-----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, Kmn1uM+emcHtMaPYKSOi+ZtWWTDOTJl5cIW5W3GYBcU1JRs3NFQq2nKoSGIjfOSX DDogVRjoQHnwFVWzmSNasg== 0000898733-99-000782.txt : 19990909 0000898733-99-000782.hdr.sgml : 19990909 ACCESSION NUMBER: 0000898733-99-000782 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990908 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRUDENTIAL NATIONAL MUNICIPALS FUND INC CENTRAL INDEX KEY: 0000314612 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 133021492 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-02992 FILM NUMBER: 99707383 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: PRUDENTIAL BACHE NATIONAL MUNICIPALS FUND INC DATE OF NAME CHANGE: 19920602 FORMER COMPANY: FORMER CONFORMED NAME: PRUDENTIAL BACHE HIGH YIELD MUNICIPALS INC DATE OF NAME CHANGE: 19870507 FORMER COMPANY: FORMER CONFORMED NAME: CHANCELLOR HIGH YIELD MUNICIPALS INC DATE OF NAME CHANGE: 19830516 N-30D 1 PRUDENTIAL NATIONAL MUNICIPALS FUND, INC. (ICON) Prudential National Municipals Fund, Inc. SEMI ANNUAL REPORT June 30, 1999 (LOGO) A Message from the Fund's President August 20, 1999 (PHOTO) Dear Shareholder, Prudential National Municipals Fund's Class A shares declined 1.67% for the six-month period that ended on June 30, 1999. However, the Fund managed to outperform its benchmark, which lost 1.82%. The following report takes a close look at bond market events that occurred during the six-month reporting period, and explains how Prudential National Municipals Fund performed. Our integrated and expanded team I would like to take this opportunity to tell you about some changes we've made to our Fixed Income Group. Earlier in the year, we combined our fixed-income areas into one integrated group that will manage money for Prudential's retail and institutional investors, as well as its policyholders. This integrated group now manages approximately $145 billion in assets, making it one of the three largest fixed-income money managers in the country. The expanded depth, breadth, and scale of our investment team also allow us to tap the best talent and share investment ideas, proprietary research, and analytical tools. The group is co-headed by Senior Managing Directors Jim Sullivan, who is responsible for portfolio management and credit research, and Jack Gaston, who is in charge of risk management and quantitative research. To utilize these integrated resources more effectively, Mr. Sullivan recently organized the group into teams, each specializing in a different sector of the fixed-income market. The Municipal Bond Sector team will now be responsible for the day-to-day management of your Prudential National Municipals Fund. Many of the investment professionals who supported the management of the Fund in the past are part of this new team that will work together to share their knowledge and strive to enhance performance. Thank you for your continued confidence in Prudential mutual funds. I firmly believe that the group's combined resources and our new team approach will make us a powerhouse in the world of fixed-income investing across all sectors. Sincerely, John R. Strangfeld President and Chief Investment Officer Prudential National Municipals Fund, Inc. Performance Review Cumulative Total Returns1 As of 6/30/99
Six One Five Ten Since Months Year Years Years Inception2 Class A -1.67% 1.41% 35.67% (35.49) N/A 89.93% (89.68) Class B -1.85 1.02 33.07 (32.90) 86.36% (86.11) 355.93 (355.33) Class C -1.97 0.77 N/A N/A 29.28 (29.11) Class Z N/A N/A N/A N/A -2.33 Lipper Gen. Muni Avg.3 -1.82 1.14 35.05 94.12 ***
Average Annual Total Returns1 As of 6/30/99
One Five Ten Since Year Years Years Inception2 Class A -1.63% 5.64% (5.62) N/A 6.69% (6.68) Class B -3.98 5.72 (5.69) 6.42% (6.41) 8.23 (8.22) Class C -1.23 N/A N/A 5.15 (5.12) Class Z N/A N/A N/A N/A
Distributions and Yields As of 6/30/99
Total Taxable Equivalent Yield Distributions 30-Day at Tax Rates of Paid for Six Mos. SEC Yield 36% 39.6% Class A $0.38 4.26% 6.66% 7.05% Class B $0.36 4.14 6.47 6.85 Class C $0.34 3.85 6.02 6.37 Class Z $0.35 4.65 7.27 7.70
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 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% for six years. Class B shares will automatically convert to Class A shares, on a quarterly basis, approximately seven years after purchase. Class C shares are subject to a front-end sales charge of 1% and a CDSC of 1% for 18 months. Class C shares bought before November 2, 1998, have a 1% CDSC if sold within one year. Without waiver of management fees and/or expense subsidization, the Fund's cumulative and average annual total returns would have been lower, as indicated in parentheses ( ). 2 Inception dates: Class A, 1/22/90; Class B, 4/25/80; Class C, 8/1/94; and Class Z, 1/22/99. 3 Lipper average returns are for all funds in each share class for the six-month, one-, five-, and ten-year periods in the General Muni category. ***Lipper Since Inception returns are 90.26% for Class A, 397.21% for Class B, 32.58% for Class C, and -2.90% for Class Z, based on all funds in each share class. Fundamentals hurt the Fund The Fund typically has more exposure to longer-term debt securities than shorter-term debt securities. This hurt our performance during the reporting period because one- to five-year (short-term) bonds fared better than 10- to 15-year (long-term) bonds over the first six months of 1999. When bond markets sell off, prices of short-term bonds typically decline less than prices of long-term bonds. Most bond markets sold off during the first half of the year as inflation fears were again sparked by the strong U.S. economy, global economic recovery, and rising oil prices. Mounting inflationary pressures erode the value of bonds' fixed interest payments. To compensate for this risk, investors began to push bond yields higher and their prices lower. Risk over quality AAA-rated bonds were the worst-performing bonds in the municipal market during the reporting period, further hurting performance. This was partly due to the fact that investors felt confident that the world was now a safer place to invest their money. Riskier, higher-yielding investments were sought over high-quality fixed-income securities. Since the Fund had heavier exposure to AAA-rated bonds, performance suffered. However, the Fund did hold more lower-quality BBB-rated bonds than the comparable fund in its competitive universe. This helped performance because these bonds offer significant yield potential. The Fund also held noncallable bonds, a portion of them being zero-coupon bonds. Noncallable bonds tend to perform better than callable bonds when debt markets rally, since they are free to appreciate in value without the risk of being retired early by the issuer. Furthermore, prices of zero-coupon bonds have plenty of room to rise when fixed-income markets rally, since they typically trade at deep discounts to their maturity value. However, when fixed-income markets perform poorly, as they did in the first half of 1999, the prices of these bonds usually fall further and faster than those of other debt securities. A move to neutral In March, as interest rates continued to rise, the Fund sought to achieve a closer to neutral duration stance in relation to its competitive universe. By mid-April, the Fund had achieved this neutral duration stance by selling some of its noncallable and zero-coupon bonds, as well as some of its longer-term, high-grade corporate bonds. This strategy helped the Fund bounce back from the tough first three months of the year and positioned it positively going forward. Furthermore, in the second quarter, since the prices of high-quality, AAA-rated bonds had already dropped substantially, we were able to add these bonds to the Fund's portfolio at attractive levels. Consequently, the Fund put in a very strong performance during that time. A strong finish By the middle of the second quarter, the Fund achieved a shorter-than-average duration stance. This move was made because we anticipated that the Federal Reserve would have to raise interest rates to quell inflation fears and slow the pace of the U.S. economy. Therefore, if the economy kept growing and the Fed eventually raised rates, holding bonds with shorter maturities would benefit the Fund. This strategy paid off as the Federal Reserve did indeed raise the Federal funds rate by 0.25%, or 25 basis points, on June 30, 1999. The Fund also benefited by steering clear of holding bonds in the much-maligned healthcare sector. Looking Ahead There is good value out there We feel there is good value in the high-grade municipal bond sector, and plan to add some of these bonds to our portfolio going forward. High-grade bonds are now cheap relative to other sectors of the fixed-income arena, and should be one of the top performers over the next year. Moreover, if the anticipated slowdown in the U.S. economy takes place, a longer-duration stance could benefit the Fund. We will look to extend our duration by adding bonds to the Fund with longer maturities, as well as noncallable bonds. Five Largest Issuers Expressed as a percentage of net assets as of 6/30/99 New York City General Obligation 3.4% New York City Municipal Water Finance Authority 2.7% Illinois Metro Pier & Expo Authority 2.3% Ohio State Water Development Authority 2.1% Anaheim Public Finance Authority 2.0% Portfolio Composition Expressed as a percentage of total investments as of 6/30/99 General Obligation 23.2% Utility 19.7 Other Revenue 18.0 Industrial Development 13.9 Transportation 10.4 Prerefunded 8.9 Miscellaneous 4.2 Cash Equivalents 1.7 Credit Quality Expressed as a percentage of total investments as of 6/30/99 AAA 10.5% AA 6.4 A 10.6 BBB 18.0 Insured 51.6 Not Rated 2.9 Investment Goals and Style We invest in carefully selected, medium-quality, long-term municipal bonds that 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. 1 Portfolio of Investments as of June 30, 1999 (Unaudited) PRUDENTIAL NATIONAL MUNICIPALS FUND, INC. - --------------------------------------------------------------------------------
