<PAGE>
(ICON)
Nicholas-
Applegate
Growth
Equity Fund
SEMI
ANNUAL
REPORT
June 30, 1999
(LOGO)
<PAGE>
Portfolio Manager's Report
(PHOTO)
William H. Chenoweth
Fund Manager
Investment Goals and Style
At Nicholas-Applegate, our search for promising investments starts with
detailed, fundamental analysis of thousands of individual companies. We
investigate opportunities from the "bottom up," analyzing strengths and
weaknesses on a company-by-company basis. Nicholas-Applegate Growth Equity
Fund seeks to deliver capital appreciation through investment in growth
companies with market capitalizations in the middle 90% of the Russell Mid-
Cap Growth Index*--predominantly between $1 billion and $10 billion. Our
research focuses on identifying and investing in stocks exhibiting each of
the following traits:
- - Evidence of positive change
- - Sustainability of that change
- - Timeliness of investment
There can be no assurance that the Fund will achieve its investment objective.
* The Russell Mid-Cap Growth Index measures the performance of those companies
among the 800 smallest companies in the Russell 1000 index. Investors cannot
invest directly in an index.
Performance at a Glance
Stock selection, especially within the technology sector, resulted in double-
digit gains for Nicholas-Applegate Growth Equity Fund for the six-month period
ended June 30, 1999. During the first three months of the year, investors
sought stocks delivering the strongest earnings growth. These are precisely
the stocks in which your Fund is invested. During the second quarter when
growth stocks were out of favor, stock selection delivered solid gains despite
a difficult environment. Your Fund was up 22% during the period, versus a 12%
gain for the Lipper Mid-Cap Fund Average.
<TABLE>
<CAPTION>
Cumulative Total Returns1 As of 6/30/99
Six One Five Ten Since
Months Year Years Years Inception2
<S> <C> <C> <C> <C> <C>
Class A 21.97% 24.70% 153.91% 381.67% 419.33%
Class B 21.51 23.72 144.16 N/A 248.40
Class C 21.51 23.72 N/A N/A 136.80
Class Z 22.35 25.30 N/A N/A 67.87
Lipper Mid-Cap Fund Avg.3 12.13 13.36 149.20 310.40 ***
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns1 As of 6/30/99
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A 18.47% 19.26% 16.43% 13.95%
Class B 18.72 19.45 N/A 16.76
Class C 21.48 N/A N/A 18.94
Class Z 25.30 N/A N/A 25.43
</TABLE>
Past performance is not indicative of future results. Principal and investment
return will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
1 Source: Prudential Investments Fund Management 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 C shares bought before November 2, 1998,
have a 1% CDSC if sold within one year. Class Z shares are not subject to a
sales charge or distribution and service (12b-1) fees.
2 Inception dates: Class A, 4/9/87; Class B, 6/10/91; Class C, 8/1/94; and
Class Z, 3/18/97.
3 Lipper average returns are for all funds in each share class for the six-
month, one-, five-, and ten-year periods in the Mid-Cap Fund category.
***Lipper Since Inception returns are 362.26% for Class A, 220.45% for Class
B, 142.82% for Class C, and 61.26% for Class Z, based on all funds in each
share class.
<PAGE>
Performance Review
Stock selection helps results
During the first quarter of 1999, advances among a small group of large-cap
stocks carried the U.S. equity market to record highs. Reflecting investors'
preference for larger-cap stocks, the Dow Jones Industrial Average (DJIA)
closed above 10,000 for the first time, and the S&P 500 Index also reached
record highs during the quarter. The gains in these popular benchmarks masked
broader market underperformance, especially within the mid- and smaller-cap
segments. Even in this difficult environment for mid-cap stocks, your Fund
recorded strong gains. While the DJIA was up 7.0% and the S&P 500 gained 5.0%
in the quarter, your Fund was up 13.7% over the same period.
Exposure to select Internet-related companies in the first quarter contributed
to your Fund's better-than-benchmark results. Stocks such as Netscape and
Yahoo! were among the best performers in the quarter. Verisign was another
solid performer. (Verisign provides solutions for conducting secure
communications and commerce over the Internet.)
Other top-performing holdings included Charles Schwab and Donaldson, Lufkin &
Jenrette. A boom in online trading activity contributed to gains for these
brokerage firms.
Technology holdings hinder, then help returns
During the second quarter--amid strong gains in corporate profits, rising
interest rates, and growing fears of inflation--value stocks outperformed
growth stocks.
In this difficult environment, growth-oriented investment styles were not in
favor. Rising interest rates during the quarter impacted stocks with strong
earnings growth rates and high price-to-earnings ratios (PEs)--often precisely
the types of stocks that your Fund holds. Given these market dynamics,
technology stocks were especially vulnerable, as they tend to have high
earnings growth rates.
A significant weighting in technology--which helped Fund returns in the first
quarter--negatively affected the Fund's performance in the second quarter as
investor sentiment changed significantly. For example, Yahoo!, one of the
Fund's best-performing holdings in the first quarter, was one of its worst
performers in the second. Other technology holdings that delivered
disappointing returns included At Home and Network Solutions. At Home provides
Internet services over cable television and leased digital telecommunications
lines. Network Solutions provides worldwide Internet-domain name registration
services and intranet consulting and network design. Despite a difficult
quarter for both companies, they remain holdings in your Fund. Our research
and analysis suggest both companies demonstrate long-term appreciation
potential.
