (f) All or portion of security segregated as collateral for financial futures contracts. (g) Private placement restricted as to resale and does not have a readily available market; the aggregate cost of such securities is $6,386,321. The aggregate value of $7,981,890 is approximately 1.3% of net assets. (h) Represent issuer in default on interest payments; non-income producing security. NR--Not Rated by Moody's or Standard & Poor's. The Fund's current Prospectus contains a description of Moody's and Standard & Poor's ratings. See Notes to Financial Statements 25 Prudential National Municipals Fund, Inc. Statement of Assets and Liabilities (Unaudited)
June 30, 2002 - --------------------------------------------------------------------------------------- ASSETS Investments, at value (cost $588,600,087) $ 624,262,056 Cash 117,451 Receivable for investments sold 41,057,801 Interest receivable 10,120,128 Receivable for Fund shares sold 266,620 Unrealized appreciation on interest rate swaps 33,992 Prepaid expenses 14,310 Due from broker-variation margin 14,020 ------------- Total assets 675,886,378 ------------- LIABILITIES Payable for investments purchased 39,114,282 Payable for Fund shares reacquired 1,451,069 Dividends payable 420,221 Management fee payable 250,137 Distribution fee payable 138,486 Accrued expenses 90,678 Deferred Director's fee 39,397 ------------- Total liabilities 41,504,270 ------------- NET ASSETS $ 634,382,108 ------------- ------------- Net assets were comprised of: Common stock, at par $ 408,829 Paid-in capital in excess of par 596,326,910 ------------- 596,735,739 Undistributed net investment income 470,470 Accumulated net realized gain on investments 1,520,201 Net unrealized appreciation on investments 35,655,698 ------------- Net assets, June 30, 2002 $ 634,382,108 ------------- -------------
26 See Notes to Financial Statements Prudential National Municipals Fund, Inc. Statement of Assets and Liabilities (Unaudited) Cont'd.
June 30, 2002 - --------------------------------------------------------------------------------------- Class A: Net asset value and redemption price per share ($577,179,241 / 37,204,724 shares of common stock issued and outstanding) $15.51 Maximum sales charge (3% of offering price) .48 ------------- Maximum offering price to public $15.99 ------------- ------------- Class B: Net asset value, offering price and redemption price per share ($48,550,527 / 3,121,288 shares of common stock issued and outstanding) $15.55 ------------- ------------- Class C: Net asset value and redemption price per share ($5,674,182 / 364,793 shares of common stock issued and outstanding) $15.55 Sales charge (1% of offering price) .16 ------------- Offering price to public $15.71 ------------- ------------- Class Z: Net asset value, offering price and redemption price per share ($2,978,158 / 192,047 shares of common stock issued and outstanding) $15.51 ------------- -------------
See Notes to Financial Statements 27 Prudential National Municipals Fund, Inc. Statement of Operations (Unaudited)
Six Months Ended June 30, 2002 - --------------------------------------------------------------------------------------- NET INVESTMENT INCOME Income Interest $17,968,239 ------------- Expenses Management fee 1,513,784 Distribution fee--Class A 718,158 Distribution fee--Class B 122,392 Distribution fee--Class C 20,280 Transfer agent's fees and expenses 222,000 Custodian's fees and expenses 65,000 Reports to shareholders 43,000 Legal fees and expenses 26,000 Registration fees 22,000 Audit fee 19,000 Directors' fees 9,000 Miscellaneous 2,780 ------------- Total expenses 2,783,394 Less: Custodian fee credit (1,322) ------------- Net expenses 2,782,072 ------------- Net investment income 15,186,167 ------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on: Investment transactions 2,480,974 Financial futures contracts (1,540,981) ------------- 939,993 ------------- Net change in unrealized appreciation (depreciation) on: Investments 8,695,992 Financial futures contracts 611,037 Interest rate swaps 33,992 ------------- 9,341,021 ------------- Net gain on investment transactions 10,281,014 ------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $25,467,181 ------------- -------------
28 See Notes to Financial Statements Prudential National Municipals Fund, Inc. Statement of Changes in Net Assets (Unaudited)
