<PAGE>
ANNUAL REPORT OCTOBER 31, 2000
Prudential
U.S. Emerging Growth Fund, Inc.
Fund Type Stock
Objective Long-term capital appreciation
(GRAPHIC)
This report is not authorized for distribution to
prospective investors unless preceded or
accompanied by a current prospectus.
The views expressed in this report and information
about the Fund's portfolio holdings are for the
period covered by this report and are subject to
change thereafter.
(LOGO)
<PAGE>
Build on the Rock
Investment Goals and Style
The Prudential U.S. Emerging Growth Fund provides
an opportunity for long-term capital appreciation
by investing primarily in stocks of small and
medium-size U.S. companies with the potential for
above-average growth. Stocks of small and medium-
size companies--those with capitalizations that are
less than the largest market capitalization of the
S&P 400 Mid-Cap Index as of the end of a calendar
quarter, measured at the time of purchase--may offer
greater growth potential than those of larger
companies, but also may fluctuate more in price
from day to day. There can be no assurance that the
Fund will achieve its investment objective.
Portfolio Composition
Sectors expressed as a percentage of
net assets as of 10/31/00
49.0% Technology
28.7 Consumer Growth
5.3 Utility
4.8 Industrial
5.4 Finance
0.5 Consumer Cyclical
6.3 Cash & Equivalents
Ten Largest Holdings
Expressed as a percentage of
net assets as of 10/31/00
3.0% TMP Worldwide, Inc.
Advertising
2.9 Vitesse Semiconductor Corp.
Semiconductors
2.8 LSI Logic Corp.
Electronic Components
2.8 Gemstar -- TV Guide
International, Inc.
Media
2.7 CSG Systems International, Inc.
Data Processing/Reproduction
2.5 American Tower Corp.
Cellular Communications
2.4 Watson Pharmaceuticals, Inc.
Pharmaceuticals
2.3 Fiserv, Inc.
Data Processing/Reproduction
2.2 Retek Inc.
Internet Software
2.2 Sanmina Corp.
Electronic Components
Holdings are subject to change.
<PAGE>
www.prudential.com (800) 225-1852
Performance at a Glance
Cumulative Total Returns1 As of 10/31/00
One Since
Year Inception2
Class A 44.52% 189.35%
Class B 43.52 180.89
Class C 43.52 180.89
Class Z 44.95 191.99
Lipper Mid-Cap
Growth Fund. Avg.3 37.80 131.21
Average Annual Total Returns1 As of 10/31/00
One Since
Year Inception2
Class A 37.30% 30.19%
Class B 38.52 30.68
Class C 41.09 30.58
Class Z 44.95 32.25
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.
1Source: 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 5% 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 Z shares are not subject to a sales charge or
distribution and service
(12b-1) fees.
2Inception date: Class A, B, C, and Z, 12/31/96.
3Lipper average returns are for all funds in each
share class for the one-year and since-inception
periods in the Mid-Cap Growth Fund category. The
Lipper average is unmanaged. Mid-Cap Growth funds
invest at least 75% of their equity assets in
companies with market capitalizations (on a three-
year weighted basis) of less than 300% of the
dollar-weighted median market capitalization of the
S&P(R) Mid-Cap 400 Index. Mid-Cap Growth funds
normally invest in companies with long-term
earnings expected to grow significantly faster than
the earnings of the stocks represented in a major
unmanaged stock index. These funds will normally
have an above-average price/earnings ratio, price-
to-book ratio, and three-year earnings growth
figure.
"Standard & Poor's(R)" and "S&P(R)" are registered
trademarks of The McGraw-Hill Companies, Inc.
1
<PAGE>
(LOGO) December 15, 2000
Dear Shareholder,
Over the 12 months ended October 31, 2000, the
Prudential U.S. Emerging Growth Fund generated an
excellent return despite periods of strongly
unfavorable markets. The high-growth stocks in
which it invests reached extraordinary levels of
volatility. First, they pushed average growth-stock
prices to levels that were generally believed to be
unsustainable. During this rise, the Fund had more
than its share of the advances, substantially
outperforming the S&P Mid-Cap 400 Index. However,
it also gave up a substantial amount when these
stocks corrected their overvaluation.
The Fund's return was volatile, but over the full
12 months, its Class A shares returned 44.52%--
37.30% to those paying the maximum one-time Class A
share sales charge--outperforming both the unmanaged
38.67% Russell Index and the 37.80% Lipper Mid-cap
Growth Fund Average of comparable mutual fund
returns. The largest contribution to the Fund's
return came from its technology holdings, a
dominant component of the Index. However, most of
the Fund's outperformance of the Index came from
the very high average return on its selection of
healthcare stocks.
Mid-cap growth stocks performed well over this
period--much better than large-cap growth stocks,
and mid- and large-cap value stocks. However, the
turbulence among market sectors and investing
styles was a good reminder of why we recommend that
investors, and particularly investors with a low
tolerance for short-term instability of their asset
values, diversify their equity holdings. We also
remind you that stock investors should have a time
horizon of several years. Volatility in stock
prices is normal, although not to the extent we saw
over the past 12 months.
Sincerely,
David R. Odenath, Jr., President
Prudential U.S. Emerging Growth Fund, Inc.
2
<PAGE>
Prudential U.S. Emerging Growth Fund, Inc.
Annual Report October 31, 2000
How to price a growth stock
The return on a share consists of any dividends it
pays, plus any change in its market price--the
capital appreciation. Ultimately, both of these
contributions depend upon the company's earnings.
The price of a share can be viewed as its
price/earnings ratio times its earnings. Investors
are willing to pay more per dollar of earnings (a
higher price/earnings multiple) for companies that
they expect to have higher or more dependable
future profits than average. Expectations of
greater earnings growth will justify a higher
price/earnings multiple--a high valuation.
Investment Adviser's Report
The investment environment
Since its inception on December 31, 1996, the
Prudential U.S. Emerging Growth Fund has posted an
average annual return of 30.19% (including sales
charges) for Class A shares. However, it is
important to remember that it selects from a very
volatile group of stocks. As of the end of
September 2000, technology stocks made up 43.8% of
the Russell Midcap Growth Index. In almost every
year of the past decade, technology stocks have had
a very large drop in price, but then have come back
to post a substantially positive return. The year
2000 included a much larger decline than most; by
the end of the Fund's reporting period, we had not
seen a full recovery, although there has been
erratic improvement since the market hit bottom in
May.
We believe that many technology industries have hit
a product transition phase simultaneously. For
example, hand-held information devices are
integrating wireless communication abilities on the
one hand and becoming alternatives to laptop
personal computers on the other. As these three
industries, which had been on separate growth
trajectories, begin to compete, their future growth
is more uncertain. We also are in a period of
reconsideration about how companies can profit from
Internet technologies. Many business models have
been tried; few have shown consistent earnings. We
are confident that the Internet will transform the
global economy, but only
3
<PAGE>
Prudential U.S. Emerging Growth Fund, Inc.
Holdings expressed as a percentage of the Fund's net assets
Comments on Largest Holdings As of 10/31/00
3.0% TMP Worldwide, Inc./Advertising
TMP is a personnel company that is revolutionizing
the recruiting business with its "Monsterboard"
Internet site, where job seekers can post their
resumes and connect to hiring companies without an
intermediary. Monster.com is one of the few
profitable Internet businesses. TMP's stock rose
242% from the beginning of November 1999 to its
March 10 peak before dropping sharply. We sold it
and bought it again, at a somewhat lower price. It
was among the larger contributors to our return.
2.9% Vitesse Semiconductor Corp./Semiconductors
Vitesse makes high-bandwidth digital communications
chips used by companies such
as Lucent and Schlumberger to manage complex, high-
speed, low energy-consumption information
processing. It is a pioneer in the mass production
of chips based on gallium arsenide. Analysts
estimate a 39% growth rate over the next five
years. We think its earnings multiple was depressed
by fear of a slowdown of its telecommunications
customers, and so may expand.