Principal Moody's Interest Maturity Amount Value Description(a) Rating Rate Date (000) (Note 1) - ------------------------------------------------------------------------------------------------------------------------------ LONG-TERM INVESTMENTS--97.7% - ------------------------------------------------------------------------------------------------------------------------------ Alaska--1.8% Alaska Ind. Dev. & Expt. Auth. Rev., Revolving Fd. A2 5.40% 4/01/01 $ 900 $ 916,479 Anchorage Elec. Util. Rev., M.B.I.A. Aaa 6.50 12/01/12 3,400 (h) 3,844,142 M.B.I.A. Aaa 6.50 12/01/13 2,500 (h) 2,834,925 M.B.I.A. Aaa 6.50 12/01/14 3,455 (h) 3,927,160 ------------ 11,522,706 - ------------------------------------------------------------------------------------------------------------------------------ Arizona--3.4% Arizona St. Mun. Fin. Proj., Cert. of Part., Ser. 25, B.I.G. Aaa 7.875 8/01/14 2,250 (h) 2,830,500 Maricopa Cnty. Sch. Dist., A.M.B.A.C., No. 3 Tempe Elem. Aaa Zero 7/01/09 1,500 903,750 No. 3 Tempe Elem. Aaa Zero 7/01/14 1,500 670,470 Maricopa Cnty. Uni. Sch. Dist., No. 80 Chandler, F.G.I.C. Aaa Zero 7/01/09 1,330 801,325 No. 80 Chandler, M.B.I.A. Aaa Zero 7/01/10 1,050 596,243 No. 80 Chandler, M.B.I.A. Aaa Zero 7/01/11 1,200 641,976 No. 80 Chandler, F.G.I.C., E.T.M. Aaa 6.25 7/01/11 375 417,281 No. 80 Chandler, F.G.I.C. Aaa 6.25 7/01/11 625 685,394 Phoenix Str. & Hwy. User Rev., Ser. A, F.G.I.C. Aaa Zero 7/01/12 2,500 1,259,925 Pima Cnty. Ind. Dev. Auth. Rev., F.S.A. Aaa 7.25 7/15/10 1,935 (h) 2,102,474 Pima Cnty. Uni. Sch. Dist., Gen. Oblig., F.G.I.C. Aaa 7.50 7/01/10 3,000 (f) 3,613,260 Tucson Cnty. Gen. Oblig., Ser. A Aa3 7.375 7/01/11 1,000 1,200,950 Ser. A Aa3 7.375 7/01/12 1,100 1,330,593 Ser. A Aa3 7.375 7/01/13 4,500 5,478,075 ------------ 22,532,216 - ------------------------------------------------------------------------------------------------------------------------------ California--8.0% Abag Fin. Auth. for Nonprofit Corps., Cert. of Part., Amer. Baptist Homes., Ser. A BBB(d) 6.20 10/01/27 2,200 2,286,020 Anaheim Pub. Fin. Auth. Lease Rev., F.S.A., Sr. Pub. Impvts. Proj., Ser. A Aaa 6.00 9/01/24 5,500 6,006,935 Sub. Pub. Impvts. Proj., Ser. C Aaa 6.00 9/01/16 6,690 7,300,329 Encinitas Union Sch. Dist., Gen. Oblig., M.B.I.A Aaa Zero 8/01/21 3,810 1,128,674 Kern High Sch. Dist., Ser. A, M.B.I.A. Aaa 6.30 2/01/10 2,490 2,781,679 Long Beach Aquarium of the Pacific Rev., Ser. A, A.M.T. BBB(d) 6.125 7/01/23 6,000 6,154,320 Long Beach Harbor Rev., Ser. A, F.G.I.C., A.M.T. Aaa 6.00 5/15/18 4,000 4,306,280
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 2 Portfolio of Investments as of June 30, 1999 (Unaudited) PRUDENTIAL NATIONAL MUNICIPALS FUND, INC. - --------------------------------------------------------------------------------
Principal Moody's Interest Maturity Amount Value Description(a) Rating Rate Date (000) (Note 1) - ------------------------------------------------------------------------------------------------------------------------------ California (cont'd.) Los Angeles Uni. Sch. Dist., Ser. A, F.G.I.C. Aaa 6.00% 7/01/15 $ 1,000 $ 1,089,610 San Jose Redev. Agcy., Tax Alloc., M.B.I.A. Aaa 6.00 8/01/11 5,000 5,473,000 Santa Cruz Cnty. Pub. Fin. Auth. Rev., Ser. B A-(d) 6.20 9/01/23 2,000 2,088,580 Santa Margarita Dana Point Auth., M.B.I.A., Impvt. Dists. 3-3A-4 & 4A, Ser. B Aaa 7.25 8/01/09 2,000 2,385,020 Impvt. Dists. 3-3A-4 & 4A, Ser. B Aaa 7.25 8/01/10 2,450 2,939,706 Impvt. Dists. 3-3A-4 & 4A, Ser. B Aaa 7.25 8/01/14 2,000 2,440,740 Santa Monica Malibu Uni. Sch. Dist., Gen. Oblig., F.G.I.C. Aaa Zero 8/01/21 7,280 2,156,627 So. Orange Cnty. Pub. Fin. Auth. Rev., Ser. C, F.G.I.C. Aaa 6.50 8/15/10 2,000 2,260,780 So. Whittier Elem. Sch. Dist., Gen. Oblig., Ser. A, F.G.I.C. Aaa Zero 8/01/12 810 410,071 West Contra Costa Sch. Dist., Cert. of Part. Baa3 7.125 1/01/24 1,600 1,758,896 ------------ 52,967,267 - ------------------------------------------------------------------------------------------------------------------------------ Colorado--3.7% Arapahoe Cnty. Cap. Impvt. Trust Fund, Hwy. Rev., Ser. E-470 Aaa 7.00 8/31/26 3,000 (b) 3,459,300 Colorado Hsg. Fin. Auth., A.M.T. Singl. Fam. Proj. Aa2 8.00 6/01/25 2,440 2,596,282 Singl. Fam. Proj., Ser. A-2 Aa2 7.25 5/01/27 2,000 2,210,080 Singl. Fam. Proj., Ser. B-1 Aa2 7.90 12/01/25 1,485 1,609,398 Singl. Fam. Proj., Ser. C-1, M.B.I.A. Aaa 7.65 12/01/25 3,640 4,046,588 Singl. Fam. Proj., Ser. C-2 Aa2 6.875 11/01/28 2,000 2,210,920 Colorado Springs Arpt. Rev., Ser. A., A.M.T. BBB+(d) 7.00 1/01/22 7,960 (f) 8,565,040 ------------ 24,697,608 - ------------------------------------------------------------------------------------------------------------------------------ Connecticut--2.3% Connecticut St. Hlth. & Edu. Facs. Auth. Rev., St. Mary's Hosp. Issue, Ser. E A3 5.50 7/01/20 5,650 5,406,089 St. Mary's Hosp. Issue, Ser. E A3 5.875 7/01/22 1,750 1,724,608 Univ. of Hartford, Ser. D Ba1 6.75 7/01/12 5,725 5,943,180 Connecticut St. Spec. Tax Oblig. Rev., Trans. Infrastructure, Ser. A AA-(d) 7.00 6/01/03 1,000 (b) 1,063,610 Trans. Infrastructure, Ser. A A1 7.125 6/01/10 1,000 1,164,330 ------------ 15,301,817 - ------------------------------------------------------------------------------------------------------------------------------ District Of Columbia--1.0% Dist. of Columbia, M.B.I.A, Gen. Oblig., Ser. B Aaa 6.00 6/01/13 1,000 1,073,360 Gen. Oblig., Ser. B Aaa 6.00 6/01/21 5,000 5,394,600 ------------ 6,467,960
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 3 Portfolio of Investments as of June 30, 1999 (Unaudited) PRUDENTIAL NATIONAL MUNICIPALS FUND, INC. - --------------------------------------------------------------------------------
Principal Moody's Interest Maturity Amount Value Description(a) Rating Rate Date (000) (Note 1) - ------------------------------------------------------------------------------------------------------------------------------ Florida--2.4% Broward Cnty. Res. Rec. Rev., Broward Co. L.P. South Proj. A3 7.95% 12/01/08 $ 7,895 $ 8,244,196 Florida St. Brd. of Ed., Gen. Oblig. Aa2 9.125 6/01/14 1,260 (h) 1,715,376 Hillsborough Cnty. Ind. Dev. Auth. Poll. Ctrl. Rev., Tampa Elec. Proj. Aa3 8.00 5/01/22 5,000 5,587,100 Palm Beach Cnty. Hlth. Facs. Auth. Rev., Abbey Delray So. Proj. BBB(d) 5.30 10/01/07 500 503,325 ------------ 16,049,997 - ------------------------------------------------------------------------------------------------------------------------------ Georgia--2.7% Atlanta Wtr. & Wastewtr. Rev., Ser. A, F.G.I.C. Aaa 5.50 11/01/22 3,000 3,075,510 Burke Cnty. Dev. Auth., Poll. Cntrl. Rev., M.B.I.A., Georgia Pwr. Co. Aaa 6.625 10/01/24 500 (h) 513,260 Oglethorpe Pwr. Co. Aaa 8.00 1/01/22 5,000 b)(h) 5,712,500 Oglethorpe Pwr. Co., E.T.M. Aaa 7.50 1/01/03 712 755,233 Forsyth Cnty. Sch. Dist. Dev. Rev. Aa3 6.75 7/01/16 500 580,880 Fulton Cnty. Sch. Dist. Rev. Aa2 6.375 5/01/17 750 (h) 848,745 Georgia Mun. Elec. Auth. Pwr. Rev., Ser. B A3 6.25 1/01/17 475 515,270 Ser. B, M.B.I.A. Aaa 6.375 1/01/16 5,000 5,604,050 Green Cnty. Dev. Auth. Indl. Park Rev. NR 6.875 2/01/04 395 415,911 ------------ 18,021,359 - ------------------------------------------------------------------------------------------------------------------------------ Guam--0.2% Guam Pwr. Auth. Rev., Ser. A BBB(d) 6.625 10/01/14 1,000 (b) 1,110,690 - ------------------------------------------------------------------------------------------------------------------------------ Hawaii--1.2% Hawaii St. Dept. Budget & Fin. Spl. Purp. Mtg. Rev., Hawaiian Elec. Co., Ser. A, M.B.I.A., A.M.T. Aaa 5.65 10/01/27 5,000 5,033,600 Hawaiian Elec. Co., Ser. C, M.B.I.A., A.M.T. Aaa 7.375 12/01/20 500 530,005 Kapiolani Hlth. Care Sys. A2 6.30 7/01/08 500 534,725 Kapiolani Hlth. Care Sys. A2 6.00 7/01/11 250 262,035 Hawaii St., Gen. Oblig., Ser. CJ Aaa 6.25 1/01/15 650 (b) 702,930 Hawaii St. Harbor Cap. Impvt. Rev., A.M.T., F.G.I.C. Aaa 6.25 7/01/10 250 267,702 F.G.I.C. Aaa 6.25 7/01/15 500 533,340 ------------ 7,864,337 - ------------------------------------------------------------------------------------------------------------------------------ Illinois--4.5% Chicago Brd. of Ed., Gen. Oblig., F.G.I.C., Sch. Reform, Ser. A Aaa Zero 12/01/29 15,600 2,740,296 Sch. Reform, Ser. B-1 Aaa Zero 12/01/12 1,500 726,135 Sch. Reform, Ser. B-1 Aaa Zero 12/01/17 10,000 (f) 3,577,000
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 4 Portfolio of Investments as of June 30, 1999 (Unaudited) PRUDENTIAL NATIONAL MUNICIPALS FUND, INC. - --------------------------------------------------------------------------------
