<PAGE>
(ICON)
Prudential
Natural
Resources
Fund, Inc.
ANNUAL
REPORT
May 31, 1997
(LOGO)
<PAGE>
Prudential Natural Resources Fund, Inc.
Performance At A Glance.
While stock prices in general rose to record
highs
over the last
12 months, those of natural resources
companies
did not. The
Prudential Natural Resources Fund, along with
similar funds
measured by Lipper Analytical Services,
trailed
the
performance of the broader stock market.
Your
Fund's performance
also lagged the Lipper average for the year
ended
May 31, 1997. We
have been overweighted in precious metals and
underweighted in
energy securities, while the market has
preferred
the
opposite. We continue to believe we're right
- --
just too early.
<TABLE>
<CAPTION>
One
Five Since
Year
Years Inception2
<C> <S> <C>
<C> <C>
Cumulative Class A
5.4%
92.8% 87.8%
Total Class B
4.5
85.4 100.9
Returns1 Class C
4.5
N/A 48.2
As of 5/31/97 Class Z
N/A
N/A 7.2
Lipper Natural
Resources Avg3
13.48
94.47 ***
</TABLE>
<TABLE>
<CAPTION>
One
Five
Since
Year
Years
Inception2
<C> <S> <C>
<C>
<C>
Average
Annual
Total Class A 1.9%
12.6%
7.8%
Returns1 Class B 1.50
12.7
7.2
As of 6/30/97 Class C 5.5
N/A
13.6
</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.
1Source: Prudential Investments Fund
Management
and Lipper Analytical
Services. The cumulative total returns do not
take
into account
sales charges. The average annual returns do
take
into account
applicable sales charges. The Fund charges a
maximum front-end
sales load of 5% for Class A shares and a
declining contingent
deferred sales charge (CDSC) of 5%, 4%, 3%,
2%, 1%
and 1% for
six years, for Class B shares. Class C shares
have
a 1% CDSC
for one year. Class B shares will
automatically
convert to Class A shares on a quarterly
basis,
approximately
seven years after purchase. Class Z shares
are not
subject to
a sales charge or distribution fee. Since
Class Z
shares have
been in existence less than one year, no
average
annual returns
are presented.
2Inception dates: 1/22/90 Class A; 9/28/87
Class
B; 8/1/94
Class C; 9/16/96 Class Z.
3Lipper average returns are for 50 funds for
six
months, 49
funds for one year and 26 funds for five
years.
*** Lipper since inception returns are: Class
A,
91.9% for 16
funds; Class B, 97.7% for 11 funds; Class C,
57.0%
for 27 funds
and Class Z, 11.0% for 44 funds.
How Investments Compared.
(As of 5/31/97)
(GRAPH)
Source: Lipper Analytical Services. Financial
markets change, so
a mutual fund's past performance should never
be
used to predict
future results. The risks to each of the
investments listed above
are different -- we provide 12-month total
returns
for
several Lipper mutual fund categories to show
you
that reaching
for higher returns means tolerating more
risk. The
greater the
risk, the larger the potential reward or
loss. In
addition,
we've included historical 20-year average
annual
returns.
These returns assume the reinvestment of
dividends.
U.S. Growth Funds will fluctuate a great
deal.
Investors have
received higher historical total returns from
stocks than
from most other investments. Smaller
capitalization stocks
offer greater potential for long-term growth
but
may be more volatile
than larger capitalization stocks.
General Bond Funds provide more income than
stock
funds,
which can help smooth out their total returns
year
by year.
But their prices still fluctuate (sometimes
significantly)
and their returns have been historically
lower
than those
of stock funds.
General Municipal Debt Funds invest in bonds
issued by state
governments, state agencies and/or
municipalities.
This
investment provides income that is usually
exempt
from
federal and state income taxes.
Money Market Funds attempt to preserve a
constant
share
value; they don't fluctuate much in price
but,
historically,
their returns have been generally among the
lowest
of the
major investment categories.
<PAGE>
Leigh R. Goehring, Fund Manager
(PHOTO)
Portfolio
Manager's Report
The Prudential Natural Resources Fund seeks
long-
term growth of
capital by investing in foreign and domestic
companies that own,
explore, mine, process or develop natural
resources, or provide
goods and services for those industries.
These
resources
include precious metals; ferrous and non-
ferrous
metals;
strategic metals; hydrocarbons, such as oil,
gas
and coal,
and timber land. The Fund may be affected to
a
greater extent
by any single economic, political or
regulatory
development than a
mutual fund that does not focus its
investments on
specific
economic sectors. There can be no assurance
that
the Fund
will achieve its investment objective.
Going For
The Gold.
Gold represents the great contrarian idea for
1997-1998. Investments in gold have yielded
minimal
returns over the past three to five years,
and no
stock market group is more out of favor
today. But
demand continues to grow faster than supply,
so we
believe it's only a matter of time before
prices
rise. As a result, we own 18% of assets in
gold
stocks.
Strategy Session.
Buy Low, Sell High.
We've done well over the last five years by
buying
natural
resource stocks when they are inexpensive
(low)
and selling
them when they become expensive (high). Over
the
past year,
however, our performance suffered because we
held
too many assets in
the poorly performing precious metals sector
- --
primarily
gold -- and not enough in the strong energy
sector.
Portfolio Breakdown.
Expressed as a percentage of
total net assets as of 5/31/97.
(PIE CHART)
Our energy holdings drove the Fund's
performance
upward in
1996. But we started to reduce them last
summer,
thinking new
oil supplies from Iraq would soon depress
prices.
We were wrong.
Energy stocks, particularly some of the oil
service stocks,
remained strong. 1997 has been a more
difficult
year for energy.
The prices of oil and natural gas are now
down
almost 30% from
the beginning of the year. We believe that
most
energy stocks
are overvalued when compared with the price
of
oil. What's
more, we expect oil prices to decline until
year
end. So we
are being cautious about investments in
energy
producers.
As a further drag on performance, we held 27%
of
the Fund
in precious metals holdings during much of
the
year, and
this sector declined 23%. Precious metals
stocks
were the
worst performing stock group, largely due to
the
collapsing
price of gold in the last quarter of 1996.
Despite their lackluster performance, we
still
believe that
the precious metals sector represents the
best
long-term value
in natural resources, so we are increasing
our
holdings there.
In addition, we are also adding to our
holdings in
oil service
companies, which are participating in the
development of offshore
fields in the wake of last year's drilling
boom.
<PAGE>
What Went Well.
Platinum & Palladium.
In January we correctly anticipated the
substantial advance in
platinum and palladium, the only area in the
precious metals sector
that has appreciated. We significantly
increased
our holdings to 8%
of total investments on May 31, 1997 from 2%,
and
we are glad we did. Platinum prices rose to
$475
per ounce at the
end of May from $350 per ounce at the end of
January, while
palladium prices climbed to $180 per ounce
from
$125 during
the same period. A sizable gap between world
supply and demand,
plus a delay in the selling of Russian
stockpiles
(which we
believe are nearing exhaustion), pushed
prices
higher.
Aluminum Shines.