2.8% LSI Logic Corp./Electronic Components
LSI makes application-specific integrated circuits
that include microprocessor and memory on a single
chip. Its communications chips are used in high-end
consumer electronics devices, such as the Sony
Playstation, as well as in Sun Microsystems
workstations and network servers. It is priced at
about 20 times 2000 earnings, a multiple that is
below its estimated growth rate.
2.8% Gemstar--TV Guide International, Inc./Media
Both Gemstar and TV Guide were long-term holdings
for us, and we had a substantial gain on both,
boosted by investors' enthusiasm for their merger.
Gemstar's patented electronic program guide, plus
TV Guide's content, created a highly trafficked Web
site as well as potential for smart Internet-linked
entertainment devices. Gemstar's electronic book
technology also has promise. The companies
separately had consistent earnings growth.
2.7% CSG Systems International, Inc./Data
Processing/Reproduction
CSG provides back-office services--customer care,
billing, information processing--for cable service
companies. Another very consistent growth story.
Holdings are subject to change.
4
<PAGE>
www.prudential.com (800) 225-1852
Annual Report October 31, 2000
after a period of trial and error. This has been
the historical pattern for transformational
technologies.
These factors, together with the exceptionally high
valuations (see box) on these stocks after the bull
market that began our fiscal year, set the stage
for a large fall with no rebound. We think our
investment style is particularly appropriate for
navigating such turmoil. We spread our investments
among different industries, we favor companies that
already have demonstrated that they can earn money,
and we monitor the market price of our holdings
vigilantly. We often trade into positions when we
think a stock's price has become especially
attractive, or out of them when it has gotten
somewhat "ahead of earnings."
A mid-cap advantage
Why have mid-cap growth stocks performed so well
recently? As large-cap growth stocks reached very
high valuations, investors began to look elsewhere.
We had always preferred smaller companies because
they were younger, faster growing, and generally
had lower valuations. However, they had been
"flying below the radar screen" of many
institutional investors because it is more
difficult to search among a larger number of
smaller firms. Smaller companies don't get as much
attention from research analysts, or even from the
press. As large-caps became less attractive,
however, the incentive to look farther afield
increased. When investment money began to be
redeployed from large- to small-cap growth stocks,
the impact was significant. As share prices began
to rise, they attracted even more attention.
Consequently, this section of the market performed
very well as large-cap growth stocks fell.
A minor strategic change
During the latter part of this fiscal year, the
investment team for the Prudential U.S. Emerging
Growth Fund moved to Jennison Associates, a company
of Prudential. The move improved our access to
corporate officials and increased our analytical
resources. As a result, we feel more comfortable
5
<PAGE>
Prudential U.S. Emerging Growth Fund, Inc.
Annual Report October 31, 2000
having a larger focus on our best investment ideas.
Moreover, a change approved by the Fund's Board on
November 14, 2000, increased the maximum market
capitalization of the companies in which we can
invest. This permitted us to invest in more seasoned
companies and to hold a company longer as it grows.
Consequently, whereas our largest positions in
April were 2.0% of net assets or smaller, our
largest holdings at period-end were 3.0% of net
assets; the number of separate positions dropped from 135 at
mid-period to 77. That said, we remain diversified
among semiconductor, drug, computer software, data
service, communications equipment, hospital
management, and other industries.
Our core holdings performed well
A few companies have been long-time holdings for
us. We may add to or sell from our positions as
market prices fall behind or get ahead of their
earnings growth, but we are comfortable with the
long-term strategies of these firms, their
managements, and the growth of their industries.
Several of these old favorites made substantial
contributions to our return over this reporting
period:
-- We added to our holdings of CIENA Corp., which
makes telecommunications switches; shares more than
doubled in price over the period, one of the
largest contributions to the period's return.
-- CheckFree Corp. provides the technology
underlying Internet bill-paying. This is a growing
and profitable business. We took a substantial
profit on our holdings after a steep climb early in
the period, reducing our exposure to the stock's
subsequent decline.
-- We have liked the contract manufacturers
Solectron Corp. and Jabil Circuit, Inc. who have
increased the efficiency of technology design
companies by allowing them to focus on their design
and sales strengths. Although contract
manufacturers have a less cyclical business than
their customers, their valuations are volatile, so
we shift our investments among
6
<PAGE>
www.prudential.com (800) 225-1852
the leading companies as they offer better value.
Solectron was among
the largest contributors to our return for the
year, while Jabil began to
contribute more in the second half of the period.
-- TV Guide and Gemstar were long-term holdings.
Their merger into Gemstar--TV Guide International
added strength to strength (see Comments on Largest
Holdings) and also boosted our return because
investors approved of the combination.
-- We also had a substantial gain on TMP Worldwide,
Inc., an Internet-based recruiting company (see
Comments on Largest Holdings), and Internet Capital
Group, Inc., an Internet incubator firm. The latter
begins new ventures and nurtures them, taking a capital
position in them as well. Most of our gain on these
two came early in the period.
-- Watson Pharmaceuticals, Inc. makes generic drugs,
especially hard-to-make and niche products. The
stocks of generic drug makers rose swiftly during
the second and third quarters of 2000 when other
growth stocks were in decline. During the year, we
added Human Genome Sciences, Inc. and PE Corp-PE
Biosystems Group, both of which made even larger
contributions to our return than Watson, with
shares doubling and tripling over the period.
One of our long-term holdings was among the largest
detractors from our return: Royal Caribbean Cruises
Ltd. has been growing very rapidly, but now the
greater capacity in the cruise industry means its
growth is likely to taper off. Royal Caribbean may
no longer deserve a high growth-stock multiple; its
stock fell sharply, and we sold it.
A new Internet winner
Investors generally have lost their infatuation
with Internet businesses, but our holdings
emphasized business enablers such as Network
Solutions, Inc., which registers Internet domain
names and does network consulting.
7
<PAGE>
Prudential U.S. Emerging Growth Fund, Inc.
Annual Report October 31, 2000
We bought Network Solutions after it had lost its
monopoly on name registration and its share price
dropped. It was among our largest positions as the
period began. Subsequently, Network Solutions
regained a partial monopoly, its share price rose,
and it was bought by Verisign, Inc. It was the largest
single contributor to our return for the period.
Looking Ahead
Investors can no longer expect a good return just
by buying a few market leaders. Performance is
distributed more broadly, and that's good for mid-
cap stocks and for stock pickers. We have always
preferred to invest in companies whose management
we know and trust. Our new Jennison resources
strengthen our stock selection abilities. We don't
expect the extraordinary returns of the bubble
market of the past few years to recur because
valuations generally have risen, and growth is
slowing. Nonetheless, many companies have the
potential for substantial earnings growth over a
fairly long term. The return on their stocks should
at least keep up with the pace of their earnings
growth, and some are inexpensive enough to also
offer the possibility of expansion of their earning
multiples.
Prudential U.S. Emerging Growth Fund Management Team
8
<PAGE>
Prudential U.S. Emerging Growth Fund, Inc.
Portfolio of Investments as of October 31, 2000
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C> <C>
------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS 93.7%
Common Stocks 93.7%
-------------------------------------------------------------------------------------
Advertising 4.6%
329,300 Interpublic Group of Companies, Inc. $ 14,139,319
375,100 TMP Worldwide, Inc.(a) 26,110,476
--------------
40,249,795
-------------------------------------------------------------------------------------
Biotechnology 4.9%
124,200 Abgenix, Inc.(a) 9,796,275
106,200 Aviron(a) 6,942,825
67,500 Ciphergen Biosystems, Inc.(a) 2,092,500
51,200 Human Genome Sciences, Inc.(a) 4,525,600
137,900 MedImmune, Inc.(a) 9,015,212
75,900 Protein Design Labs, Inc.(a) 10,252,430
--------------
42,624,842
-------------------------------------------------------------------------------------
Broadcasting 5.5%
133,400 Cablevision Systems Corp.(a) 9,938,300
359,620 Gemstar-TV Guide International, Inc.(a) 24,656,446
660,500 USA Networks, Inc.(a) 13,375,125
--------------
47,969,871
-------------------------------------------------------------------------------------
Cellular Communications 3.3%
80,600 Powertel, Inc.(a) 7,032,350
50,300 VoiceStream Wireless Corp.(a) 6,614,450
321,500 Western Wireless Corp. (Class A)(a) 15,271,250
--------------
28,918,050
-------------------------------------------------------------------------------------
Chemicals 1.2%
23,800 Eden Bioscience Corp.(a) 901,425
366,200 Monsanto Company(a) 9,338,100
--------------
10,239,525
-------------------------------------------------------------------------------------
Computer Software & Services 14.0%
424,200 Cadence Design Systems, Inc.(a) 10,896,637
251,500 Commerce One, Inc.(a) 16,143,156
</TABLE>
See Notes to Financial Statements 9
<PAGE>
Prudential U.S. Emerging Growth Fund, Inc.