Principal Moody's Interest Maturity Amount Value Description(a) Rating Rate Date (000) (Note 1) - ------------------------------------------------------------------------------------------------------------------------------ Illinois (cont'd.) Cook and Du Page Cntys., High Sch. Dist No. 210, Gen. Oblig., F.S.A. Aaa Zero 12/01/11 $ 3,035 $ 1,573,496 Illinois Dev. Fin. Auth. Rev., Cmnty. Rehab. Providers, Ser. A BBB(d) 6.00% 7/01/15 2,000 2,010,440 Illinois Hlth. Facs. Auth. Rev., Loyola Univ. Hlth. Sys., Ser. A, M.B.I.A. Aaa 6.00 7/01/14 3,500 3,758,895 Metropolitan Pier & Expo. Auth., Hosptlty. Fac. Rev., McCormick Pl. Conv. BBB-(d) 7.00 7/01/26 12,910 15,049,961 ------------ 29,436,223 - ------------------------------------------------------------------------------------------------------------------------------ Indiana--0.6% Gary Ind. Mtge. Rev., Lakeshore Dunes Apts., Ser. A, G.N.M.A. NR 5.875 2/20/23 2,000 1,999,820 Lakeshore Dunes Apts., Ser. A, G.N.M.A. NR 6.00 8/20/34 2,000 1,999,820 ------------ 3,999,640 - ------------------------------------------------------------------------------------------------------------------------------ Kentucky--1.0% Henderson Cnty. Solid Waste Disp. Rev., Macmillan Bloedel Proj., A.M.T. Baa2 7.00 3/01/25 6,000 6,366,840 - ------------------------------------------------------------------------------------------------------------------------------ Louisiana--4.6% New Orleans, Gen. Oblig., A.M.B.A.C. Aaa Zero 9/01/09 13,500 8,025,480 Orleans Parish Sch. Brd., E.T.M., M.B.I.A. Aaa 8.90 2/01/07 5,780 (h) 7,272,396 St. Charles Parish, Env. Impt. Rev., Louisiana Pwr. & Lt. Co. Proj., Ser. A, A.M.T. Baa2 6.875 7/01/24 5,000 5,368,800 St. Charles Parish, Poll. Ctrl. Rev., Lousiana Pwr. & Lt. Co. Proj. Baa3 8.25 6/01/14 4,000 4,122,920 Lousiana Pwr. & Lt. Co. Proj. Baa3 8.00 12/01/14 5,000 5,209,350 ------------ 29,998,946 - ------------------------------------------------------------------------------------------------------------------------------ Maryland--3.4% Baltimore Constr. Pub. Imprvt., Gen. Oblig., Ser. C, F.G.I.C. Aaa 5.50 10/15/16 1,000 1,036,180 Baltimore Conv. Ctr. Rev., F.G.I.C. Aaa 5.75 9/01/08 1,075 (b) 1,138,834 Baltimore Econ. Dev. Lease Rev., Armistead Partnership, Ser. A BBB+(d) 7.00 8/01/11 1,000 1,078,390 Harford Cnty., Gen. Oblig. Aa2 5.50 3/01/06 750 788,340 Maryland St. Hlth. & Higher Edu. Facs. Auth. Rev., Doctor's Cmnty. Hosp. Baa1 5.50 7/01/24 3,000 2,832,930 Howard Cnty. Gen. Hosp., E.T.M. Aaa 5.50 7/01/21 500 506,880 Mercy Medical Center, F.S.A. Aaa 5.75 7/01/26 1,000 1,024,690 Maryland St. Ind. Dev. Fin. Auth. Rev., Amer. Ctr. Physics Headqrtrs. BBB(d) 6.625 1/01/17 1,000 1,063,790 Maryland St. Trans. Auth. Rev., Balt. Int'l. Arpt. Proj., Ser. A, A.M.T., F.G.I.C. Aaa 6.25 7/01/14 1,750 (h) 1,867,495
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 5 Portfolio of Investments as of June 30, 1999 (Unaudited) PRUDENTIAL NATIONAL MUNICIPALS FUND, INC. - --------------------------------------------------------------------------------
Principal Moody's Interest Maturity Amount Value Description(a) Rating Rate Date (000) (Note 1) - ------------------------------------------------------------------------------------------------------------------------------ Maryland (cont'd.) Montgomery Cnty., Gen. Oblig. Aaa 9.75% 6/01/01 $ 450 (f) $ 496,471 Gen. Oblig., Constr. Pub. Impvt., Ser. A Aaa 5.75 10/01/07 1,300 (h) 1,385,033 Northeast Waste Disp. Auth. Rev., Baltimore City Sludge Corp. Proj. NR 7.25 7/01/07 3,813 4,120,900 Montgomery Cnty. Res. Rec. Proj., Ser. A A2 6.00 7/01/07 1,000 1,058,530 Prince Georges Cnty., Gen. Oblig., Constr. Pub. Impvt. A1 5.25 10/01/11 1,000 1,014,370 Prince Georges Cnty. Hsg. Auth. Mtge. Rev., Langley Gardens Apts. Proj., Ser. A., G.N.M.A., A.M.T. AAA(d) 5.75 8/20/29 500 512,785 Prince Georges Cnty. Poll. Cntrl. Rev., Potomac Elec. Proj., M.B.I.A. Aaa 5.75 3/15/10 1,100 1,168,607 Takoma Park Hosp. Facs. Rev., Washington Adventist Hosp., F.S.A. Aaa 6.50 9/01/12 1,000 (h) 1,129,910 ------------ 22,224,135 - ------------------------------------------------------------------------------------------------------------------------------ Massachusetts--2.3% Mass. Edu. Fin. Auth., Edu. Ln. Rev., Issue G., Ser. A., M.B.I.A., A.M.T. AAA(d) 5.10 12/01/13 1,000 971,630 Mass. St. Hlth. & Edl. Facs. Auth. Rev., Mass. Inst. of Tech. Ser. I-1 Aaa 5.20 1/01/28 1,500 1,475,895 Mass. St. Wtr. Res. Auth. Rev., M.B.I.A., Ser. B Aaa 6.25 12/01/11 6,720 7,450,397 Ser. B Aaa 6.25 12/01/12 5,000 5,558,750 ------------ 15,456,672 - ------------------------------------------------------------------------------------------------------------------------------ Michigan--7.1% Brandon Sch. Dist., Gen. Oblig., F.G.I.C. Aaa 5.875 5/01/26 1,310 (b) 1,411,735 Breitung Twnshp. Sch. Dist. Ref., Gen. Oblig., M.B.I.A. Aaa 6.30 5/01/15 250 265,625 Detroit Econ. Dev. Corp., Res. Rec. Rev., Ser. A, F.S.A., A.M.T. Aaa 6.875 5/01/09 920 973,461 Detroit Sewage. Disp. Rev., Prerefunded Inflos AAA(d) 7.871 7/01/23 800 (b) 891,000 Unrefunded Balance Inflos Aaa 7.871 7/01/23 200 206,250 Detroit Wtr. Supply Sys. Rev., Ser. B, M.B.I.A. Aaa 5.55 7/01/12 1,000 1,036,610 Dexter Cmnty. Schs., Gen. Oblig., F.G.I.C. Aaa 5.10 5/01/28 10,000 9,605,500 Dickinson Cnty. Mem. Hosp. Sys. Rev. Ba1 8.00 11/01/14 1,000 1,164,500 Hillsdale Hosp. Fin. Auth. Rev., Hillsdale Cmnty. Hlth. Ctr. BBB-(d) 5.25 5/15/26 1,000 896,780 Holland Sch. Dist., Gen. Oblig., A.M.B.A.C. Aaa Zero 5/01/15 2,400 1,014,816 Huron Valley Sch. Dist., Gen. Oblig., F.G.I.C. Aaa Zero 5/01/10 3,500 (h) 1,998,220 Kalamazoo Econ. Dev. Corp. Rev., Friendship Vlg. Proj., Ser. A BBB(d) 6.125 5/15/17 1,000 1,027,500 Kent Hosp. Fac. Fin. Auth. Rev., Blodgett Mem. Med. Ctr., Ser. A A2 7.25 7/01/05 500 510,050 Lincoln Park Sch. Dist., Gen. Oblig., F.G.I.C. Aaa 7.00 5/01/20 1,500 (b) 1,714,290 Michigan Higher Ed. Rev., Ser. XIII-A, M.B.I.A., A.M.T. Aaa 7.55 10/01/08 345 363,137 Michigan Mun. Bd. Auth. Rev., Wayne Cnty. Proj., M.B.I.A., E.TM. Aaa 7.40 12/01/02 500 536,515
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 6 Portfolio of Investments as of June 30, 1999 (Unaudited) PRUDENTIAL NATIONAL MUNICIPALS FUND, INC. - --------------------------------------------------------------------------------
Principal Moody's Interest Maturity Amount Value Description(a) Rating Rate Date (000) (Note 1) - ------------------------------------------------------------------------------------------------------------------------------ Michigan (cont'd.) Michigan St. Hosp. Fin. Auth. Rev., Bay Med. Ctr., Ser. A A3 8.25% 7/01/12 $ 1,920 $ 2,036,525 Genesys Hlth. Sys., Ser. A Baa2 8.125 10/01/21 1,000 (b) 1,201,930 Genesys Hlth. Sys., Ser. A Baa2 7.50 10/01/27 500 (b) 577,085 Presbyterian Vlg. Oblig. NR 6.375 1/01/25 800 830,872 Michigan St. Hsg. Dev. Auth. Rev., Rental Hsg., Ser. A, A.M.T. AA-(d) 7.15 4/01/10 335 356,932 Rental Hsg., Ser. A, A.M.T. AA-(d) 7.70 4/01/23 500 528,550 Rental Hsg., Ser. B AA-(d) 7.55 4/01/23 1,000 1,056,350 Sngl. Fam. Mtge., Ser. A. AA+(d) 7.50 6/01/15 3,305 3,407,753 Michigan St. Strategic Fd., Ltd. Oblig. Rev., NSF Intl. Proj., Ser. A Aa3 5.75 8/01/19 1,000 1,008,620 Waste Mgmt. Inc. Proj., A.M.T. Baa3 6.625 12/01/12 1,500 1,593,930 Worthington Armstrong Venture, A.M.T. A-(d) 5.75 10/01/22 1,000 1,006,300 Monroe Cnty. Poll. Ctrl. Rev., Detroit Edison Co. Proj., F.G.I.C., A.M.T. Aaa 7.65 9/01/20 2,000 (h) 2,114,000 Oak Park, A.M.B.A.C., Gen. Oblig. Aaa 7.00 5/01/11 375 (b) 407,876 Gen. Oblig. Aaa 7.00 5/01/12 400 (b) 435,068 Okemos Pub. Sch. Dist., M.B.I.A. Aaa Zero 5/01/12 1,100 557,161 M.B.I.A. Aaa Zero 5/01/13 1,000 477,140 Posen Cons. Sch. Dist. No. 9, Gen. Oblig., M.B.I.A. Aaa 6.75 5/01/22 1,000 b)(f) 1,097,710 Redford Uni. Sch. Dist., Gen. Oblig., A.M.B.A.C. Aaa 5.50 5/01/14 655 676,464 Wayne Cnty. Bldg. Auth., Gen. Oblig., Ser. A A3 8.00 3/01/17 1,250 1,384,087 Wyandotte Elec. Rev., M.B.I.A. Aaa 6.25 10/01/08 2,000 (b) 2,185,980 ------------ 46,556,322 - ------------------------------------------------------------------------------------------------------------------------------ Minnesota--0.3% Anoka Hennepin Indpt. Sch. Dist. No.11, Gen. Oblig., Ser. C, F.S.A. Aaa Zero 2/01/12 1,575 (h) 815,362 Minneapolis St. Paul Hsg. Fin. Brd. Rev., Sngl. Fam. Mtge., G.N.M.A., A.M.T. AAA(d) 7.30 8/01/31 690 719,352 St. Paul Science Museum, Cert. of Part., E.T.M. AAA(d) 7.50 12/15/01 507 (h) 532,955 ------------ 2,067,669 - ------------------------------------------------------------------------------------------------------------------------------ Missouri--0.8% Clayton Sch. Dist., F.S.A. Aaa Zero 2/01/07 750 516,413 Missouri St. Hsg. Dev. Comn. Mtge Rev., Sngl. Fam. Homeowner Ln., Ser. A, G.N.M.A., A.M.T. AAA(d) 7.20 9/01/26 4,105 4,438,490 ------------ 4,954,903
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 7 Portfolio of Investments as of June 30, 1999 (Unaudited) PRUDENTIAL NATIONAL MUNICIPALS FUND, INC. - --------------------------------------------------------------------------------
Principal Moody's Interest Maturity Amount Value Description(a) Rating Rate Date (000) (Note 1) - ------------------------------------------------------------------------------------------------------------------------------ Nevada--2.2% Clark Cnty. Indl. Dev. Rev., Southwest Gas Corp. Proj., Ser. A, A.M.T. Baa2 6.50% 12/01/33 $ 10,000 $ 10,509,400 Nevada Hsg. Div. Multi Unit Hsg. Rev., F.N.M.A., A.M.T. AAA(d) 6.60 10/01/23 3,475 3,707,512 ------------ 14,216,912 - ------------------------------------------------------------------------------------------------------------------------------ New Hampshire--0.2% New Hampshire Higher Ed. & Hlth. Facs. Auth. Rev., New Hampshire College BBB-(d) 6.30 1/01/16 500 505,695 New Hampshire College BBB-(d) 6.375 1/01/27 1,000 1,015,290 ------------ 1,520,985 - ------------------------------------------------------------------------------------------------------------------------------ New Jersey--2.3% New Jersey Econ. Dev. Auth. Rev., Performing Arts Ctr. Proj., Ser. A, A.M.B.A.C. Aaa 6.00 6/15/08 1,410 1,523,463 New Jersey St. Hsg. & Mtge. Fin. Agcy. Rev., Ser. D, M.B.I.A., A.M.T. Aaa 7.70 10/01/29 1,415 1,447,191 New Jersey St. Tpke. Auth. Rev., Ser. C, M.B.I.A. Aaa 6.50 1/01/16 11,000 12,497,320 ------------ 15,467,974 - ------------------------------------------------------------------------------------------------------------------------------ New Mexico--0.8% New Mexico Mtge. Fin. Auth., Singl. Fam. Mtge., A.M.T. AAA(d) 6.30 7/01/28 4,985 5,233,901 - ------------------------------------------------------------------------------------------------------------------------------ New York--11.7% Greece Central Sch. Dist., F.G.I.C. Aaa 6.00 6/15/16 950 1,036,051 F.G.I.C. Aaa 6.00 6/15/17 950 1,035,662 F.G.I.C. Aaa 6.00 6/15/18 950 1,034,873 Metropolitan Trans. Auth., Trans. Facs. Rev., Ser. A, F.S.A. Aaa 5.75 7/01/11 675 706,360 Ser. A, F.S.A. Aaa 6.00 7/01/16 2,500 2,636,825 New York City Ind. Dev. Agcy., Spec. Fac. Rev., Terminal One Group Assoc. Proj., A.M.T. A3 6.00 1/01/19 2,500 2,585,500 New York City Mun. Wtr. Fin. Auth. Rev., F.G.I.C. Aaa 6.75 6/15/16 6,000 (b) 6,363,420 F.G.I.C. Aaa 6.75 6/15/16 10,565 (f) 11,141,109 New York City, Gen. Oblig., Ser. A A-(d) 7.75 8/15/04 1,950 (b) 2,121,386 Ser. A A3 7.75 8/15/04 50 53,678 Ser. B A3 8.25 6/01/06 1,500 1,785,495 Ser. B A3 7.25 8/15/07 3,500 4,008,970 Ser. D Aaa 8.00 8/01/03 1,870 (b) 2,042,826 Ser. D A3 8.00 8/01/03 150 162,855 Ser. D Aaa 8.00 8/01/04 1,110 (b) 1,212,586 Ser. D A3 8.00 8/01/04 60 65,142 Ser. D Aaa 7.65 2/01/07 4,955 (b) 5,434,644