While technology stocks slumped early in the second quarter, they rebounded
in June and Fund returns benefited. We continue to see promise within the
technology sector on a stock-specific basis, especially within the
telecommunications and wireless communications industries, due to escalating
demand. In fact, despite declines for a number of technology stocks during
the quarter, there were pockets of strength. For example, among the Fund's
best-performing holdings for the quarter were
Five Largest Holdings
Expressed as a percentage of net assets as of 6/30/99
Conexant Systems, Inc. 2.6%
Electronic Components
WinStar Communications, Inc. 2.2
Telecommunication Services
Circuit City Stores-Circuit City Gr. 1.8
Retail/Wholesale Specialty Chain
USA Networks, Inc. 1.7
Media
VoiceStream Wireless Corp. 1.6
Telecommunication Services
<PAGE>
Conexant Systems, a manufacturer of semiconductor products for communications
applications, and WinStar Communications, a local and long-distance
telecommunication services provider.
Shifting sector exposure
Appreciation and stock-specific additions to your Fund increased exposure to
technology stocks during the six-month period. The Fund's technology weighting
increased to 44.3% on June 30, 1999, up from 34.4% on December 31, 1998.
Exposure to energy stocks also increased. Amid rising oil prices, our research
confirmed improving business fundamentals for a number of oil field services
and equipment companies, as measured by increasing rig counts, utilization
rates, drilling permits and day rates paid for rigs.
Months ago when demand was slack, many of these companies paid down debt and
improved their balance sheets. As business conditions improve, we believe
earnings growth will accelerate. Early recognition of improving fundamentals
has been critical in profiting from opportunities in oil-related industries.
Among the Fund's holdings in this industry are Ensco International, Global
Industries, and Weatherford International.
Rising interest rates during much of the period negatively impacted returns
for holdings in the financial services industry. Evidence of robust economic
growth and tight labor markets contributed to concerns that the Federal
Reserve Board would raise interest rates during the period. The Fed did, in
fact, hike short-term rates at the end of the second quarter. Amid these
concerns, we reduced exposure to the financial services sector on a stock-
specific basis. We also reduced exposure to the retail trade sector.
Looking Ahead
Encouraged by broader market
Based on the fundamental strength of holdings in the Fund, we remain
optimistic. We continue to find attractive candidates with strong earnings
growth rates that meet each of our strict investment criteria. While the
notion of higher interest rates raises concerns, we viewed the Federal Reserve
Board's decision to raise short-term interest rates by 25 basis points on June
30 as a signal of the Fed's proactive approach to keep the economy in a modest
growth phase and inflation in check--both good developments for stocks.
We were encouraged by the market's broader advance in the second quarter as
small- and mid-cap stocks outdistanced larger-cap shares for the first time
since the third quarter of 1997. For much of the past few years, investors
showed a decided preference for large-cap stocks. Mid-cap stocks-- despite
their fundamental strengths--were largely overlooked. Based on their recent
gains, mid-cap stocks appear to have earned increased investor recognition.
Our bottom-up investment approach is highly adaptable and helps us capture
areas of strength wherever they're occurring. In essence, we remain confident
of our ability to find solid investment opportunities in any environment and
deliver exceptional long-term results.
Portfolio Composition
Expressed as a percentage of net assets as of 6/30/99
Technology 44.3%
Capital Goods 17.0
Consumer Non-Durables 15.4
Energy 10.4
General Business 7.3
Financial Services 4.2
Other 1.1
Cash & Equivalents 0.3
- -------------------------------------------------------------------------------
1
<PAGE>
NICHOLAS-APPLEGATE FUND, INC. Portfolio of Investments
NICHOLAS-APPLEGATE GROWTH EQUITY FUND June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Shares Description Value
(Note 1)
<C> <S> <C>
COMMON STOCKS--98.6%
CAPITAL GOODS--17.0%
Drugs & Healthcare--3.1%
85,800 Bausch & Lomb, Inc......... $ 6,563,700