Portfolio of Investments as of October 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
208,300 Digex, Inc.(a) $ 8,175,775
173,100 Electronic Arts, Inc.(a) 8,655,000
151,100 Exodus Communications, Inc.(a) 5,071,294
241,000 HNC Software, Inc.(a) 4,895,313
208,700 Macromedia, Inc.(a) 16,082,944
201,900 PeopleSoft, Inc.(a) 8,811,042
487,967 Retek, Inc.(a) 19,244,199
167,400 RSA Security, Inc.(a) 9,709,200
54,800 SignalSoft Corp.(a) 1,558,375
84,425 Verisign, Inc. 11,144,100
90,800 Vignette Corp.(a) 2,706,975
--------------
123,094,010
-------------------------------------------------------------------------------------
Computer Hardware 0.6%
65,400 Extreme Networks, Inc. 5,424,113
-------------------------------------------------------------------------------------
Data Processing/Reproduction 2.7%
507,200 CSG Systems International, Inc.(a) 23,553,100
-------------------------------------------------------------------------------------
Electric Utilities 1.0%
204,900 Public Service Enterprise Group, Inc. 8,503,350
-------------------------------------------------------------------------------------
Electrical Equipment 5.5%
120,000 Celestica, Inc.(a) 8,625,000
173,600 Harman International Industries, Inc. 8,332,800
166,000 Sanmina Corp.(a) 18,975,875
283,100 Solectron Corp.(a) 12,456,400
--------------
48,390,075
-------------------------------------------------------------------------------------
Electronics 12.6%
155,000 Altera Corp.(a) 6,345,313
138,000 Analog Devices, Inc.(a) 8,970,000
160,400 ASM Lithography Holding N.V.(a) 4,461,125
79,500 Lattice Semiconductor Corp.(a) 2,320,406
759,400 LSI Logic Corp.(a) 24,965,275
271,000 Micrel, Inc.(a) 12,262,750
</TABLE>
10 See Notes to Financial Statements
<PAGE>
Prudential U.S. Emerging Growth Fund, Inc.
Portfolio of Investments as of October 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
423,700 Microchip Technology, Inc.(a) $ 13,399,512
369,300 Vitesse Semiconductor Corp.(a) 25,827,919
166,300 Xilinx, Inc.(a) 12,046,356
--------------
110,598,656
-------------------------------------------------------------------------------------
Electronic Components & Instruments 5.5%
212,900 Flextronics International Ltd.(a) 8,090,200
249,400 Jabil Circuit, Inc.(a) 14,231,388
227,400 Linear Technology Corp. 14,681,512
101,900 Newport Corp. 11,637,298
--------------
48,640,398
-------------------------------------------------------------------------------------
Financial Services 5.2%
211,900 CheckFree Corp.(a) 10,542,025
391,100 Fiserv, Inc.(a) 20,508,306
62,000 Lehman Brothers Holdings, Inc. 3,999,000
233,200 Stilwell Financial, Inc. 10,450,275
--------------
45,499,606
-------------------------------------------------------------------------------------
Food/Drug Retail 1.0%
120,700 Andrx Corp.(a) 8,690,400
-------------------------------------------------------------------------------------
Health Care 3.8%
129,500 Dyax Corp.(a) 4,807,687
689,300 HEALTHSOUTH Corp.(a) 8,271,600
147,600 QLT PhotoTherapeutics, Inc.(a) 7,340,794
130,500 Quest Diagnostics, Inc.(a) 12,560,625
--------------
32,980,706
-------------------------------------------------------------------------------------
Medical Products & Services 2.2%
131,300 Affymetrix Inc.(a) 7,270,738
83,700 Laboratory Corporation of America Holdings(a) 11,289,037
39,300 Syncor International Corp.(a) 1,009,519
--------------
19,569,294
</TABLE>
See Notes to Financial Statements 11
<PAGE>
Prudential U.S. Emerging Growth Fund, Inc.
Portfolio of Investments as of October 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Oil & Gas-Production/Pipeline 1.0%
145,800 El Paso Energy Corp. $ 9,139,838
-------------------------------------------------------------------------------------
Pharmaceuticals 12.7%
148,100 Allergan, Inc. 12,449,656
191,100 Express Scripts, Inc. Class A(a) 12,839,531
295,200 Incyte Pharmaceuticals, Inc.(a) 10,811,700
364,400 Mylan Laboratories 10,203,200
106,000 Millenium Pharmaceuticals, Inc.(a) 7,691,625
131,700 OSI Pharmaceuticals, Inc. 9,482,400
162,000 Sepracor Inc.(a) 11,036,250
272,200 Teva Pharmaceutical Industries Ltd. (Israel) (ADR) 16,093,825
332,500 Watson Pharmaceuticals, Inc.(a) 20,802,032
--------------
111,410,219
-------------------------------------------------------------------------------------
Real Estate Investment Trust 0.2%
48,500 Boston Properties, Inc. 1,964,250
-------------------------------------------------------------------------------------
Retail/Specialty 0.5%
100,700 Tiffany & Co. 4,298,631
-------------------------------------------------------------------------------------
Telecommunications 5.7%
521,900 ADC Telecommunications, Inc.(a) 11,155,613
539,100 American Tower Corp. 22,069,406
137,900 CIENA Corp.(a) 14,496,737
99,000 Metromedia Fiber Network, Inc. 1,881,000
--------------
49,602,756
--------------
Total long-term investments (cost $742,508,553) 821,361,485
--------------
</TABLE>
12 See Notes to Financial Statements
<PAGE>
Prudential U.S. Emerging Growth Fund, Inc.
Portfolio of Investments as of October 31, 2000 Cont'd.
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C> <C>
-----------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 4.9%
Repurchase Agreement 4.9%
$ 43,287 Joint Repurchase Agreement Account,
6.55%, 11/1/00
(cost $43,287,000; Note 5) $ 43,287,000
--------------
-----------------------------------------------------------------------------------
Total Investments 98.6%
(cost $785,795,553; Note 4) 864,648,485
Other assets in excess of liabilities 1.4% 11,848,276
--------------
Net Assets 100% $ 876,496,761
--------------
--------------
</TABLE>
------------------------------
(a) Non-income producing security.
ADR--American Depository Receipt.
See Notes to Financial Statements 13
<PAGE>
Prudential U.S. Emerging Growth Fund, Inc.
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
October 31, 2000
<S> <C> <C>
----------------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $785,795,553) $864,648,485
Cash 1,892,281
Receivable for investments sold 24,885,224
Receivable for Fund shares sold 4,083,033
Deferred expenses and other assets 34,387
Dividends and interest receivable 13,180
----------------
Total assets 895,556,590
----------------
LIABILITIES
Payable for investments purchased 16,157,690
Payable for Fund shares reacquired 1,739,227
Distribution fee payable 482,490
Management fee payable 433,322
Accrued expenses and other liabilities 247,100
----------------
Total liabilities 19,059,829
----------------
NET ASSETS $876,496,761
----------------
----------------
Net assets were comprised of:
Common stock, at par $ 34,731
Paid-in capital in excess of par 701,237,559
----------------
701,272,290
Accumulated net realized gain on investments 96,371,539
Net unrealized appreciation/depreciation on investments 78,852,932
----------------
Net assets, October 31, 2000 $876,496,761
----------------
----------------
</TABLE>
14 See Notes to Financial Statements
<PAGE>
Prudential U.S. Emerging Growth Fund, Inc.
Statement of Assets and Liabilities Cont'd.