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 8 Portfolio of Investments as of June 30, 1999 (Unaudited) PRUDENTIAL NATIONAL MUNICIPALS FUND, INC. - --------------------------------------------------------------------------------
Principal Moody's Interest Maturity Amount Value Description(a) Rating Rate Date (000) (Note 1) - ------------------------------------------------------------------------------------------------------------------------------ New York (cont'd.) New York City, Gen. Oblig., (cont'd.) Ser. D A3 7.65% 2/01/07 $ 45 $ 48,954 Ser. F A3 8.25 11/15/02 4,185 (b) 4,632,627 Ser. F A3 8.25 11/15/02 815 894,536 New York St. Dorm. Auth. Rev., Mem. Sloan Kettering Cancer Ctr., M.B.I.A. Aaa 5.75 7/01/20 4,000 4,231,640 New York St. Env. Facs. Corp., Poll. Ctrl. Rev. Aaa 5.80 1/15/14 1,280 1,342,835 New York St. Local Gov't. Assist. Corp. Rev., Ser. E A3 6.00 4/01/14 5,000 5,418,800 New York St. Urban Dev. Corp. Rev., F.S.A., Correctional Facs. Aaa 6.50 1/01/09 3,000 3,334,710 Correctional Facs., Ser. A Aaa 5.50 1/01/14 3,000 3,097,050 Suffolk Cnty., Gen. Oblig., Ser. A, F.G.I.C. Aaa 5.25 8/01/13 1,325 1,336,766 Triborough Bridge & Tunl. Auth. Rev., Ser. X, M.B.I.A. Aaa 6.625 1/01/12 8,500 (h) 9,679,035 ------------ 77,444,335 - ------------------------------------------------------------------------------------------------------------------------------ North Dakota--1.6% Mercer Cnty. Poll. Ctrl. Rev., Antelope Valley Station, A.M.B.A.C. Aaa 7.20 6/30/13 9,000 10,629,900 - ------------------------------------------------------------------------------------------------------------------------------ Ohio--2.8% Franklin Cnty. Hosp. Rev., Doctors Ohio Hlth. Corp., Ser. A Baa3 5.60 12/01/28 5,000 4,659,850 Ohio St. Wtr. Dev. Auth. Poll. Ctrl. Facs. Rev., Buckeye Pwr. Inc. Proj., A.M.B.A.C. Aaa 7.80 11/01/14 12,220 14,060,088 ------------ 18,719,938 - ------------------------------------------------------------------------------------------------------------------------------ Oklahoma--2.8% McGee Creek Auth. Wtr. Rev., M.B.I.A. Aaa 6.00 1/01/23 7,000 7,546,280 Tulsa Mun. Arpt. Trust Rev., A.M.T. Baa1 7.375 12/01/20 10,000 10,561,200 ------------ 18,107,480 - ------------------------------------------------------------------------------------------------------------------------------ Pennsylvania--3.0% Beaver Cnty. Ind. Dev. Auth., Poll. Cntrl. Rev., Ohio Edison Co. Proj., Ser. A Baa3 4.65 6/01/33 5,000 4,951,750 Clarion Cnty. Hosp. Auth. Rev., Clarion Hosp. Proj. BBB-(d) 5.60 7/01/10 685 682,383 Delaware Cnty. Ind. Dev. Auth. Rev., Res. Rec. Fac., Ser. A B2 6.20 7/01/19 3,000 3,054,210 Montgomery Cnty. Ind. Dev. Auth., Retirement Cmnty. Rev. A-(d) 5.25 11/15/28 2,000 1,809,160 Montgomery Cnty. Redev. Auth., Multifam. Hsg. Rev., KBF Assoc. L.P. Proj., Ser. A NR 5.75 7/01/99 395 395,008 Pennsylvania St., Cert. of Part., F.S.A. Aaa 6.25 11/01/06 600 635,874 Pennsylvania Econ. Dev. Fin. Auth., Solid Waste Disp. Rev., A.M.T. Baa2 6.00 6/01/31 4,500 (g) 4,499,730 Philadelphia Hosp. & Higher Edl. Facs. Auth. Rev., Children's Seashore House, Ser. A A-(d) 7.00 8/15/03 1,000 1,067,040 Philadelphia Wtr. & Waste Auth. Rev., M.B.I.A. Aaa 6.25 8/01/11 2,500 2,749,750 ------------ 19,844,905
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 9 Portfolio of Investments as of June 30, 1999 (Unaudited) PRUDENTIAL NATIONAL MUNICIPALS FUND, INC. - --------------------------------------------------------------------------------
Principal Moody's Interest Maturity Amount Value Description(a) Rating Rate Date (000) (Note 1) - ------------------------------------------------------------------------------------------------------------------------------ Puerto Rico--3.6% Puerto Rico Comnwlth., Gen. Oblig. Baa1 6.50% 7/01/13 $ 3,000 $ 3,387,720 Puerto Rico Comnwlth. Hwy. & Trans. Auth. Rev., Ser. A, A.M.B.A.C. Aaa Zero 7/01/18 2,500 918,375 Ser. V Baa1 6.375 7/01/08 500 530,300 Ser. V Baa1 6.625 7/01/12 4,000 4,301,600 Puerto Rico Comnwlth. Hwy. Auth. Rev., Ser. Q AAA(d) 7.75 7/01/16 1,000 b)(h) 1,061,760 Puerto Rico Ind., Tourist Ed. Med. & Env. Ctrl. Facs. Rev., Dr. Pila Hosp. Proj., F.H.A. AAA(d) 6.125 8/01/25 500 534,730 Hosp. Auxilio Mutuo Oblig. Grp. Proj., M.B.I.A. Aaa 6.25 7/01/16 500 536,615 Puerto Rico Mun. Fin. Agcy. Rev., Ser. A, F.S.A. Aaa 6.00 7/01/14 250 263,760 Puerto Rico Tel. Auth. Rev., M.B.I.A. Aaa 7.127(c) 1/25/07 4,100 (b) 4,366,500 M.B.I.A. Aaa 7.29 (c) 1/16/15 7,150 b)(h) 7,730,938 ------------ 23,632,298 - ------------------------------------------------------------------------------------------------------------------------------ South Carolina--1.5% Charleston Wtrwks. & Swr. Rev., E.T.M. Aaa 10.375 1/01/10 7,415 (h) 9,845,563 - ------------------------------------------------------------------------------------------------------------------------------ Tennessee--1.7% Bristol Hlth. & Edl. Fac. Rev., Bristol Memorial Hosp., F.G.I.C. Aaa 6.75 9/01/10 5,000 (f) 5,718,400 McMinn Cnty. Ind. Dev. Brd. Solid Waste Rev., Recycling Fac., A.M.T. Baa1 7.40 12/01/22 5,000 5,443,050 ------------ 11,161,450 - ------------------------------------------------------------------------------------------------------------------------------ Texas--5.9% Bexar Cnty. Hlth. Facs. Dev. Corp. Rev., Baptist Hlth. Sys., Ser. A, M.B.I.A. Aaa 6.00 11/15/14 5,695 6,128,902 Dallas Ft. Worth, Regl. Arpt. Rev., F.G.I.C., Ser. A Aaa 7.375 11/01/08 3,500 3,966,200 Ser. A Aaa 7.375 11/01/09 3,500 3,966,200 Houston Higher Ed. Fin. Corp. Rev., Rice Univ. Proj., Ser. A Aaa 5.375 11/15/29 4,150 (g) 4,091,651 Houston Indpt. Sch. Dist., Gen. Oblig., Ser. A Aaa 5.00 2/15/24 3,000 2,783,520 Keller Indpt. Sch. Dist. Rev. Aaa 6.00 8/15/23 3,970 4,328,451 Lakeway Mun. Util. Dist., Gen. Oblig., Ser. A, F.G.I.C. Aaa Zero 9/01/11 1,425 751,289 Leander Indpt. Sch. Dist., Gen. Oblig. AAA(d) 5.40 8/15/22 2,000 (g) 1,983,440 New Braunfels Indpt., Sch. Dist. Rev. Aaa Zero 2/01/10 2,335 1,347,669 Sch. Dist. Rev. Aaa Zero 2/01/11 2,365 1,285,732
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 10 Portfolio of Investments as of June 30, 1999 (Unaudited) PRUDENTIAL NATIONAL MUNICIPALS FUND, INC. - --------------------------------------------------------------------------------
Principal Moody's Interest Maturity Amount Value Description(a) Rating Rate Date (000) (Note 1) - ------------------------------------------------------------------------------------------------------------------------------ Texas (cont'd.) Port Corpus Christ. Auth. Rev., A2 7.50% 8/01/12 $ 2,000 $ 2,113,240 San Antonio Elec. & Gas Rev., Ser. B, F.G.I.C. Aaa Zero 2/01/09 5,000 3,079,600 Tyler Tex. Hlth. Facs. Dev. Corp. Rev., Mother Frances Hosp., Ser. A Baa2 5.50 7/01/09 1,000 987,750 Univ. of Texas, Univ. Rev., Ser. B Aa1 6.75 8/15/13 2,035 2,172,403 ------------ 38,986,047 - ------------------------------------------------------------------------------------------------------------------------------ U. S. Virgin Islands--0.1% Virgin Islands Pub. Fin. Auth. Rev., Matching Ln. Nts., Ser. A NR 7.25 10/01/18 250 (b) 277,140 Virgin Islands Wtr. & Pwr. Auth., Elec. Sys. Rev., Ser. A NR 7.40 7/01/11 435 (b) 465,611 ------------ 742,751 - ------------------------------------------------------------------------------------------------------------------------------ Utah--0.2% Utah St. Brd. of Regents, Student Ln. Rev., Ser. F, A.M.B.A.C., A.M.T. Aaa 7.00 11/01/01 1,000 (f) 1,057,980 - ------------------------------------------------------------------------------------------------------------------------------ Washington--4.1% Chelan Cnty. Pub. Util., Dist. No. 1, Columbia River Rock Hydro Elec. Sys. Rev., Ser. A, M.B.I.A. Aaa Zero 6/01/15 15,000 (f) 6,207,300 Washington St. Pub. Pwr. Supply Sys. Rev., Nuclear Proj. No. 1, Ser. A, F.S.A. Aaa 7.00 7/01/08 4,000 4,552,480 Nuclear Proj. No. 1, Ser. B, F.S.A. Aaa 7.25 7/01/09 5,000 5,811,550 Nuclear Proj. No. 2, F.S.A. Aaa 5.40 7/01/12 5,400 5,424,192 Nuclear Proj. No. 3, Ser. B, F.G.I.C. Aaa Zero 7/01/06 3,000 2,131,620 Washington St., Gen. Oblig., Ser. R-97A Aa1 Zero 7/01/16 8,000 3,159,120 ------------ 27,286,262 - ------------------------------------------------------------------------------------------------------------------------------ Wisconsin--1.9% Southeast Wisconsin Professional Baseball Park Dist. Sales Tax Rev., M.B.I.A. Aaa 5.50 12/15/26 2,500 2,535,500 Wisconsin Hsg. & Econ. Dev. Auth., Home Ownership Rev., A.M.T. Aa2 6.20 3/01/27 2,100 2,170,938 Wisconsin St. Hlth. & Edu. Fac. Auth. Rev., Aurora Hlth. Care Inc. Proj., Ser. A A-(d) 5.60 2/15/29 2,000 1,873,920 Aurora Hlth. Care Inc. Proj., Ser. B A-(d) 5.625 2/15/29 1,000 939,080 Howard Young Med. Ctr. Inc. Proj. A-(d) 5.125 8/15/28 5,710 5,047,069 ------------ 12,566,507 ------------ Total long-term investments (cost $615,176,619) 644,062,495 ------------
