<PAGE>
(ICON)
Prudential
Natural
Resources
Fund, Inc.
ANNUAL
REPORT
May 31, 1999
(LOGO)
<PAGE>
Prudential Natural Resources Fund, Inc.
Performance at a Glance
The Prudential Natural Resources Fund Class A shares returned
2.41% for the year ended May 31, 1999. We significantly outperformed
our peer group, beating the Lipper Average return of -4.61%, primarily
because of dramatic increases in our palladium and platinum
selections. After a decade of bloated commodity supplies and
largely suppressed demand, the last months of our reporting period
also saw the beginning of a broad, market-leading rally for energy
and many metals stocks. Although it is difficult to tell, we hope
that this rally is the start of something big in natural resources
stocks.
<TABLE>
Cumulative Total Returns1 As of 5/31/99
<CAPTION>
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A 2.41% 34.90% N/A 64.60%
Class B 1.64 30.00 75.58% 73.64
Class C 1.64 N/A N/A 28.12
Class Z 2.56 N/A N/A -5.61
Lipper Natural
Resources Fund Avg.3 -4.61 37.85 106.43 ***
</TABLE>
<TABLE>
Average Annual Total Returns1 As of 6/30/99
<CAPTION>
One Five Ten Since
Year Years Years Inception2
<S> <C> <C> <C> <C>
Class A 11.86% 7.47% N/A 5.83%
Class B 11.97 7.62 6.63% 5.58
Class C 14.81 N/A N/A 6.83
Class Z 18.01 N/A N/A 1.09
</TABLE>
Past performance is not indicative of future results. Principal
and investment return will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
1 Source: Prudential Investments Fund Management LLC and Lipper,
Inc. The cumulative total returns do not take into account sales
charges. The average annual total returns do take into account
applicable sales charges. The Fund charges a maximum
front-end sales charge of 5% for Class A shares. Class B shares
are subject to a declining contingent deferred sales charge (CDSC)
of 5%, 4%, 3%, 2%, 1%, and 1% for six years. Class B shares will
automatically convert to Class A shares, on a quarterly basis,
approximately seven years after purchase. Class C shares are
subject to a front-end sales charge of 1% and a CDSC of 1% for
18 months. Class C shares bought before November 2, 1998, have
a 1% CDSC if sold within one year. Class Z shares are not subject
to a sales charge or distribution and service (12b-1) fee.
2 Inception dates: Class A, 1/22/90; Class B, 9/28/87; Class
C, 8/1/94; and Class Z, 9/16/96.
3 Lipper average returns are for all funds in each share class
for the one-, five-, and ten-year periods in the Natural Resources
Fund category subset, which excludes all funds with an energy
weighting greater than 75%.
*** Lipper Since Inception returns are 85.85% for Class A; 97.80%
for Class B; 41.76% for Class C; and 0.06% for Class Z, based on
all funds in each share class.
How Investments Compared
(As of 5/31/99)
(GRAPH)
Source: Lipper, Inc. 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>
Portfolio Manager's Report
(PHOTO)
Leigh R. Goehring
Fund Manager
Investment Goals and Style
The Prudential Natural Resources Fund seeks long-term
growth of capital by investing primarily 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.
Performance Review
An empire collapsed; prices tumbled
When communism fell in 1989, so did the economy of the world's
largest producer of steel, oil, gas, nickel, aluminum, cobalt,
diamonds, and palladium. As its economy contracted 70% and
domestic demand collapsed, the former Soviet Union began to
sell its production and inventories of natural resources into
world markets. The world was flooded with commodities that it
produced but no longer could use, and prices fell.
Russian consumption collapsed and world appetites for
everything--from aluminum and nickel, to platinum for jewelry,
to palladium for catalytic converters in ever-larger sport utility
vehicles--grew gradually to absorb the increased global supplies.
Supply and demand for many resources edged back toward equilibrium
in 1995-96, but the balance was disturbed again in 1997 when the
Asian economic and financial crisis struck. To meet dollar-denominated
debts, these countries dumped their inventories at very low prices,
flooding world markets for the second time in 10 years.
In the last months of our reporting period, markets signaled a
possible reversal of these imbalances in supply and demand. The
additional supply provided by the former Soviet Union is now being
consumed, and prospects for economic growth in Asia
have improved visibly.
The impact on equity markets was first seen in stocks of companies
that mine platinum and palladium, which accounted for 19% of our
portfolio on May 31, and were the primary drivers of our substantial
lead over the Lipper Natural Resources Average. Russia has been a
dominant supplier of these metals, and disruptions in Russian
deliveries in 1998 helped the very few companies outside the
Soviet Union that mine these metals. Over the year, two of our
largest holdings--Stillwater Mining and Impala
Platinum--rose 31% and 77%, respectively. To help maintain
balance in the portfolio, we took some profits on Impala,
which had appreciated to more than 6% of our holdings.
Energy is rising
Resurgent demand in Asia has improved the earnings outlook
for energy companies too. Our natural gas and oil exploration
and production stocks were hit hard in the first half of our
reporting period, and are down for the year, but they recovered
strongly late in the period with double-digit gains between
early March and our May 31 close.
<PAGE>
Indeed, many analysts expect significant increases in the
price of oil in the coming months. While consumption in the
United States remains heavy and demand grows in Asia, the
oil-producing exporting countries (OPEC) have acted to restrain
production, and low prices in recent years have kept non-OPEC
suppliers from investing in new capacity.
We did not own any of the large, integrated oil companies,
whose stocks we considered overpriced even before OPEC action
led to increases in April. Despite subsequent corrections, we
think they remain overvalued, while our smaller oil
companies--which we bought at very depressed levels--have
considerable room for further gains.
We are increasing our energy holdings, particularly natural gas
and oil service companies. We moved some money into the sector
from our forest products holdings this year: while paper and
pulp companies helped our return in this reporting period,
gaining an average of 10%, we see greater near-term opportunities
from energy stocks.
Portfolio Composition
Expressed as a percentage of net assets as of 5/31/99
Precious Metals 39%
Energy 36
Forest Products 10
Diversified Resources 7
Nonferrous Metals 5
Miscellaneous 2
Cash & Equivalents 1
Gold: a languishing standard?
Global demand for gold--a useful metal in certain manufactures and
the traditional choice for jewelry in many cultures--remains high.
In fact, consumption now exceeds current production.