<TABLE>
<CAPTION>
October 31, 2000
<S> <C> <C>
----------------------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share
($291,799,849 / 11,356,409 shares of common stock issued
and outstanding) $25.69
Maximum sales charge (5% of offering price) 1.35
----------------
Maximum offering price to public $27.04
----------------
----------------
Class B:
Net asset value, offering price and redemption price per
share
($424,814,942 / 17,074,395 shares of common stock issued
and outstanding) $24.88
----------------
----------------
Class C:
Net asset value and redemption price per share
($83,274,770 / 3,347,018 shares of common stock issued
and outstanding) $24.88
Sales charge (1% of offering price) .25
----------------
Offering price to public $25.13
----------------
----------------
Class Z:
Net asset value, offering price and redemption price per
share ($76,607,200 / 2,952,784 shares of common stock
issued and outstanding) $25.94
----------------
----------------
</TABLE>
See Notes to Financial Statements 15
<PAGE>
Prudential U.S. Emerging Growth Fund, Inc.
Statement of Operations
<TABLE>
<CAPTION>
Year
Ended
October 31, 2000
<S> <C> <C>
----------------------------------------------------------------------------------------
NET INVESTMENT LOSS
Income
Interest $ 1,993,069
Dividends (net of foreign withholding taxes of $5,552) 242,812
----------------
Total income 2,235,881
----------------
Expenses
Management fee 4,309,669
Distribution fee--Class A 544,280
Distribution fee--Class B 3,822,454
Distribution fee--Class C 655,655
Transfer agent's fees and expenses 977,000
Registration fees 145,000
Reports to shareholders 145,000
Custodian's fees and expenses 120,000
Legal fees and expenses 45,000
Amortization of deferred organizational costs 24,460
Audit fees 20,000
Directors' fees and expenses 15,000
Miscellaneous 12,022
----------------
Total expenses 10,835,540
----------------
Net investment loss (8,599,659)
----------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investment transactions 127,986,985
Net change in unrealized appreciation/depreciation on
investments 643,815
----------------
Net gain on investments 128,630,800
----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $120,031,141
----------------
----------------
</TABLE>
16 See Notes to Financial Statements
<PAGE>
Prudential U.S. Emerging Growth Fund, Inc.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Year
Ended Ended
October 31, 2000 October 31, 1999
<S> <C> <C> <C>
-------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
Operations
Net investment loss $ (8,599,659) $ (2,636,144)
Net realized gain on investments 127,986,985 30,331,339
Net change in unrealized
appreciation/depreciation on investments 643,815 62,358,936
---------------- ----------------
Net increase in net assets resulting from
operations 120,031,141 90,054,131
---------------- ----------------
Distributions from net realized gains (Note
1)
Class A (7,442,557) (871,485)
Class B (16,826,102) (2,298,027)
Class C (2,229,103) (187,922)
Class Z (1,745,526) (67,704)
---------------- ----------------
(28,243,288) (3,425,138)
---------------- ----------------
Fund share transactions (net of share
conversion)
(Note 6)
Net proceeds from shares sold 881,684,622 182,256,028
Net asset value of shares issued in
reinvestment of distributions 27,019,148 3,294,708
Cost of shares reacquired (437,151,603) (83,825,537)
---------------- ----------------
Net increase in net assets from Fund share
transactions 471,552,167 101,725,199
---------------- ----------------
Total increase 563,340,020 188,354,192
NET ASSETS
Beginning of year 313,156,741 124,802,549
---------------- ----------------
End of year $ 876,496,761 $313,156,741
---------------- ----------------
---------------- ----------------
</TABLE>
See Notes to Financial Statements 17
<PAGE>
Prudential U.S. Emerging Growth Fund, Inc.
Notes to Financial Statements
Prudential U.S. Emerging Growth Fund, Inc. (the 'Fund'), formerly known as
Prudential Emerging Growth Fund, Inc., is registered under the Investment
Company Act of 1940 as a diversified, open-end, management investment company.
The Fund was incorporated in Maryland on August 23, 1996. The Fund issued 2,500
shares each of Class A, Class B, Class C and Class Z common stock for $100,000
on October 21, 1996 to Prudential Investments Fund Management LLC ('PIFM').
Investment operations commenced on December 31, 1996.
The Fund's investment objective is to achieve long-term capital
appreciation. It invests primarily in equity securities of small and
medium-sized U.S. companies, which will generally have a market capitalization
less than the largest capitalization of the Standard & Poor's Mid-Cap 400 Stock
Index, with the potential for above-average growth.
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 Valuation: Securities listed on a securities exchange (other
than options on stock and stock indices) are valued at the last sales price on
the day of valuation, or, if there was no sale on such day, at the mean between
the last bid and asked prices on such day, or at the last bid price on such day
in the absence of an asked price. Securities that are actively traded in the
over-the-counter market, including listed securities for which the primary
market is believed to be over-the-counter, are valued by more than one principal
market maker or independent pricing agent. Securities for which reliable market
quotations are not available or for which the pricing agent or principal market
maker does not provide a valuation or methodology or provides a valuation or
methodology that does not represent fair value are valued in accordance with
procedures adopted by the Board of Directors of the Fund.
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.
Repurchase agreements: In connection with transactions in repurchase
agreements, it is the Fund's policy that its custodian or designated
subcustodians under triparty repurchase agreements, as the case may be, take
possession of the underlying collateral securities, the value of which exceeds
the principal amount of the repurchase transaction, including accrued interest.
To the extent that any repurchase transaction exceeds one business day, the
value of the collateral is marked-to-market on a daily basis to ensure the
adequacy of the collateral. If the seller defaults, and the value of the
collateral declines, or if bankruptcy proceedings are commenced with
18
<PAGE>
Prudential U.S. Emerging Growth Fund, Inc.
Notes to Financial Statements Cont'd.
respect to the seller of the security, realization of the collateral by the Fund
may be delayed or limited.
All securities are valued as of 4:15 p.m., New York time.
Securities Transactions and Net Investment Income: Securities
transactions are recorded on the trade date. Realized gains and losses on sales
of securities are calculated on the identified cost basis. Dividend income is
recorded on the ex-dividend date; interest income is recorded on the accrual
basis. Expenses are recorded on the accrual basis which may require the use of
certain estimates by management.
Net investment income (loss), other than distribution fees, and realized
and unrealized gains or losses are allocated daily to each class of shares based
upon the relative proportion of net assets of each class at the beginning of the
day.
Dividends and Distributions: Dividends from net investment income are
declared and paid annually. The Fund will distribute at least annually net
capital gains in excess of loss carryforwards, if any. 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.
Reclassification of Capital Accounts: The Fund accounts and reports for
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants Statement of Position 92-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain and
Return of Capital Distributions by Investment Companies. The effect of applying
this statement was to decrease net investment loss by $8,599,659, decrease
accumulated net realized gain on investments by $29,828,890, and increase
paid-in capital by $21,229,231, due to the Fund experiencing net operating
losses and redemptions utilized as distributions for federal income tax purposes
during the fiscal year ended October 31, 2000. Net investment income, paid-in
capital and net assets were not affected by this change.
Taxes: It is the Fund's policy to continue to meet the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable net income and net capital gains, if any, to its
shareholders. Therefore, no federal income tax provision is required.
Withholding taxes on foreign dividends have been provided for in
accordance with the Fund's understanding of the applicable country's tax rules
and rates.
Deferred Organization Expenses: Approximately $122,000 of expenses were
incurred in connection with the organization of the Fund. These costs have been
19
<PAGE>
Prudential U.S. Emerging Growth Fund, Inc.
Notes to Financial Statements Cont'd.
deferred and are being amortized ratably over a period of sixty months from the
date the Fund commenced investment operations.
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. Pursuant to a subadvisory agreement between PIFM and The Prudential
Investment Corporation ('PIC'), PIC furnished investment advisory services in
connection with the management of the Fund from November 1, 1999 through August
23, 2000. Effective August 24, 2000, the Board of Directors terminated the
subadvisory agreement with PIC, and PIFM entered into a subadvisory agreement
with Jennison Associates LLC ('Jennison'), pursuant to which Jennison is paid
under the same terms as PIC was paid by PIFM. PIFM paid for the services of PIC
and Jennison, 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 to PIFM is computed daily and payable monthly, at
an annual rate of .60 of 1% of the Fund's average daily net assets up to $1
billion and .55 of 1% of the average daily net assets in excess of $1 billion.