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 11 Portfolio of Investments as of June 30, 1999 (Unaudited) PRUDENTIAL NATIONAL MUNICIPALS FUND, INC. - --------------------------------------------------------------------------------
Principal Moody's Interest Maturity Amount Value Description(a) Rating Rate Date (000) (Note 1) - ------------------------------------------------------------------------------------------------------------------------------ SHORT-TERM INVESTMENTS--1.2% - ------------------------------------------------------------------------------------------------------------------------------ Nevada--0.2% Washoe Cnty. Wtr. Facs. Rev., Sierra Pac. Pwr. Co. Proj., F.R.D.D. P-1 3.55% 7/01/99 $ 1,800 (e) $ 1,800,000 - ------------------------------------------------------------------------------------------------------------------------------ Texas--0.9% Brazos Riv. Hbr. Rev., Nav. Dist., Dow Chemical Co. Proj., Ser. 92A, F.R.D.D. P-1 3.60 7/01/99 2,200 (e) 2,200,000 Gulf Coast Ind. Dev. Auth. Rev., CITGO Petroleum Proj., Ser. 94, F.R.D.D. VMIG1 3.55 7/01/99 100 (e) 100,000 CITGO Petroleum Proj., Ser. 95, F.R.D.D. VMIG1 3.55 7/01/99 3,500 (e) 3,500,000 ------------ 5,800,000 - ------------------------------------------------------------------------------------------------------------------------------ Virginia--0.1% Hopewell Va. Ind. Dev. Auth. Rev., Hadson Pwr. Prog. 13, Ser. 90A, F.R.D.D. P-1 3.65 7/01/99 700 (e) 700,000 ------------ Total short-term investments (cost $8,300,000) 8,300,000 ------------ Total Investments--98.9% (cost $623,476,619; Note 4) 652,362,495 Other assets in excess of liabilities--1.1% 6,954,525 ------------ Net Assets--100% $659,317,020 ------------ ------------
- --------------- (a) The following abbreviations are used in portfolio descriptions: A.M.B.A.C.--American Municipal Bond Assurance Corporation A.M.T.--Alternative Minimum Tax B.I.G.--Bond Investors Guaranty Insurance Company 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.S.A.--Financial Security Assurance G.N.M.A.--Government National Mortgage Association M.B.I.A.--Municipal Bond Insurance Association (b) Prerefunded issues are secured by escrowed cash and 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 year-end. (d) Standard and 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) Pledged as initial margin on financial futures contracts. (g) Represents when-issued or extended settlement security. (h) Segregated as collateral for when-issued or extended settlement security. NR--Not Rated by Moody's or Standard & Poor's. The Fund's current Statement of Additional Information contains a description of Moody's and Standard & Poor's ratings. - -------------------------------------------------------------------------------- See Notes to Financial Statements. 12 Statement of Assets and Liabilities (Unaudited) PRUDENTIAL NATIONAL MUNICIPALS FUND, INC. - --------------------------------------------------------------------------------
Assets June 30, 1999 Investments, at value (cost $623,476,619)................................................................... $652,362,495 Interest receivable......................................................................................... 10,855,579 Receivable for investments sold............................................................................. 8,639,751 Due from broker-variation margin............................................................................ 131,250 Receivable for Fund shares sold............................................................................. 55,532 Deferred expenses and other assets.......................................................................... 11,000 ------------- Total assets............................................................................................. 672,055,607 ------------- Liabilities Bank overdraft.............................................................................................. 33,788 Payable for investments purchased........................................................................... 10,598,292 Payable for Fund shares reacquired.......................................................................... 1,159,800 Dividends payable........................................................................................... 270,655 Accrued expenses............................................................................................ 259,154 Management fee payable...................................................................................... 245,072 Distribution fee payable.................................................................................... 161,851 Deferred director's fee..................................................................................... 9,975 ------------- Total liabilities........................................................................................ 12,738,587 ------------- Net Assets.................................................................................................. $659,317,020 ------------- ------------- Net assets were comprised of: Common stock, at par..................................................................................... $ 427,756 Paid-in capital in excess of par......................................................................... 628,609,177 ------------- 629,036,933 Accumulated net realized gain on investments............................................................. 1,183,274 Net unrealized appreciation on investments............................................................... 29,096,813 ------------- Net assets, June 30, 1999................................................................................... $659,317,020 ------------- ------------- Class A: Net asset value and redemption price per share ($538,995,357 / 34,983,889 shares of common stock issued and outstanding)............................. $15.41 Maximum sales charge (3% of offering price).............................................................. .48 ------------- Maximum offering price to public......................................................................... $15.89 ------------- ------------- Class B: Net asset value, offering price and redemption price per share ($116,182,578 / 7,523,412 shares of common stock issued and outstanding).............................. $15.44 ------------- ------------- Class C: Net asset value and redemption price per share ($2,587,215 / 167,531 shares of common stock issued and outstanding).................................. $15.44 Sales charge (1% of offering price)...................................................................... .16 ------------- Offering price to public................................................................................. $15.60 ------------- ------------- Class Z: Net asset value, offering price and redemption price per share ($1,551,870 / 100,787 shares of common stock issued and outstanding).................................. $15.40 ------------- -------------
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 13 PRUDENTIAL NATIONAL MUNICIPALS FUND, INC. Statement of Operations (Unaudited) - ------------------------------------------------------------
Six Months Ended Net Investment Income June 30, 1999 Income Interest................................... $19,099,861 ------------- Expenses Management fee............................. 1,611,563 Distribution fee--Class A.................. 678,024 Distribution fee--Class B.................. 320,709 Distribution fee--Class C.................. 9,765 Transfer agent's fees and expenses......... 247,000 Custodian's fees and expenses.............. 71,000 Reports to shareholders.................... 50,000 Audit fees and expenses.................... 19,000 Registration fees.......................... 17,000 Directors' fees............................ 16,000 Legal fees and expenses.................... 16,000 Insurance expense.......................... 4,000 Miscellaneous.............................. 2,197 ------------- Total expenses.......................... 3,062,258 Custodian fee credit....................... (6,841) ------------- Net expenses............................ 3,055,417 ------------- Net investment income......................... 16,044,444 ------------- Realized and Unrealized Gain (Loss) on Investments Net realized gain on: Investment transactions.................... 1,884,741 Financial futures contracts................ 27,719 ------------- 1,912,460 ------------- Net change in unrealized appreciation on: Investments................................ (21,699,800) Financial futures.......................... 321,874 ------------- (21,377,926) ------------- Net loss on investment transactions........... (19,465,466) ------------- Net Decrease in Net Assets Resulting from Operations..................... $(3,421,022) ------------- -------------
PRUDENTIAL NATIONAL MUNICIPALS FUND, INC. Statement of Changes in Net Assets (Unaudited) - ------------------------------------------------------------
