(ICON)
Prudential
Natural
Resources
Fund, Inc.
ANNUAL
REPORT
May 31, 1998
(LOGO)
<PAGE>
Prudential Natural Resources Fund, Inc.
Performance At A Glance.
The economic slowdown in Asia pushed down the prices of major commodities and
of natural resource stocks over the last 12 months. Your Fund declined more
than the average comparable fund, as measured by Lipper Analytical Services,
primarily because of our large holdings of gold stocks, which suffered because
central banks sold gold from their reserves.
Cumulative Total Returns1 As of 5/31/98
<TABLE>
<CAPTION>
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A -14.41% 39.63% N/A 60.73%
Class B -14.96 34.47 82.19% 70.84
Class C -14.96 N/A N/A 26.06
Class Z -14.12 N/A N/A -7.97
Lipper Natural
Resources Fund Avg.3 -6.26 42.63 124.34 ***
</TABLE>
Average Annual Total Returns1 As of 6/30/98
<TABLE>
<CAPTION>
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A -21.00% 4.32% N/A 4.50%
Class B -22.48 4.41 5.40% 4.58
Class C -18.48 N/A N/A 4.65
Class Z -16.61 N/A N/A -7.30
</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 total 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 B shares will automatically convert
to Class A shares, on a quarterly basis, approximately seven years after
purchase. Class C shares have a 1% CDSC for one year. Class Z shares are not
subject to a sales charge or distribution fee.
2Inception dates: Class A, 1/22/90; Class B, 9/28/87; Class C, 8/1/94; and
Class Z, 9/16/96.
3These are the average returns in the Lipper Natural Resources Funds Category
subset, which excludes all funds with a greater than 75% energy weighting for
the one-, five-, and ten-year periods.
***Lipper Since Inception returns are 80.25% for Class A; 74.65% for Class B;
37.80% for Class C; and 2.66% for Class Z based on all funds in each share
class.
How Investments Compared.
(As of 5/31/98)
(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.
U.S. Taxable Money 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 nonferrous metals;
strategic metals; hydrocarbons, such as oil, gas, and coal; and timberland.
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.
Supply And Demand.
We believe in markets, although they may take a while to do their work. If
supply is well below demand, we expect prices to rise. That underlies our
precious metals strategy. Short-term factors may slow commodity prices' impact
on stock prices, but we believe in owning the few suppliers of scarce and
desirable resources. We're doing that in gold, platinum, palladium, and potash.
Strategy Session.
- -------------------------------------------------------------------------------
Five Investment Themes.
Our six largest holdings on May 31, 1998 comprise about 26% of our total
portfolio. They also represent five different investment themes.
Stillwater Mining is our largest holding and we recently increased our stake.
Stillwater operates the only significant palladium and platinum mine outside
the Republic of South Africa. World demand, driven primarily by auto emission
catalysts, has outstripped world supply, and Russian stockpiles have made up
the difference. We believe Russian stockpiles are now running low, and platinum
and palladium prices are heading higher. (Both are now trading above the price
of gold.)
Potash Corporation is the largest potash fertilizer producer in the world.
Although demand for all fertilizers continues strong, potash is unique because
little new supply will enter world markets in the foreseeable future. Potash
prices are now rising.
Newmont Mining is a large, unhedged gold producer. Most gold companies today
hedge their future production, reducing their earnings exposure to future price
movements. Gold consumption has long outrun production. We think the current
currency crisis in Asia will eventually increase the demand for gold as a
portable and exchange-rate-free form of wealth.
Champion International and Boise Cascade are forest products companies with
large and valuable timber holdings. Because of logging cutbacks on federal
properties, the value of privately owned timberlands has increased
significantly in recent years. We believe integrated forest product companies
will spin off their timber holdings and focus on improving returns in their
poorly performing pulp and paper operations. This will be extremely beneficial
to shareholders.
Newfield Exploration, an oil and gas exploration company, is our sixth largest
holding. We think it is undervalued and that its earnings will grow rapidly
when natural gas prices recover. What's more, Newfield can increase its
earnings even with today's low energy prices.
Portfolio Composition.
Sectors expressed as a percentage of
net assets as of 5/31/98.
(PIE CHART)
<PAGE>
What Went Well.
- -------------------------------------------------
Our oil service companies (averaging eight percent of our portfolio) did
particularly well over the past year (an average 83% gain), despite the
decline in oil prices. We bought many of these stocks at low prices in 1996.
We believe low oil prices in the coming year will curtail exploration and
development and earnings for the group. We took our profits on Stolt Comex
Seaway (a 110% gain in the year), Coflexip (an 83% gain), and some of our
smaller positions.