Prior to May 24, 2000, the management fee paid to PIFM was computed daily and
payable monthly, at an annual rate of .60 of 1% of the Fund's average daily net
assets.
Prior to January 1, 2000, PIC was reimbursed by PIFM for reasonable costs
and expenses incurred in furnishing investment advisory services. From January
1, through August 23, 2000, the subadvisory fee paid to PIC, and from August 24
through October 31, 2000, the subadvisory fee paid to Jennison, by PIFM, was
computed daily and payable monthly at an annual rate of .30 of 1% of the Fund's
average daily net assets up to $1 billion and .261 of 1% of the average daily
net assets in excess of $1 billion. The change in subadvisory fee structure has
no impact on the management fee charged to the Fund or its shareholders.
The Fund has a distribution agreement with Prudential Investment
Management Services LLC ('PIMS'), which acts as the distributor of the Class A,
Class B, Class C and Class 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 are accrued daily and
payable monthly. No distribution or service fees are paid to PIMS as distributor
for the Class Z shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensates PIMS for
distribution-related activities at an annual rate of up to .30 of 1%, 1% and 1%
of the
20
<PAGE>
Prudential U.S. Emerging Growth Fund, Inc.
Notes to Financial Statements Cont'd.
average daily net assets of the Class A, B and C shares, respectively. Such
expenses under the Plans were charged at an annual rate of .25 of 1%, 1% and 1%
of the average daily net assets of the Class A, B and C shares, respectively,
for the year ended October 31, 2000.
PIMS has advised the Fund that it received approximately $1,094,200 and
$476,900 in front-end sales charges resulting from sales of Class A shares and
Class C shares, respectively, during the year ended October 31, 2000. From these
fees, PIMS paid such sales charges to affiliated broker-dealers, which in turn
paid commissions to salespersons and incurred other distribution costs.
PIMS has advised the Fund that for the year ended October 31, 2000, it
received approximately $586,300 and $43,500 in contingent deferred sales charges
imposed upon certain redemptions by Class B and Class C shareholders,
respectively.
PIFM, PIC, PIMS and Jennison are wholly owned subsidiaries of The
Prudential Insurance Company of America ('Prudential').
The Fund, along with other affiliated registered investment companies (the
'Funds'), entered into a syndicated credit agreement ('SCA') with an
unaffiliated lender. The maximum commitment under the SCA is $1 billion.
Interest on any such borrowings will be at market rates. The purpose of the
agreement is to serve as an alternative source of funding for capital share
redemptions. The Funds pay a commitment fee of .080 of 1% of the unused portion
of the credit facility. The commitment fee is accrued and paid quarterly on a
pro rata basis by the Funds. The expiration date of the SCA is March 9, 2001.
Prior to March 9, 2000, the commitment fee was .065 of 1% of the unused portion
of the credit facility. The Fund did not borrow any amounts pursuant to the SCA
during the year ended October 31, 2000.
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent. During the year ended October 31, 2000, the
Fund incurred fees of approximately $838,800 for the services of PMFS. As of
October 31, 2000, approximately $90,300 of such fees were due to PMFS. Transfer
agent fees and expenses in the Statement of Operations also include certain
out-of-pocket expenses paid to nonaffiliates.
For the year ended October 31, 2000, Prudential Securities Incorporated,
which is an indirect, wholly owned subsidiary of Prudential, earned
approximately $211,200 in brokerage commissions from portfolio transactions
executed on behalf of the Fund.
21
<PAGE>
Prudential U.S. Emerging Growth Fund, Inc.
Notes to Financial Statements Cont'd.
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the year ended October 31, 2000 were $2,769,635,862 and $2,376,560,296,
respectively.
The cost basis of investments for federal income tax purposes at October
31, 2000 was $798,087,356 and, accordingly, net unrealized appreciation of
investments for federal income tax purposes was $66,561,129 (gross unrealized
appreciation --$107,685,442; gross unrealized depreciation--$41,124,313).
Note 5. Joint Repurchase Agreement Account
The Fund, along with other affiliated registered investment companies, transfers
uninvested cash balances into a single joint account, the daily aggregate
balance of which is invested in one or more repurchase agreements collateralized
by U.S. Treasury or Federal agency obligations. As of October 31, 2000, the Fund
had a 6.6% undivided interest in the repurchase agreements in the joint account.
The undivided interest for the Fund represented $43,287,000 in principal amount.
As of such date, each repurchase agreement in the joint account and the value of
the collateral therefore were as follows:
ABN AMRO, Inc., 6.56%, in the principal amount of $150,000,000, repurchase
price $150,027,333, due 11/1/00. The value of the collateral including accrued
interest was $153,000,176.
Bear, Stearns & Co. Inc., 6.56%, in the principal amount of $175,000,000,
repurchase price $175,031,889, due 11/1/00. The value of the collateral
including accrued interest was $184,628,570.
Chase Securities Inc., 6.56%, in the principal amount of $115,000,000,
repurchase price $115,020,956, due 11/1/00. The value of the collateral
including accrued interest was $117,304,831.
Merrill Lynch, Pierce, Fenner & Smith, Inc., 6.375%, in the principal
amount of $43,782,000, repurchase price $43,789,753, due 11/1/00. The value of
the collateral including accrued interest was $44,659,885.
UBS Warburg, Inc., 6.56%, in the principal amount of $175,000,000,
repurchase price $175,031,889, due 11/1/00. The value of the collateral
including accrued interest was $178,501,724.
Note 6. Capital
The Fund offers Class A, Class B, Class C and Class Z shares. Class A shares are
sold with a front-end sales charge of up to 5%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time
22
<PAGE>
Prudential U.S. Emerging Growth Fund, Inc.
Notes to Financial Statements Cont'd.
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 2 billion shares of $.001 par value common stock authorized
divided into four classes, designated Class A, Class B, Class C and Class Z,
which consists of 1 billion, 500 million, 300 million and 200 million authorized
shares, respectively.
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
---------------------------------------------------------- ----------- -------------
<S> <C> <C>
Year ended October 31, 2000:
Shares sold 18,021,106 $ 473,670,408
Shares issued in reinvestment of distributions 337,254 7,120,860
Shares reacquired (12,579,993) (328,357,959)
----------- -------------
Net increase (decrease) in shares outstanding before
conversion 5,778,367 152,433,309
Shares issued upon conversion from Class B 1,111,429 31,498,175
----------- -------------
Net increase (decrease) in shares outstanding 6,889,796 $ 183,931,484
----------- -------------
----------- -------------
Year ended October 31, 1999:
Shares sold 4,765,399 $ 81,090,986
Shares issued in reinvestment of distributions 67,007 844,294
Shares reacquired (3,244,391) (55,188,028)
----------- -------------
Net increase (decrease) in shares outstanding before
conversion 1,588,015 26,747,252
Shares issued upon conversion from Class B 198,946 3,220,362
----------- -------------
Net increase (decrease) in shares outstanding 1,786,961 $ 29,967,614
----------- -------------
----------- -------------
</TABLE>
23
<PAGE>
Prudential U.S. Emerging Growth Fund, Inc.
Notes to Financial Statements Cont'd.