Six Months Ended Year Ended Increase (Decrease) June 30, December 31, in Net Assets 1999 1998 Operations Net investment income........ $ 16,044,444 $ 29,590,250 Net realized gain on investment transactions... 1,912,460 2,809,051 Net change in unrealized appreciation on investments............... (21,377,926) (619,579) ------------- ------------- Net increase (decrease) in net assets resulting from operations................ (3,421,022) 31,779,722 ------------- ------------- Dividends and distributions (Note 1) Dividends from net investment income Class A................... (13,028,100) (23,636,186) Class B................... (2,918,918) (5,888,290) Class C................... (56,105) (65,774) Class Z................... (41,321) -- ------------- ------------- (16,044,444) (29,590,250) ------------- ------------- Distributions in excess of net investment income Class A................... -- (17,881) Class B................... -- (4,429) Class C................... -- (86) ------------- ------------- -- (22,396) ------------- ------------- Distributions from net realized capital gains Class A................... -- (3,635,575) Class B................... -- (906,642) Class C................... -- (16,469) ------------- ------------- -- (4,558,686) ------------- ------------- Fund share transactions (net of share conversions) (Note 5 & 6): Net proceeds from shares sold...................... 202,553,842 76,423,080 Net asset value of shares issued in reinvestment of dividends and distributions............. 10,061,116 21,262,728 Cost of shares reacquired.... (137,752,903) (126,905,006) ------------- ------------- Increase (decrease) in net assets from Fund share transactions.............. 74,862,055 (29,219,198) ------------- ------------- Total increase (decrease)....... 55,396,589 (31,610,808) Net Assets Beginning of period............. 603,920,431 635,531,239 ------------- ------------- End of period................... $ 659,317,020 $ 603,920,431 ------------- ------------- ------------- -------------
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 14 Notes to Financial Statements (Unaudited) PRUDENTIAL NATIONAL MUNICIPALS FUND, INC. - -------------------------------------------------------------------------------- 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. All Securities are valued as of 4:15 p.m., New York time. 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 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. 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 its existing portfolio securities, or securities the Fund intends to purchase, against fluctuations in value 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 and losses on sales of portfolio securities are calculated on the identified cost basis. Interest income is recorded on an 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. 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. - -------------------------------------------------------------------------------- 15 Notes to Financial Statements (Unaudited) PRUDENTIAL NATIONAL MUNICIPALS FUND, INC. - -------------------------------------------------------------------------------- Federal Income Taxes: It is the intent of the Fund to continue to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its net income to its shareholders. For this reason, no federal income tax provision is required. Dividends and Distributions: Dividends from net investment income are declared daily and paid monthly. The Fund will distribute at least annually any net capital gains. Dividends and distributions are recorded on the ex-dividend date. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Custody Fee Credits: The Fund has an arrangement with its custodian bank, whereby uninvested monies earn credits which reduce the fees charged by the custodian. - ------------------------------------------------------------ Note 2. Agreements The Fund has a management agreement with Prudential Investments Fund Management LLC ('PIFM'). Pursuant to this agreement, PIFM has responsibility for all investment advisory services and supervises the subadviser's performance of such services. PIFM has entered into a subadvisory agreement with The Prudential Investment Corporation ('PIC'); PIC furnishes investment advisory services in connection with the management of the Fund. PIFM pays for the cost of the subadviser's services, the compensation of officers of the Fund, occupancy and certain clerical and bookkeeping costs of the Fund. The Fund bears all other costs and expenses. The management fee paid PIFM is computed daily and payable monthly at an annual rate of .50% of 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 them. The distribution fees were 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 with respect to Class A, B and C shares, for distribution-related activities at an annual rate of up to .30 of 1%, .50 of 1% and 1%, of the average daily net assets of the Class A, B and C shares, respectively. Such expenses under the Plans were .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, 1999. PIMS has advised the Fund that it received approximately $35,400 and $3,600 in front-end sales charges resulting from sales of Class A and Class C shares, respectively, during the six months ended June 30, 1999. From these fees, PIMS paid 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, 1999, it received approximately $76,500 and $1,000 in contingent deferred sales charges imposed upon certain redemptions by Class B and Class C shareholders, respectively. PIFM, PIC and PIMS are indirect, wholly owned subsidiaries of The Prudential Insurance Company of America. As of March 11, 1999, the Company along with other unaffiliated registered investment companies (the 'Funds'), entered into a syndicated agreement ('SCA') with an unaffiliated lender. The maximum commitment under the SCA is $1 billion. The Funds pay a commitment fee at an annual rate of .065 of 1% on the unused portion of the credit facility, which is accrued and paid quarterly on a pro rata basis by the Funds. The SCA expires on March 9, 2000. Prior to March 11, 1999, the Funds had a credit agreement with a maximum commitment of $200,000,000. Interest on any such borrowings outstanding will be at market rates. The commitment fee was .055 of 1% on the unused portion of the credit facility. The Fund did not borrow any amounts pursuant to either agreement during the six months ended June 30, 1999. The purpose of the agreements is to serve as an alternative source of funding for capital share redemptions. - ------------------------------------------------------------ Note 3. Other Transactions with Affiliates Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned subsidiary of PIFM, serves as the Fund's transfer agent and during the six months ended June 30, 1999, the Fund incurred fees of approximately $206,800 for the services of PMFS. As of June 30, 1999, approximately $34,000 of such fees were due to PMFS. Transfer agent fees and expenses in the Statement of Operations include certain out-of-pocket expenses paid to nonaffiliates. - -------------------------------------------------------------------------------- 16 Notes to Financial Statements (Unaudited) PRUDENTIAL NATIONAL MUNICIPALS FUND, INC. - -------------------------------------------------------------------------------- Note 4. Portfolio Securities Purchases and sales of investment securities, other than short-term investments, for the six months ended June 30, 1999, were $154,552,618 and $81,972,888, respectively. The federal income tax basis of the Fund's investments at June 30, 1999 was substantially the same as for financial reporting purposes and, accordingly, net unrealized appreciation for federal income tax purposes was $28,885,876 (gross unrealized appreciation--$32,469,005; gross unrealized depreciation--$3,583,129). In addition, the Fund elected to treat net capital losses of approximately $860,000 incurred in the two month period ended December 31, 1998 as having occurred in the current fiscal year. During the six months ended June 30, 1999, the Fund entered into financial futures contracts. Details of open contracts at June 30, 1999 are as follows:
Value at Value at Number of Expiration Trade June 30, Unrealized Contracts Type Date Date 1999 Appreciation - --------- ----------- ----------- ----------- ----------- ------------ Long Position: U.S. Treasury 150 Index Sept. 1999 $17,175,000 $17,385,937 $210,937 ------------ ------------
- ------------------------------------------------------------ Note 5. 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, 1999: Shares sold...................... 5,606,789 $ 81,712,977 Shares issued in connection with reorganization (Note 6)........ 5,719,568 92,139,437 Shares issued in reinvestment of dividends and distributions.... 519,672 8,222,200 Shares reacquired................ (7,188,185) (114,304,144) ----------- ------------- Net increase in shares outstanding before conversion..................... 4,657,844 67,770,470 Shares issued upon conversion from Class B................... 317,499 4,980,706 ----------- ------------- Net increase in shares outstanding.................... 4,975,343 $ 72,751,176 ----------- ------------- ----------- ------------- Year ended December 31, 1998: Shares sold...................... 3,824,658 $ 61,874,353 Shares issued in reinvestment of dividends and distributions.... 1,059,215 17,057,270 Shares reacquired................ (6,037,193) (97,515,280) ----------- ------------- Net decrease in shares outstanding before conversion..................... (1,153,320) (18,583,657) Shares issued upon conversion from Class B................... 573,854 9,271,697 ----------- ------------- Net decrease in shares outstanding.................... (579,466) $ (9,311,960) ----------- ------------- ----------- ------------- Class B - --------------------------------- Six months ended June 30, 1999: Shares sold...................... 348,270 $ 3,778,694 Shares issued in connection with reorganization (Note 6)........ 1,236,086 19,953,535 Shares issued in reinvestment of dividends and distributions.... 110,742 1,757,204 Shares reacquired................ (1,290,758) (20,407,778) ----------- ------------- Net increase in shares outstanding before conversion..................... 404,340 5,081,655 Shares reacquired upon conversion into Class A................... (316,791) (4,980,706) ----------- ------------- Net increase in shares outstanding.................... 87,549 $ 100,949 ----------- ------------- ----------- -------------