Some of our largest individual holdings had moderately positive returns for
the year in a generally difficult market: Newfield Exploration returned four
percent and Potash Corporation gained six percent. We expect more from these
over the long term.
And Not So Well.
- -------------------------------------------------
Some central banks sold gold, scaring investors. The price fell sharply in
October and November 1997. For some time, demand has exceeded supply, with
loans and sales from central banks making up the shortfall. We believe that
currency turmoil and political and economic uncertainty in Asia eventually
will increase demand further while supply remains restricted. We also believe
central bank sales have probably run their course.
Over the past 12 months, almost 30% of our holdings, on average, were in
petroleum exploration and production stocks, which declined with the drop in
oil prices (while oil service companies rose). Oil consumption has sagged
because of the Asian economic slowdown and a mild winter in North America.
Although we don't expect a significant increase in energy prices soon,
exploration and production stocks are very inexpensive and represent good
value for the long term.
We have been frustrated by the weakness of our South African platinum stocks
while the commodity price was strong. We suspect their prices were depressed
by the widespread withdrawal from emerging markets when Asian stocks began to
fall. The supply and demand story remains very strong -- we expect the stocks
to rebound.
Five Largest
Holdings.
6.3% Stillwater Mining
Precious Metals
4.4% Potash Corp.
Chemicals
4.2% Newmont Mining
Precious Metals
4.1% Champion International
Forest Products
3.5% Boise Cascade
Forest Products
Expressed as a percentage of net assets as of 5/31/98.
Looking Ahead.
- -------------------------------------------------
We believe the balance of supply and demand for precious metals suggests that
sharp price increases are not far away.
The conversion of forest ownership to REITs is a long-term trend that will
eventually force restructuring of the forest products industry to the benefit
of shareholders.
The recovery of energy prices may take longer. New supplies are necessary in
the long term, but an increase in supply from the Middle East, combined with
reduced demand from Asia, will probably keep prices low in the near term.
Base metal prices to Asian customers have risen sharply in local currencies,
which has discouraged demand. This should cap increases.
1
<PAGE>
Diversification Is Key.
- -------------------------------------------------------------------------------
Fund Manager Leigh Goehring discusses how investment in natural resource
stocks adds value to a portfolio even when prices lag.
Q. Natural resource stocks have been lagging.
Why should an investor buy a natural resource mutual fund?
A. Natural resource stocks add significant diversification to a portfolio.
Over the past five years, our Fund's returns had a low correlation with the
S&P 500 (The S&P 500 is an unmanaged index of 500 stocks providing a broad
indicator of price movement.) This means that a portfolio that already
contains the S&P 500 stocks may reduce the volatility of its returns by
adding the Natural Resources Fund. In this period of dormant inflation, it
is not surprising that many natural resource stocks are at low levels not
seen since 1985. Commodity prices tend to be low when there is no inflation,
but we would expect natural resources to outperform other financial assets
should inflation revive. Investors may want to own natural resource stocks
when market conditions change.
Q. Then why buy now?
A. Investors should begin thinking about diversifying their holdings before
market conditions and investor psychology change. You only get the benefit
of protecting your investments by being hedged before prices change. For
example, early in 1998, the very successful investor Warren Buffet purchased
nearly 130 million ounces of silver, a very inflationary-sensitive metal,
at a time when inflation is low and stock and bond markets are booming.
Investors today who don't already own natural resource stocks can now buy
these stocks at very depressed prices, especially compared to the general
market. Moreover, unlike previous poor natural resource markets, world
inventory levels are low and the excess of supply over demand is not great.
For example, in 1986, oil was $10 a barrel and there was 35% excess pumping
capacity; today, oil is $13 to $14 a barrel and there is only a four
percent excess pumping capacity. It probably won't take as much for prices
to rise from today's levels.
Q. How will the Asian economic slowdown affect natural resource stocks?
A. Commodity prices have been affected in three ways: First, the slower Asian
economies have reduced demand; second, depreciating currencies make natural
resources much more expensive for Asian countries, as most commodities are
priced in U.S. dollars; and third, many of these countries have been
liquidating their inventories of natural resources, further depressing
prices. We believe Asian economic growth will resume in the next several
years, increasing demand. With no supply growth in most commodities over
the next several years, we could see commodity prices rebound much faster
than anyone anticipates. Stock prices tend to anticipate changes in market
conditions. I would expect natural resource stocks to begin to rise before
shortages develop. Now is a good time to buy a stock market group that is
very much out of favor and very inexpensive.
(PHOTO)
2
<PAGE>
President's Letter July 13, 1998
- -------------------------------------------------------------------------------
(PHOTO)
See You On the Net!