<TABLE>
<CAPTION>
Class B Shares Amount
---------------------------------------------------------- ----------- -------------
Year ended October 31, 2000:
<S> <C> <C>
Shares sold 10,338,639 $ 267,311,408
Shares issued in reinvestment of distributions 782,642 16,109,133
Shares reacquired (2,780,498) (70,304,915)
----------- -------------
Net increase (decrease) in shares outstanding before
conversion 8,340,783 213,115,626
Shares reacquired upon conversion into Class A (1,144,343) (31,498,175)
----------- -------------
Net increase (decrease) in shares outstanding 7,196,440 $ 181,617,451
----------- -------------
----------- -------------
Year ended October 31, 1999:
Shares sold 4,299,581 $ 70,231,079
Shares issued in reinvestment of distributions 177,561 2,201,763
Shares reacquired (1,444,215) (22,492,386)
----------- -------------
Net increase (decrease) in shares outstanding before
conversion 3,032,927 49,940,456
Shares reacquired upon conversion into Class A (202,843) (3,220,362)
----------- -------------
Net increase (decrease) in shares outstanding 2,830,084 $ 46,720,094
----------- -------------
----------- -------------
<CAPTION>
Class C
<S> <C> <C>
Year ended October 31, 2000:
Shares sold 2,535,417 $ 65,495,924
Shares issued in reinvestment of distributions 106,238 2,186,792
Shares reacquired (553,865) (13,910,800)
----------- -------------
Net increase (decrease) in shares outstanding 2,087,790 $ 53,771,916
----------- -------------
----------- -------------
Year ended October 31, 1999:
Shares sold 861,899 $ 14,471,091
Shares issued in reinvestment of distributions 14,915 184,941
Shares reacquired (189,985) (3,042,506)
----------- -------------
Net increase (decrease) in shares outstanding 686,829 $ 11,613,526
----------- -------------
----------- -------------
<CAPTION>
Class Z
----------------------------------------------------------
<S> <C> <C>
Year ended October 31, 2000:
Shares sold 2,837,518 $ 75,206,882
Shares issued in reinvestment of distributions 75,388 1,602,363
Shares reacquired (947,081) (24,577,929)
----------- -------------
Net increase (decrease) in shares outstanding 1,965,825 $ 52,231,316
----------- -------------
----------- -------------
Year ended October 31, 1999:
Shares sold 967,643 $ 16,462,871
Shares issued in reinvestment of distributions 5,036 63,710
Shares reacquired (188,018) (3,102,616)
----------- -------------
Net increase (decrease) in shares outstanding 784,661 $ 13,423,965
----------- -------------
----------- -------------
</TABLE>
24
<PAGE>
Prudential U.S. Emerging Growth Fund, Inc.
Financial Highlights
<TABLE>
<CAPTION>
Class A
---------------------------------------------------
December 31,
1996(a)
Year Ended October 31, Through
---------------------------------- October 31,
2000(d) 1999(d) 1998 1997
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period $ 19.16 $ 12.01 $ 11.92 $ 10.00
---------- ------- ------- ------------
Income from investment
operations
Net investment loss (.20) (.13) (.11) (.08)
Net realized and unrealized gain
on investment transactions 8.37 7.61 .41 2.00
---------- ------- ------- ------------
Total from investment
operations 8.17 7.48 .30 1.92
---------- ------- ------- ------------
Less distributions
Distributions from net realized
gains........................... (1.64) (.33) (.21) --
---------- ------- ------- ------------
Net asset value, end of period $ 25.69 $ 19.16 $ 12.01 $ 11.92
---------- ------- ------- ------------
---------- ------- ------- ------------
TOTAL RETURN(c): 44.52% 63.65% 2.63% 19.20%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $291,800 $85,595 $32,183 $ 33,124
Average net assets (000) $217,712 $52,984 $33,831 $ 28,141
Ratios to average net assets:
Expenses, including
distribution and service
(12b-1) fees(e) 1.06% 1.22% 1.25% 1.46%(b)
Expenses, excluding
distribution and service
(12b-1) fees .81% .97% 1.00% 1.21%(b)
Net investment loss (.75)% (.80)% (.88)% (.92)%(b)
For Class A, B, C and Z shares:
Portfolio turnover rate 347% 153% 177% 107%
</TABLE>
------------------------------
(a) Commencement of investment operations.
(b) Annualized.
(c) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(d) Based on average shares outstanding during the period.
(e) The distributor of the Fund agreed to limit its distribution fees to .25 of
1% of the average daily net assets of the Class A shares.
See Notes to Financial Statements 25
<PAGE>
Prudential U.S. Emerging Growth Fund, Inc.
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class B
----------------------------------------------------
December 31,
1996(a)
Year Ended October 31, Through
----------------------------------- October 31,
2000(d) 1999(d) 1998 1997
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period $ 18.72 $ 11.83 $ 11.85 $ 10.00
---------- -------- ------- ------------
Income from investment
operations
Net investment loss (.38) (.24) (.20) (.14)
Net realized and unrealized gain
on investment transactions 8.18 7.46 .39 1.99
---------- -------- ------- ------------
Total from investment
operations 7.80 7.22 .19 1.85
---------- -------- ------- ------------
Less distributions
Distributions from net realized
gains (1.64) (.33) (.21) --
---------- -------- ------- ------------
Net asset value, end of period $ 24.88 $ 18.72 $ 11.83 $ 11.85
---------- -------- ------- ------------
---------- -------- ------- ------------
TOTAL RETURN(c): 43.52% 62.39% 1.71% 18.50%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $424,815 $184,955 $83,407 $ 82,070
Average net assets (000) $382,245 $127,249 $86,713 $ 67,420
Ratios to average net assets:
Expenses, including
distribution and service
(12b-1) fees 1.81% 1.97% 2.00% 2.21%(b)
Expenses, excluding
distribution and service
(12b-1) fees .81% .97% 1.00% 1.21%(b)
Net investment loss (1.49)% (1.55)% (1.63)% (1.67)%(b)
</TABLE>
------------------------------
(a) Commencement of investment operations.
(b) Annualized.
(c) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(d) Based on average shares outstanding during the period.
26 See Notes to Financial Statements
<PAGE>
Prudential U.S. Emerging Growth Fund, Inc.
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class C
---------------------------------------------------
December 31,
1996(a)
Year Ended October 31, Through
---------------------------------- October 31,
2000(d) 1999(d) 1998 1997
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period $ 18.72 $ 11.83 $11.85 $10.00
---------- ------- ------- ------------
Income from investment
operations
Net investment loss (.38) (.24) (.20 ) (.14)
Net realized and unrealized gain
on investment transactions 8.18 7.46 .39 1.99
---------- ------- ------- ------------
Total from investment
operations 7.80 7.22 .19 1.85
---------- ------- ------- ------------
Less distributions
Distributions from net realized
gains on investment transactions (1.64) (.33) (.21 ) --
---------- ------- ------- ------------
Net asset value, end of period $ 24.88 $ 18.72 $11.83 $11.85
---------- ------- ------- ------------
---------- ------- ------- ------------
TOTAL RETURN(c): 43.52% 62.39% 1.71 % 18.50%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 83,275 $23,578 $6,774 $6,477
Average net assets (000) $ 65,566 $12,380 $6,949 $5,526
Ratios to average net assets:
Expenses, including
distribution and service
(12b-1) fees 1.81% 1.97% 2.00 % 2.21%(b)
Expenses, excluding
distribution and service
(12b-1) fees .81% .97% 1.00 % 1.21%(b)
Net investment loss (1.50)% (1.56)% (1.63 )% (1.69)%(b)
</TABLE>
------------------------------
(a) Commencement of investment operations.
(b) Annualized.
(c) Total return does not consider the effects of sales loads. Total return is
calculated assuming a purchase of shares on the first day and a sale on the
last day of each period reported and includes reinvestment of dividends and
distributions. Total returns for periods of less than a full year are not
annualized.
(d) Based on average shares outstanding during the period.
See Notes to Financial Statements 27
<PAGE>
Prudential U.S. Emerging Growth Fund, Inc.
Financial Highlights Cont'd.