Our aluminum holdings also performed well,
rising
21% for
the year. We are glad we increased our
holdings to
10% of
total investments from 6%. We believe the
long-
term outlook
for aluminum is very positive because world
demand
is very
strong, prices are very low and overdue for a
substantial
increase, and Reynolds Metals and other
companies
are ripe
for restructuring.
Timber!
In the forest products area, we increased our
holdings in
TimberWest (which we have since sold) and
Pacific
Forest
Products, two Canadian companies with large
private timber
holdings. We thought these companies would
become
premier
investments as pressure from
environmentalists
continued
to cut back harvesting in government-owned
lands,
and we
were right. TimberWest was sold to a group of
private investors
and Pacific Forest Products has put itself up
for
sale. The
Fund should also benefit from corporate
restructuring in
companies such as Champion, our largest
holding in
this
sector, and MacMillan Bloedel.
And Not So Well.
All That Glitters.
We increased our holdings prematurely in
gold,
where prices
dropped drastically in the fourth quarter of
1996,
largely
because investors were worried that central
bankers might
sell to meet European Monetary Union
requirements.
Other
depressants on price have been the continued
selling
forward of production by gold mining
companies to
lock
in prices and the Bre-x debacle in April of
this
year,
one of the greatest stock market frauds in
history.
Gold prices are at their lowest levels in
four
years.
Nevertheless, we believe that the huge gap
between
world
gold supply and demand -- more than 1,000
tons a
year
and widening -- will result in significantly
higher
gold prices over the next one to three
years.
Five Largest
Holdings.
3.9% Stillwater Mining Co.
Precious Metals
3.7% Champion International
Forest Products & Paper
3.5% Noble Affiliates
Exploration & Production
3.0% Western Gas Resources
Energy Sources
2.4% Rustenburg Platinum
Precious Metals
Expressed as a percentage of total
net assets as of 5/31/97.
Looking Ahead.
Although natural resources were weak
performers
over
the past year, we believe the long-term
outlook is
very positive. The 15-year-old bear market in
commodities
managed to stretch out for another year, but
we
believe it
is now approaching an end. Prices in the
precious
metals
sector, in particular, are ripe for a
turnaround.
Investors
are now being given a great opportunity to
buy
into the
world's precious metals markets.
Historically, big
moves
in gold have been preceded by substantial
moves in platinum and palladium, such as
we've
seen over
the past six months. We believe we will soon
be in
the
first stage of a bull market in commodities
that
will
last many years. As investor psychology
changes,
gold
prices will climb.
1
<PAGE>
President's Letter
July 22, 1997
(PHOTO)
Dear Shareholder:
With the midpoint of 1997 behind us, I'm
pleased
to report that
the recent news from the financial markets
has
been decidedly
upbeat. The Dow Jones Industrial Average has
gained more than
20% through the end of June, while lower long-
term
interest
rates have made bonds an attractive
investment.
This stands in contrast to April when the Dow
fell
10% from a
record high on fears of higher interest
rates and
surging
inflation. Interest rates have since fallen
as the
economy
slowed and the Dow has reached several new
highs.
The market swings we've seen this year
illustrate
the importance
of "staying the course" to your financial
goal.
We realize that
maintaining investment discipline when faced
with
market
uncertainty isn't easy. Here are some
thoughts
that may help:
- -- Keep Your Expectations Realistic. The
best
investors know
that financial markets rise and fall -- and
so
too, will the
value of their investments. Over time,
however,
stocks have
been shown to produce very attractive returns
that
were well ahead
of inflation. And where income is the primary
goal, bonds
have also provided attractive returns.
- -- Remember Your Time Horizon. If your
investment
goals
are long term (several years or more), so
should
your time
horizon. During this period, it's not unusual
for
stocks
and bonds to experience several periods of
market
uncertainty.
- -- We're On Your Side. Your Prudential
Securities
Financial
Advisor or Pruco Securities Registered
Representative can
help you understand what's happening in the
financial
markets. They can assist you in making
informed
decisions
based upon a thorough knowledge of your
financial
needs
and long-term goals. Call him or her today.
Thank you for your continued confidence in
Prudential
mutual funds. We'll do everything we can to
keep
you
informed and to earn your trust.
Sincerely,
Brian M. Storms President,
Prudential Mutual Funds & Annuities
2
<PAGE>
Portfolio of Investments
PRUDENTIAL
NATURAL
as of May 31, 1997
RESOURCES
FUND, INC.
- ---------------------------------------------
- -----
- ----------
<TABLE>
<CAPTION>
Shares Description
Value
(Note 1)
<C> <S>
<C>
- ---------------------------------------------
- -----
- ----------
LONG-TERM INVESTMENTS--95.8%
COMMON STOCKS--92.2%
- ---------------------------------------------
- -----
- ----------
Australia--3.3%
553,500 Acacia Resources(a) (Precious
Metals)
$ 812,794
398,319 Capral Aluminium Ltd.
(Metals-Non Ferrous)
1,439,561
147,000 Comalco Ltd. (Metals-Non Ferrous)
816,480
61,100 CRA Ltd. (Metals-Non Ferrous)
1,000,947
170,700 Delta Gold NL (Precious Metals)
281,837
130,000 Plutonic Resources Ltd. (Precious
Metals)
475,767
96,564 Western Mining Corp. Hldgs. Ltd.
(Metals-Non Ferrous)
623,776
- ------------
5,451,162
- ---------------------------------------------
- -----
- ----------
Canada--35.3%
116,300 Agnico-Eagle Mines Ltd.
(Precious Metals)
1,241,366
129,000 Alberta Energy Co. Ltd. (Oil &
Natural Gas Production &
Refining)
3,091,054
133,100 Anderson Exploration Ltd. (a)
(Oil &
Natural Gas Production)
1,768,610
355,200 Arakis Energy Corp. (a) (Oil &
Natural Gas Production)
1,354,200
213,500 Archer Resources Ltd. (a) (Oil &
Natural Gas Production)
1,030,914
177,100 Arizona Star Resource Ltd. (a)
(Gold Mines)
1,517,412
91,200 Atna Resources Ltd. (a)
(Mineral Resources)
334,418
78,400 Barrick Gold (Precious Metals)
1,986,756
308,900 Barrington Petroleum Ltd. (a)
(Exploration & Production)
1,289,700
523,000 Beau Canada Exploration Ltd. (a)
(Oil & Natural Gas Production)
1,298,766
220,800 Blue Range Resource Corp. (a)
(Oil &
Natural Gas Production)
1,491,025
58,900 Cabre Exploration Ltd. (a) (Oil &
Natural Gas Production)
$ 1,005,046
199,100 Cambior Inc. (Precious Metals)
2,602,236
85,700 Cameco Corp. (Misc. Materials &
Commodities)
3,350,962
47,100 Canadian Natural Resources Ltd.