Six Months Year Ended Ended June 30, 2002 December 31, 2001 - ----------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS Operations Net investment income $ 15,186,167 $ 31,220,549 Net realized gain on investment transactions 939,993 9,640,432 Net change in unrealized appreciation (depreciation) on investments 9,341,021 (14,789,295) ------------- ----------------- Net increase in net assets resulting from operations 25,467,181 26,071,686 ------------- ----------------- Dividends and distributions (Note 1) Dividends from net investment income Class A (13,837,428) (28,725,822) Class B (1,118,274) (2,461,213) Class C (116,862) (174,475) Class Z (65,967) (85,207) ------------- ----------------- (15,138,531) (31,446,717) ------------- ----------------- Distributions from net realized capital gains Class A (2,270,348) (4,719,281) Class B (196,309) (394,950) Class C (22,181) (42,186) Class Z (12,353) (15,515) ------------- ----------------- (2,501,191) (5,171,932) ------------- ----------------- Fund share transactions (net of share conversions) (Note 6) Net proceeds from shares sold 30,002,291 48,848,412 Net asset value of shares issued in reinvestment of dividends and distributions 10,928,084 22,384,332 Cost of shares reacquired (49,789,519) (98,173,406) ------------- ----------------- Decrease in net assets from Fund share transactions (8,859,144) (26,940,662) ------------- ----------------- Total decrease (1,031,685) (37,487,625) NET ASSETS Beginning of period 635,413,793 672,901,418 ------------- ----------------- End of period(a) $ 634,382,108 $ 635,413,793 ------------- ----------------- ------------- ----------------- (a) Includes undistributed net investment income $ 470,470 $ -- ------------- -----------------
See Notes to Financial Statements 29 Prudential National Municipals Fund, Inc. Notes to Financial Statements (Unaudited) Prudential National Municipals Fund, Inc. (the 'Fund') is registered under the Investment Company Act of 1940 as a diversified, open-end management investment company. The investment objective of the Fund is to seek a high level of current income exempt from federal income taxes by investing substantially all of its total assets in carefully selected long-term municipal bonds of medium quality. The ability of the issuers of debt securities held by the Fund to meet their obligations may be affected by economic or political developments in a specific state, industry or region. Note 1. Accounting Policies The following is a summary of significant accounting policies followed by the Fund 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 Board of Directors. 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. Options: The Fund may either purchase or write options in order to hedge against adverse market movements or fluctuations in value caused by changes in prevailing interest rates with respect to securities which the Fund currently owns or intends to purchase. The Fund's principal reason for writing options is to realize, through receipt of premiums, a greater current return than would be realized on the underlying security alone. When the Fund purchases an option, it pays a premium and an amount equal to that premium is recorded as an investment. When the Fund writes an option, it receives a premium and an amount equal to that premium is recorded as a liability. The investment or liability is adjusted daily to reflect the current market value of the option. If an option expires unexercised, the Fund realizes a gain or loss to the extent of the premium received or paid. If an option is exercised, the premium received or paid is an adjustment to the proceeds from the sale or the cost of the purchase in determining whether the Fund has realized a gain or loss. The difference between the premium and the amount received or paid on effecting a closing purchase or sale transaction is also treated as a realized gain or loss. Gain or 30 Prudential National Municipals Fund, Inc. Notes to Financial Statements (Unaudited) Cont'd. loss on purchased options is included in net realized gain (loss) on investment transactions. Gain or loss on written options is presented separately as net realized gain (loss) on written option transactions. The Fund, as writer of an option, may have no control over whether the underlying securities may be sold (called) or purchased (put). As a result, the Fund bears the market risk of an unfavorable change in the price of the security underlying the written option. The Fund, as purchaser of an option, bears the risk of the