<TABLE>
<CAPTION>
Class Z
---------------------------------------------------
December 31,
1996(a)
Year Ended October 31, Through
---------------------------------- October 31,
2000(d) 1999(d) 1998 1997
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period $ 19.28 $ 12.06 $11.93 $10.00
---------- ------- ------- ------------
Income from investment
operations
Net investment loss (.13) (.09) (.04 ) (.03)
Net realized and unrealized gain
on investment transactions 8.43 7.64 .38 1.96
---------- ------- ------- ------------
Total from investment
operations 8.30 7.55 .34 1.93
---------- ------- ------- ------------
Less distributions
Distributions from net realized
gains on investment
transactions (1.64) (.33) (.21 ) --
---------- ------- ------- ------------
Net asset value, end of period $ 25.94 $ 19.28 $12.06 $11.93
---------- ------- ------- ------------
---------- ------- ------- ------------
TOTAL RETURN(c): 44.95% 63.97% 2.97 % 19.30%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000) $ 76,607 $19,029 $2,439 $ 561
Average net assets (000) $ 52,755 $ 7,796 $1,283 $ 261
Ratios to average net assets:
Expenses, including
distribution and service
(12b-1) fees .81% .97% 1.00 % 1.21%(b)
Expenses, excluding
distribution and service
(12b-1) fees .81% .97% 1.00 % 1.21%(b)
Net investment loss (.51)% (.56)% (.63 )% (.73)%(b)
</TABLE>
------------------------------
(a) Commencement of investment operations.
(b) Annualized.
(c) Total return is calculated assuming a purchase of shares on the first day
and a sale on the last day of each period reported and includes reinvestment
of dividends and distributions. Total returns for periods of less than a
full year are not annualized.
(d) Based on average shares outstanding during the period.
28 See Notes to Financial Statements
<PAGE>
Prudential U.S. Emerging Growth Fund, Inc.
Report of Independent Accountants
To the Shareholders and Board of Directors of
Prudential U.S. Emerging Growth Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Prudential U.S. Emerging Growth
Fund, Inc. (the 'Fund'), formerly Prudential Emerging Growth Fund, Inc., at
October 31, 2000, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the periods indicated, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
'financial statements') are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States of America,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 2000 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
December 15, 2000
29
<PAGE>
Prudential U.S. Emerging Growth Fund, Inc.
Federal Income Tax Information (Unaudited)
We are required by the Internal Revenue Code to advise you within 60 days
of the Fund's fiscal year end (October 31, 2000) as to the federal tax status of
distributions paid by the Fund during such fiscal period. Accordingly, we are
advising you that in the fiscal year ended October 31, 2000, the Fund paid
distributions of 1.073 per Class A, B, C, and Z shares from net realized
short-term capital gain distribution, which is taxable as ordinary income. In
addition the Fund paid to Class A, B, C, and Z shares a net realized long-term
capital gains distribution of $0.562, which is taxable as such. The Fund
utilized redemptions as distributions in the amount of $0.018 and $0.593 of
short-term capital gains and long-term capital gains, respectively for each
class of shares.
We also wish to advise you that 1.52% of the dividends paid from ordinary
income in the fiscal year ended October 31, 2000 qualified for the corporate
dividends received deduction available to corporate tax payers.
In January 2001, you will be advised on IRS Form 1099 DIV or substitute
1099 as to the federal tax status of the dividends and distributions received by
you in calendar year 2000. The amount that will be reported on such Form 1099
DIV or substitute will be the amounts to use on your 2000 federal income tax
return and probably will differ from the amounts which we must report for the
Fund's fiscal year ended October 31, 2000.
30
<PAGE>
Prudential U.S. Emerging Growth Fund, Inc.
Getting the Most from Your Prudential Mutual Fund
When you invest through Prudential Mutual Funds,
you receive financial advice from a Prudential
Securities Financial Advisor or Pruco Securities
registered representative. Your financial
professional can provide you with the following
services:
There's No Reward Without Risk; but Is This Risk
Worth It?
Your financial professional can help you match the
reward you seek with the risk you can tolerate.
Risk can be difficult to gauge--sometimes even the
simplest investments bear surprising risks. The
educated investor knows that markets seldom move in
just one direction. There are times when a
market sector or asset class will lose value or
provide little in the way of total return. Managing
your own expectations is easier with help from
someone who understands the markets, and who knows
you!
Keeping Up With the Joneses
A financial professional can help you wade through
the numerous available mutual funds to find the
ones that fit your individual investment profile
and risk tolerance. While the newspapers and
popular magazines are full of advice about
investing, they are aimed at generic groups of
people or representative individuals--not at you
personally. Your financial professional will review
your investment objectives with you. This means you
can make financial decisions based on the assets
and liabilities in your current portfolio and your
risk tolerance--not just based on the current
investment fad.
Buy Low, Sell High
Buying at the top of a market cycle and selling at
the bottom are among the most common investor
mistakes. But sometimes it's difficult to hold on
to an investment when it's losing value every
month. Your financial professional can answer
questions when you're confused or worried about
your investment, and should remind you that you're
investing for the long haul.
<PAGE>
Prudential U.S. Emerging Growth Fund, Inc.
Prudential Mutual Funds
Prudential offers a broad range of mutual funds
designed to meet your
individual needs. For information about these
funds, contact your financial professional or call
us at (800) 225-1852. Read the prospectus carefully
before you invest or send money.
STOCK FUNDS
Large Capitalization Stock Funds
Prudential 20/20 Focus Fund
Prudential Equity Fund, Inc.
Prudential Stock Index Fund
Prudential Tax-Managed Funds
Prudential Tax-Managed Equity Fund
Strategic Partners Focused Growth Fund
Target Funds
Large Capitalization Growth Fund
Large Capitalization Value Fund
The Prudential Investment Portfolios, Inc.
Prudential Jennison Growth Fund
Prudential Value Fund
Small- to Mid-Capitalization Stock Funds
Nicholas-Applegate Fund, Inc.
Nicholas-Applegate Growth Equity Fund
Prudential Small Company Fund, Inc.
Prudential Tax-Managed Small-Cap Fund, Inc.
Prudential U.S. Emerging Growth Fund, Inc.
Target Funds
Small Capitalization Growth Fund
Small Capitalization Value Fund
The Prudential Investment Portfolios, Inc.
Prudential Jennison Equity Opportunity Fund
Sector Stock Funds
Prudential Natural Resources Fund, Inc.
Prudential Real Estate Securities Fund
Prudential Sector Funds, Inc.
Prudential Financial Services Fund
Prudential Health Sciences Fund
Prudential Technology Fund
Prudential Utility Fund
Global/International Stock Funds
Global Utility Fund, Inc.
Prudential Europe Growth Fund, Inc.
Prudential Pacific Growth Fund, Inc.
Prudential World Fund, Inc.
Prudential Global Growth Fund
Prudential International Value Fund
Prudential Jennison International Growth Fund
Target Funds
International Equity Fund
BALANCED/ALLOCATION FUNDS
Prudential Diversified Funds
Conservative Growth Fund
Moderate Growth Fund
High Growth Fund
The Prudential Investment Portfolios, Inc.
Prudential Active Balanced Fund
<PAGE>
www.prudential.com (800) 225-1852
BOND FUNDS
Taxable Bond Funds
Prudential Government Income Fund, Inc.
Prudential Government Securities Trust
Short-Intermediate Term Series
Prudential High Yield Fund, Inc.
Prudential High Yield Total Return Fund, Inc.
Prudential Short-Term Corporate Bond Fund, Inc.
Income Portfolio
Prudential Total Return Bond Fund, Inc.
Target Funds
Total Return Bond Fund
Tax-Free Bond Funds
Prudential California Municipal Fund
California Series
California Income Series
Prudential Municipal Bond Fund
High Income Series
Insured Series
Prudential Municipal Series Fund
Florida Series
New Jersey Series
New York Series
Pennsylvania Series
Prudential National Municipals Fund, Inc.
Global/International Bond Funds
Prudential Global Total Return Fund, Inc.
Prudential International Bond Fund, Inc.
MONEY MARKET FUNDS
Taxable Money Market Funds
Cash Accumulation Trust
Liquid Assets Fund
National Money Market Fund
Prudential Government Securities Trust
Money Market Series
U.S. Treasury Money Market Series
Prudential Institutional Liquidity Portfolio, Inc.
Institutional Money Market Series
Prudential MoneyMart Assets, Inc.
Prudential Special Money Market Fund, Inc.
Money Market Series
Tax-Free Money Market Funds
Prudential California Municipal Fund
California Money Market Series
Prudential Municipal Series Fund
Connecticut Money Market Series
Massachusetts Money Market Series
New Jersey Money Market Series
New York Money Market Series
Prudential Tax-Free Money Fund, Inc.