(a)
(Oil & Natural Gas Production)
1,239,744
198,000 Crestar Energy Inc. (a) (Oil &
Natural Gas Production)
3,752,396
240,000 CS Resources Ltd. (a) (Machinery
&
Equipment)
1,760,093
95,500 ELAN Energy Inc. (a) (Oil &
Natural
Gas Production)
686,502
84,900 Greenstone Resources Ltd. (a)
(Precious Metals)
801,409
238,236 HCO Energy Ltd. (a) (Oil &
Natural
Gas Production)
328,673
104,500 International Pursuit Corp. (a)
(Precious Metals)
191,973
279,000 Kap Resources Ltd. (a)
(Chemicals)
648,272
253,200 MacMillan Bloedel Ltd. (Forest
Products & Paper)
3,677,026
180,700 Meridian Gold Inc. (a) (Precious
Metals)
918,458
188,500 Northrock Resources Ltd. (a) (Oil
&
Natural Gas Production)
2,497,912
126,600 Northstar Energy Corp. (a)
(Exploration & Production)
1,172,052
177,200 Pacific Forest Products Ltd. (a)
(Forest Products & Paper)
3,216,671
49,000 Placer Dome Inc. (Precious
Metals)
894,823
43,200 Potash Corp. (Chemicals)
3,547,800
104,600 Repadre Capital Corp. (a)
(Precious Metals)
668,371
62,500 Rigel Energy Corp. (a) (Oil &
Natural Gas Production)
780,569
</TABLE>
- ---------------------------------------------
- -----
- ------------------------------
-----
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments
PRUDENTIAL
NATURAL
as of May 31, 1997
RESOURCES
FUND, INC.
- ---------------------------------------------
- -----
- ----------
<TABLE>
<CAPTION>
Shares Description
Value
(Note 1)
<C> <S>
<C>
- ---------------------------------------------
- -----
- ----------
Canada (cont'd.)
282,000 Rio Alto Exploration Ltd. (a)
(Exploration & Production)
$ 2,231,920
63,100 Samax Gold Inc. (a) (Precious
Metals)
308,123
344,700 Tiomin Resources Inc. (a) (Metals-
Non Ferrous)
818,450
176,000 Triton Mining Corp. (a) (Precious
Metals)
460,064
183,400 TVX Gold, Inc. (a) (Precious
Metals)
1,185,202
208,114 Westaim Corp. (a) (Misc.
Materials &
Commodities)
846,238
384,900 Westmin Resources Ltd. (a)
(Metals-
Non Ferrous)
1,942,387
- ------------
57,937,593
- ---------------------------------------------
- -----
- ----------
France--3.2%
38,300 Bouygues Offshore, S.A. (a)
(Engineering & Construction)
964,032
91,037 Coflexip (ADR) (a) (Energy
Equipment
& Services)
2,588,865
18,017 Total Francaise Petroleum Ltd.
(a)
(Integrated Producers)
1,651,358
- ------------
5,204,255
- ---------------------------------------------
- -----
- ----------
New Zealand--0.8%
988,588 Fletcher Challenge Forest, Ltd.
(Forest Products & Paper)
1,301,670
- ---------------------------------------------
- -----
- ----------
South Africa--6.8%
45,600 Durban Roodepoort Deep Ltd. (a)
(Precious Metals)
219,427
131,800 Harmony Gold Mining Co. Ltd. (a)
(Precious Metals)
899,709
255,400 Impala Platinum Holdings Ltd.
(Precious Metals)
2,658,035
75,400 Kloof Gold Mining Co. Ltd. (ADR)
(Precious Metals)
513,662
187,900 Randgold & Exploration Co. (a)
(Precious Metals)
1,177,529
239,400 Rustenburg Platinum Holdings (a)
(Precious Metals)
$ 3,924,810
9,800 Vaal Reefs Exploration & Mining
Co.
Ltd. (Precious Metals)
587,825
44,400 Western Deep Levels Ltd.
(Precious Metals)
1,257,072
- ------------
11,238,069
- ---------------------------------------------
- -----
- ----------
United States--42.8%
171,900 Abacan Resources Corp. (a) (Oil &
Natural Gas Production)
1,246,275
45,900 Aluminum Co. of America (Metals-
Non Ferrous)
3,379,387
92,483 Ashanti Goldfields Ltd. (GDR)
(Precious Metals)
1,202,279
35,500 Brigham Exploration Co. (a) (Oil
&
Gas Exploration/Production)
257,375
116,600 Brush Wellman, Inc. (Metals-
Non Ferrous)
2,477,750
122,400 Champion International Corp.
(Forest
Products & Paper)
6,043,500
60,800 Cross Timbers Oil Co. (Oil &
Natural
Gas Production)
1,178,000
39,300 Dailey Petroleum Services Corp.
(a)
(Machinery & Equipment)
260,363
77,100 Dawson Production Services Inc.
(a)
(Oil Services)
867,375
91,100 Freeport-McMoran Copper & Gold
Inc.
(Metals-Non Ferrous)
2,528,025
37,200 FX Energy Inc. (a) (Oil & Natural
Gas Production)
316,200
51,111 Getchell Gold Corp. (a)
(Precious Metals)
2,038,051
104,700 Golden Star Resources Ltd. (a)
(Precious Metals)
837,600
156,400 Harcor Energy Inc. (a) (Oil &
Natural Gas Production &
Refining)
948,175
110,300 J. Ray McDermott, S.A. (a)
(Energy
Equipment & Services)
3,005,675
</TABLE>
- ---------------------------------------------
- -----
- ------------------------------
-----
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments
PRUDENTIAL
NATURAL
as of May 31, 1997
RESOURCES
FUND, INC.
- ---------------------------------------------
- -----
- ----------
<TABLE>
<CAPTION>
Shares Description
Value
(Note 1)
<C> <S>
<C>
- ---------------------------------------------
- -----
- ----------
United States (cont'd.)
63,200 Louisiana-Pacific Corp. (Forest
Products & Paper)
$ 1,232,400
491,000 Mesa, Inc. (Oil & Natural Gas
Production & Refining)
2,700,500
154,800 Newfield Exploration Co.
(Exploration & Production)
3,328,200
84,411 Newmont Mining Corp. (Precious
Metals)
3,302,580
170,222 NGC Corp. (Energy Sources)
3,063,996
135,600 Noble Affiliates, Inc.
(Exploration
& Production)
5,712,150
157,700 Nord Resources Corp. (a) (Metals-
Non Ferrous)
453,388
19,400 Precision Drilling Corp. (a)
(Energy
Equipment)
868,150
38,900 Rayonier Inc. (Forest Products)
1,667,837
45,600 Reynolds Metals Co. (Aluminum)
3,095,100
273,300 Stillwater Mining Co. (a)
(Precious Metals)
6,354,225
95,500 Stolt Comex Seaway (a) (Energy
Equipment & Services)
2,172,625
67,200 United Meridian Corp. (a) (Oil &
Gas
Exploration/Production)
2,419,200
72,007 Weatherford Enterra Inc. (a)
(Energy
Equipment & Services)
2,457,239
245,700 Western Gas Resources, Inc.
(Energy Sources)
4,852,575
- ------------
70,266,195
- ------------
Total common stocks
(cost US$130,007,372)
151,398,944
- ------------
PREFERRED STOCKS--2.6%
- ---------------------------------------------
- -----
- ----------
United States
Ashanti Goldfields Ltd. (Precious
Metals)
37,128 Ser. A
$ 16,708
37,128 Ser. B
16,708
37,128 Ser. C
16,708
37,128 Ser. D
16,708
37,128 Ser. E
16,708
16,400 Freeport-McMoran Copper & Gold
Inc.,
(Metals-Non Ferrous)
301,350
14,800 Hecla Mining Co., 7.00%, Conv.,
Ser.