- -------------------------------------------------------------------------------- 17 Notes to Financial Statements (Unaudited) PRUDENTIAL NATIONAL MUNICIPALS FUND, INC. - --------------------------------------------------------------------------------
Class B Shares Amount - --------------------------------- ----------- ------------- Year ended December 31, 1998: Shares sold...................... 797,807 $ 12,909,659 Shares issued in reinvestment of dividends and distributions.... 256,538 4,140,932 Shares reacquired................ (1,803,505) (29,167,324) ----------- ------------- Net decrease in shares outstanding before conversion..................... (749,160) (12,116,733) Shares reacquired upon conversion into Class A................... (572,437) (9,271,697) ----------- ------------- Net decrease in shares outstanding.................... (1,321,597) $ (21,388,430) ----------- ------------- ----------- ------------- Class C - --------------------------------- Six months ended June 30, 1999: Shares sold...................... 24,700 $ 390,959 Shares issued in connection with reorganization (Note 6)........ 29,355 473,862 Shares issued in reinvestment of dividends and distributions.... 2,903 46,059 Shares reacquired................ (32,041) (511,018) ----------- ------------- Net increase in shares outstanding.................... 24,917 $ 399,862 ----------- ------------- ----------- ------------- Year ended December 31, 1998: Shares sold...................... 101,316 $ 1,639,068 Shares issued in reinvestment of dividends and distributions.... 3,998 64,526 Shares reacquired................ (13,773) (222,402) ----------- ------------- Net increase in shares outstanding.................... 91,541 $ 1,481,192 ----------- ------------- ----------- ------------- Class Z - --------------------------------- January 22, 1999(a) through June 30, 1999: Shares sold...................... 121,470 $ 1,912,211 Shares issued in connection with reorganization (Note 6)........ 136,091 2,192,167 Shares issued in reinvestment of dividends and distributions.... 2,255 35,653 Shares reacquired................ (159,029) (2,529,963) ----------- ------------- Net increase in shares outstanding.................... 100,787 $ 1,610,068 ----------- ------------- ----------- -------------
- --------------- (a) Commencement of offering of Class Z shares. - ------------------------------------------------------------ Note 6. Reorganization On August 26, 1998, the Board of Directors of the Fund approved an Agreement and Plan of Reorganization (the 'Plan') which provided for the transfer of all of the assets of the Prudential Municipal Series Fund Maryland Series ('Maryland Series') and the Prudential Municipal Series Fund Michigan Series ('Michigan Series') in exchange for Class A shares of the Fund and the Fund's assumption of the liabilities of the Maryland and Michigan Series. The Plan also provided for the transfer of all of the assets of the Class A, B, C and Z shares of the Prudential Municipal Bond Fund--Intermediate Series ('Intermediate Series') in exchange for like shares of the Fund and the Fund's assumption of the liabilities of the Intermediate Series. The Plan was approved by the shareholders of the Maryland, Michigan and Intermediate Series at a shareholder meeting held on January 14, 1999. The reorganization took place on January 22, 1999. The Maryland, Michigan and Intermediate Series and the Fund incurred their pro rata share of the costs of the reorganization, including the cost of proxy solicitation. The acquisition was accomplished by a tax-free exchange of the following shares:
National Municipals Maryland Series: Fund Value Class A 1,545,436 Class A 1,074,419 $17,304,069 B 930,543 A 647,510 10,432,984 C 11,019 A 7,667 123,541 Michigan Series: Class A 2,459,122 A 1,845,487 29,729,243 B 1,640,985 A 1,230,484 19,826,554 C 43,799 A 32,842 529,193 Intermediate Series: Class A 1,302,336 A 881,159 14,193,853 B 1,830,315 B 1,236,086 19,953,535 C 43,467 C 29,355 473,862 Z 201,141 Z 136,091 2,192,167
The aggregate net assets and unrealized appreciation of the funds immediately before the acquisition were:
Unrealized Net Assets Appreciation ----------- ------------- Maryland Series $27,860,594 $ 2,342,040 Michigan Series 50,084,990 4,856,230 Intermediate Series 36,813,417 1,858,582
The aggregate net assets of the National Municipals Fund immediately before the acquisition was $607,552,044. - -------------------------------------------------------------------------------- 18 Financial Highlights (Unaudited) PRUDENTIAL NATIONAL MUNICIPALS FUND, INC. - --------------------------------------------------------------------------------
Class A -------------------------------------------------------------------------- Six Months Ended Year Ended December 31, June 30, ----------------------------------------------------------- 1999 1998 1997 1996 1995 1994 ---------- -------- -------- -------- -------- ------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period.......... $ 16.06 $ 16.12 $ 15.56 $ 15.98 $ 14.42 $ 16.30 ---------- -------- -------- -------- -------- ------- Income from investment operations Net investment income......................... .38 .79 .81(b) .82(b) .81(b) .81 Net realized and unrealized gain (loss) on investment transactions.................... (.65) .06 .67 (.42) 1.57 (1.78) ---------- -------- -------- -------- -------- ------- Total from investment operations........... (.27) .85 1.48 .40 2.38 (.97) ---------- -------- -------- -------- -------- ------- Less distributions Dividends from net investment income.......... (.38) (.79) (.81) (.82) (.81) (.81) Distributions in excess of net investment income..................................... -- --(c) (.01) --(c) (.01) -- Distributions from net realized gains......... -- (.12) (.10) -- -- (.10) ---------- -------- -------- -------- -------- ------- Total distributions........................ (.38) (.91) (.92) (.82) (.82) (.91) ---------- -------- -------- -------- -------- ------- Net asset value, end of period................ $ 15.41 $ 16.06 $ 16.12 $ 15.56 $ 15.98 $ 14.42 ---------- -------- -------- -------- -------- ------- ---------- -------- -------- -------- -------- ------- TOTAL RETURN(a):.............................. (1.67)% 5.41% 9.80% 2.66% 16.91% (6.04)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000)............... $538,995 $481,926 $493,178 $502,739 $538,145 $12,721 Average net assets (000)...................... $546,914 $483,759 $491,279 $508,159 $446,350 $14,116 Ratios to average net assets: Expenses, including distribution fees...... .86%(d) .73% .70%(b) .68%(b) .75%(b) .77% Expenses, excluding distribution fees...... .61%(d) .63% .60%(b) .58%(b) .65%(b) .67% Net investment income...................... 4.80%(d) 4.89% 5.15%(b) 5.31%(b) 5.34%(b) 5.38% For Class A, B, C and Z shares: Portfolio turnover rate.................... 12% 23% 38% 46% 98% 120%
- --------------- (a) 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. (b) Net of management fee waiver. (c) Less than $.005 per share. (d) Annualized. - -------------------------------------------------------------------------------- See Notes to Financial Statements. 19 Financial Highlights (Unaudited) PRUDENTIAL NATIONAL MUNICIPALS FUND, INC. - --------------------------------------------------------------------------------
Class B --------------------------------------------------------------------------- Six Months Ended Year Ended December 31, June 30, ------------------------------------------------------------ 1999 1998 1997 1996 1995 1994 ---------- -------- -------- -------- -------- -------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period.......... $ 16.10 $ 16.16 $ 15.60 $ 16.02 $ 14.45 $ 16.33 ---------- -------- -------- -------- -------- -------- Income from investment operations Net investment income......................... .36 .73 .75(b) .76(b) .76(b) .75 Net realized and unrealized gain (loss) on investment transactions.................... (.66) .06 .67 (.42) 1.58 (1.78) ---------- -------- -------- -------- -------- -------- Total from investment operations........... (.30) .79 1.42 .34 2.34 (1.03) ---------- -------- -------- -------- -------- -------- Less distributions Dividends from net investment income.......... (.36) (.73) (.75) (.76) (.76) (.75) Distributions in excess of net investment income..................................... -- --(c) (.01) --(c) (.01) -- Distributions from net realized gains......... -- (.12) (.10) -- -- (.10) ---------- -------- -------- -------- -------- -------- Total distributions........................ (.36) (.85) (.86) (.76) (.77) (.85) ---------- -------- -------- -------- -------- -------- Net asset value, end of period................ $ 15.44 $ 16.10 $ 16.16 $ 15.60 $ 16.02 $ 14.45 ---------- -------- -------- -------- -------- -------- ---------- -------- -------- -------- -------- -------- TOTAL RETURN(a):.............................. (1.85)% 4.99% 9.35% 2.26% 16.49% (6.39)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000)............... $116,183 $119,698 $141,528 $168,185 $222,865 $672,272 Average net assets (000)...................... $129,347 $131,195 $151,938 $193,312 $252,313 $751,623 Ratios to average net assets: Expenses, including distribution fees...... 1.11%(d) 1.13% 1.10%(b) 1.08%(b) 1.15%(b) 1.17% Expenses, excluding distribution fees...... .61%(d) .63% .60%(b) .58%(b) .65%(b) .67% Net investment income...................... 4.55%(d) 4.49% 4.75%(b) 4.91%(b) 4.96%(b) 4.96%