Other Money Market Funds
Command Government Fund
Command Money Fund
Command Tax-Free Fund
<PAGE>
Prudential U.S. Emerging Growth Fund, Inc.
Class A Growth of a $10,000 Investment
(GRAPH)
Average Annual Total Returns as of 10/31/00
One Year Since Inception
With Sales Charge 37.30% 30.19%
Without Sales Charge 44.52% 31.94%
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. The best- and worst-year information
within the graph is designed to give you an idea of
how much the Fund's returns can fluctuate from year
to year by measuring the best and worst calendar
years in terms of total
annual return since inception of the share class.
The graph compares a $10,000 investment in
Prudential U.S. Emerging Growth Fund, Inc. (Class A
shares) with a similar investment in the S&P Mid-
Cap 400 Index by portraying the initial account
value at the commencement of operations of Class A
shares, and the account value at the end of the
current fiscal year (October 31, 2000), as measured
on a quarterly basis. For purposes of the graph,
and unless otherwise indicated, it has been assumed
that (a) the maximum applicable front-end sales
charge was deducted from the initial $10,000
investment in Class A shares; (b) all recurring
fees (including management fees) were deducted; and
(c) all dividends and distributions were reinvested.
The S&P Mid-Cap 400 Index is an unmanaged index of
400 domestic stocks chosen for market size,
liquidity, and industry group representation,
giving a broad look at how mid-cap stock prices
have
performed. The Index total returns include the
reinvestment of all dividends, but do not include
the effect of sales charges or operating expenses
of a mutual fund. The securities that comprise the
Index may differ substantially from the securities in the
Fund. The Index is not the only one that may be
used to characterize performance of stock funds.
Other indexes may portray different comparative
performance. Investors cannot invest directly in an
index.
This graph is furnished to you in accordance with
SEC regulations.
<PAGE>
www.prudential.com (800) 225-1852
Class B Growth of a $10,000 Investment
(GRAPH)
Average Annual Total Returns as of 10/31/00
One Year Since Inception
With Sales Charge 38.52% 30.68%
Without Sales Charge 43.52% 30.92%
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. The best- and worst-year information
within the graph is designed to give you an idea of
how much the Fund's returns can fluctuate from
year to year by measuring the best and worst
calendar years in terms of total annual return
since inception of the share class. The graph
compares a $10,000 investment in the Prudential
U.S. Emerging Growth Fund, Inc. (Class B shares)
with a similar investment in the S&P Mid-Cap 400
Index by portraying the initial account value at
the commencement of operations of Class B shares,
and the account value at the end of the current
fiscal year (October 31, 2000), as measured on a
quarterly basis. For purposes of the graph, and
unless otherwise indicated, it has been assumed
that (a) the maximum applicable contingent deferred
sales charge was deducted from the value of the
investment in Class B shares, assuming full
redemption on October 31, 2000; (b) all recurring
fees (including management fees) were deducted; and
(c) all dividends and distributions were
reinvested. Class B shares will automatically
convert to Class A shares, on a quarterly basis,
beginning approximately seven years after purchase.
This conversion feature is not reflected in the
graph.
The S&P Mid-Cap 400 Index is an unmanaged index of
400 domestic stocks chosen for market size,
liquidity, and industry group representation,
giving a broad look at how mid-cap stock prices
have performed. The Index total returns include the
reinvestment of all dividends, but do not include
the effect of sales charges or operating expenses
of a mutual fund. The securities that comprise the
Index may differ substantially from the securities in the
Fund. The Index is not the only one that may be
used to characterize performance of stock funds.
Other indexes may portray different comparative
performance. Investors cannot invest directly in an
index.
This graph is furnished to you in accordance with
SEC regulations.
<PAGE>
Prudential U.S. Emerging Growth Fund, Inc.
Class C Growth of a $10,000 Investment
(GRAPH)
Average Annual Total Returns as of 10/31/00
One Year Since Inception
With Sales Charge 41.09% 30.58%
Without Sales Charge 43.52% 30.92%
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. The best- and worst-year information
within the graph is designed to give you an idea of
how much the Fund's returns can fluctuate from year
to year by measuring the best and worst calendar
years in terms of total
annual return since inception of the share class.
The graph compares a $10,000 investment in the
Prudential U.S. Emerging Growth Fund, Inc. (Class C
shares) with a similar investment in the S&P Mid-
Cap 400 Index by portraying the initial account
value at the commencement of operations of Class C
shares, and the account value at the end of the
current fiscal year (October 31, 2000), as measured
on a quarterly basis. For purposes of the graph,
and unless otherwise indicated, it has been assumed
that (a) the maximum applicable front-end sales
charge was deducted from the initial $10,000
investment in Class C shares; (b) the maximum
applicable contingent deferred sales charge was
deducted from the value of the investment in Class
C shares, assuming full redemption on October 31,
2000; (c) all recurring fees (including management
fees) were deducted; and (d) all dividends and
distributions were reinvested.
The S&P Mid-Cap 400 Index is an unmanaged index of
400 domestic stocks chosen for market size,
liquidity, and industry group representation,
giving a broad look at how mid-cap stock prices
have performed. The Index total returns include the
reinvestment of all dividends, but do not include
the effect of sales charges or operating expenses
of a mutual fund. The securities that comprise the
Index may differ substantially from the securities in the
Fund. The Index is not the only one that may be
used to characterize performance of stock funds.
Other indexes may portray different comparative
performance. Investors cannot invest directly in an
index.
This graph is furnished to you in accordance with
SEC regulations.
<PAGE>
www.prudential.com (800) 225-1852
Class Z Growth of a $10,000 Investment
(GRAPH)
Average Annual Total Returns as of 10/31/00
One Year Since Inception
With Sales Charge 44.95% 32.25%
Without Sales Charge 44.95% 32.25%
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. The best- and worst-year information
within the graph is designed to give you an idea of
how much the Fund's returns can fluctuate from year
to year by measuring the best and worst calendar
years in terms of total
annual return since inception of the share class.
The graph compares a $10,000 investment in the
Prudential U.S. Emerging Growth Fund, Inc. (Class Z
shares) with a similar investment in the S&P Mid-
Cap 400 Index by portraying the initial account
value at the commencement of operations of Class Z
shares, and the account value at the end of the
current fiscal year (October 31, 2000), as measured
on a quarterly basis. For purposes of the graph,
and unless otherwise indicated, it has been assumed
that (a) all recurring fees (including management
fees) were deducted; and (b) all dividends and
distributions were reinvested. Class Z shares are
not subject to a sales charge or distribution and
service (12b-1) fees.
The S&P Mid-Cap 400 Index is an unmanaged index of
400 domestic stocks chosen for market size,
liquidity, and industry group representation,
giving a broad look at how mid-cap stock prices
have performed. The Index total returns include the
reinvestment of all dividends, but do not include
the effect of sales charges or operating expenses
of a mutual fund. The securities that comprise the
Index may differ substantially from the securities
in the Fund. The Index is not the only one that may
be used to characterize performance of stock funds.
Other indexes may portray different comparative
performance. Investors cannot invest directly in an
index.
This graph is furnished to you in accordance with
SEC regulations.
<PAGE>
For More Information
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
Visit Prudential's website at:
http://www.prudential.com
Directors
Saul K. Fenster
Delayne Dedrick Gold
Robert F. Gunia
Douglas H. McCorkindale
W.Scott McDonald, Jr.
Thomas T. Mooney
Stephen P. Munn
David R. Odenath, Jr.
Richard A. Redeker
Judy A. Rice
Robin B. Smith
Louis A. Weil, III
Clay T. Whitehead
Officers
David R. Odenath, Jr., President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Marguerite E.H. Morrison, Secretary
William V. Healey, Assistant Secretary
Jonathan D. Shain, Assistant Secretary
Manager
Prudential Investments
Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
Jennison Associates LLC
466 Lexington Avenue
New York, NY 10017
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 8098
Philadelphia, PA 19101
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
Fund Symbols NASDAQ CUSIP
Class A PEEAX 74438N106
Class B PEEBX 74438N205
Class C PEGCX 74438N304
Class Z PEGZX 74438N403
MF173E
(ICON) Printed on Recycled Paper