78,100 VISX, Inc.*................ 6,184,544
------------
12,748,244
------------
Leisure & Recreation--0.9%
71,800 Harley-Davidson, Inc....... 3,904,125
------------
Retail/Wholesale Specialty Chain--13.0%
95,000 Abercrombie & Fitch Co.*... 4,560,000
81,100 American Eagle Outfitters,
Inc.*.................... 3,690,050
108,700 Bed Bath & Beyond, Inc.*... 4,184,950
89,800 Best Buy Co., Inc.*........ 6,061,500
79,900 Circuit City Stores-Circut
City Group............... 7,430,700
40,600 eToys Inc.*................ 1,654,450
81,690 Intimate Brands, Inc....... 3,870,064
39,400 Kohl's Corp.*.............. 3,041,188
195,900 Pacific Sunwear of
California, Inc.*........ 4,775,062
26,400 Priceline.Com Inc.*........ 3,050,850
165,650 Staples, Inc.*............. 5,124,797
181,800 Starbucks Corp.*........... 6,828,862
------------
54,272,473
------------
CONSUMER NON-DURABLES--15.4%
Airlines--0.7%
98,900 Southwest Airlines Co...... 3,078,262
------------
Aluminum--0.7%
49,400 Reynolds Metals Co......... 2,914,600
------------
Business Services--2.2%
90,900 Concord EFS, Inc.*......... 3,846,206
164,000 Fiserv, Inc.*.............. 5,135,250
------------
8,981,456
------------
Chemicals--0.8%
107,300 Cytec Industries, Inc.*.... $ 3,420,187
------------
Containers--2.3%
166,000 Owens-Illinois, Inc.*...... 5,426,125
212,400 Smurfit-Stone Container
Corp.*................... 4,367,475
------------
9,793,600
------------
Drugs & Healthcare--7.3%
39,000 Allergan, Inc.............. 4,329,000
63,200 Biogen, Inc.*.............. 4,064,550
97,300 Forest Laboratories,
Inc.*.................... 4,500,125
56,300 Genzyme Corp.*............. 2,730,550
10,078 Genzyme Surgical
Products*................ 44,407
20,500 Immunex Corp.*............. 2,612,469
85,500 MedImmune, Inc.*........... 5,792,625
40,600 MiniMed Inc.*.............. 3,123,663
36,200 Wellpoint Health Networks
Inc.*.................... 3,072,475
------------
30,269,864
------------
Office Supplies--0.7%
48,100 Avery Dennison Corp........ 2,904,038
------------
Steel--0.7%
127,900 AK Steel Holding Corp...... 2,877,750
------------
ENERGY--10.4%
Electrical Utilities--2.3%
101,000 AES Corp.*................. 5,870,625
52,300 Montana Power Co........... 3,687,150
------------
9,557,775
------------
Oil & Gas-Production/Pipeline--3.5%
104,500 Apache Corp................ 4,075,500
84,000 Burlington Resources,
Inc...................... 3,633,000
233,700 Global Marine Inc.*........ 3,607,744
179,300 Rowan Companies, Inc.*..... 3,305,844
------------
14,622,088
------------
</TABLE>
See Notes to Financial Statements. 2
<PAGE>
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
<TABLE>
<CAPTION>
Shares Description Value
(Note 1)
<C> <S> <C>
Oil Services--4.6%
299,100 ENSCO International
Inc.*.................... $ 5,963,306
223,300 Global Industries, Ltd.*... 2,861,031
152,200 Smith International,
Inc.*.................... 6,611,187
99,100 Weatherford International,
Inc.*.................... 3,629,538
------------
19,065,062
------------
FINANCIAL SERVICES--4.2%
Financial/Business Services
65,400 Capital One Financial
Corp..................... 3,641,962
52,000 Donaldson, Lufkin &
Jenrette, Inc............ 3,133,000
71,400 E*Trade Group, Inc.*....... 2,851,538
49,900 Schwab, Charles Corp....... 5,482,762
93,000 TD Waterhouse Group,
Inc.*.................... 2,330,813
------------
17,440,075
------------
GENERAL BUSINESS--7.3%
Advertising--1.4%
21,700 DoubleClick Inc.*.......... 1,990,975
50,800 Omnicom Group Inc.......... 4,064,000
------------
6,054,975
------------
Media--5.0%
135,100 Cox Communications,
Inc.*.................... 4,973,369
29,700 Hispanic Broadcasting
Corp.*................... 2,253,487
54,300 Univision Communications
Inc.*.................... 3,583,800
172,400 USA Networks, Inc.*........ 6,917,550
84,800 Westwood One, Inc.*........ 3,026,300
------------
20,754,506
------------
Other Financial Services--0.9%
33,600 CMGI Inc.*................. 3,832,500
------------
TECHNOLOGY--44.3%
Computer Networks--9.6%
41,300 Comverse Technology,
Inc.*.................... 3,118,150
36,200 Exodus Communications,
Inc.*.................... 4,341,737
74,000 Extreme Networks, Inc.*.... 4,296,625
55,100 Lexmark International
Group, Inc.*............. 3,640,044
108,800 Network Appliance, Inc.*... 6,079,200
71,700 Network Solutions, Inc.*... $ 5,673,262
2,522,150
69,100 NorthPoint Communications
Group, Inc.*.............