Dear Shareholder:
We are proud to be part of the worldwide web and we invite you to visit our
two web sites, if you have not already done so. Yes, we currently offer two
sites -- each with its own distinctive identity.
http://www.prudential.com
The Prudential web site features information on personal investing, retirement
planning, commercial and residential real estate opportunities, as well as
insurance products for life, health, home and property.
You can look up performance data on your Prudential mutual funds, learn about
proven investment strategies, or take one of our many interactive quizzes that
will help guide you in determining long-term goals -- like how much to save for
your child's college education or for your retirement.
http://www.prusec.com
The Prudential Securities Virtual Branch Office is a full-service brokerage
web site specifically designed to provide investors with the information they
need to make informed financial decisions. It was rated the No. 1 full-service
brokerage web site of its type by Financial Net News (February 1998), a
subsidiary of Institutional Investor magazine, and was also rated among the top
corporate web sites by Fortune magazine (Winter 1998).
What investors can find here are -- daily market commentaries, stock quotes,
economic forecasts, product news, and current market research, in addition to
interactive investing programs. Investors, through their Prudential Securities
Financial Advisors, may also enroll in Prudential OnlineR and have access to
their personal account information which includes balances, security values,
transactions and account activities. They can also easily E-mail their
Financial Advisor.
Both sites also contain professional opportunities for people who are searching
for employment or considering a change of career paths.
We plan to make further enhancements to our web pages as the year progresses.
So please, the next time you are "web browsing" or "surfing the net," pay us a
visit. Let us know what you think and what you'd like to see added in the
future.
Sincerely,
Brian M. Storms
President, Prudential Mutual Funds & Annuities
3
<PAGE>
Portfolio of Investments as PRUDENTIAL NATURAL
of May 31, 1998 RESOURCES FUND, INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
------------------------------------------------------------
LONG-TERM INVESTMENTS--99.2%
COMMON STOCKS--98.2%
------------------------------------------------------------
Australia--2.3%
489,400 Acacia Resources Ltd. $ 608,058
352,219 Capral Aluminium Ltd. 598,149
130,000 Comalco Ltd. 499,168
151,000 Delta Gold NL 179,126
39,882 Homestake Mining Company 423,306
-----------
2,307,807
- ------------------------------------------------------------
Canada--36.6%
102,900 Agnico-Eagle Mines Ltd. 660,589
129,200 Alberta Energy Co. Ltd. 2,865,296
114,100 Anderson Exploration Ltd. (a) 1,245,625
314,000 Arakis Energy Corp. (a) 451,375
156,600 Arizona Star Resource Ltd. (a) 189,238
123,600 Atna Resources Ltd. (a) 81,469
67,300 Barrick Gold Corp. 1,296,141
273,200 Barrington Petroleum Ltd. (a) 703,423
462,600 Beau Canada Exploration Ltd. (a) 746,411
195,300 Blue Range Resource Corp. (a) 918,538
52,100 Cabre Exploration Ltd. (a) 500,807
159,300 Cambior, Inc. 1,077,349
88,300 Cameco Corp. 2,576,642
41,600 Canadian Natural Resources Ltd. (a) 764,050
148,600 Crestar Energy, Inc. (a) 1,836,520
29,400 Francisco Gold Corp. (a) 280,082
91,800 Golden Knight Resources, Inc. (a) 75,636
141,300 Greenstone Resources Ltd. (a) 635,459
107,800 International African Mining Gold
Corp. (a) 347,873
92,400 International Pursuit Corp. (a) 97,701
279,000 Kap Resources Ltd. (a) 287,343
207,000 MacMillan Bloedel Ltd. 2,508,531
159,800 Meridian Gold, Inc. (a) $ 477,277
141,600 Northrock Resources Ltd. (a) 1,822,926
112,000 Northstar Energy Corp. (a) 669,024
114,300 Placer Dome, Inc. 1,432,232
137,200 Poco Petroleums Ltd. (a) 1,474,256
50,200 Potash Corp. of Saskatchewan, Inc. 4,320,337
169,681 Ranger Oil Ltd. (a) 1,100,955
112,100 Repadre Capital Corp. (a) 346,356
55,300 Rigel Energy Corp. (a) 457,527
219,700 Rio Alto Exploration Ltd. (a) 2,353,201
125,200 Samax Gold, Inc. (a) 537,265
63,800 Sutton Resources Ltd. (a) 449,003
304,800 Tiomin Resources, Inc. (a) 94,174
156,400 Triton Mining Corp. (a) 26,846
162,200 TVX Gold, Inc. (a) 514,514
-----------
36,221,991
- ------------------------------------------------------------
France--1.7%
32,900 Bouygues Offshore, S.A. 1,681,459
- ------------------------------------------------------------
Japan--0.4%
50,000 Globaly Corp. 188,951
62,000 Nihon Unicom Corp. 201,720
-----------
390,671
- ------------------------------------------------------------
New Zealand--0.5%
874,188 Fletcher Challenge Ltd. 537,995
- ------------------------------------------------------------
South Africa--8.9%
209,700 Anglo American Platinum Holdings (a) 2,542,188
9,100 Anglogold Ltd. 451,867
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 4
<PAGE>
Portfolio of Investments as PRUDENTIAL NATURAL
of May 31, 1998 RESOURCES FUND, INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
------------------------------------------------------------
South Africa (cont'd.)