The excess demand has been matched by large new supplies from
the vaults of central banks. In this reporting period, we were
surprised by successive decisions by the International Monetary
Fund and several European banks to sell gold at low
prices--turning a bear market for the metal into an outright
glut. The price of gold has suffered further from low inflation.
Speculators also have sold large amounts of borrowed gold
("sold short"); they are confident that its price will fall
further, allowing them to repurchase the gold at a lower price
and return their borrowings at a profit. If supply should falter,
the price could spike as these speculators rush to cover
themselves. Gold could also shoot up if inflation returns--as
it very well may as a range of commodities increase in price.
With further European bank sales looming, however, we reduced
our exposure to gold stocks in this reporting period: they now
comprise 17% of our assets. Though the sector had a negative
impact on the Fund overall, we were able to take profits on
several companies: Getchell, Samax, and Sutton Resources all
rose markedly on merger activity, and we sold our positions.
Looking Ahead
Though most natural resources stocks have lagged broad equity markets
in recent years, there is evidence that a massive shift in the
structure of commodity and financial markets may be under way.
The fall of the Soviet Union, the marked recession in
Asia, and gold sales by central bankers have provided
unusual--indeed, historic--drags on prices of many natural
resources for 10 years. Despite reduced production and
Five Largest Holdings
Expressed as a percentage of net assets as of 5/31/99
Stillwater Mining Co. 10.8%
Precious Metals
Impala Platinum Holdings Ltd. 7.1
Precious Metals
Smith International, Inc. 4.5
Oil Services
Newmont Mining Corp. 4.0
Precious Metals
Anglo American Platinum Hldgs 3.8
Metals--Nonferrous
1
<PAGE>
Review Cont'd.
high and rising rates of consumption, commodities have appeared plentiful
and cheap. With inventories low and demand exceeding production for
many commodities, markets for natural resources stocks have now begun
to reflect the growing sense that extremely low commodities prices
cannot be sustained.
We expect that when commodities prices rise, profits for natural
resources stocks will increase dramatically, and investors will
return to the group. In our view, stocks related to "base" or
nonferrous metals, such as nickel, will be the next
beneficiaries of this shift in sentiment, and we have added
somewhat to our positions there. We think many stocks that
have begun to do well in recent months, including our platinum,
palladium, and energy stocks, are positioned for further
significant gains.
Journal of Commerce Price Index: Metals
(GRAPH)
Major trends
- - Prices rising to late 1990
- - USSR collapse: Prices fall to 1993
- - Supply absorbed: Price recovery to 1997
- - Asian economic contraction: Prices fall to 1999
- - Signs of another bottom: January 1999
The Journal of Commerce Price Index: Metals is an index
comprising the following subcomponents-- scrap steel,
copper scrap, aluminum, zinc, lead, and tin.
The chart does not reflect any performance of the Prudential
Natural Resources Fund. Past performance is not indicative
of future results. Investors cannot invest directly in an index.
Source: Prudential Investments and Haver Analytics Research
2
<PAGE>
A Message to our Shareholders July 16, 1999
(PHOTO)
Dear Shareholder:
In the last couple of years, the recurring possibility of
a global economic crisis caused investors to focus on
securities they perceived to be safe. In the equity market,
they focused on the stocks of a handful of very large companies
that were perceived to be well-buffeted from an economic
slowdown. These stocks became very expensive--out of
proportion to their earnings expectations. As a result,
there was a substantial disparity in value between large
and small companies and between growth and value stocks.
Since earlier this year, however, that gap has narrowed
significantly amid news of strong U.S. economic growth and
faster-than-expected global stability. While the long-term
prospects of U.S. growth stocks are still very good, many of
the smaller and economically sensitive companies favored by
our value managers now are posting very attractive returns.
In the bond market, U.S. Treasuries and select European
government bonds were the major beneficiaries of the flight
to quality that occurred in recent years. When this trend
reversed itself toward the end of 1998, other sectors of the
bond market rebounded. However, with a strong U.S. economy
comes the threat of higher inflation, which erodes the value
of bonds' fixed interest payments. The recent inflation concerns
jolted the bond market and helped send long-term interest rates to a
19-month high.
The winds of change in the equity market and the recent turbulence
in the bond market not only highlight the value of professional
portfolio management, but they illustrate why investors should have
a well-diversified asset allocation strategy. It is also a good
practice to rebalance your holdings, when necessary, to keep your
asset allocation consistent with your long-term objectives and risk
tolerance. A properly diversified portfolio of value- and
growth-oriented equity funds, domestic and
international bond funds, and money market funds could help
you weather inevitable market turbulence and achieve more
consistent returns over time. Prudential offers a wide range
of mutual funds to help our shareholders diversify, as well as several
balanced and diversified funds to allow one-decision diversification.
Thank you for your continued confidence in Prudential mutual funds.
Sincerely,
John R. Strangfeld
President
Prudential Natural Resources Fund, Inc.