B, (Precious Metals)
695,600
470,128 Mesa, Inc., 8.00%, Conv., Ser. A
(a)
(Oil & Natural Gas Production)
3,114,596
- ------------
Total preferred stocks
(cost US$2,345,665)
4,195,086
- ------------
WARRANTS(a)--0.3%
- ---------------------------------------------
- -----
- ----------
Canada
Kap Resources Ltd.,
133,900 Expiring 8/3/00 @ CAD $2
(Chemicals)
102,088
Rea Gold Corp.
533,000 Expiring 9/11/97 @ CAD $.85
(Precious Metals)
452,810
- ------------
Total warrants
(cost US$490,586)
554,898
- ------------
</TABLE>
- ---------------------------------------------
- -----
- ------------------------------
-----
See Notes to Financial Statements. 5
<PAGE>
PRUDENTIAL NATURAL
RESOURCES FUND, INC.
Portfolio of Investments as of May 31, 1997
- ---------------------------------------------
- -----
- ----------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description
Value
(Note 1)
<C> <S>
<C>
- ---------------------------------------------
- -----
- ----------
CONVERTIBLE BONDS--0.7%
- ---------------------------------------------
- -----
- ----------
South Africa--0.2%
ZAR 300 Randgold Finance BVI Ltd.,
Sec'd. Gtd., (Precious Metals)
7.00%, 10/3/01
$ 283,500
- ---------------------------------------------
- -----
- ----------
United States--0.5%
US$ 891 Coeur D Alene Mines Corp.,
Sr. Sub. Deb., (Precious
Metals)
6.375%, 1/31/04
833,085
- ------------
Total convertible bonds
(cost US$1,154,094)
1,116,585
- ------------
- ---------------------------------------------
- -----
- ----------
Total Investments--95.8%
(cost US$133,997,717; Note 4)
157,265,513
Other assets in excess of
liabilities--4.2%
6,935,018
- ------------
Net Assets--100%
$164,200,531
- ------------
- ------------
</TABLE>
- ---------------
(a) Non-income producing security.
ADR--American Depository Receipt.
GDR--Global Depository Receipt.
- ---------------------------------------------
- -----
- ------------------------------
-----
See Notes to Financial Statements. 6
<PAGE>
PRUDENTIAL NATURAL
Statement of Assets and Liabilities
RESOURCES FUND, INC.
- ---------------------------------------------
- -----
- ------------------------------
<TABLE>
Assets
May 31, 1997
<S>
<C>
Investments, at value (cost
$133,997,717)................................
.....
...............................
$157,265,513
Cash.........................................
.....
.............................................
.....
......... 126,425
Foreign currency, at value (cost
$5,701,809)..................................
.....
.......................... 5,707,975
Receivable for Fund shares
sold.........................................
.....
................................
934,812
Receivable for investments
sold.........................................
.....
................................
811,423
Dividends and interest
receivable...................................
.....
....................................
105,669
Other
assets.......................................
.....
.............................................
.....
... 2,316
- ------------
Total
assets.......................................
.....
.............................................
.....
164,954,133
- ------------
Liabilities
Payable for Fund shares
reacquired...................................
.....
...................................
387,741
Accrued expenses and other
liabilities..................................
.....
................................
158,657
Distribution fee
payable......................................
.....
..........................................
105,180
Management fee
payable......................................
.....
............................................
102,024
- ------------
Total
liabilities..................................
.....
.............................................
.....
753,602
- ------------
Net
Assets.......................................
.....
.............................................
.....
..... $164,200,531
- ------------
- ------------
Net assets were comprised of:
Common stock, at
par..........................................
.....
.......................................
$
104,561
Paid-in capital in excess of
par..........................................
.....
........................... 133,525,216
- ------------
133,629,777
Accumulated net investment
loss.........................................
.....
.............................
(247,519 )
Accumulated net realized gain on
investments..................................
.....
....................... 7,548,288
Net unrealized appreciation on investments
and
foreign
currencies...................................
.....
. 23,269,985
- ------------
Net assets, May 31,
1997.........................................
.....
.......................................
$164,200,531
- ------------
- ------------
Class A:
Net asset value and redemption price per
share
($47,054,145 / 2,891,912 shares of
common
stock issued and
outstanding)................................
$16.27
Maximum sales charge (5% of offering
price).......................................
.....
................... .86
Maximum offering price to
public.......................................
.....
..............................
$17.13
Class B:
Net asset value, offering price and
redemption
price per share
($111,464,288 / 7,207,097 shares of
common
stock issued and
outstanding)...............................
$15.46
Class C:
Net asset value, offering price and
redemption
price per share
($2,542,376 / 164,409 shares of common
stock
issued and
outstanding).................................
..
$15.46
Class Z:
Net asset value, offering price and
redemption
price per share
($3,139,722 / 192,644 shares of common
stock
issued and
outstanding).................................
..
$16.30
</TABLE>
- ---------------------------------------------
- -----
- ------------------------------
-----
See Notes to Financial Statements. 7
<PAGE>
PRUDENTIAL NATURAL
RESOURCES FUND, INC.
Statement of Operations
- ---------------------------------------------
- -----
- ----------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income (Loss)
May 31, 1997
<S>
<C>
Income
Dividends (net of foreign withholding
taxes
of
$83,865)..............................
$ 1,341,360
Interest (net of foreign withholding taxes
of
$238).................................
234,972
- ------------
Total
income.............................
1,576,332
- ------------
Expenses
Distribution fee--Class
A...................
100,983
Distribution fee--Class
B...................
1,073,611
Distribution fee--Class
C...................
20,413
Management
fee..............................
1,128,718
Transfer agent's fees and
expenses..........
243,000
Custodian's fees and
expenses...............
174,000
Registration
fees...........................
110,000
Reports to
shareholders.....................
65,000
Directors' fees and
expenses................
34,000
Audit fee and
expenses......................
32,000
Legal fees and
expenses.....................
30,000
Miscellaneous...............................
31,107
- ------------
Total
expenses...........................
3,042,832
- ------------
Net investment
loss............................
(1,466,500)
- ------------
Realized and Unrealized Gain (Loss)
on Investments and Foreign
Currency Transactions
Net realized gain (loss) on:
Investment
transactions.....................
20,159,569
Foreign currency
transactions...............
(66,932)
- ------------
20,092,637
- ------------
Net change in unrealized
appreciation/depreciation on:
Investments.................................
(12,093,668)
Foreign
currencies..........................
6,171
- ------------
(12,087,497)
- ------------
Net gain on investments and foreign
currencies..................................
8,005,140
- ------------
Net Increase in Net Assets
Resulting from
Operations......................
$ 6,538,640
- ------------
- ------------
</TABLE>
PRUDENTIAL NATURAL
RESOURCES FUND, INC.