587,900 Avgold Ltd. (a) $ 396,837
42,400 Durban Roodepoort Deep Ltd. (a) 118,429
122,700 Harmony Gold Mining Co., Ltd. (a) 511,696
298,600 Impala Platinum Holdings Ltd. 3,185,530
174,900 Randgold & Exploration Co., Ltd. (a) 169,625
84,300 Western Areas Gold Mining Co.,
Ltd.(a) 348,286
41,300 Western Deep Levels Ltd. 1,033,401
-----------
8,757,859
- ------------------------------------------------------------
United States--47.8%
55,300 Apex Silver Mines Ltd. (a) 580,650
105,083 Ashanti Goldfields Ltd. (GDR) 972,018
104,900 Boise Cascade Corp. 3,501,037
31,400 Brigham Exploration Co. (a) 376,800
87,500 Brush Wellman, Inc. 2,132,813
85,600 Champion International Corp. 4,108,800
73,350 Cross Timbers Oil Co. 1,269,872
36,000 Dawson Production Services, Inc. (a) 400,500
98,200 Freeport-McMoRan Copper & Gold Inc.
(a) 1,522,100
32,800 FX Energy, Inc. (a) 342,350
113,511 Getchell Gold Corp. (a) 2,156,709
32,272 Gold Fields Ltd. ADR (a) 181,530
92,600 Golden Star Resources Ltd. (a) 277,800
73,200 J. Ray McDermott, S.A. (a) 2,955,450
59,900 Louisiana-Pacific Corp. 1,194,256
44,200 Miller Exploration Co. (a) 348,075
147,900 Newfield Exploration Co. (a) 3,309,262
165,311 Newmont Mining Corp. 4,122,443
141,422 NGC Corp. 2,147,847
49,700 Noble Affiliates, Inc. 1,941,406
118,286 Pioneer Natural Resources Co. 2,779,721
31,600 Rayonier, Inc. $ 1,483,225
259,400 Stillwater Mining Co. (a) 6,290,450
185,300 Western Gas Resources, Inc. 2,999,544
-----------
47,394,658
-----------
Total common stocks
(cost US$108,461,918) 97,292,440
-----------
PREFERRED STOCKS--0.8%
- ------------------------------------------------------------
United States
14,500 Freeport-McMoRan Copper & Gold, Inc. 262,812
12,400 Hecla Mining Co., 7.00%, Conv.,
Series B (a) 562,650
-----------
Total preferred stocks
(cost US$920,890) 825,462
-----------
WARRANTS(a)
- ------------------------------------------------------------
Canada
Kap Resources Ltd.,
120,800 Expiring 8/3/00 @ CAD $2 16,588
-----------
- ------------------------------------------------------------
South Africa
Durban Roodepoort Deep Ltd.
21,650 Expiring 6/30/02 @ ZAR $6,000 9,449
Randfontein Estates Gold Mining Co.
11,180 Expiring 7/1/02 @ ZAR $2,500 7,156
-----------
16,605
-----------
Total warrants
(cost US$81,640) 33,193
-----------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5
<PAGE>
Portfolio of Investments as PRUDENTIAL NATURAL
of May 31, 1998 RESOURCES FUND, INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
------------------------------------------------------------
CONVERTIBLE BONDS--0.2%
- ------------------------------------------------------------
South Africa
ZAR 300 Randgold Finance BVI Ltd.,
Sec'd. Gtd.,
7.00%, 9/30/01
(cost US$300,000) $ 159,000
-----------
- ------------------------------------------------------------
Total Investments--99.2%
(cost US$109,764,448; Note 4) 98,310,095
Other assets in excess of
liabilities--0.8% 815,174
-----------
Net Assets--100% $99,125,269
-----------
-----------
</TABLE>
- ---------------
(a) Non-income producing security.
ADR--American Depository Receipt.
GDR--Global Depository Receipt.