3
<PAGE>
PRUDENTIAL NATURAL
Portfolio of Investments as
of May 31, 1999 RESOURCES FUND, INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--99.4%
COMMON STOCKS--99.1%
Australia--2.6%
365,000 Acacia Resources Ltd. $ 390,437
353,200 Anaconda Nickel Ltd.(a) 518,343
275,101 Capral Aluminum Ltd. 398,345
96,850 Comalco Ltd. 369,547
112,500 Delta Gold NL 154,094
22,480 Zimbabwe Platinum(a) 4,839
-----------
1,835,605
- ------------------------------------------------------------
Canada--29.1%
76,600 Agnico-Eagle Mines Ltd. 415,740
90,700 Alberta Energy Co., Ltd. 2,615,163
80,000 Anderson Exploration Ltd.(a) 968,792
116,900 Arizona Star Resource Ltd.(a) 75,343
92,000 Atna Resources Ltd.(a) 58,670
47,300 Barrick Gold Corp. 816,679
344,700 Beau Canada Exploration Ltd.(a) 561,248
170,100 Big Bear Exploration Ltd. 19,618
120,300 Black Hawk Mining, Inc.(a) 11,426
38,800 Cabre Exploration Ltd.(a) 322,456
115,900 Cambior, Inc. 389,216
49,100 Cameco Corp. 999,322
46,100 Canadian Natural Resources Ltd.(a) 844,437
108,500 Crestar Energy, Inc.(a) 1,177,748
21,600 Francisco Gold Corp.(a) 153,867
105,300 Greenstone Resources Ltd.(a) 29,290
48,000 Inco Ltd. 684,000
80,300 International African Mining Gold
Corp.(a) 174,328
68,900 International Pursuit Corp.(a) 14,491
145,500 MacMillan Bloedel Ltd. 1,850,831
115,100 Meridian Gold, Inc.(a) 554,417
99,400 Northrock Resources Ltd.(a) 842,944
80,200 Placer Dome, Inc. $ 892,320
96,400 Poco Petroleums Ltd.(a) 696,513
32,400 Potash Corp. of Saskatchewan, Inc. 1,761,750
123,581 Ranger Oil Ltd.(a) 553,348
94,575 Repadre Capital Corp.(a) 141,157
42,200 Rigel Energy Corp.(a) 320,651
154,200 Rio Alto Exploration Ltd.(a) 2,165,495
23,340 Talisman Energy, Inc. 558,701
227,300 Tiomin Resources, Inc.(a) 58,598
120,900 TVX Gold, Inc.(a) 121,392
-----------
20,849,951
- ------------------------------------------------------------
France--1.0%
25,600 Bouygues Offshore, S.A. 744,309
- ------------------------------------------------------------
Japan--2.0%
50,000 Globaly Corp. 444,371
47,000 Kobayashi Yoko Co., Ltd. 307,287
130,000 Nihon Unicom Corp. 695,359
-----------
1,447,017
- ------------------------------------------------------------
New Zealand--0.5%
651,688 Fletcher Challenge Ltd. 331,623
- ------------------------------------------------------------
South Africa--13.5%
148,800 Anglo American Platinum Holdings(a) 2,732,769
21,876 Anglogold Ltd. 865,925
438,300 Avgold Ltd.(a) 207,209
31,600 Durban Roodepoort Deep Ltd.(a) 59,503
91,500 Harmony Gold Mining Co., Ltd.(a) 446,503
211,900 Impala Platinum Holdings Ltd. 5,073,375
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 4
<PAGE>
PRUDENTIAL NATURAL
Portfolio of Investments as
of May 31, 1999 RESOURCES FUND, INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
South Africa (cont'd.)
130,300 Randgold & Exploration Co., Ltd.(a) $ 141,994
62,800 Western Areas Gold Mining Co.,
Ltd.(a) 160,019
-----------
9,687,297
- ------------------------------------------------------------
United States--50.4%
41,300 Apex Silver Mines Ltd.(a) 464,625
75,683 Ashanti Goldfields Ltd. (GDR) 567,623
72,300 BJ Services Co.(a) 1,992,769
60,900 Boise Cascade Corp. 2,413,162
23,400 Brigham Exploration Co.(a) 58,500
51,400 Brush Wellman, Inc. 870,588
36,200 Champion International Corp. 1,855,250
51,950 Cross Timbers Oil Co. 561,709
38,900 Devon Energy Corp. 1,351,775
99,322 Dynegy, Inc. 1,719,512
115,700 Freeport-McMoRan Copper & Gold,
Inc.(a) 1,518,562
24,600 FX Energy, Inc.(a) 162,975
69,000 Golden Star Resources Ltd.(a) 51,750
37,276 Gold Fields Ltd. (ADR)(a) 119,982
41,700 Harmony Gold Mining Ltd. (ADR) 202,245
18,500 Marine Drilling Co., Inc.(a) 265,938
32,900 Miller Exploration Co.(a) 69,913
103,900 Newfield Exploration Co.(a) 2,636,462
162,611 Newmont Mining Corp. 2,896,508
34,900 Noble Affiliates, Inc. 924,850
51,700 Nuevo Energy Co.(a) 788,425
83,186 Pioneer Natural Resources Co. 904,648
15,600 Rayonier, Inc. 727,350
75,000 Smith International, Inc.(a) 3,243,750
241,600 Stillwater Mining Co.(a) 7,716,100
9,400 Stolt Comex Seaway, S.A.(a) 104,575
38,800 Transcoastal Marine Services, Inc.(a) 164,900
136,500 Western Gas Resources, Inc. 1,774,500
-----------
36,128,946
-----------
Total common stocks
(cost US$76,291,766) 71,024,748
-----------
WARRANTS(a)
- ------------------------------------------------------------
Canada
120,800 Kap Resources Ltd.,
expiring 8/3/00 @ CAD 2 $ 820
- ------------------------------------------------------------
South Africa
19,342 Durban Roodepoort Deep Ltd.,
expiring 6/30/02 @ ZAR 6,000 7,128
9,998 Randfontein Estates Gold Mining Co.,
expiring 7/1/02 @ ZAR 2,500 3,926
-----------
11,054
-----------
Total warrants
(cost US$81,640) 11,874
-----------
Principal Amount
(000)
CONVERTIBLE BONDS--0.3%
- ------------------------------------------------------------
South Africa--0.3%
$ 300 Randgold Finance BVI Ltd.,
Secured Guaranteed,
7.00%, 9/30/01
(cost US$300,350) 181,500
-----------
Total long-term investments
(cost US$76,673,756) 71,218,122
-----------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5
<PAGE>
PRUDENTIAL NATURAL
Portfolio of Investments as
of May 31, 1999 RESOURCES FUND, INC.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
SHORT-TERM INVESTMENTS--0.6%
REPURCHASE AGREEMENT
- ------------------------------------------------------------
United States
$ 424 Joint Repurchase Agreement Account,
4.80%, 6/1/99
(cost US$424,000; Note 5) $ 424,000
-----------
- ------------------------------------------------------------
Total Investments--100.0%
(cost US$77,097,756; Note 4) 71,642,122
Other assets in excess of
liabilities 18,794
-----------
Net Assets--100% $71,660,916
-----------
-----------
</TABLE>
- ---------------
(a) Non-income producing security.
ADR--American Depository Receipt.
GDR--Global Depository Receipt.