Statement of Changes in Net Assets
- ---------------------------------------------
- -----
- ----------
<TABLE>
<CAPTION>
Increase in Year
Ended May 31,
Net Assets 1997
1996
<S> <C>
<C>
Operations
Net investment loss............ $
(1,466,500)
$ (727,538)
Net realized gain on investment
and foreign currency
transactions................
20,092,637
9,504,064
Net change in unrealized
appreciation/depreciation on
investments and foreign
currencies..................
(12,087,497)
22,743,837
---------
- ---
- ------------
Net increase in net assets
resulting from operations...
6,538,640
31,520,363
---------
- ---
- ------------
Net equalization credits..........
- --
90,374
---------
- ---
- ------------
Distributions from net realized
gains (Note 1)
Class A........................
(4,657,286)
(1,303,488)
Class B........................
(12,161,558)
(4,284,054)
Class C........................
(234,109)
(33,008)
Class Z........................
(32,340)
- --
---------
- ---
- ------------
(17,085,293)
(5,620,550)
---------
- ---
- ------------
Fund share transactions (net of
share conversions) (Note 5)
Proceeds from shares sold......
157,545,157
122,535,276
Net asset value of shares
issued in reinvestment of
distributions...............
15,354,101
5,017,619
Cost of shares reacquired......
(145,400,427)
(107,356,234)
---------
- ---
- ------------
Net increase in net assets from
Fund share transactions.....
27,498,831
20,196,661
---------
- ---
- ------------
Total increase....................
16,952,178
46,186,848
Net Assets
Beginning of year.................
147,248,353
101,061,505
---------
- ---
- ------------
End of year.......................
$164,200,531
$147,248,353
---------
- ---
- ------------
---------
- ---
- ------------
</TABLE>
- ---------------------------------------------
- -----
- ------------------------------
-----
See Notes to Financial Statements. 8
<PAGE>
PRUDENTIAL NATURAL
Notes to Financial Statements
RESOURCES FUND, INC.
- ---------------------------------------------
- -----
- ------------------------------
Prudential Natural Resources Fund, Inc., (the
'Fund'), is registered under the
Investment Company Act of 1940 as a
diversified,
open-end management investment
company. The Fund's investment objective is
long-
term growth of capital which it
seeks to achieve by investing primarily in
equity
securities of foreign and
domestic natural resource companies.
- ---------------------------------------------
- -----
- ----------
Note 1. Accounting Policies
The following is a summary of significant
accounting policies followed by the
Fund in the preparation of its financial
statements.
Security Valuation: Securities traded on an
exchange are valued at the last
reported sales price on the primary exchange
on
which they are traded.
Securities traded in the over-the-counter
market
(including securities listed on
exchanges for which a last sales price is not
available) are valued at the
average of the last reported bid and asked
prices.
Securities for which market
quotations are not available, other than
private
placements, shall each be
valued at a price supplied by an independent
pricing agent, which is, in the
opinion of such pricing agent, representative
of
the market value of such
securities as of the time of determination of
net
asset value. Securities for
which market quotations are not readily
available,
and for which the pricing
agent or principal market maker does not
provide a
valuation, including
restricted securities, will be valued at fair
value as determined in good faith
according to a pricing procedure developed by
the
Investment Adviser under
procedures established by and under the
general
supervision of the Fund's Board
of Directors. Options listed on exchanges are
valued at their closing price on
the applicable exchange.
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 which approximates
market
value.
In connection with transactions in repurchase
agreements with U.S. financial
institutions, 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.
Foreign Currency Translation: The books and
records of the Fund are maintained
in U.S. dollars. Foreign currency amounts are
translated into U.S. dollars on
the following basis:
(i) market value of investment securities,
other
assets and liabilities--at the
daily closing rates of exchange.
(ii) purchases and sales of investment
securities,
income and expenses--at the
rate of exchange prevailing on the respective
dates of such transactions.
Although the net assets of the Fund are
presented
using the foreign exchange
rates and market values at the close of the
fiscal
year, the Fund does not
isolate that portion of the results of
operations
arising as a result of changes
in the foreign exchange rates from the
fluctuations arising from changes in the
market prices of securities held at the
fiscal
year end. Similarly, the Fund
does not isolate the effect of changes in
foreign
exchange rates from the
fluctuations arising from changes in the
market
prices of long-term portfolio
securities sold during the fiscal year.
Net realized gains on foreign currency
transactions represents net foreign
exchange gains or losses from disposition of
foreign currencies, currency gains
or losses realized between the trade and
settlement dates on security
transactions, and the difference between the
amounts of dividends, interest and
foreign taxes recorded on the Fund's books
and the
U.S. dollar equivalent
amounts actually received or paid. Net
unrealized
currency gains and losses from
valuing foreign currency denominated assets
and
liabilities (other than
investments) at fiscal year end exchange
rates are
reflected as a component of
net unrealized appreciation on foreign
currencies.
Foreign security and currency transactions
may
involve certain considerations
and risks not typically associated with those
of
domestic origin as a result of,
among other factors, the possibility of
political
and economic instability and
the level of governmental supervision and the
regulation of foreign securities
markets.
The Fund, as writer of an option, has no
control
over whether the underlying
securities or currencies may be sold (called)
or
purchased (put). As a result,
the Fund bears the market risk of an
unfavorable
change in the price of the
security or currency underlying the written
option. The Fund, as purchaser of an
option, bears the risk of the potential
inability
of the counterparties to meet
the terms of their contracts.
Securities Transactions and Investment
Income:
Securities transactions are
recorded on the trade date. Realized gains
and
losses from investment and
- ---------------------------------------------
- -----
- ------------------------------
-----
9
<PAGE>
PRUDENTIAL NATURAL
Notes to Financial Statements
RESOURCES FUND, INC.
- ---------------------------------------------
- -----
- ------------------------------
currency 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 of the Fund based
upon the relative proportion of net assets of
each
class at the beginning of the
day.
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 federal
income tax provision is required.
Withholding taxes on foreign interest and
dividends have been provided for in
accordance with the Fund's understanding of
the
applicable country's tax rules
and rates.
Dividends and Distributions: The Fund expects
to
pay dividends out of net
investment income and make distributions of
any
net capital gains, at least
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. These differences are primarily
due to
differing treatments of wash
sales, foreign currencies and passive
investment
companies' transactions.
Equalization: Effective June 1, 1996, the
Fund
discontinued the accounting
practice of equalization. Equalization is a
practice whereby a portion of the
proceeds from sales and costs of repurchases
of
capital shares, equivalent on a
per share basis to the amount of
distributable net
investment income on the date
of the transaction, is credited or charged to
undistributed net investment
income. The balance of $39,777 of
undistributed
net investment income at May 31,
1996, resulting from equalization was
transferred
to paid-in capital in excess
of par. Such reclassification has no effect
on net
assets, results of
operations, or net asset value per share.
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 93-2: 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 accumulated
net
investment loss and decrease
accumulated net realized gain on investments
by
$1,365,054 for foreign currency
gains realized and tax-basis net operating
losses
during the fiscal year ended
May 31, 1997.