The industry classification of portfolio holdings and other assets in excess of
liabilities shown as a percentage of net assets as of May 31, 1998 was as
follows:
Gold.................................................. 20.4%
Canadian Oil & Gas.................................... 17.1
Forest Products....................................... 13.5
Platinum.............................................. 12.1
American Oil and Gas.................................. 10.5
Nonferrous Metals..................................... 6.6
Gas Pipelines......................................... 5.2
Oil Services.......................................... 5.1
Chemicals............................................. 4.7
Silver................................................ 1.2
Aluminum.............................................. 1.1
Retail................................................ 0.9
Financial Services.................................... 0.4
Gold Mining Finance................................... 0.3
Base Metals........................................... 0.1
-----
99.2%
Other assets in excess of liabilities................. 0.8
-----
100.0%
-----
-----
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 6
<PAGE>
PRUDENTIAL NATURAL
Statement of Assets and Liabilities RESOURCES FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets May 31, 1998
<S> <C>
Investments, at value (cost $109,764,448).................................................................... $98,310,095
Foreign currency, at value (cost $1,486,658)................................................................. 1,456,841
Receivable for Fund shares sold.............................................................................. 113,704
Dividends and interest receivable............................................................................ 84,227
Other assets................................................................................................. 2,169
------------
Total assets.............................................................................................. 99,967,036
------------
Liabilities
Payable for Fund shares reacquired........................................................................... 413,875
Accrued expenses and other liabilities....................................................................... 271,834
Distribution fee payable..................................................................................... 70,635
Management fee payable....................................................................................... 69,202
Payable for investments purchased............................................................................ 16,221
------------
Total liabilities......................................................................................... 841,767
------------
Net Assets................................................................................................... $99,125,269
------------
------------
Net assets were comprised of:
Common stock, at par...................................................................................... $ 88,963
Paid-in capital in excess of par.......................................................................... 106,625,186
------------
106,714,149
Accumulated net investment loss........................................................................... (401,440 )
Accumulated net realized gain on investments.............................................................. 4,299,915
Net unrealized depreciation on investments and foreign currencies......................................... (11,487,355 )
------------
Net assets, May 31, 1998..................................................................................... $99,125,269
------------
------------
Class A:
Net asset value and redemption price per share
($28,491,349 / 2,436,972 shares of common stock issued and outstanding)................................ $11.69
Maximum sales charge (5% of offering price)............................................................... .62
Maximum offering price to public.......................................................................... $12.31
Class B:
Net asset value, offering price and redemption price per share
($67,028,511 / 6,140,588 shares of common stock issued and outstanding)................................ $10.92
Class C:
Net asset value, offering price and redemption price per share
($1,844,249 / 168,953 shares of common stock issued and outstanding)................................... $10.92
Class Z:
Net asset value, offering price and redemption price per share
($1,761,160 / 149,800 shares of common stock issued and outstanding)................................... $11.76
</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, 1998
<S> <C>
Income
Dividends (net of foreign withholding taxes
of $51,070).............................. $ 1,149,776
Interest.................................... 165,300
------------
Total income............................. 1,315,076
------------
Expenses
Management fee.............................. 970,786
Distribution fee--Class A................... 94,831
Distribution fee--Class B................... 868,640
Distribution fee--Class C................... 20,602
Transfer agent's fees and expenses.......... 250,000
Custodian's fees and expenses............... 188,000
Registration fees........................... 100,000
Reports to shareholders..................... 80,000
Audit fee................................... 32,000
Directors' fees and expenses................ 28,000
Legal fees and expenses..................... 22,000
Miscellaneous............................... 14,284
------------
Total expenses........................... 2,669,143
------------
Net investment loss............................ (1,354,067)
------------
Realized and Unrealized Gain (Loss)
on Investments and Foreign
Currency Transactions
Net realized gain (loss) on:
Investment transactions..................... 16,608,219
Foreign currency transactions............... (310,849)
------------
16,297,370
------------
Net change in unrealized depreciation on:
Investments................................. (34,722,148)
Foreign currencies.......................... (35,192)
------------
(34,757,340)
------------
Net loss on investments and foreign
currencies.................................. (18,459,970)
------------
Net Decrease in Net Assets
Resulting from Operations...................... $(19,814,037)
------------
------------
</TABLE>
PRUDENTIAL NATURAL
RESOURCES FUND, INC.