The industry classification of portfolio holdings shown as a percentage of net
assets as of May 31, 1999 was as follows:
Platinum.............................................. 19.1%
Gold.................................................. 16.7
Canadian Oil & Gas.................................... 16.3
Oil Services.......................................... 10.6
Forest Products....................................... 10.0
American Oil & Gas.................................... 8.9
Nonferrous Metals..................................... 5.5
Gas Pipelines......................................... 4.9
Chemicals............................................. 2.5
Financial Services.................................... 2.0
Aluminum.............................................. 1.1
Base Metals........................................... 1.0
Silver................................................ 0.6
Joint Repurchase Agreement Account.................... 0.6
Gold Mining Finance................................... 0.2
-----
100.0%
-----
-----
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 6
<PAGE>
PRUDENTIAL NATURAL
Statement of Assets and Liabilities RESOURCES FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets May 31, 1999
<S> <C>
Investments, at value (cost $77,097,756)..................................................................... $71,642,122
Foreign currency, at value (cost $305,749)................................................................... 303,323
Cash......................................................................................................... 5,377
Receivable for investments sold.............................................................................. 155,686
Dividends and interest receivable............................................................................ 89,403
Receivable for Fund shares sold.............................................................................. 58,167
Other assets................................................................................................. 1,718
------------
Total assets.............................................................................................. 72,255,796
------------
Liabilities
Accrued expenses............................................................................................. 249,695
Payable for Fund shares reacquired........................................................................... 244,654
Management fee payable....................................................................................... 48,113
Distribution fee payable..................................................................................... 46,140
Withholding taxes payable.................................................................................... 6,278
------------
Total liabilities......................................................................................... 594,880
------------
Net Assets................................................................................................... $71,660,916
------------
------------
Net assets were comprised of:
Common stock, at par...................................................................................... $ 66,640
Paid-in capital in excess of par.......................................................................... 85,207,510
------------
85,274,150
Accumulated net investment loss........................................................................... (1,007 )
Accumulated net realized loss on investments.............................................................. (8,149,142 )
Net unrealized depreciation on investments and foreign currencies......................................... (5,463,085 )
------------
Net assets, May 31, 1999..................................................................................... $71,660,916
------------
------------
Class A:
Net asset value and redemption price per share
($23,929,944 / 2,112,551 shares of common stock issued and outstanding)................................ $11.33
Maximum sales charge (5% of offering price)............................................................... .60
Maximum offering price to public.......................................................................... $11.93
Class B:
Net asset value, offering price and redemption price per share
($44,533,236 / 4,258,768 shares of common stock issued and outstanding)................................ $10.46
Class C:
Net asset value and redemption price per share
($1,568,216 / 149,971 shares of common stock issued and outstanding)................................... $10.46
Sales charge (1% of offering price)....................................................................... .11
Offering price to public.................................................................................. $10.57
Class Z:
Net asset value, offering price and redemption price per share
($1,629,520 / 142,689 shares of common stock issued and outstanding)................................... $11.42
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7
<PAGE>
PRUDENTIAL NATURAL
RESOURCES FUND, INC.
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Loss May 31, 1999
<S> <C>
Income
Dividends (net of foreign withholding taxes
of $36,977)............................... $ 886,464
Interest..................................... 48,430
------------
Total income.............................. 934,894
------------
Expenses
Management fee............................... 556,478
Distribution fee--Class A.................... 56,710
Distribution fee--Class B.................... 486,439
Distribution fee--Class C.................... 14,897
Transfer agent's fees and expenses........... 230,000
Custodian's fees and expenses................ 190,000
Reports to shareholders...................... 55,000
Registration fees............................ 40,000
Audit fee.................................... 32,000
Directors' fees and expenses................. 22,000
Legal fees and expenses...................... 15,000
Miscellaneous................................ 1,755
------------
Total expenses............................ 1,700,279
------------
Net investment loss............................. (765,385)
------------
Realized and Unrealized Gain (Loss)
on Investments and Foreign
Currency Transactions
Net realized gain (loss) on:
Investment transactions...................... (7,671,853)
Foreign currency transactions................ (56,715)
Options written.............................. 69,429
------------
(7,659,139)
------------
Net change in unrealized appreciation
(depreciation) on:
Investments.................................. 5,998,719
Foreign currencies........................... 25,551
------------
6,024,270
------------
Net loss on investments and foreign
currencies................................... (1,634,869)
------------
Net Decrease in Net Assets
Resulting from Operations....................... $ (2,400,254)
------------
------------
</TABLE>
PRUDENTIAL NATURAL
RESOURCES FUND, INC.
Statement of Changes in Net Assets
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) in Year Ended May 31,
Net Assets 1999 1998
<S> <C> <C>
Operations
Net investment loss............ $ (765,385) $ (1,354,067)
Net realized gain (loss) on
investment and foreign
currency transactions....... (7,659,139) 16,297,370
Net change in unrealized
appreciation (depreciation)
on investments and foreign
currencies.................. 6,024,270 (34,757,340)
------------ ------------
Net decrease in net assets
resulting from operations... (2,400,254) (19,814,037)
------------ ------------
Distributions from net realized
gains (Note 1)
Class A........................ -- (5,225,285)
Class B........................ -- (12,416,227)
Class C........................ -- (289,629)
Class Z........................ -- (414,456)
------------ ------------
-- (18,345,597)
------------ ------------
Distributions in excess of net
realized gains (Note 1)
Class A........................ (1,117,960) --
Class B........................ (2,576,494) --
Class C........................ (80,678) --
Class Z........................ (59,197) --
------------ ------------
(3,834,329) --
------------ ------------
Fund share transactions (net of
share conversions) (Note 6)
Proceeds from shares sold...... 24,126,685 104,445,079
Net asset value of shares
issued in reinvestment of
distributions............... 3,391,302 16,191,113
Cost of shares reacquired...... (48,747,757) (147,551,820)
------------ ------------
Net decrease in net assets from
Fund share transactions..... (21,229,770) (26,915,628)
------------ ------------
Total decrease.................... (27,464,353) (65,075,262)
Net Assets
Beginning of year................. 99,125,269 164,200,531
------------ ------------
End of year....................... $ 71,660,916 $ 99,125,269
------------ ------------
------------ ------------
</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 and NASDAQ National Market
System are valued at the last sale price on such exchange system or, if there
was no sale on such day, at the mean between the last bid and asked prices, or
at the bid price in the absence of an asked price. Corporate bonds (other than
convertible) and U.S. government securities are valued on the basis of
valuations provided by an independent pricing agent or principal market maker.
Convertible debt securities are valued at the mean between the last reported bid
and asked prices provided by principal market makers. Options are valued at the
mean between the most recently quoted bid and asked prices on the exchange on
which they are traded. Futures contracts and options thereon are valued at their
last sale prices as of the close of trading on the applicable commodities
exchange. Securities for which reliable market quotations are not readily
available are valued by the Valuation Committee or Board of Directors in
consultation with the manager or subadvisor.