241,900 Novell, Inc.*.............. 6,410,350
54,500 RF Micro Devices Inc.*..... 4,067,063
------------
40,148,581
------------
Computer Services--5.5%
71,600 At Home Corp.*............. 3,861,925
79,400 Computer Sciences Corp.*... 5,493,488
100,000 IMS Health Inc............. 3,125,000
47,400 Rhythms NetConnections
Inc.*.................... 2,766,975
59,400 Verisign Inc............... 5,123,250
35,600 Vignette Corp.*............ 2,670,000
------------
23,040,638
------------
Computer Software--4.7%
109,600 BMC Software Corp.*........ 5,918,400
84,600 New Era of Networks,
Inc.*.................... 3,717,113
50,600 RealNetworks, Inc.*........ 3,485,075
67,400 VERITAS Software Corp.*.... 6,398,787
------------
19,519,375
------------
Electronic Components--11.2%
65,500 Analog Devices, Inc.*...... 3,287,281
46,700 Applied Micro Circuits
Corp.*................... 3,841,075
48,600 ASM Lithography Holding
NV*...................... 2,885,625
190,200 Conexant Systems, Inc.*.... 11,043,487
144,800 LSI Logic Corp.*........... 6,678,900
57,400 PMC-Sierra, Inc.*.......... 3,383,013
34,400 Rambus Inc.*............... 3,171,250
40,900 Sanmina Corp.*............. 3,103,288
33,600 Uniphase Corp.*............ 5,577,600
58,300 Vitesse Semiconductor
Corp.*................... 3,931,606
------------
46,903,125
------------
</TABLE>
See Notes to Financial Statements. 3
<PAGE>
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
<TABLE>
<CAPTION>
Shares Description Value
(Note 1)
<C> <S> <C>
Semiconductors--1.4%
102,600 Xilinx, Inc.*.............. $ 5,873,850
------------
Telecommunication Equipment--3.0%
145,700 CIENA Corp.*............... 4,398,319
97,300 General Instrument
Corp.*................... 4,135,250
57,000 Teradyne, Inc.*............ 4,089,750
------------
12,623,319
------------
Telecommunication Services--8.9%
113,800 American Tower Corp.*...... 2,731,200
90,200 Crown Castle International
Corp.*................... 1,877,287
62,100 Global TeleSystems Group,
Inc.*.................... 5,030,100
81,200 Metromedia Fiber Network,
Inc.*.................... 2,918,125
89,200 Sprint PCS*................ 5,095,550
123,200 Time Warner Telecom
Inc.*.................... 3,572,800
240,500 VoiceStream Wireless
Corp.*................... 6,839,219
185,600 WinStar Communications,
Inc.*.................... 9,048,000
------------
37,112,281
------------
Total common stocks
(cost $313,222,133)...... 411,712,749
------------
<CAPTION>
Principal
Amount
(000)
SHORT-TERM INVESTMENTS--1.1%
Commercial Paper
$ 4,505 Associates Corp. of North
America
5.65%, 7/1/99............ $ 4,505,000
Other
2 Seven Seas Money Market
Fund..................... 2,071
------------
Total short-term
investments
(cost $4,507,071)........ 4,507,071
------------
Total Investments--99.7%
(cost $317,729,204; Note
4)....................... 416,219,820
Other assets in excess of
liabilities--0.3%........ 1,433,469
------------
Net Assets--100%........... $417,653,289
------------
------------
</TABLE>
- ---------------
* Non-income producing.
See Notes to Financial Statements. 4
<PAGE>
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
Statement of Assets and Liabilities (Unaudited)
<TABLE>
<CAPTION>
Assets June 30, 1999
-------------
<S> <C>
Investments, at value (cost $317,729,204)................................................. $ 416,219,820
Cash...................................................................................... 2,443,809
Receivable for investments sold........................................................... 8,734,965
Receivable for Fund shares sold........................................................... 166,233
Dividends and interest receivable......................................................... 75,495
Prepaid expenses.......................................................................... 39,944
-------------
Total assets.......................................................................... 427,680,266
-------------
Liabilities
Payable for investments purchased......................................................... 8,252,081
Payable for Fund shares reacquired........................................................ 1,047,489
Management fee payable.................................................................... 308,438
Distribution fee payable.................................................................. 211,136
Accrued expenses.......................................................................... 207,833
-------------
Total liabilities..................................................................... 10,026,977
-------------
Net Assets................................................................................ $ 417,653,289
-------------
-------------
Net assets were comprised of:
Common stock, at par.................................................................... $ 247,079
Paid-in capital in excess of par........................................................ 234,055,190
-------------
234,302,269
Accumulated net investment loss......................................................... (3,316,612)
Accumulated net realized gain on investments............................................ 88,177,016
Net unrealized appreciation on investments.............................................. 98,490,616
-------------
Net assets, June 30, 1999................................................................. $ 417,653,289
-------------
-------------
Class A:
Net asset value and redemption price per share
($193,152,334 / 10,755,640 shares of common stock issued and outstanding)............. $17.96
Maximum sales charge (5% of offering price)............................................. .95
-------------
Maximum offering price to public........................................................ $18.91
-------------
-------------
Class B:
Net asset value, offering price and redemption price per share
($215,941,407 / 13,429,187 shares of common stock issued and outstanding)............. $16.08
-------------
-------------
Class C:
$16.08
Net asset value and redemption price per share
($7,253,194 / 451,078 shares of common stock issued and outstanding)..................