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) in Year Ended May 31,
Net Assets 1998 1997
<S> <C> <C>
Operations
Net investment loss............ $ (1,354,067) $ (1,466,500)
Net realized gain on investment
and foreign currency
transactions................ 16,297,370 20,092,637
Net change in unrealized
depreciation on investments
and foreign currencies...... (34,757,340) (12,087,497)
------------ ------------
Net increase (decrease) in net
assets resulting from
operations.................. (19,814,037) 6,538,640
------------ ------------
Distributions from net realized
gains (Note 1)
Class A........................ (5,225,285) (4,657,286)
Class B........................ (12,416,227) (12,161,558)
Class C........................ (289,629) (234,109)
Class Z........................ (414,456) (32,340)
------------ ------------
(18,345,597) (17,085,293)
------------ ------------
Fund share transactions (net of
share conversions) (Note 5)
Proceeds from shares sold...... 104,445,079 157,545,157
Net asset value of shares
issued in reinvestment of
distributions............... 16,191,113 15,354,101
Cost of shares reacquired...... (147,551,820) (145,400,427)
------------ ------------
Net increase (decrease) in net
assets from Fund share
transactions................ (26,915,628) 27,498,831
------------ ------------
Total increase (decrease)......... (65,075,262) 16,952,178
Net Assets
Beginning of year................. 164,200,531 147,248,353
------------ ------------
End of year(a).................... $ 99,125,269 $164,200,531
------------ ------------
------------ ------------
(a)Includes undistributed net
investment loss of: $ (401,440) $ (247,519)
------------ ------------
</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 securities of foreign and domestic
companies that own, explore, mine, process or otherwise develop, or provide
goods and services with respect to, natural resources and in securities the
terms of which are related to the market value of a natural resource.
- ------------------------------------------------------------
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 or at the bid price in the
absence of an asked price. 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 (losses) 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 depreciation 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.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized gains and losses from investment and
foreign 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.
- --------------------------------------------------------------------------------
9
<PAGE>
PRUDENTIAL NATURAL
Notes to Financial Statements RESOURCES FUND, INC.
- --------------------------------------------------------------------------------
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 foreign investment companies'
transactions.
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 $1,200,146 for foreign currency
gains realized and tax-basis net operating losses during the fiscal year ended
May 31, 1998. Net realized gains and net assets were not affected by this
change.
- ------------------------------------------------------------
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. Effective July 1, 1998, Prudential Investment Management
Services LLC ('PIMS') will become the distributor of the Fund and will serve the
Fund under the same terms and conditions as under the arrangement with PSI.
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, 1998.
PSI has advised the Fund that it has received approximately $51,100 in front-end
sales charges resulting from sales of Class A shares during the year ended May
31, 1998. 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, 1998, it received
approximately $261,000 and $1,500 in contingent deferred sales charges imposed
upon certain redemptions by Class B and Class C shareholders, respectively.
PSI, PIFM, PIC and PIMS are indirect, wholly owned subsidiaries of The
Prudential Insurance Company of America.
The Fund, along with other affiliated registered investment companies (the
'Funds'), has a credit agreement (the 'Agreement') with an unaffiliated lender.
The maximum commitment under the Agreement is $200,000,000. 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 did not borrow
- --------------------------------------------------------------------------------
10
<PAGE>
PRUDENTIAL NATURAL
Notes to Financial Statements RESOURCES FUND, INC.
- --------------------------------------------------------------------------------
any amounts pursuant to the Agreement during the fiscal year ended May 31, 1998.
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. The Agreement expired on December 30, 1997 and
has been extended through December 29, 1998 under the same terms.
- ------------------------------------------------------------
Note 3. Other Transactions With Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent and during the year ended May 31, 1998, the
Fund incurred fees of approximately $205,700 for the services of PMFS. As of May
31, 1998, approximately $16,300 of such fees were due to PMFS. Transfer agent
fees and expenses in the Statement of Operations include certain out-of-pocket
expenses paid to nonaffiliates.
For the year ended May 31, 1998, PSI and/or its foreign affiliates earned
approximately $3,600 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, 1998 aggregated $30,786,104 and $71,631,596,
respectively.
The federal income tax basis of the Fund's investments at May 31, 1998 was
$110,507,398 and accordingly, net unrealized depreciation for federal income tax
purposes was $12,197,303 (gross unrealized appreciation--$11,609,502 gross
unrealized depreciation--$23,806,805).
For federal income tax purposes the Fund will elect to treat net currency losses
of approximately $155,000 incurred in the seven month period ended May 31, 1998
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. A special exchange privilege is also available for
shareholders who qualify to purchase Class A shares at net asset value. Class Z
shares are not subject to any sales or redemption charge and are offered
exclusively for sale to a limited group of investors.