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.
Repurchase Agreements: 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. Accordingly, these realized foreign
currency gains (losses) are included in the reported net realized gains (losses)
on investment transactions.
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 investments and 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, capital gains 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 for and reports
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 by $1,165,818,
increase accumulated net realized loss on investments by $955,589 and decrease
paid-in-capital by $210,229 for realized foreign currency gains, tax-basis net
operating losses and redemptions utilized as distributions for federal income
tax purposes during the fiscal year ended May 31, 1999. Net investment income,
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 Investment Services LLC
('PIMS'), which acts as the distributor of the Class A, Class B, Class C and
Class Z shares of the Fund. The Fund compensates PIMS for distributing and
servicing the Fund's Class A, Class B and Class C shares, pursuant to plans of
distribution, (the 'Class A, B and C Plans') regardless of expenses actually
incurred by them. The distribution fees are accrued daily and payable monthly.
No distribution or service fees are paid to PIMS as distributor of the Class Z
shares of the Fund.
Pursuant to the Class A, B and C Plans, the Fund compensates PIMS 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, 1999.
PIMS has advised the Fund that it has received approximately $26,400 and $2,600
in front-end sales charges resulting from sales of Class A and Class C shares,
respectively, during the year ended May 31, 1999. From these fees, PIMS paid
such sales charges to dealers which in turn paid commissions to salespersons and
incurred other distribution costs.
PIMS has advised the Fund that for the year ended May 31, 1999, it received
approximately $149,800 and $800 in contingent deferred sales charges imposed
upon certain redemptions by Class B and Class C shareholders, respectively.
PIFM, PIC and PIMS are indirect, wholly owned subsidiaries of The Prudential
Insurance Company of America.
As of March 11, 1999, the Fund, along with other affiliated registered
investment companies (the 'Funds'), entered into a syndicated credit agreement
('SCA') with an unaffiliated lender. The maximum commitment under the SCA is $1
billion. The Funds pay a commitment fee at an annual rate of .065 of 1% on the
unused portion of the credit facility, which is accrued and paid quarterly on a
pro rata basis by the Funds. The SCA expires on March 9, 2000. Prior to March
11, 1999, the Funds had a
- --------------------------------------------------------------------------------
10
<PAGE>
PRUDENTIAL NATURAL
Notes to Financial Statements RESOURCES FUND, INC.
- --------------------------------------------------------------------------------
credit agreement with a maximum commitment of $200,000,000. The commitment fee
was .055 of 1% on the unused portion of the credit facility. The Fund did not
borrow any amounts pursuant to either agreement during the year ended May 31,
1999. The purpose of the agreements is to serve as an alternative source of
funding for capital share redemptions.
- ------------------------------------------------------------
Note 3. Other Transactions With Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a wholly owned subsidiary of PIFM,
serves as the Fund's transfer agent and during the year ended May 31, 1999, the
Fund incurred fees of approximately $170,100 for the services of PMFS. As of May
31, 1999, approximately $12,500 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.
- ------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments,
for the year ended May 31, 1999 aggregated $11,689,727 and $37,119,245,
respectively.
The federal income tax basis of the Fund's investments at May 31, 1999 was
$77,979,497 and accordingly, net unrealized depreciation for federal income tax
purposes was $6,337,375 (gross unrealized appreciation--$16,992,805 gross
unrealized depreciation--$23,330,180).
For federal income tax purposes, the Fund has a capital loss carryforward as of
May 31, 1999 of approximately $7,114,200 which expires in 2007. Accordingly, no
capital gains distribution is expected to be paid to shareholders until net
gains have been realized in excess of this amount. In addition, the Fund will
elect to treat net capital losses of approximately $4,705,600 incurred in the
seven month period ended May 31, 1999 as having been incurred in the following
fiscal year.
Transactions in options written during the year ended May 31, 1999, were as
follows:
<TABLE>
<CAPTION>
Number of
Contracts Premiums
(000) Received
--------- ---------
<S> <C> <C>
Options written...................... 360 $ 72,664
Options closed....................... (360) (72,664 )
--- ---------
Options outstanding at May 31,
1999............................... -- $ --
--- ---------
--- ---------
</TABLE>
Note 5. Joint Repurchase Agreement Account
The Fund, along with other affiliated registered investment companies, transfers
uninvested cash balances into a single joint account, the daily aggregate
balance of which is invested in one or more repurchase agreements collateralized
by U.S. Treasury or federal agency obligations. At May 31, 1999, the Fund had a
.06% undivided interest in the repurchase agreements in the joint account. The
undivided interest for the Fund represented $424,000 in the principal amount. As
of such date, each repurchase agreement in the joint account and the value of
the collateral therefor were as follows:
Bear, Stearns & Co. Inc., 4.82%, in the principal amount of $200,000,000,
repurchase price $200,107,111, due 6/1/99. The value of the collateral including
accrued interest was $204,177,828.
Credit Suisse First Boston Corp., 4.60%, in the principal amount of $85,711,000,
repurchase price $85,754,808, due 6/1/99. The value of the collateral including
accrued interest was $88,385,257.
Deutsche Bank Securities Inc., 4.83%, in the principal amount of $200,000,000,
repurchase price $200,107,333, due 6/1/99. The value of the collateral including
accrued interest was $204,000,179.
Morgan (J.P.) Securities, Inc., 4.82%, in the principal amount of $200,000,000,
repurchase price $200,107,111, due 6/1/99. The value of the collateral including
accrued interest was $204,000,892.
- ------------------------------------------------------------
Note 6. Capital
The Fund offers Class A, Class B, Class C and Class Z shares. Class A shares are
sold with a front-end sales charge of up to 5%. Class B shares are sold with a
contingent deferred sales charge which declines from 5% to zero depending on the
period of time the shares are held. Class C shares are sold with a front-end
sales charge of 1% and a contingent deferred sales charge of 1% during the first
18 months. Prior to November 2, 1998 Class C shares were 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.
- --------------------------------------------------------------------------------
11
<PAGE>
PRUDENTIAL NATURAL
Notes to Financial Statements RESOURCES FUND, INC.