- ---------------------------------------------
- -----
- ----------
Note 2. Agreements
The Fund has a management agreement with
Prudential Investments Fund Management
LLC ('PIFM'). Pursuant to this agreement,
PIFM has
responsibility for all
investment advisory services and supervises
the
subadviser's performance of such
services. PIFM has entered into a subadvisory
agreement with The Prudential
Investment Corporation ('PIC'); PIC furnishes
investment advisory services in
connection with the management of the Fund.
PIFM
pays for the services of PIC,
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 .75 of 1% of the Fund's average daily
net
assets.
The Fund has a distribution agreement with
Prudential Securities Incorporated
('PSI'), which acts as the distributor of the
Class A, Class B, Class C and
Class Z shares of the Fund. The Fund
compensates
PSI for distributing and
servicing the Fund's Class A, Class B and
Class C
shares, pursuant to plans of
distribution, (the 'Class A, B and C Plans')
regardless of expenses actually
incurred by them. The distribution fees are
accrued daily and payable monthly.
No distribution or service fees are paid to
PSI as
distributor of the Class Z
shares of the Fund.
Pursuant to the Class A, B and C Plans, the
Fund
compensates PSI for its
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 Class C shares,
respectively. Such expenses under the Plans
were
.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 May 31, 1997.
PSI has advised the Fund that it has received
approximately $107,000 in
front-end sales charges resulting from sales
of
Class A shares during the year
ended May 31, 1997. From these fees, PSI paid
such
sales charges to dealers
which in turn paid commissions to
salespersons and
incurred other distribution
costs.
PSI has advised the Fund that for the year
ended
May 31, 1997, it received
approximately $219,400 and $2,100 in
contingent
deferred sales
- ---------------------------------------------
- -----
- ------------------------------
-----
10
<PAGE>
PRUDENTIAL NATURAL
Notes to Financial Statements
RESOURCES FUND, INC.
- ---------------------------------------------
- -----
- ------------------------------
charges imposed upon certain redemptions by
Class
B and Class C shareholders,
respectively.
PSI, PIFM and PIC are indirect, wholly-owned
subsidiaries of The Prudential
Insurance Company of America.
The Fund, along with other affiliated
registered
investment companies (the
'Funds'), entered into a credit agreement
(the
'Agreement') on December 31, 1996
with an unaffiliated lender. The maximum
commitment under the Agreement is
$200,000,000. The Agreement expires on
December
30, 1997. Interest on any such
borrowings outstanding will be at market
rates.
The purpose of the Agreement is
to serve as an alternative source of funding
for
capital share redemptions. The
Fund has not borrowed any amounts pursuant to
the
Agreement as of May 31, 1997.
The Funds pay a commitment fee at an annual
rate
of .055 of 1% on the unused
portion of the credit facility. The
commitment fee
is accrued and paid quarterly
on a pro-rata basis by the Funds.
- ---------------------------------------------
- -----
- ----------
Note 3. Other Transactions With Affiliates
Prudential Mutual Fund Services LLC ('PMFS'),
a
wholly-owned subsidiary of PIMF,
serves as the Fund's transfer agent and
during the
year ended May 31, 1997, the
Fund incurred fees of approximately $200,000
for
the services of PMFS. As of May
31, 1997, approximately $19,000 of such fees
were
due to PMFS. Transfer agent
fees and expenses in the Statement of
Operations
include certain-out-of pocket
expenses paid to non-affiliates.
For the year ended May 31, 1997, PSI and/or
its
foreign affiliates earned
approximately $8,100 in brokerage commissions
from
portfolio transactions
executed on behalf of the Fund.
- ---------------------------------------------
- -----
- ----------
Note 4. Portfolio Securities
Purchases and sales of investment securities,
other than short-term investments
for the year ended May 31, 1997 aggregated
$84,531,466 and $77,965,627,
respectively.
The federal income tax basis of the Fund's
investments at May 31, 1997 was
$134,413,278 and accordingly, net unrealized
appreciation for federal income tax
purposes was $22,852,235 (gross unrealized
appreciation--$29,292,258 gross
unrealized depreciation--$6,440,023).
For federal income tax purposes the Fund will
elect to treat
net currency losses of approximately $31,000
incurred in the seven month period ended May
31,
1997 as
having been incurred in the following fiscal
year.
- ---------------------------------------------
- -----
- ----------
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 contingent
deferred sales charge of 1% during the first
year.
Class B shares will
automatically convert to Class A shares on a
quarterly basis approximately seven
years after purchase. Special exchange
privileges
are also available for
shareholders who qualify to purchase Class A
shares at net asset value. Class Z
shares are not subject to any sales or
redemption
charge and are offered
exclusively for sale to a limited group of
investors.
The Fund has authorized 500 million shares of
common stock $.01 par value per
share equally divided into four classes,
designated Class A, Class B, Class C
and Class Z common stock.
Transactions in shares of common stock were
as
follows:
<TABLE>
<CAPTION>
Class A
Shares
Amount
- ----------------------------------- -------
- ---
- ------------
<S> <C>
<C>
Year ended May 31, 1997:
Shares sold........................
5,780,788
$ 95,719,238
Shares issued in reinvestment of
distributions....................
275,315
4,341,728
Shares reacquired..................
(5,504,443)
(91,242,896)
-------
- ---
- ------------
Net increase in shares outstanding
before conversion................
551,660
8,818,070
Shares issued upon conversion from
Class B..........................
460,102
7,810,060
-------
- ---
- ------------
Net increase in shares
outstanding......................
1,011,762
$ 16,628,130
-------
- ---
- ------------
-------
- ---
- ------------
</TABLE>
- ---------------------------------------------
- -----
- ------------------------------
-----
11
<PAGE>
PRUDENTIAL NATURAL
Notes to Financial Statements
RESOURCES FUND, INC.
- ---------------------------------------------
- -----
- ------------------------------
<TABLE>
<CAPTION>
Class A
Shares
Amount
- ----------------------------------- -------
- ---
- ------------
Year ended May 31, 1996:
<S> <C>
<C>
Shares sold........................
2,539,693
$ 38,555,696
Shares issued in reinvestment of
distributions....................
79,485
1,097,686
Shares reacquired..................
(2,375,614)
(35,670,241)
-------
- ---
- ------------
Net increase in shares outstanding
before conversion................
243,564
3,983,141
Shares issued upon conversion from
Class B..........................
203,473
3,015,272
-------
- ---
- ------------
Net increase in shares
outstanding......................
447,037
$ 6,998,413
-------
- ---
- ------------
-------
- ---
- ------------
<CAPTION>
Class B
- -----------------------------------
Year ended May 31, 1997:
Shares sold........................
3,305,711
$ 53,154,461
Shares issued in reinvestment of
distributions....................
715,252
10,764,540
Shares reacquired..................
(3,104,475)
(49,520,723)
-------
- ---
- ------------
Net increase in shares outstanding
before conversion................
916,488
14,398,278
Shares reacquired upon conversion
into Class A.....................
(480,006)
(7,810,060)
-------
- ---
- ------------
Net increase in shares
outstanding......................
436,482
$ 6,588,218
-------
- ---
- ------------
-------
- ---
- ------------
Year ended May 31, 1996:
Shares sold........................
5,634,740
$ 82,831,397
Shares issued in reinvestment of
distributions....................