Maximum sales charge (1% of offering price)............................................. .16
-------------
Offering price to public................................................................ $16.24
-------------
-------------
Class Z:
Net asset value, offering price and redemption price per share
($1,306,354 / 71,983 shares of common stock issued and outstanding)................... $18.15
-------------
-------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5
<PAGE>
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
June 30,
Net Investment Loss 1999
------------
<S> <C>
Income
Dividends........................... $ 342,752
Interest............................ 99,832
------------
Total income...................... 442,584
------------
Expenses
Management fees..................... 1,880,441
Distribution fee--Class A........... 160,596
Distribution fee--Class B........... 1,172,453
Distribution fee--Class C........... 34,682
Transfer agent's fees and
expenses............................ 318,000
Custodian's fees and expenses....... 52,000
Reports to shareholders............. 44,000
Directors' fees..................... 38,000
Registration fees................... 23,000
Audit fees and expense.............. 17,000
Insurance expense................... 13,000
Legal fees and expenses............. 5,000
Miscellaneous....................... 1,024
------------
Total expenses.................... 3,759,196
------------
Net investment loss................... (3,316,612)
------------
Realized and Unrealized
Gain on Investments
Net realized gain on investment
transactions.......................... 70,232,852
Net change in unrealized appreciation
of
investments........................... 10,818,538
------------
Net gain on investments............... 81,051,390
------------
Net Increase in Net Assets
Resulting from Operations............. $ 77,734,778
------------
------------
</TABLE>
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
Statement of Changes in Net Assets (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Increase (Decrease) June 30, December 31,
in Net Assets 1999 1998
------------- -------------
<S> <C> <C>
Operations
Net investment loss... $ (3,316,612) $ (6,566,635)
Net realized gain on
investment
transactions........ 70,232,852 35,691,553
Net change in
unrealized
appreciation on
investments......... 10,818,538 13,250,865
------------- -------------
Net increase in net
assets resulting
from operations..... 77,734,778 42,375,783
------------- -------------
Distributions to
shareholders from net
realized gains on
investments
Class A............. (6,763,985) (7,262,297)
Class B............. (10,686,734) (15,902,446)
Class C............. (327,272) (391,936)
Class Z............. (59,950) (81,237)
------------- -------------
(17,837,941) (23,637,916)
------------- -------------
Fund share transactions
(Note 5)
(net of share
conversions)
Net proceeds from
shares subscribed... 145,690,181 176,084,464
Net asset value of
shares issued to
shareholders in
reinvestment of
distributions....... 16,643,266 21,975,782
Cost of shares
reacquired.......... (178,976,323) (267,946,119)
------------- -------------
Net decrease in net
assets from Fund
share
transactions........ (16,642,876) (69,885,873)
------------- -------------
Total increase
(decrease).............. 43,253,961 (51,148,006)
Net Assets
Beginning of period..... 374,399,328 425,547,334
------------- -------------
End of period........... $ 417,653,289 $ 374,399,328
------------- -------------
------------- -------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 6
<PAGE>
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
Notes to Financial Statements (Unaudited)
Nicholas-Applegate Growth Equity Fund (the 'Fund') is currently the only
series of Nicholas-Applegate Fund, Inc. The Fund commenced operations as a
closed-end, diversified management investment company on April 9, 1987. On June
7, 1991, the Fund ceased operations as a closed-end investment company.
Effective June 10, 1991, trading in the Fund's shares was discontinued on the
New York Stock Exchange and the Fund commenced operations as an open-end,
diversified management investment company.
The Fund's investment objective is capital appreciation. It seeks to achieve
this objective by investing primarily in common stocks of U.S. companies, the
earnings and securities prices of which the investment adviser expects to grow
at a rate above that of the S&P 500. The Fund intends to invest primarily in
stocks from a universe of U.S. companies with market capitalizations
corresponding to the middle 90% of the Russell Midcap Growth Index at time of
purchase. Capitalization of companies in the Index will change with market
conditions.
Note 1. Accounting The following is a summary
Policies of significant accounting poli-
cies followed by the Fund in the preparation of
its financial statements.
Security Valuation: Investments are stated at value. Investments for which
market quotations are readily available are valued at the last reported sales
price. If there are no sales on the date of valuation, then investments are
valued at the mean between the most recently quoted bid and asked prices
provided by principal market makers. Securities for which market quotations are
not readily available are valued at fair value as determined in good faith by or
under the direction of the Fund's Board of Directors. Short-term securities are
valued at amortized cost.
In connection with transactions in repurchase agreements, it is the Fund's
policy that its custodian or designated subcustodians, as the case may be under
triparty repurchase agreements, take possession of the underlying collateral
securities, the value of which exceeds the principal amount of the repurchase
transaction, including accrued interest. If the seller defaults and the value of
the collateral declines or if bankruptcy proceedings are commenced with respect
to the seller of the security, realization of the collateral by the Fund may be
delayed or limited.
Securities Transactions and Net Investment Income: Securities transactions are
recorded on the trade date. Realized and unrealized gains and losses from
security transactions are calculated on the identified cost basis. Dividend
income is recorded on the ex-dividend date and interest income is recorded on
an accrual basis. 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.
Dividends and Distributions: Dividends from net investment income and
distributions of net capital gains in excess of capital loss carryforwards, if
any, are declared and paid annually. 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.
Federal Income Taxes: It is the Fund's policy to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to shareholders.
Therefore, no 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.
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
Nicholas-Applegate Capital Management ('NACM'); NACM furnishes investment
advisory services in connection with the management of the Fund. PIFM pays for
the services of the subadviser, 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 .95% of the Fund's average daily net assets. PIFM pays NACM, as
compensation for its services pursuant to the subadvisory agreement, a
- --------------------------------------------------------------------------------
7
<PAGE>
fee at the rate of .75% of the average daily net assets of the Fund. During the
six months ended June 30, 1999, PIFM earned $1,880,441 in management fees of
which it paid $1,485,548 to NACM under the foregoing agreements.
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. 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. The distribution fees are accrued daily and payable monthly. No
distribution or service fees were paid to PIMS as distributor of the Class Z
shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensated PIMS for
distribution-related activities at an annual rate of up to .30 of 1%, 1% and 1%,
of the average daily net assets of the Class A, B and C shares, respectively.
Such expenses under the Plans were .21 of 1%, 1% and 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 $52,200 and $2,500
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 an affiliated broker-dealer, 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 $202,200 in contingent deferred sales charges imposed
upon certain redemptions by Class B and Class C shareholders, respectively.
PIFM, PIMS and PRUSEC are indirect, wholly owned subsidiaries of The
Prudential Insurance Company of America.