- --------------------------------------------------------------------------------
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, 1999:
Shares sold........................ 595,520 $ 6,039,951
Shares issued in reinvestment of
distributions.................... 117,039 1,054,518
Shares reacquired.................. (1,206,598) (12,234,768)
---------- ------------
Net decrease in shares outstanding
before conversion................ (494,039) (5,140,299)
Shares issued upon conversion from
Class B.......................... 169,618 1,677,347
---------- ------------
Net decrease in shares
outstanding...................... (324,421) $ (3,462,952)
---------- ------------
---------- ------------
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)
---------- ------------
---------- ------------
<CAPTION>
Class B
- -----------------------------------
<S> <C> <C>
Year ended May 31, 1999:
Shares sold........................ 649,331 $ 6,053,519
Shares issued in reinvestment of
distributions.................... 264,592 2,209,341
Shares reacquired.................. (2,613,295) (24,183,084)
---------- ------------
Net decrease in shares outstanding
before conversion................ (1,699,372) (15,920,224)
Shares reacquired upon conversion
into Class A..................... (182,448) (1,677,347)
---------- ------------
Net decrease in shares
outstanding...................... (1,881,820) $(17,597,571)
---------- ------------
---------- ------------
<CAPTION>
Class B Shares Amount
- ----------------------------------- ---------- ------------
<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)
---------- ------------
---------- ------------
<CAPTION>
Class C
- -----------------------------------
<S> <C> <C>
Year ended May 31, 1999:
Shares sold........................ 52,891 $ 495,995
Shares issued in reinvestment of
distributions.................... 8,206 68,521
Shares reacquired.................. (80,079) (735,284)
---------- ------------
Net decrease in shares
outstanding...................... (18,982) $ (170,768)
---------- ------------
---------- ------------
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)
---------- ------------
---------- ------------
<CAPTION>
Class Z
- -----------------------------------
<S> <C> <C>
Year ended May 31, 1999:
Shares sold........................ 992,042 $ 11,537,220
Shares issued in reinvestment of
distributions.................... 6,482 58,922
Shares reacquired.................. (1,005,635) (11,594,621)
---------- ------------
Net decrease in shares
outstanding...................... (7,111) $ 1,521
---------- ------------
---------- ------------
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)
---------- ------------
---------- ------------
</TABLE>
- --------------------------------------------------------------------------------
12
<PAGE>
PRUDENTIAL NATURAL
Financial Highlights RESOURCES FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
-------------------------------------------------------
Year Ended May 31,
-------------------------------------------------------
1999(a) 1998(a) 1997(a) 1996 1995(a)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year...... $ 11.69 $ 16.27 $ 17.34 $ 13.73 $ 12.55
------- ------- ------- ------- -------
Income from investment operations
Net investment loss..................... (.05) (.08) (.07) (.01) (.03)
Net realized and unrealized gain (loss)
on investment and foreign currency
transactions......................... .20 (2.33) .94 4.42 1.21
------- ------- ------- ------- -------
Total from investment operations..... .15 (2.41) .87 4.41 1.18
------- ------- ------- ------- -------
Less distributions
Distributions from net realized gains on
investment and foreign currency
transactions......................... -- (2.17) (1.94) (.80) --
Distributions in excess of net realized
gains on investment and foreign
currency transactions................ (.51) -- -- -- --
------- ------- ------- ------- -------
Total distributions..................... (.51) (2.17) (1.94) (.80) --
------- ------- ------- ------- -------
Net asset value, end of year............ $ 11.33 $ 11.69 $ 16.27 $ 17.34 $ 13.73
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL RETURN(b):........................ 2.41% (14.41)% 5.37% 33.51% 9.40%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)........... $23,930 $28,491 $47,054 $32,608 $19,682
Average net assets (000)................ $22,683 $37,933 $40,393 $23,106 $10,791
Ratios to average net assets:
Expenses, including distribution
fees.............................. 1.79% 1.55% 1.48% 1.57% 1.73%
Expenses, excluding distribution
fees.............................. 1.54% 1.30% 1.23% 1.32% 1.48%
Net investment loss..................... (.53)% (.54)% (.43)% (.09)% (.25)%
For Class A, B, C and Z shares:
Portfolio turnover...................... 16% 25% 53% 41% 36%
</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 distributions.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 13
<PAGE>
PRUDENTIAL NATURAL
Financial Highlights RESOURCES FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B
---------------------------------------------------------
Year Ended May 31,
---------------------------------------------------------
1999(a) 1998(a) 1997(a) 1996 1995(a)
------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year...... $ 10.92 $ 15.46 $ 16.70 $ 13.35 $ 12.29
------- ------- -------- -------- -------
Income from investment operations
Net investment loss..................... (.12) (.17) (.19) (.10) (.13)
Net realized and unrealized gain (loss)
on investment and foreign currency
transactions......................... .17 (2.20) .89 4.25 1.19
------- ------- -------- -------- -------
Total from investment operations..... .05 (2.37) .70 4.15 1.06
------- ------- -------- -------- -------
Less distributions
Distributions from net realized gains on
investment and foreign currency
transactions......................... -- (2.17) (1.94) (.80) --
Distributions in excess of net realized
gains on investment and foreign
currency transactions................ (.51) -- -- -- --
------- ------- -------- -------- -------
Total distributions..................... (.51) (2.17) (1.94) (.80) --
------- ------- -------- -------- -------
Net asset value, end of year............ $ 10.46 $ 10.92 $ 15.46 $ 16.70 $ 13.35
------- ------- -------- -------- -------
------- ------- -------- -------- -------
TOTAL RETURN(b):........................ 1.64% (14.96)% 4.51% 32.49% 8.62%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000)........... $44,533 $67,029 $111,464 $113,090 $80,774
Average net assets (000)................ $48,644 $86,864 $107,361 $ 84,396 $74,681
Ratios to average net assets:
Expenses, including distribution
fees.............................. 2.54% 2.30% 2.23% 2.32% 2.48%
Expenses, excluding distribution
fees.............................. 1.54% 1.30% 1.23% 1.32% 1.48%
Net investment loss..................... (1.28)% (1.28)% (1.18)% (.84)% (1.05)%
</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 distributions.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 14
<PAGE>
PRUDENTIAL NATURAL
Financial Highlights RESOURCES FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class C Class Z
---------------------------------------------------------- ----------------------
August 1,
1994(d)
Year Ended May 31, Through Year Ended May 31,
------------------------------------------- May 31, ----------------------
1999(a) 1998(a) 1997(a) 1996 1995(a) 1999(a) 1998(a)
------- ------- ------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $10.92 $15.46 $16.70 $13.35 $12.47 $11.76 $16.30
------- ------- ------- ------- ----- ------- -----
Income from investment operations