287,532
3,890,312
Shares reacquired..................
(4,990,847)
(71,288,757)
-------
- ---
- ------------
Net increase in shares outstanding
before conversion................
931,425
15,432,952
Shares reacquired upon conversion
into Class A.....................
(210,326)
(3,015,272)
-------
- ---
- ------------
Net increase in shares
outstanding......................
721,099
$ 12,417,680
-------
- ---
- ------------
-------
- ---
- ------------
<CAPTION>
Class C
Shares
Amount
- ----------------------------------- -------
- ---
- ------------
<S> <C>
<C>
Year ended May 31, 1997:
Shares sold........................
243,854
$ 4,042,826
Shares issued in reinvestment of
distributions....................
14,319
215,504
Shares reacquired..................
(186,625)
(3,110,098)
-------
- ---
- ------------
Net increase in shares
outstanding......................
71,548
$ 1,148,232
-------
- ---
- ------------
-------
- ---
- ------------
Year ended May 31, 1996:
Shares sold........................
73,169
$ 1,148,183
Shares issued in reinvestment of
distributions....................
2,191
29,621
Shares reacquired..................
(27,858)
(397,236)
-------
- ---
- ------------
Net increase in shares
outstanding......................
47,502
$ 780,568
-------
- ---
- ------------
-------
- ---
- ------------
<CAPTION>
Class Z
- -----------------------------------
September 16, 1996* through
May 31, 1997:
Shares sold........................
285,159
$ 4,628,632
Shares issued in reinvestment of
distributions....................
2,049
32,329
Shares reacquired..................
(94,564)
(1,526,710)
-------
- ---
- ------------
Net increase in shares
outstanding......................
192,644
$ 3,134,251
-------
- ---
- ------------
-------
- ---
- ------------
- ---------------
* Commencement of offering of Class Z shares.
</TABLE>
- ---------------------------------------------
- -----
- ------------------------------
-----
12
<PAGE>
PRUDENTIAL NATURAL
Financial Highlights
RESOURCES FUND, INC.
- ---------------------------------------------
- -----
- ------------------------------
<TABLE>
<CAPTION>
Class A
- ---------------------------------------------
- -----
- ------
Year Ended May 31,
- ---------------------------------------------
- -----
- ------
1997(a) 1996 1995(a) 1994(a)
1993(a)
- -------- ------- ------- -------
- -
- ------
<S>
<C> <C> <C> <C>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
year............
$ 17.34 $ 13.73 $ 12.55 $11.84
$10.02
- -------- ------- ------- -------
- -
- ------
Income from investment operations
Net investment income
(loss)..................
(.07) (.01) (.03) .01
.02
Net realized and unrealized gain on
investment
and foreign currency
transactions..........
.94 4.42 1.21 .70
1.80
- -------- ------- ------- -------
- -
- ------
Total from investment
operations...........
.87 4.41 1.18 .71
1.82
- -------- ------- ------- -------
- -
- ------
Less distributions
Distributions from net realized gains on
investment and foreign currency
transactions...............................
(1.94) (.80) -- --
- --
- -------- ------- ------- -------
- -
- ------
Net asset value, end of
year..................
$ 16.27 $ 17.34 $ 13.73 $12.55
$11.84
- -------- ------- ------- -------
- -
- ------
- -------- ------- ------- -------
- -
- ------
TOTAL
RETURN(b):..............................
5.37% 33.51% 9.40% 6.00%
18.16%
<CAPTION>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000).................
$ 47,054 $32,608 $19,682 $6,505
$1,898
Average net assets
(000)......................
$ 40,393 $23,106 $10,791 $4,106
$
758
Ratios to average net assets:
Expenses, including distribution
fees......
1.48% 1.57% 1.73% 1.89%
2.38%
Expenses, excluding distribution
fees......
1.23% 1.32% 1.48% 1.65%
2.18%
Net investment income
(loss)..................
(.43)% (.09)% (.25)% .11%
.13%
For Class A, B, C and Z shares:
Portfolio
turnover............................
53% 41% 36% 19%
50%
Average commission rate per
share.............
$ .0371 $ .0290 N/A N/A
N/A
</TABLE>
- ---------------
(a) Calculated based upon average shares
outstanding by class.
(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.
- ---------------------------------------------
- -----
- ------------------------------
-----
See Notes to Financial Statements. 13
<PAGE>
PRUDENTIAL NATURAL
Financial Highlights
RESOURCES FUND, INC.
- ---------------------------------------------
- -----
- ------------------------------
<TABLE>
<CAPTION>
Class B
- ---------------------------------------------
- -----
- ----------------
Year Ended May 31,
- ---------------------------------------------
- -----
- -------
1997(a) 1996 1995(a) 1994(a)
1993(a)
- -------- -------- ------- -------
- -------
<S>
<C> <C> <C> <C>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
year............
$ 16.70 $ 13.35 $ 12.29 $ 11.69
$ 9.97
- -------- -------- ------- -------
- -------
Income from investment operations
Net investment
loss...........................
(.19) (.10) (.13) (.08)
(.07)
Net realized and unrealized gain on
investment
and foreign currency
transactions..........
.89 4.25 1.19 .68
1.79
- -------- -------- ------- -------
- -------
Total from investment
operations...........
.70 4.15 1.06 .60
1.72
- -------- -------- ------- -------
- -------
Less distributions
Distributions from net realized gains on
investment and foreign currency
transactions...............................
(1.94) (.80) -- --
- --
- -------- -------- ------- -------
- -------
Net asset value, end of
year..................
$ 15.46 $ 16.70 $ 13.35 $ 12.29
$ 11.69
- -------- -------- ------- -------
- -------
- -------- -------- ------- -------
- -------
TOTAL
RETURN(b):..............................
4.51% 32.49% 8.62% 5.13%
17.25%
<CAPTION>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000).................
$111,464 $113,090 $80,774 $64,235
$36,150
Average net assets
(000)......................
$107,361 $ 84,396 $74,681 $48,772
$23,464
Ratios to average net assets:
Expenses, including distribution
fees......
2.23% 2.32% 2.48% 2.65%
3.18%
Expenses, excluding distribution
fees......
1.23 1.32% 1.48% 1.65%
2.18%
Net investment
loss...........................
(1.18)% (.84)% (1.05)% (.67)%
(.67)%
</TABLE>
- ---------------
(a) Calculated based upon average shares by
class.
(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.
- ---------------------------------------------
- -----
- ------------------------------
-----
See Notes to Financial Statements. 14
<PAGE>
PRUDENTIAL NATURAL
Financial Highlights
RESOURCES FUND, INC.
- ---------------------------------------------
- -----
- ------------------------------
<TABLE>
<CAPTION>
Class C Class Z
- ---------------------------------- ------
- -----
- --
August 1, September 16,
1994(d) 1996(a)(e)
Year Ended May 31, through
through
- ------------------- May 31, May
31,
1997(a) 1996 1995(a)
1997
- ------- ------- ---------- ------
- -----
- --
<S>
<C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
period..........
$ 16.70 $13.35 $12.47 $
17.08
- ------- ------- ----- -
- ----
Income from investment operations
Net investment
loss...........................