potential inability of the counterparties to meet the terms of their contracts. Interest Rate Swaps: In a simple interest rate swap, one investor pays a floating rate of interest on a notional principal amount and receives a fixed rate of interest on the same notional principal amount for a specified period of time. Alternatively, an investor may pay a fixed rate and receive a floating rate. Interest rate swaps were conceived as asset/liability management tools. In more complex swaps, the notional principal amount may decline (or amortize) over time. During the term of swap, changes in the value of the swap are recognized as unrealized gains or losses by 'marking-to-market' to reflect the market value of the swap. When the swap is terminated, the Fund will record a realized gain of loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund's basis in the contract, if any. The Fund is exposed to credit risk in the event of non-performance by the other party to the interest rate swap. However, the Fund does not anticipate non-performance by any counterparty. 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 Fund 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 Fund 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 Fund invests in financial futures contracts in order to hedge existing portfolio securities, or securities the Fund intends to purchase, against fluctuations in value 31 Prudential National Municipals Fund, Inc. Notes to Financial Statements (Unaudited) Cont'd. caused by changes in prevailing interest rates. Should interest rates move unexpectedly, the Fund 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 (losses) on sales of securities are calculated on the identified cost basis. Interest income is recorded on the accrual basis. The Fund amortizes premiums and accretes original issue discount on portfolio securities as adjustments to interest income. Expenses are recorded on the accrual basis which may require the use of certain estimates by management. As required, effective January 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premiums on debt securities. Prior to January 1, 2001, the Fund did not amortize premiums on debt securities. Upon initial adoption, the Fund was required to adjust the cost of its fixed-income securities by the cumulative amounts that would have been recognized had the amortization been in effect from the purchase date of each holding. Adopting this accounting principle does not affect the Fund's net asset value, but changes the classification of certain amounts between interest income and realized and unrealized gain (loss) in the Statement of Operations. The current adjustments for the six months ended June 30, 2002 resulted in an increase to net investment income of $47,636, a decrease to realized gains of $23,349 and a decrease to unrealized appreciation of $24,287. The cumulative adjustment upon adoption through December 31, 2001 resulted in an increase to undistributed net investment income of $422,834 and a decrease to unrealized appreciation on investments of $422,834. Net investment income (loss) (other than distribution fees) and unrealized and realized gains (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: It is the Fund's policy to continue to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable net income and capital gains, if any, to its shareholders. Therefore, no federal income tax provision is required. Dividends and Distributions: The Fund expects to pay dividends of net investment income monthly and distributions of net realized capital gains, if any, annually. Dividends and distributions are recorded on the ex-dividend date. 32 Prudential National Municipals Fund, Inc. Notes to Financial Statements (Unaudited) Cont'd. Income distributions and capital gain distributions are determined in accordance with federal 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 LLC ('PI'). Pursuant to this agreement, PI has responsibility for all investment advisory services and supervises the subadvisor's performance of such services. PI has entered into a subadvisory agreement with Prudential Investment Management, Inc. ('PIM'). The subadvisory agreement provides that the subadvisor will furnish investment advisory services in connection with the management of the Fund. In connection therewith, the subadvisor is obligated to keep certain books and records of the Fund. PI pays for the services of PIM, the cost of compensation