Net investment loss..................... (.12 ) (.18 ) (.19 ) (.10 ) (.13) (.03 ) (.05)
Net realized and unrealized gain (loss)
on investment and foreign currency
transactions......................... .17 (2.19 ) .89 4.25 1.01 .20 (2.32)
------- ------- ------- ------- ----- ------- -----
Total from investment operations..... .05 (2.37 ) .70 4.15 .88 .17 (2.37)
------- ------- ------- ------- ----- ------- -----
Less distributions
Distributions from net realized gains on
investment and foreign currency
transactions......................... -- (2.17 ) (1.94 ) (.80 ) -- -- (2.17)
Distributions in excess of net realized
gains on investment and foreign
currency transactions................ (.51 ) -- -- -- -- (.51 ) --
------- ------- ------- ------- ----- ------- -----
Total distributions..................... (.51 ) (2.17 ) (1.94 ) (.80 ) -- (.51 ) (2.17)
------- ------- ------- ------- ----- ------- -----
Net asset value, end of period.......... $10.46 $10.92 $15.46 $16.70 $13.35 $11.42 $11.76
------- ------- ------- ------- ----- ------- -----
------- ------- ------- ------- ----- ------- -----
TOTAL RETURN(b):........................ 1.64% (14.96)% 4.51% 32.49 % 7.06% 2.56% (14.12)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)......... $1,568 $1,844 $2,542 $1,551 $606 $1,630 $1,761
Average net assets (000)................ $1,490 $2,060 $2,041 $734 $294 $1,381 $2,581
Ratios to average net assets:
Expenses, including distribution
fees.............................. 2.54% 2.30% 2.23% 2.32% 2.56%(c) 1.54% 1.30%
Expenses, excluding distribution
fees.............................. 1.54% 1.30% 1.23% 1.32% 1.56%(c) 1.54% 1.30%
Net investment loss..................... (1.28)% (1.35)% (1.18)% (.84 )% (1.08)%(c) (.30)% (.33)%
<CAPTION>
<S> <C>
September 16,
1996(e)
Through
May 31,
1997(a)
-------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.... $ 17.08
-----
Income from investment operations
Net investment loss..................... (.03)
Net realized and unrealized gain (loss)
on investment and foreign currency
transactions......................... 1.19
-----
Total from investment operations..... 1.16
-----
Less distributions
Distributions from net realized gains on
investment and foreign currency
transactions......................... (1.94)
Distributions in excess of net realized
gains on investment and foreign
currency transactions................ --
-----
Total distributions..................... (1.94)
-----
Net asset value, end of period.......... $ 16.30
-----
-----
TOTAL RETURN(b):........................ 7.17%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)......... $ 3,140
Average net assets (000)................ $ 994
Ratios to average net assets:
Expenses, including distribution
fees.............................. 1.23%(c)
Expenses, excluding distribution
fees.............................. 1.23%(c)
Net investment loss..................... (.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 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, 1999, 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,
1999 by correspondence with the custodian, provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
July 20, 1999
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, 1999) 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, 1999, the Fund paid a short-term capital
gain distribution of $0.125, which is taxable as ordinary income and a long-term
capital gain distribution of $0.385, which is taxable at a 20% rate gain. The
Fund utilized redemptions as distributions in the amount of $0.024 and $0.105
per Class A, Class B, Class C and Class Z shares of short-term capital gains and
long-term capital gains, respectively. Further, we wish to advise you that 0% of
the ordinary income dividends paid in the fiscal year ended May 31, 1999
qualified for the corporate dividends received deduction available to corporate
taxpayers.
In January 2000, 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 1999. 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, 1999.
- --------------------------------------------------------------------------------
16
<PAGE>
Getting The Most From Your Prudential Mutual Fund
When you invest through Prudential Mutual Funds, you receive financial
advice from a Prudential Securities financial advisor or
Prudential/Pruco Securities registered representative. Your
advisor or representative can provide you with the following
services:
There's No Reward Without Risk; but Is This Risk Worth it?
Your financial advisor or registered representative can help you
match the reward you seek with the risk you can tolerate. Risk can
be difficult to gauge--sometimes even the simplest investments bear
surprising risks. The educated investor knows that
markets seldom move in just one direction. There are times when a
market sector or asset class will lose value or provide little in
the way of total return. Managing your own expectations is easier
with help from someone who under-stands the markets
and who knows you!
Keeping Up With the Joneses
A financial advisor or registered representative can help you wade
through the numerous available mutual funds to find the ones that
fit your own individual investment profile and risk tolerance.
While the newspapers and popular magazines are full
of advice about investing, they are aimed at generic groups of
people or representative individuals--not at you personally. Your
financial advisor or registered representative will review your
investment objectives with you. This means you can make
financial decisions based on the assets and liabilities in your
current portfolio and your risk tolerance--not just based on the
current investment fad.
Buy Low, Sell High
Buying at the top of a market cycle and selling at the bottom are
among the most common investor mistakes. But, sometimes it's difficult
to hold on to an investment when it's losing value every month. Your
financial advisor or registered representative can answer questions
when you're confused or worried about your investment, and should
remind you that you're investing for the long haul.
<PAGE>
Getting The Most From Your Prudential Mutual Fund
Some mutual fund shareholders won't ever read this--they don't
read annual and semiannual reports. It's quite understandable.
These annual and semi-annual reports are prepared to comply with
federal regulations, and are often written in language that
is difficult to understand. So, when most people run into those
particularly daunting sections of these reports, they don't read
them.
We think that's a mistake.
At Prudential Mutual Funds, we've made some changes to our report
to make it easier to understand and more pleasant to read. We hope
you'll find it profitable to spend a few minutes familiarizing
yourself with your investment. Here's what you'll
find in the report:
Performance at a Glance
Since an investment's performance is often a shareholder's primary
concern, we present performance information in two different formats.
You'll find it first on the "Performance at a Glance" page where we
compare the Fund and the comparable average calculated by Lipper,
Inc., a nationally recognized mutual fund rating agency. We report
both the cumulative total returns and the average annual total
returns. The cumulative total return is the total amount of
income and appreciation the Fund has achieved in various time
periods. The average annual total return is an annualized
representation of the Fund's performance. It gives you an
idea of how much the Fund has earned in an average year for
a given time period. Under the performance box,
you'll see legends that explain the performance information,
whether fees and sales charges have been included in returns,
and the inception dates for the Fund's share classes.