As of March 11, 1999, 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. 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. 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 Prudential Mutual Fund Ser-
Transactions vices LLC ('PMFS'), a
with Affiliates wholly owned subsidiary of
PIFM, serves as the Fund's transfer agent. During
the six months ended June 30, 1999, the Fund incurred fees of approximately
$272,700 for the services of PMFS. As of June 30, 1999, approximately $45,700 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.
Note 4. Portfolio Purchases and sales of invest-
Securities ment securities of the Fund
other than short-term investments, for the six
months ended June 30, 1999 were $376,795,730 and $415,802,214, respectively.
The cost basis of investments for federal income tax purposes as of June 30,
1999 was $318,444,229 and, accordingly, net unrealized appreciation of
investments for federal income tax purposes was $97,775,591 (gross unrealized
appreciation--$103,213,135; gross unrealized depreciation--$5,437,544).
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 5%. 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 qualified to purchase Class A shares at net asset value. Class
Z shares are not subject to any sales or redemption charge and are offered
exclusively for sale to a limited group of investors.
The Fund has authorized 200 million shares of common stock at $.01 par value
per share equally divided into four classes, designated Class A, Class B, Class
C and Class Z shares.
- --------------------------------------------------------------------------------
8
<PAGE>
Transactions in shares of common stock were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------ ----------- -------------
<S> <C> <C>
Six months ended June 30,
1999:
Shares sold................... 5,944,679 $ 100,108,876
Shares issued in reinvestment
of dividends and
distributions............... 366,281 6,014,331
Shares reacquired............. (6,137,493) (103,447,551)
----------- -------------
Net increase in shares
outstanding before
conversion.................. 173,467 2,675,656
Shares issued upon conversion
from Class B................ 2,106,995 35,393,728
----------- -------------
Net increase in shares
outstanding................. 2,280,462 $ 38,069,384
----------- -------------
----------- -------------
Year ended December 31, 1998:
Shares sold................... 7,446,667 $ 106,396,040
Shares issued in reinvestment
of dividends and
distributions............... 449,538 6,346,234
Shares reacquired............. (9,167,087) (131,574,252)
----------- -------------
Net decrease in shares
outstanding before
conversion.................. (1,270,882) (18,831,978)
Shares issued upon conversion
from Class B................ 489,749 7,024,166
----------- -------------
Net decrease in shares
outstanding................. (781,133) $ (11,807,812)
----------- -------------
----------- -------------
<CAPTION>
Class B
- ------------------------------
Six months ended June 30,
1999:
Shares sold................... 2,850,069 $ 43,512,775
Shares issued in reinvestment
of distributions............ 696,593 10,260,814
Shares reacquired............. (4,781,092) (72,611,869)
----------- -------------
Net decrease in shares
outstanding before
conversion.................. (1,234,430) (18,838,280)
Shares reacquired upon
conversion into Class A..... (2,343,021) (35,393,728)
----------- -------------
Net decrease in shares
outstanding................. (3,577,451) $ (54,232,008)
----------- -------------
----------- -------------
Year ended December 31, 1998:
Shares sold................... 5,070,770 $ 65,665,558
Shares issued in reinvestment
of distributions............ 1,182,446 15,174,732
Shares reacquired............. (10,146,490) (131,935,822)
----------- -------------
Net decrease in shares
outstanding before
conversion.................. (3,893,274) (51,095,532)
Shares reacquired upon
conversion into Class A..... (538,840) (7,024,166)
----------- -------------
Net decrease in shares
outstanding................. (4,432,114) $ (58,119,698)
----------- -------------
----------- -------------
<CAPTION>
Class C Shares Amount
- ------------------------------ ----------- -------------
<S> <C> <C>
Six months ended June 30,
1999:
Shares sold................... 97,224 $ 1,474,170
Shares issued in reinvestment
of distributions............ 20,937 308,410
Shares reacquired............. (109,542) (1,682,613)
----------- -------------
Net increase in shares
outstanding................. 8,619 $ 99,967
----------- -------------
----------- -------------
Year ended December 31, 1998:
Shares sold................... 178,150 $ 2,342,004
Shares issued in reinvestment
of distributions............ 29,154 373,747
Shares reacquired............. (274,036) (3,655,185)
----------- -------------
Net decrease in shares
outstanding................. (66,732) $ (939,434)
----------- -------------
----------- -------------
<CAPTION>
Class Z
- ------------------------------
Six months ended June 30,
1999:
Shares sold................... 34,285 $ 594,360
Shares issued in reinvestment
of dividends and
distributions............... 3,606 59,711
Shares reacquired............. (72,395) (1,234,290)
----------- -------------
Net decrease in shares
outstanding................. (34,504) $ (580,219)
----------- -------------
----------- -------------
Year ended
December 31, 1998:
Shares sold................... 111,423 $ 1,680,862
Shares issued in reinvestment
of dividends and
distributions............... 5,739 81,069
Shares reacquired............. (54,259) (780,860)