of officers of the Fund, occupancy and certain clerical and bookkeeping costs of the Fund. The Fund bears all other costs and expenses. The management fee paid to PI is computed daily and payable monthly at an annual rate of .50% of the Fund's average daily net assets up to and including $250 million, .475% of the next $250 million, .45% of the next $500 million, ..425% of the next $250 million, .40% of the next $250 million and .375% of the Fund's average daily net assets in excess of $1.5 billion. The Fund has a distribution agreement with Prudential Investment Management Services LLC ('PIMS'), which acts as the distributor of the Class A, B, C and Z shares of the Fund. The Fund compensates PIMS for distributing and servicing the Fund's Class A, Class B and Class C shares, pursuant to plans of distribution (the 'Class A, B and C Plans'), regardless of expenses actually incurred by 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 .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, for the six months ended June 30, 2002. 33 Prudential National Municipals Fund, Inc. Notes to Financial Statements (Unaudited) Cont'd. PIMS has advised the Fund that it received approximately $57,800 and $8,100 in front-end sales charges resulting from sales of Class A and Class C shares, respectively, during the six months ended June 30, 2002. From these fees, PIMS paid a substantial part of such sales charges to dealers, which in turn paid commissions to salespersons and incurred other distribution costs. PIMS has advised the Fund that for the six months ended June 30, 2002, it received approximately $12,800 and $300 in contingent deferred sales charges imposed upon certain redemptions by Class B and Class C shareholders, respectively. PI, PIM and PIMS are indirect, wholly-owned subsidiaries of Prudential Financial, Inc. ('Prudential'). The Fund, along with other affiliated registered investment companies (the 'Funds'), is a party to a syndicated credit agreement ('SCA') with a group of banks. For the six months ended June 30, 2002, the amount of the commitment was $500 million from January 1, 2002 through May 2, 2002. On May 3, 2002, the Funds renewed and amended the SCA, which effectively increased the banks' commitment to $800 million and allows the Funds to increase the commitment to $1 billion if necessary. Interest on any borrowings under the SCA will be incurred at market rates. The Funds pay a commitment fee of .08 of 1% of the unused portion of the SCA. The commitment fee is accrued and paid quarterly on a pro rata basis by the Funds. The purpose of the SCA is to serve as an alternative source of funding for capital share redemptions. The expiration date of the SCA is May 2, 2003. The Fund did not borrow any amounts pursuant to the SCA during the six months ended June 30, 2002. Note 3. Other Transactions with Affiliates Prudential Mutual Fund Services LLC ('PMFS'), an affiliate of PI and a wholly-owned subsidiary of Prudential, serves as the Fund's transfer agent. During the six months ended June 30, 2002, the Fund incurred fees of approximately $167,000 for the services of PMFS. As of June 30, 2002, approximately $27,000 of such fees were due to PMFS. Transfer agent fees and expenses in the Statement of Operations include certain out-of-pocket expenses paid to non-affiliates. The Fund pays networking fees to Prudential Securities, Inc. ('PSI'), an affiliate of PI and an indirect, wholly-owned subsidiary of Prudential. These networking fees are payments made to broker/dealers that clear mutual fund transactions through a national mutual fund clearing system. The total amount paid to PSI during the period was approximately $9,000 and is included in transfer agent's fees and expenses in the statement of operations. 34 Prudential National Municipals Fund, Inc. Notes to Financial Statements (Unaudited) Cont'd. Note 4. Portfolio Securities Purchases and sales of investment securities, other than short-term investments for the six months ended June 30, 2002, aggregated $186,951,817 and $229,428,015, respectively. During the six months ended June 30, 2002, the Fund entered into financial futures contracts. Details of open contracts at June 30, 2002 were as follows:
Value at Value at Unrealized Number of Expiration Trade June 30, Appreciation Contracts Type Date Date 2002 (Depreciation) - --------- ------------------ ----------- ----------- ------------ --------------- Short Positions: 5 yr. U.S. 160 Treasury Notes Sept. '02 $17,197,535 $ 17,187,500 $ 10,035 Municipal 30 Bond Index Sept. '02 3,112,404 3,108,750 3,654 Long Position: U.S. Treasury 63 Bonds Sept. '02 6,529,171 6,475,219 (53,952) --------------- $ (40,263) --------------- ---------------
The Fund entered into interest rate swap agreements during the period. Details of the swap agreements outstanding as of June 30, 2002 were as follows:
Termination Notional Fixed Floating Unrealized Counterparty Date Amount Rate Rate Appreciation - --------------- ----------- ---------- -------- -------- ------------ Morgan Stanley 6/14/32 $6,000,000 4.715% BMA* $ 1,269 Morgan Stanley 6/20/32 $4,800,000 4.6675% BMA* 32,723 ------------ $ 33,992 ------------ ------------
The Fund pays the fixed rate and receives the floating rate. *Bond Market Association.(TM) Note 5. Tax Information The United States federal income tax basis of the Fund's investments and the net unrealized appreciation as of June 30, 2002 were as follows:
Tax Basis Net Unrealized of Investments Appreciation Depreciation Appreciation - --------------- ---------------- ---------------- ---------------- $588,213,767 $38,771,993 $(2,723,704) $36,048,289
The differences between book and tax basis was attributable to deferred losses on wash sales. 35 Prudential National Municipals Fund, Inc. Notes to Financial Statements (Unaudited) Cont'd. Note 6. Capital The Fund 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. Class B shares will automatically convert to Class A shares on a quarterly basis approximately seven years after purchase. A special exchange privilege is also available for shareholders who qualify to purchase Class A shares at net asset value. Class Z shares are not subject to any sales or redemption charge and are offered exclusively for sale to a limited group of investors. There are 1 billion shares of common stock, $.01 par value per share, authorized divided into four classes, designated Class A, Class B, Class C and Class Z common stock, each of which consists of 250 million authorized shares. Transactions in shares of common stock were as follows:
Class A Shares Amount - ---------------------------------------------------- ---------------- -------------- Six months ended June 30, 2002: Shares sold 1,325,662 $ 20,510,251 Shares issued in reinvestment of dividends and distributions 648,924 10,031,906 Shares reacquired (2,763,510) (42,708,055) ---------------- -------------- Net decrease in shares outstanding before conversion (788,924) (12,165,898) Shares issued upon conversion from Class B 186,399 2,885,517 ---------------- -------------- Net decrease in shares outstanding (602,525) $ (9,280,381) ---------------- -------------- ---------------- -------------- Year ended December 31, 2001: Shares sold 1,898,832 $ 29,831,731 Shares issued in reinvestment of dividends and distributions 1,315,479 20,523,735 Shares reacquired (5,526,867) (86,851,409) ---------------- -------------- Net decrease in shares outstanding before conversion (2,312,556) (36,495,943) Shares issued upon conversion from Class B 1,034,364 16,194,699 ---------------- -------------- Net decrease in shares outstanding (1,278,192) $ (20,301,244) ---------------- -------------- ---------------- --------------
36 Prudential National Municipals Fund, Inc. Notes to Financial Statements (Unaudited) Cont'd.
Class B Shares Amount - ---------------------------------------------------- ---------------- -------------- Six months ended June 30, 2002: Shares sold 252,149 $ 3,910,852 Shares issued in reinvestment of dividends and distributions 47,716 739,549 Shares reacquired (180,131) (2,795,314) ---------------- -------------- Net increase in shares outstanding before conversion 119,734 1,855,087 Shares reacquired upon conversion into Class A (185,918) (2,885,517) ---------------- -------------- Net decrease in shares outstanding (66,184) $ (1,030,430) ---------------- -------------- ---------------- -------------- Year ended December 31, 2001: Shares sold 888,487 $ 13,978,076 Shares issued in reinvestment of dividends and distributions 104,463 1,634,050 Shares reacquired (565,647) (8,915,775) ---------------- -------------- Net increase in shares outstanding before conversion 427,303 6,696,351 Shares issued upon conversion from Class B (1,031,728) (16,194,699) ---------------- -------------- Net decrease in shares outstanding (604,425) $ (9,498,348) ---------------- -------------- ---------------- -------------- Class C - ---------------------------------------------------- Six months ended June 30, 2002: Shares sold 70,810 $ 1,099,829 Shares issued in reinvestment of dividends and distributions 6,141 95,165 Shares reacquired (49,528) (768,912) ---------------- -------------- Net increase in shares outstanding 27,423 $ 426,082 ---------------- -------------- ---------------- -------------- Year ended December 31, 2001: Shares sold 239,506 $ 3,769,424 Shares issued in reinvestment of dividends and distributions 9,121 142,418 Shares reacquired (116,847) (1,834,659) ---------------- -------------- Net increase in shares outstanding 131,780 $ 2,077,183 ---------------- -------------- ---------------- -------------- Class Z - ---------------------------------------------------- Six months ended June 30, 2002: Shares sold 289,767 $ 4,481,359 Shares issued in reinvestment of dividends and distributions 3,978 61,464 Shares reacquired (227,318) (3,517,238) ---------------- -------------- Net increase in shares outstanding 66,427 $ 1,025,585 ---------------- -------------- ---------------- -------------- Year ended December 31, 2001: Shares sold 80,702 $ 1,269,180 Shares issued in reinvestment of dividends and distributions 5,392 84,129 Shares reacquired (36,401) (571,563) ---------------- -------------- Net increase in shares outstanding 49,693 $ 781,746 ---------------- -------------- ---------------- --------------
37 Prudential National Municipals Fund, Inc. Financial Highlights (Unaudited)
Class A ---------------- Six Months Ended June 30, 2002 - ---------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 15.32 ---------------- Income from investment operations Net investment income .37 Net realized and unrealized gain (loss) on investment transactions .25 ---------------- Total from investment operations .62 ---------------- Less distributions Dividends from net investment income (.37) Distributions in excess of net investment income -- Distributions from net realized gains (.06) ---------------- Total distributions (.43) ---------------- Net asset value, end of period $ 15.51 ---------------- ---------------- TOTAL INVESTMENT RETURN(a): 4.10% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000) $577,179 Average net assets (000) $579,287 Ratios to average net assets: Expenses, including distribution and service (12b-1) fees .86%(d) Expenses, excluding distribution and service (12b-1) fees .61%(d) Net investment income 4.83%(d) For Class A, B, C and Z shares: Portfolio turnover rate 30%(e)
- ------------------------------ (a) Total investment return does not consider the effects of sales load. 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 one full year are not annualized. (b) Net of management fee waiver. (c) Less than $.005 per share. (d) Annualized. (e) Not annualized. 38 See Notes to Financial Statements Prudential National Municipals Fund, Inc. Financial Highlights (Unaudited) Cont'd.
Class A - ---------------------------------------------------------------------------------------------------------- Year Ended December 31, - ---------------------------------------------------------------------------------------------------------- 2001 2000 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------- $ 15.59 $ 14.72 $ 16.06 $ 16.12 $ 15.56 - ---------------- ---------------- ---------------- ---------------- ---------------- .75 .76 .76 .79 .81(b) (.13) .88 (1.34) .06 .67 - ---------------- ---------------- ---------------- ---------------- ---------------- .62 1.64 (.58) .85 1.48 - ---------------- ---------------- ---------------- ---------------- ---------------- (.76) (.76) (.76) (.79) (.81) -- (.01) --(c) --(c) (.01) (.13) -- -- (.12) (.10) - ---------------- ---------------- ---------------- ---------------- ---------------- (.89) (.77) (.76) (.91) (.92) - ---------------- ---------------- ---------------- ---------------- ---------------- $ 15.32 $ 15.59 $ 14.72 $ 16.06 $ 16.12 - ---------------- ---------------- ---------------- ---------------- ---------------- - ---------------- ---------------- ---------------- ---------------- ---------------- 3.95% 11.45% (3.69)% 5.41% 9.80% $579,335 $609,245 $498,428 $481,926 $493,178 $599,337 $487,811 $531,603 $483,759 $491,279 .89% .88% .86% .73% .70%(b) .64% .63% .61% .63% .60%(b) 4.76% 5.09% 4.88% 4.89% 5.15%(b) 66% 122% 30% 23% 38%
See Notes to Financial Statements 39 Prudential National Municipals Fund, Inc. Financial Highlights (Unaudited) Cont'd.