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, 1998:
Shares sold........................ 4,276,146 $ 68,660,515
Shares issued in reinvestment of
distributions.................... 432,316 4,906,784
Shares reacquired.................. (5,385,633) (84,912,401)
---------- ------------
Net decrease in shares outstanding
before conversion................ (677,171) (11,345,102)
Shares issued upon conversion from
Class B.......................... 222,232 3,424,064
---------- ------------
Net decrease in shares
outstanding...................... (454,939) $ (7,921,038)
---------- ------------
---------- ------------
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
---------- ------------
---------- ------------
<CAPTION>
Class B
- -----------------------------------
<S> <C> <C>
Year ended May 31, 1998:
Shares sold........................ 1,305,235 $ 17,085,567
Shares issued in reinvestment of
distributions.................... 1,003,247 10,674,545
Shares reacquired.................. (3,140,113) (42,797,561)
---------- ------------
Net decrease in shares outstanding
before conversion................ (831,631) (15,037,449)
Shares reacquired upon conversion
into Class A..................... (234,878) (3,424,064)
---------- ------------
Net decrease in shares
outstanding...................... (1,066,509) $(18,461,513)
---------- ------------
---------- ------------
</TABLE>
- --------------------------------------------------------------------------------
11
<PAGE>
PRUDENTIAL NATURAL
Notes to Financial Statements RESOURCES FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Shares Amount
- ----------------------------------- ---------- ------------
Year ended May 31, 1997:
<S> <C> <C>
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
---------- ------------
---------- ------------
<CAPTION>
Class C
- -----------------------------------
<S> <C> <C>
Year ended May 31, 1998:
Shares sold........................ 79,026 $ 1,034,902
Shares issued in reinvestment of
distributions.................... 22,874 243,380
Shares reacquired.................. (97,356) (1,331,031)
---------- ------------
Net increase in shares
outstanding...................... 4,544 $ (52,749)
---------- ------------
---------- ------------
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
---------- ------------
---------- ------------
<CAPTION>
Class Z
- -----------------------------------
<S> <C> <C>
Year ended May 31, 1998:
Shares sold........................ 1,119,455 $ 17,664,095
Shares issued in reinvestment of
distributions.................... 32,141 366,404
Shares reacquired.................. (1,194,440) (18,510,827)
---------- ------------
Net decrease in shares
outstanding...................... (42,844) $ (480,328)
---------- ------------
---------- ------------
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
---------- ------------
---------- ------------
</TABLE>
- ---------------
* Commencement of offering of Class Z shares.
- --------------------------------------------------------------------------------
12
<PAGE>
PRUDENTIAL NATURAL
Financial Highlights RESOURCES FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
-------------------------------------------------------
Year Ended May 31,
-------------------------------------------------------
1998(a) 1997(a) 1996 1995(a) 1994(a)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............ $ 16.27 $ 17.34 $ 13.73 $ 12.55 $11.84
------- ------- ------- ------- -------
Income from investment operations
Net investment income (loss).................. (.08) (.07) (.01) (.03) .01
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions............................... (2.33) .94 4.42 1.21 .70
------- ------- ------- ------- -------
Total from investment operations........... (2.41) .87 4.41 1.18 .71
------- ------- ------- ------- -------
Less distributions
Distributions from net realized gains......... (2.17) (1.94) (.80) -- --
------- ------- ------- ------- -------
Net asset value, end of year.................. $ 11.69 $ 16.27 $ 17.34 $ 13.73 $12.55
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL RETURN(b):.............................. (14.41)% 5.37% 33.51% 9.40% 6.00 %
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................. $28,491 $47,054 $32,608 $19,682 $6,505
Average net assets (000)...................... $37,933 $40,393 $23,106 $10,791 $4,106
Ratios to average net assets:
Expenses, including distribution fees...... 1.55% 1.48% 1.57% 1.73% 1.89 %
Expenses, excluding distribution fees...... 1.30% 1.23% 1.32% 1.48% 1.65 %
Net investment income (loss).................. (.54)% (.43)% (.09)% (.25)% .11 %
For Class A, B, C and Z shares:
Portfolio turnover............................ 25% 53% 41% 36% 19 %
</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 year 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,
---------------------------------------------------------
1998(a) 1997(a) 1996 1995(a) 1994(a)
------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............ $ 15.46 $ 16.70 $ 13.35 $ 12.29 $ 11.69
------- -------- -------- ------- -------
Income from investment operations
Net investment loss........................... (.17) (.19) (.10) (.13) (.08)
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions............................... (2.20) .89 4.25 1.19 .68
------- -------- -------- ------- -------
Total from investment operations........... (2.37) .70 4.15 1.06 .60
------- -------- -------- ------- -------
Less distributions
Distributions from net realized gains......... (2.17) (1.94) (.80) -- --
------- -------- -------- ------- -------
Net asset value, end of year.................. $ 10.92 $ 15.46 $ 16.70 $ 13.35 $ 12.29
------- -------- -------- ------- -------
------- -------- -------- ------- -------