----------- -------------
Net increase in shares
outstanding................. 62,903 $ 981,071
----------- -------------
----------- -------------
</TABLE>
- --------------------------------------------------------------------------------
9
<PAGE>
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
Class A
--------------------------------------------------------------------------
Six Months
Ended Year Ended December 31,
June 30, -----------------------------------------------------------
1999 1998 1997 1996 1995(a) 1994(a)
---------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period........ $ 15.38 $ 14.47 $ 15.41 $ 15.18 $ 11.99 $ 13.56
---------- -------- -------- -------- -------- -------
Income from investment operations:
Net investment loss......................... (.09) (.17) (.12) (.14) (.11) (.07)
Net realized and unrealized gain (loss) on
investment transactions................... 3.39 1.95 2.60 2.64 3.82 (1.19)
---------- -------- -------- -------- -------- -------
Total from investment operations.......... 3.30 1.78 2.48 2.50 3.71 (1.26)
---------- -------- -------- -------- -------- -------
Less distributions:
Distributions from net realized gains from
investment transactions................... (.72) (.87) (3.42) (2.27) (.52) (.31)
---------- -------- -------- -------- -------- -------
Total distributions....................... (.72) (.87) (3.42) (2.27) (.52) (.31)
---------- -------- -------- -------- -------- -------
Net asset value, end of period.............. $ 17.96 $ 15.38 $ 14.47 $ 15.41 $ 15.18 $ 11.99
---------- -------- -------- -------- -------- -------
---------- -------- -------- -------- -------- -------
TOTAL RETURN(b):............................ 21.97% 12.83% 17.33% 16.45% 31.20% (9.53)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............. $ 193,152 $130,362 $133,973 $145,120 $124,340 $88,069
Average net assets (000).................... $ 154,216 $124,408 $139,933 $136,482 $109,740 $93,620
Ratios to average net assets:
Expenses, including distribution fee...... 1.40%(e) 1.45% 1.37% 1.41% 1.44% 1.49%(d)
Expenses, excluding distribution fee...... 1.19%(e) 1.24% 1.19% 1.23% 1.27% 1.32%(d)
Net investment loss....................... (1.18)%(e) (1.19)% (.82)% (.93)% (.83)% (.59)%
For Class A, B, C and Z shares:
Portfolio turnover rate(c).................. 96% 171% 182% 113% 106% 110%
</TABLE>
- ---------------
(a) Calculated based upon weighted average shares outstanding during the
periods due to effects of open-ending, Fund share sales and the resulting
share issuance from the stock rights offering.
(b) Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each year reported and includes reinvestment of
dividends and distributions. Total returns for periods less than a full
year are not annualized.
(c) Portfolio turnover is calculated on the basis of the Fund as a whole
without distinguishing between the classes of shares issued.
(d) Current year amounts have been restated from prior periods presentation.
(e) Annualized.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 10
<PAGE>
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
Class B
---------------------------------------------------------------------------
Six Months
Ended Year Ended December 31,
June 30, ------------------------------------------------------------
1999 1998 1997 1996 1995(a) 1994(a)
---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $ 13.89 $ 13.26 $ 14.48 $ 14.49 $ 11.56 $ 13.18
---------- -------- -------- -------- -------- --------
Income from investment operations:
Net investment loss................. (.17) (.29) (.23) (.24) (.22) (.17)
Net realized and unrealized gain
(loss) on investment
transactions...................... 3.08 1.79 2.43 2.50 3.67 (1.14)
---------- -------- -------- -------- -------- --------
Total from investment
operations........................ 2.91 1.50 2.20 2.26 3.45 (1.31)
---------- -------- -------- -------- -------- --------
Less distributions:
Distributions from net realized
gains from investment
transactions...................... (.72) (.87) (3.42) (2.27) (.52) (.31)
---------- -------- -------- -------- -------- --------
Total distributions............... (.72) (.87) (3.42) (2.27) (.52) (.31)
---------- -------- -------- -------- -------- --------
Net asset value, end of period...... $ 16.08 $ 13.89 $ 13.26 $ 14.48 $ 14.49 $ 11.56
---------- -------- -------- -------- -------- --------
---------- -------- -------- -------- -------- --------
TOTAL RETURN(b):.................... 21.51% 11.87% 16.48% 15.54% 30.11% (10.20)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..... $215,942 $236,242 $284,191 $317,768 $290,751 $257,059
Average net assets (000)............ $236,434 $250,317 $300,520 $304,841 $265,597 $261,285
Ratios to average net assets:
Expenses, including distribution
fee............................. 2.19%(d) 2.24% 2.19% 2.23% 2.27% 2.32%(c)
Expenses, excluding distribution
fee............................... 1.19%(d) 1.24% 1.19% 1.23% 1.27% 1.32%(c)
Net investment loss............... (1.95)%(d) (1.98)% (1.64)% (1.75)% (1.66)% (1.39)%
</TABLE>
- ---------------
(a) Calculated based upon weighted average shares outstanding during the
periods due to effects of open-ending, Fund share sales and the resulting
share issuance from the stock rights offering.
(b) Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each year reported and includes reinvestment of
dividends and distributions. Total returns for periods less than a full
year are not annualized.
(c) Current year amounts have been restated from prior periods presentation.