See the performance comparison charts at the back of the report
for more performance information. Please keep in mind that past
performance is not indicative of future results.
Portfolio Manager's Report
The portfolio manager who invests your money for you reports on
successful--and not-so-successful--strategies in this section
of your report. Look for recent purchases and sales here, as
well as information about the sectors the portfolio manager
favors, and any changes that are on the drawing board.
Portfolio of Investments
This is where the report begins to appear technical, but it's
really just a listing of each security held at the end of the
reporting period, along with valuations and other information.
Please note that sometimes we discuss a security in the
Portfolio Manager's Report that doesn't appear in this listing
because it was sold before the close of the reporting period.
<PAGE>
Statement of Assets and Liabilities
The balance sheet shows the assets (the value of the Fund's
holdings), liabilities (how much the Fund owes), and net assets
(the Fund's equity, or holdings after the Fund pays its debts)
as of the end of the reporting period. It also shows how we
calculate the net asset value per share for each class of shares.
The net asset value is reduced by payment of your dividend, capital
gain, or other distribution, but remember that the money or new
shares are being paid or issued to you. The net
asset value fluctuates daily, along with the value of every
security in the portfolio.
Statement of Operations
This is the income statement, which details income (mostly
interest and dividends earned) and expenses (including what
you pay us to manage your money). You'll also see capital
gains here--both realized and unrealized.
Statement of Changes in Net Assets
This schedule shows how income and expenses translate into
changes in net assets. The Fund is required to pay out the
bulk of its income to shareholders every year, and this
statement shows you how we do it--through dividends and
distributions--and how that affects the net assets. This
statement also shows how money from investors flowed into
and out of the Fund.
Notes to Financial Statements
This is the kind of technical material that can intimidate
readers, but it does contain useful information. The Notes
provide a brief history and explanation of your Fund's
objectives. In addition, they outline how Prudential Mutual
Funds prices securities. The Notes also explain who manages
and distributes the Fund's shares and, more importantly, how
much they are paid for doing so. Finally, the Notes explain
how many shares are outstanding and the number issued and
redeemed over the period.
Financial Highlights
This information contains many elements from prior pages,
but on a per-share basis. It is designed to help you understand
how the Fund performed, and to compare this year's performance
and expenses to those of prior years.
Independent Auditor's Report
Once a year, an outside auditor looks over our books and
certifies that the information is fairly presented and
complies with generally accepted accounting principles.
Tax Information
This is information which we report annually about how much
of your total return is taxable. Should you have any questions,
you may want to consult a tax adviser.
Performance Comparison
These charts are included in the annual report and are required
by the Securities Exchange Commission. Performance is presented
here as a hypothetical $10,000 investment in the Fund since its
inception or for 10 years (whichever is shorter). To help
you put that return in context, we are required to include the
performance of an unmanaged, broad-based securities index as
well. The index does not reflect the cost of buying the
securities it contains or the cost of managing a mutual fund. Of
course, the index holdings do not mirror those of the
fund--the index is a broad-based reference point commonly
used by investors to measure how well they are doing. A
definition of the selected index is also provided. Investors
cannot invest directly in an index.
<PAGE>
Comparing a $10,000 Investment
- --------------------------------------------------------------
Prudential Natural Resources Fund, Inc. vs. the Morgan Stanley
Capital International World Index
Class A
(GRAPH)
Average Annual Total Returns
With Sales Load
Since Inception 4.90%
Five Years 5.09%
One Year -2.71%
Without Sales Load
Since Inception 5.47%
Five Years 6.17%
One Year 2.41%
Class B
(GRAPH)
Average Annual Total Returns
With Sales Load
Since Inception 4.84%
Ten Years 5.79%
Five Years 5.22%
One Year -3.36%
Without Sales Load
Since Inception 4.84%
Ten Years 5.79%
Five Years 5.39%
One Year 1.64%
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 lines beneath 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 the inception of each share class.
These graphs compare a $10,000 investment in the Prudential Natural
Resources Fund, Inc. (Class A, B, C, and Z shares) with a similar
investment in the Morgan Stanley Capital International World Index
(the MSCI World Index) by portraying the account
values at the commencement of operations of Class A, C, and Z
shares, at the beginning of the ten-year period for Class B
shares, and at the end of the fiscal year (May 31), as measured
on a quarterly basis, beginning in 1990 for Class A, 1989 for
Class B, 1994 for Class C, and 1996 for Class Z shares. For
purposes of the graphs, and unless otherwise indicated, it
has been assumed that (a) the maximum applicable front-end
sales charge was deducted from the initial $10,000 investment in Class
A and Class C shares; (b) the maximum applicable contingent
deferred sales charges were deducted from the value of the
investment in Class B and Class C shares, assuming full
redemption on May 31, 1999; (c) all recurring fees (including
management fees) were deducted; and (d) all dividends and
distributions were reinvested.
<PAGE>
Class C
(GRAPH)
Average Annual Total Returns
With Sales Load
Since Inception 5.05%
One Year -0.38%
Without Sales Load
Since Inception 5.27%
One Year 1.64%
Class Z
(GRAPH)
Average Annual Total Returns
Since Inception -2.11%
One Year 2.56%
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 graphs. Class Z
shares are not subject to a sales charge or distribution and
service (12b-1) fee.
The MSCI World Index is a weighted index comprising approximately
1,500 companies listed on the stock exchanges of the United States,
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 MSCI World
Index. The MSCI World Index is unmanaged, and the total return
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 MSCI World Index may differ substantially from the securities
in the Fund. The MSCI World Index is not the only index that
may be used to characterize performance of global equity funds.
Other indexes may portray different comparative performance.
Investors cannot invest directly in an index.
These graphs are furnished to you in accordance with SEC regulations.
<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
Delayne Dedrick Gold
Robert F. Gunia
Don G. Hoff
Robert E. LaBlanc
Robin B. Smith
Stephen Stoneburn
John R. Strangfeld
Nancy H. Teeters
Officers
John R. Strangfeld, President
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
Robert C. Rosselot, Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Investment Adviser
The Prudential Investment Corporation
Prudential Plaza
Newark, NJ 07102-3777
Distributor
Prudential Investment Management Services LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
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.
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