(.19) (.10) (.13)
(.03)
Net realized and unrealized gain on
investment
and foreign currency
transactions..........
.89 4.25 1.01 1.19
- ------- ------- ----- -
- ----
Total from investment
operations...........
.70 4.15 .88 1.16
- ------- ------- ----- -
- ----
Less distributions
Distributions from net realized gains on
investment and foreign currency
transactions...............................
(1.94) (.80) --
(1.94)
- ------- ------- ----- -
- ----
Net asset value, end of
period................
$ 15.46 $16.70 $13.35 $
16.30
- ------- ------- ----- -
- ----
- ------- ------- ----- -
- ----
TOTAL
RETURN(b):..............................
4.51% 32.49% 7.06%
7.17%
<CAPTION>
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000)...............
$ 2,542 $1,551 $606 $
3,140
Average net assets
(000)......................
$ 2,041 $734 $294 $
994
Ratios to average net assets:
Expenses, including distribution
fees......
2.23% 2.32% 2.56%(c)
1.23%(c)
Expenses, excluding distribution
fees......
1.23% 1.32% 1.56%(c)
1.23%(c)
Net investment
loss...........................
(1.18)% (.84)% (1.08)%(c)
(.18)%(c)
</TABLE>
- ---------------
(a) Calculated based upon average shares by
class.
(b) Total return does not consider the
effects of
sales loads. Total return is
calculated assuming a purchase of shares
on
the first day and a sale on the
last day of each period reported and
includes
reinvestment of dividends and
distributions. Total returns for periods
of
less than a full year are not
annualized.
(c) Annualized.
(d) Commencement of offering Class C shares.
(e) Commencement of offering of Class Z
shares.
- ---------------------------------------------
- -----
- ------------------------------
-----
See Notes to Financial Statements. 15
<PAGE>
PRUDENTIAL NATURAL
Report of Independent Accountants
RESOURCES FUND, INC.
- ---------------------------------------------
- -----
- ------------------------------
To the Board of Directors and Shareholders of
Prudential Natural Resources 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 Natural Resources Fund,
Inc. (the 'Fund') at May 31, 1997, 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 five years in the
period then ended, in conformity with
generally
accepted accounting principles.
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 generally accepted auditing standards
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 May 31,
1997 by correspondence with the custodian,
provide
a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
July 18, 1997
PRUDENTIAL NATURAL
Tax Information
RESOURCES FUND, INC.
- ---------------------------------------------
- -----
- ------------------------------
We are required by the Internal Revenue
Service to
advise you within 60 days of
the Fund's fiscal year end (May 31, 1997) as
to
the federal income tax status of
dividends paid during such fiscal year.
Accordingly, we are advising you that
during its fiscal year ended May 31, 1997,
the
Fund paid a long-term capital
gain distribution of $1.56, which is taxable
as
such, and a short-term capital
gain distribution of $.38 which is taxable as
ordinary income. Further, we wish
to advise you that 31.21% of the ordinary
income
dividends paid in the fiscal
year ended May 31, 1997 qualified for the
corporate dividends received deduction
available to corporate taxpayers.
In January 1998, you will be advised on IRS
Form
1099 DIV or substitute Form
1099, as to the federal tax status of the
distributions received by you in
calendar 1997. The amounts that will be
reported
on such form 1099 DIV will be
the amounts to use on your federal income tax
return and will differ from the
amounts which we must report for the Fund's
fiscal
year ended May 31, 1997.
- ---------------------------------------------
- -----
- ------------------------------
-----
16
<PAGE>
Comparing A $10,000 Investment.
- --------------------------------------------
Prudential Natural Resources Fund, Inc. vs.
Morgan Stanley Capital International World
Index.
//Prudential Natural
Resources Fund, Inc.
- --Morgan Stanley Capital
International World Index
Class A
(GRAPH)
Average Annual Total
Returns - Class A
- ------------------------
With Sales Load
8.2% Since Inception
12.9% for 5 Years
.1% for 1 Year
Without Sales Load
9.0% Since Inception
14.0% for 5 Years
5.4% for 1 Year
Class B
(GRAPH)
Average Annual Total
Returns - Class B
- -----------------------
With Sales Load
7.5% Since Inception
13.0% for 5 Years
-0.5% for 1 Year
Without Sales Load
7.5% Since Inception
13.1% for 5 Years
4.5% for 1 Year
Class C
(GRAPH)
Average Annual Total
Returns - Class C
- -----------------------
With Sales Load
14.9% Since Inception
3.5% for 1 Year
Without Sales Load
14.9% Since Inception
4.5% for 1 Year
Class Z
(GRAPH)
Average Annual Total
Returns - Class Z
- -------------------------
7.2% Since Inception
Past performance is not indicative of future
results. Investment
return and principal value will fluctuate so
an
investor's shares,
when redeemed, may be worth more or less than
their original cost.
The box on top of the graphs are designed to
give
you an idea 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
each
share class.
These graphs are furnished to you in
accordance
with SEC regulations.
They compare a $10,000 investment in the
Prudential Natural Resources
Fund (Class A, Class B, Class C and Class Z)
with
a similar investment
in the Morgan Stanley Capital International
World
Index (the Index)
by portraying the initial account values at
the
commencement of
operations of each class, and subsequent
account
values at the
end of this reporting period (May 31), as
measured
on a quarterly
basis, beginning in 1990 for Class A shares,
in
1987 for Class B
shares, in 1994 for Class C shares and in
1996 for
Class Z shares.
For purposes of the graphs, and unless
otherwise
indicated, in
the accompanying tables it has been assumed
(a)
that the maximum
applicable front-end sales charge was
deducted
from the initial
$10,000 investment in Class A shares; (b) the
maximum applicable
contingent deferred sales charge was deducted
from
the value of
the investment in Class B and Class C shares,
assuming
full redemption on May 31, 1997; (c) all
recurring
fees
(including management fees) were deducted;
and (d)
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. Class Z
shares are not subject to a sales charge or
distribution fee.
The Index is a weighted index comprised of
approximately 1,500
companies listed on the stock exchanges of
the
U.S., Europe,
Canada, Australia New Zealand and the Far
East.
The combined
market capitalization of these companies
represents
approximately 60% of the aggregate market
value of
the stock
exchanges in the countries comprising the
Index.
The Index
is unmanaged and includes the reinvestment of
all
dividends,
but does not reflect the payment of
transaction
costs and advisory
fees associated with an investment in the
Fund.
The securities
in 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 and
other
indexes may
portray different comparative performance.
<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Directors
Edward D. Beach
Stephen C. Eyre
Delayne Dedrick Gold
Robert F. Gunia
Don G. Hoff
Robert E. LaBlanc
Mendel A. Melzer
Richard A. Redeker
Robin B. Smith
Stephen Stoneburn
Nancy H. Teeters
Officers
Richard A. Redeker, President
Susan C. Cote, Vice President
Thomas A. Early, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07101
Distributor
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
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.
This report is not authorized for
distribution to
prospective
investors unless preceded or accompanied by a
current prospectus.
743970105 MF135E
743970204 Cat. #4301492
743970303
743970402