(d) Annualized.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 11
<PAGE>
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
Class C
------------------------------------------------------------------------
Six August 1,
Months 1994(c)
Ended Year Ended December 31, Through
June 30, -------------------------------------------- December 31,
1999 1998 1997 1996 1995(a) 1994(a)
------ ------ -------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $13.89 $13.26 $ 14.48 $ 14.49 $ 11.56 $ 11.62
------ ------ -------- -------- ------- ------------
Income from investment operations:
Net investment loss................. (.15) (.28) (.22) (.22) (.22) (.05)
Net realized and unrealized gain
(loss) on investment
transactions...................... 3.06 1.78 2.42 2.48 3.67 (.01)
------ ------ -------- -------- ------- ------------
Total from investment
operations........................ 2.91 1.50 2.20 2.26 3.45 (.06)
------ ------ -------- -------- ------- ------------
Less distributions:
Distributions from net realized
gains from investment
transactions...................... (.72) (.87) (3.42) (2.27) (.52) --
------ ------ -------- -------- ------- ------------
Total distributions............... (.72) (.87) (3.42) (2.27) (.52) --
------ ------ -------- -------- ------- ------------
Net asset value, end of period...... $16.08 $13.89 $ 13.26 $ 14.48 $ 14.49 $ 11.56
------ ------ -------- -------- ------- ------------
------ ------ -------- -------- ------- ------------
TOTAL RETURN(b):.................... 21.51% 11.87% 16.48% 15.54% 30.11% (.52)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..... $7,253 $6,146 $ 6,750 $ 6,735 $ 4,897 $ 1,100
Average net assets (000)............ $6,994 $6,164 $ 6,796 $ 5,862 $ 2,961 $ 225
Ratios to average net assets:
Expenses, including distribution
fee............................. 2.19%(d) 2.24% 2.19% 2.23% 2.27% 6.23%(d)(e)
Expenses, excluding distribution
fee............................. 1.19%(d) 1.24% 1.19% 1.23% 1.27% 5.23%(d)(e)
Net investment loss............... (1.95)%(d) (1.98)% (1.64)% (1.75)% (1.63)% (3.36)%(d)
</TABLE>
- ---------------
(a) Calculated based upon weighted average shares outstanding during the
periods due to effects of open-ending, Fund share sales and the resulting
share issuance from the stock rights offering.
(b) Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each period reported and includes reinvestment of
dividends and distributions. Total returns for periods less than a full
year are not annualized.
(c) Commencement of offering of Class C shares.
(d) Annualized.
(e) Current year amounts have been restated from prior periods presentation.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 12
<PAGE>
NICHOLAS-APPLEGATE FUND, INC.
NICHOLAS-APPLEGATE GROWTH EQUITY FUND
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
Class Z
--------------------------------------
March 18,
Six Months 1997(c)
Ended Through
June 30, December 31,
1999 1998 1997
---------- ------ ------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period............................ $15.49 $14.53 $14.48
---------- ------ ------
Income from investment operations:
Net investment loss................. (.10) (.12) (.22)
Net realized and unrealized gain on
investment transactions........... 3.48 1.95 3.18
---------- ------ ------
Total from investment
operations........................ 3.38 1.83 2.96
---------- ------ ------
Less distributions:
Distributions from net realized
gains from investment
transactions...................... (.72) (.87) (2.91)
---------- ------ ------
Total distributions............... (.72) (.87) (2.91)
---------- ------ ------
Net asset value, end of period...... $18.15 $15.49 $14.53
---------- ------ ------
---------- ------ ------
TOTAL RETURN(a):.................... 22.35% 13.13% 21.90%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)..... $1,306 $1,649 $ 633
Average net assets (000)............ $1,519 $1,318 $ 121
Ratios to average net assets:
Expenses, including distribution
fee............................. 1.19%(b) 1.24% 1.19%(b)
Expenses, excluding distribution
fee............................. 1.19%(b) 1.24% 1.19%(b)
Net investment loss............... (.97)%(b) (.99)% (.85)%(b)
</TABLE>
- ---------------
(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 less than a full
year are not annualized.
(b) Annualized.
(c) Commencement of offering of Class Z shares.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 13
<PAGE>
Getting the Most from Your Prudential Mutual Fund
Some mutual fund shareholders won't ever read this--they don't read annual and
semiannual reports. It's quite understandable. These annual and semi-annual
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.
<PAGE>
Statement of Assets and Liabilities
The balance sheet shows the assets (the value of the Fund's holdings),
liabilities (how much the Fund owes), and net assets (the Fund's equity, or
holdings after the Fund pays its debts) as of the end of the reporting period.
It also shows how we calculate the net asset value per share for each class of
shares. The net asset value is reduced by payment of your dividend, capital
gain, or other distribution, but remember that the money or new shares are
being paid or issued to you. The net asset value fluctuates daily, along with
the value of every security in the portfolio.
Statement of Operations
This is the income statement, which details income (mostly interest and
dividends earned) and expenses (including what you pay us to manage your
money). You'll also see capital gains here--both realized and unrealized.
Statement of Changes in Net Assets
This schedule shows how income and expenses translate into changes in net
assets. The Fund is required to pay out the bulk of its income to shareholders
every year, and this statement shows you how we do it--through dividends and
distributions--and how that affects the net assets. This statement also shows
how money from investors flowed into and out of the Fund.
Notes to Financial Statements
This is the kind of technical material that can intimidate readers, but it
does contain useful information. The Notes provide a brief history and
explanation of your Fund's objectives. In addition, they 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.
<PAGE>
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.
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Directors
Arthur E. Nicholas, Chairman
Dann V. Angeloff
Fred C. Applegate
Theodore J. Coburn
Robert F. Gunia
Arthur B. Laffer
Charles E. Young
Officers
Arthur E. Nicholas, Chairman and President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
Deborah A. Docs, Secretary
Robert E. Carlson, Assistant Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
Nicholas-Applegate Capital Management
600 West Broadway
San Diego, CA 92101
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
Ernst & Young LLP
725 South Figueroa Street
Los Angeles, CA 90071
Legal Counsel
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
Los Angeles, CA 90017
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.
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Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
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