TOTAL RETURN(b):.............................. (14.96)% 4.51% 32.49% 8.62% 5.13%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)................. $67,029 $111,464 $113,090 $80,774 $64,235
Average net assets (000)...................... $86,864 $107,361 $ 84,396 $74,681 $48,772
Ratios to average net assets:
Expenses, including distribution fees...... 2.30% 2.23% 2.32% 2.48% 2.65%
Expenses, excluding distribution fees...... 1.30% 1.23 1.32% 1.48% 1.65%
Net investment loss........................... (1.28)% (1.18)% (.84)% (1.05)% (.67)%
</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 year 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 Year Ended Through
------------------------------ May 31, May 31, May 31,
1998(a) 1997(a) 1996 1995(a) 1998(a) 1997
------- ------- ------ ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $15.46 $16.70 $13.35 $12.47 $16.30 $ 17.08
------- ------- ------ ----- ----- -----
Income from investment operations
Net investment loss........................... (.18 ) (.19 ) (.10) (.13) (.05) (.03)
Net realized and unrealized gain on investment
and foreign currency transactions.......... (2.19 ) .89 4.25 1.01 (2.32) 1.19
------- ------- ------ ----- ----- -----
Total from investment operations........... (2.37 ) .70 4.15 .88 (2.37) 1.16
------- ------- ------ ----- ----- -----
Less distributions
Distributions from net realized gains on
investment and foreign currency
transactions............................... (2.17 ) (1.94 ) (.80) -- (2.17) (1.94)
------- ------- ------ ----- ----- -----
Net asset value, end of period................ $10.92 $15.46 $16.70 $13.35 $11.76 $ 16.30
------- ------- ------ ----- ----- -----
------- ------- ------ ----- ----- -----
TOTAL RETURN(b):.............................. (14.96 )% 4.51 % 32.49% 7.06% (14.12)% 7.17%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $1,844 $2,542 $1,551 $606 $1,761 $ 3,140
Average net assets (000)...................... $2,060 $2,041 $734 $294 $2,581 $ 994
Ratios to average net assets:
Expenses, including distribution fees...... 2.30 % 2.23 % 2.32% 2.56%(c) 1.30% 1.23%(c)
Expenses, excluding distribution fees...... 1.30 % 1.23 % 1.32% 1.56%(c) 1.30% 1.23%(c)
Net investment loss........................... (1.35 )% (1.18 )% (.84)% (1.08)%(c) (.33)% (.18)%(c)
</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. 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, 1998, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
presented, 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,
1998 by correspondence with the custodian and broker, provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
July 20, 1998
PRUDENTIAL NATURAL
Tax Information (Unaudited) 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, 1998) 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, 1998, the Fund paid a short-term capital
gain distribution of $.37 which is taxable as ordinary income and a long-term
capital gain distribution of $1.80, of which $1.08 is taxable at 20% rate gain
and $.72 is taxable at 28% rate gain. Further, we wish to advise you that 0% of
the ordinary income dividends paid in the fiscal year ended May 31, 1998
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 income tax status of the distributions received by you
in calendar 1998. 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, 1998.
- --------------------------------------------------------------------------------
16
<PAGE>
Comparing A $10,000 Investment.
- -------------------------------------------------
Prudential Natural Resources Fund, Inc. vs.
Morgan Stanley Capital International World Index.
Class A
(GRAPH)
Average Annual Total
Returns -- Class A
- ----------------------
With Sales Load
5.20% Since Inception
5.81% for 5 Years
- -18.69% for 1 Year
Without Sales Load
5.85% Since Inception
6.90% for 5 Years
- -14.41% for 1 Year
Class B
(GRAPH)
Average Annual Total
Returns - Class B
- ----------------------
With Sales Load
5.15% Since Inception
6.18% for 10 Years
5.94% for 5 Years
- -19.96% for 1 Year
Without Sales Load
5.15% Since Inception
6.18% for 10 Years
6.10% for 5 Years
- -14.96% for 1 Year
Class C
(GRAPH)
Average Annual Total
Returns ---- Class C
- ------------------------
With Sales Load
6.23% Since Inception
- -15.96% for 1 Year
Without Sales Load
6.23% Since Inception
- -14.96% for 1 Year
Class D
(GRAPH)
Average Annual Total
Returns - Class Z
-4.76% Since Inception
- -14.12% for 1 Year
Past performance is not indicative of future results. Principal and investment
return will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than their original cost. The box on top of the graphs are
designed to give you an idea of how much the Fund's returns can fluctuate from
year to year by measuring the best and worst calendar years in terms of total
annual return since inception of 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 Class A, C, and Z shares and for 10
years for Class B shares, and subsequent account values at the end of each
fiscal year (May 31), as measured on a quarterly basis, beginning in 1990 for
Class A shares, 1988 for Class B shares, 1994 for Class C shares, and 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, 1998; (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, 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. An investment cannot be made directly in an index.
<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, CFA
Richard A. Redeker
Robin B. Smith
Stephen Stoneburn
Nancy H. Teeters
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Robert C. Rosselot, Assistant Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential PlazaNewark, NJ 07102-3777
Distributor
Prudential Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
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
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