- --------------- (a) 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. (b) Net of management fee waiver. (c) Less than $.005 per share. (d) Annualized. - -------------------------------------------------------------------------------- See Notes to Financial Statements. 20 Financial Highlights (Unaudited) PRUDENTIAL NATIONAL MUNICIPALS FUND, INC. - --------------------------------------------------------------------------------
Class C ----------------------------------------------------------------------- August 1, Six Months 1994(e) Ended Year Ended December 31, through June 30, --------------------------------------- December 31, 1999 1998 1997 1996 1995 1994 ---------- ------ ------ ------ ------ ------------ PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period.......... $16.10 $16.16 $15.60 $16.02 $14.44 $15.13 ----- ------ ------ ------ ------ ----- Income from investment operations Net investment income......................... .34 .69 .71(b) .72(b) .72(b) .29 Net realized and unrealized gain (loss) on investment transactions.................... (.66) .06 .67 (.42) 1.59 (.69) ----- ------ ------ ------ ------ ----- Total from investment operations........... (.32) .75 1.38 .30 2.31 (.40) ----- ------ ------ ------ ------ ----- Less distributions Dividends from net investment income.......... (.34) (.69) (.71) (.72) (.72) (.29) Distributions in excess of net investment income..................................... -- --(c) (.01) --(c) (.01) -- Distributions from net realized gains......... -- (.12) (.10) -- -- -- ----- ------ ------ ------ ------ ----- Total distributions........................ (.34) (.81) (.82) (.72) (.73) (.29) ----- ------ ------ ------ ------ ----- Net asset value, end of period................ $15.44 $16.10 $16.16 $15.60 $16.02 $14.44 ----- ------ ------ ------ ------ ----- ----- ------ ------ ------ ------ ----- TOTAL RETURN(a):.............................. (1.97)% 4.73% 9.08% 2.01% 16.22% (2.63)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000)............... $2,587 $2,296 $825 $772 $403 $141 Average net assets (000)...................... $2,626 $1,555 $758 $674 $247 $103 Ratios to average net assets: Expenses, including distribution fees...... 1.36%(d) 1.38% 1.35%(b) 1.33%(b) 1.40%(b) 1.51%(d) Expenses, excluding distribution fees...... .61%(d) .63% .60%(b) .58%(b) .65%(b) .76%(d) Net investment income...................... 4.31%(d) 4.23% 4.50%(b) 4.67%(b) 4.66%(b) 4.84%(d) Class Z ----------- January 22, 1999(f) through June 30, 1999 ----------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period.......... $ 16.11 ----- Income from investment operations Net investment income......................... .35 Net realized and unrealized gain (loss) on investment transactions.................... (.71) ----- Total from investment operations........... (.36) ----- Less distributions Dividends from net investment income.......... (.35) Distributions in excess of net investment income..................................... -- Distributions from net realized gains......... -- ----- Total distributions........................ (.35) ----- Net asset value, end of period................ $ 15.40 ----- ----- TOTAL RETURN(a):.............................. (2.33)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000)............... $1,552 Average net assets (000)...................... $1,633 Ratios to average net assets: Expenses, including distribution fees...... .61%(d) Expenses, excluding distribution fees...... .61%(d) Net investment income...................... 5.10%(d)
- --------------- (a) 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. (b) Net of management fee waiver. (c) Less than $.005 per share. (d) Annualized. (e) Commencement of offering of Class C shares. (f) Commencement of offering of Class Z shares. - -------------------------------------------------------------------------------- See Notes to Financial Statements. 21 Getting the Most from Your Prudential Mutual Fund Some mutual fund shareholders won't ever read this--they don't read annual and semiannual reports. It's quite understandable. These annual and semiannual reports are prepared to comply with federal regulations, and 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. We hope you'll find it profitable to spend a few minutes familiarizing yourself with your investment. Here's what you'll find in the report: Performance 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 "Performance at a Glance" page where we compare the Fund and the comparable average calculated by Lipper, Inc., 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 gives you an idea of 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. Please 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 on successful--and not-so-successful--strategies in this section of your report. Look for recent purchases and sales here, as well as information about the sectors the portfolio manager favors, and any changes that are on the drawing board. Portfolio of Investments This is where the report begins to appear 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. 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 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 adviser. 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 broad-based reference point commonly used by investors to measure how well they are doing. A definition of the selected index is also provided. Investors cannot invest directly in an index. Getting the Most from Your Prudential Mutual Fund How many times have you read these reports--or other financial materials-- and stumbled across a word that you don't understand? Many shareholders have run into the same problem. We'd like to help. So we'll use this space from time to time to explain some of the words you might have read, but not understood. And if you have a favorite word that no one can explain to your satisfaction, please write to us. Basis Point: 1/100th of 1%. For example, one-half of one percent is 50 basis points. Collateralized Mortgage Obligations (CMOs): Mortgage-backed bonds that separate mortgage pools into different maturity classes, called tranches. These instruments are sensitive to changes in interest rates and homeowner refinancing activity. They are subject to prepayment and maturity extension risk. Derivatives: Securities that derive their value from other securities. The rate of return of these financial instruments rises and falls--sometimes very suddenly--in response to changes in some specific interest rate, currency, stock, or other variable. Discount Rate: The interest rate charged by the Federal Reserve on loans to member banks. Federal Funds Rate: The interest rate charged by one bank to another on overnight loans. Futures Contract: An agreement to purchase or sell a specific amount of a commodity or financial instrument at a set price at a specified date in the future. Leverage: The use of borrowed assets to enhance return. The expectation is that the interest rate charged on borrowed funds will be lower than the return on the investment. While leverage can increase profits, it can also magnify losses. Liquidity: The ease with which a financial instrument (or product) can be bought or sold (converted into cash) in the financial markets. Price/Earnings Ratio: The price of a share of stock divided by the earnings per share for a 12-month period. Option: An agreement to purchase or sell something, such as shares of stock, by a certain time for a specified price. An option need not be exercised. Spread: The difference between two values; often used to describe the difference between "bid" and "asked" prices of a security, or between the yields of two similar maturity bonds. Yankee Bond: A bond sold by a foreign company or government in the U.S. market and denominated in U.S. dollars. Prudential Mutual Funds Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 (800) 225-1852 http://www.prudential.com Directors Edward D. Beach Eugene C. Dorsey Delayne Dedrick Gold Robert F. Gunia Thomas T. Mooney Thomas H. O'Brien John R. Strangfeld Nancy H. Teeters Louis A. Weil, III Officers John R. Strangfeld, President Robert F. Gunia, Vice President Grace C. Torres, Treasurer Stephen M. Ungerman, Assistant Treasurer Deborah A. Docs, Secretary Manager Prudential Investments Fund Management LLC Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 Investment Adviser The Prudential Investment Corporation Prudential Plaza Newark, NJ 07102-3777 Distributor Prudential Investment Management Services LLC Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 Custodian State Street Bank and Trust Company One Heritage Drive North Quincy, MA 02171 Transfer Agent Prudential Mutual Fund Services LLC P.O. Box 15005 New Brunswick, NJ 08906 Independent Accountants PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, NY 10036 Legal Counsel Swidler Berlin Shereff Friedman, LLP 919 Third Avenue New York, NY 10022 The views expressed in this report and information about the 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, 1999, were not audited and, accordingly, no opinion is expressed on them. This report is not authorized for distribution to prospective investors unless preceded or accompanied by a current prospectus. (LOGO) Prudential Mutual Funds BULK RATE Gateway Center Three U.S. POSTAGE 100 Mulberry Street PAID Newark, NJ 07102-4077 Permit 6807 New York, NY (800) 225-1852 743918203 MF104E2 743918104 743918302 -----END PRIVACY-ENHANCED MESSAGE-----