Class B ---------------- Six Months Ended June 30, 2002 - ---------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 15.36 -------- Income from investment operations Net investment income .35 Net realized and unrealized gain (loss) on investment transactions .25 -------- Total from investment operations .60 -------- Less distributions Dividends from net investment income (.35) Distributions in excess of net investment income -- Distributions from net realized gains (.06) -------- Total distributions (.41) -------- Net asset value, end of period $ 15.55 -------- -------- TOTAL INVESTMENT RETURN(a): 3.97% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000) $ 48,551 Average net assets (000) $ 49,363 Ratios to average net assets: Expenses, including distribution and service (12b-1) fees 1.11%(d) Expenses, excluding distribution and service (12b-1) fees .61%(d) Net investment income 4.58%(d)
- ------------------------------ (a) Total investment return does not consider the effects of sales load. 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 one full year are not annualized. (b) Net of management fee waiver. (c) Less than $.005 per share. (d) Annualized. 40 See Notes to Financial Statements Prudential National Municipals Fund, Inc. Financial Highlights (Unaudited) Cont'd.
Class B - ---------------------------------------------------------------------------------------------------------- Year Ended December 31, - ---------------------------------------------------------------------------------------------------------- 2001 2000 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------- $ 15.63 $ 14.75 $ 16.10 $ 16.16 $ 15.60 -------- -------- ---------------- ---------------- ---------------- .71 .73 .73 .73 .75(b) (.13) .89 (1.35) .06 .67 -------- -------- ---------------- ---------------- ---------------- .58 1.62 (.62) .79 1.42 -------- -------- ---------------- ---------------- ---------------- (.72) (.73) (.73) (.73) (.75) -- (.01) --(c) --(c) (.01) (.13) -- -- (.12) (.10) -------- -------- ---------------- ---------------- ---------------- (.85) (.74) (.73) (.85) (.86) -------- -------- ---------------- ---------------- ---------------- $ 15.36 $ 15.63 $ 14.75 $ 16.10 $ 16.16 -------- -------- ---------------- ---------------- ---------------- -------- -------- ---------------- ---------------- ---------------- 3.70% 11.23% (3.98)% 4.99% 9.35% $ 48,972 $ 59,260 $ 92,265 $119,698 $141,528 $ 54,043 $ 73,531 $118,044 $131,195 $151,938 1.14% 1.13% 1.11% 1.13% 1.10%(b) .64% .63% .61% .63% .60%(b) 4.52% 4.85% 4.62% 4.49% 4.75%(b)
See Notes to Financial Statements 41 Prudential National Municipals Fund, Inc. Financial Highlights (Unaudited) Cont'd.
Class C ---------------- Six Months Ended June 30, 2002 - ---------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $15.36 ------- Income from investment operations Net investment income .33 Net realized and unrealized gain (loss) on investment transactions .25 ------- Total from investment operations .58 ------- Less distributions Dividends from net investment income (.33) Distributions in excess of net investment income -- Distributions from net realized gains (.06) ------- Total distributions (.39) ------- Net asset value, end of period $15.55 ------- ------- TOTAL INVESTMENT RETURN(a): 3.84% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000) $5,674 Average net assets (000) $5,453 Ratios to average net assets: Expenses, including distribution and service (12b-1) fees 1.36%(d) Expenses, excluding distribution and service (12b-1) fees .61%(d) Net investment income 4.34%(d)
- ------------------------------ (a) Total investment return does not consider the effects of sales load. 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 one full year are not annualized. (b) Net of management fee waiver. (c) Less than $.005 per share. (d) Annualized. 42 See Notes to Financial Statements Prudential National Municipals Fund, Inc. Financial Highlights (Unaudited) Cont'd.
Class C - ---------------------------------------------------------------------------------------------------------- Year Ended December 31, - ---------------------------------------------------------------------------------------------------------- 2001 2000 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------- $15.63 $14.75 $16.10 $16.16 $15.60 ------- ------- ------- ------- ------- .67 .69 .69 .69 .71(b) (.13) .89 (1.35) .06 .67 ------- ------- ------- ------- ------- .54 1.58 (.66) .75 1.38 ------- ------- ------- ------- ------- (.68) (.69) (.69) (.69) (.71) -- (.01) --(c) --(c) (.01) (.13) -- -- (.12) (.10) ------- ------- ------- ------- ------- (.81) (.70) (.69) (.81) (.82) ------- ------- ------- ------- ------- $15.36 $15.63 $14.75 $16.10 $16.16 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- 3.45% 10.96% (4.22)% 4.73% 9.08% $5,183 $3,213 $3,060 $2,296 $ 825 $4,032 $2,473 $2,643 $1,555 $ 758 1.39% 1.38% 1.36% 1.38% 1.35%(b) .64% .63% .61% .63% .60%(b) 4.28% 4.60% 4.39% 4.23% 4.50%(b)
See Notes to Financial Statements 43 Prudential National Municipals Fund, Inc. Financial Highlights (Unaudited) Cont'd.
Class Z --------------------------------------------------------- Year Ended January 22, Six Months December 31, 1999(c) Ended ----------------- Through June 30, 2002 2001 2000 December 31, 1999 - ------------------------------------------------------------------------------------------------------------------ PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 15.32 $15.58 $14.71 $ 16.11 ------------- ------ ------ ------- Income from investment operations Net investment income .39 .78 .80 .73 Net realized and unrealized gain (loss) on investment transactions .25 (.12) .88 (1.40) ------------- ------ ------ ------- Total from investment operations .64 .66 1.68 (.67) ------------- ------ ------ ------- Less distributions Dividends from net investment income (.39) (.79) (.80) (.73) Distributions in excess of net investment income -- -- (.01) --(b) Distributions from net realized gains (.06) (.13) -- -- ------------- ------ ------ ------- Total distributions (.45) (.92) (.81) (.73) ------------- ------ ------ ------- Net asset value, end of period $ 15.51 $15.32 $15.58 $ 14.71 ------------- ------ ------ ------- ------------- ------ ------ ------- TOTAL INVESTMENT RETURN(a): 4.23% 4.26% 11.73% (4.22)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000) $ 2,978 $1,924 $1,183 $ 797 Average net assets (000) $ 2,599 $1,673 $ 765 $ 1,391 Ratios to average net assets: Expenses, including distribution fees .61%(d) .64% .63% .64%(d) Expenses, excluding distribution fees .61%(d) .64% .63% .64%(d) Net investment income 5.14%(d) 5.05% 5.34% 5.45%(d)
- ------------------------------ (a) Total investment 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 one full year are not annualized. (b) Less than $.005 per share. (c) Commencement of offering of Class Z shares. (d) Annualized. 44 See Notes to Financial Statements www.prudential.com (800) 225-1852 FOR MORE INFORMATION Prudential Mutual Funds Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 (800) 225-1852 Directors Eugene C. Dorsey Delayne Dedrick Gold Robert F. Gunia Thomas T. Mooney Stephen P. Munn David R. Odenath, Jr. Richard A. Redeker Judy A. Rice Nancy H. Teeters Louis A. Weil, III Officers David R. Odenath, Jr., President Robert F. Gunia, Vice President Judy A. Rice, Vice President Grace C. Torres, Treasurer Deborah A. Docs, Secretary Marguerite E.H. Morrison, Assistant Secretary Manager Prudential Investments LLC Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 Investment Adviser Prudential Investment Management, Inc. Gateway Center Two Newark, NJ 07102 Distributor Prudential Investment Management Services LLC Gateway Center Three, 14th Floor 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 PO Box 8098 Philadelphia, PA 19101 Independent Accountants PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, NY 10036 Legal Counsel Shearman & Sterling 599 Lexington Avenue New York, NY 10022 Fund Symbols Nasdaq CUSIP Class A PRNMX 743918203 Class B PBHMX 743918104 Class C PNMCX 743918302 Class Z N/A 743918401 The views expressed in this report and information about the Fund's portfolio holdings are for the period covered by this report and are subject to change thereafter. The accompanying financial statements as of June 30, 2002, were not audited and, accordingly, no auditor's opinion is expressed on them. (Logo) Prudential Financial Fund Symbols Nasdaq CUSIP Class A PRNMX 743918203 Class B PBHMX 743918104 Class C PNMCX 743918302 Class Z N/A 743918401 MF104E2 IFS-A073287 Mutual funds are not bank guaranteed or FDIC insured, and may lose value. -----END PRIVACY-ENHANCED MESSAGE-----